1
FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 333-58350
REGISTRATION NO. 333-58350-01
REGISTRATION NO. 333-58350-02
REGISTRATION NO. 333-46432
REGISTRATION NO. 333-46432-01
REGISTRATION NO. 333-46432-02
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 25, 2001)
[HCC LOGO]
$150,000,000
HCC INSURANCE HOLDINGS, INC.
2.00% CONVERTIBLE NOTES DUE 2021
------------------------------
We will pay interest at the rate of 2.00% per year on the notes each March 1 and
September 1. The first interest payment will be made on March 1, 2002. The notes
will be unsecured obligations and will rank equally with our existing and future
unsecured senior indebtedness. The notes will mature on September 1, 2021.
Holders may surrender the notes for conversion into shares of our common stock
under the following circumstances:
- if, as of the last day of the preceding calendar quarter, the closing
sale price of our common stock for at least 20 trading days in the period
of 30 consecutive trading days ending on the last trading day of the
quarter is more than 120% of the conversion price per share of common
stock,
- if the notes have been called for redemption,
- if we are party to certain consolidations, mergers or binding share
exchanges, or
- if at any time after December 1, 2001, the notes are rated below "BBB-,"
or are not rated at all, by Standard & Poor's Rating Services.
Each $1,000 principal amount of notes is convertible into 31.25 shares of our
common stock, which represents an initial conversion price of $32.00 per share.
The conversion price, and therefore the conversion rate, may be adjusted for
certain reasons. The shares of our common stock trade on the New York Stock
Exchange under the symbol "HCC." The last reported sale price of the shares on
August 17, 2001 was $25.00 per share.
Holders may require us to purchase all or a portion of their notes on September
1, 2002, September 1, 2004, September 1, 2006, September 1, 2008, September 1,
2011 and September 1, 2016. We may choose to pay the purchase price in cash or
in shares of our common stock or a combination of both. In addition, if we have
a change in control occurring on or before September 1, 2006, holders may
require us to repurchase all or a portion of their notes. We may redeem all or a
portion of the notes at any time on or after September 1, 2006 at a redemption
price equal to the principal amount of the notes plus accrued and unpaid
interest.
INVESTING IN THE NOTES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK FACTORS"
SECTION BEGINNING ON PAGE S-7 OF THIS PROSPECTUS SUPPLEMENT.
------------------------------
PER NOTE TOTAL
-------- -----
Public Offering Price...................................... 100.000% $150,000,000
Underwriting Discount...................................... 2.145% $ 3,217,500
Proceeds to HCC Insurance Holdings, Inc. (before
expenses)................................................ 97.855% $146,782,500
Interest on the notes will accrue from August 23, 2001 to the date of delivery.
The underwriters may also purchase up to an additional $22,500,000 aggregate
principal amount of notes within 30 days from the date of this prospectus
supplement to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The notes will be ready for delivery in book-entry form only through The
Depository Trust Company on or about August 23, 2001.
Joint Book-Running Managers
BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
------------------------------
FIRST UNION SECURITIES, INC.
The date of this prospectus supplement is August 20, 2001.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
About This Prospectus Supplement............................ S-1
Prospectus Supplement Summary............................... S-2
Summary Financial Data...................................... S-5
Risk Factors................................................ S-7
Use of Proceeds............................................. S-9
Capitalization.............................................. S-9
Market Information.......................................... S-10
Ratio of Earnings to Fixed Charges.......................... S-11
Description of Notes........................................ S-11
Certain U.S. Federal Income Tax Consequences................ S-25
Underwriting................................................ S-30
Certain Legal Matters....................................... S-31
About Forward-Looking Statements............................ S-31
PROSPECTUS
PAGE
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About This Prospectus....................................... 1
The Company................................................. 2
Risk Factors................................................ 5
Use of Proceeds............................................. 12
Ratio of Earnings to Fixed Charges.......................... 12
Description of Our Common Stock............................. 12
Description of Senior Debt Securities and Subordinated Debt
Securities................................................ 14
Description of Warrants..................................... 20
Description of Trust Related Junior Subordinated Debt
Securities................................................ 22
Description of Trust Preferred Securities................... 32
Description of Trust Related Guarantees..................... 42
Relationship Among the Trust Preferred Securities, the
Corresponding Junior Subordinated Securities and the
Guarantees................................................ 44
Book-Entry Issuance......................................... 46
Plan of Distribution........................................ 48
Certain Legal Matters....................................... 49
Experts..................................................... 50
About Forward-Looking Statements............................ 50
Where You Can Find More Information......................... 50
------------------------------
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not, and
the underwriters have not, authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this prospectus supplement, the accompanying prospectus and the documents
incorporated by reference is accurate only as of their respective dates. Our
business, financial condition, results of operations and prospects may have
changed since those dates.
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ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus supplement,
which describes the terms of the notes being offered. The second part, the
accompanying prospectus, gives more general information, some of which may not
apply to the notes being offered. A description of our capital stock is
contained in the accompanying prospectus. This prospectus supplement, together
with the documents incorporated by reference in the accompanying prospectus, may
add, update or change information in the accompanying prospectus. If information
in this prospectus supplement or the documents incorporated by reference in the
accompanying prospectus is inconsistent with the accompanying prospectus, this
prospectus supplement or the documents incorporated by reference in the
accompanying prospectus will apply and will supersede the information in the
accompanying prospectus.
Please read and consider all information contained in this prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference in the accompanying prospectus together with the additional
information described under the section entitled "Where You Can Find More
Information" in the accompanying prospectus and the section entitled "Risk
Factors" in each of this prospectus supplement and the accompanying prospectus
before you make an investment decision.
This prospectus supplement and the accompanying prospectus do not constitute an
offer or solicitation by anyone in any jurisdiction in which an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so, or to anyone to whom it is unlawful to
make an offer or solicitation.
S-1
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PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in this prospectus
supplement, the accompanying prospectus and the documents incorporated into each
by reference. Because it is a summary, it does not contain all of the
information that you should consider before investing in our securities. You
should read the entire prospectus supplement, the accompanying prospectus and
the documents incorporated by reference carefully, including the section
entitled "Risk Factors" and the financial statements and related notes to those
financial statements included in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference.
THE OFFERING
ISSUER........................ HCC Insurance Holdings, Inc.
NOTES......................... $150,000,000 aggregate principal amount of
2.00% convertible notes due September 1, 2021.
We have also granted the underwriters an option
to purchase up to $22,500,000 aggregate
principal amount of additional notes to cover
over-allotments, if any.
OFFERING PRICE................ 100% of the principal amount of the notes, plus
accrued interest, if any, on the notes.
MATURITY OF NOTES............. September 1, 2021.
INTEREST PAYMENT DATES........ March 1 and September 1 of each year,
commencing on March 1, 2002.
CONVERSION RIGHTS............. For each $1,000 principal amount of notes
surrendered for conversion, a holder will
receive 31.25 shares of our common stock, which
represents an initial conversion price of
$32.00 per share. The conversion price may be
adjusted for certain reasons. See "Description
of Notes -- Conversion Rights."
Holders may surrender notes for conversion into
shares of our common stock in any calendar
quarter, if, as of the last day of the
preceding calendar quarter, the closing sale
price of our common stock for at least 20
trading days in the period of 30 consecutive
trading days ending on the last trading day of
the quarter is more than 120% of the conversion
price per share of our common stock on the last
trading day of the quarter.
Even if the condition in the preceding
paragraph has not been satisfied, holders may
surrender notes for conversion in the following
circumstances:
- if the notes have been called for
redemption, the notes may be surrendered
for conversion at any time prior to the
close of business on the second business
day prior to the redemption date,
- if we are party to certain
consolidations, mergers or binding share
exchanges as provided in "Description of
Notes -- Conversion Rights," or
- if at any time after December 1, 2001,
the notes are rated below "BBB-," or are
not rated at all, by Standard & Poor's
Rating Services.
S-2
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The ability to surrender notes for conversion
will expire at the close of business on
September 1, 2021, unless they have previously
been redeemed or purchased.
RANKING....................... The notes will be unsecured and unsubordinated
indebtedness of HCC and will rank on a parity
with HCC's other unsecured and unsubordinated
indebtedness. The notes will not be guaranteed
by any of our subsidiaries, and, accordingly,
the notes will be effectively subordinated to
the liabilities of our subsidiaries, including
trade creditors. The notes do not limit the
ability of our subsidiaries to incur
indebtedness. As of June 30, 2001, our
subsidiaries had liabilities of approximately
$2.15 billion, including guarantees of our
indebtedness.
SINKING FUND.................. None.
REDEMPTION OF NOTES AT OUR
OPTION...................... We may redeem all or a portion of the notes for
cash at any time on or after September 1, 2006,
at a redemption price equal to the principal
amount of the notes plus accrued and unpaid
interest to, but excluding, the redemption
date. See "Description of Notes -- Redemption
of Notes at Our Option."
REPURCHASE OF THE NOTES AT THE
OPTION OF THE HOLDER........ Holders may require us to repurchase all or a
portion of their notes on September 1, 2002,
September 1, 2004, September 1, 2006, September
1, 2008, September 1, 2011 and September 1,
2016, at a repurchase price equal to the
principal amount of the notes plus accrued and
unpaid interest to, but excluding, the
repurchase date. We may choose to pay the
purchase price in cash or in shares of our
common stock or a combination of cash and
common stock. See "Description of
Notes -- Repurchase of Notes at the Option of
Holders."
CHANGE IN CONTROL............. Upon a change in control of HCC occurring on or
before September 1, 2006, each holder may
require us to repurchase all or a portion of
the holder's notes for cash at a price equal to
the principal amount of the notes plus accrued
and unpaid interest to, but excluding, the date
of repurchase. See "Description of
Notes -- Change in Control Requires Repurchase
of Notes by Us at the Option of the Holder."
EVENTS OF DEFAULT............. If there is an event of default on the notes,
the aggregate principal amount of the notes
plus the accrued and unpaid interest on those
notes may be declared immediately due and
payable. These amounts automatically become due
and payable in certain circumstances. See
"Description of Notes -- Events of Default."
USE OF PROCEEDS............... We intend to use the net proceeds from this
offering to repay indebtedness under our
revolving loan facility, to assist in the
financing of pending and future acquisitions,
and for general corporate purposes.
DTC ELIGIBILITY............... The notes will be issued in book-entry form and
will be represented by permanent global
certificates deposited with a
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custodian for and registered in the name of a
nominee of The Depository Trust Company in New
York, New York. Beneficial interests in any
such securities will be shown on, and transfers
will be effected only through, records
maintained by DTC and its direct and indirect
participants and any such interest may not be
exchanged for certificated securities, except
in limited circumstances. See "Description of
Notes -- Book-Entry System for Notes."
NEW YORK STOCK EXCHANGE SYMBOL
FOR COMMON STOCK.............. HCC
TRADING....................... We have not applied and do not intend to apply
for the listing of the notes on any securities
exchange.
S-4
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SUMMARY FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
The summary consolidated financial data for the years ended December 31, 2000,
1999 and 1998 set forth below have been derived from our audited consolidated
financial statements, whereas the summary consolidated financial data for the
years ended December 31, 1997 and 1996 were derived from our audited
consolidated financial statements, as initially filed with the SEC, adjusted for
the retroactive application of the Schanen Consulting Corporation acquisition
that was accounted for as a pooling of interests. The summary consolidated
financial data as of and for the six months ended June 30, 2001 and 2000 are
unaudited, but in the opinion of management include all normal recurring
adjustments necessary for a fair presentation of our financial position and
results of operations for such periods. The operating results for the six months
ended June 30, 2001 are not necessarily indicative of our results of operations
for the full year 2001 or any future periods. All information contained in this
summary should be read in conjunction with the consolidated financial
statements, the related notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in the
documents incorporated by reference.
FOR THE SIX MONTHS
ENDED JUNE 30,(1) FOR THE YEARS ENDED DECEMBER 31,(1)
-------------------- --------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
STATEMENT OF EARNINGS DATA:
REVENUE
Net earned premium................ $155,609 $135,010 $267,647 $141,362 $143,100 $162,571 $170,068
Management fees................... 29,635 53,809 96,058 90,713 74,045 51,039 28,651
Commission income................. 24,792 25,696 49,886 58,233 40,804 25,375 21,924
Net investment income............. 20,508 18,195 39,836 30,946 29,342 27,588 23,593
Net realized investment gain
(loss).......................... (360) (4,372) (5,321) (4,164) 845 (328) 8,341
Other operating income............ 5,464 14,556 25,497 28,475 22,268 15,239 18,656
-------- -------- -------- -------- -------- -------- --------
Total revenue............... 235,648 242,894 473,603 345,565 310,404 281,484 271,233
EXPENSE
Loss and loss adjustment
expenses........................ 96,969 101,941 198,470 109,650 91,302 96,514 114,464
Operating expense:
Policy acquisition costs........ 12,253 15,502 23,743 8,177 10,978 13,580 8,218
Compensation expense............ 35,466 43,376 83,086 79,196 57,227 51,994 42,380
Provision for reinsurance(2).... -- -- -- 43,462 -- -- --
Other operating expense......... 27,540 27,999 53,274 53,273 36,451 31,935 26,530
Merger expense.................. -- -- -- -- 107 8,069 26,160
-------- -------- -------- -------- -------- -------- --------
Total operating expense..... 75,259 86,877 160,103 184,108 104,763 105,578 103,288
Interest expense.................. 5,161 10,336 20,347 12,964 6,021 6,004 4,993
-------- -------- -------- -------- -------- -------- --------
Total expense............... 177,389 199,154 378,920 306,722 202,086 208,096 222,745
-------- -------- -------- -------- -------- -------- --------
Earnings before income tax
provision....................... 58,259 43,740 94,683 38,843 108,318 73,388 48,488
Income tax provision.............. 22,823 17,156 37,202 12,271 35,208 23,305 9,885
-------- -------- -------- -------- -------- -------- --------
Net earnings before
accounting change......... 35,436 26,584 57,481 26,572 73,110 50,083 38,603
Cumulative effect of accounting
change............................ -- (2,013) (2,013) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings................ $ 35,436 $ 24,571 $ 55,468 $ 26,572 $ 73,110 $ 50,083 $ 38,603
======== ======== ======== ======== ======== ======== ========
BASIC EARNINGS PER SHARE DATA:
Earnings before accounting
change.......................... $ 0.63 $ 0.53 $ 1.13 $ 0.53 $ 1.49 $ 1.04 $ 0.84
Cumulative effect of accounting
change.......................... -- (0.04) (0.04) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings...................... $ 0.63 $ 0.49 $ 1.09 $ 0.53 $ 1.49 $ 1.04 $ 0.84
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding..................... 56,374 50,462 50,742 50,058 48,917 47,992 45,792
======== ======== ======== ======== ======== ======== ========
DILUTED EARNINGS PER SHARE DATA:
Earnings before accounting
change.......................... $ 0.61 $ 0.52 $ 1.11 $ 0.52 $ 1.46 $ 1.02 $ 0.82
Cumulative effect of accounting
change.......................... -- (0.04) (0.04) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings...................... $ 0.61 $ 0.48 $ 1.07 $ 0.52 $ 1.46 $ 1.02 $ 0.82
======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding..................... 57,793 50,906 51,619 50,646 49,933 49,206 47,040
======== ======== ======== ======== ======== ======== ========
Cash dividend declared, per share... $ 0.12 $ 0.10 $ 0.22 $ 0.20 $ 0.16 $ 0.12 $ 0.06
======== ======== ======== ======== ======== ======== ========
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FOR THE SIX MONTHS
ENDED JUNE 30,(1) FOR THE YEARS ENDED DECEMBER 31,(1)
-------------------- --------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
STATUTORY OPERATING DATA AND
RATIOS(3)
Gross written premium............. $523,708 $471,265 $972,154 $576,184 $500,962 $346,094 $340,367
Net written premium............... 178,094 142,568 283,947 150,261 123,315 143,068 189,022
Policyholders' surplus............ 355,798 304,492 326,249 315,474 369,401 331,922 288,863
Gross written premium to
policyholders' surplus(4)....... 294.4% 309.5% 298.0% 182.6% 135.6% 104.3% 117.8%
Net written premium to
policyholders' surplus(4)....... 100.1% 93.6% 87.0% 47.6% 33.4% 43.1% 65.4%
Loss ratio........................ 62.5% 72.3% 71.1% 107.1% 67.2% 61.6% 64.4%
Expense ratio..................... 24.6% 28.6% 27.0% 22.8% 15.7% 17.2% 19.2%
-------- -------- -------- -------- -------- -------- --------
Combined ratio.................... 87.1% 100.9% 98.1% 129.9% 82.9% 78.8% 83.6%
======== ======== ======== ======== ======== ======== ========
Combined ratio excluding effects
of the provision for reinsurance
in 1999......................... 104.1%
========
Industry average combined ratio..... * * * 107.8% 105.6% 101.6% 105.7%
AS OF AS OF DECEMBER 31,
JUNE 30, ----------------------------------------------------------------
2001 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- --------
BALANCE SHEET DATA:
Total investments..................... $ 734,827 $ 711,113 $ 581,322 $ 525,646 $ 518,772 $468,725
Premium, claims and other
receivables......................... 638,470 586,721 622,910 382,885 252,759 168,300
Reinsurance recoverables.............. 842,823 789,412 736,485 372,672 176,965 132,328
Ceded unearned premium................ 109,844 114,469 133,657 149,568 84,610 71,758
Goodwill.............................. 260,367 266,015 263,687 88,043 34,758 10,922
Total assets.......................... 2,896,702 2,767,760 2,665,976 1,709,643 1,198,353 965,815
Loss and LAE payable.................. 1,001,384 944,117 871,104 460,511 275,008 229,049
Unearned premium...................... 205,829 190,550 188,524 201,050 152,094 156,268
Notes payable......................... 53,456 212,133 242,546 121,600 80,750 72,917
Shareholders' equity.................. 726,832 530,930 458,439 440,430 365,779 296,546
Net tangible book value per
share(5)............................ 7.88 5.13 3.88 7.16 6.79 6.11
Book value per share(5)............... $ 12.28 $ 10.29 $ 9.12 $ 8.94 $ 7.50 $ 6.35
---------------
* not available.
(1) Certain amounts in the 2000, 1999, 1998, 1997, and 1996 summary consolidated
financial data have been reclassified to conform to the 2001 presentation.
Such reclassifications had no effect on our net earnings, shareholders'
equity or cash flows.
(2) During 1999, we recorded a provision for reinsurance recoverables in the
amount of $29.5 million relating to one of our reinsurers that was
subsequently placed into liquidation and a $14.0 million loss related to the
commutation of all liabilities with another reinsurer.
(3) Ratios based on statutory accounting principles, or SAP, data are not
intended to be a substitute for results of operations on the basis of
generally accepted accounting principles, or GAAP. The differences between
SAP and GAAP are described in Note (15) of our consolidated financial
statements. Including this information on a SAP basis is meaningful and
useful to allow a comparison of our operating results with those of other
companies in the insurance industry. The source of the industry average is
A.M. Best Company. A.M. Best reports on insurer performance on a SAP basis
to provide for more standardized comparisons among individual companies, as
well as to track overall industry performance.
