424B1: Prospectus filed pursuant to Rule 424(b)(1)
Published on August 1, 1997
RULE NO. 424(b)(1)
REGISTRATION NO. 333-30729
RENAISSANCERE CAPITAL TRUST
OFFER TO EXCHANGE ITS
8.54% SERIES B CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FOR ANY AND ALL OF ITS OUTSTANDING
8.54% SERIES A CAPITAL SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, TO THE EXTENT DESCRIBED HEREIN,
BY
RENAISSANCERE HOLDINGS LTD.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON SEPTEMBER 1, 1997, UNLESS EXTENDED
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RenaissanceRe Capital Trust, 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 $100,000,000 aggregate Liquidation Amount of its
8.54% Series B Capital Securities (the "New Capital Securities") which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to the Registration Statement (as defined herein) of which
this Prospectus constitutes a part, for a like Liquidation Amount of its
outstanding 8.54% Series A Capital Securities (the "Old Capital Securities"),
of which $100,000,000 aggregate Liquidation Amount is outstanding. Pursuant to
the Exchange Offer, RenaissanceRe Holdings Ltd., a Bermuda company and sponsor
of the Trust (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 (the "Old Guarantee") for a like
guarantee in respect of the New Capital Securities (the "New Guarantee") and
(ii) all of its 8.54% Junior Subordinated Deferrable Interest Debentures,
Series A due March 1, 2027 (the "Old Junior Subordinated Debentures") for a
like aggregate principal amount of its 8.54% Junior Subordinated Deferrable
Interest Debentures, Series B due March 1, 2027 (the "New Junior Subordinated
Debentures"), which New Guarantee and New Junior Subordinated Debentures also
have been registered under the Securities Act. The Old Capital Securities, the
Old Guarantee and the Old Junior Subordinated Debentures are collectively
referred to herein as the "Old Securities" and the New Capital Securities, the
New Guarantee and the New Junior Subordinated Debentures are collectively
referred to herein as the "New Securities."
The terms of the New Securities are identical in all material respects to
the respective terms of the Old Securities, except that (i) the New Securities
have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer applicable to the Old Securities,
(ii) the New Capital Securities will not contain the $100,000 minimum
Liquidation Amount transfer restriction, (iii) the New Capital Securities will
not provide for any increase in the Distribution (as defined herein) rate
thereon, (iv) the New Junior Subordinated Debentures will not contain the
$100,000 minimum principal amount transfer restriction and (v) the New Junior
Subordinated Debentures will not provide for any increase in the interest rate
thereon. See "Description of New Securities" and "Description of Old Capital
Securities" herein. The New Capital Securities are being offered for exchange
in order to satisfy certain obligations of the Company and the Trust under a
registration rights agreement, dated as of March 7, 1997 (the "Registration
Rights Agreement"), among the Company, the Trust and the Initial Purchasers
(as defined herein). In the event that the Exchange Offer is consummated, any
Old Capital Securities which remain outstanding after consummation of the
Exchange Offer and the New Capital Securities issued in the Exchange Offer
will vote together as a single class for purposes of determining whether
holders of the requisite percentage in outstanding Liquidation Amount thereof
have taken certain actions or exercised certain rights under the Trust
Agreement (as defined herein).
(Continued on the following page)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Old Capital Securities on or about July 31, 1997.
SEE "RISK FACTORS" COMMENCING ON PAGE 19 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 COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 31, 1997.
The New Capital Securities and the Old Capital Securities represent
beneficial interests in the assets of the Trust. The Company is the owner of
all of the beneficial interests represented by common securities of the Trust
(the "Common Securities"). The Bank of New York is the Property Trustee of the
Trust. The Trust exists for the exclusive purpose of issuing the Trust
Securities, investing the proceeds thereof in the Junior Subordinated
Debentures (as defined herein) and engaging in only those other activities
incidental thereto. The Junior Subordinated Debentures will mature on March 1,
2027 (the "Stated Maturity Date"). The Capital Securities will have a
preference over the Common Securities under certain circumstances with respect
to cash distributions and amounts payable on liquidation, redemption or
otherwise. See "Description of New Securities--Description of New Capital
Securities--Subordination of Common Securities."
As more fully described herein, the Company 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 the distributions with respect to the Capital
Securities, 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; Direct Action For Payment." Those contractual
arrangements include the Company's obligations under (i) the Guarantee, (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 March 7, 1997, as amended and supplemented from time to time, between the
Company and The Bank of New York, as Debenture Trustee (the "Debenture
Trustee"), (ii) the "Trust Agreement" means the Amended and Restated
Declaration of Trust relating to the Trust, dated as of March 7, 1997, among
the Company, as Sponsor, The Bank of New York as Property Trustee (the
"Property Trustee"), The Bank of New York (Delaware), as Delaware Trustee (the
"Delaware Trustee"), and the Administrative Trustees named therein
(collectively, with the Property Trustee and the Delaware Trustee, the "Issuer
Trustees"). In addition, as the context may require, unless otherwise
expressly stated, (i) the term "Capital Securities" includes the Old Capital
Securities and the New Capital Securities, (ii) the term "Trust Securities"
includes the Capital Securities and the Common Securities, (iii) the term
"Junior Subordinated Debentures" includes the Old Junior Subordinated
Debentures and the New Junior Subordinated Debentures and (iv) the term
"Guarantee" includes the Old Guarantee and the New Guarantee.
Holders of the New Capital Securities will be entitled to receive cumulative
cash distributions arising from the payment of interest on the Junior
Subordinated Debentures accruing from March 7, 1997 and payable semi-annually
in arrears on March 1 and September 1 of each year, commencing September 1,
1997, at the annual rate of 8.54% of the Liquidation Amount of $1,000 per New
Capital Security ("Distributions"). So long as no Debenture Event of Default
(as defined herein) shall have occurred and be 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 ten
consecutive semi-annual periods with respect to each deferral period (each, an
"Extension Period"), provided that (i) no Extension Period may extend beyond
the Stated Maturity Date (as defined herein), (ii) any Extension Period will
terminate as to all Junior Subordinated Debentures upon an acceleration
thereof (subject to reinstatement, upon cure or waiver as provided in the
Indenture) and (iii) any Extension Period will terminate as to any Junior
Subordinated Debenture to be redeemed on the applicable Redemption Date. See
"Description of New Securities--Description of Junior Subordinated
Debentures--Debenture Events of Default." 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 shares or to make any payment with
respect to debt securities of the Company that rank pari passu with or junior
to the Junior Subordinated Debentures. During an Extension Period, interest on
the Junior Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Trust Securities are entitled will
accumulate) at the rate of 8.54% per annum, compounded semi-annually, and
holders of Trust Securities will be required to accrue interest income for
United States federal income tax purposes. See "Description of New
Securities--Description of New Junior Subordinated Debentures--Option to
Extend
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Interest Payment Date" and "Certain United States Federal Income Tax
Considerations--Interest Income and Original Issue Discount."
Through the 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 Capital Securities. See "Relationship
Among the New Capital Securities, the Trust Agreement, the New Junior
Subordinated Debentures and the New Guarantee--Full and Unconditional
Guarantee." The Old Guarantee guarantees, and the New Guarantee will
guarantee, payments of Distributions and payments on liquidation or redemption
of the Capital Securities, but in each case only to the extent that the Trust
holds funds on hand legally available therefor and has failed to make such
payments, as described herein. See "Description of New Securities--Description
of New Guarantee." If the Company fails to make a required payment on the
Junior Subordinated Debentures, the Trust will not have sufficient funds to
make the related payments, including Distributions, on the Capital Securities.
The 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
New Securities--Description of New Junior Subordinated Debentures--Enforcement
of Certain Rights By Holders of New Capital Securities." The obligations of
the Company under the Guarantee and the Junior Subordinated Debentures will be
subordinate and junior in right of payment to all Senior Indebtedness (as
defined in "Description of New Securities--Description of New Junior
Subordinated Debentures--Subordination"), which aggregated approximately $50.1
million as of June 30, 1997.
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 March 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), and (iii) in whole or in part, on or after March 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). Any of the Maturity Redemption Price, the
Special Event Redemption Price and the Optional Redemption Price may be
referred to herein as the "Redemption Price." See "Description of New
Securities--Description of New Capital Securities--Redemption."
The Junior Subordinated Debentures will be prepayable prior to the Stated
Maturity Date at the option of the Company (i) on or after March 1, 2007, in
whole or in part, at a prepayment price (the "Optional Prepayment Price")
equal to 104.270% of the principal amount, plus accrued interest thereon,
declining ratably on each March 1 thereafter to 100% on or after March 1,
2017, plus accrued interest thereon to the date of prepayment, or (ii) at any
time prior to March 1, 2007, in whole but not in part, upon the occurrence and
continuation of a Special Event, at a prepayment price (the "Special Event
Prepayment Price") equal to the greater of (a) 100% of the principal amount
thereof or (b) the sum, as determined by a Quotation Agent (as defined
herein), of the present values of the principal amount and premium payable as
part of the prepayment price with respect to an optional prepayment of such
Junior Subordinated Debentures on March 1, 2007, together with scheduled
payments of interest accruing from the prepayment date to March 1, 2007, in
each case, 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 and unpaid interest
thereon to the date of prepayment. Either of the Optional Prepayment Price or
the Special Event Prepayment Price may be referred to herein as the
"Prepayment Price." See "Description of New Securities--Description of New
Junior Subordinated Debentures--Optional Prepayment" and "--Special Event
Prepayment."
The Company will have the right at any time to dissolve 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
rights of creditors and the Company having received an opinion of counsel to
the effect that such
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distribution would 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 and unpaid Distributions thereon to the date of
payment. See "Description of New Securities--Description of New Capital
Securities--Liquidation of the Trust and Distribution of Junior Subordinated
Debentures."
The Trust is making the Exchange Offer of the New Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance
(the "Staff") of the Securities and Exchange Commission (the "Commission") as
set forth in certain interpretive letters addressed to third parties in other
transactions. However, neither the Company nor the Trust has sought its own
interpretive letter and there can be no assurance that the Staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
Staff, and subject to the two immediately following sentences, the Company and
the Trust believe that New Capital Securities issued pursuant to this Exchange
Offer in exchange for Old Capital Securities may be offered for resale, resold
and otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Capital
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Capital Securities. However, any holder of Old
Capital Securities who is an "affiliate" of the Company (within the meaning of
Rule 405 under the Securities Act) or the Trust or who intends to participate
in the Exchange Offer for the purpose of distributing New Capital Securities,
or any broker-dealer who purchased Old Capital Securities from the Trust to
resell pursuant to Rule 144A under the Securities Act ("Rule 144A") or any
other available exemption under the Securities Act, (a) will not be able to
rely on the interpretations of the Staff set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Capital Securities in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Capital
Securities acquired for its own account as a result of market-making or other
trading activities and exchanges such Old Capital Securities for New Capital
Securities, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required
to represent that (i) it is not an affiliate of the Company or the Trust, (ii)
any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New
Capital Securities. In addition, the Company and the Trust may require such
holder, as a condition to such holder's eligibility to participate in the
Exchange Offer, to furnish to the Company and the Trust (or an agent thereof)
in writing information as to the number of "beneficial owners" (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) on behalf of whom such holder holds the Capital
Securities to be exchanged in the Exchange Offer. Each broker-dealer that
receives New Capital Securities for its own account pursuant to the Exchange
Offer must acknowledge that it acquired the Old Capital Securities for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Capital
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the Staff of the Commission in the interpretive letters
referred to above, the Company and the Trust believe that broker-dealers
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who acquired Old Capital Securities for their own accounts, as a result of
market-making activities or other trading activities ("Participating Broker-
Dealers"), may fulfill their prospectus delivery requirements with respect to
the New Capital Securities received upon exchange of such Old Capital
Securities (other than Old Capital Securities which represent an unsold
allotment from the original sale of the Old Capital Securities) with a
prospectus meeting the requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of such New Capital
Securities. Accordingly, this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer during the
period referred to below in connection with resales of New Capital Securities
received in exchange for Old Capital Securities where such Old Capital
Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of such New Capital Securities for a period of not
more than 180 days after the Expiration Date (as defined herein) (subject to
extension under certain limited circumstances described below) or, if earlier,
when all such New Capital Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Capital Securities received in exchange for Old Capital
Securities pursuant to the Exchange Offer must notify the Company or the
Trust, or cause the Company or the Trust to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or
may be delivered to the Exchange Agent at one of the addresses set forth
herein under "The Exchange Offer--Exchange Agent." Any Participating Broker-
Dealer who is an affiliate of the Company or the Trust may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of New Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of notice from the
Company or the Trust of the occurrence of any event or the discovery of any
fact which makes any statement contained or incorporated by reference in this
Prospectus untrue in any material respect or which causes this Prospectus to
omit to state a material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the circumstances
under which they were made, not misleading or of the occurrence of certain
other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of New Capital Securities
(or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) pursuant to this Prospectus until the Company or the Trust has
amended or supplemented this Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemented Prospectus to
such Participating Broker-Dealer or the Company or the Trust has given notice
that the sale of the New Capital Securities (or the New Guarantee or the New
Junior Subordinated Debentures, as applicable) may be resumed, as the case may
be. If the Company or the Trust gives such notice to suspend the sale of the
New Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable), it shall extend the 180 day period referred to
above during which Participating Broker-Dealers are entitled to use this
Prospectus in connection with the resale of New Capital Securities by the
number of days during the period from and including the date of the giving of
such notice to and including the date when Participating Broker-Dealers shall
have received copies of the amended or supplemented Prospectus necessary to
permit resales of the New Capital Securities or to and including the date on
which the Company or the Trust has given notice that the sale of New Capital
Securities (or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital
Securities will be a new issue of securities for which there currently is no
market. Although the Initial Purchasers have informed the Company and the
Trust that they each currently intend to make a market in the New Capital
Securities, they are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no
assurance as to the
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development or liquidity of any market for the New Capital Securities. The
Company and the Trust do not intend to apply for listing of the New Capital
Securities on any securities exchange or for inclusion of the Capital
Securities on any automated quotation system.
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 which terminate upon consummation of the
Exchange Offer). Following consummation of the Exchange Offer, the holders of
Old Capital Securities will continue to be subject to all of the existing
restrictions upon transfer thereof and neither the Company nor the Trust will
have any further obligation to such holders (other than under certain limited
circumstances) to provide for registration under the Securities Act of the Old
Capital Securities held by them. To the extent that Old Capital Securities are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Old Capital Securities following the consummation of the Exchange
Offer 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 September 1, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by the Company or the Trust (in which case the term "Expiration Date"
shall mean the latest date and time to which the Exchange Offer is extended).
Tenders of Old Capital Securities may be withdrawn at any time on or prior to
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered for exchange.
However, the Exchange Offer is subject to certain events and conditions which
may be waived by the Company or the Trust and to the terms and provisions of
the Registration Rights Agreement. Old Capital Securities may be tendered in
whole or in part having an aggregate Liquidation Amount of not less than
$100,000 (100 Capital Securities) or any integral multiple of $1,000
Liquidation Amount (one Capital Security) in excess thereof. The Company will
pay all fees, expenses, debts and obligations (other than the Trust
Securities) related to the Trust and the offering and exchange of the Capital
Securities and will pay, directly or indirectly, all ongoing costs, expenses
and liabilities of the Trust. See "The Exchange Offer--Fees and Expenses."
Holders of the 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 after March
7, 1997. See "The Exchange Offer--Distributions on New Capital Securities."
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
The permission of the Bermuda Monetary Authority ("BMA") has been obtained
for the issue of the Junior Subordinated Debentures. Approvals or permissions
received from the BMA do not constitute a guarantee by the BMA as to the
performance of the issue or creditworthiness of the Company. Furthermore, in
giving such approvals or permissions, the BMA shall not be liable for the
performance or default of the issue for the correctness of any opinions or
statements expressed. In addition, a copy of this Prospectus has been
delivered to the Registrar of Companies in Bermuda for filing pursuant to the
Companies Act 1981 of Bermuda. In accepting this Prospectus for filing, the
Registrar of Companies in Bermuda accepts no responsibility for the financial
soundness of any proposal or for the correctness of any of the statements made
or opinions expressed with regard to them.
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NO EMPLOYEE BENEFIT PLAN OR OTHER PLAN OR INDIVIDUAL RETIREMENT ACCOUNT
SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS
AMENDED ("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE") (EACH, A "PLAN"), NO ENTITY WHOSE UNDERLYING ASSETS
INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY"), AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN, MAY
ACQUIRE OR HOLD THE CAPITAL SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH
PURCHASE AND HOLDING IS COVERED BY THE EXEMPTIVE RELIEF PROVIDED BY U.S.
DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23, 95-
60, 91-38, 90-1 OR 84- 14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH
PURCHASE AND HOLDING AND, IN THE CASE OF ANY PURCHASER OR HOLDER RELYING ON
ANY EXEMPTION OTHER THAN PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14, SUCH
PURCHASER HAS COMPLIED WITH ANY REQUEST BY THE COMPANY OR THE TRUST FOR AN
OPINION OF COUNSEL OR OTHER EVIDENCE WITH RESPECT TO THE APPLICABILITY OF SUCH
EXEMPTION. ANY PURCHASER OR HOLDER OF THE CAPITAL SECURITIES OR ANY INTEREST
THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND/OR HOLDING
THEREOF THAT EITHER (A) THE PURCHASER AND HOLDER ARE NOT PLANS OR PLAN ASSET
ENTITIES AND ARE NOT PURCHASING SUCH SECURITIES ON BEHALF OF OR WITH "PLAN
ASSETS" OF ANY PLAN OR (B) THE PURCHASE AND HOLDING OF THE CAPITAL SECURITIES
IS COVERED BY THE EXEMPTIVE RELIEF PROVIDED BY PTCE 96-23, 95-60, 91-38, 90-1
OR 84-14 OR ANOTHER APPLICABLE EXEMPTION. PROSPECTIVE PURCHASERS MUST
CAREFULLY CONSIDER THE RESTRICTIONS ON PURCHASE SET FORTH IN "NOTICE TO
INVESTORS" AND "CERTAIN ERISA CONSIDERATIONS."
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 THE EXCHANGE
OFFER COVERED BY THIS PROSPECTUS. 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 FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------
7
TABLE OF CONTENTS
8
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies
of such material can also be obtained at prescribed rates by writing to the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such information may also be accessed electronically
by means of the Commission's home page on the Internet (http://www.sec.gov.).
In addition, such reports, proxy statements and other information concerning
the Company may be inspected at the offices of The New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, on which the common shares of
the Company (the "Common Shares") are listed.
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, and selling the Trust Securities and engaging in incidental
activities. See "RenaissanceRe Capital Trust" and "Description of New
Securities." In addition, the Company does not expect that the Trust will file
reports, proxy statements and other information under the Exchange Act with
the Commission.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company and the Trust with the
Commission under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission,
and reference is hereby made to the Registration Statement and to the exhibits
and schedules relating thereto for further information with respect to the
Company, the Trust and the New Capital 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.
ENFORCEABILITY OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
The Company is organized pursuant to the laws of Bermuda. In addition,
certain of the directors and officers of the Company, as well as certain of
the experts named herein, reside outside the United States, and all or a
substantial portion of their assets and the assets of the Company are located
outside the United States. As a result, it may be difficult for investors to
effect service of process within the United States upon such persons or to
realize against them in courts of the United States upon judgments of courts
of the United States predicated upon civil liabilities under the United States
federal securities laws.
The Company has been advised by its Bermuda counsel, Conyers, Dill &
Pearman, that the United States and Bermuda do not currently have a treaty
providing for reciprocal recognition and enforcement of judgments in civil and
commercial matters and that there is doubt (a) whether a final judgment for
the payment of money rendered by a federal or state court in the United States
based on civil liability, whether or not predicated solely upon the civil
liability provisions of the United States federal securities laws, would be
enforceable in Bermuda against the Company or the Company's officers and
directors and (b) whether an action could be brought in Bermuda against the
Company or the Company's officers and directors in the first instance on the
basis of liability predicated solely upon the provisions of the United States
federal securities laws. A Bermuda court may, however, impose civil liability
on the Company or its directors or officers in a suit brought in the Supreme
Court
9
of Bermuda against the Company or such persons, provided that the facts
alleged constitute or give rise to a cause of action under Bermuda law.
Certain remedies available under the laws of U.S. jurisdictions, including
certain remedies under the United States federal securities laws, would not be
allowed in Bermuda courts as contrary to public policy.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE, WITHOUT CHARGE,
UPON REQUEST FROM THE PERSON SPECIFIED BELOW. IN ORDER TO INSURE TIMELY
DELIVERY OF SUCH DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE AT LEAST FIVE
BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE EXCHANGE OFFER.
The following documents filed by the Company with the Commission (Exchange
Act File No. 34-0-26512) are incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1996 (the "1996 Form 10-K");
2. The information which appears under the captions "Executive Officer
and Director Compensation," "Security Ownership of Certain Beneficial
Owners, Management and Directors" and "Certain Relationships and Related
Transactions" in the Company's Proxy Statement on Schedule 14A relating to
the Annual General Meeting of Shareholders held on May 8, 1997;
3. The Company's Quarterly Report on Form 10-Q/A for the Quarter Ended
March 31, 1997 (the "March 1997 10-Q"); and
4. The Company's Current Reports on Form 8-K filed with the Commission on
January 7, 1997, February 20, 1997, March 19, 1997, May 23, 1997 and July
11, 1997.
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 New Securities offered hereby pursuant to
the Exchange Offer 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. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein do not purport to be
complete, and where reference is made to the particular provisions of such
contract or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other document. The
Company will provide without charge to any person to whom a copy of 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:
RenaissanceRe Holdings Ltd., Renaissance House, 8-12 East Broadway, Pembroke
HM 19 Bermuda, telephone (441) 295-4513, Attention: Secretary.
10
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information (including financial
information) included elsewhere in this Prospectus, or incorporated by
reference herein. Unless the context requires otherwise, references herein to
"the Company" are to RenaissanceRe Holdings Ltd. and its subsidiaries. This
Prospectus contains forward-looking statements which involve certain material
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in such forward-looking statements. The words
"believes," "anticipated," "expects" and similar expressions are intended to
identify forward-looking statements. See "RenaissanceRe Holdings Ltd." and
"Risk Factors--Volatility of Financial Results."
RENAISSANCERE HOLDINGS LTD.
RenaissanceRe Holdings Ltd. is a Bermuda company with its registered and
principal executive offices located at Renaissance House, 8-12 East Broadway,
Pembroke HM 19 Bermuda, telephone (441) 295-4513. The Company was formed in
June 1993 and is the parent of Renaissance Reinsurance Ltd., a Bermuda company
and a wholly-owned subsidiary ("Renaissance Reinsurance"), and Glencoe
Insurance Ltd., a Bermuda company and a majority-owned subsidiary ("Glencoe").
The Company was founded by Warburg, Pincus Investors, L.P. ("WPI"), GE
Investment Private Placement Partners I, Limited Partnership ("GEIPPI"),
Trustees of General Electric Pension Trust ("GEPT") and United States Fidelity
and Guaranty Company ("USF&G") (collectively, the "Founding Institutional
Investors"). As of July 15, 1997, WPI, USF&G and certain affiliates of GEPT and
GEIPPI owned an aggregate of approximately 54.4% of the Company's outstanding
equity.
The Company's principal business is property catastrophe reinsurance, written
on a worldwide basis through Renaissance Reinsurance. Based on gross premiums
written, the Company is the largest Bermuda-based provider of property
catastrophe reinsurance and one of the largest providers of this coverage in
the world. The Company provides property catastrophe reinsurance coverage to
insurance companies and other reinsurers primarily on an excess of loss basis.
Excess of loss catastrophe coverage generally provides coverage for claims
arising from large natural catastrophes such as earthquakes and hurricanes in
excess of a specified loss. The Company is also exposed to claims arising from
other natural and man-made catastrophes such as winter storms, freezes, floods,
fires and tornadoes in connection with the coverages it provides.
The Company's principal operating objective is to utilize its capital
efficiently by focusing on the writing of property catastrophe insurance and
reinsurance contracts with superior risk/return characteristics, while
maintaining a low cost operating structure in the favorable regulatory and tax
environment of Bermuda. The Company's primary underwriting goal is to construct
a portfolio of insurance and reinsurance contracts that maximizes the return on
shareholders' equity subject to prudent risk constraints. The Company seeks to
moderate the volatility inherent in the property catastrophe market through the
use of contract terms, portfolio selection methodology, diversification
criteria and probability analyses its risks through a variety of means,
including the use of contract terms, portfolio selection methodology,
diversification criteria and probability analyses. While property catastrophe
reinsurance represented approximately 95% of the Company's gross premiums
written in each of 1996, 1995 and 1994 and continues to be the Company's
primary focus, the Company may seek to take advantage of perceived
opportunities in both insurance and other reinsurance markets.
For the years ended December 31, 1996, 1995 and 1994, the Company achieved
returns on average shareholders' equity of 30.2%, 43.3% and 44.1%,
respectively, and combined ratios of 51.3%, 52.0% and 61.6%, respectively. For
the six months ended June 30, 1997, the Company achieved an annualized return
on average shareholders' equity of 26.1% and a combined ratio of 46.3%. The
Company achieved these results despite the occurrence of several major
catastrophes in 1996 and 1995 (which, according to industry trade sources, had
the fifth and third highest level of U.S. property catastrophe insured losses
on record, respectively) and the
11
occurrence in January 1994 of the Northridge, California earthquake, the second
largest insured catastrophe loss in U.S. history. The major catastrophes which
occurred in 1996 were Hurricane Fran in September, which produced an estimated
1.6 billion in insurance industry losses, the Northeastern United States winter
storms in January, and the Northwestern United States floods in December. The
major catastrophes which occurred in 1995 were Hurricanes Luis, Marilyn and
Opal. At June 30, 1997, the Company had total assets of $989.7 million and
total shareholders' equity of $562.9 million. There can be no assurance that
the Company will achieve similar results in the future. See "Risk Factors--
Volatility of Financial Results" and "RenaissanceRe Holdings Ltd."
STRATEGY
The principal components of the Company's business strategy are to:
. Focus on the property catastrophe reinsurance business.
. Build a superior portfolio of property catastrophe reinsurance by
utilizing proprietary modeling capabilities.
. Utilize the Company's capital base efficiently while maintaining prudent
risk levels in the Company's reinsurance portfolio.
. Capitalize on the experience and skill of management.
. Build and maintain long-term relationships with brokers and clients.
. Maintain a low cost structure.
RENAISSANCERE CAPITAL TRUST
The Trust is a statutory business trust formed under the laws of the State of
Delaware pursuant to (i) the Trust Agreement executed by the Company, as
Sponsor, The Bank of New York, as Property Trustee, and The Bank of New York
(Delaware), as Delaware Trustee and the three individual Administrative
Trustees named therein, who are employees or officers of or affiliated with the
Company, and (ii) the filing of a certificate of trust with the Secretary of
State of Delaware on February 25, 1997. The Trust's business and affairs are
conducted by the Property Trustee, the Delaware Trustee and the three
individual Administrative Trustees. The Trust exists for the exclusive purposes
of (i) issuing and selling the Trust Securities, (ii) investing the proceeds
from the sale thereof in the Junior Subordinated Debentures issued by the
Company and (iii) engaging in only those other activities incidental thereto.
Accordingly, the Junior Subordinated Debentures are the sole assets of the
Trust, and payments under the Junior Subordinated Debentures are the sole
revenues of the Trust. All of the Common Securities are owned by the Company.
The Capital Securities have a preference over the Common Securities under
certain circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of Capital Securities--
Subordination of Common Securities."
12
THE EXCHANGE OFFER
The Exchange Offer.......... Up to $100,000,000 aggregate Liquidation Amount
of New Capital Securities are being offered in
exchange for a like aggregate Liquidation Amount
of Old Capital Securities. Old Capital Securities
may be tendered for exchange in whole or in part
in a Liquidation Amount of $100,000 (100 Capital
Securities) or any integral multiple of $1,000
(one Capital Security) in excess thereof. The
Company and the Trust are making the Exchange
Offer in order to satisfy their obligations under
the Registration Rights Agreement relating to the
Old Capital Securities. For a description of the
procedures for tendering Old Capital Securities,
see "The Exchange Offer--Procedures for Tendering
Old Capital Securities."
Expiration Date............. 5:00 p.m., New York City time, on September 1,
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 The Exchange Offer is subject to certain
Offer....................... 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 reasonable discretion, subject to
applicable law, at any time and from time to
time, (i) to delay the acceptance of the Old
Capital Securities for exchange, (ii) to
terminate the Exchange Offer if certain specified
conditions have not been satisfied, (iii) to
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) to 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,
13
trust companies and other nominees may also
effect tenders by an Agent's Message (defined
herein) in case of book-entry delivery to the
Exchange Agent prior to the Expiration Date.
Holders of 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 New Capital The Company and the Trust are making the Exchange
Securities.................. Offer in reliance on the position of the Staff 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 would make a
similar determination with respect to the
Exchange Offer as it has in such prior
interpretive letters to third parties. Based on
these interpretations by the Staff, and subject
to the two immediately following sentences, the
Company and the Trust believe that New Capital
Securities issued pursuant to the Exchange Offer
in exchange for Old Capital Securities may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than a
holder who is a broker-dealer) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such New Capital Securities are
acquired in the ordinary course of such holder's
business and that such holder is not
participating, and has no arrangement or
understanding with any person to participate, in
a distribution (within the meaning of the
Securities Act) of such New Capital Securities.
However, any holder of Old Capital Securities who
is an "affiliate" of the Company or the Trust or
who intends to participate in the Exchange Offer
for the purpose of distributing the New Capital
Securities, or any broker-dealer who purchased
the Old Capital Securities from the Trust to
resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a)
will not be able to rely on the interpretations
of the Staff set forth in the above-mentioned
interpretive letters, (b) will not be permitted
or entitled to tender such Old Capital Securities
in the Exchange Offer and (c) must comply with
the registration and prospectus delivery
requirements of the Securities Act in connection
with any sale or other transfer of such Old
Capital Securities unless such sale is made
pursuant to an exemption from such requirements.
In addition, as described below, if any broker-
dealer holds Old Capital Securities acquired for
its own account as a result of market-making or
other trading activities and exchanges such Old
Capital Securities for New Capital Securities in
the Exchange Offer, then such broker-dealer must
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resales
of such New Capital Securities.
14
Each holder of Old Capital Securities who wishes
to exchange Old Capital Securities for New
Capital Securities in the Exchange Offer will be
required to represent that (i) it is not an
affiliate of the Company or the Trust, (ii) any
New Capital Securities to be received by it are
being acquired in the ordinary course of its
business, (iii) it has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the
Securities Act) of such New Capital Securities,
and (iv) if such holder is not a broker-dealer,
such holder is not engaged in, and does not
intend to engage in, a distribution (within the
meaning of the Securities Act) of such New
Capital Securities. Each broker-dealer that
receives New Capital Securities for its own
account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Capital
Securities for its own account as the result of
market-making activities or other trading
activities and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such New Capital Securities. The Letter of
Transmittal states that, by so acknowledging and
by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an underwriter
(within the meaning of the Securities Act). Based
on the position taken by the Staff in the
interpretive letters referred to above, the
Company and the Trust believe that Participating
Broker-Dealers who acquired Old Capital
Securities for their own accounts as a result of
market-making activities or other trading
activities may fulfill their prospectus delivery
requirements with respect to the New Capital
Securities received upon exchange of such Old
Capital Securities (other than Old Capital
Securities which represent an unsold allotment
from the original sale of the Old Capital
Securities) with a prospectus meeting the
requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so
long as it contains a description of the plan of
distribution with respect to the resale of such
New Capital Securities. Accordingly, this
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New
Capital Securities received in exchange for Old
Capital Securities where such Old Capital
Securities were acquired by such Participating
Broker-Dealer for its own account as a result of
market-making or other trading activities.
Subject to certain provisions set forth in the
Registration Rights Agreement and to the
limitations described below under "The Exchange
Offer--Resales of New Capital Securities," the
Company and the Trust have agreed that this
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of such
New Capital Securities for a period of not more
than 180 days after the Expiration Date (subject
to extension under certain limited circumstances)
or, if earlier, when all such New Capital
Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of
Distribution." Any Participating Broker-Dealer
who is an affiliate of the Company or the Trust
may not rely on such interpretive letters and
must comply
15
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. See "The Exchange
Offer--Resales of New Capital Securities."
Exchange Agent.............. The exchange agent with respect to the Exchange
Offer is The Bank of New York (the "Exchange
Agent"). The addresses and telephone and
facsimile numbers of the Exchange Agent are set
forth in "The Exchange Offer--Exchange Agent" and
in the Letter of Transmittal.
Use of Proceeds............. Neither the Company nor the Trust will receive
any cash proceeds from the issuance of the New
Capital Securities offered hereby. See "Use of
Proceeds."
Certain United States
Federal Income Tax
Considerations; ERISA
Considerations..............
Holders of Old Capital Securities should review
the information set forth under "Certain United
States Federal Income Tax Considerations" and
"ERISA Considerations" prior to tendering Old
Capital Securities in the Exchange Offer.
THE NEW CAPITAL SECURITIES
Securities Offered.......... Up to $100,000,000 aggregate Liquidation Amount
of the Trust's New Capital Securities
(Liquidation Amount $1,000 per New Capital
Security) which are being registered under the
Securities Act pursuant to the Registration
Statement. The New Capital Securities will be
issued and the Old Capital Securities were issued
under the Trust Agreement. The New Capital
Securities and any Old Capital Securities which
remain outstanding after consummation of the
Exchange Offer will vote together as a single
class for purposes of determining whether holders
of the requisite percentage in outstanding
Liquidation Amount thereof have taken certain
actions or exercised certain rights under the
Trust Agreement. See "Description of New
Securities--Description of New Capital
Securities--Voting Rights; Amendment of the Trust
Agreement." The terms of the New Capital
Securities are identical in all material respects
to the terms of the Old Capital Securities,
except that the New Capital Securities have been
registered under the Securities Act and will not
be subject to the $100,000 minimum Liquidation
Amount transfer restriction and certain other
restrictions on transfer applicable to the Old
Capital Securities and will not provide for any
increase in the Distribution rate thereon. See
"The Exchange Offer--Purpose of the Exchange
Offer," "Description of New Securities" and
"Description of Old Securities."
Distribution Dates.......... March 1 and September 1 of each year, commencing
September 1, 1997.
Extension Periods........... Distributions on the New Capital Securities will
be deferred for the duration of any Extension
Period elected by the Company with respect to the
payment of interest on the New Junior
Subordinated
16
Debentures. No Extension Period will exceed ten
consecutive semi-annual periods or extend beyond
the Stated Maturity Date, a Redemption Date or
the date of acceleration upon a Debenture Event
of Default. No interest shall be due and payable
during an Extension Period, except at the end
thereof. Except as described herein, there is no
limitation on the number of times the Company may
elect to begin an Extension Period. See
"Description of New Securities--Description of
New Junior Subordinated Debentures--Option to
Extend Interest Payment Date" and "Certain United
States Federal Income Tax Considerations--
Interest Income and Original Issue Discount."
Ranking..................... The New Capital Securities will rank pari passu,
and payments thereon will be made pro rata, with
the Old Capital Securities and the Common
Securities except as described under "Description
of New Securities--Description of New Capital
Securities--Subordination of Common Securities."
The New Junior Subordinated Debentures will rank
pari passu with the Old Junior Subordinated
Debentures and all other junior subordinated
debentures to be issued by the Company (if any)
(collectively, with the Old Junior Subordinated
Debentures, the "Other Debentures") and sold (if
at all) to other trusts to be established by the
Company (if any), in each case similar to the
Trust (the "Other Trusts"), and will be unsecured
and subordinate and junior in right of payment to
all Senior Indebtedness to the extent and in the
manner set forth in the Indenture. At June 30,
1997, the amount of outstanding Senior
Indebtedness was approximately $50.1 million. See
"Description of New Securities--Description of
New Junior Subordinated Debentures." The New
Guarantee will rank pari passu with the Old
Guarantee and all other guarantees (if any)
issued by the Company with respect to capital
securities or preferred securities (if any) to be
issued by Other Trusts (collectively, with the
Old Guarantee, the "Other Guarantees") and will
constitute an unsecured obligation of the Company
and will rank subordinate and junior in right of
payment to all Senior Indebtedness to the extent
and in the manner set forth in the Guarantee
Agreement. See "Description of New Securities--
Description of New Guarantee."
Redemption.................. The Trust Securities are subject to mandatory
redemption in a Like Amount, (i) in whole but not
in part, on the Stated Maturity Date upon
repayment of the Junior Subordinated Debentures,
(ii) in whole but not in part, at any time prior
to March 1, 2007, contemporaneously with the
optional prepayment of the Junior Subordinated
Debentures by the Company upon the occurrence and
continuation of a Special Event and (iii) in
whole or in part, at any time on or after March
1, 2007 contemporaneously with the optional
prepayment by the Company of the Junior
Subordinated Debentures, in each case at the
applicable Redemption Price. See "Description of
New Securities--Description of New Capital
Securities--Redemption."
17
Rating...................... The New Capital Securities are expected to be
rated "baa3" by Moody's Investors Service, Inc.
("Moody's") and "BBB" by Standard & Poor's
Ratings Services ("S&P").
Absence of Market for the
New Capital Securities......
The New Capital Securities will be a new issue of
securities for which there currently is no
market. Although Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Salomon Brothers, Inc.,
the initial purchasers of the Old Capital
Securities (the "Initial Purchasers"), have
informed the Company and the Trust that they each
currently intend to make a market in the New
Capital Securities, they are not obligated to do
so, and any such market making may be
discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
New Capital Securities. The Trust and the Company
do not intend to apply for listing of the New
Capital Securities on any securities exchange or
for inclusion of the New Capital Securities on
any automated quotation system. See "Plan of
Distribution."
RISK FACTORS
Holders of Old Capital Securities should consider carefully, in addition to
the other information contained or incorporated by reference in this
Prospectus, the factors set forth below the caption "Risk Factors" before
tendering their Old Capital Securities for New Capital Securities in the
Exchange Offer.
18
RISK FACTORS
Holders of Old Capital Securities should consider carefully, in addition to
the other information contained or incorporated by reference in this
Prospectus, the following factors before tendering Old Capital Securities for
New capital Securities in the Exchange Offer. The risk factors set forth below
(other than "Consequences of a Failure to Exchange Old Capital Securities" and
"Absence of Public Market") are generally applicable to the Old Capital
Securities as well as the New Capital Securities.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES; HOLDING COMPANY STRUCTURE
The obligations of the Company under the Guarantee issued by it for the
benefit of the holders of Capital Securities, as well as under the Junior
Subordinated Debentures, will be unsecured and rank subordinate and junior in
right of payment to all Senior Indebtedness of the Company. In addition, in
the case of a bankruptcy or insolvency proceeding, the Company's obligations
under the Junior Subordinated Debentures and the Guarantee will also rank
subordinate and junior in right of payment to all liabilities (other than
Other Debentures and Other Guarantees) of the Company. At June 30, 1997, the
aggregate principal amount of outstanding Senior Indebtedness was
approximately $50.1 million. 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 or by any
subsidiary of the Company. The Company expects from time to time to incur
additional Senior Indebtedness. See "Description of New Securities--
Description of New Guarantee--Status of the Guarantee" and "Description of New
Securities--Description of New Junior Subordinated Debentures--Subordination."
The ability of the Trust to pay amounts due on the Capital Securities is
solely dependent upon the Company making payments on the Junior Subordinated
Debentures as and when required. As a holding company, the Company's ability
to meet debt service obligations and pay operating expenses depends on receipt
of sufficient funds from its direct and indirect subsidiaries. The inability
of the Company's subsidiaries to pay dividends to the Company in an amount
sufficient to meet debt service obligations and pay operating expenses would
have a material adverse effect on the Company and the ability of the Company
to meet its obligations under the Junior Subordinated Debentures. The payment
of dividends by the Company's insurance subsidiaries without prior regulatory
approval is subject to restrictions set forth in applicable laws and
regulations, including without limitation the insurance laws and regulations
of Bermuda, the jurisdiction of domicile of the Company's subsidiaries. As of
June 30, 1997, the Company's subsidiaries had sufficient capital and earnings
to pay approximately $155.6 million of dividends to the Company during 1997
without prior regulatory approval, of which $62.9 million had been paid
through such date. As of December 31, 1996, the Company's insurance
subsidiaries had paid approximately $135.6 million of dividends to the Company
for the year ended 1996. See "RenaissanceRe Holdings Ltd.--Regulation."
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,
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. See "Description of New Securities--Description of New Junior
Subordinated Debentures--Subordination."
RIGHTS UNDER THE GUARANTEE; DIRECT ACTION FOR PAYMENT
The Bank of New York will act as Guarantee Trustee and will hold the
Guarantee for the benefit of the holders of the Capital Securities. The Bank
of New York also acts as Property Trustee and as Debenture Trustee under the
Indenture. The Bank of New York (Delaware) acts as Delaware Trustee under the
Trust Agreement.