(4) Six month ratios have been annualized to be comparable.
(5) Book value per share is calculated by dividing shares outstanding plus
contractually issuable shares into total shareholders' equity. Net tangible
book value per share uses total shareholders' equity less goodwill as the
numerator.
S-6
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RISK FACTORS
You should carefully consider the specific risk factors set forth below, as well
as the specific risk factors relating to our business and our industry contained
in the accompanying prospectus, before deciding to invest in the notes. You
should also consider the other information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus before
deciding to invest in the notes. This prospectus supplement and the accompanying
prospectus contain or incorporate statements that constitute forward-looking
statements regarding, among other matters, our intent, belief or current
expectations about our business. These forward-looking statements are subject to
risks, uncertainties and assumptions.
OUR COMMON STOCK PRICE CONSTANTLY CHANGES, WHICH MAY CAUSE THE TRADING PRICE OF
THE NOTES TO BE HIGHLY VOLATILE.
The price of our common stock on the New York Stock Exchange constantly changes.
We expect that the market price of our common stock will continue to change. For
instance, since January 1, 2000, our stock has traded from a low of $10.94 to a
high of $29.65 per share. Because the notes are convertible into our common
stock, volatility or depressed prices for our common stock could have a similar
effect on the trading price of the notes. Holders who have received common stock
upon conversion will also be subject to the risk of volatility and depressed
prices. The fluctuation in our common stock price is caused by a number of
factors, some of which are beyond our control, including:
- additions or departures of our key personnel;
- announcements by us of significant contracts, acquisitions or capital
commitments;
- changes in estimates by securities analysts of our financial results;
- changes in market valuations generally of property and casualty insurance
companies;
- quarterly variations in our operating results;
- significant sales of our common stock; and
- the acquisition or loss of our major customers.
In addition, the stock market in recent years has experienced broad price and
volume fluctuations that have often been unrelated to the operating performance
of companies, particularly property and casualty insurance companies. These
broad market fluctuations have also adversely affected, and may continue to
adversely affect, the market price of our common stock.
FUTURE SALES OF OUR COMMON STOCK MAY ADVERSELY AFFECT OUR COMMON STOCK PRICE AND
THEREFORE THE TRADING PRICE OF THE NOTES.
We believe that substantially all of the shares of common stock that will be
outstanding after this offering and shares of common stock issued in the future
upon the exercise of outstanding options will be freely tradable under the
federal securities laws following this offering, subject to certain limitations.
These limitations include vesting provisions in option agreements, restrictions
in lock-up agreements with certain shareholders, and volume and manner-of-sale
restrictions under Rule 144. The future sale of a substantial number of shares
of common stock into the public market following this offering, or the
perception that such sales could occur, could adversely affect the prevailing
market price of our common stock, which would, in turn, adversely affect the
trading price of the notes.
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IF AN ACTIVE MARKET FOR THE NOTES FAILS TO DEVELOP OR IS NOT SUSTAINED, THE
TRADING PRICE AND LIQUIDITY OF THE NOTES COULD BE MATERIALLY ADVERSELY AFFECTED.
The notes are new securities for which there is currently no market. We do not
intend to apply for listing of the notes on any securities exchange or automated
quotation system. Although the underwriters have advised us that they currently
intend to make a market in the notes after the completion of the offering, the
underwriters are not obligated to do so, and any such market making activities
may be discontinued at any time without notice. We do not know if any market for
the notes will develop, or that any such market will provide liquidity for
holders of the notes. If a market for the notes were to develop, the notes could
trade at prices that may be higher or lower than their initial offering price
depending upon many factors, including prevailing interest rates, our operating
results and the market for similar securities. If an active market for the notes
fails to develop or be sustained, the trading price and liquidity of the notes
could be materially adversely affected.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE
IN CONTROL REPURCHASE OPTION OR THE REPURCHASE AT THE OPTION OF THE HOLDER
PROVISION IN THE NOTES.
Upon the occurrence of specific kinds of change in control events occurring on
or before September 1, 2006, and on the September 1, 2002, September 1, 2004,
September 1, 2006, September 1, 2008, September 1, 2011, and September 1, 2016
purchase dates, we may be required to offer to repurchase all outstanding notes.
However, it is possible that we will not have sufficient funds at such time to
make the required repurchase of notes in cash or that restrictions in our credit
facilities or other indebtedness will not allow such repurchases. Under the
notes, we may pay the purchase price described above, other than in the case of
a change of control, in shares of our common stock. In addition, important
corporate events, such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a "Change in Control" under the
indenture governing the notes. See "Description of Notes -- Repurchase of Notes
at the Option of Holders" and "-- Change in Control Requires Repurchase of Notes
by Us at the Option of the Holder."
AS A HOLDING COMPANY, WE WILL DEPEND ON DISTRIBUTIONS FROM OUR SUBSIDIARIES IN
ORDER TO FULFILL OUR PAYMENT OBLIGATIONS ON THE NOTES.
Substantially all of our operations are conducted through our subsidiaries and
substantially all of our earnings and cash flows are generated by our
subsidiaries. As a result, we will depend on the earnings of our subsidiaries in
order to pay the interest and repay the principal which we owe and to pay cash
dividends to our common shareholders in the future. In addition, we are
dependent on the distribution of our subsidiaries' earnings, loans and other
payments by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. They have no
obligation to pay any amounts due on the notes or to provide us with funds for
our payment obligations, whether by dividends, distributions, loans or other
payments. In addition, any payment of dividends, distributions, loans or
advances by our subsidiaries to us is subject to statutory or contractual
restrictions and restrictions contained in our current credit facilities.
Payments to us by our subsidiaries will also be contingent upon our
subsidiaries' earnings and business considerations. Therefore, we may not have
sufficient cash flow to meet our obligations under the notes.
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USE OF PROCEEDS
The net proceeds to us from the sale of the notes in this offering are estimated
to be approximately $145,832,500 (approximately $167,849,875 if the
underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and estimated offering expenses payable by us.
We intend to use approximately $49.0 million of the net proceeds to repay our
remaining indebtedness under our revolving loan facility. The revolving loan
facility to be repaid bears interest at agreed upon rates and matures on
December 18, 2004. As of June 30, 2001, the total amount of debt outstanding
under our revolving loan facility was $49.0 million and the weighted average
interest rate was 4.7%. This revolving loan facility is collateralized by the
common stock of Houston Casualty Company and Avemco Corporation, two of our
largest subsidiaries, and by the common stock of, and guaranties entered into
by, our principal underwriting agencies and intermediaries.
We intend to use the remainder of the net proceeds to assist in the financing of
pending and future acquisitions and for general corporate purposes.
CAPITALIZATION
The following table sets forth our consolidated capitalization as of June 30,
2001:
- on an actual basis; and
- on an as-adjusted basis to give effect to:
- our sale of $150,000,000 aggregate principal amount of notes in
this offering; and
- the repayment of our remaining indebtedness under our revolving
loan facility with a portion of the net proceeds from the sale of
notes in this offering.
AS OF
JUNE 30, 2001
-------------------------------------
AS
ACTUAL ADJUSTED(1)
----------- --------------
(IN THOUSANDS, EXCEPT SHARE NUMBERS)
Revolving loan facility..................................... $ 49,000 --
Notes offered hereby........................................ -- $150,000
Other debt.................................................. 4,456 4,456
-------- --------
Total debt........................................ 53,456 154,456
-------- --------
Shareholders' equity
Common Stock, $1.00 par value, 250,000,000 shares
authorized; 59,025,813 shares issued and
outstanding(2)......................................... 59,026 59,026
Additional paid-in capital................................ 354,034 354,034
Retained earnings......................................... 306,250 306,250
Accumulated other comprehensive income.................... 7,522 7,522
-------- --------
Total shareholders' equity........................ 726,832 726,832
-------- --------
Total capitalization.............................. $780,288 $881,288
======== ========
---------------
(1) Assumes no exercise of the over-allotment option. If the over-allotment
option is exercised, notes offered hereby would be $172,500, and total debt
would be $176,956.
(2) Excluding 7,999,726 shares of our common stock reserved for issuance upon
the exercise of options to purchase shares of our common stock, of which
options to purchase 5,012,726 shares have been granted, including currently
exercisable options to purchase 2,623,820 shares.
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MARKET INFORMATION
PRICE RANGE OF COMMON STOCK
Our common stock trades on the New York Stock Exchange under the ticker symbol
"HCC."
The intra-day high and low sale prices for quarterly periods during the period
January 1, 1999 through August 17, 2001, as reported by the New York Stock
Exchange and the dividends declared were as follows:
HIGH LOW DIVIDENDS
------ ------ ---------
2001:
Third Quarter (through August 17, 2001)..................... $25.60 $21.21 --
Second Quarter.............................................. 29.65 23.26 $.06
First Quarter............................................... 26.88 20.50 .06
2000:
Fourth Quarter.............................................. 27.19 17.63 .06
Third Quarter............................................... 22.94 18.69 .06
Second Quarter.............................................. 19.69 10.94 .05
First Quarter............................................... 15.00 11.50 .05
1999:
Fourth Quarter.............................................. 16.69 8.00 .05
Third Quarter............................................... 25.13 13.88 .05
Second Quarter.............................................. 22.69 17.94 .05
First Quarter............................................... 21.44 16.00 .05
On August 17, 2001, the last reported sale price of our common stock as reported
by the New York Stock Exchange was $25.00 per share.
SHAREHOLDERS
We have one class of authorized capital stock, consisting of 250,000,000 shares
of common stock, par value $1.00 per share. As of August 17, 2001, there were
59,317,938 shares of issued and outstanding common stock held by 978
shareholders of record. We believe there are in excess of 15,000 beneficial
owners.
DIVIDEND POLICY
Beginning in June, 1996, we announced a planned quarterly program of paying cash
dividends to shareholders. We paid a cash dividend of $0.02 per share in July
1996 and in each succeeding quarter through the first quarter of 1997. We have
increased the quarterly cash dividend in each year. Beginning in October 2000,
our quarterly dividend was $0.06 per share. Our Board of Directors may review
our dividend policy from time to time, and any determination with respect to
future dividends will be made in light of regulatory and other conditions at
that time, including our earnings, financial condition, capital requirements,
loan covenants and other related factors. Under the terms of our revolving loan
facility, we are prohibited from paying dividends in excess of an agreed upon
maximum amount in any fiscal year. That limitation should not affect our ability
to pay dividends in a manner consistent with our past practice and current
expectations.
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RATIO OF EARNINGS TO FIXED CHARGES
The ratio of our earnings to fixed charges for the periods indicated are as
follows:
SIX MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, --------------------------------------
2001 2000 1999 1998 1997 1996
---------- ---- ---- ----- ----- ----
Ratio of earnings to fixed charges........ 10.20 5.13 3.58 15.42 11.10 9.31
For these ratios, earnings consist of income before interest expense, including
amortization of capitalized expenses related to indebtedness, an estimated
interest factor (33.3%) of rental expense and income taxes. Fixed charges
consist of interest expense, including amounts capitalized and amortization of
capitalized expenses related to indebtedness, and an estimated interest factor
(33.3%) of rental expense.
DESCRIPTION OF NOTES
We will issue the notes under an indenture, as supplemented by a supplemental
indenture, between us and First Union National Bank, as trustee, referred to in
this prospectus supplement and in the accompanying prospectus as the "senior
indenture." The following description of the particular terms of the notes
offered in this prospectus supplement, referred to in the accompanying
prospectus as "senior debt securities," supplements and, to the extent they are
inconsistent with each other, replaces the description of the general terms and
provisions of the senior debt securities set forth in the accompanying
prospectus. In this section of the prospectus supplement when we use the terms
"HCC," "we," "our," or "us," we are referring only to HCC Insurance Holdings,
Inc. and not any of our subsidiaries.
GENERAL
The notes will be limited to $150,000,000 aggregate principal amount
($172,500,000 aggregate principal amount if the underwriters exercise their
over-allotment option in full). The notes will mature on September 1, 2021.
Interest on the notes accrues at a rate of 2.00% per annum from the date of
original issuance, payable semiannually on March 1 and September 1 of each year
or, if such day is not a business day, on the next succeeding business day,
commencing on March 1, 2002. We will make each interest payment in cash to the
holders of record of the notes on each February 15 and August 15 immediately
preceding the interest payment date. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
The notes will be payable both as to principal and interest on presentation, if
in certificated form, at the offices or agencies we maintain for such purpose
within the city and state of New York or, at our option, payment of interest may
be made by check mailed to the holders of the notes at their respective
addresses set forth in the register of holders of notes or by wire transfer of
immediately available funds to an account previously specified in writing by the
holder to us and the trustee.
However, we will pay interest by wire transfer of immediately available funds at
the election of any holder with an aggregate principal amount of notes in excess
of $2.0 million. Payments to The Depository Trust Company, New York, New York,
which we refer to as DTC, will be made by wire transfer of immediately available
funds to the account of DTC or its nominee.
We may not reissue a note that has matured, been converted, repurchased by us at
the option of a holder, redeemed or otherwise cancelled.
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Holders may present notes for conversion at the office of the conversion agent,
which agent will initially be the trustee. Holders may present notes for
registration of transfer at the office of the trustee.
The notes are not subject to defeasance or covenant defeasance.
RANKING OF NOTES
The notes will be unsecured and unsubordinated indebtedness of ours and will
rank on a parity with our other unsecured and unsubordinated indebtedness. The
notes will not be guaranteed by any of our subsidiaries, and, accordingly, the
notes will be effectively subordinated to the claims of our subsidiaries'
creditors, including trade creditors. The notes do not limit the ability of our
subsidiaries to incur indebtedness. As of June 30, 2001, our subsidiaries had
liabilities of approximately $2.15 billion, including guarantees of our
indebtedness.
The notes will not be secured by any of our assets. The notes do not restrict us
and our subsidiaries from incurring additional secured and unsecured debt. As of
June 30, 2001, we and our subsidiaries had outstanding secured debt of $78.2
million, including letters of credit, which does not include capital leases.
Holders of secured debt would have claims on the assets securing such
indebtedness prior to the holders of the notes.
CONVERSION RIGHTS
The initial conversion price is $32.00 per share of our common stock, which is
equivalent to a conversion rate of 31.25 shares for each $1,000 principal amount
of notes. The number of shares of common stock issuable upon conversion of a
note will equal the principal amount of a note divided by the conversion price
on the date of conversion. The conversion price and, therefore the conversion
rate, is subject to adjustment upon the occurrence of certain events described
below. Upon conversion, a holder of a note otherwise entitled to a fractional
share will receive cash equal to the same fraction of the then current market
price of our shares of common stock on the trading day immediately preceding the
date of conversion. Holders may convert their notes in part so long as that part
is $1,000 principal amount or an integral multiple of $1,000.
Holders may surrender notes for conversion into shares of common stock in any
calendar quarter, if, as of the last day of the preceding calendar quarter, the
closing sale price of our common stock for at least 20 trading days in the
period of 30 consecutive trading days ending on the last trading day of the
quarter was more than 120% of the conversion price per share of common stock on
the last trading day of the quarter. The conversion agent will, on our behalf,
determine at the end of each quarter if the notes are convertible and notify us
and the trustee. If the notes are convertible as of the end of a quarter, we
will issue a press release indicating that the notes are convertible and will
publish such information on our website.
Even if the condition in the preceding paragraph has not been satisfied, holders
may surrender notes for conversion in the following circumstances:
- if the notes have been called for redemption, the notes may be surrendered for
conversion at any time prior to the close of business on the second business
day prior to the redemption date.
- if we are party to a consolidation, merger or binding share exchange pursuant
to which the shares of our common stock would be converted into cash,
securities or other property, the notes may be surrendered for conversion at
any time from and after the date which is 15 days prior to the anticipated
effective date of the transaction until 15 days after the actual date of such
transaction. At the effective time of such transaction, the right to convert a
note into shares of common stock will be changed into a right to convert it
into the kind and amount of cash, securities or other property of HCC or
another person which the holder would have received if the holder had
converted the holder's note immediately prior to the effective time of the
transaction. If the transaction also constitutes a change in control occurring
prior to September 1, 2006, the holder will be able to require us to purchase
all or a portion of such holder's notes
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as described under "-- Change in Control Requires repurchase of Notes by Us at
the Option of the Holder."
- if, at any time after December 1, 2001, the notes are rated below "BBB-," or
are not rated at all, by Standard & Poor's Rating Services.
A note for which a holder has delivered a repurchase notice or a change in
control repurchase notice, as described below, requiring us to repurchase the
note, may be surrendered for conversion only if the notice is withdrawn in
accordance with the senior indenture, unless we default in payment of the
applicable repurchase price or change of control repurchase price.
We will not make any payment or other adjustment upon any conversion of notes on
account of any interest accrued on the notes surrendered for conversion from the
interest payment date preceding the date of conversion, or on account of any
dividends on any common stock issued upon conversion of the notes. If any notes
are converted during the period after any record date for the payment of an
installment of interest but before the next interest payment date, interest on
those notes will be paid on the next interest payment date, notwithstanding such
conversion, to the holder of record of those notes on the record date. However,
any notes that are delivered to us for conversion after any record date but
before the next interest payment date must be accompanied by a payment equal to
the interest payable on such interest payment date on the principal amount of
notes being converted, except in the following circumstances:
- if, during that period between a record date and the next interest payment
date, a conversion occurs on or after the date that we have issued a
redemption notice and prior to the date of redemption, or
- if a repurchase notice or change of control repurchase notice delivered by the
holder has not been withdrawn, and the conversion rights of the holder would
terminate between the period between such record date and the interest payment
date, or
- if, at the time of conversion, we are in default on the payment of interest on
the notes.
A certificate for the number of full shares of common stock into which any note
is converted, together with any cash payment for fractional shares and for
accrued interest on the notes, will be delivered through the conversion agent as
soon as practicable following the conversion date. For a discussion of the tax
treatment of a holder receiving shares of common stock upon surrendering notes
for conversion, see "Certain U.S. Federal Income Tax Consequences -- U.S.
Holders."