19
The Guarantee will guarantee 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 Capital Securities have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust power conferred upon the Guarantee
Trustee. Any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee
or any other person or entity. If the Company defaults on its obligation to
pay amounts payable under the Junior Subordinated Debentures, the Trust will
not have sufficient funds for the payment of Distributions or amounts payable
on redemption of the Capital Securities or otherwise, and, in such event,
holders of the Capital Securities will not be able to rely upon the Guarantee
for payment of such amounts. Instead, in the event a Debenture Event of
Default shall have occurred and be continuing and such event is attributable
to the failure of the Company to pay principal of (or premium, if any) or
interest on the Junior Subordinated Debentures on the date on which such
payment is due and payable, then a holder of Capital Securities may institute
a legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of (and premium, if any) and interest, as
applicable, on such 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 Capital
Securities by the Company in connection with a Direct Action, the Company
shall remain obligated to pay the principal of (and premium, if any) and
interest on the Junior Subordinated Debentures, and the Company shall be
subrogated to the rights of the holder of such Capital Securities with respect
to payments on the Capital Securities to the extent of any payments made by
the Company to such holder in any Direct Action. Except as described herein,
holders of Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Junior Subordinated Debentures or to
assert directly any other rights in respect of the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures--Enforcement of
Certain Rights by Holders of Capital Securities," "Description of Junior
Subordinated Debentures--Debenture Events of Default" and "Description of
Guarantee." The Trust Agreement provides that each holder of Capital
Securities by acceptance thereof agrees to the provisions of the Indenture.
ABSENCE OF PUBLIC MARKET
The Old Capital Securities were issued to, and the Company, to the best of
its knowledge and information, believes such 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 are subject to
restrictions on transferability until they are exchanged for the New Capital
Securities in the Exchange Offer. Although the New Capital Securities may be
resold or otherwise transferred by the holders (who are not affiliates of the
Company or the Trust) thereof 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 minimum Liquidation
Amount of $100,000 (100 Old Capital Securities) and integral multiples of
$1,000 in excess thereof. New Capital Securities may be transferred by the
holders thereof in blocks having a Liquidation Amount of $1,000 (one New
Capital Security) or integral multiples thereof. The Company and the Trust
have been advised by the Initial Purchasers that the Initial Purchasers
presently intend to make a market in the New Capital Securities. However, the
Initial Purchasers are not obligated to do so and any market-making activity
with respect to the New Capital Securities may be discontinued at any time
without notice. In addition, such market-making activity will be subject to
the limits imposed by the Securities Act and the
20
Exchange Act and may be limited during the Exchange Offer. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Capital Securities or the Old Capital Securities or as to the
liquidity of or the trading market for the New Capital Securities or the Old
Capital Securities. If an active public or other market does not develop, the
market price and liquidity of the New Capital Securities may be adversely
affected. The preceding considerations would apply to holders of Junior
Subordinated Debentures in the event the Junior Subordinated Debentures are
distributed by the Trust to the holders of Capital Securities.
If a public or other trading market develops for the New Capital Securities,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the Company's financial results and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the New Capital Securities may trade at prices
higher or lower than their liquidation amounts.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSIDERATIONS
So long as no Debenture Event of Default (as defined under "Description of
New Securities--Description of New Junior Subordinated Debentures--Debenture
Events of Default") shall have occurred and be continuing, the Company will
have the right under the Indenture to defer payments of interest on the Junior
Subordinated Debentures at any time or from time to time (under certain
conditions) for a period not exceeding ten consecutive semi-annual periods
with respect to each Extension Period, provided that (i) no Extension Period
may extend beyond the Stated Maturity Date and (ii) any Extension Period will
terminate as to all Junior Subordinated Debentures upon an acceleration
thereof (subject to reinstatement, upon cure or waiver as provided in the
Indenture) and (iii) any Extension Period will terminate as to any Junior
Subordinated Debenture to be redeemed on the applicable Redemption Date. See
"Description of New Securities--Description of New Junior Subordinated
Debentures--Debenture Events of Default." 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 8.54% per annum, compounded semi-annually), from the
relevant payment date for such Distributions during any such Extension Period.
No interest shall be due and payable during an Extension Period, except at the
end thereof.
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed ten consecutive semi-annual periods or
to extend beyond the Stated Maturity Date. Upon the termination of any
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 8.54%, 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. Except as described herein, there is no
limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of New Securities--Description of New
Capital Securities--Distributions" and "Description of New Securities--
Description of New Junior Subordinated Debentures--Option to Extend Interest
Payment Date."
Should the Company exercise its right to defer payments of interest on the
Junior Subordinated Debentures, each holder of Trust Securities will be
required to accrue income (as original issue discount ("OID")) in respect of
the deferred stated interest allocable to its Trust Securities for United
States federal income tax purposes, which will be allocated but not
distributed to holders of Trust Securities. As a result, 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
21
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 that are not subject to such deferrals.
Although the Company has the right to exercise its option to defer payments
of interest on the Junior Subordinated Debentures, the Company has no current
intention to do so.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION
Upon the occurrence and continuation of a Tax Event or an Investment Company
Event (each as defined below, a "Special Event"), the Company will have the
right, subject to the rights of creditors, to prepay the Junior Subordinated
Debentures in whole (but not in part) within 90 days following the occurrence
of such Special Event and cause a mandatory redemption of the Trust Securities
at the Special Event Redemption Price. See "Description of New Securities--
Description of New Capital Securities--Redemption" and "--Liquidation of the
Trust and Distribution of the Junior Subordinated Debentures."
The Company will have the right at any time to dissolve the Trust and,
subject to the rights of creditors, 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 having received an opinion of
counsel to the effect that such distribution would not be a taxable event to
the holders of Trust Securities. Under current United States federal income
tax law, a distribution of Junior Subordinated Debentures upon the dissolution
of the Trust would not be a taxable event to holders of the Capital
Securities. Upon the occurrence of a Special Event, however, a dissolution of
the Trust in which holders of the Capital Securities receive cash would be a
taxable event to such holders. See "Certain Federal Income Tax Consequences--
Distribution of Junior Subordinated Debentures to Securityholders."
See "--Possible Tax Law Changes Affecting the Capital Securities" for a
discussion of certain legislative proposals that, if adopted, could give rise
to a Tax Event, which may permit the Company to cause a redemption of the
Capital Securities prior to March 1, 2007.
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, as part of President Clinton's Budget Proposal for
Fiscal Year 1998, the Treasury Department proposed legislation (the "Proposed
Legislation") which, among other things, would generally treat as equity for
United States federal income tax purposes instruments with a maximum term of
more than 15 years that are not shown as indebtedness on the separate balance
sheet of the issuer. The Proposed Legislation was proposed to be effective
generally for instruments issued on or after the date of first committee
action. However, the Proposed Legislation was not included in legislation
currently under consideration by the House Ways and Means Committee and Senate
Finance Committee. There can be no assurances, however, that the effective
date guidance contained in the Proposed Legislation will be incorporated into
any enacted legislation or that other legislation enacted after the date
hereof will not otherwise adversely affect the tax treatment of the Capital
Securities. Any such legislative, administrative or judicial changes could
give rise to a Tax Event, which may permit the Company to cause a redemption
of the Trust Securities at the Special Event Redemption Price by electing to
prepay the Junior Subordinated Debentures at the Special Event Prepayment
Price. See "Description of New Securities--Description of New Capital
Securities--Redemption" and "Description of New Securities--Description of New
Junior Subordinated Debentures--Special Event Prepayment." See also "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 Capital Securities or
Junior Subordinated Debentures distributed to the holders of Capital
Securities if a termination of the Trust were to occur. Accordingly, the
22
Capital Securities or the Junior Subordinated Debentures may trade at a
discount from the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures in liquidation of the Trust and because
Distributions are otherwise limited to payments on the Junior Subordinated
Debentures, prospective purchasers of Capital Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and
should carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of New Securities--Description
of New Junior Subordinated Debentures."
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
Based on interpretations by the Staff of the Commission, the Company
believes that New Capital Securities issued pursuant to the Exchange Offer in
exchange for Old Capital Securities may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, (ii) the
Initial Purchasers to the extent they acquired Old Capital Securities directly
from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act or
(iii) a broker-dealer (which may include the Initial Purchasers) who acquired
Old Capital Securities as a result of market-making or other trading
activities) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Capital
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Capital Securities. Each broker-dealer that
receives New Capital Securities for its own account as a result of market-
making activities or other trading activities pursuant to the Exchange Offer
must acknowledge that it acquired the Old Capital Securities as the result of
such 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 Notes. See "Plan of Distribution." Any holder that cannot rely upon
such interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction unless such sale is made pursuant to an exemption from such
requirements.
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 the consummation of the Exchange
Offer will continue to bear a legend reflecting such restrictions on transfer.
In addition, upon the 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
the 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 or
tendered but not accepted Old Capital Securities could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after the 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 New Securities--Description of New Capital Securities--Voting
Rights; Amendment of the Trust Agreement."
The Registration Rights Agreement provides, among other things, that, if a
registration statement relating to the Exchange Offer (the "Exchange Offer
Registration Statement") has not been filed by August 4, 1997 and declared
effective by September 3, 1997, the Distribution rate borne by the Old Capital
Securities commencing on after either of such dates will increase by 0.25% per
annum until the Exchange Offer Registration Statement
23
is filed or effective, as the case may be. In addition, if the Company has not
consummated the Exchange Offer on or prior to the 45th day after the date on
which the Exchange Offer Registration Statement is declared effective, and
such event continues for a period exceeding 30 consecutive days or 90 days in
any 360-day period, then the Distribution rate borne by the Old Capital
Securities will increase by 0.25% commencing on the day after any such event,
until the Exchange Offer is consummated. Upon consummation of the Exchange
Offer, holders of Old Capital Securities will not be entitled to any increase
in the Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See
"Description of Old Securities."
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the Capital Securities, the dissolution,
termination or liquidation of the Trust, and the exercise of the Trust's
rights as holder of Junior Subordinated Debentures. Holders of Capital
Securities will not be entitled to vote to appoint, remove or replace the
Property Trustee or the Delaware Trustee, and such voting rights are vested
exclusively in the holder of the Common Securities except upon the occurrence
of certain events described herein. The Property Trustee, the Administrative
Trustees and the Company may amend the Trust Agreement without the consent of
holders of Capital Securities to ensure that the Trust will be classified for
United States federal income tax purposes as a grantor trust, provided that
such action does not have a material adverse effect on the interests of such
holders. See "Description of New Securities--Description of New Capital
Securities--Voting Rights; Amendment of the Trust Agreement" and "--Removal of
Issuer Trustees."
EXCHANGE OFFER PROCEDURES
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Exchange Agent on behalf of the Trust of such Old Capital
Securities, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Capital Securities
desiring to tender such Old Capital Securities in exchange for New Capital
Securities in the Exchange Offer should allow sufficient time to ensure timely
delivery. Neither the Company nor the Trust is under any duty to give
notification of defects or irregularities with respect to the tenders of Old
Capital Securities for exchange.
VOLATILITY OF FINANCIAL RESULTS
Because the Company primarily underwrites property catastrophe reinsurance
and has large aggregate exposure to man-made and natural disasters, the
Company's operating results have historically been, and are expected to
continue to be, largely affected by relatively few events of high magnitude.
Attachment points (the amount of loss above which excess of loss reinsurance
becomes operative) of the policies written by the Company generally require
insured industry losses in excess of several hundred million dollars for the
Company to experience significant claims, although the Company is also exposed
to smaller insured events. The occurrence of claims from catastrophic events
is likely to result in substantial volatility in the Company's financial
results for any fiscal quarter or year and could have a material adverse
effect on the Company's financial condition or results of operations and its
ability to write new business and, accordingly, to fulfill its obligations
under the Junior Subordinated Debentures and the Guarantees. The Company
expects that increases in the values and concentrations of insured property
and the effects of inflation will increase the severity of such occurrences
per year in the future. See "RenaissanceRe Holdings Ltd.--Reinsurance
Products."
The Company's property catastrophe reinsurance contracts cover unpredictable
events such as earthquakes, hurricanes, winter storms, freezes, floods, fires,
tornadoes and other man-made or natural disasters. The Company seeks to
diversify its reinsurance portfolio to moderate the volatility described in
the preceding paragraph. The principal means of diversification employed by
the Company are by type of reinsurance, geographic coverage, attachment point
and limit per program. The Company utilizes REMS(C), a proprietary, computer-
based pricing and exposure management system to simulate 40,000 years of
catastrophe activity to obtain a probability
24
distribution of potential outcomes for its entire portfolio. See
"RenaissanceRe Holdings Ltd.--Underwriting." Nonetheless, a single event or a
series of events could exceed the Company's estimates, either of which could
have a material effect on the Company's financial condition or results of
operations and, accordingly, the ability of the Company to fulfill its
obligations under the Junior Subordinated Debentures and the Guarantees. See
"RenaissanceRe Holdings Ltd.--Reinsurance Products."
SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
The Company is a Bermuda company and certain of its officers and directors
are residents of various jurisdictions outside the United States. All or a
substantial portion of the assets of such officers and directors and of the
Company are or may be located in jurisdictions outside the United States.
Although the Company has irrevocably agreed that it may be served with process
in New York, New York with respect to actions based on offers and sales of the
securities offered hereby, it could be difficult for holders of Capital
Securities or Junior Subordinated Debentures, if applicable, to effect service
of process within the United States on directors and officers of the Company
who reside outside the United States or to recover against the Company or such
directors and officers on judgments of United States courts predicated upon
civil liabilities under the United States federal securities laws. See
"Enforceability of Civil Liabilities under United States Federal Securities
Laws."
RENAISSANCERE HOLDINGS LTD.
GENERAL
RenaissanceRe Holdings Ltd. was formed in June 1993 and is the parent of
Renaissance Reinsurance and Glencoe. The Company was founded by WPI, GEIPPI,
GEPT and USF&G. As of July 25, 1997, WPI, USF&G, PT Investments, Inc. ("PTI")
and GE Investment Private Placement Partners I--Insurance, Limited Partnership
("GE Insurance") owned approximately 25.0%, 11.5%, 15.1% and 2.8%,
respectively, of the Company's outstanding equity, representing approximately
28.1%, 12.9%, 6.7% and 1.1%, respectively, of the Company's outstanding voting
power.
The Company's principal business is property catastrophe reinsurance,
written on a worldwide basis through Renaissance Reinsurance. Based on
property catastrophe gross premiums written, the Company is the largest
Bermuda-based provider of property catastrophe reinsurance and one of the
largest providers of this coverage in the world. The Company provides property
catastrophe reinsurance coverage to insurance companies and other reinsurers
primarily on an excess of loss basis. Excess of loss catastrophe coverage
generally provides coverage for claims arising from large natural
catastrophes, such as earthquakes and hurricanes, in excess of a specified
loss. The Company is also exposed to claims arising from other natural and
manmade catastrophes such as winter storms, freezes, floods, fires and
tornadoes in connection with the coverages it provides.
The Company's principal operating objective is to utilize its capital
efficiently by focusing on the writing of property catastrophe reinsurance and
other insurance and reinsurance coverages with superior risk/return
characteristics, while maintaining a low cost operating structure in the
favorable regulatory and tax environment of Bermuda. The Company's primary
underwriting goal is to construct a portfolio of insurance and reinsurance
contracts that maximizes the return on shareholders' equity subject to prudent
risk constraints. The Company seeks to moderate the volatility inherent in the
property catastrophe reinsurance market through the use of contract terms,
portfolio selection methodology, diversification criteria and probability
analyses. While property catastrophe reinsurance represented approximately 95%
of the Company's gross premiums written in each of 1996, 1995 and 1994 and
continues to be the Company's primary focus, the Company may seek to take
advantage of perceived opportunities in both insurance and other reinsurance
markets.
For the years ended December 31, 1996, 1995 and 1994, the Company achieved
returns on average shareholders' equity of 30.2%, 43.3% and 44.1%,
respectively, and combined ratios of 51.3%, 52.0% and 61.6%, respectively. For
the six months ended June 30, 1997, the Company achieved an annualized return
on average equity of 26.1% and a combined ratio of 46.3%. The Company achieved
these results despite the occurrence of
25
several major catastrophes in 1996 and 1995 (which, according to industry
trade sources, had the fifth and third highest level of U.S. property
catastrophe insured losses on record, respectively) and the occurrence in
January 1994 of the Northridge, California earthquake, the second largest
insured catastrophe loss in U.S. history. The major catastrophes occurring in
1996 were Hurricane Fran in September, which produced an estimated $1.6
billion of insurance industry losses, the Northeastern United States winter
storms in January and the Northwestern United States floods in December. The
major catastrophes which occurred in 1995 were Hurricanes Luis, Marilyn and
Opal. At June 30, 1997, the Company had total assets of $989.7 million and
shareholders' equity of $562.9 million. There can be no assurance that the
Company will achieve similar results in the future. See "Risk Factors--
Volatility of Financial Results."
RATINGS
Renaissance Reinsurance has been assigned an "A" claims-paying ability
rating from S&P and A.M. Best Company, Inc. ("A.M. Best") and Glencoe has been
assigned an "A-" claims-paying ability rating from A.M. Best, representing
independent opinions of the financial strength and ability of Renaissance
Reinsurance and Glencoe to meet their respective obligations to their
policyholders. Such ratings may not reflect the considerations applicable to
an investment in the Company or the Trust.
The "A" range ("A+," "A" and "A-") is the third highest of four ratings
ranges within what S&P considers the "secure" category. Insurance companies
assigned a claims-paying ability rating in the "A" range are believed by S&P
to provide good financial security, but their capacity to meet policyholder
obligations is somewhat susceptible to adverse economic and underwriting
conditions.
"A (Excellent)" and "A- (Excellent)" are the third and fourth highest of
A.M. Best's fifteen ratings designations. Insurance companies assigned an "A"
or "A-" rating by A.M. Best are companies which, in A.M. Best's opinion, have
demonstrated excellent overall performance when compared to the standards
established by A.M. Best and have a strong ability to meet their obligations
to policyholders over a long period of time.
STRATEGY
The principal components of the Company's business strategy are to:
. Focus on the property catastrophe reinsurance business. The Company's
primary focus is property catastrophe reinsurance, which represented
approximately 95% of the Company's gross premiums written in each of
1994, 1995 and 1996. While the Company's management ("Management")
intends to maintain the Company's primary focus on property catastrophe
reinsurance for the foreseeable future, the Company may seek to take
advantage of perceived market opportunities in both insurance and other
reinsurance markets.
. Build a superior portfolio of property catastrophe reinsurance by
utilizing proprietary modeling capabilities. The Company assesses
underwriting decisions on the basis of the expected incremental return
on equity of each new reinsurance contract in relation to the Company's
overall portfolio of reinsurance contracts. To facilitate this, the
Company has developed REMS(C), a proprietary, computer-based pricing and
exposure management system. The Company utilizes REMS(C) to assess
property catastrophe risks, price treaties and limit aggregate exposure.
The Company combines the analyses generated by REMS(C) with its own
knowledge of the client submitting the proposed program to assess the
premium offered against the risk of loss that such program presents. See
"--Underwriting."
. Utilize the Company's capital base efficiently while maintaining prudent
risk levels in the Company's reinsurance portfolio. The Company manages
its risks through a variety of means, including the use of contract
terms, portfolio selection methodology, diversification criteria and
probability analyses. By using such measures and by employing its
proprietary modeling capabilities, the Company attempts to construct a
portfolio of reinsurance contracts which maximizes the use of its
capital while optimizing the risk-reward characteristics of its
portfolio. The Company relies less on traditional ratios, such as
26
net premiums written to surplus, because the Company believes that such
statistics do not adequately reflect the risk in the property
catastrophe reinsurance business. Management believes the level of net
premiums written relative to surplus does not reflect the composition of
a reinsurer's attachment points, aggregate limits, geographic
diversification, and other material elements of the risk exposures
embodied in a reinsurer's book of business.
. Capitalize on the experience and skill of management. The Company's
senior management team has extensive experience in the reinsurance
and/or insurance industries, with an average of approximately 20 years
of experience for each of the five senior executives of the Company. See
"Management." Additionally, senior management is supported by an officer
group, each with an average of approximately ten years of experience in
the reinsurance and/or insurance industries.
. Build and maintain long-term relationships with brokers and clients. The
Company markets its reinsurance products worldwide exclusively through
reinsurance brokers. The Company believes that its existing portfolio of
reinsurance business is a valuable asset given the renewal practices of
the reinsurance industry. The Company believes that it has established a
reputation with its brokers and clients for prompt response on
underwriting submissions, for fast claims payments and for the
development of customized reinsurance programs. See"--Marketing."
. Maintain a low cost structure. Management believes that as a result of
its ability to maintain a small staff and by basing operations in the
favorable regulatory and tax environment of Bermuda, the Company is able
to maintain low operating costs relative to its capital base and net
premiums earned. As of July 25, 1997, the Company had 31 employees.
INDUSTRY TRENDS
The high level of worldwide property catastrophe losses in terms of both
frequency and severity from 1987 to 1993 had a significant effect on the
results of property insurers and property catastrophe reinsurers and on the
worldwide property catastrophe reinsurance market, causing some property
catastrophe reinsurers and certain underwriting syndicates at Lloyd's of
London to withdraw from the market or reduce their underwriting commitments
while also causing a substantial increase in market demand, particularly in
the United States, Japan and the United Kingdom. In particular, these events
included Hurricane Hugo (U.S.--1989), Hurricane Andrew (U.S.--1992), Typhoon
Mireille (No. 19) (Japan--1991) and Winter Storm Daria (90A) (Northern
Europe--1990).
The increase in demand for property catastrophe reinsurance was attributable
to several factors. The significant property catastrophe losses occurring
during 1987 through 1993 caused many insurers and reinsurers to reexamine
their assumptions regarding their need for reinsurance protection from
catastrophe exposures. In addition, rating agencies, such as S&P, and
regulators increased their scrutiny of insurers and reinsurers with respect to
their catastrophe exposure. For example, Typhoon Mireille (No. 19) resulted in
greater scrutiny by the Ministry of Finance of Japan of insurers and
reinsurers with respect to catastrophe exposure, thereby increasing demand for
property catastrophe reinsurance in Japan. In addition, A.M. Best began to
require completion of a catastrophe loss analysis questionnaire dealing with
expected claims resulting from potential catastrophic events. Finally, a
general increase in insured property values in catastrophe-exposed areas
contributed to increased demand for property catastrophe insurance and
reinsurance. This supply/demand imbalance caused a significant increase in
prevailing premium rates for property catastrophe reinsurance worldwide in
1993.
In response to this imbalance, approximately $4.0 billion of capital entered
the Bermuda-based property catastrophe reinsurance market in 1992 and 1993.
The Bermuda property catastrophe reinsurance market has subsequently grown
markedly, having aggregate capital of approximately $5.5 billion at March 31,
1997, and accounting for approximately 25% to 35% of the worldwide property
catastrophe gross premiums written in 1996, according to industry trade
reports. The increased property catastrophe reinsurance capacity represented
by the Bermuda market helped balance supply and demand in the property
catastrophe reinsurance market and, as a result thereof, premium rates and
other terms of trade in the property catastrophe reinsurance market
27
stabilized in 1994-1995. In 1996, according to industry trade sources,
worldwide price levels decreased by an average of 10% to 15%. Based on
reinsurance treaty renewals received by the Company in the two quarters of
1997 and publicly available industry trade data, indications are that price
levels will decline at a similar pace in 1997. In particular, rates have
declined significantly in areas outside the United States, where there has
been favorable loss experience, while in the United States, where the level of
property catastrophe losses has generally been higher than in international
markets in recent years, rates have decreased to a lesser degree. However,
current premium rates and retention levels have remained, and Management
believes are likely to remain, higher than those that existed in 1992.
REINSURANCE PRODUCTS
The Company's property catastrophe reinsurance contracts are generally "all
risk" in nature. The Company's most significant exposure is to losses from
earthquakes and hurricanes, although the Company is also exposed to claims
arising from other natural and man-made catastrophes, such as winter storms,
freezes, floods, fires and tornadoes in connection with the coverages it
provides. The Company's predominant exposure under such coverage is to
property damage. However, other risks, including business interruption and
other non- property losses, may also be covered under the property reinsurance
contract when arising from a covered peril. In accordance with market
practice, the Company's property reinsurance contracts generally exclude
certain risks such as war, nuclear contamination or radiation.
Catastrophic events of significant magnitude have historically been
relatively infrequent, although the property catastrophe reinsurance market
experienced a high level of worldwide catastrophe losses in terms of both
frequency and severity during the period from 1987 to 1996 as compared to
prior years. However, because of the wide range of the possible catastrophic
events to which the Company is exposed, and because of the potential for
multiple events to occur in the same time period, the Company's business is
volatile, and its results of operations will reflect such volatility. Further,
the Company's financial condition may be impacted by this volatility over time
or at any point in time. The effects of claims from one or a number of severe
catastrophic events could have a material adverse effect on the Company. The
Company expects that increases in the values and concentrations of insured
property and the effects of inflation will increase the severity of such
occurrences per year in the future. See "Risk Factors--Volatility of Financial
Results."
The Company seeks to moderate the volatility described in the preceding
paragraph through the use of contract terms, portfolio selection methodology,
and probability analyses.
TYPE OF REINSURANCE
The following table sets forth the Company's gross premiums written and
number of programs written by type of reinsurance.
28
GEOGRAPHIC DIVERSIFICATION
The Company seeks to diversify its exposure across geographic zones. The
Company writes the majority of its business within the United States because
the returns obtained relative to the risks involved are currently most
attractive in the United States and because it is able to obtain the most
detailed underwriting information on U.S. risks. Within the United States, the
Company's zones of highest exposure are Southern California, Northern
California, metropolitan New York, New Madrid (Midwestern United States) and
Southern Florida.
UNDERWRITING
The Company's primary underwriting goal is to construct a portfolio of
reinsurance and insurance contracts that maximizes the return on shareholders'
equity subject to prudent risk constraints.
Management assesses underwriting decisions on the basis of the expected
incremental return on equity of each new reinsurance contract in relation to
the Company's overall portfolio of reinsurance contracts. To facilitate this,
Management has developed REMS(C), a proprietary, computer-based pricing and
exposure management system. Management utilizes REMS(C) to assess property
catastrophe risks, price treaties and limit aggregate exposure. REMS(C) was
developed with consulting assistance from Tillinghast, an actuarial consulting
unit of Towers, Perrin, Forster & Crosby, Inc. ("Tillinghast"), and Applied
Insurance Research Inc., the developer of the CATMAP(TM) system. REMS(C) has
analytic and modeling capabilities that assist the Company's underwriters in
assessing the catastrophe exposure risk and return of each incremental
reinsurance contract in relation to the Company's overall portfolio of
reinsurance contracts. The Company has licensed and integrated into REMS(C)
six commercially available catastrophe computer models in addition to the
Company's base model. The Company uses these models to validate and stress
test its base REMS(C) results. In addition, the Company stress tests its
exposures and potential future results by increasing the frequency and
severity of catastrophic events above the levels embedded in the models
purchased from the outside consultants. Management combines the analyses
generated by REMS(C) with its own knowledge of the client submitting the
proposed program to assess the premium offered against the risk of loss which
such program presents.
REMS(C) provides more precise exposure information than is generally
analyzed currently throughout the property catastrophe reinsurance industry.
REMS(C) combines computer-generated, statistical simulations that estimate
catastrophic event probabilities with exposure and coverage information on
each client's reinsurance contract to produce expected claims for reinsurance
programs submitted to the Company. REMS(C) then uses simulation techniques to
generate 40,000 years of catastrophic event activity, including events causing
in excess of $250 billion in insured industry losses. From this 40,000 year
simulation, the Company is able to obtain expected claims, expected profits
and a probability distribution of potential outcomes for each program in its
portfolio and for its total portfolio.
Management believes that REMS(C) provides the Company's underwriters with
several competitive advantages which are not generally available. These
include (i) the ability to simulate 40,000 years of catastrophic event
activity compared to a much smaller sample in generally available models,
allowing the Company to analyze its exposure to a greater number and
combination of potential events, (ii) the ability to analyze the incremental
impact of an individual reinsurance contract on the Company's overall
portfolio, and (iii) the ability to collect detailed data from a wide variety
of sources which allows the Company to measure geographic exposure at a
detailed level.
For its property catastrophe reinsurance business, the Company has developed
underwriting guidelines that limit the amount of exposure it will underwrite
directly for any one cedent, the exposure to claims from any single
catastrophic event and the exposure to losses from a series of catastrophic
events. The Company also attempts to distribute its exposure across a range of
attachment points.
As part of its pricing and underwriting process, the Company also assesses a
variety of factors, including the reputation of the proposed cedent and the
likelihood of establishing a long-term relationship with the cedent; the
geographic area in which the cedent does business and its market share;
historical loss data for the cedent
29
and, where available, for the industry as a whole in the relevant regions, in
order to compare the cedent's historical catastrophe loss experience to
industry averages; the cedent's pricing strategies; and the perceived
financial strength of the cedent.
MARKETING
The Company markets its reinsurance products worldwide exclusively through
reinsurance brokers. The Company focuses its marketing efforts on targeted
brokers and insurance and reinsurance companies, placing primary emphasis on
existing clients. Management believes that its existing portfolio of business
is a valuable asset given the renewal nature of the reinsurance industry and,
therefore, attempts to continually strengthen relationships with its existing
brokers and clients. The Company also targets prospects that are deemed likely
to enhance the risk/return composition of its portfolio, that are capable of
supplying detailed and accurate underwriting data and that potentially add
further diversification to the Company's book of business.
Management believes that primary insurers' and brokers' willingness to use a
particular reinsurer is based not just on pricing terms, but on the financial
security of the reinsurer, its claim paying ability ratings, perceptions of
the quality of a reinsurer's service, the reinsurer's willingness to design
customized programs, its long-term stability and its commitment to provide
reinsurance capacity. Management believes that the Company has established a
reputation with its brokers and clients for prompt response on underwriting
submissions and for fast claims payments. Since the Company selectively writes
large lines on a limited number of property catastrophe reinsurance contracts,
it can establish reinsurance terms and conditions on these contracts that are
attractive in its judgment, make large commitments to the most attractive
programs and provide superior client responsiveness. In addition, the Company
acts as sole reinsurer on certain property catastrophe reinsurance contracts,
which allows the Company to take advantage of its ability to develop
customized reinsurance programs. Management believes that such customized
programs help the Company to develop long-term relationships with brokers and
clients.
Subsidiaries and affiliates of Marsh & McLennan, Incorporated, E.W. Blanch
Co., Inc., Greig Fester Limited, Alexander Howden Reinsurance Brokers Ltd. and
Bates Turner, Inc. (a GE Capital Services company, and affilliate of PTI and
GE Insurance) accounted for approximately 15.2%, 14.9%, 11.5%, 10.1% and 6.8%,
respectively, of the Company's gross premiums written in 1996. During 1996,
the Company issued authorization for coverage on programs submitted by 65
brokers worldwide. The Company received approximately 1,584 program
submissions during 1996. The Company is highly selective and, from such
submissions, the Company issued authorizations for coverage for only 434
programs, or 27.4% of the program submissions received.
INVESTMENTS
The Company's strategy is to maximize its underwriting profitability and
fully deploy its capital through its underwriting activities; consequently,
the Company has established an investment policy which it considers to be
conservative. The Company's investment guidelines, which are established by
Management and approved by the Company's Board of Directors, stress
diversification of risk, preservation of capital and market liquidity.
Notwithstanding the foregoing, the Company's investments are subject to
market- wide risks and fluctuations, as well as to risks inherent in
particular securities. The primary objective of the portfolio, as set forth in
such guidelines, is to maximize investment returns consistent with these
policies. To achieve this objective, the Company's current fixed income
investment guidelines call for an average credit quality of AA and a target
duration of two years.
During 1996, the Company developed a multi-currency asset/liability
optimization model in conjunction with Tillinghast and Falcon Asset Management
to integrate asset, liability and capital decisions. As a result of the
analysis generated by this model, the Company determined that it could
diversify its investment portfolio by investing in common stocks with only a
minimal increase in overall risk. The analysis demonstrated that the benefits
of this diversification would substantially offset the volatility inherent in
equity investments, and would therefore not require significant amounts of
additional capital to support the Company's underwriting activities. As of
June 30, 1997, the Company had allocated $50.0 million of its fixed maturity
portfolio to equity securities.
30
COMPETITION
The property catastrophe reinsurance industry is highly competitive and is
undergoing a variety of challenging developments, including a marked trend
toward greater consolidation. The Company competes, and will continue to
compete, with major U.S. and non-U.S. property catastrophe insurers,
reinsurers, and certain underwriting syndicates. Many of these competitors
have greater financial, marketing and management resources than the Company.
In addition, new companies may enter the property catastrophe reinsurance
market or existing reinsurers may deploy additional capital in the property
catastrophe reinsurance market. The Company cannot predict what effect any of
these developments may have on the Company and its business.
Competition in the types of reinsurance business that the Company
underwrites is based on many factors, including premium charges and other
terms and conditions offered, services provided, speed of claims payment,
ratings assigned by independent rating agencies, the perceived financial
strength and the experience of the reinsurer in the line of reinsurance to be
written. The number of jurisdictions in which a reinsurer is licensed or
authorized to do business is also a factor. Some of the reinsurers who have
entered the Bermuda and London-based reinsurance markets have or could have
greater financial, marketing or managerial resources than the Company.
Ultimately, increasing competition could affect the Company's ability to
attract business on terms having the potential to yield an attractive return
on equity.
Management is also aware of many potential initiatives by capital market
participants to produce alternative products that may compete with the
existing catastrophe reinsurance markets. Management is unable to predict the
extent to which the foregoing new, proposed or potential initiatives may
affect the demand for the Company's products or the risks which may be
available for the Company to consider underwriting.
GLENCOE
Glencoe operates as a Bermuda-domiciled company and has been approved to do
business in the United States on an excess and surplus lines basis in 23
states. Glencoe will also consider underwriting submissions from insureds
located in other jurisdictions where it has been approved with respect to
exposures for which it has underwriting expertise. Glencoe seeks to employ in
the primary insurance market the modeling, underwriting, customer service and
capital management approaches that Renaissance Reinsurance employs with
respect to its reinsurance policies.
REGULATION
The Company, Renaissance Reinsurance and Glencoe are subject to regulation
under the insurance statutes and state insurance authorities of various
jurisdictions, including Bermuda, where they are each domiciled. The premium
rates and policy terms of reinsurance agreements generally are not subject to
governmental regulations. The regulation and supervision to which the Company
is subject relate primarily to the standards of solvency that must be met and
maintained, licensing requirements for reinsurers, the nature of and
limitations on investments, restrictions on the size of risks which may be
insured, deposits of securities for the benefit of a reinsured, methods of
accounting, periodic examinations of the financial condition and affairs of
reinsurers, the form and content of reports of financial condition required to
be filed, reserves for losses, holding company registration and change of
control and affiliate transaction limitations. In general, such regulation is
for the protection of the reinsureds and, ultimately, their policyholders,
rather than investors.
From time to time various regulatory and legislative changes have been
proposed in the insurance industry, some of which could have a material effect
on reinsurers. The Company is unable to predict what effect, if any,
realization of any of the foregoing developments may have on its operations
and financial condition in the future.
BERMUDA
The Insurance Act 1978, as amended, and Related Regulations
The Insurance Act 1978 of Bermuda, amendments thereto and related
regulations impose on Bermuda insurance companies solvency and liquidity
standards and auditing and reporting requirements and grant to the Bermuda
Minister of Finance powers to supervise, investigate and intervene in the
affairs of insurance companies.
31
United States and Other
Renaissance Reinsurance is not admitted to do business in any jurisdiction
except Bermuda. The insurance laws of each state of the United States and of
many other countries regulate the sale of insurance and reinsurance within
their jurisdictions by alien insurers, such as Renaissance Reinsurance, which
are not admitted to do business within such jurisdiction. With some
exceptions, such sale of insurance or reinsurance within a jurisdiction where
the insurer is not admitted to do business is prohibited. Renaissance
Reinsurance does not intend to maintain an office or to solicit, advertise,
settle claims or conduct other insurance activities in any jurisdiction other
than Bermuda where the conduct of such activities would require that
Renaissance Reinsurance be so admitted.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. For further information regarding the Company
reference is made to such reports, proxy statements and other information
which are available as described under "Available Information" and
"Incorporation of Certain Documents by Reference."
RECENT EVENTS
On June 27, 1997, the Company completed a public offering (the "Offering")
wherein WPI, USF&G, PTI and GE Insurance (the "Selling Shareholders") sold an
aggregate of 3,000,000 of the Company's Common Shares to the public, at a
price to the public of $38.00 per share. Concurrently therewith, the Selling
Shareholders sold to the Company for cancellation an aggregate of 700,000
Common Shares, at a purchase price per share of $36.29, constituting the
public offering price per share, less the underwriting discount per share (the
"Company Purchase"), and sold to James N. Stanard, an executive officer of the
Company, an aggregate of 100,000 Common Shares at a purchase price per share
of $38.00. Additionally, on July 14, 1997, WPI, PTI and GE Insurance sold an
aggregate of 376,800 Common Shares, at a price to the public of $38.00 per
share, pursuant to over-allotment options granted to the underwriters of the
Offering. As of July 25, 1997, the Selling Shareholders owned approximately
54.4% of the Company's outstanding equity, representing approximately 48.8% of
the Company's outstanding voting power.
32
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected financial data and other financial
information of the Company as of June 30, 1997 and December 31, 1996, 1995,
1994 and 1993, and for the six months ended June 30, 1997, years ended
December 31, 1996, 1995, 1994 and the period June 7, 1993 (date of
incorporation) through December 31, 1993. The balance sheet data as of
December 31, 1996, 1995, 1994 and 1993 and the statement of income data for
the years ended December 31, 1996, 1995 and 1994 and for the period June 7,
1993 through December 31, 1993 were derived from the Company's audited
Consolidated Financial Statements which have been audited by Ernst & Young,
the Company's independent auditors. The balance sheet data as of June 30, 1997
and the statement of income data for the period January 1, 1997 through June
30, 1997 were derived from the unaudited interim financial statements of the
Company. The unaudited interim financial statements include all adjustments
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the financial position and results of operations
for that period. The results of operations for any interim period are not
necessarily indicative of results for the full fiscal year. The selected
financial data should be read in conjunction with the Consolidated Financial
Statements of the Company and related Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
the 1996 10-K and the March 1997 10-Q incorporated herein by reference and the
other financial information appearing elsewhere in this Prospectus or
incorporated by reference herein. See "Available Information" and "Documents
Incorporated by Reference."
33
- --------
(1) Net income per share was calculated by dividing net income available to
common shareholders by the number of weighted average Common Shares and
Common Share equivalents outstanding. Common Share equivalents are
calculated on the basis of the treasury stock method.
(2) Return on average shareholders' equity for a period of less than a full
year is calculated by annualizing the net income available to common
shareholders for such period and dividing it by beginning shareholders'
equity plus one-half such annualized net income.
(3) This item reflects $100.0 million aggregate liquidation amount of the
Capital Securities issued by a subsidiary trust. The sole assets of the
Trust are $103.1 million aggregate principal amount of 8.54% Junior
Subordinated Debentures due March 1, 2027 issued by the Company.
(4) Book value per Common Share was computed by dividing total shareholders'
equity by the number of outstanding Common Shares.
34
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements. Payments under the Junior Subordinated
Debentures will be the sole revenues of the Trust. Future consolidated
financial statements of the Company will include (i) the presentation of the
Capital Securities as a separate line item on its balance sheet as "Company-
obligated mandatorily redeemable capital securities of a subsidiary trust
holding solely Junior Subordinated Debentures of the Company", (ii) a footnote
to the Company's financial statements indicating that the sole assets of the
Trust are $100,000,000 aggregate principal amount of 8.54% Junior Subordinated
Debentures due March 1, 2027 and (iii) an audited footnote to the Company's
financial statements that (a) the Trust is wholly owned by the Company, (b)
its sole assets are the $100,000,000 aggregate principal amount of 8.54%
Junior Subordinated Debentures due March 1, 2027 issued by the Company and
(c) that the Guarantee, when taken together with the Company's obligations
under the Trust Agreement, the Junior Subordinated Debentures and the
Indenture, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
provide a full and unconditional guarantee of the Trust's obligations under
the Capital Securities. The Company will record Distributions payable on the
Capital Securities as an expense in its consolidated statement of earnings.
USE OF PROCEEDS
Neither the Company nor the Trust will receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. In consideration for
issuing the New Capital Securities in exchange for the Old Capital Securities
as described in this Prospectus, the Trust will receive Old Capital Securities
in like Liquidation Amount. The Old Capital Securities surrendered in exchange
for the New Capital Securities will be retired and canceled.
The proceeds to the Trust from the offering of the Old Capital Securities
(without giving effect to expenses of the offering payable by the Company)
were $100,000,000. All of the proceeds from the sale of the Old Capital
Securities were invested by the Trust in the Old Junior Subordinated
Debentures. The Company used the net proceeds from the sale of the Old Junior
Subordinated Debentures to repay outstanding amounts under the Company's
revolving credit facility.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges of
the Company for the respective periods indicated:
- --------
* The Company had no fixed charges for the period June 7, 1993 (date of
incorporation) through December 31, 1993.
The ratios of earnings to fixed charges have been computed based on the
Company's continuing operations by dividing total earnings available for fixed
charges, excluding capitalized interest, by total fixed charges. Fixed charges
consist of interest, expense on debt, dividends on preferred shares and that
portion of rent expense which is deemed to be an appropriate interest factor.
35
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997, pro forma as adjusted for the purchase for
cancellation by the Company on June 27, 1997 of 700,000 Common Shares in the
Company Purchase and pro forma as adjusted for the consummation of the
Exchange Offer. The following data should be read in conjunction with the
financial information included in the Company's March 1997 10-Q, which is
incorporated herein by reference. See "Incorporation of Certain Documents by
Reference."
- --------
(1) This item reflects the Old Capital Securities. The Trust is a subsidiary
of the Company and used the proceeds from the sale of the Old Capital
Securities, for which the New Capital Securities are hereby being offered, to
purchase $100,000,000 aggregate principal amount of 8.54% Junior Subordinated
Debentures due March 1, 2027 issued by the Company. The Junior Subordinated
Debentures are the sole assets of the Trust.
36
MANAGEMENT
The table below sets forth the names, ages and titles of the persons who
were directors of the Company and executive officers of the Company as of July
25, 1997.