The conversion price will be adjusted for:
(1) the issuance of our common stock as a dividend or distribution to all
holders of our common stock;
(2) subdivisions and combinations of our common stock;
(3) the issuance to all holders of shares of our common stock of certain
rights or warrants to purchase our common stock (or securities
convertible into our common stock) at less than (or having a conversion
price per share less than) the market price of our common stock on the
business day immediately preceding the date of announcement of the
issuance;
(4) distributions to all holders of our common stock of shares of our
capital stock, evidences of our indebtedness, or other assets,
including securities but excluding:
- common stock referred to in item (1) above,
- rights or warrants referred to in item (3) above,
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- any dividends or distributions of stock, securities or other property
or assets in connection with a reclassification, change, merger,
consolidation, statutory share exchange, combination, sale or
conveyance resulting in a change in the conversion consideration
pursuant to the third succeeding paragraph, and
- any dividends or distributions paid exclusively in cash;
(5) distributions consisting exclusively of cash to all holders of our
common stock to the extent that those distributions, combined together
with:
- all other all-cash distributions made within the preceding 12 months
for which no adjustment has been made, plus
- any cash and the fair market value of other consideration paid for in
any tender offers by us or any of our subsidiaries for our common stock
expiring within the preceding 12 months for which no adjustment has
been made,
exceeds 10% of our market capitalization on the record date for that
distribution. Our "market capitalization," as of any date, is the product
of the sale price of our common stock on such date times the number of
shares of our common stock then outstanding; and
(6) purchases of our common stock pursuant to a tender offer made by us or
any of our subsidiaries to the extent that the same involves an
aggregate consideration that, together with:
- any cash and the fair market value of any other consideration paid in
any other tender offer by us or any of our subsidiaries for our common
stock expiring within the 12 months preceding the tender offer for
which no adjustment has been made, plus
- the aggregate amount of any all-cash distributions referred to in the
immediately preceding bullet point to all holders of our common stock
within 12 months preceding the expiration of the tender offer for which
no adjustments have been made,
exceeds 10% of our market capitalization on the expiration of the tender
offer.
We will not make any adjustment if holders of notes may participate in the
transactions described above or in certain other cases. In cases:
- where the fair market value of assets, debt securities or certain rights,
warrants or options to purchase our securities that are applicable to one
share of common stock and are distributed to shareholders equals or exceeds
the average sale price of our common stock over a specified period, or
- in which the average sale price of our common stock over a specified period
exceeds the fair market value of the assets, debt securities or rights,
warrants or options so distributed by less than $1.00,
rather than being entitled to an adjustment in the conversion price, the holder
of a note will be entitled to receive upon conversion, in addition to the shares
of common stock, the kind and amount of assets, debt securities or rights,
warrants or options comprising the distribution that the holder would have
received if the holder had converted its notes immediately prior to the record
date for determining the shareholders entitled to receive the distribution.
We will not make an adjustment in the conversion price unless the adjustment
would require a change of at least 1% in the conversion price in effect at that
time. We will carry forward and take into account in any subsequent adjustment
any adjustment that would otherwise be required to be made.
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If we:
- reclassify or change our common stock (other than changes resulting from a
subdivision or combination), or
- consolidate or combine with or merge into or are a party to a binding share
exchange with any person or sell or convey to another person all or
substantially all of our property and assets,
and the holders of our common stock receive (or the common stock is converted
into) stock, other securities or other property or assets (including cash or any
combination thereof) with respect to or in exchange for their common stock,
then, at the effective time of the transaction the holders of the notes may
convert the notes into the consideration they would have received if they had
converted their notes immediately prior to the reclassification, change,
consolidation, combination, merger sale or conveyance. We may not become a party
to any such transaction unless its terms are consistent with the foregoing.
In the event that we distribute shares of capital stock of a subsidiary of ours,
the conversion price will be adjusted, if at all, based on the market value of
the subsidiary stock so distributed relative to the market value of our common
stock, in each case over a measurement period following the distribution.
In the event we elect to make a distribution described in paragraphs numbered
(3) or (4) above which, in the case of paragraph (4), has a per share value
equal to more than 10% of the closing sale price of our shares of common stock
on the day preceding the declaration date for the distribution, then, if the
notes are otherwise convertible, we will be required to give notice to the
holders of notes at least 20 days prior to the ex-dividend date for the
distribution and, upon the giving of notice, the notes may be surrendered for
conversion at any time until the close of business on the business day prior to
the ex-dividend date or until we announce that the distribution will not take
place. No adjustment to the conversion price or the ability of a holder of a
note to convert will be made if the holder will otherwise participate in the
distribution without conversion or in certain other cases.
If a taxable distribution to holders of our common stock or other transaction
occurs which results in any adjustment of the conversion price, you may in
certain circumstances, be deemed to have received a distribution subject to
United States federal income tax as a dividend. In certain other circumstances,
the absence of an adjustment may result in a taxable dividend to the holders of
our common stock. See "Certain U.S. Federal Income Tax Consequences -- U.S.
Holders."
To the extent permitted by law, from time to time we may reduce the conversion
price of the notes by any amount for any period. In that case, we will give at
least 20 business days notice of the reduction. We may also reduce the
conversion price, as our board of directors deems advisable to avoid or diminish
any income tax to holders of our common stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. Any such reduction, however, will not be taken
into account for purposes of determining whether the closing price of our common
stock exceeds the conversion price by 105% in connection with an event which
would otherwise be a change in control.
REDEMPTION OF NOTES AT OUR OPTION
At any time on or after September 1, 2006, we may redeem the notes, in whole or
in part, on at least 30 but no more than 60 days notice, at a redemption price
equal to the principal amount of the notes plus accrued and unpaid interest on
the notes to (but excluding) the redemption date.
If we redeem less than all of the outstanding notes, the trustee will select the
notes to be redeemed in integral multiples of $1,000 by any method the trustee
shall deem fair and appropriate. If a portion of your notes is selected for
partial redemption and you convert a portion of the notes, the portion selected
for redemption
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will be converted. We may not give notice of any redemption if we have defaulted
in payment of interest and the default is continuing.
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments with
respect to the notes.
REPURCHASE OF NOTES AT THE OPTION OF HOLDERS
You have the right to require us to repurchase the notes on September 1, 2002,
September 1, 2004, September 1, 2006, September 1, 2008, September 1, 2011 and
September 1, 2016. We will be required to repurchase any outstanding note for
which you deliver a written repurchase notice to the paying agent. This notice
must be delivered during the period beginning at any time from the opening of
business on the date that is 20 business days prior to the repurchase date until
the close of business on the repurchase date. If a repurchase notice is given
and withdrawn during that period, we will not be obligated to repurchase the
notes listed in the notice. Our repurchase obligation will be subject to certain
additional conditions.
We are required to repurchase any such notes at a repurchase price equal to the
principal amount of the notes plus accrued and unpaid interest to (but
excluding) the purchase date. We may, at our option, elect to pay the repurchase
price in cash or shares of our common stock or any combination thereof. For a
discussion of the tax treatment of a note holder receiving cash, shares of our
common stock or any combination thereof, see "Certain U.S. Federal Income Tax
Consequences -- U.S. Holders."
We will be required to give notice on a date not less than 20 business days
prior to each repurchase date to all holders at their addresses shown in the
register of the registrar (and to beneficial owners as required by applicable
law) stating among other things:
- whether we will pay the repurchase price of notes in cash or common stock or
any combination thereof, specifying the percentages of each;
- if we elect to pay in common stock, the method of calculating the market price
of the common stock; and
- the procedures that holders must follow to require us to repurchase their
notes.
Your right to require us to repurchase notes is exercisable by delivering a
written repurchase notice to the paying agent within 20 business days of the
repurchase date. The paying agent will initially be the trustee.
The repurchase notice must state:
(1) the certificate numbers of the holder's notes to be delivered for
repurchase (or, if your notes are not certificated, your repurchase
notice must comply with appropriate DTC procedures);
(2) the portion of the principal amount of notes to be repurchased, which
must be $1,000 or an integral multiple of $1,000;
(3) that the notes are to be repurchased by us pursuant to the applicable
provisions of the notes and the senior indenture; and
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(4) your election, in the event we elect to pay all or a portion of the
repurchase price in shares of our common stock but prove unable to
satisfy the conditions for common stock payment and ultimately have to
pay cash, to:
- withdraw your repurchase notice as to all or a portion of the notes to
which it relates, or
- receive cash in respect of the entire repurchase price for all the
notes described in your repurchase notice.
If you fail to indicate your choice with respect to the election described in
paragraph (4) above, you will be deemed to have elected to receive cash for the
entire repurchase price for all the notes or portions of notes described in your
repurchase notice.
You may withdraw any written repurchase notice by delivering a written notice of
withdrawal to the paying agent prior to the close of business on the repurchase
date. The notice of withdrawal shall state:
- the principal amount of the notes being withdrawn;
- the certificate numbers of the notes being withdrawn (or, if your notes are
not certificated, your withdrawal notice must comply with appropriate DTC
procedures); and
- the principal amount of the notes that remains subject to the repurchase
notice, if any, which must be $1,000 or an integral multiple of $1,000.
If we elect to pay the repurchase price, in whole or in part, in shares of our
common stock, the number of shares of common stock to be delivered by us shall
be equal to the portion of the repurchase price to be paid in common stock
divided by the market price of a share of common stock. We will pay cash based
on the market price for all fractional shares of common stock in the event we
elect to deliver common stock in payment, in whole or in part, of the repurchase
price.
The "market price" of our common stock means the average of the sale prices of
our common stock for the five trading day period ending on the third business
day (if the third business day prior to the applicable repurchase date is a
trading day or, if not, then on the last trading day prior to such third
business day) prior to the applicable purchase date, appropriately adjusted to
take into account the occurrence, during the period commencing on the first of
such trading days during such five trading day period and ending on such
repurchase date, of certain events with respect to the common stock that would
result in an adjustment of the conversion price.
The "sale price" of our common stock on any date means the closing sale price
per share (or if no closing sale price is reported, the average of the bid and
ask prices or, if more than one in either case, the average of the average bid
and the average ask prices) on such date as reported in composite transactions
for the principal United States securities exchange on which our common stock is
traded or, if our common stock is not listed on a United States national or
regional securities exchange, as reported by the Nasdaq System.
Because the market price of the common stock is determined prior to the
applicable purchase date, holders of notes bear the market risk with respect to
the value of the common stock from the date such market price is determined to
the repurchase date. We may pay the repurchase price or any portion of the
repurchase price in common stock only if the information necessary to calculate
the market price is published in a daily newspaper of national circulation.
Upon determination of the actual number of shares of common stock issuable in
accordance with the foregoing provisions, we will publish such information on
our website at www.hcch.com or in such other public medium as we may determine.
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In addition to the above conditions, our right to repurchase notes, in whole or
in part, with shares of common stock is subject to our satisfying various
conditions, including:
- the listing of such shares of common stock on the principal United States
securities exchange on which the common stock is then listed or the inclusion
of such shares in The Nasdaq National Market if the common stock is then so
included;
- the registration of the common stock under the Securities Act of 1933 and the
Securities Exchange Act of 1934, if required;
- qualification or registration of such shares under applicable state securities
law, if necessary, or the availability of an exemption therefrom; and
- delivery to the trustee of an officer's certificate and an opinion of counsel,
each stating, among other things, that the terms of the issuance of the common
stock are in accordance with the senior indenture and that the common stock to
be issued in payment of the repurchase price has been duly authorized and,
when issued and delivered pursuant to the terms of the senior indenture, will
be validly issued, fully paid and, to the best of such counsel's knowledge,
free from preemptive rights.
If such conditions are not satisfied with respect to a holder prior to the close
of business on a repurchase date, we will pay the repurchase price of the notes
of such holder entirely in cash. We may not change the form or components or
percentages of components of consideration to be paid for the notes once we have
given the notice that we are required to give to holders of notes, except as
described in the preceding sentence.
Our obligation to pay the repurchase price for a note for which a repurchase
notice has been delivered and not validly withdrawn is conditioned upon
book-entry transfer or physical delivery of the note, together with necessary
endorsements, to the paying agent at any time after delivery of the repurchase
notice. We will cause the purchase price for the note to be made promptly
following the later of the repurchase date or the time of book-entry transfer or
physical delivery of the note.
If the paying agent holds money or securities sufficient to pay the repurchase
price of a note on the business day following the repurchase date in accordance
with the senior indenture, then, immediately after the repurchase date, the note
will cease to be outstanding and interest will cease to accrue, whether or not
book-entry transfer is made or the note is delivered to the paying agent.
Thereafter, all other rights of the holder shall terminate, other than the right
to receive the repurchase price upon delivery of the note.
Our ability to repurchase notes with cash may be limited by the terms of our
then existing indebtedness, financial agreements or financial resources.
We may not repurchase any notes at the option of holders if an event of default
with respect to the notes has occurred and is continuing, other than a default
in the payment of the repurchase price with respect to such notes.
In connection with any repurchase offer, we will comply with the provisions of
Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Securities
Exchange Act of 1934 which may then be applicable. We will file a Schedule TO or
any other required schedule under the Securities Exchange Act of 1934.
CHANGE IN CONTROL REQUIRES REPURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
In the event of a change in control occurring on or prior to September 1, 2006,
you will have the right, at your option and subject to the terms and conditions
of the senior indenture, to require us to repurchase for
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cash all or any portion of the principal amount of your notes not previously
called for redemption, in integral multiples of $1,000, at a price equal to the
aggregate principal amount of the notes to be repurchased, together with
interest accrued to, but excluding, the repurchase date. We will be required to
repurchase the notes no later than 40 business days after the occurrence of such
change in control. We refer to this date in this prospectus supplement as the
"change in control purchase date."
Within 15 business days after the occurrence of a change in control, we must
mail to the trustee, the paying agent and to all holders of notes at their
addresses shown in the register of the registrar (and to beneficial owners as
required by applicable law) a notice regarding the change in control, which
notice must state, among other things:
- the events causing a change in control;
- the date of such change in control;
- the last date on which a holder may exercise the repurchase right;
- the change in control repurchase price;
- the change in control repurchase date;
- the name and address of the paying agent and the conversion agent;
- the conversion price and any adjustments to the conversion price;
- that notes with respect to which a change in control repurchase notice is
given by the holder may be converted, if otherwise convertible, only if the
change in control repurchase notice has not been withdrawn in accordance with
the terms of the senior indenture; and
- the procedures that holders must follow to exercise these rights.
To exercise this right, you must deliver a written notice so as to be received
by the paying agent no later than the close of business on the third business
day prior to the change in control repurchase date. The required repurchase
notice upon a change in control must state:
- the certificate numbers of the notes to be delivered by the holder (or, if the
notes are not certificated, your repurchase notice must comply with
appropriate DTC procedures);
- the portion of the principal amount of notes to be repurchased, which portion
must be $1,000 or an integral multiple of $1,000; and
- that we are to repurchase such notes pursuant to the applicable provisions of
the senior indenture.
You may withdraw any change in control repurchase notice by delivering to the
paying agent a written notice of withdrawal prior to the close of business on
the change in control purchase date.
The notice of withdrawal must state:
- the principal amount of the notes being withdrawn;
- the certificate numbers of the notes being withdrawn (or, if the notes are not
certificated, your withdrawal notice must comply with appropriate DTC
procedures); and
- the principal amount of the notes that remain subject to a change in control
repurchase notice.
Our obligation to pay the change in control repurchase price for a note for
which a change in control repurchase notice has been delivered and not validly
withdrawn is conditioned upon delivery of the note, together with necessary
endorsements, to the paying agent at any time after the delivery of such change
in control repurchase notice. We will cause the change in control repurchase
price for such note to be paid promptly following the later of the change in
control repurchase date or the time of delivery of such note.
If the paying agent holds money sufficient to pay the change in control
repurchase price of the note on the change in control repurchase date in
accordance with the terms of the senior indenture, then, immediately
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after the change in control repurchase date, interest on such note will cease to
accrue, whether or not the note is delivered to the paying agent. Thereafter,
all other rights of the holder shall terminate, other than the right to receive
the change in control repurchase price upon delivery of the note.
Under the senior indenture, a "change in control" is deemed to have occurred at
such time as:
- any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934), other than HCC or our subsidiaries, is
or becomes the direct or indirect beneficial owner (as defined in Rule 13d-3
of the Securities Exchange Act of 1934) of 50% or more of the total voting
power of all shares of our common stock entitled to vote generally in
elections of directors; or
- the Company consolidates with, merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates with
or merges with or into, the Company, pursuant to a transaction in which the
Company's voting shares are converted into or exchanged for cash, securities
or other property, except a transaction where the Company's voting shares are
converted into or exchanged for voting shares of the surviving or transferee
corporation (other than voting shares that mature or are redeemable for cash
or debt securities prior to the maturity date of the notes) constituting a
majority of the outstanding voting shares of the surviving or transferee
corporation immediately after giving effect to their issuance; or
- at any time during any consecutive two-year period, the following persons
cease for any reason to constitute a majority of the board of directors of the
Company:
- individuals who at the beginning of such period constituted the board of
directors of HCC; or
- any new directors whose election by the board of directors of HCC or whose
nomination for election by our shareholders was approved by a vote of at
least a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved; or
- we are liquidated or dissolved or adopt a plan of liquidation.
However, a change of control will not be deemed to have occurred if either:
- the closing price per share of our common stock for any five days within the
period of ten consecutive trading days ending immediately after the later of
the change of control or the public announcement of the change of control, in
the case of a change of control under the first bullet point in the preceding
paragraph, or the period of ten consecutive trading days ending immediately
before the change of control, in the case of a change of control under the
second and third bullet points in the preceding paragraph, equals or exceeds
105% of the conversion price of the notes in effect on each of those trading
days; or
- all of the consideration, excluding cash payments for fractional shares and
cash payments made pursuant to dissenters' appraisal rights, in a merger or
consolidation otherwise constituting a change in control under the first and
second bullet points in the preceding paragraph above consists of shares of
common stock traded on a national securities exchange or quoted on The Nasdaq
National Market, or will be so traded or quoted immediately following such
merger or consolidation, and as a result of such merger or consolidation the
notes become convertible solely into such common stock.
The senior indenture does not permit our board of directors to waive our
obligation to repurchase notes at the option of holders in the event of a change
in control.
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In connection with any repurchase offer in the event of a change in control, we
will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender
offer rules under the Securities Exchange Act of 1934 which may then be
applicable; and
- file Schedule TO or any other required schedule under the Securities Exchange
Act of 1934.
The change in control repurchase feature of the notes may in certain
circumstances make more difficult or discourage a takeover of HCC. The change in
control repurchase feature, however, is not the result of our knowledge of any
specific effort:
- to accumulate shares of our common stock;
- to obtain control of us by means of a merger, tender offer, solicitation or
otherwise; or
- by management to adopt a series of anti-takeover provisions.
Instead, the change in control repurchase feature is a standard term contained
in other notes offerings that have been marketed by the underwriters. The terms
of the change in control repurchase feature resulted from negotiations between
the underwriters and us.
We could, in the future, enter into certain transactions, including certain
recapitalizations, that would not constitute a change in control with respect to
the change in control repurchase feature of the notes but which would increase
the amount of our (or our subsidiaries') outstanding indebtedness.
We may not repurchase notes at the option of holders upon a change in control if
there has occurred and is continuing an event of default with respect to the
notes, other than a default in the payment of the change in control repurchase
price with respect to the notes.