James N. Stanard has served as Chairman of the Board, President and Chief
Executive Officer since the Company's formation in June 1993. From 1991
through June 1993, Mr. Stanard served as Executive Vice President of United
States Fidelity & Guaranty Company and was a member of a three-person Office
of the President. As Executive Vice President of USF&G, he was responsible for
USF&G's underwriting, claims and ceded reinsurance. From October 1983 to 1991,
Mr. Stanard was an Executive Vice President of F&G Re, Inc., USF&G's start-up
reinsurance subsidiary ("F&G Re"). Mr. Stanard was one of two senior officers
primarily responsible for the formation of F&G Re, where he was responsible
for the underwriting, pricing and marketing activities of F&G Re during its
first seven years of operation. As Executive Vice President of F&G Re,
Mr. Stanard was personally involved in the design of pricing procedures,
contract terms and analytical underwriting tools for all types of treaty
reinsurance, including both U.S. and international property catastrophe
reinsurance.
Neill A. Currie has served as Senior Vice President of the Company since its
formation in June 1993. Mr. Currie served as a director of the Company from
August 1994 through August 1995. From November 1992 through May 1993, Mr.
Currie served as Chief Executive Officer of G.J. Sullivan Co.-Atlanta, a
private reinsurance broker. From 1982 through 1992, Mr. Currie served as
Senior Vice President at R/I and G.L. Hodson, predecessors to Willis Faber.
David A. Eklund has served as Senior Vice President of the Company since
February 1996. Mr. Eklund served as Vice President-Underwriting of the Company
from September 1993 until February 1996. From November 1989 through September
1993, Mr. Eklund held various positions in casualty underwriting at Old
Republic International Reinsurance Group, Inc., where he was responsible for
casualty treaty underwriting and marketing. From March 1988 to November 1989,
Mr. Eklund held various positions in catastrophe reinsurance at Berkshire
Hathaway Inc., where he was responsible for underwriting and marketing finite
risk and property catastrophe reinsurance.
Keith S. Hynes has served as Senior Vice President and Chief Financial
Officer of the Company since June 1994. Mr. Hynes was employed by Hartford
Steam Boiler Inspection & Insurance Co. ("Hartford Steam") from January 1983
to January 1994. From April 1992 to January 1994, he served as Hartford
Steam's Senior Vice
37
President and Chief Financial Officer. From November 1986 to April 1992, Mr.
Hynes worked in Hartford Steam's Underwriting Department, advancing to Senior
Vice President and Chief Underwriting Officer, where he managed Hartford
Steam's underwriting and ceded reinsurance activities, from April 1990 to
April 1992. From January 1983 to November 1986, Mr. Hynes was Hartford Steam's
Chief Investment Officer. Mr. Hynes held several investment management
positions with Aetna Insurance Company from June 1978 to January 1983.
William I. Riker was appointed Senior Vice President of the Company in March
1995 and served as Vice President-Underwriting of the Company from November
1993 until such time. From March 1993 through October 1993, Mr. Riker served
as Vice President of Applied Insurance Research, Inc. Prior to that, Mr. Riker
held the position of Senior Vice President, Director of Underwriting at
American Royal Reinsurance Company ("American Royal"). Mr. Riker was
responsible for developing various analytical underwriting tools while holding
various positions at American Royal from 1984 through 1993.
Arthur S. Bahr has served as a director of the Company since its formation
in June 1993. Mr. Bahr served as Director and Executive Vice President-
Equities of General Electric Investment Corporation ("GEIC"), a subsidiary of
General Electric Company and registered investment adviser, from 1987 until
December 1993. Mr. Bahr served GEIC in various senior investment positions
since 1978 and was a Trustee of General Electric Pension Trust from 1976 until
December 1993. Mr. Bahr served as Director and Executive Vice President of GE
Investment Management Incorporated, a subsidiary of General Electric Company
and a registered investment adviser, from 1988 until his retirement in
December 1993. From December 1993 until December 1995, Mr. Bahr served as a
consultant to GEIC.
Thomas A. Cooper has served as a director of the Company since August 7,
1996. From August 1993 until August 1996 Mr. Cooper served as Chairman and
Chief Executive Officer of TAC Bancshares, Inc. and as Chairman and Chief
Executive Officer of Chase Federal Bank FSB. From June 1992 until July 1993,
Mr. Cooper served as principal of TAC Associates, a financial investment
company. From April 1990 until May 1992 Mr. Cooper served as Chairman and
Chief Executive Officer of Goldome FSB. From 1986 to April 1990, Mr. Cooper
served as Chairman and Chief Executive Officer of Investment Services of
America, one of the largest full service securities brokerage and investment
companies in the United States. Prior thereto, Mr. Cooper served as President
of Bank of America from February 1983 to April 1986. From 1980 to 1982 Mr.
Cooper served as Vice Chairman of Mellon Bank. From 1978 to 1982, Mr. Cooper
was President of Girard Bank in Philadelphia.
Edmund B. Greene has served as a director of the Company since its formation
in June 1993. Mr. Greene has served as Deputy Treasurer-Insurance of General
Electric Company since March 1995. Prior to that, Mr. Greene was Manager-
Corporate Insurance Operation of General Electric Company since 1985, and
previously served in various financial management assignments since 1962.
Gerald L. Igou has served as a director of the Company since its formation
in June 1993. Mr. Igou has served as a Vice President-Investment Analyst for
GEIC since September 1993. He is a Certified Financial Analyst and has served
GEIC in the capacities of investment analyst and sector portfolio manager
since 1968. Prior to joining General Electric, Mr. Igou was an analyst with
the Wall Street firms of Smith Barney Inc. and Dean Witter & Co.
Kewsong Lee has served as a director of the Company since December 1994. Mr.
Lee has served as a Member and Managing Director of E.M. Warburg, Pincus & Co.
LLC ("EMW LLC") and a general partner of Warburg, Pincus & Co. ("WP") since
January 1, 1997. Mr. Lee served as a Vice President of Warburg, Pincus
Ventures, Inc. ("WPV") from January 1995 to December 1996, and an associate at
E.M. Warburg, Pincus & Co., Inc. ("EMW") from 1992 until December 1994. Prior
to joining EMW, Mr. Lee was a consultant at McKinsey & Company, Inc., a
management consulting company, from 1990 to 1992. Mr. Lee is a director of
Knoll, Inc. and several privately held companies.
John M. Lummis has served as a director of the Company since July 1993. Mr.
Lummis has served as Vice President-Business Development of USF&G Corporation
since 1994 and served as Vice President and Group
38
General Counsel for USF&G Corporation from 1991 until 1995. USF&G Corporation
is the parent company of USF&G. From 1982 until 1991, Mr. Lummis was engaged
in the private practice of law with the law firm of Shearman & Sterling.
Howard H. Newman has served as a director of the Company since its formation
in June 1993. Mr. Newman has served as a Member and Managing Director of EMW
LLC (and its predecessor) and a general partner of WP since 1987. Mr. Newman
is a director of ADVO, Inc., Newfield Exploration Company, Cox Insurance
Holdings Plc, Comcast UK Cable Partners Limited and several privately held
companies.
Scott E. Pardee has served as a director of the Company since February 1997.
Mr. Pardee served as Chairman of Yamaichi International (America), Inc., a
financial services company, from 1989 to 1994. Mr. Pardee previously served as
Executive Vice President and a member of the Board of Directors of Discount
Corporation of New York, a primary dealer in U.S. government securities, and
as Senior Vice President and Manager of the Federal Reserve Bank of New York.
John C. Sweeney has served as a director of the Company since December 1996.
Mr. Sweeney has served as Senior Vice President and Chief Investment Officer
of USF&G since 1992, and as Chairman of Falcon Asset Management since 1992.
Prior thereto, Mr. Sweeney served as Principal and Practice Director of Towers
Perrin Consulting Services from 1985 to 1992, and as Chief Investment Officer
of McM/Occidental Peninsular Insurance Companies from 1981 to 1984. Mr.
Sweeney also serves as a Director of USF&G Pacholder Fund, Inc.
David A. Tanner has served as a director of the Company since December 1996.
Mr. Tanner has served as a Member and Managing Director of EMW LLC (and its
predecessor) and a general partner of WP since January 1, 1993. Mr. Tanner
served as a Vice President of EMW from January 1, 1991 to 1993. Mr. Tanner is
a director of Golden Books Family Entertainment, Inc., the New York Venture
Capital Forum and several privately held companies. Mr. Tanner previously
served as a director of the Company from December 1994 through May 1996.
RENAISSANCERE CAPITAL TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) the Trust Agreement executed by the Company, as Sponsor, The Bank of
New York, as Property Trustee, The Bank of New York (Delaware), as Delaware
Trustee, and the three Administrative Trustees named therein, and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on
February 25, 1997. The Trust exists for the exclusive purposes of (i) issuing
and selling the Trust Securities, (ii) investing the proceeds from the sale
thereof in the Junior Subordinated Debentures and (iii) engaging in only those
other activities 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 Capital
Securities, except that upon the occurrence and continuance of an event of
default under the Trust Agreement (an "Event of Default") 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 New Securities--
Description of New Capital Securities--Subordination of Common Securities."
The Company has acquired Common Securities in a Liquidation Amount equal to at
least 3% of the total capital of the Trust. The Trust has a term of 41 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
Bank of New York, as the Property Trustee (the "Property Trustee"), The Bank
of New York (Delaware), as the Delaware Trustee (the "Delaware Trustee"), and
three individual trustees (the "Administrative Trustees") who are employees or
officers of or affiliated with the Company (collectively, the "Trustees"). The
Bank of New York, as Property Trustee, presently acts as sole indenture
trustee under the Trust Agreement. The Bank of
39
New York also presently acts as indenture trustee under the Guarantee and the
Indenture. See "Description of New Securities--Description of New Junior
Subordinated Debentures" and "--Description of New Guarantee." 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 are 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 are vested
exclusively in the holder of the Common Securities. The duties and obligations
of each Trustee are governed by the Trust Agreement. The Company, as issuer of
the Junior Subordinated Debentures, will pay all fees, expenses, debts and
obligations (other than the Trust Securities) related to the Trust and the
offering and exchange of the Capital Securities and will pay, directly or
indirectly, all ongoing costs, expenses and liabilities of the Trust. The
address for notices to the Trust is c/o The Bank of New York, 101 Barclay
Street-21W, Corporate Trust Department, New York, New York 10286, with a copy
to RenaissanceRe Holdings Ltd., Renaissance House, 8-12 East Broadway,
Pembroke HM 19 Bermuda.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Company and
the Trust entered into the Registration Rights Agreement with the Initial
Purchasers, pursuant to which the Company and the Trust agreed to file, and to
use their reasonable efforts to cause to become effective, with the Commission
a registration statement with respect to the exchange of the Old Capital
Securities for capital securities with terms substantially identical 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 New Capital Securities are the same as the form and terms of
the Old Capital Securities except that the New Capital Securities have been
registered under the Securities Act 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. In that regard, the Old Capital
Securities provide, among other things, that, if the Exchange Offer
Registration Statement has not been filed by August 4, 1997 and declared
effective by September 3, 1997, the Distribution rate borne by the Old Capital
Securities commencing on the day after either of such dates will increase by
0.25% per annum until the Exchange Offer Registration Statement is filed or
declared effective, as the case may be. In addition, if the Company has not
consummated the Exchange Offer on or prior to the 45th day after the date on
which the Exchange Offer Registration Statement is declared effective, and
such event continues for a period exceeding 30 consecutive days or 90 days in
any 365 day period, then the Distribution rate borne by the Old Capital
Securities will increase by 0.25% commencing on the day after any such event,
until the Exchange Offer is consummated. Upon consummation of the Exchange
Offer, holders of Old Capital Securities will not be entitled to any increase
in the Distribution rate thereon or any further registration rights under the
Registration Rights Agreement, except under limited circumstances. See "Risk
Factors--Consequences of a Failure to Exchange Old Capital Securities" and
"Description of Old 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 the registered 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.
40
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New 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 New Junior Subordinated Debentures. The New Guarantee and New
Junior Subordinated Debentures have been registered under the Securities Act.
TERMS OF THE EXCHANGE OFFER
The Trust hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $100,000,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
validly 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
$100,000,000 of New Capital Securities in exchange for a like principal amount
of outstanding Old Capital Securities tendered and accepted in connection with
the Exchange Offer. Holders may tender their Old Capital Securities in whole
or in part in a Liquidation Amount of not less than $100,000 (100 Capital
Securities) or any integral multiple of $1,000 Liquidation Amount (one Capital
Security) in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount of
Old Capital Securities being tendered. As of the date of this Prospectus,
$100,000,000 aggregate Liquidation Amount of the 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 which 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.
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 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 OLD CAPITAL
SECURITIES PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
OLD CAPITAL SECURITIES TO TENDER BASED ON SUCH HOLDERS' OWN FINANCIAL
POSITIONS AND REQUIREMENTS.
The term "Expiration Date" means 5:00 p.m., New York City time, on September
1, 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).
41
The Company and the Trust expressly reserve the right in their reasonable
discretion, subject to applicable law, at any time and from time to time, (i)
to delay the acceptance of the Old Capital Securities for exchange, (ii) to
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) to 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) to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. If the Exchange Offer is amended
in a manner determined by the Company and the Trust to constitute a material
change, or if the Company and the Trust waive a material condition of the
Exchange Offer, the Company and the Trust will promptly disclose such
amendment or waiver by means of a prospectus supplement that will be
distributed to the holders of the Old Capital Securities. If any facts or
events arise which constitute a fundamental change in the information set
forth herein or if any material changes or material additions are made to the
plan of distribution described herein, the Company and the Trust will file a
post-effective amendment to the Registration Statement setting forth the
applicable information and will distribute an amended prospectus to the
holders of the Old Capital Securities. At the time that such prospectus
supplement or amended prospectus is first given to holders of Old Capital
Securities the Exchange Offer is scheduled to expire at any time earlier than
the expiration of a period ending on the tenth business day from and including
the date that such prospectus supplement or amended prospectus is first so
given, then the Exchange Offer will be extended until the expiration of such
period of ten business days.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company and the Trust may choose to make any
public announcement and subject to applicable law, the Company and the Trust
shall have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a release to an appropriate
news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Trust will exchange, and will issue to the Exchange Agent, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn
promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for Old Capital
Securities tendered and accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of
Old Capital Securities into the Exchange Agent's account at DTC, (ii) the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or, in the case of a
participant in the book-entry transfer facility system, an Agent's Message,
and (iii) any other documents required by the Letter of Transmittal.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Old Capital Securities into the Exchange Agent's account at
DTC.
Subject to the terms and conditions of the Exchange Offer, the Trust will be
deemed to have accepted for exchange, and thereby exchanged, Old Capital
Securities validly tendered and not withdrawn as, if and when the Trust gives
oral or written notice to the Exchange Agent of the Trust's acceptance of such
Old Capital Securities for exchange pursuant to the Exchange Offer. The
Exchange Agent will act as agent for the Trust for the purpose of receiving
tenders of Old Capital Securities, Letters of Transmittal and related
documents, and as agent for tendering holders for the purpose of receiving Old
Capital Securities, Letters of Transmittal and related documents and
transmitting New Capital Securities to validly tendering holders. Such
exchange will be made promptly after the Expiration Date. If, for any reason
whatsoever, acceptance for exchange or the exchange of
42
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, a holder of Old Capital Securities
will warrant and agree in the Letter of Transmittal that it has full power and
authority to tender, exchange, sell, assign and transfer Old Capital
Securities, that the Trust will acquire good, marketable and unencumbered
title to the tendered Old Capital Securities, free and clear of all liens,
restrictions, charges and encumbrances, and that the Old Capital Securities
tendered for exchange are not subject to any adverse claims or proxies. The
holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by the Trust or the Exchange Agent to
be necessary or desirable to complete the exchange, sale, assignment and
transfer of the Old Capital Securities tendered pursuant to the Exchange
Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
Valid Tender. Except as set forth below, in order for Old Capital Securities
to be validly tendered pursuant to the Exchange Offer, a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, or an Agent's
Message in case of book-entry delivery as described below, must be received by
the Exchange Agent at one of its addresses set forth under "--Exchange Agent,"
and either (i) tendered 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 must be received by the Exchange Agent, in each case on or prior
to the Expiration Date, or (iii) the guaranteed delivery procedures set forth
below must be complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in
the appropriate box on the Letter of Transmittal. The entire amount of Old
Capital Securities delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY THEREOF WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, TENDERING HOLDERS OF OLD
CAPITAL SECURITIES ARE RECOMMENDED TO USE EITHER REGISTERED MAIL, RETURN
RECEIPT REQUESTED AND PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry 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.
Except in the case of a participant in the book-entry transfer facility system
who transfers the Old Capital Securities by an Agent's Message, delivery of
Old Capital Securities effected through book-entry transfer into the Exchange
Agent's account at DTC requires that the Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, must in any case be delivered to
and received by the Exchange Agent at its address set forth under "--Exchange
Agent" on or prior to the Expiration
43
Date, or the guaranteed delivery procedure set forth below must be complied
with. A holder who is a participant in the book-entry transfer facility system
and transfers the Old Capital Securities by an Agent's Message need not
transmit the Letter of Transmittal to the Exchange Agent to consummate the
exchange.
The term "Agent's Message" means a message transmitted through electronic
means by a book-entry transfer facility to and received by the Exchange Agent
and forming a part of a book-entry confirmation, which states that DTC has
received an express acknowledgment from the participant tendering the Old
Capital Securities that such participant has received and agrees to be bound
by the Letter of Transmittal and/or the Notice of Guaranteed Delivery (as
discussed below), where applicable.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (a) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the
certificate or (b) such holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the Letter of Transmittal.
In the case of (a) or (b) above, such certificates for Old Capital Securities
must be duly endorsed or accompanied by a properly executed bond power, with
the endorsement or signature on the bond power and on the Letter of
Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association (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, or, in
the case of a participant in the book-entry transfer facility system, an
Agent's Message, is received by the Exchange Agent, as provided below, on
or prior to the Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal, or, in the case of a participant in
the book-entry transfer facility system, an Agent's Message, are received
by the Exchange Agent within three New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mailed to the Exchange Agent and must include a guarantee by
an Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made only after
timely receipt by the Exchange Agent of Old Capital Securities, or of a book-
entry confirmation with respect to such Old Capital Securities, and a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
together with any required signature guarantees and any other documents
required by the Letter of Transmittal, or, in the case of a participant in the
book-entry transfer facility system, an Agent's
44
Message. Accordingly, the delivery of New Capital Securities might not be made
to all tendering holders at the same time and will depend upon when Old
Capital Securities, book-entry confirmations with respect to Old Capital
Securities and other required documents are received by the Exchange Agent.
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 and absolute 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 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 and absolute discretion, of such person's authority to so act must
be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF NEW CAPITAL SECURITIES
The Trust is making the Exchange Offer for the New Capital Securities in
reliance on the position of the Staff of the 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 would make a similar
determination with respect to the Exchange Offer as it has in such prior
interpretive letters to third parties. Based on these interpretations by the
Staff, and subject to the two immediately following sentences, the Company and
the Trust believe that New Capital Securities issued pursuant to the Exchange
Offer in exchange for Old Capital Securities may be offered for resale, resold
and otherwise transferred by a holder thereof (other than a holder who is a
broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Capital
Securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Capital Securities. However, any holder of Old
Capital Securities who is an "affiliate" of the Company or the Trust or who
intends to participate in the Exchange Offer for the purpose of distributing
New Capital Securities, or any broker-dealer who purchased Old Capital
Securities from the Trust to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the Staff set forth in the above-mentioned interpretive
letters, (b) will not be
45
permitted or entitled to tender such Old Capital Securities in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other
transfer of such Old Capital Securities unless such sale is made pursuant to
an exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Capital Securities acquired for its own account as a
result of market-making or other trading activities and exchanges such Old
Capital Securities for New Capital Securities, then such broker-dealer must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required
to represent that (i) it is not an "affiliate" of the Company or the Trust,
(ii) any New Capital Securities to be received by it are being acquired in the
ordinary course of its business, (iii) it has no arrangement or understanding
with any person to participate in a distribution (within the meaning of the
Securities Act) of such New Capital Securities, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New
Capital Securities. In addition, the Company and the Trust may require such
holder, as a condition to such holder's eligibility to participate in the
Exchange Offer, to furnish to the Company and the Trust (or an agent thereof)
in writing information as to the number of "beneficial owners" (within the
meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder
holds the Old Capital Securities to be exchanged in the Exchange Offer. Each
broker-dealer that receives New Capital Securities for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old
Capital Securities for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Capital Securities. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Company and the Trust believe that Participating Broker-Dealers who
acquired Old Capital Securities for their own accounts as a result of market-
making activities or other trading activities may fulfill their prospectus
delivery requirements with respect to the New Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities
which represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale
of such New Capital Securities. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales
of New Capital Securities received in exchange for Old Capital Securities
where such Old Capital Securities were acquired by such Participating Broker-
Dealer for its own account as a result of market-making or other trading
activities. Subject to certain provisions set forth in the Registration Rights
Agreement, the Company and the Trust have agreed that this Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period of not more than 180 days after the Expiration Date
(subject to extension under certain limited circumstances described below) or,
if earlier, when all such New Capital Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Capital Securities received in exchange for Old Capital
Securities pursuant to the Exchange Offer must notify the Company or the
Trust, or cause the Company or the Trust to be notified, on or prior to the
Expiration Date, that it is a Participating Broker-Dealer. Such notice may be
given in the space provided for that purpose in the Letter of Transmittal or
may be delivered to the Exchange Agent at one of the addresses set forth
herein under "--Exchange Agent." Any Participating Broker-Dealer who is an
"affiliate" of the Company or the Trust may not rely on such interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal, that, upon receipt of
46
notice from the Company or the Trust of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference in this Prospectus untrue in any material respect or which causes
this Prospectus to omit to state a material fact necessary in order to make
the statements contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading or of the occurrence
of certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of New Capital Securities
(or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) pursuant to this Prospectus until the Company or the Trust has
amended or supplemented this Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemented Prospectus to
such Participating Broker-Dealer or the Company or the Trust has given notice
that the sale of the New Capital Securities (or the New Guarantee or the New
Junior Subordinated Debentures, as applicable) may be resumed, as the case may
be. If the Company or the Trust gives such notice to suspend the sale of the
New Capital Securities (or the New Guarantee or the New Junior Subordinated
Debentures, as applicable), it shall extend the 180-day period referred to
above during which Participating Broker-Dealers are entitled to use this
Prospectus in connection with the resale of New Capital Securities by the
number of days during the period from and including the date of the giving of
such notice to and including the date when Participating Broker-Dealers shall
have received copies of the amended or supplemented Prospectus necessary to
permit resales of the New Capital Securities or to and including the date on
which the Company or the Trust has given notice that the sale of New Capital
Securities (or the New Guarantee or the New Junior Subordinated Debentures, as
applicable) may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written 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 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.
47
DISTRIBUTIONS ON NEW CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange in the Exchange Offer 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 after March
7, 1997. Accordingly, holders of New Capital Securities as of the record date
for the payment of Distributions on September 1, 1997 will be entitled to
receive Distributions accumulated from and after March 7, 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 New
Capital Securities, and, as described below, may terminate the Exchange Offer
(whether or not any Old Capital Securities have theretofore been accepted for
exchange) or may waive any conditions to or amend the Exchange Offer, if any
of the following conditions 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 New Capital Securities issued pursuant
to the Exchange Offer in exchange for Old Capital Securities to be offered
for resale, resold and otherwise transferred by holders thereof (other than
broker-dealers and any such holder which is an "affiliate" of the Company
or the Trust 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 New Capital Securities are
acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such New Capital Securities; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company or the Trust, would
reasonably be expected to impair its ability to proceed with the Exchange
Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Company or the Trust, threatened for that purpose or any governmental
approval has not been obtained, which approval the Company or the Trust
shall, in its sole and reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company or the Trust determines in its reasonable discretion that any
of the foregoing events or conditions has occurred or 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 in the Exchange Offer) 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
supplement to this Prospectus that will be distributed to the registered
holders of the Old Capital Securities. If such waiver or amendment constitutes
a fundamental change to the Exchange Offer, the Company and the Trust will
file a post-effective amendment to the Registration Statement setting forth
the applicable information and will distribute an amended prospectus to the
holders of the Old Capital Securities. At the time such prospectus supplement
or amended prospectus is first given to holders of Old Capital Securities the
Exchange Offer is scheduled to expire at any time earlier than the expiration
of a period ending on the fifth business day from and including the date that
such prospectus supplement or amended prospectus is first so given, then the
Exchange Offer will be extended until the expiration of such period of ten
business days.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Delivery of Letters of Transmittal by tendering holders of Old Capital
Securities and any other required documents, questions,
48
requests for assistance, and requests for additional copies of this Prospectus
or of the Letter of Transmittal should be directed to the Exchange Agent, by
registered or certified mail or by hand or overnight delivery, as follows:
The Bank of New York
101 Barclay Street, Floor 7 East
New York, New York 10286
Attention: Enrique Lopez
Attention: Reorganization Section
Confirm By Telephone:
(212) 815-2742
Facsimile Transmissions:
(Eligible Institutions Only)
(212) 815-6339
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection with the Exchange Offer. 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 Old Capital Securities for their
customers.
Holders who tender their Old Capital Securities for exchange in the Exchange
Offer will not be obligated to pay any transfer taxes in connection therewith.
If, however, New Capital Securities are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the Old
Capital Securities tendered, or if a transfer tax is imposed for any reason
other than the exchange of Old Capital Securities in connection with the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder thereof. 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.
49
DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF NEW 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 New Capital
Securities. The New Capital Securities will represent preferred beneficial
interests in the Trust and the holders of the New Capital Securities and the
Old Capital Securities will be entitled to a preference over the Common
Securities in certain circumstances with respect to Distributions and amounts
payable on redemption of the Trust Securities or liquidation of the Trust. See
"--Subordination of Common Securities." The Trust Agreement has been qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
This summary of the material provisions of the New 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.
General. The Capital Securities (including the Old Capital Securities and
the New Capital Securities) are limited to $100,000,000 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 Old Capital
Securities and 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 for the benefit of
the holders of the Trust Securities. The New Guarantee will be a guarantee on
a subordinated basis but will not guarantee payment of Distributions or
amounts payable on redemption of the New Capital Securities or on liquidation
of the Trust when the Trust does not have funds on hand legally available for
such payments. See "--Description of New Guarantee."
Distributions. Distributions on the New Capital Securities will be
cumulative, will accumulate from March 1, 1997 and will be payable semi-
annually in arrears on March 1 and September 1 of each year, commencing
September 1, 1997, at the annual rate of 8.54% of the Liquidation Amount to
the holders of the New Capital Securities on the relevant record dates. The
record dates will be the first day of the month in which the relevant
Distribution Date (as defined below) falls. The amount of Distributions
payable for any period will be computed on the basis of a 360-day year of
twelve 30-day months. In the event that any date on which Distributions are
payable on the New Capital Securities is not a Business Day (as defined
below), payment of the Distribution payable on such date will be made on the
next succeeding day 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 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 New Junior Subordinated Debentures at any time or
from time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each Extension Period, provided that (i) no Extension
Period may extend beyond the Stated Maturity Date, (ii) any Extension Period
will terminate as to all Junior Subordinated Debentures upon an acceleration
thereof (subject to reinstatement, upon cure or waiver as provided in the
Indenture) and (iii) any Extension Period will terminate as to any Junior
Subordinated Debenture to be redeemed on the applicable Redemption Date. See
"--Description of Junior Subordinated Debenture--Debenture Events of Default."
Upon any such election, semi-annual Distributions on the New Capital
Securities will be deferred by the Trust during any such Extension Period.
Distributions to which holders of the New Capital Securities are entitled
during any such Extension Period will accumulate additional Distributions
thereon at the rate per annum of 8.54% thereof, compounded semi-annually from
the relevant Distribution Date. The term "Distributions," as used herein,
shall include any such additional Distributions.
Prior to the termination of any such Extension Period, the Company may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed ten consecutive semi-annual
50
periods or to extend beyond the Stated Maturity Date. Upon the termination of
any such Extension Period and the payment of all amounts then due, and subject
to the limitations set forth herein, 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 New Capital Securities would have been
payable except for the election to begin such Extension Period or (ii) the
date the Administrative Trustees are required to give notice to any securities
exchange or to holders of such New Capital Securities of the record date or
the date such Distributions are payable but in any event not less than five
Business Days prior to such record date. The Property Trustee will give notice
of the Company's election to commence or continue an Extension Period. Except
as described herein, there is no limitation on the number of times that the
Company may elect to begin an Extension Period. See "--Description of New
Junior Subordinated Debentures--Option to Extend Interest Payment Period" and
"Certain United States Federal Income Tax Considerations--Interest Income and
Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock, (ii)
make any payment of principal of or premium, if any, or interest on or repay,
repurchase or redeem any debt securities of the Company (including Other
Debentures) that rank pari passu with or junior in right of payment to the
Junior Subordinated Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company (including Other Guarantees) if such guarantee ranks
pari passu with or junior in right of payment to the Junior Subordinated
Debentures (other than (a) dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase common shares 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) the purchase of
fractional shares resulting from a reclassification of the Company's capital
stock, (e) the exchange or conversion of any class or series of the Company's
(or any subsidiary's) capital stock for another class or series of the
Company's (or any subsidiary's) capital stock or of any class or series of the
Company's (or any subsidiary's) indebtedness, (f) 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 (g) purchases, redemptions or other acquisitions of shares
of capital stock of the Company or any subsidiary under any employment
agreement or benefit plan for the benefit of the Company's directors,
officers, or employees, or any dividend reinvestment or director, officer or
employee stock purchase plan of the Company).
Although the Company has the right in the future to exercise its option to
defer payments of interest on the Junior Subordinated Debentures after their
issuance, the Company has no current intention to do so.
The revenue of the Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. See "Description of New Securities--Description
of New Junior Subordinated Debentures--General." If the Company does not make
interest payments on the Junior Subordinated Debentures, the Property Trustee
will not have funds available to pay Distributions on the 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 New
Securities--Description of New Guarantee."
Redemption. Upon the repayment on the Stated Maturity Date or prepayment
prior to the Stated Maturity Date of the 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 Junior Subordinated
Debentures on the Stated Maturity Date, the Maturity Redemption Price (equal
to the principal of, and accrued interest on, the Junior Subordinated
Debentures), (ii) in the case of the optional prepayment of the Junior
Subordinated
51
Debentures prior to March 1, 2007 upon the occurrence and continuation of a
Special Event, the Special Event Redemption Price (equal to the Special Event
Prepayment Price in respect of the Junior Subordinated Debentures) and (iii)
in the case of the optional prepayment of the Junior Subordinated Debentures
on or after March 1, 2007, the Optional Redemption Price (equal to the
Optional Prepayment Price in respect of the Junior Subordinated Debentures).
See "Description of New Securities--Description of New Junior Subordinated
Debentures--Optional Prepayment" and "--Special Event Prepayment."
"Like Amount" means (i) with respect to a redemption of the Trust
Securities, Trust Securities having a Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be paid in accordance
with their terms and (ii) with respect to a distribution of Junior
Subordinated Debentures upon the liquidation of the Trust, Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the holder to whom such Junior Subordinated Debentures are
distributed.
Liquidation of the Trust and distribution of new Junior Subordinated
Debentures. The Company will have the right at any time to dissolve the Trust
and, subject to the rights of creditors, to cause the Junior Subordinated
Debentures to be distributed to the holders of the Trust Securities in
liquidation of the Trust. Such right is 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.
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 Junior Subordinated Debentures to the
holders of the Trust Securities, if the Company, as Sponsor, has given written
direction to the Property Trustee to dissolve the Trust (which direction and
distribution is optional and, except as described above, wholly within the
discretion of the Company, as Sponsor); (iii) redemption of all of the Trust
Securities as described under "--Redemption;" (iv) expiration of the term of
the Trust; or (v) the entry of an order for the dissolution of the Trust by a
court of competent jurisdiction. Pursuant to the Trust Agreement, as soon as
practicable after the dissolution of the Trust and upon completion of the
winding up of the Trust, the Trustees shall file a certificate of cancellation
terminating the Trust.
If a dissolution occurs as described in clause (i), (ii), (iv), or (v)
above, the Trust shall be liquidated by the Trustees as expeditiously as the
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 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 Trust 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."
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 Junior Subordinated
Debentures having a principal amount equal to the Liquidation Amount of such
Trust Securities, and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on such Trust Securities until
such certificates are presented to the Administrative Trustees or their agent
for cancellation, whereupon the Company will issue to such holder, and the
Debenture Trustee will authenticate, a certificate representing such Junior
Subordinated Debentures.
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There can be no assurance as to the market prices for the Capital Securities
or the 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
payment of the 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 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 Capital
Securities held by DTC or its nominees, the Property Trustee will deposit
irrevocably with DTC funds sufficient to pay the applicable Redemption Price.
See "--Form, Denomination, Book-Entry Procedures and Transfer." With respect
to the 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 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 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 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 Capital Securities will cease, except the right of the holders
of the Capital Securities to receive the applicable Redemption Price, but
without interest on such Redemption Price, and the Capital Securities will
cease to be outstanding. In the event that any Redemption Date of 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
Guarantee as described under "Description of Guarantee," Distributions on
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, in which case the actual payment
date will be the Redemption Date for purposes of calculating the applicable
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement.
Subject to the provisions regarding the subordination of Common Securities
described under "-- Subordination of Common Securities" below, 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 Capital
Securities and Common Securities to be redeemed shall be allocated pro rata to
the Capital Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Capital Securities to be
redeemed shall be selected on a pro rata basis, rounded to the nearest 100
Capital Securities, not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Capital Securities not previously called
for redemption, or if the Capital Securities are then held in the form of a
Global Capital Security (as defined below), in accordance with DTC's customary
procedures, provided, in each case, that each holder of any Capital Securities
has at least 100 Capital Securities remaining after the redemption. The
Property Trustee shall promptly notify the securities registrar for the Trust
Securities in writing of the Capital Securities selected for redemption and,
in the case of any Capital Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of the
53
Trust Agreement, unless the context otherwise requires, all provisions
relating to the redemption of Capital Securities shall relate, in the case of
any Capital Securities redeemed or to be redeemed only in part, to the portion
of the aggregate Liquidation Amount of Capital Securities which has been or is
to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days 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
Trust Securities; provided, however, that if on any Distribution Date or
Redemption Date an 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, the Company as holder of the Common
Securities will be deemed to have waived any right to act with respect to such
Event of Default until the effect of such Event of Default shall have been
cured, waived or otherwise eliminated. Until any such Event of Default has
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the holders of the Capital Securities and not on behalf of
the Company as holder of the Common Securities, and only the holders of the
Capital Securities will have the right to direct the Property Trustee to act
on their behalf.
Events of Default; Notice. The occurrence of a Debenture Event of Default
(see "Description of New Junior Subordinated Debentures--Debenture Events of
Default") constitutes an "Event of Default" under the Trust Agreement.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of 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 New Junior Subordinated
Debentures" and "--Subordination of Common Securities."
Removal of Trustees. Unless a Debenture Event of Default shall have occurred
and be continuing, any Trustee may be removed at any time by the holder of the
Common Securities. 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 a
Trustee and no appointment of a successor trustee shall be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the Trust Agreement.
Merger or Consolidation of Trustees. Any corporation into which the Property
Trustee, the Delaware Trustee or any Administrative Trustee that is not a
natural person may be merged or converted or with which it
54
may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which such Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of such
Trustee, shall be the successor of such Trustee under the Trust Agreement,
provided such corporation 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 convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any corporation or other Person, except as
described below. The Trust may, at the request of the Company, as Sponsor,
with the consent of the Administrative Trustees but without the consent of the
holders of the Capital Securities, merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to a trust organized as
such under the laws of any State, the District of Columbia or of Bermuda;
provided, that (i) such successor entity either (a) expressly assumes all of
the obligations of the Trust with respect to the Capital Securities or (b)
substitutes for the Capital Securities other securities having substantially
the same terms as the Capital Securities (the "Successor Securities") so long
as the Successor Securities rank in priority the same as the Capital
Securities with respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) the Company expressly appoints a trustee of
such successor entity possessing the same powers and duties as the Property
Trustee with respect to the Junior Subordinated Debentures, (iii) the
Successor Securities are listed, or any Successor Securities will be listed
upon notification of issuance, on any national securities exchange or other
organization on which the Capital Securities are then listed, if any, (iv)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not cause the Capital Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital Securities (including
any Successor Securities) in any material respect, (vi) such successor entity
has a purpose identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Company has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect, 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 of 1940, as amended (the "Investment Company Act"), and (viii) the
Company or any permitted successor or assignee owns all of the common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not,
except with the consent of holders of 100% in Liquidation Amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or
lease would cause the Trust or the successor entity not to be classified as a
grantor trust or other entity exempt from taxation for United States federal
income tax purposes. In addition, the Property Trustee will be required
pursuant to the Indenture to exchange, as a part of the Exchange Offer, the
Junior Subordinated Debentures for the Exchange Debentures, which will have
terms substantially identical to the Junior Subordinated Debentures except for
the transfer restrictions under the Securities Act, the $100,000 minimum
aggregate principal amount transfer restrictions and the provision for
liquidated damages thereon under certain circumstances.
Voting Rights; Amendment of the Trust Agreement. Except as provided below
and under "--Mergers, Consolidations, Amalgamations or Replacements of the
Trust" and "--Description of New Guarantee--Amendments and Assignment" and as
otherwise required by law and the Trust Agreement, the holders of the New
Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities (i) to cure any ambiguity,
55
correct or supplement any provisions in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, which shall
not be inconsistent with the other provisions of the Trust Agreement, or (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; provided, however, that in the case of clause (i), such action shall not
adversely affect in any material respect the interests of the holders of the
Trust Securities, and any amendments of the Trust Agreement shall become
effective when notice thereof is sent to the holders of the Trust Securities.
The Trust Agreement may be amended by the Trustees and the Company (i) with
the consent of holders representing a majority (based upon Liquidation Amount)
of the outstanding Trust Securities, and (ii) upon receipt by the Trustees of
an opinion of counsel to the effect that such amendment or the exercise of any
power granted to the Trustees in accordance with such amendment will not
affect the Trust's status as a grantor trust for United States federal income
tax purposes or the Trust's exemption from status as an "investment company"
under the Investment Company Act, provided that, without the consent of each
holder of Trust Securities, the Trust Agreement may not be amended to (i)
change the amount or timing of any Distribution on the Trust Securities or
otherwise adversely affect the amount of any Distribution required to be made
in respect of the Trust Securities as of a specified date or (ii) restrict the
right of a holder of Trust Securities to institute suit for the enforcement of
any such payment on or after such date; it being understood that the New
Capital Securities and any Old Capital Securities which remain outstanding
after consummation of the Exchange Offer will vote together as a single class
for purposes of determining whether holders of the requisite percentage in
outstanding Liquidation Amount thereof have taken certain actions or exercised
certain rights under the Trust Agreement.
So long as any Junior Subordinated Debentures are held by the Property
Trustee for the benefit of the holders of the Trust Securities, the Trustees
shall not (i) direct the time, method and place of conducting any proceeding
for any remedy available to the Debenture Trustee, or execute any trust or
power conferred on such Property Trustee with respect to the Junior
Subordinated Debentures, (ii) waive certain past defaults under the Indenture,
(iii) exercise any right to rescind or annul a declaration of acceleration of
the maturity of the principal of the Junior Subordinated Debentures or (iv)
consent to any amendment, modification or termination of the Indenture or the
Junior Subordinated Debentures, where such consent shall be required, without,
in each case, obtaining the prior approval of the holders of a majority in
Liquidation Amount of all outstanding Capital Securities; provided, however,
that where a consent under the Indenture would require the consent of each
holder of Junior Subordinated Debentures affected thereby, no such consent
shall be given by the Property Trustee without the prior approval of each
holder of the Capital Securities. The 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 Trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be
classified as an association taxable as a corporation or other entity subject
to taxation for United States federal income tax purposes on account of such
action.
Any required approval of holders of Capital Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Property Trustee will cause a notice of any meeting at which
holders of 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 Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of New Capital Securities will be required
for the Trust to redeem and cancel the New Capital Securities in accordance
with the Trust Agreement.
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 Trustees or any affiliate of the
Company or any Trustee, shall, for purposes of such vote or consent, be
treated as if they were not outstanding.
56
Form, Denomination, Book-Entry Procedures and Transfer. The New Capital
Securities initially will be represented by one or more 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, and such transfer shall be effective only when reflected
in the securities register maintained on behalf of the Trust. Beneficial
interests in the Global Capital Securities may not be exchanged for Capital
Securities in certificated form except in the limited circumstances described
below.
DTC has advised the Trust and the Company that DTC is a limited purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The
Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Capital Securities, DTC will
credit the accounts of Participants with portions of the Liquidation Amount of
the Global Capital Securities and (ii) ownership of such interests in the
Global Capital Securities will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the Participants) or by the Participants and the Indirect Participants
(with respect to other owners of beneficial interests in the Global Capital
Securities).
Except as described below, owners of beneficial 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 Security registered in the name of
DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the 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
interests in the Global Capital Securities, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial interests in the Global Capital Securities
or (ii) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants. DTC has advised the Trust and
the Company that its current practice, upon receipt of any payment in respect
of securities such as the 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 New Capital Securities will be governed by standing instructions and
customary
57
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Property Trustee,
the Trust or the Company. Neither the Trust nor the Company nor the Property
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the New Capital Securities, and the
Trust, 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.
Beneficial 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.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of New Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in
the Global Capital Securities are credited and only in respect of such portion
of the Liquidation Amount of the New Capital Securities as to which such
Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Trust Agreement, DTC reserves the right
to exchange the Global Capital Securities for New Capital Securities in
certificated form and to distribute such New Capital Securities to its
Participants.