EVENTS OF DEFAULT
In addition to the events of default set forth in the prospectus and any other
events of default set forth in the senior indenture, with respect to the notes,
each of the following events is defined as an "event of default":
- default by us in the performance, or breach, of any other covenant or warranty
in the notes or the senior indenture (other than a default in the performance
or breach of a covenant or warranty that is otherwise addressed) with respect
to the notes for 60 days after written notice to us by the trustee or to us
and the trustee by the holders of not less than 25% in aggregate principal
amount of the notes;
- any event of default under any mortgage, senior indenture or other instrument
of HCC under which any indebtedness for borrowed money in an aggregate
principal amount exceeding $35,000,000 shall become due and payable prior to
the date upon which it is otherwise due and payable, if such acceleration is
not rescinded or annulled within 30 days after written notice provided in
accordance with the senior indenture;
- default in payment of the principal amount, redemption price, repurchase
price, or change in control repurchase price with respect to any note when it
becomes due and payable;
- default in payment of any accrued and unpaid interest which default continues
for 30 days; and
- failure by us to convert any portion of the principal amount of a note in
accordance with its terms following exercise by the holder of the note of the
right to convert the note.
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If there is an event of default on the notes, the aggregate principal amount of
the notes then outstanding plus the accrued but unpaid interest may be declared
immediately due and payable. These amounts automatically become due and payable
in certain circumstances.
If an event of default shall have happened and be continuing, either the trustee
or the holders of not less than 25% in aggregate principal amount of the notes
then outstanding may declare the principal amount of the notes plus the accrued
but unpaid interest on the notes through the date of such declaration, to be
immediately due and payable. In the case of certain events of bankruptcy or our
insolvency, the aggregate principal amount of the notes then outstanding plus
the accrued but unpaid interest thereon through the occurrence of such event
shall automatically become and be immediately due and payable.
MODIFICATION
We and the trustee may enter into supplemental indentures that add, change or
eliminate provisions of the senior indenture or modify the rights of the holders
of the notes with the consent of the holders of at least a majority in principal
amount of the notes then outstanding. However, the senior indenture may not be
modified or amended to:
- change the stated maturity of the principal of, or any installment of
principal of or any interest on, any debt security;
- reduce the principal amount of any debt security;
- reduce the rate of interest on any debt security;
- reduce any additional amounts payable on any debt security;
- reduce any premium payable upon the redemption of any debt security;
- reduce the amount of the principal of an original issue discount security that
would be due and payable upon a declaration of acceleration of its maturity
under the terms of the senior indenture;
- change any place of payment where, or the currency in which any debt security
or any premium or interest on, that debt security is payable;
- impair the right to institute suit for the enforcement of any payment of
principal of or premium or any interest on any debt security on or after its
stated maturity, or, in the case of redemption, on or after the redemption
date;
- reduce the percentage in principal amount of the outstanding debt securities
of any series, the consent of whose holders is required for the supplemental
indenture;
- reduce the percentage in principal amount of the outstanding debt securities
of any series, the consent of whose holders is required for any waiver of
compliance with certain provisions of the senior indenture or certain defaults
under the senior indenture and their consequences;
- modify any of the provisions relating to supplemental indentures, waiver of
past defaults or waiver of certain covenants, except to increase the
percentage in principal amount of the outstanding debt securities of a series
required for the consent of holders to approve a supplemental indenture or a
waiver of a past default or compliance with certain covenants or to provide
that certain other provisions of the senior indenture cannot be modified or
waived without the consent of the holder of each outstanding debt security
that would be affected by such a modification or waiver;
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- impair the right of any holder to convert any note, or impair or adversely
affect the right to bring a suit to enforce the right to convert any note;
- make any change that adversely affects the right of a holder to receive shares
of our common stock upon surrendering a note for conversion;
- make any change that adversely affects the right of a holder to require us to
repurchase a note; or
- reduce or adversely affect the right to receive the redemption price or
repurchase price for the notes;
without the consent of the holders of each of the debt securities affected by
that modification or amendment.
GOVERNING LAW
The senior indenture and the notes will be governed by, and construed in
accordance with, the laws of the State of New York, without regard to conflicts
of laws principles.
BOOK-ENTRY SYSTEM FOR NOTES
Upon issuance, the notes will be represented by a global security or securities
(each a "Global Security"). Each Global Security will be deposited with, or on
behalf of, DTC, which will act as the depositary (the "Depositary"). Upon the
issuance of any such Global Security, the Depositary or its nominee will credit
the accounts of persons holding it with the principal or face amounts of the
notes represented by any such Global Security. Ownership of beneficial interests
in any such Global Security will be limited to participants that have accounts
with the Depositary or persons that may hold interests through participants.
Ownership of beneficial interests by participants in any such Global Security
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depositary. Ownership of beneficial interests
in any such Global Security by persons that hold through participants will be
shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of the securities in definitive form. Such limits and such
laws may impair the ability to acquire or transfer beneficial interests in a
Global Security.
Payment of principal or premium, if any, and/or interest, if any, on, or shares
of common stock in exchange for, the notes, will be made to the Depositary or
its nominee, as the sole registered owner and holder of the Global Security for
such series for all purposes under the senior indenture. Neither we, the trustee
nor any of our agents or the trustee's agent will have any responsibility or
liability for any aspect of the Depositary's records relating to or payments
made on account of beneficial ownership interests in any such Global Security or
for maintaining, supervising or reviewing any of the Depositary's records
relating to such beneficial ownership interests.
We have been advised by the Depositary that upon receipt of any payment of
principal of, or interest on, any Global Security, the Depositary will
immediately credit, on its book-entry registration and transfer system, the
accounts of participants with payments in amounts proportionate to their
respective beneficial interests in the principal or face amount of such Global
Security as shown on the records of the Depositary. Payments by participants to
owners of beneficial interests in such Global Security held through such
participants will be governed by standing instructions and customary practices
as is now the case with securities held for customer accounts registered in
"street name" and will be the sole responsibility of such participants.
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No Global Security may be transferred except as a whole by the Depositary to a
nominee of the Depositary. Each Global Security is exchangeable for certificated
notes only if:
- the Depositary notifies us that it is unwilling or unable to continue as
Depositary for such Global Security or if at any time the Depositary ceases to
be a clearing agency registered under the Securities Exchange Act of 1934 and
we fail within 90 days thereafter to appoint a successor,
- we in our sole discretion determine that such Global Security shall be
exchangeable, or
- there shall have occurred and be continuing an event of default (as defined in
the senior indenture) or an event which with the giving of notice or lapse of
time or both, would constitute an event of default with respect to the notes
represented by such Global Security. In such event, we will issue notes in
certificated form in exchange for such Global Security. In any such instance,
an owner of a beneficial interest in a Global Security will be entitled to
physical delivery in certificated form of notes equal in principal amount to
such beneficial interest and to have such notes registered in its name. Notes
issued in certificated form will be issued in denominations of $1,000 or any
larger amount that is an integral multiple of $1,000, and will be issued in
registered form only, without coupons. Subject to the foregoing, no Global
Security is exchangeable, except for a Global Security for the same series of
notes of like denomination to be registered in the name of the Depositary or
its nominee.
So long as the Depositary, or its nominee, is the registered owner of a Global
Security, such Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the notes represented by such Global
Security for the purposes of receiving payment on such notes, receiving notices
and for all other purposes under the senior indenture and such notes. Beneficial
interests in the notes will be evidenced only by, and transfer thereof will be
effected only through, records maintained by the Depositary and its
participants. Except as provided herein, owners of beneficial interests in any
Global Security will not be entitled to such Global Security and will not be
considered the holders of such Global Security for any purposes under the senior
indenture. Accordingly, each person owning a beneficial interest in such Global
Security must rely on the procedures of the Depositary, and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder under the senior
indenture. The Depositary will not consent or vote with respect to the Global
Security representing the notes. Under its usual procedures, the Depositary
mails an Omnibus Proxy to us as soon as possible after the applicable record
date. The Omnibus Proxy assigns Cede & Co.'s (the Depositary's partnership
nominee) consenting or voting rights to those participants to whose accounts the
notes are credited on the applicable record date (identified in a listing
attached to the Omnibus Proxy).
The Depositary has advised us that it is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered under the Securities Exchange Act of
1934. The Depositary was created to hold the securities of its participants and
to facilitate the clearance and settlement of securities transactions among its
participants through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depositary's participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations some of whom (and/or their representatives) own the Depositary.
Access to the Depositary's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly. The
rules applicable to the Depositary and its participants are on file with the
Securities and Exchange Commission.
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SAME-DAY SETTLEMENT AND PAYMENT FOR NOTES
Settlement for the notes will be made by the underwriters, in immediately
available funds. All cash payments of principal and interest will be made by us
in immediately available funds.
The notes will trade in the Depositary's same-day funds settlement system until
maturity or until such notes are issued in definitive form, and secondary market
trading activity in such notes will therefore be required by the Depositary to
settle in immediately available funds. No assurance can be given as to the
effect, if any, of settlement in immediately available funds on trading activity
in such notes.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
This section summarizes certain U.S. federal income tax considerations relating
to the purchase, ownership and disposition of the notes and the common stock
into which the notes may be converted. The following discussion assumes that the
notes will be treated as indebtedness for U.S. federal income tax purposes. This
summary is based on existing legal authorities, including the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations and judicial decisions and administrative interpretations, as of the
date hereof, all of which are subject to change, possibly with retroactive
effect. There can be no assurance that the U.S. Internal Revenue Service ("IRS")
will not challenge one or more of the tax results described herein, and we have
not obtained, nor do we intend to obtain, a ruling from the IRS with respect to
the U.S. federal income tax consequences described below. This summary generally
applies only to "U.S. Holders" that purchase notes in the initial offering at
their issue price and hold the notes or common stock as "capital assets"
(generally, property held for investment). For this purpose, U.S. Holders
include citizens or residents of the United States, corporations organized under
the laws of the United States or any state and estates, the income of which is
subject to U.S. federal income taxation regardless of its source. A trust is
generally a U.S. Holder if its administration is subject to the primary
supervision of a U.S. court and one or more U.S. persons have the authority to
control all substantial decisions of the trust. Special rules apply to "Non-U.S.
Holders," including nonresident alien individuals and foreign corporations,
estates or trusts. This summary describes some, but not all, of these special
rules. Income earned through a foreign or domestic partnership is subject to
special rules that are generally not discussed here. This discussion does not
purport to address all tax considerations that may be important to a particular
holder in light of the holder's circumstances, such as the alternative minimum
tax provisions of the Code, or to certain categories of investors that may be
subject to special rules, such as certain financial institutions, tax-exempt
organizations, dealers in securities, persons who hold notes or common stock as
part of a hedge, conversion or constructive sale transaction, straddle or other
risk reduction transaction or persons who have ceased to be U.S. citizens or
taxed as resident aliens. Finally, this summary does not describe any tax
considerations arising under the laws of any applicable foreign, state or local
jurisdiction.
We assume that a substantial amount of the notes will be sold to the public,
excluding sales to bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers, at a
price equal to 100% of the aggregate principal amount of such notes (or within
1/4 of 1% of such amount multiplied by the number of complete years to
maturity). As a consequence, the following discussion assumes that the special
rules which require debt instrument holders to accrue "original issue discount"
as ordinary interest income, regardless of their regular method of accounting
for U.S. federal income tax purposes, do not apply.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATION AND THE CONSEQUENCES OF FEDERAL ESTATE OR GIFT TAX LAWS,
FOREIGN, STATE OR LOCAL LAWS AND TAX TREATIES.
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U.S. HOLDERS
Interest on Notes. U.S. Holders will be required to recognize as ordinary
income any interest paid or accrued on the notes, in accordance with their
regular method of accounting for U.S. federal income tax purposes.
Sale, Exchange or Redemption of Notes. A U.S. Holder will generally recognize
capital gain or loss if the holder disposes of a note in a sale, redemption or
exchange other than a conversion of the note into common stock. The holder's
gain or loss will equal the difference between the proceeds received by the
holder, excluding any proceeds that are attributable to accrued interest which
will be recognized as ordinary interest income to the extent that the holder has
not previously included the accrued interest in income, and the holder's
adjusted tax basis in the note. The proceeds received by the holder will include
the amount of any cash and the fair market value of any other property received
for the note. The holder's tax basis in the note will generally equal the amount
the holder paid for the note. The gain or loss will be long-term capital gain or
loss if the holder held the note for more than one year. Long-term capital gains
of individuals, estates and trusts are generally taxed at a maximum rate of 20%.
The deductibility of capital losses may be subject to limitation.
Adjustment of Conversion Rate. The terms of the notes allow for changes in the
conversion rate of the notes in certain circumstances. A change in conversion
rate that allows holders to receive more shares of common stock on conversion
may result in a taxable dividend to holders, although such holders would not
actually receive any cash or other property. A taxable dividend would result,
for example, if the conversion rate is adjusted to compensate holders for
distributions of cash or other property to our shareholders. However, not all
changes in the conversion rate that allow holders to receive more stock on
conversion will result in a taxable dividend to holders. For instance, a change
in the conversion rate may occur in order to prevent the dilution of the
holders' interests upon a stock split or other change in capital structure.
Changes of this type, if made by a bona fide, reasonable adjustment formula, are
not treated as taxable dividends.
Conversion of Notes. A U.S. Holder generally will not recognize any income,
gain or loss on converting a note into common stock, except to the extent the
common stock is considered attributable to accrued interest not previously
included in income (which is taxable as ordinary income). If a holder receives
cash in lieu of a fractional share of stock, the holder will be treated as if
the holder received the fractional share and then had the fractional share
redeemed for the cash. The holder would recognize gain or loss equal to the
difference between the cash received and that portion of the holder's basis in
the stock attributable to the fractional share. The holder's aggregate basis in
the common stock will equal the holder's adjusted basis in the corresponding
note, less any portion allocable to any fractional share. The holder's holding
period for the stock will include the holding period for the corresponding note.
However, the holder's holding period for any stock attributable to accrued
interest will begin on the day following the exchange date.
Repurchase of Notes Upon a Change in Control Using Common Stock. If a holder
exercises its right to require us to repurchase a note upon a change in control,
we may, in lieu of paying the repurchase price in cash, use our common stock to
repurchase the note if certain conditions are met. In this event, the exchange
of a note for common stock should constitute a tax-free recapitalization to
holders because the notes should constitute "securities" within the meaning of
the Code provisions regarding tax-free reorganizations. However, no assurances
can be provided in this regard because the test as to whether a debt instrument
is a "security" is based on a number of facts and circumstances that involves an
overall evaluation of the nature of the debt instrument, with the term of the
debt instrument usually regarded as one of the most significant factors. Debt
instruments with a term of five years or less generally have not qualified as
"securities," whereas debt instruments with a term of ten years or more
generally have qualified as "securities."
If the exchange of notes for common stock constitutes a tax-free
recapitalization, exchanging holders will not recognize any gain or loss, except
to the extent the common stock is attributable to accrued interest on the notes
which will be recognized as ordinary interest income to the extent the holder
has not previously
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included the accrued interest in income. A holder's tax basis in shares of
common stock attributable to accrued interest generally will equal the amount of
such accrued interest included in income and the holding period of such common
stock will begin on the day following the exchange date. For a discussion of the
rules relating to the tax treatment of fractional common shares, and the
determination of the basis and the holding period of the common stock received
in exchange for the notes, see "-- Conversion of Notes" above.
If the notes were determined not to constitute "securities" for U.S. federal
income tax purposes, then an exchanging holder would recognize gain or loss in
accordance with the rules described above under "-- Sale, Exchange or Redemption
of Notes." In this event, a holder's initial tax basis in the common stock
received would be equal to its fair market value on the exchange date, and the
holding period for the common stock would begin on the day immediately after the
exchange date.
Dividends on Common Stock. If, after a U.S. Holder converts a note into common
stock, we make a distribution of cash or other property in respect of that
stock, the distribution will be treated as a dividend, taxable to the U.S.
Holder as ordinary income, to the extent it is paid from our current or
accumulated earnings and profits. If the distribution exceeds our current and
accumulated profits, the excess will be treated first as a tax-free return of
the holder's investment, up to the holder's basis in its common stock. Any
remaining excess will be treated as capital gain. If the U.S. Holder is a
corporation, it may be able to claim a deduction for a portion of any
distribution received that is considered a dividend.
Sale or Exchange of Common Stock. A U.S. Holder will generally recognize
capital gain or loss on a sale or exchange of common stock. The holder's gain or
loss will equal the difference between the proceeds received by the holder and
the holder's adjusted tax basis in the common stock. The proceeds received by
the holder will include the amount of any cash and the fair market value of any
other property received for the stock. The gain or loss will be long-term
capital gain or loss if the holder's holding period for the stock is more than
one year. Long-term capital gains of individuals, estates and trusts are
generally taxed at a maximum rate of 20%. The deductibility of capital losses
may be subject to limitation.
Information Reporting and Backup Withholding. Information reporting and backup
withholding at the rate specified in the Code may apply to payments of principal
and interest on a note, dividends on common stock or the proceeds from the sale
or other disposition of a note or common stock with respect to certain
noncorporate U.S. Holders. Such U.S. Holders generally will be subject to backup
withholding unless the U.S. Holder provides to the payor a correct taxpayer
identification number and certain other information, certified under penalties
of perjury, or otherwise establishes an exemption. Any amount withheld under the
backup withholding rules may be credited against the U.S. Holder's federal
income tax liability and any excess may be refundable provided the proper
information is provided to the IRS.
NON-U.S. HOLDERS
Interest on Notes. Payments of interest on the notes to Non-U.S. Holders will
generally qualify as "portfolio interest" and thus will be exempt from the
withholding of U.S. federal income tax if the Non-U.S. Holder properly certifies
as to its foreign status as described below. The portfolio interest exception
will not apply to payments of interest to a Non-U.S. Holder that:
- owns, directly or indirectly, at least 10% of our voting stock; or
- is a "controlled foreign corporation" that is, directly or indirectly, related
to us.
If the portfolio interest exception does not apply, then payments of interest to
a Non-U.S. Holder will generally be subject to U.S. federal income tax
withholding at a rate of 30%, unless reduced by an applicable tax treaty.
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The portfolio interest exception and several of the special rules for Non-U.S.
Holders described below generally apply only if the Non-U.S. Holder
appropriately certifies as to its foreign status. A Non-U.S. Holder can
generally meet this certification requirement by providing a properly executed
Form W-8BEN or appropriate substitute form to us or our paying agent. If the
holder holds the note through a financial institution or other agent acting on
the holder's behalf, the holder may be required to provide appropriate
documentation to the agent. The holder's agent will then generally be required
to provide appropriate certifications to us or our paying agent, either directly
or through other intermediaries. Special rules apply to foreign partnerships,
estates and trusts, and in certain circumstances certifications as to foreign
status of partners, trust owners or beneficiaries may have to be provided to us
or our paying agent.
Sale, Exchange or Redemption of Notes. Non-U.S. Holders generally will not be
subject to U.S. federal income tax on any gain realized on the sale, exchange or
redemption of the notes. This general rule, however, is subject to several
exceptions. For example, the gain will be subject to U.S. federal income tax if:
- the gain is effectively connected with the conduct by the Non-U.S. Holder of a
U.S. trade or business and, if certain tax treaties apply, is attributable to
a U.S. permanent establishment maintained by the Non-U.S. Holder;
- the Non-U.S. Holder is an individual that has been present in the United
States for 183 days or more in the taxable year of disposition and certain
other requirements are met;
- the Non-U.S. Holder was a citizen or resident of the United States and is
subject to special rules that apply to certain expatriates; or
- we are, or have been, a "United States real property holding corporation" for
U.S. federal income tax purposes at any time within the shorter of the
five-year period before the sale, exchange or redemption of the notes or such
holder's holding period, and during such period the holder actually or
constructively owned more than five percent of our common stock.
For these purposes, a Non-U.S. holder will be treated as owning the stock that
the holder could acquire on conversion of its notes. We do not believe that we
currently are a "United States real property holding corporation," and we do not
intend to become a "United States real property holding corporation."
Conversion of Notes. A Non-U.S. Holder generally will not recognize any income,
gain or loss on converting a note into common stock. Any gain recognized as a
result of the holder's receipt of cash in lieu of a fractional share of stock
will generally not be subject to U.S. federal income tax. See "-- Sale or
Exchange of Common Stock" below.
Dividends on Common Stock. Dividends paid to a Non-U.S. Holder will generally
be subject to U.S. federal income tax withholding at a 30% rate. The withholding
tax might not apply, however, or might apply at a reduced rate, under the terms
of a tax treaty between the United States and the Non-U.S. Holder's country of
residence. A Non-U.S. Holder must demonstrate its entitlement to treaty benefits
by satisfying applicable certification and other requirements.
Sale or Exchange of Common Stock. Non-U.S. Holders will generally not be
subject to U.S. federal income tax on any gain realized on the sale, exchange or
other disposition of common stock. This general rule, however, is subject to
exceptions, as described under "-- Sale, Exchange or Redemption of Notes."
Income or Gain Effectively Connected With a U.S. Trade or Business. The
preceding discussion of the tax consequences of the purchase, ownership and
disposition of notes or common stock by a Non-U.S. Holder assumes that the
holder is not engaged in a U.S. trade or business. If any interest on the notes,
dividends on common stock or gain from the sale, exchange or other disposition
of the notes or common stock is
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effectively connected with a U.S. trade or business conducted by the Non-U.S.
Holder, then the income or gain will be subject to U.S. federal income tax at
regular graduated income tax rates, but will not be subject to withholding tax
if certain certification requirements are satisfied. If the Non-U.S. Holder is
eligible for the benefits of a tax treaty between the United States and the
holder's country of residence, any "effectively connected" income or gain will
generally be subject to U.S. federal income tax only if it is also attributable
to a permanent establishment maintained by the holder in the United States. If
the Non-U.S. Holder is a corporation, that portion of its earnings and profits
that is effectively connected with its U.S. trade or business will generally be
subject to a "branch profits tax" at a 30% rate, although an applicable tax
treaty might provide for a lower rate.
U.S. Federal Estate Tax. The estates of nonresident alien individuals are
subject to U.S. federal estate tax on property with a U.S. situs. The notes will
not be U.S. situs property as long as interest on the notes paid immediately
before the death of the Non-U.S. Holder will have qualified as portfolio
interest under the rules described above. Because we are a U.S. corporation, our
common stock will be U.S. situs property, and therefore will be included in the
taxable estate of a nonresident alien individual, unless an applicable estate
tax or other treaty provides otherwise.
Information Reporting and Backup Withholding. In general, information reporting
will apply to payments of interest and principal on the notes or dividends on
the common stock, and backup withholding at the rate specified in the Code will
apply with respect to such payments unless the Non-U.S. Holder appropriately
certifies as to its foreign status or otherwise establishes an exemption.
Information reporting requirements and backup withholding tax will not apply to
any payment of the proceeds of the sale of a note or common stock effected
outside the United States by a foreign office of a foreign "broker" (as defined
in applicable Treasury regulations), provided that such broker:
- derives less than 50% of its gross income for certain periods from the conduct
of a trade or business in the United States;
- is not a controlled foreign corporation for U.S. federal income tax purposes;
and
- is not a foreign partnership that, at any time during its taxable year, has
50% or more of its income or capital interests owned by U.S. persons or is
engaged in the conduct of a U.S. trade or business.
Payment of the proceeds of a sale of a note or common stock effected outside the
United States by a foreign office of any other broker will not be subject to
backup withholding tax or information reporting if such broker has documentary
evidence in its records that the beneficial owner is a Non-U.S. Holder and
certain other conditions are met, or the beneficial owner otherwise establishes
an exemption. Payment of the proceeds of a sale of a note or common stock
effected by the U.S. office of a broker will be subject to information reporting
requirements and backup withholding tax unless the Non-U.S. Holder properly
certifies under penalties of perjury as to its foreign status and certain other
conditions are met or it otherwise establishes an exemption.
Any amount withheld under the backup withholding rules may be credited against
the Non-U.S. Holder's U.S. federal income tax liability and any excess may be
refundable if the proper information is provided to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS
FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR
SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR
NOTES OR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN
APPLICABLE LAWS.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
between us and the underwriters named below, we have agreed to sell to the
underwriters, and the underwriters have severally agreed to purchase from us,
the principal amount of notes listed next to their respective names in the
following table.
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
Banc of America Securities LLC.............................. $ 69,900,000
Salomon Smith Barney Inc.................................... 69,900,000
First Union Securities, Inc................................. 10,200,000
------------
Total............................................. $150,000,000
============
The underwriting agreement provides that the obligations of the several
underwriters to purchase the notes included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the notes if they purchase any of
the notes (other than those covered by the over-allotment option described
below).
The underwriters have advised us that the notes will initially be offered at the
public offering price set forth on the cover of this prospectus supplement. Any
notes sold by the underwriters to securities dealers may be sold at a discount
from the public offering price of up to 2.145% of the principal amount of the
notes. If all the notes are not sold at the initial offering price, the
underwriters may change the offering price and the other selling terms.
We have granted to the underwriters an option, exercisable for 30 days from the
date of this prospectus supplement, to purchase up to an additional $22,500,000
principal amount of notes at the public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each of the underwriters will be obligated,
subject to certain conditions, to purchase an additional principal amount of
notes in approximately the same proportion as set forth in the table above.
The notes are a new issue of securities with no established trading market. We
have been advised by the underwriters that the underwriters intend to make a
market in the notes but they are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the notes.
In order to facilitate the offering of the notes, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the notes
and the common stock. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number of notes than
they are required to purchase in the offering. "Covered" short sales are sales
made in an amount not greater than the underwriters' option to purchase
additional notes from us in the offering. The underwriters may close out any
covered short position by either exercising the option to purchase additional
notes or purchasing notes in the open market. In determining the source of notes
to close out the covered short position, the underwriters will consider, among
other things, the price of notes available for purchase in the open market as
compared to the price at which they may purchase notes through the
over-allotment option. "Naked" short sales are sales in excess of the option.
The underwriters must close out any naked short position by purchasing notes in
the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be a downward pressure on the price of
the notes in the open market after pricing that could adversely affect investors
who purchase in the offering. Stabilizing transactions consist of certain bids
for, or purchases of, the notes made by the underwriters in the open market
prior to the completion of the offering. Any of these activities may stabilize
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or maintain the market price of the notes above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the notes and the common stock. As a result, the price of
the notes and the common stock into which they are convertible may be higher
than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts, will be approximately $950,000, which includes a fee of
$250,000 that we will pay to BNY Capital Markets, Inc. for its services as
financial advisor with respect to the offering.
The underwriters and certain of their affiliates have provided and may in the
future provide investment banking or commercial banking and other financial
services to us and certain of our affiliates for which they have received and
will receive customary fees.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
We will use a portion of the net proceeds of the sale of the notes to repay
indebtedness under the revolving credit facility that we owe to the underwriters
or their affiliates. Since more than 10% of the net proceeds of the offering
will be used to repay indebtedness that we owe to the underwriters, our offering
will be made in compliance with the requirements of Rule 2710(c)(8) of the
National Association of Securities Dealers, Inc. Conduct Rules.
HCC, our directors and our executive officers have agreed with Banc of America
Securities LLC not to offer for sale, sell, contract to sell or otherwise
dispose of, directly or indirectly, any shares of common stock (or any option,
warrant or other security convertible into or exchangeable or exercisable for
shares of common stock), subject to certain exceptions, during the period from
the date of this prospectus supplement continuing through the date 45 days after
the date of this prospectus supplement, except with the prior written consent of
Banc of America Securities LLC.
CERTAIN LEGAL MATTERS
Haynes and Boone, LLP will pass upon the validity of the notes and certain legal
matters regarding our common stock. Davis Polk & Wardwell will pass upon certain
legal matters for the underwriters.
ABOUT FORWARD-LOOKING STATEMENTS
This prospectus supplement contains certain "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created by those laws. These forward-looking statements include
information about possible or assumed future results of our operations. All
statements, other than statements of historical facts, included or incorporated
by reference in this prospectus supplement that address activities, events or
developments that we expect or anticipate may occur in the future, including
such things as future capital expenditures, business strategy, competitive
strengths, goals, growth of our business and operations, plans, and references
to future success may be considered forward-looking statements. Also, when we
use words such as "anticipate," "believe," "estimate," "expect," "intend,"
"plan," "probably" or similar expressions, we are making forward-looking
statements.
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Many risks and uncertainties may impact the matters addressed in these
forward-looking statements. Many possible events or factors could affect our
future financial results and performance. These could cause our results or
performance to differ materially from those we express in our forward-looking
statements. Although we believe that the assumptions underlying our
forward-looking statements are reasonable, any of these assumptions, and
therefore also the forward-looking statements based on these assumptions, could
themselves prove to be inaccurate. In light of the significant uncertainties
inherent in the forward-looking statements included in this prospectus
supplement, our inclusion of this information is not a representation by us or
any other person that our objectives and plans will be achieved. You should
consider these risks and those we set out in the "Risk Factors" section of this
prospectus supplement before you purchase our securities.
Our forward-looking statements speak only as of the date made and we will not
update these forward-looking statements unless the securities laws require us to
do so. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus supplement may not occur.
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PROSPECTUS
[HCC LOGO]
HCC INSURANCE HOLDINGS, INC.
COMMON STOCK
SENIOR DEBT SECURITIES
SUBORDINATED DEBT SECURITIES
WARRANTS
---------------------
HCC CAPITAL TRUST I
HCC CAPITAL TRUST II
TRUST PREFERRED SECURITIES
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED IN THIS
PROSPECTUS, BY HCC INSURANCE HOLDINGS, INC.
We or either of the Trusts may offer from time to time up to $600,000,000
of any combination of the securities described in this prospectus. Neither we,
nor the Trusts will offer or sell any securities under this prospectus unless
accompanied by a prospectus supplement.
We may offer and sell, from time to time:
- debt securities;
- shares of our common stock;
- warrants to purchase our debt securities or our common stock;
- junior subordinated debt securities to be purchased by a Trust; and
- guarantees of trust preferred securities sold by a Trust.
A Trust may offer and sell, from time to time, trust preferred securities
representing undivided beneficial interests in the assets of the respective
trust.
We will provide the specific terms of these securities in one or more
supplements to this prospectus. You should read this prospectus and any
prospectus supplement carefully before you invest in these securities.
We may sell the securities directly, or through agents designated from time
to time, or to or through underwriters or dealers. If any underwriters are
involved in the sale of any securities, their names and any applicable
commissions or discounts will be set forth in a prospectus supplement. For
additional information on the methods of sale, you should refer to the section
entitled "Plan of Distribution."
Our common stock is listed on the NYSE under the Symbol "HCC." The last
reported sale price on July 23, 2001 was $22.98 per share.
---------------------
INVESTMENT IN THESE SECURITIES INVOLVES RISK. SEE THE RISK FACTORS
SECTION BEGINNING ON PAGE 5.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy of this prospectus or whether it is truthful or complete. Any
representation to the contrary is a criminal offense.
---------------------
The date of this prospectus is July 25, 2001.
36
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... 1
The Company................................................. 2
Risk Factors................................................ 5
Use of Proceeds............................................. 12
Ratio of Earnings to Fixed Charges.......................... 12
Description of Our Common Stock............................. 12
Description of Senior Debt Securities and Subordinated Debt
Securities................................................ 14
Description of Warrants..................................... 20
Description of Trust Related Junior Subordinated Debt
Securities................................................ 22
Description of Trust Preferred Securities................... 32
Description of Trust Related Guarantees..................... 42
Relationship Among the Trust Preferred Securities, the
Corresponding Junior Subordinated Securities and the
Guarantees................................................ 44
Book-Entry Issuance......................................... 46
Plan of Distribution........................................ 48
Certain Legal Matters....................................... 49
Experts..................................................... 50
About Forward-Looking Statements............................ 50
Where You Can Find More Information......................... 50
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission using a "shelf" registration process.
Under the shelf registration process, we may offer any combination of the
securities described in this prospectus in one or more offerings with a total
offering price of up to $600,000,000. This prospectus provides you with a
general description of securities we may offer. Each time we use this prospectus
to offer securities, we will provide a prospectus supplement that will contain
specific information about the terms of that offering. The prospectus supplement
may also add, update or change information contained in this prospectus. Unless
we provide otherwise in the prospectus supplement, we may redeem our junior
subordinated debt securities issued to a Trust for cash, or cause the Trusts to
liquidate and give investors our junior subordinated debt securities in place of
the Trust's trust preferred securities. Please carefully read this prospectus,
any prospectus supplement and the documents incorporated by reference in the
prospectus together with the additional information described under "Where You
Can Find More Information" and "Risk Factors" before you make an investment
decision.
You should rely only on the information contained in this prospectus and
the applicable prospectus supplement. We have not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell the securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus,
together with the information we previously filed with the SEC and incorporate
by reference, is accurate only as of the date on the front cover of this
prospectus. The information included in any prospectus supplement is accurate
only as of the date of that prospectus supplement. Our business, financial
condition, results of operations and prospects may change after the date on the
front cover of this prospectus.
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THE COMPANY
As used in this prospectus, unless otherwise required by the context, the
terms "we," "us," "our" and the "Company" refer to HCC Insurance Holdings, Inc.
and its consolidated subsidiaries, and the term "HCC" refers only to HCC
Insurance Holdings, Inc. References to a "Trust" or an "HCC Trust" refer to
either HCC Capital Trust I or HCC Capital Trust II, which are the Delaware
statutory business trusts that we have formed to issue the trust preferred
securities which may be issued under this prospectus.
OVERVIEW
We provide property and casualty insurance and accident and health
insurance coverages, underwriting agency and intermediary services, and other
insurance related services both to commercial customers and individuals. We
concentrate our activities in selected narrowly defined lines of business. We
operate primarily in the United States and the United Kingdom, although some of
our operations have a broader international scope. We underwrite insurance both
on a direct basis, where we insure a risk in exchange for a premium, and on a
reinsurance basis, where we insure all or a portion of another insurance
company's risk in exchange for all or a portion of the premium. We market our
insurance products both directly to customers and through a network of
independent or affiliated agents and brokers.
Our insurance companies are risk-bearing and focus their underwriting
activities on providing insurance and/or reinsurance in the following lines of
business:
- accident and health;
- general aviation;
- marine and offshore energy;
- medical stop-loss;
- property; and
- workers' compensation.
In the United States, Avemco Insurance Company, U.S. Specialty Insurance
Company and HCC Life Insurance Company operate on an admitted, or licensed,
basis. Houston Casualty Company operates on a surplus lines basis as a
non-admitted, or unlicensed, insurer offering insurance coverage not otherwise
available from an admitted insurer in the relevant state.
Our agencies underwrite on behalf of our insurance companies and other
insurance companies. Our underwriting agencies receive fees for these services.
Our agencies do not bear any of the insurance risk of the companies for which
they underwrite. Our underwriting agencies generate revenues based entirely on
management fees and profit commissions and specialize in medical stop-loss
insurance and a variety of accident and health related insurance and reinsurance
products. Our medical stop-loss insurance provides coverages to companies,
associations and public entities that elect to self-insure their employee's
medical coverage for losses within specified levels, allowing them to manage the
risk of excessive health insurance exposure by limiting aggregate and specific
losses to a predetermined amount.
We have recently consolidated the operations of certain of our agencies
with certain of our insurance companies to improve operational efficiencies. The
operations of HCC Aviation Insurance Group, Inc., and our occupational accident
and workers' compensation underwriting agency, HCC Employer Services, Inc., were
consolidated into those of our licensed property and casualty insurance company,
U.S. Specialty Insurance Company, and the operations of our London-based
accident and health underwriting agency, LDG Re (London), Ltd., were
consolidated with those of the London branch of our largest property and
casualty insurance company, Houston Casualty Company.
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Our intermediaries provide insurance and reinsurance brokerage services for
our insurance companies and our clients, and receive fees for their services.
Our intermediaries do not bear any of the insurance risks of the companies they
act on behalf of. They earn commission income and to a lesser extent fees for
certain services, generally paid by the insurance and reinsurance companies with
whom the business is placed. These operations consist of:
- consulting on risks by providing information to clients about insurance
coverage;
- marketing risks by providing information and assistance on pricing a
particular insurance risk;
- placing risks by negotiating with insurers and reinsurers to accept an
insurance risk; and
- servicing risks by facilitating the collection of premiums and resolution
of claims on behalf of our insurance clients.
Our intermediaries specialize in developing and marketing employee benefit
plans on a retail basis and in placing reinsurance for both accident and health,
and property and casualty lines of business.
We are a Delaware corporation. Our principal executive offices are located
at 13403 Northwest Freeway, Houston, Texas 77040 and our telephone number is
(713) 690-7300. We maintain a World Wide Web-site at www.hcch.com. The reference
to our World Wide Web address does not constitute the incorporation by reference
of the information contained at this site in this prospectus supplement or the
accompanying prospectus.
OUR STRATEGY
Our business philosophy as an insurer is to maximize underwriting profits
while limiting risk in order to preserve shareholders' equity and maximize
earnings. We concentrate our insurance writings in selected, narrowly defined
lines of business where we believe we can achieve an underwriting profit. We
focus on lines of business that have relatively short lead times between the
occurrence of an insured event and the reporting of claims. We market our
insurance products both directly to customers and through independent or
affiliated agents and brokers.
The property and casualty insurance industry and individual lines of
business within the industry are cyclical in that there are times when a large
number of companies offer insurance on certain lines of business, and the
premiums tend to go down, and other times where insurance companies decide to
limit their writings in certain lines of business or suffer from excessive
losses, which tends to increase the premiums for those companies that continue
to write insurance in those lines of business. In our insurance company
operations, we believe our operational flexibility, which permits us to shift
the focus of our insurance underwriting activity among our various lines of
business and also to shift the emphasis from our insurance risk-bearing business
to our non-insurance fee-based business, as well as our experienced underwriting
personnel and access to, and expertise in, the reinsurance marketplace allow us
to implement a strategy of emphasizing more profitable lines of business during
periods of increased premium rates and de-emphasizing less profitable lines of
business during periods of severe competition. In addition, we believe that our
underwriting agencies and intermediary subsidiaries complement our insurance
underwriting activities. Our ability to utilize affiliated insurers,
underwriting agencies, intermediaries and service providers permits us to retain
a greater portion of the gross revenue derived from written premium.