The information in this section concerning DTC and its book-entry system has
been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
Exchange of Book-Entry Capital Securities for Certificated Capital
Securities. A Global Capital Security is exchangeable for New Capital
Securities in registered certificated form if (i) DTC (x) notifies the Trust
that it is unwilling or unable to continue as Depositary for the Global
Capital Security and the Trust thereupon fails to appoint a successor
Depositary within 90-days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company in its sole discretion elects to
cause the issuance of the New Capital Securities in certificated form or (iii)
there shall have occurred and be continuing an Event of Default or any event
which after notice or lapse of time or both would be an Event of Default under
the Trust Agreement. In addition, beneficial interests in a Global Capital
Security may be exchanged for certificated New Capital Securities upon request
but only upon at least 20-days prior written notice given to the Property
Trustee by or on behalf of DTC in accordance with customary procedures. In all
cases, certificated New Capital Securities delivered in exchange for any
Global Capital Security or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by or on behalf
of the Depositary (in accordance with its customary procedures), unless the
Property Trustee determines otherwise in compliance with applicable law.
Payment and Paying Agency. Payments in respect of the New Capital Securities
held in global form shall be made to the Depositary, which shall credit the
relevant accounts at the Depositary on the applicable Distribution Dates or in
respect of the New Capital Securities that are not held by the Depositary,
such payments shall be made by check mailed to the address of the holder
entitled thereto as such address shall appear on the register. The initial
paying agent (the "Paying Agent") is the Property Trustee. The Paying Agent is
permitted to resign as Paying Agent upon 30 days written notice to the
Property Trustee and the Company. In the event that the Property Trustee shall
no longer be the Paying Agent, the Administrative Trustees shall appoint a
successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the Company) to act as Paying Agent.
Registrar and Transfer Agent. The Property Trustee will act as registrar and
transfer agent for the New Capital Securities.
Registration of transfers of the New Capital Securities will be effected
without charge by or on behalf of the Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Trust will not be required to register or cause to be
registered the transfer of the New Capital Securities after they have been
called for redemption.
58
CUSIP Number. The Company and the Trust have applied for, and received, a
debt CUSIP number for the New Capital Securities.
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.
Miscellaneous. The Administrative Trustees are authorized and directed to
conduct the affairs of and to operate the Trust in such a way that the Trust
will not be deemed to be an "investment company" required to be registered
under the Investment Company Act or classified as an association taxable as a
corporation or other entity subject to taxation for United States federal
income tax purposes and so that the Junior Subordinated Debentures will be
treated as indebtedness of the Company for United States federal income tax
purposes. In this connection, the Company and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the Trust Agreement, that the Company and
the Administrative Trustees determine in their discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Trust Securities.
Holders of the Trust Securities have no preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge any
of its assets.
DESCRIPTION OF NEW JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the New Junior
Subordinated Debentures will be issued as separate series under the Indenture.
The Indenture has been qualified under, and is governed by, 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 Capital Securities, the
Trust invested the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in Old Junior Subordinated Debentures
issued by the Company. Pursuant to the Exchange Offer, the Company will
exchange the Old Junior Subordinated Debentures, in an amount corresponding to
the Old Capital Securities accepted for exchange, for a like aggregate
principal amount of the New Junior Subordinated Debentures as soon as
practicable after the date hereof.
The New Junior Subordinated Debentures will bear interest at the annual rate
of 8.54% of the principal amount thereof, payable semi-annually in arrears on
March 1 and September 1 of each year (each, an "Interest Payment Date"),
commencing September 1, 1997, to the person in whose name each New Junior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the February 15 or August 15 preceding the relevant
payment date. It is anticipated that, until the liquidation, if any, of the
Trust, each New
59
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. In the event that any date on which interest is
payable on the New Junior Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), in each case with the same force and
effect as if made 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 8.54% thereof, compounded semi- annually. The term
"interest", as used herein, shall include semi-annual interest payments and
interest on semi-annual interest payments not paid on the applicable Interest
Payment Date.
The New Junior Subordinated Debentures will mature on March 1, 2027 (the
"Stated Maturity Date"). The New Junior Subordinated Debentures will rank pari
passu with the 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 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 the subsidiary, except to the extent the Company may itself be
recognized as a creditor of that subsidiary. Accordingly, the New Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, and holders of New Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the New Junior Subordinated Debentures. In addition, since the
Company's subsidiaries are insurance companies subject to regulatory control
by various state insurance departments, the ability of such subsidiaries to
pay dividends to the Company without prior regulatory approval is limited by
applicable laws and regulations. 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 New Junior Subordinated Debentures
are distributed to holders of the Trust Securities, such New Junior
Subordinated Debentures may be represented by one or more global certificates
registered in the name of Cede & Co. as the nominee of DTC. The depositary
arrangements for such New Junior Subordinated Debentures are expected to be
substantially similar to those in effect for the New Capital Securities. For a
description of DTC and the terms of the depositary arrangements relating to
payments, transfers, voting rights, redemptions and other notices and other
matters, see "--Description of New Capital Securities--Form, Denomination,
Book-Entry Procedures and Transfer."
Payment and Paying Agents. Payment of principal of (and premium, if any) and
any interest on New Junior Subordinated Debentures will be made at the office
of the Debenture Trustee in The City of New York or at the office of such
Paying Agent or Paying Agents as the Company may designate from time to time,
except that at the option of the Company payment of any interest may be made,
except in the case of New Junior Subordinated Debentures in global form, (i)
by check mailed to the address of the Person entitled thereto as such address
shall appear in the register for the New Junior Subordinated Debentures or
(ii) by transfer to an account maintained by the Person entitled thereto as
specified in such register, provided that proper transfer instructions have
been received by the relevant Record Date. Payment of any interest on any New
Junior Subordinated Debenture will be made to the Person in whose name such
New Junior Subordinated Debenture is registered at the close of business on
the Record Date for such interest, except in the case of defaulted interest.
The Company may at any time designate additional Paying Agents or rescind the
designation of any Paying Agent; however, the Company will at all times be
required to maintain a Paying Agent in each Place of Payment for the New
Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any New Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has
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become due and payable shall, at the request of the Company, be repaid to the
Company and the holder of such New Junior Subordinated Debenture shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
Option To Extend Interest Payment Date. So long as no Debenture Event of
Default has occurred and is continuing, the Company will have the right under
the Indenture at any time during the term of the New Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time
for a period not exceeding 10 consecutive semi-annual periods with respect to
each Extension Period, provided that (i) no Extension Period may extend beyond
the Stated Maturity Date, (ii) any Extension Period will terminate as to all
Junior Subordinated Debentures upon an acceleration thereof (subject to
reinstatement, upon cure or waiver as provided in the Indenture) and (iii) any
Extension Period will terminate as to any Junior Subordinated Debenture to be
redeemed on the applicable Redemption Date. See "--Description of Junior
Subordinated Debenture--Debenture Events of Default." 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 8.54%, compounded semi-
annually, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of New Junior
Subordinated Debentures (and holders of the Trust Securities while Trust
Securities are outstanding) will be required to accrue interest income for
United States federal income tax purposes prior to the receipt of cash
attributable to such income. See "Certain United States Federal Income Tax
Considerations--Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including any Other
Debentures) that rank pari passu with or junior in right of payment to the
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 any 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 common shares 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) the purchase of
fractional shares resulting from a reclassification of the Company's capital
stock, (e) the exchange or conversion of one class or series of the Company's
(or any subsidiary's) capital stock for another class or series of the
Company's (or any subsidiary's) capital stock or of any class or series of the
Company's (or any subsidiary's) indebtedness, (f) 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 (g) purchases, redemptions or other acquisitions of shares of
capital stock of the Company or any subsidiary of the Company related to the
issuance of common shares or rights under any employment agreement or benefit
plan for the Company's directors, officers, or employees, or any dividend
reinvestment or director, officer or employee stock purchase plan of the
Company).
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 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. Except as described above, no interest shall be due
and payable during an Extension Period, except at the end thereof. The Company
must give the Property Trustee, the Administrative Trustees and the Debenture
Trustee notice of its election of any Extension Period (or an extension
thereof) at least five Business Days prior to the earlier of (i) the date the
Distributions on the Trust Securities would have been payable except for the
election to begin or extend such Extension Period or (ii) the date the
Administrative Trustees are required to give notice to any securities exchange
or to holders of New Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than five
61
Business Days prior to such record date. The Debenture Trustee shall give
notice of the Company's election to begin or extend a new Extension Period to
the holders of the Capital Securities, and the Property Trustee will provide
notice thereof to Holder of the Capital Securities. There is no limitation on
the number of times that the Company may elect to begin an Extension Period.
Optional Prepayment. The New Junior Subordinated Debentures will be
prepayable, in whole or in part, at the option of the Company on or after
March 1, 2007, at a prepayment price (the "Optional Prepayment Price") equal
to the percentage of the outstanding principal amount of the Junior
Subordinated Debentures specified below, plus, in each case, accrued interest
thereon to the date of prepayment if redeemed during the 12-month period
beginning March 1 of the years indicated below:
Special Event Prepayment. If a Special Event 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 principal amount and premium payable with respect
to an optional redemption of Junior Subordinated Debentures on March 1, 2007,
together with scheduled payments of interest on the Junior Subordinated
Debentures accruing from the prepayment date to and including February 1, 2007
discounted to the prepayment date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus,
in each case, accrued interest thereon to the date of prepayment.
A "Special Event" means a Tax Event (as defined below) or an Investment
Company Event (as defined below), as the case may be.
"Investment Company Event" means that the Company shall have received an
opinion of counsel experienced in practice under the Investment Company Act to
the effect that, as a result of the occurrence of a change in law or
regulation or a change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or regulatory authority (a
"Change in Investment Company Act Law"), there is more than insubstantial risk
that the Trust is or will be considered an "investment company" which is
required to be registered under the Investment Company Act, which Change in
Investment Company Act Law becomes effective on or after the Issue Date.
A "Tax Event" means the receipt by the Company and the Trust of an opinion
of counsel experienced in such matters to the effect that, as a result of (a)
any amendment to, or change (including any announced proposed change) in, the
laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or (b) any amendment to or
change in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory agency (including
the enactment of any legislation, the publication of any judicial decision or
regulatory determination or the issuance by the
62
Internal Revenue Service of a revenue ruling, revenue procedure, notice or
announcement (which notice or announcement is published in the Internal
Revenue Bulletin), on or after March 7, 1997), there is more than an
insubstantial risk that (i) interest payable to the Trust on the Junior
Subordinated Debentures would not be deductible by the Company for United
States federal income tax purposes or (ii) the Trust will be subject to more
than a de minimis amount of other taxes, duties or other governmental charges.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
rate per annum equal to (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
established yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity date corresponding to the Initial Optional
Prepayment Date (if no maturity date is within three months before or after
the Initial Optional Prepayment Date, yields for the first two published
maturities most closely corresponding to the Initial Optional Prepayment Date
shall be interpolated and the Adjusted Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual bond 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, in
either case (A) 1.25% if such prepayment date occurs on or prior to March 1,
1998 and (B) .50% in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity date corresponding to the
Initial Optional Prepayment Date that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities with a maturity date corresponding to the
Initial Optional Prepayment Date. If no United States Treasury security has a
maturity date which is within three months before or after the Initial
Optional Prepayment Date, the two most closely corresponding United States
Treasury securities shall be used as the Comparable Treasury Issue, and the
calculation of the Adjusted Treasury Rate pursuant to clause (ii) of the
definition thereof shall be interpolated or extrapolated on a straight-line
basis, rounding to the nearest month.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Company. "Reference Treasury Dealer" means: (i) Merrill Lynch Government
Securities, Inc. and its respective successors; provided, however, that if the
foregoing shall cease to be a primary U.S. Government securities dealer in the
City of New York (a "Primary Treasury Dealer"), the Company shall substitute
therefor another Primary Treasury Dealer; and (ii) any other Primary Treasury
Dealer selected by 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 Reference
Treasury Dealer and any prepayment date, the average, as determined by the
Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted
in writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00
p.m., New York City time, on the third Business Day preceding such prepayment
date.
63
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 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 Junior Subordinated Debentures called for
prepayment.
Trust Expenses and Taxes. In the Indenture, the Company, as issuer of the
Junior Subordinated Debentures, has agreed to pay to the Trust all debts and
obligations (other than with respect to the Trust Securities) and all costs
and expenses of the Trust (including costs and expenses relating to the
organization of the Trust, fees and expenses of the Trustees and the costs and
expenses relating to the operation of the Trust) and to pay any and all taxes
and all costs and expenses related thereto (other than United States
withholding taxes) to which the Trust might become subject.
Restrictions On Certain Payments and Certain Covenants. The Company will
also covenant that it will not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock, (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 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 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 common shares 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) the purchase of fractional shares resulting from a
reclassification of the Company's capital stock, (e) the exchange or
conversion of any class or series of the Company's (or any subsidiary's)
capital stock for another class or series of the Company's (or any
subsidiary's) capital stock or of any class or series of the Company's (or any
subsidiary's) indebtedness, (f) 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 (g) purchases, redemptions or other acquisitions of shares of capital
stock of the Company or any subsidiary under any employment agreement or any
benefit plan for the Company's directors, officers, or employees or any
dividend reinvestment or director, officer or employee stock purchase plan of
the Company) if at such time (1) there shall have occurred and be continuing
any event of which the Company has actual knowledge which would constitute an
Event of Default under the Trust Agreement, (2) there shall have occurred and
be continuing any event of which the Company has actual knowledge which would
constitute a Debenture Event of Default, (3) there shall have occurred and be
continuing a payment default under the Trust Agreement or the Indenture, (4)
such Junior Subordinated Debentures are held by the Trust and the Company
shall be in default with respect to its payment of any obligations under the
Guarantee or (5) 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.
For so long as the Trust Securities remain outstanding, the Company will
covenant (i) to directly or indirectly maintain 100% direct or indirect
ownership of the Common Securities; provided, however, that any permitted
successor of the Company under the Indenture may succeed to the Company's
ownership of such Common Securities, (ii) not to cause, as sponsor of the
Trust, or to permit, as holder of the Common Securities, the dissolution,
winding-up or termination of the Trust, except as provided under the Trust
Agreement or the Indenture, and (iii) to use its reasonable efforts to cause
the Trust (a) to remain a statutory business trust, except in connection with
the distribution of Junior Subordinated Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all the Trust
Securities, or certain mergers or consolidations, each as permitted by the
Trust Agreement, and (b) to otherwise continue to be classified as a grantor
trust for United States federal income tax purposes.
64
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 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 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 New Junior Subordinated
Debentures constitutes a "Debenture Event of Default" (whatever the reason for
such Debenture Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) failure for 30 days to pay any interest on the New 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 on the New 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 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. 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 non-payment 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 or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
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 New Capital Securities. If a
Debenture Event of Default shall have occurred and be continuing and shall be
attributable to the failure of the Company to pay principal of or interest on
the New Junior Subordinated Debentures on the due date, a holder of New
Capital Securities may institute a Direct Action. The Company may not amend
the Indenture to remove the foregoing right to bring a Direct Action without
the prior written consent of the holders of all of the New Capital Securities.
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 New Capital Securities
65
by the Company in connection with a Direct Action, the Company shall remain
obligated to pay the principal of or interest on the New Junior Subordinated
Debentures, and the Company shall be subrogated to the rights of the holder of
such New Capital Securities with respect to payments on the New Capital
Securities to the extent of any payments made by the Company to such holder in
any Direct Action. See "Risks Factors--Service of Process and Enforcement of
Judgments."
The holders of the New Capital Securities will not be able to exercise
directly any remedies, other than those set forth in the preceding paragraph,
available to the holders of the New Junior Subordinated Debentures unless
there shall have been an Event of Default under the Trust Agreement. See "--
Description of New 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 convey, transfer or lease its properties and assets as an entirety
or substantially as an entirety to any Person, and no Person shall consolidate
with or merge into the Company or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to the Company, unless:
(i) in case where the Company consolidates with or merges into another Person
or conveys or transfers its properties and assets substantially as an entirety
to any Person, the successor Person expressly assumes the Company's
obligations on the Junior Subordinated Debentures; (ii) immediately after
giving effect thereto, no Debenture Event of Default, and no event which,
after notice or lapse of time or both, would become a Debenture Event of
Default, shall have occurred and be continuing; and (iii) certain other
conditions as prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the New
Junior Subordinated Debentures protection in the event of a highly leveraged
or other transaction involving the Company that may adversely affect holders
of the New Junior Subordinated Debentures.
Satisfaction and Discharge; Defeasance. The Indenture provides that when,
among other things, all New Junior Subordinated Debentures not previously
delivered to the Debenture Trustee for cancellation (i) have become due and
payable or (ii) will become due and payable at maturity within one year, and
the Company deposits or causes to be deposited with the Debenture Trustee
funds, in trust, for the purpose and in an amount sufficient to pay and
discharge the entire indebtedness on the New Junior Subordinated Debentures
not previously delivered to the Debenture Trustee for cancellation, for the
principal and interest to the date of the deposit or to the Stated Maturity
Date, as the case may be, then the Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Indenture and to provide the officers' certificates and
opinions of counsel described therein), and the Company will be deemed to have
satisfied and discharged the Indenture.
Defeasance and Discharge. The Indenture provides, subject to the terms and
conditions set forth therein, that the Company, at the Company's option: (a)
will be discharged from any and all obligations in respect of the Junior
Subordinated Debentures (except for certain obligations to register the
transfer or exchange of Junior Subordinated Debentures, replace stolen, lost
or mutilated Junior Subordinated Debentures, maintain paying agencies and hold
moneys for payments in trust) or (b) need not comply with certain restrictive
covenants of the Indenture, in each case if the Company deposits, in trust
with the Debenture Trustee, money or U.S. government obligations which through
the payment of interest thereon and principal thereof in accordance with their
terms will provide money, in an amount sufficient to pay all the principal of,
and interest and premium, if any, on the Junior Subordinated Debentures on the
dates such payments are due in accordance with the terms of such Junior
Subordinated Debentures. To exercise any such option, the Company is required
to deliver to the Debenture Trustee an opinion of counsel to the effect that
the deposit and related defeasance would not cause the holders of the Junior
Subordinated Debentures to recognize income, gain or loss for United States
federal income tax purposes and, in the case of a discharge pursuant to clause
(a), such opinion shall be accompanied by (i) a private letter ruling to such
effect received by the Company from the United States Internal Revenue
Service, (ii) a revenue ruling pertaining to a comparable form of transaction
to such effect published by the United States Internal Revenue Service or
(iii) other written evidence of a relevant change in tax law or interpretation
thereof.
66
Subordination. The Indenture provides that the Junior Subordinated
Debentures issued thereunder will be subordinate and junior in right of
payment to all Senior Indebtedness. No payment on account of the Junior
Subordinated Debentures may be made at any time when (i) any Senior
Indebtedness is not paid when due, (ii) any applicable grace period with
respect to such default has ended and such default has not been cured or
waived or ceased to exist, or (iii) the maturity of any Senior Indebtedness
has been accelerated because of a default.
Upon any 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, all Senior Indebtedness must be paid in
full before the holders of the Junior Subordinated Debentures are entitled to
receive or retain any payment in respect thereof.
No payment on account 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.
The term "Senior Indebtedness" shall mean, with respect to the Company, (i)
the principal, premium, if any, and interest in respect of (A) indebtedness of
the Company 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 title retention agreement (but excluding trade accounts payable
arising in the ordinary course of business), (iv) all obligations of the
Company for the reimbursement on any letter of credit, banker's acceptance,
security purchase facility or similar credit transaction, (v) all obligations
of the type referred to in clauses (i) through (iv) above of other persons for
the payment of which the Company is responsible or liable as obligor,
guarantor or otherwise, (vi) all obligations of the type referred to in
clauses (i) through (v) 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
expressly subordinated to or ranks pari passu the Junior Subordinated
Debentures, and (2) all debt securities or guarantees in respect of those debt
securities, issued to 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
financing entity of equity securities or other securities guaranteed by the
Company pursuant to an instrument that ranks pari passu with or junior in
right of payment to the Guarantee. Such Senior Indebtedness shall continue to
be Senior Indebtedness and be entitled to the benefits of the subordination
provisions relating to the Junior Subordinated Debentures irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness.
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 subsidiaries, and the holders of
Junior Subordinated Debentures will be structurally subordinated to the
creditors of the Company's subsidiaries. See "Risk Factors--Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures; Holding Company Structure."
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 is, and the New Junior Subordinated Debentures
will be, governed by and construed in accordance with the laws of the State of
New York.