We purchase reinsurance by transferring part of the risk we have assumed
through the process of ceding this risk to a reinsurance company in exchange for
part of the premium we receive in connection with the risk. We purchase
reinsurance to limit the net loss from both individual and catastrophic risks to
our insurance companies. The amount of reinsurance we purchase varies by, among
other things, the particular risks inherent in the policies underwritten, the
pricing of reinsurance and the competitive conditions within the relevant line
of business. In 2000, due to a hardening of the respective markets, premium
rates in the accident and health, general aviation and medical stop-loss lines
of business increased. We anticipate continued improvements in these markets in
2001. In response to these changing
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market conditions, we plan to continue to expand the underwriting activities in
our insurance company operations.
We also acquire or make strategic investments in companies that present an
opportunity for future profits or for enhancement of our business. We expect to
continue to seek to acquire complementary businesses with established management
and established reputations in the insurance industry. We believe that we can
enhance acquired businesses through the synergies created by our underwriting
capabilities and our other operations. However, our business plan is shaped by
our underlying business philosophy, which is to maximize underwriting profit,
while preserving shareholders' equity. As a result, our primary objective is to
increase net earnings rather than market share or gross written premium.
In our ongoing operations, we will continue to:
- emphasize the underwriting of lines of business in which premium rates,
the availability and cost of reinsurance, and market conditions warrant;
- limit our net loss exposure to our insurance company subsidiaries from a
catastrophe loss through the use of reinsurance; and
- review the potential acquisition of specialty insurance operations and
other strategic investments.
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RISK FACTORS
Investing in our securities will provide you with an interest in, or
obligation of, our Company. As an investor, you will be subject to risks
inherent in our businesses. The performance of your investment in our Company
will reflect the performance of our business relative to, among other things,
general economic and industry conditions, market conditions and competition. The
value of your investment may increase or it may decline and could result in a
loss. You should carefully consider the following factors as well as other
information contained in this prospectus or information incorporated by
reference before deciding to make any investment in our Company.
IF WE CANNOT OBTAIN ADEQUATE REINSURANCE PROTECTION FOR THE RISKS WE HAVE
UNDERWRITTEN, WE WILL EITHER BE EXPOSED TO GREATER LOSSES FROM THESE RISKS OR WE
WILL REDUCE THE LEVEL OF BUSINESS WE UNDERWRITE, WHICH WILL REDUCE OUR REVENUES.
We purchase reinsurance for significant amounts of risk underwritten by our
insurance company subsidiaries, especially catastrophe risks. We also purchase
reinsurance on risks underwritten by others which we reinsure through a
retrocession agreement. Market conditions beyond our control determine the
availability and cost of the reinsurance protection we purchase, which may
affect the level of our business and profitability. For instance, the natural
attrition of reinsurers who exit lines of business, or who curtail their
writings, for economic or other reasons, reduces the capacity of the reinsurance
market, causing rates to rise. In addition, the historical results of
reinsurance programs and the availability of capital also affect the
availability of reinsurance. Our reinsurance facilities are generally subject to
annual renewal. We cannot assure you that we can maintain our current
reinsurance facilities or that we can obtain other reinsurance facilities in
adequate amounts and at favorable rates. If we are unable to renew our expiring
facilities or to obtain new reinsurance facilities, either our net exposures
would increase or, if we are unwilling to bear an increase in net exposures, we
would have to reduce the level of our underwriting commitments, especially
catastrophe exposed risks. Either of these potential developments could have a
material adverse effect on our business. The lack of available reinsurance may
also adversely affect our ability to generate fee and commission income in our
underwriting agency and reinsurance intermediary operations. A reinsurance
intermediary structures and arranges reinsurance between insurers seeking to
cede insurance risks and reinsurers willing to assume such risks.
IF THE COMPANIES WHICH PROVIDE OUR REINSURANCE DO NOT PAY ALL OF OUR CLAIMS, WE
COULD INCUR SEVERE LOSSES.
We purchase reinsurance by transferring, or ceding, part of the risk we
have assumed to a reinsurance company in exchange for part of the premium we
receive in connection with the risk. Although reinsurance makes the reinsurer
liable to us to the extent the risk is transferred or ceded to the reinsurer, it
does not relieve us, the reinsured, of our liability to our policyholders or in
cases where we are a reinsurer, our reinsureds. Accordingly, we bear credit risk
with respect to our reinsurers. We cannot assure you that our reinsurers will
pay all of our reinsurance claims, or that they will pay our claims on a timely
basis. In 1999, we recorded a charge against our earnings to account for the
insolvency of one of our significant reinsurers and for the settlement of
another reinsurer's liabilities with us, and in 2000, we experienced some
reinsurers' delaying and contesting their obligations.
IF WE ARE UNSUCCESSFUL IN COMPETING AGAINST LARGER OR MORE WELL-ESTABLISHED
BUSINESS RIVALS, OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL BE
ADVERSELY AFFECTED.
In our specialty insurance operations, we compete in narrowly-defined niche
classes of business such as the insurance of private aircraft, and employer
sponsored, self-insured medical plans (medical stop-loss), as distinguished from
such general lines of business as automobile or homeowners insurance. We compete
with a large number of other companies in our selected lines of business,
including: American International Group, U.S. Aviation Insurance Group, (a
subsidiary of Berkshire Hathaway, Inc.) and Associated Aviation Underwriters,
Inc., in our aviation line of business; SAFECO Corporation, Lincoln Financial
Group and Hartford Life, Inc. (a subsidiary of the Hartford Financial Services
Group, Inc.), in our medical stop-loss line of business; and Underwriters at
Lloyd's, Manufacturer's Life Insurance Company and ING Group, N.V. in our
accident and health line of business. We face competition both
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from specialty insurance companies, underwriting agencies and intermediaries as
well as diversified financial services companies that are significantly larger
than we are and that have significantly greater financial, marketing, management
and other resources than we do. Some of these competitors also have
significantly greater experience and market recognition than we do. In addition
to competition in the operation of our business, we face competition from a
variety of sources in attracting and retaining qualified employees.
We cannot assure you that we will maintain our current competitive position
in the markets in which we operate, or that we will be able to expand our
operations into new markets. If we fail to do so, our business could be
materially adversely affected.
BECAUSE WE ARE A PROPERTY AND CASUALTY INSURER, UNFORESEEN CATASTROPHIC LOSSES
MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, LIQUIDITY, AND FINANCIAL
CONDITION.
Property and casualty insurers are subject to claims arising out of
catastrophes that may have a significant effect on their results of operations,
liquidity and financial condition. Catastrophe losses have had a significant
impact on our results. Catastrophes can be caused by various events, including
hurricanes, windstorms, earthquakes, hailstorms, explosions, severe winter
weather and fires. The incidence and severity of catastrophes are inherently
unpredictable. The extent of losses from a catastrophe is a function of both the
total amount of insured exposure in the area affected by the event and the
severity of the event. Most catastrophes are restricted to small geographic
areas; however, hurricanes and earthquakes may produce significant damage in
large, heavily populated areas. Catastrophes can cause losses in a variety of
our property and casualty lines, and most of our past catastrophe-related claims
have resulted from hurricanes and earthquakes. Insurance companies are not
permitted to reserve for a catastrophe until it has occurred. In 2001,
approximately 10% of our business may be affected by catastrophes. It is
therefore possible that a catastrophic event or multiple catastrophic events
could have material adverse effect upon our results of operations, liquidity and
financial condition.
BECAUSE WE OPERATE INTERNATIONALLY, FLUCTUATIONS IN CURRENCY EXCHANGE RATES MAY
AFFECT OUR RECEIVABLE AND PAYABLE BALANCES AND RESERVES WHICH MAY ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We underwrite insurance coverages which are denominated in a number of
foreign currencies, and we establish and maintain our loss reserves with respect
to these policies in their respective currencies. Our net earnings could be
adversely impacted by exchange rate fluctuations affecting receivable and
payable balances and reserves. Our principal area of exposure relates to
fluctuations in exchange rates between the major European currencies
(particularly the British pound sterling) and the U.S. dollar. Consequently, a
change in the exchange rate between the U.S. dollar and the British pound
sterling could have an adverse effect on our net earnings.
On a limited basis, we enter into foreign currency forward contracts as a
hedge against foreign currency fluctuations. The foreign currency forward
contracts are used to convert currency at a known rate in an amount which
approximates average monthly expenses. Thus, the effect of these transactions is
to limit the foreign currency exchange risk of the recurring monthly expenses.
We utilize these foreign currency forward contracts strictly as a hedge against
existing exposure to foreign currency fluctuations rather than as a form of
speculative or trading investment.
IF WE FAIL TO COMPLY WITH EXTENSIVE STATE, FEDERAL AND FOREIGN REGULATIONS, WE
WILL BE SUBJECT TO PENALTIES, WHICH MAY INCLUDE FINES AND SUSPENSION, AND MAY
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We are subject to extensive governmental regulation and supervision. Most
insurance regulations are designed to protect the interests of policyholders
rather than shareholders and other investors. This
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regulation, generally administered by a department of insurance in each state in
which we do business, relates to, among other things:
- approval of policy forms and premium rates;
- standards of solvency, including risk-based capital measurements (which
is a measure developed by the National Association of Insurance
Commissioners and used by state insurance regulators to identify
insurance companies that potentially are inadequately capitalized);
- licensing of insurers and their agents;
- restrictions on the nature, quality and concentration of investments;
- restrictions on the ability of our insurance company subsidiaries to pay
dividends to us;
- restrictions on transactions between insurance company subsidiaries and
their affiliates
- restrictions on the size of risks insurable under a single policy;
- requiring deposits for the benefit of policyholders;
- requiring certain methods of accounting;
- periodic examinations of our operations and finances;
- prescribing the form and content of records of financial condition
required to be filed; and
- requiring reserves for unearned premium, losses and other purposes.
State insurance departments also conduct periodic examinations of the
affairs of insurance companies and require the filing of annual and other
reports relating to the financial condition of insurance companies, holding
company issues and other matters.
Recently adopted federal financial services modernization legislation is
expected to lead to additional federal regulation of the insurance industry in
the coming years. Also, foreign governments regulate our international
operations. Our business depends on compliance with applicable laws and
regulations and our ability to maintain valid licenses and approvals for our
operations.
Some regulatory authorities have relatively broad discretion to grant,
renew, or revoke licenses and approvals. Regulatory authorities may deny or
revoke licenses for various reasons, including the violation of regulations. In
some instances, we follow practices based on our interpretations of regulations,
or those that we believe may be generally followed by the industry, which may be
different from the requirements or interpretations of regulatory authorities. If
we do not have the requisite licenses and approvals and do not comply with
applicable regulatory requirements, the insurance regulatory authorities could
preclude or temporarily suspend us from carrying on some or all of our
activities or otherwise penalize us. That type of action could have a material
adverse effect on our business. Also, changes in the level of regulation of the
insurance industry (whether federal, state or foreign), or changes in laws or
regulations themselves or interpretations by regulatory authorities, could have
a material adverse effect on our business.
IF THE RATING AGENCIES DOWNGRADE OUR COMPANY OR OUR INSURANCE COMPANIES, OUR
RESULTS OF OPERATIONS AND COMPETITIVE POSITION IN THE INDUSTRY MAY SUFFER.
Ratings have become an increasingly important factor in establishing the
competitive position of insurance companies. Our insurance companies are rated
by A.M. Best Company and Standard & Poor's Corporation. A.M. Best and Standard &
Poor's ratings reflect their opinions of an insurance company's and insurance
holding company's financial strength, operating performance, strategic position,
and ability to meet its obligations to policyholders, and are not evaluations
directed to investors. Our ratings are subject to periodic review by A.M. Best
and Standard & Poor's and the continued retention of those ratings cannot be
assured. If our ratings are reduced from their current levels by A.M. Best
and/or Standard & Poor's, our results of operations could be adversely affected.
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OUR LOSS RESERVES ARE BASED ON AN ESTIMATE OF OUR FUTURE LIABILITY. IF ACTUAL
CLAIMS PROVE TO BE GREATER THAN OUR RESERVES, OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED.
We maintain loss reserves to cover our estimated liability for unpaid
losses and loss adjustment expenses, including legal and other fees as well as a
portion of our general expenses, for reported and unreported claims incurred as
of the end of each accounting period. Reserves do not represent an exact
calculation of liability. Rather, reserves represent an estimate of what we
expect the ultimate settlement and administration of claims will cost. These
estimates, which generally involve actuarial projections, are based on our
assessment of facts and circumstances then known, as well as estimates of future
trends in claims severity, frequency, judicial theories of liability and other
factors. These variables are affected by both internal and external events, such
as changes in claims handling procedures, inflation, judicial trends and
legislative changes. Many of these items are not directly quantifiable in
advance. Additionally, there may be a significant reporting lag between the
occurrence of the insured event and the time it is reported to us. The inherent
uncertainties of estimating reserves are greater for certain types of
liabilities in which the various considerations affecting these types of claims
are subject to change and long periods of time may elapse before a definitive
determination of liability is made. Reserve estimates are continually refined in
a regular and ongoing process as experience develops and further claims are
reported and settled. Adjustments to reserves are reflected in the results of
the periods in which such estimates are changed. Because setting reserves is
inherently uncertain, there can be no assurance that current reserves will prove
adequate in light of subsequent events.
WE INVEST A SIGNIFICANT AMOUNT OF OUR ASSETS IN FIXED INCOME SECURITIES THAT
HAVE EXPERIENCED MARKET FLUCTUATIONS. FLUCTUATIONS IN THE FAIR MARKET VALUE OF
FIXED INCOME SECURITIES MAY GREATLY REDUCE THE VALUE OF OUR INVESTMENT PORTFOLIO
AND OUR FINANCIAL CONDITION MAY SUFFER.
As of March 31, 2001, $446.5 million of our $740.7 million investment
portfolio is invested in fixed income securities. The fair market value of these
fixed income securities and the investment income from these fixed income
securities fluctuate depending on general economic and market conditions. With
respect to our investments in fixed income securities, the fair market value of
these investments generally increases or decreases in an inverse relationship
with fluctuations in interest rates, while net investment income realized by us
from future investments in fixed income securities will generally increase or
decrease with interest rates. In addition, actual net investment income and/or
cash flows from investments that carry prepayment risk (such as mortgage-backed
and other asset-backed securities) may differ from those anticipated at the time
of investment as a result of interest rate fluctuations. An investment has
prepayment risk when there is a risk that the timing of cash flows that result
from the repayment of principal might occur earlier than anticipated because of
declining interest rates or later than anticipated because of rising interest
rates. Historically, the impact of market fluctuations has affected our
financial statements. Because all of our fixed income securities are classified
as available for sale, changes in the fair market value of our securities are
reflected in our balance sheet. Similar treatment is not available for
liabilities. Therefore, interest rate fluctuations could adversely affect our
generally accepted accounting principles, or GAAP, shareholders' equity, total
comprehensive income and/or our cash flows. Historically, the impact of market
fluctuations has affected our financial statements. Unrealized pre-tax net
investment gains (losses) on investments in fixed-income securities were $11.9
million, ($19.0 million) and $3.6 million for the years ended 2000, 1999 and
1998, respectively.
IF STATES DRASTICALLY INCREASE THE ASSESSMENT OUR INSURANCE COMPANIES ARE
REQUIRED TO PAY, OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL SUFFER.
Our insurance company subsidiaries are subject to assessments in most
states where we are licensed for the provision of funds necessary for the
settlement of covered claims under certain policies provided by impaired,
insolvent or failed insurance companies. Maximum contributions required by law
in any one year vary by state, and have historically been between 1% and 2% of
annual premiums written. We cannot predict with certainty the amount of future
assessments. Significant assessments could have a material adverse effect on our
financial condition or results of operations.
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IF WE ARE UNABLE TO OBTAIN DIVIDENDS IN NEEDED AMOUNTS FROM OUR INSURANCE
COMPANY SUBSIDIARIES AS A RESULT OF REGULATORY RESTRICTIONS, WE MAY NOT BE ABLE
TO MEET OUR DEBT, DIVIDEND, AND EXPENSE OBLIGATIONS.
Our principal assets are the shares of capital stock of our insurance
company subsidiaries. We may rely on dividends from our insurance company
subsidiaries to meet our obligations for paying principal and interest on
outstanding debt obligations, dividends to shareholders and corporate expenses.
The payment of dividends by our insurance company subsidiaries is subject to
regulatory restrictions and will depend on the surplus and future earnings of
these subsidiaries, as well as the regulatory restrictions. As a result, we may
not be able to receive dividends from our subsidiaries at times and in amounts
necessary to meet our obligations.
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THE HCC TRUSTS
Each Trust is a statutory business trust that we have formed under Delaware
law. For each trust there is a trust agreement signed by HCC as depositor, by
First Union National Bank, as property trustee, and by First Union Trust
Company, N.A., as Delaware trustee. For each trust there is also a certificate
of trust filed with the Delaware Secretary of State. When we are ready to issue
and sell securities through the trust, the trust agreement will be amended to
read substantially like the form of amended and restated trust agreement that is
filed with the SEC as an exhibit to the registration statement of which this
prospectus is a part. Each trust agreement will be qualified as an indenture
under the Trust Indenture Act of 1939.
THE ISSUANCE AND SALE OF THE TRUST PREFERRED SECURITIES AND COMMON SECURITIES
We have created each Trust solely to:
- issue and sell its trust preferred securities and common securities,
which represent proportionate beneficial ownership interests in that
Trust and its assets;
- use the proceeds from the sale of the trust preferred securities and
common securities to buy from us a series of our junior subordinated debt
securities, which will be the only assets of that Trust;
- maintain its status as a grantor trust for federal income tax purposes;
and
- engage in only those other activities necessary or convenient to
accomplish the purposes listed above.
Because the Trusts' only assets will be junior subordinated debt securities
that we issue to them, our payments on the junior subordinated debt securities
will be the only source of funds to be paid to purchasers or owners of the trust
preferred securities and common securities. Each of the Trusts is a separate
legal entity, so the assets of one will not be available to satisfy the
obligations of the other trust or any other similar trust we may create.
We will acquire and own all of the common securities of each Trust. The
common securities will have an aggregate liquidation amount of at least 3% of
the total capital of each Trust. The remainder, representing up to 97% of the
ownership interests in the Trust, will be trust preferred securities of the
Trust that may be sold to the public. The common securities and the trust
preferred securities will have substantially the same terms, including the same
priority of payment and liquidation amount, and will receive proportionate
payments from the Trust in respect of distributions and payments upon
liquidation, redemption or otherwise at the same times, with one exception: if
we default on the junior subordinated debt securities that we issue to that
Trust and do not cure the default within the times specified in the indenture
governing the issuance of the junior subordinated debt securities, our rights to
payments as holder of the common securities will be subordinated to the rights
of the holders of the trust preferred securities. See "Description of Trust
Preferred Securities -- Subordination of Common Securities."
Unless we say otherwise in the applicable prospectus supplement, each Trust
will have a term of approximately 50 years. However, a Trust may terminate
earlier as provided in the applicable trust agreement and the prospectus
supplement.
Each Trust's business and affairs will be conducted by its trustees, whom
we, as holder of the common securities, will appoint. Unless we say otherwise in
the applicable prospectus supplement, the trustees for each Trust will be:
- First Union National Bank, as the property trustee; and
- First Union Trust Company, N.A., as the Delaware trustee.
We refer to the property trustee and the Delaware trustee together as the
"issuer trustees." First Union National Bank, as property trustee, will act as
sole indenture trustee under each trust agreement for
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purposes of compliance with the Trust Indenture Act. Unless we say otherwise in
the applicable prospectus supplement, First Union National Bank will also act as
trustee under our guarantee agreement relating to the trust preferred
securities. See "Description of Guarantees" and "Description of Trust Related
Junior Subordinated Debt Securities -- Certain Provisions Relating to Junior
Subordinated Debentures Issued to the HCC Trusts."
As the holder of the common securities of each Trust, we will ordinarily
have the right to appoint, remove or replace either issuer trustee for each
Trust. However, if we are in default with respect to the corresponding junior
subordinated debt securities issued to that Trust (and we have not cured that
default within the time specified in the indenture), then the holders of a
majority in liquidation amount of that Trust's outstanding trust preferred
securities will be entitled to appoint, remove or replace either or both issuer
trustees. In no event will the holders of the trust preferred securities have
the right to vote to appoint, remove or replace the administrators. We retain
that right exclusively as the holder of the common securities. The duties and
obligations of each issuer trustee are governed by the applicable trust
agreement.
Pursuant to the indenture and the trust agreements, we promise to pay all
fees and expenses related to each Trust and the offering of the trust preferred
securities and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of each Trust, except obligations under the trust preferred
securities and the common securities.
The Trusts have no separate financial statements. Separate financial
statements would not be material to holders of the trust preferred securities
because the Trusts have no independent operations. They exist solely for the
limited functions summarized above. We will guarantee the trust preferred
securities as described later in this prospectus.
The principal executive office of each Trust is 13403 Northwest Freeway,
Houston, Texas 77040, and its telephone number is (713) 690-7300.
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USE OF PROCEEDS
Except as otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of our securities (either to the
Trusts or directly to the public) for general corporate purposes, including, but
not limited to, the following purposes:
- contribute capital to insurance company subsidiaries;
- make acquisitions;
- make capital expenditures;
- provide working capital;
- purchase equity or fixed income investments;
- repay or refinance debt or other corporate obligations; or
- repurchase and redeem securities.
Pending any specific application, we may initially invest funds in
short-term marketable securities or apply them to the reduction of short-term
indebtedness.
Each Trust will use all of the proceeds it receives from the sale of its
trust preferred securities and common stock to purchase from us the junior
subordinated debentures that will provide the funds for that HCC Trust's
payments to purchasers of its trust preferred securities and common securities.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of our earnings to our fixed charges for the periods indicated
are as follows:
FOR THE YEARS ENDED DECEMBER 31,
FOR THE THREE MONTHS ----------------------------------
ENDED MARCH 31, 2001 2000 1999 1998 1997 1996
-------------------- ---- ---- ----- ----- ----
Ratio of earnings to fixed
charges........................... 7.58 5.13 3.58 15.42 11.10 9.31
For these ratios, earnings consist of income before interest expense,
estimated interest factor (33.3%) of rental expense, accounting changes and
income taxes. Fixed charges consist of interest expense, including amounts
capitalized and estimated interest factor (33.3%) of rent expense.
DESCRIPTION OF OUR COMMON STOCK
Set forth below is a summary of all of the material provisions of our
organizational documents. You should read the organizational documents, which
are filed as exhibits to this registration statement, for other provisions that
may be important to you. In addition, you should be aware that the summary below
does not give full effect to the terms of the provisions of statutory or common
law which may affect your rights as a shareholder.
Pursuant to our Certificate of Incorporation, we have the authority to
issue an aggregate of 250,000,000 shares of common stock, par value $1.00 per
share. As of July 1, 2001, 59,025,813 shares of common stock were outstanding,
and 8,059,934 shares of our common stock were reserved for issuance under our
various stock option plans.
Voting rights. Each share of common stock is entitled to one vote in the
election of directors and on all other matters submitted to a vote of our
shareholders. Our shareholders do not have the right to cumulate their votes in
the election of directors.
Dividends, distributions and stock splits. Holders of our common stock are
entitled to receive dividends if, as and when such dividends are declared by our
Board of Directors out of assets legally available therefor.
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Liquidation. In the event of any dissolution, liquidation, or winding up
of our affairs, whether voluntary or involuntary, after payment of our debts and
other liabilities, our remaining assets will be distributed ratably among the
holders of common stock.
Fully Paid. All shares of common stock outstanding are fully paid and
nonassessable, and all the shares of common stock to be outstanding upon
completion of this offering will be fully paid and nonassessable.
Other Rights. Holders of our common stock have no redemption or conversion
rights and no preemptive or other rights to subscribe for our securities.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
We are a Delaware corporation. The Delaware General Corporation Law
contains certain provisions that could discourage potential takeover attempts
and make it more difficult for our shareholders to change management or receive
a premium for their shares.
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a business combination with an "interested
shareholder" for a period of three years after the date of the transaction in
which the person became an interested shareholder, unless the business
combination is approved in a prescribed manner that includes approval by at
least 66.7% of the outstanding stock not owned by the interested shareholder. A
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the shareholder. For purposes of Section
203, an "interested shareholder" is defined to include any person that is:
- the owner of 15% or more of the outstanding voting stock of the
corporation;
- an affiliate or associate of the corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation, at any time
within three years immediately prior to the relevant date; and
- an affiliate or associate of the persons described in the foregoing
bullet points.
Shareholders may, by adopting an amendment to the corporation's Certificate
of Incorporation or Bylaws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption. Neither our Certificate of
Incorporation nor our Bylaws exempt us from the restrictions imposed under
Section 203. It is anticipated that the provisions of Section 203 may encourage
companies interested in acquiring us to negotiate in advance with our Board of
Directors because shareholder approval of the transaction, as discussed above,
would be unnecessary.
Charter and Bylaw Provisions
Our Certificate of Incorporation and Bylaws provide that any action
required or permitted to be taken by our shareholders may be effected either at
a duly called annual or special meeting of the shareholders or by written
consent of the shareholders. Special meetings of shareholders may be called by
the President, the Board of Directors or by a majority of the shareholders
entitled to vote at the special meeting.
Our Certificate of Incorporation does not provide for the division of our
Board of Directors into classes. Each year at the annual meeting of
shareholders, all directors are elected to hold office until the next succeeding
annual meeting of shareholders. The number of directors is fixed by resolution
of the Board, but is required under the Bylaws to be at least seven and not more
than fifteen. The size of the board is currently fixed at twelve members.
Directors may be removed with the approval of the holders of a majority of
the shares entitled to vote at a meeting of shareholders. Directors may be
removed by shareholders with or without cause. Vacancies
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and newly-created directorships resulting from any increase in the number of
directors may be filled by a majority of the directors then in office, a sole
remaining director, or the holders of a majority of the shares entitled to vote
at a meeting of shareholders.
LIMITATION OF LIABILITY; INDEMNIFICATION
Our Certificate of Incorporation contains certain provisions permitted
under the Delaware General Corporation Law relating to the liability of
directors. These provisions eliminate a director's personal liability for
monetary damages resulting from a breach of fiduciary duty, except that a
director will be personally liable:
- for any breach of the director's duty of loyalty to us or our
shareholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law relating to
unlawful stock repurchases or dividends; or
- for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or those of any
shareholder to seek non-monetary relief, such as an injunction or rescission, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws.
Our Bylaws also contain provisions indemnifying our directors and officers
to the fullest extent permitted by the Delaware General Corporation Law. We have
entered into separate indemnification agreements with our directors and officers
that may, in some cases, be broader than the specific indemnification provisions
contained in our Certificate of Incorporation, Bylaws or the Delaware General
Corporation Law. The indemnification agreements may require us, among other
things, to indemnify the officers and directors against certain liabilities,
other than liabilities arising from willful misconduct, that may arise by reason
of their status or service as directors or officers. These agreements also may
require us to advance the expenses incurred by the officers and directors as a
result of any proceeding against them as to which they could be indemnified. We
believe that these indemnification arrangements are necessary to attract and
retain qualified individuals to serve as directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is First Union
National Bank.
DESCRIPTION OF SENIOR DEBT SECURITIES AND
SUBORDINATED DEBT SECURITIES
GENERAL
The debt securities will be our general unsecured obligation and will be
issued as either senior notes and debentures, which are referred to throughout
as the senior debt securities, or subordinated notes and debentures, which are
referred to throughout as the subordinated debt securities, or both. We would
issue our debt securities under one or more separate indentures, in each case
between us, our subsidiary guarantors and the trustee, and in substantially the
form that has been filed as an exhibit to the registration statement of which
this prospectus is a part, but subject to any future amendments or supplements.
We will issue senior debt securities under a senior indenture and subordinated
debt securities under a subordinated indenture. We refer to the senior indenture
and the subordinated indenture below singularly as the indenture or together as
the indentures. We refer to the senior trustee and the subordinated trustee
below individually as a trustee and together as the trustees.
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Set forth below is a summary of all of the material terms of the
indentures. The particular terms of the debt securities we might offer and the
extent to which these general provisions apply will be described in a prospectus
supplement relating to the offered debt securities. We have included the forms
of the indentures under which the offered debt securities will be issued as
exhibits to the registration statement, and you should read the indentures for
provisions that may be important to you.
Our payment obligations under any debt securities may, if specified in any
prospectus supplement, be fully and unconditionally guaranteed by one or more of
our subsidiaries as subsidiary guarantors. If any series of debt securities is
guaranteed by one of our subsidiaries, the applicable prospectus supplement will
identify each subsidiary guarantor and describe such subsidiary guarantee,
including the circumstances in which it may be released. Unless specified
otherwise in any prospectus supplement, any guarantee of debt securities by one
or more of our subsidiaries will be on a full and unconditional basis.
Unless we provide otherwise in any prospectus supplement, the indentures do
not limit the aggregate principal amount of debt securities that we can issue.
We may issue debt securities in one or more series and in differing aggregate
principal amounts. We may issue debt securities in any currency or currency unit
that we may designate. We may issue debt securities in registered or global
form. The rights of holders of debt securities will be limited to our assets and
the assets of any subsidiary guarantors.
Except in the case of any debt securities that are guaranteed by a
subsidiary guarantor, the debt securities will not be obligations of any of our
subsidiaries. Except as may be described in any prospectus supplement, the
indentures do not limit the ability of our subsidiaries to incur debt in the
future. Our right to participate in the assets of any subsidiary (and thus the
ability of holders of the debt securities to benefit indirectly from such
assets) is generally subject to the prior claims of creditors, including trade
creditors, of that subsidiary, except to the extent that we are recognized as a
creditor of such subsidiary, in which case our claims would still be subject to
any security interest of other creditors of such subsidiary. Unless the debt
securities are guaranteed by our subsidiaries, the debt securities will be
structurally subordinated to creditors, including trade creditors, of our
subsidiaries with respect to the assets of the subsidiaries against which such
creditors have a more direct claim.
The senior debt securities will rank equally with all of our other senior
debt, if any. As of March 31, 2001, our debt to equity ratio was 7.5:1. If we
offer common stock, or securities convertible into such common stock, as of
March 31, 2001, $53,000,000 of consolidated debt will rank senior to such
securities. If we offer subordinated debt as of March 31, 2001, such debt will
rank behind approximately $53,000,000 of senior debt. We will disclose any
material changes to such amounts in a prospectus supplement prepared in
accordance with this prospectus. The subordinated debt securities will have a
junior position to all of our senior debt, if any. As of June 15, 2001, we have
a bank loan facility under which we could borrow up to $200,000,000. Any amounts
borrowed under that facility would be senior to the subordinated debt
securities. Other than as may be described in a prospectus supplement, neither
indenture will contain any covenant or provision that affords debt holders
protection in the event that we enter into a highly leveraged transaction in
which we borrow a substantial amount of the monetary requirements for such
transaction. These same holders would not have any right to require us to
repurchase the debt securities, in the event that the credit rating of any debt
securities declined as a result of our involvement in a takeover,
recapitalization, similar restructuring or otherwise.
A prospectus supplement including the indentures, filed as an exhibit,
relating to any series of debt securities which we may offer will include
specific terms relating to the offering. These terms will include some or all of
the following:
- the title and type of debt securities being offered, which may include
medium term notes;
- the total principal amount of debt securities being offered;
- whether the debt securities will be issued in one or more forms of global
securities and whether such global securities are to be issuable in
temporary global form or permanent global form;
- whether the debt securities will be guaranteed by any of the subsidiaries
of the Company;
- the dates on which the principal of, and premium, if any, on the offered
debt securities is payable;
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- the interest rate or the method of determining the interest rate;
- the date from which interest will accrue;
- the interest payment dates;
- the place where the principal, premium and interest is payable;
- any optional redemption periods;
- any sinking fund or other provisions that would obligate us to repurchase
or otherwise redeem the debt securities;
- whether the debt securities will be convertible into shares of common
stock or exchangeable for other of our securities (which would be
required to be registered under the Securities Act of 1933) and if so,
the terms of conversion or exchange;
- the currency or currencies, if other than U.S. dollars, in which
principal payments or other payments will be payable;
- events causing acceleration of maturity;
- any provisions granting special rights to holders when a specified event
occurs;
- any changes to or additional events of default or covenants;
- any material United States federal income tax consequences and any
special tax implications of ownership and disposition of the debt
securities; and
- any other terms of the debt securities.
The debt securities will be issued in registered form. There will be no
service charge for any registration, transfer or exchange of debt securities. We
may, however, require payment of an amount that would be sufficient to cover any
tax or other governmental charge we may incur. We may sell debt securities at a
discount or premium (which may be substantial) below or above their stated
principal amount, either bearing no interest or bearing interest at a rate that
may be below the market rate at the time we issue the debt securities.
We will describe any material United States federal income tax consequences
and other special considerations applicable to discounted debt securities in the
prospectus supplement. If we sell any of the offered debt securities for any
foreign currency or currency unit, or if any of the principal, premium or
interest, if any, is payable on any of the offered debt securities, the
restrictions, elections, tax consequences, specific terms and other information
pertaining to the offered debt securities and such foreign currency or foreign
currency unit will be set forth in the prospectus supplement describing such
offered debt securities.
DENOMINATIONS
We will issue the debt securities in registered form of $1,000 each or
integral multiples thereof.
SUBORDINATION
Under the subordinated indenture, payment of the principal, interest and
any premium on the subordinated debt securities generally will be subordinated
and junior in right of payment to the prior payment in full of all senior
indebtedness. The subordinated indenture defines senior indebtedness to include
all notes or other unsecured evidences of indebtedness, including our guarantees
for money borrowed by us, not expressed to be subordinate or junior in right of
payment to any other of our indebtedness and all extensions of such
indebtedness. The subordinated indenture provides that no
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payment of principal, interest and any premium on the subordinated debt
securities may be made in the event:
- of any insolvency, bankruptcy or similar proceeding involving us or our
property;
- we fail to pay the principal, interest, any premium or any other amounts
on any senior indebtedness when due;
- of a default (other than a payment default with respect to the senior
indebtedness) that imposes a payment blockage on the subordinated debt
securities for a maximum of 179 days at any one time, unless the event of
default has been cured or waived or shall no longer exist; or
- the principal and any accrued interest on any series of subordinated debt
securities has been declared due and payable upon an event of default
described in the subordinated debt indenture and such declaration has not
been rescinded.
In the event of any voluntary or involuntary bankruptcy, insolvency,
reorganization or other similar proceeding relating to us, all of our
obligations to holders of senior indebtedness will be entitled to be paid in
full before any payment shall be made on account of the principal of, or
premium, if any, or interest, if any, on the subordinated debt securities of any
series. In the event of any such bankruptcy, insolvency, reorganization or other
similar proceeding, holders of the subordinated debt securities of any series,
together with holders of indebtedness ranking equally with the subordinated debt
securities, shall be entitled, ratably, to be paid amounts that are due to them,
but only from assets remaining after we pay in full the amounts that we owe on
our senior indebtedness. We will make these payments before we make any payment
or other distribution on account of any indebtedness that ranks junior to the
subordinated debt securities. However, if we have paid in full all of the sums
that we owe with respect to our senior indebtedness and creditors in respect of
our obligations associated with such derivative products have not received
payment in full of amounts due to them, then the available remaining assets
shall be applied to payment in full of those obligations before any payment is
made on the subordinated debt securities. If we are in default on any of our
senior indebtedness or if any such default would occur as a result of certain
payments, then we may not make any payments on the subordinated debt securities
or effect any exchange or retirement of any of the subordinated debt securities
unless and until such default has been cured or waived or otherwise ceases to
exist.
No provision contained in the subordinated indenture or the subordinated
debt securities affects our absolute and unconditional obligation to pay when
due, principal of, premium, if any, and interest on the subordinated debt
securities and neither the subordinated indenture nor the subordinated debt
securities prevent the occurrence of any default or event of default under the
subordinated indenture or limit the rights of the subordinated trustee or any
holder of subordinated debt securities, subject to the three preceding
paragraphs, to pursue any other rights or remedies with respect to the
subordinated debt securities. As a result of these subordination provisions, in
the event of the liquidation, bankruptcy, reorganization, insolvency,
receivership or similar proceeding or an assignment for the benefit of our
creditors or any of our subsidiaries or a marshaling of our assets or
liabilities and our subsidiaries, holders of subordinated debt securities may
receive ratably less than other creditors.
If this prospectus is being delivered in connection with a series of
subordinated debt securities, the accompanying prospectus supplement or the
information incorporated herein by reference will set forth the approximate
amount of senior indebtedness outstanding as of the end of the most recent
fiscal quarter.