67
Information Concerning the Debenture Trustee. Following the Exchange Offer,
the Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of New Junior Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
DESCRIPTION OF NEW GUARANTEE
The Old Guarantee was executed and delivered by the Company concurrently
with the issuance by the Trust of the Old Capital Securities for the benefit
of the holders from time to time of the Old Capital Securities. As soon as
practicable after the date hereof, the Old Guarantee will be exchanged by the
Company for the New Guarantee for the benefit of the holders from time to time
of the New Capital Securities. The New Guarantee has been qualified under the
Trust Indenture Act. This summary of certain provisions of the New Guarantee
does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of the New Guarantee,
including the definitions therein of certain terms, and the Trust Indenture
Act. The Guarantee Trustee will hold the New Guarantee for the benefit of the
holders of the New Capital Securities.
General. The Company will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined
below) to the holders of the New Capital Securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the Trust may
have or assert other than the defense of payment. The following payments with
respect to the New Capital Securities, to the extent not paid by or on behalf
of the Trust (the "Guarantee Payments"), will be subject to the New Guarantee:
(i) any accumulated and unpaid Distributions required to be paid on New
Capital Securities, to the extent that the Trust has funds on hand legally
available therefor at such time, (ii) the applicable Redemption Price with
respect to New 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, the
lesser of (a) the Liquidation Distribution and (b) the amount of assets of the
Trust remaining available for distribution to holders of New Capital
Securities. The Company's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the Company to the
holders of the New Capital Securities or by causing the Trust to pay such
amounts to such holders.
The New Guarantee will rank subordinate and junior in right of payment to
all Senior Indebtedness to the extent provided therein. See "--Status of New
Guarantee". Because the Company is a holding company, the right of the Company
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of that subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Company's obligations under the New Guarantee will be effectively subordinated
to all existing and future liabilities of the Company's subsidiaries, and
claimants should look only to the assets of the Company for payments
thereunder. See "--Description of New Junior Subordinated Debentures--
General." The New Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness,
whether under the Indenture, any other indenture that the Company may enter
into in the future or otherwise. The Company expects from time to time to
incur additional indebtedness constituting Senior Indebtedness.
The Company will, through the New Guarantee, the Trust Agreement, the New
Junior Subordinated Debentures and the Indenture, taken together, fully,
irrevocably and unconditionally guarantee all of the Trust's obligations under
the New Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the New Capital Securities. See "Relationship Among
the New Capital Securities, the Trust Agreement, the New Junior Subordinated
Debentures and the New Guarantee."
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Status of the New Guarantee. The New Guarantee will constitute an unsecured
obligation of the Company and will rank subordinate and junior in right of
payment to all Senior Indebtedness in the same manner as New Junior
Subordinated Debentures. The New Guarantee will rank pari passu with the Old
Guarantee and with all Other Guarantees issued by the Company.
The New Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the New Guarantee
without first instituting a legal proceeding against any other person or
entity). The New Guarantee will be held for the benefit of the holders of the
New Capital Securities. The New Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Trust
or upon distribution to the holders of the New Capital Securities of the New
Junior Subordinated Debentures. The 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 New Capital
Securities (in which case no vote will be required), the New Guarantee may not
be amended without the prior approval of the holders of a majority of the
Liquidation Amount of such outstanding New Capital Securities. The manner of
obtaining any such approval will be as set forth under "--Description of New
Capital Securities--Voting Rights; Amendment of the Trust Agreement." All
guarantees and agreements contained in the Guarantee Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Company
and shall inure to the benefit of the holders of the New Capital Securities
then outstanding.
Events of Default. An event of default under the New Guarantee will occur
upon the failure of the Company to perform any of its payment or other
obligations thereunder. The holders of a majority in Liquidation Amount of the
New Capital Securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the New Guarantee or to direct the exercise of any trust
or power conferred upon the Guarantee Trustee under the New Guarantee.
Any holder of the New Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the New Guarantee
without first instituting a legal proceeding against the Trust, the Guarantee
Trustee or any other person or entity.
The Company, as guarantor, will be required to file annually with the New
Guarantee Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants applicable to it under the
New Guarantee.
Information Concerning the New Guarantee Trustee. The New Guarantee Trustee,
other than during the continuance of a default by the Company in performance
of the New Guarantee, will undertake to perform only such duties as are
specifically set forth in the 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 New Guarantee Trustee will be under no obligation to
exercise any of the powers vested in it by the New Guarantee at the request of
any holder of the New Capital Securities unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
Termination of the New Guarantee. The New Guarantee will terminate and be of
no further force and effect upon full payment of the applicable Redemption
Price of the New Capital Securities, upon full payment of the Liquidation
Amount payable upon liquidation of the Trust or upon distribution of New
Junior Subordinated Debentures to the holders of the New Capital Securities.
The New Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of the New Capital Securities must
restore payment of any sums paid under the New Capital Securities or the New
Guarantee.
Governing Law. The New Guarantee will be governed by and construed in
accordance with the laws of the State of New York.
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DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are substantially identical to the New
Securities, except that (i) the Old Securities have not been registered under
the Securities Act and are entitled to certain rights under the Registration
Rights Agreement (which rights will terminate upon consummation of the
Exchange Offer, except under limited circumstances), (ii) the New Capital
Securities will not contain the $100,000 minimum Liquidation Amount transfer
restriction and certain other restrictions on transfer applicable to the Old
Capital Securities, (iii) the New Capital Securities will not provide for any
increase in the Distribution rate thereon, (iv) the New Junior Subordinated
Debentures will not contain the $100,000 minimum principal amount transfer
restriction and (v) the New Junior Subordinated Debentures will not provide
for any increase in the interest rate thereon. The Old Securities provide
that, in the event that the Exchange Offer Registration Statement has not been
filed by August 4, 1997, and been declared effective by September 3, 1997, or,
in certain limited circumstances, in the event a shelf registration statement
(the "Shelf Registration Statement") with respect to the resale of the Old
Capital Securities is not declared effective by September 3, 1997, then
interest will accrue (in addition to the stated interest rate on the Old
Junior Subordinated Debentures) at the rate of 0.25% per annum on the
principal amount of the Old Junior Subordinated Debentures and Distributions
will accrue (in addition to the stated Distribution rate on the Old Capital
Securities) at the rate of 0.25% per annum on the Liquidation Amount of the
Old Capital Securities, for the period from the occurrence of such event until
such time as such required Exchange Offer Registration Statement or any
required Shelf Registration Statement is filed effective, as the case may be.
In addition, if the Company has not consummated the Exchange Offer on or prior
to the 45th day after the date on which the Exchange Offer Registration
Statement is declared effective, and such event continues for a period
exceeding 30 consecutive days or 90 days in any 360-day period, then the
interest rate on the Old Junior Subordinated Debentures and the Distribution
rate borne by the Old Capital Securities will, respectively, increase by .25%
commencing on the day after any such event, until the Exchange Offer is
consummated. The New Securities are not, and upon consummation of the Exchange
Offer the Old Securities will not be, entitled to any such additional interest
or Distributions. Accordingly, holders of Old Capital Securities should review
the information set forth under "Risk Factors--Certain Consequences of a
Failure to Exchange Old Capital Securities" and "Description of New
Securities."
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RELATIONSHIP AMONG THE NEW CAPITAL SECURITIES, THE TRUST AGREEMENT, THE
NEW JUNIOR SUBORDINATED DEBENTURES AND THE NEW GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the New Capital
Securities (to the extent the Trust has funds on hand legally available for
the payment of such Distributions) will be irrevocably guaranteed by the
Company as and to the extent set forth under "Description of New Securities--
Description of New Guarantee." Taken together, the Company's obligations under
the New Junior Subordinated Debentures, the Indenture, the Trust Agreement and
the New Guarantee will provide, in the aggregate, a full, irrevocable and
unconditional guarantee of payments of Distributions and other amounts due on
the New Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the New Capital Securities. If and to the extent
that the Company does not make the required payments on the New Junior
Subordinated Debentures, the Trust will not have sufficient funds to make the
related payments, including Distributions, on the New Capital Securities. The
New Guarantee will not cover any such payment when the Trust does not have
sufficient funds on hand legally available therefor. In such event, the remedy
of a holder of New Capital Securities is to institute a Direct Action. The
obligations of the Company under the New Guarantee will be subordinate and
junior in right of payment to all Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
New Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the New Capital Securities, primarily
because: (i) the aggregate principal amount or Prepayment Price of the New
Junior Subordinated Debentures will be equal to the sum of the Liquidation
Amount or Redemption Price, as applicable, of the New Capital Securities and
Common Securities, (ii) the interest rate and interest and other payment dates
on the New Junior Subordinated Debentures will match the Distribution rate and
Distribution and other payment dates for the Trust Securities; (iii) the
Company shall, directly or indirectly, 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 NEW CAPITAL SECURITIES
A holder of any New Capital Security may institute a legal proceeding
directly against the Company to enforce its rights under the New Guarantee
without first instituting a legal proceeding against the Guarantee Trustee,
the Trust or any other person or entity.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the 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 New Junior Subordinated Debentures
until such Senior Indebtedness has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required payments on New
Junior Subordinated Debentures would constitute an Event of Default under the
Trust Agreement.
LIMITED PURPOSE OF THE TRUST
The New Capital Securities will represent beneficial ownership interests in
the Trust, and the Trust exists for the sole purpose of issuing and selling
the Trust Securities, investing the proceeds from the sale of the Trust
Securities in the Junior Subordinated Debentures and engaging in only those
other activities incidental thereto. A principal difference between the rights
of a holder of a New Capital Security and a holder of a New Junior
Subordinated Debenture is that a holder of a New Junior Subordinated Debenture
will be entitled to receive from
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the Company the principal amount of and interest on New Junior Subordinated
Debentures held, while a holder of New Capital Securities is entitled to
receive Distributions from the Trust (or, in certain circumstances, from the
Company under the New Guarantee) if and to the extent the Trust has funds on
hand legally available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Unless the Junior Subordinated Debentures are distributed to holders of the
Trust Securities, upon any voluntary or involuntary dissolution and
liquidation of the Trust, the holders of the Trust Securities will be entitled
to receive, out of assets held by the Trust, the Liquidation Distribution in
cash. See "Description of New Securities--Description of New Capital
Securities--Liquidation of the Trust and Distribution of New Junior
Subordinated Debentures." Upon any voluntary or involuntary liquidation or
bankruptcy of the Company, the Property Trustee, as holder of the New Junior
Subordinated Debentures, would be a subordinated creditor of the Company,
subordinated in right of payment to all Senior Indebtedness as set forth in
the Indenture, but entitled to receive payment in full of principal and
interest, before any stockholders of the Company receive payments or
distributions. Since the Company will be the guarantor under the New Guarantee
and will agree to pay for all costs, expenses and liabilities of the Trust
(other than the Trust's obligations to the holders of its Trust Securities),
the positions of a holder of New Capital Securities and a holder of New Junior
Subordinated Debentures relative to stockholders of the Company in the event
of liquidation or bankruptcy of the Company are expected to be substantially
the same.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
In the opinion of Willkie Farr & Gallagher, special United States tax
counsel to the Company and the Trust ("Tax Counsel"), the following is a
summary of certain of the material United States federal income tax
consequences of the purchase, ownership and disposition of Capital Securities
held as capital assets by a holder. This summary only addresses the tax
consequences to a holder that acquired the Old Capital Securities upon initial
issuance at their original offering price. It 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 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 stockholders, 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 and the administrative
and judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
EXCHANGE OF CAPITAL SECURITIES
The exchange of Old Capital Securities for New Capital Securities will not
be a taxable event to holders for United States federal income tax purposes.
The exchange of Old Capital Securities for New Capital Securities pursuant to
the Exchange Offer will not be treated as an "exchange" for United States
federal income tax purposes because the New Capital Securities should not be
considered to differ materially in kind or extent from the Old Capital
Securities and because the exchange will occur by operation of the terms of
the Old Capital Securities. If, however, the exchange of the Old Capital
Securities for the New Capital Securities were treated as an exchange for
United States federal income tax purposes, such exchange would constitute a
recapitalization for federal income tax purposes. Accordingly, the New Capital
Securities will have the same issue price as the Old Capital Securities, and a
holder will have the same adjusted tax basis and holding period in the New
Capital Securities as the holder had in the Old Capital Securities immediately
before the exchange.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Old Junior Subordinated Debentures,
Tax Counsel has 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. An
opinion of Tax Counsel, however, 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 with respect to
any of these issues 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
has rendered its opinion generally to the effect 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, or any other entity subject to taxation.
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
73
in its gross income any interest (or original issue discount ("OID") accrued)
with respect to its allocable share of those Junior Subordinated Debentures.
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, based on the advice of Tax Counsel, that the
Junior Subordinated Debentures will not be considered to be 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 issued with OID, and all stated interest on the Junior Subordinated
Debentures would thereafter be treated as OID as long as the Junior
Subordinated Debentures remain outstanding. In such event, all of a holder's
taxable interest income with respect to the Junior Subordinated Debentures
would thereafter be accounted for on an economic accrual basis regardless of
such holder's method of tax accounting, and actual distributions of stated
interest would not be reported as taxable income. Consequently, a holder of
Capital Securities would be required to include in gross income OID even
though the Company would not make actual cash payments during an Extension
Period. Moreover, under the Regulations, if the option to defer the payment of
interest were 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 Tax Counsel's 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.
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 New
Securities--Description of New Capital Securities"), the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Capital Securities. Under
current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Capital
74
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. 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 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 March 19, 1996, President Clinton proposed the Proposed Legislation,
which would, among other things, generally deny corporate issuers a deduction
for interest in respect of certain debt obligations, such as the Junior
Subordinated Debentures, issued on or after December 7, 1995 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. However,
the Proposed Legislation was not included in legislation currently under
consideration by the House of Representatives and the Senate. There can be no
assurance, however, that future legislative Proposals or final legislation
enacted after the date hereof will not adversely affect the ability of the
Company to deduct the interest payable on the Junior Subordinated Debentures.
Accordingly, there can be no assurance that a Tax Event will not occur. The
occurrence of a Tax Event may result in the redemption of the Junior
Subordinated Debentures for cash, in which event the holders of the Capital
Securities would receive cash in redemption of their Capital Securities. See
"Description of New Securities--Description of New Capital Securities--
Redemption" and "Description of New Junior Subordinated Debentures--
Conditional Right to Advance Maturity and Special Event Prepayment."
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.
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.
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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.
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CERTAIN ERISA CONSIDERATIONS
The Company, the obligor with respect to the New Junior Subordinated
Debentures held by the Trust, and its affiliates and the Property Trustee may
be considered a "party in interest" (within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) or a
"disqualified person" (within the meaning of Section 4975 of the Code) with
respect to many employee benefit plans that are subject to ERISA and/or
Section 4975 of the Code ("Plans"). Any purchaser proposing to acquire New
Capital Securities with assets of any Plan should consult with its counsel.
The purchase and/or holding of New Capital Securities by a Plan that is
subject to the fiduciary responsibility provisions of ERISA or the prohibited
transaction provisions of Section 4975 of the Code (including individual
retirement arrangements and other plans described in Section 4975(e)(1) of the
Code) and with respect to which the Company, the Property Trustee or any
affiliate is a service provider (or otherwise is a party in interest or a
disqualified person) may constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code, unless such New Capital Securities
are acquired pursuant to and in accordance with an applicable exemption, such
as Prohibited Transaction Class Exemption ("PTCE") 84-14 (an exemption for
certain transactions entered into at the direction of an independent qualified
professional asset manager), PTCE 91-38 (an exemption for certain transactions
involving bank collective investment funds), PTCE 90-1 (an exemption for
certain transactions involving insurance company pooled separate accounts),
PTCE 95-60 (an exemption for transactions involving certain insurance company
general accounts) or PTCE 96-23 (an exemption for certain transactions entered
into at the direction of an in-house manager). In addition, as described
below, a Plan fiduciary considering the acquisition of New Capital Securities
should be aware that the assets of the Trust may be considered "plan assets"
for ERISA purposes. Therefore, a Plan fiduciary should consider whether the
acquisition of New Capital Securities could result in a delegation of
fiduciary authority to the Property Trustee, and, if so, whether such a
delegation of authority is permissible under the Plan's governing instrument
or any investment management agreement with the Plan. In making such
determination, a Plan fiduciary should note that the Property Trustee is a
U.S. bank qualified to be an investment manager (within the meaning of section
3(38) of ERISA) to which such a delegation of authority generally would be
permissible under ERISA. Further, prior to an Event of Default with respect to
the New Junior Subordinated Debentures, the Property Trustee will have only
limited custodial and ministerial authority with respect to Trust assets.
Under the U.S. Department of Labor regulations defining "plan assets" for
ERISA purposes (the "Plan Assets Regulations"), the assets of the Trust will
be considered plan assets of Plans owning New Capital Securities unless the
aggregate investment in New Capital Securities by "benefit plan investors" is
not deemed "significant" or the New Capital Securities qualify as "publicly
offered securities" as defined in such Regulations. For this purpose, equity
participation by benefit plan investors will not be considered "significant"
on any date only if, immediately after the most recent acquisition of New
Capital Securities, the aggregate interest in the New Capital Securities held
by benefit plan investors will be less than 25% of the value of the New
Capital Securities. Although it is possible that the equity participation by
benefit plan investors in New Capital Securities on any date will not be
"significant" for purposes of the Plan Assets Regulations, such result cannot
be assured.
The New Capital Securities may qualify as "publicly offered securities"
under the Plan Assets Regulations if at the time of the Exchange Offer they
are also "widely held" and "freely transferable." Under the Plan Assets
Regulations, a class of securities is "widely held" only if it is a class of
securities that is owned by 100 or more investors independent of the issuer
and of one another. Although it is possible that at the time of the Exchange
Offer the New Capital Securities will be "widely held," such result cannot be
assured. Whether a security is "freely transferable" for purposes of the Plan
Assets Regulations is a factual question to be determined on the basis of all
relevant facts and circumstances. If at the time of the Exchange Offer the New
Capital Securities qualify as "publicly offered securities," the assets of the
Trust should not be "plan assets" with respect to Plans acquiring New Capital
Securities. If at the time of the Exchange Offer the New Capital Securities do
not qualify as "publicly offered securities," the "plan asset" considerations
discussed in the preceding paragraphs could be applicable in connection with
the investment by Plans in the New Capital Securities.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
as a result of market-making or other trading activities in connection with
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Capital Securities. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Capital Securities received in exchange for Old Capital
Securities if such Old Capital Securities were acquired by such Participating
Broker-Dealers for their own accounts as a result of such activities. The
Company and the Trust have agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-
Dealer in connection with resales of such New Capital Securities for a period
of not more than 180 days after the Expiration Date (subject to extension
under certain limited circumstances described herein) or, if earlier, when all
such New Capital Securities have been disposed of by such Participating
Broker-Dealer. However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of New Capital Securities received in
exchange for Old Capital Securities pursuant to the Exchange Offer must notify
the Company or the Trust, or cause the Company or the Trust to be notified, on
or prior to the Expiration Date, that it is a Participating Broker-Dealer.
Such notice may be given in the space provided for that purpose in the Letter
of Transmittal or may be delivered to the Exchange Agent at one of the
addresses set forth herein under "The Exchange Offer--Exchange Agent." See
"The Exchange Offer--Resales of New Capital Securities."
The Company or the Trust will not receive any cash proceeds from the
issuance of the New Capital Securities offered hereby. New Capital Securities
received by broker-dealers for their own accounts in connection with the
Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing
of options on the New Capital Securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related
to such prevailing market prices or at negotiated prices. Any such resale may
be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Capital Securities.
Any broker-dealer that resells New Capital Securities that were received by
it for its own account in connection with the Exchange Offer and any broker or
dealer that participates in a distribution of such New Capital Securities may
be deemed to be an "underwriter" within the meaning of the Securities Act, and
any profit on any such resale of New Capital Securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
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
Certain matters of Delaware law relating to the validity of the New Capital
Securities will be passed upon by Morris, Nichols, Arsht & Tunnel, special
Delaware counsel to the Trust and the Company. The validity under New York law
of the New Guarantee and the New Junior Subordinated Debentures and certain
other matters of New York law will be passed upon by Willkie Farr & Gallagher,
special United States counsel to the Company and the Trust. Certain matters of
Bermuda law will be passed upon by Conyers, Dill & Pearman, special Bermuda
counsel to the Company and the Trust. Certain matters relating to United
States federal income tax considerations will be passed upon for the Company
and the Trust by Willkie Farr & Gallagher, special United States tax counsel
to the Company and the Trust. Willkie Farr & Gallagher will rely on the
opinion of Conyers, Dill & Pearman with respect to Bermuda law and on the
opinion of Morris, Nichols, Arsht & Tunnel with respect to certain Delaware
law matters. Willkie Farr & Gallagher has from time to time represented each
of the Initial Purchasers, and may represent such parties in the future, in
connection with matters unrelated to the offering of the New Capital
Securities.
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EXPERTS
The consolidated financial statements of RenaissanceRe Holdings Ltd. and
subsidiaries as of December 31, 1996, 1995 and 1994 and for each of the years
in the three-year period ended December 31, 1996, and the selected financial
data for each of the years in the three-year period ended December 31, 1996,
included in the 1996 Form 10-K incorporated herein by reference have been
audited by Ernst & Young, independent auditors. Such consolidated financial
statements and selected financial data are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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