EVENTS OF DEFAULT; REMEDIES
The following are defined as events of default under each indenture:
- our failure to pay principal or any premium on any debt security when
due;
- our failure to pay any interest on any debt security when due, continued
for 30 days;
- our failure to deposit any mandatory sinking fund payment when due,
continued for 30 days;
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- our failure to perform any other covenant or warranty in the Indenture
that continues for 90 days after written notice;
- our certain events of bankruptcy, insolvency or reorganization; and
- any other event of default as may be specified with respect to debt
securities of such series.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities. The trustee may withhold notice to the holders of debt securities of
any default (except in the payment of principal or interest) if the trustee
considers withholding of notice to be in the best interest of the holders. If an
event of default occurs, either the trustee or the holders of at least 25% of
the principal amount of the outstanding debt securities may declare the
principal amount of the debt securities of the applicable series to be due and
payable immediately. If this happens, subject to certain conditions, the holders
of a majority of the principal amount of the outstanding debt securities of such
series can void the declaration. These conditions include the requirement that
we have paid or deposited with the trustee a sum sufficient to pay all overdue
principal and interest payments on the series of debt securities subject to the
default. If an event of default occurs due to certain events of bankruptcy,
insolvency or reorganization, the principal amount of the outstanding debt
securities of all series will become immediately due and payable without any
declaration or other act on the part of either trustee or any holder.
Depending on the terms of our indebtedness, an event of default under an
indenture may cause a cross default on our other indebtedness. Other than its
duties in the case of default, a trustee is not obligated to exercise any of its
rights or powers under any indenture at the request, order or direction of any
holder or group of holders unless the holders offer the trustee reasonable
indemnity. If the holders provide reasonable indemnification, the holders of a
majority of the principal amount of any series of debt securities may direct the
time, method and place of conducting any proceeding for any remedy available to
the trustee, or exercising any power conferred upon the trustee for any series
of debt securities. The holders of a majority of the principal amount
outstanding of any series of debt securities may, on behalf of all holders of
such series, waive any past default under the indenture, except in the case of a
payment of principal or interest default. We are required to provide to each
trustee an annual statement reflecting the performance of our obligations under
the indenture and any statement of default, if applicable.
COVENANTS
Under the indentures, we will:
- pay the principal, interest and any premium on the debt securities when
due;
- maintain a place of payment;
- deliver a report to the trustee at the end of each fiscal year reviewing
our obligations under the indentures; and
- deposit sufficient funds with any payment agent on or before the due date
for any principal, interest or any premium.
MODIFICATION OR AMENDMENT OF INDENTURES
Under each indenture, all rights and obligations and the rights of the
holders may be modified or amended with the consent of the holders of a majority
in aggregate principal amount of the outstanding debt securities of each series
affected by the modification or amendment. No modification or amendment may,
however, be made without the consent of the holders of any debt securities if
the following provisions are affected:
- change in the stated maturity date of the principal payment or
installment of any principal payment;
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- reduction in the principal amount or premium on, or interest on any of
the debt securities;
- reduction in the percentage required for modifications or amendment to be
effective against any holder of any debt securities.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Each indenture generally permits a consolidation or merger between us and
another corporation. Each indenture also permits us to sell all or substantially
all of our property and assets. If this happens, the surviving or acquiring
company will assume all of our responsibilities and liabilities under the
indentures, including the payment of all amounts due on the debt securities and
the performance of the covenants in the indentures. We will only consolidate or
merge with or into any other company or sell all, or substantially all, of our
assets according to the terms and conditions of the indentures. The surviving or
acquiring company will be substituted for us in the Indentures with the same
effect as if it had been an original party to the indenture. Thereafter, the
successor company may exercise our rights and powers under any indenture, in our
name or in its own name. Any act or proceeding our board of directors or any of
our officers are required or permitted to do may be done by the board of
directors or officers of the successor company. If we sell all or substantially
all of our assets, we shall be released from all our liabilities and obligations
under any Indenture and under the debt securities.
DISCHARGE AND DEFEASANCE
We will be discharged from our obligations under the debt securities of any
series at any time if we irrevocably deposit with the trustee enough cash or
U.S. government securities to pay the principal, interest, any premium and any
other sums due through the stated maturity date or redemption date of the debt
securities of the series. In this event, we will be deemed to have paid and
discharged the entire indebtedness on all outstanding debt securities of the
series. Accordingly, our obligations under the applicable indenture and the debt
securities of such series to pay any principal, premium, or interest, if any,
shall cease, terminate and be completely discharged. The holders of any debt
securities shall then only be entitled to payment out of the money or U.S.
government securities deposited with the trustee and such holders of debt
securities of such series will not be entitled to the benefits of the indenture
except as relate to the registration, transfer and exchange of debt securities
and the replacement of lost, stolen or mutilated debt securities.
PAYMENT AND PAYING AGENTS
We will pay the principal, interest and premium on fully registered
securities at designated places. We will pay by check mailed to the person in
whose name the debt securities are registered on the day specified in the
indentures or any prospectus supplement. We will make debt securities payments
in other forms at a place we designate and specify in a prospectus supplement.
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Fully registered debt securities may be transferred or exchanged at the
corporate trust office of the trustee or at any other office or agency we
maintain for such purposes without the payment of any service charge except for
any tax or governmental charge. The registered securities must be duly endorsed
or accompanied by a written instrument of transfer, if required by us or the
security registrar. We will describe any procedures for the exchange of debt
securities for other debt securities of the same series in the prospectus
supplement for that offering.
GLOBAL SECURITIES
We may issue the debt securities of a series in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
we identify in a prospectus supplement. We may issue global securities in
registered form and in either temporary or permanent form. Unless and until it
is exchanged in whole or part for the individual debt securities it represents,
the depositary or its nominee
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may not transfer a global security except as a whole. The depositary for a
global security and its nominee may only transfer the global security between
themselves or their successors. We will make principal, premium and interest
payments on global securities to the depositary or the nominee it designates as
the registered owner for such global securities. The depositary or its nominee
will be responsible for making payments to you and other holders of interests in
the global securities. We and the paying agents will treat the persons in whose
names the global securities are registered as the owners of such global
securities for all purposes. Neither we nor the paying agents have any direct
responsibility or liability for the payment of principal, premium or interest to
owners of beneficial interests in the global securities, and such liability is
that of the depositary or its variance. As a result the beneficial interest
holder may have to rely on the depositary to recover in the event of default.
DESCRIPTION OF WARRANTS
We may issue warrants, including warrants to purchase common stock, debt
securities or other securities registered pursuant to this registration
statement and described in this prospectus. We may issue warrants independently
or together with other securities that may be attached to or separate from the
warrants. We will issue each series of warrants under a separate warrant
agreement that will be entered into between us and a bank or trust company, as
warrant agent, and will be described in the prospectus supplement relating to
the particular issue of warrants. The warrant agent will act solely as our agent
in connection with the warrant of such series and will not assume any obligation
or relationship of agency for or with holders or beneficial owners of warrants.
The following describes certain general terms and provisions of the warrants we
may offer. We will set forth further terms of the warrants and the applicable
warrant agreement in the applicable prospectus supplement.
DEBT WARRANTS
The applicable prospectus supplement will describe the terms of any debt
warrants, including the following:
- the title of such debt warrants;
- the offering price for such debt warrants;
- the aggregate number of such debt warrants;
- the designation and terms of the debt securities purchasable upon
exercise of such debt warrants;
- if applicable, the designation and terms of the securities with which
such debt warrants are issued and the number of such debt warrants issued
with each security;
- if applicable, the date from and after which such debt warrants and any
securities issued therewith will be separately transferable;
- the principal amount of debt securities purchasable upon exercise of a
debt warrant and the price at which such principal amount of debt
securities may be purchased upon exercise;
- the date on which the right to exercise such debt warrants shall commence
and the date on which such right shall expire;
- if applicable, the minimum or maximum amount of such debt warrants which
may be exercised at any one time;
- whether the debt warrants represented by the debt warrant certificates or
debt securities that may be issued upon exercise of the debt warrants
will be issued in registered form;
- information with respect to book-entry procedures, if any;
- the currency, currencies or currency units in which the offering price,
if any, and the exercise price are payable;
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- if applicable, a discussion of certain United States federal income tax
considerations;
- the antidilution provisions of such debt warrants, if any;
- the redemption or call provisions, if any, applicable to such debt
warrant; and
- any additional terms of the debt warrants, including terms, procedures
and limitations relating to the exchange and exercise of such debt
warrants.
COMMON STOCK WARRANTS
The applicable prospectus supplement will describe the terms of any
warrants exchangeable for common stock, including:
- the title of such warrants;
- the offering price of such warrants;
- the aggregate number of such warrants;
- the designation and terms of the common stock issued by us purchasable
upon exercise of such warrants;
- if applicable, the designation and terms of the securities with which
such warrants are issued and the number of such warrants issued with each
such security;
- if applicable, the date from and after which such warrants and any
securities issued therewith will be separately transferable;
- the number of shares of common stock issued by us purchasable upon
exercise of the warrants and the price at which such shares may be
purchased upon exercise;
- the date on which the right to exercise such warrants shall commence and
the date on which such right shall expire;
- if applicable, the minimum or maximum amount of such warrants which may
be exercised at any one time;
- the currency, currencies or currency units in which the offering price,
if any, and the exercise price are payable;
- if applicable, a discussion of certain United States federal income tax
considerations; and
- the antidilution provisions of the warrants, if any.
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DESCRIPTION OF TRUST RELATED JUNIOR SUBORDINATED DEBT SECURITIES
The junior subordinated debentures that we issue to a Trust will be our
direct unsecured general obligations. Only junior subordinated debt securities
will be issued to the Trusts. The debt securities will be issued in one or more
series under the indenture between us and First Union National Bank, as trustee
and under our resolution authorizing the particular series.
Set forth below is a complete summary of all the material provisions of the
indenture. The form of the indenture and a form of amended and restated trust
agreement are filed as exhibits to the registration statement of which this
prospectus is a part. The amended and restated trust agreement for each series
also has been or will be filed or incorporated by reference as an exhibit to the
registration statement. You should read the indenture and the applicable amended
and restated trust agreement for provisions that may be important to you. The
summary includes references to section numbers in the indenture so that you can
easily find those provisions. The particular terms of any debt securities we
offer will be described in the related prospectus supplement, along with any
applicable modifications of or additions to the general terms of the debt
securities described below and in the indenture. For a description of the terms
of any series of debt securities, you should also review both the prospectus
supplement relating to that series and the description of the debt securities
set forth in this prospectus before making an investment decision.
GENERAL
The indenture does not significantly limit our operations. In particular,
it does not:
- limit the amount of debt securities that we can issue under the
indenture;
- limit the number of series of debt securities that we can issue from time
to time;
- restrict the total amount of debt that we or our subsidiaries may incur;
or
- contain any covenant or other provision that is specifically intended to
afford any holder of the debt securities special protection in the event
of highly leveraged transactions or any other transactions resulting in a
decline in our ratings or credit quality.
As of the date of this prospectus, there are no debt securities outstanding
under the indenture. The ranking of a series of debt securities with respect to
all of our indebtedness will be established by the securities resolution
creating the series.
Although the indenture permits the issuance of debt securities in other
forms or currencies, the debt securities covered by this prospectus will only be
denominated in U.S. dollars in registered form without coupons, unless otherwise
indicated in the applicable prospectus supplement.
TERMS
A prospectus supplement and a securities resolution relating to the
offering of any series of debt securities will include specific terms relating
to the offering. The terms will include some or all of the following:
- the designation, aggregate principal amount, currency or composite
currency (if other than U.S. dollars) and denominations of the debt
securities;
- the price at which the debt securities will be issued and, if an index,
formula or other method is used, the method for determining amounts of
principal or interest;
- the maturity date and other dates, if any, on which the principal of the
debt securities will be payable;
- the interest rate or rates, if any, or method of calculating the interest
rate or rates which the debt securities will bear;
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- the date or dates from which interest will accrue and on which interest
will be payable, and the record dates for the payment of interest; the
manner of paying principal and interest on the debt securities; the place
or places where principal and interest will be payable;
- the terms of any mandatory or optional redemption of the debt securities
by us, including any sinking fund, the terms of any conversion or
exchange right; the terms of any redemption of debt securities at the
option of holders; any tax indemnity provisions;
- the portion of principal payable upon acceleration of the maturity date
of any debt security;
- whether and upon what terms debt securities may be defeased (which means
that we would be discharged from its obligations by depositing sufficient
cash or government securities to pay the principal, interest, any
premiums and other sums due to the stated maturity date or a redemption
date of the debt securities of the series);
- whether any events of default or covenants in addition to or instead of
those set forth in the indenture apply; provisions for electronic
issuance of debt securities or for debt securities in uncertificated
form;
- any provisions relating to extending or shortening the date on which the
principal and premium, if any, of the debt securities of the series is
payable;
- any provisions relating to the deferral of payment of any interest;
- the terms of any right to convert or exchange the debt securities into
any other of our securities or property;
- if the series of debt securities is to be issued to a Trust, the forms of
the related trust agreement and guarantee agreement;
- the additions or changes, if any, to the indenture with respect to that
series of debt securities to permit or facilitate the issuance of that
series of debt securities to a Trust; and
- any other terms not inconsistent with the provisions of the indenture,
including any covenants or other terms that may be required or advisable
under United States or other applicable laws or regulations, or advisable
in connection with the marketing of the debt securities. (Section 3.1).
We may issue debt securities of any series in such form and in such
denominations as we specify in the securities resolution and prospectus
supplement for the series. (Section 2.1).
A holder of registered debt securities may request registration of a
transfer upon surrender of the debt security being transferred at any agency or
office that we maintain for that purpose and upon fulfillment of all other
requirements of the agent.
CERTAIN COVENANTS
Any restrictive covenants that may apply to a particular series of debt
securities will be described in the related prospectus supplement.
SUBORDINATION
The indenture provides that the debt securities will be subordinated and
junior in right of payment to all of our Senior Debt (as defined below), which
was $53,000,000 as of March 31, 2001. This means that no payment of principal,
including redemption payments, premium, if any, or interest on the debt
securities may be made if:
- any of our Senior Debt has not been paid when due and any applicable
grace period relating to such default has ended and such default has not
been cured or waived or ceased to exist; or
- the maturity of any of our Senior Debt has been accelerated because of a
default.
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Upon any distribution of our assets to creditors upon any termination,
winding-up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other proceedings, all principal,
premium, if any, and interest due or to become due on all of our Senior Debt
must be paid in full before the holders of debt securities are entitled to
receive or retain any payment. Upon satisfaction of all claims related to all of
our Senior Debt then outstanding, the rights of the holders of the debt
securities will be subrogated to the rights of the holders of our Senior Debt to
receive payments or distributions applicable to Senior Debt until all amounts
owing on the debt securities are paid in full.
The term "Senior Debt" means:
(1) the principal, premium, if any, and interest in respect of (a)
indebtedness for money borrowed and (b) indebtedness evidenced by
securities, notes, debentures, bonds or other similar instruments issued by
us;
(2) all capital lease obligations of ours;
(3) all obligations of ours issued or assumed as the deferred purchase
price of property, all conditional sale obligations of ours and all
obligations of ours under any conditional sale or title retention
agreement, but excluding trade accounts payable and accrued liabilities
arising in the ordinary course of business;
(4) all obligations, contingent or otherwise, of ours in respect of
any letters of credit, banker's acceptance, security purchase facilities or
similar credit transactions;
(5) all obligations in respect of interest rate swap, cap, floor,
collar or other agreements, interest rate future or option contracts,
currency swap agreements, currency future or option contracts and other
similar agreements;
(6) any indebtedness between or among us and our affiliates, except as
provided in 8(b) below;
(7) all obligations of the type referred to in clauses (1) through (6)
above of other persons for the payment of which we are responsible or
liable as obligor, guarantor or otherwise; and
(8) all obligations of the type referred to in clauses (1) through (7)
above of other persons secured by any lien on any property or asset of
ours, whether or not such obligation is assumed by such obligor, except for
(a) any such indebtedness that by its terms ranks equally with, or
junior to, the debt securities; and
(b) any indebtedness between or among us or our affiliates relating
to other debt securities and guarantees in respect of those debt
securities, issued to (i) any Trust or a trustee of such Trust or (ii)
any other trust, or a trustee of such trust, partnership or other entity
affiliated with us that is a financing vehicle of ours in connection
with the issuance by such financing vehicle of preferred securities or
other securities guaranteed by us pursuant to an instrument that ranks
equally with, or junior to, the guarantee.
Such Senior Debt shall continue to be Senior Debt and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Debt.
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SUCCESSOR OBLIGOR
The indenture provides that, unless otherwise specified in the securities
resolution establishing a series of debt securities, we will not consolidate
with or merge into, or transfer all or substantially all of our assets to,
another company, unless:
- that company is organized under the laws of the United States or any
state or the District of Columbia;
- that company assumes by supplemental indenture all of our obligations
under the indenture and the debt securities;
- all required approvals of any regulatory body having jurisdiction over
the transaction shall have been obtained; and
- immediately after the transaction no default exists under the indenture.
(Section 8.1).
The successor shall be substituted for us as if it had been an original
party to the indenture, the trust agreements and the debt securities. Thereafter
the successor may exercise our rights and powers under the indenture, the trust
agreements and the debt securities, and all of our obligations under those
documents will terminate. (Section 8.2)
EXCHANGE OF DEBT SECURITIES
Registered debt securities may be exchanged for an equal principal amount
of registered debt securities of the same series and date of maturity in
authorized denominations requested by the holders upon surrender of the
registered debt securities at an office or agency HCC maintains for that purpose
and upon fulfillment of all other requirements set forth in the indenture.
(Section 3.6)
DEFAULTS
Unless the securities resolution establishing the series provides for
different events of default, in which event the prospectus supplement will
describe the change, an event of default with respect to a series of debt
securities will occur if:
- We default in any payment of interest on any debt securities of that
series when the payment becomes due and payable and the default continues
for a period of 30 days;
- We default in the payment of the principal and premium, if any, of any
debt securities of the series when those payments become due and payable
at maturity or upon redemption, acceleration or otherwise;
- We default in the payment or satisfaction of any sinking fund obligation
with respect to any debt securities of the series as required by the
securities resolution establishing the series and the default continues
for a period of 30 days;
- We default in the performance of any of our other agreements applicable
to the series and the default continues for 90 days after the notice
specified below;
- We file for bankruptcy or other specified events in bankruptcy,
insolvency, receivership or reorganization occur; or
- any other event of default specified in the prospectus supplement occurs.
(See Section 5.1)
A default under the indenture means any event which is, or after notice or
passage of time would be, an event of default under the indenture. A default
under the fourth bullet point above is not an event of default until the trustee
or the holders of at least 25% in principal amount of the debt securities of a
series notify us of the default and we do not cure the default within the time
specified after receipt of the notice. (Section 5.1)
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REMEDIES
If an event of default occurs under the indenture with respect to any
series of debt securities and is continuing, the trustee by notice to us or
(except as provided in the next sentence) the holders of at least 25% in
principal amount of the series by notice both to us and to the trustee, may
declare the principal of and accrued interest on all the debt securities of the
series to be due and payable immediately. In the case of a series of junior
subordinated debentures issued to a Trust, if, upon an event of default, the
trustee or the other holders, if any, together holding not less than 25% in
aggregate principal amount of that series, fail to declare the principal of all
the debt securities of that series to be immediately due and payable, then the
holders of 25% in aggregate liquidation amount of the trust preferred securities
issued by the Trust then outstanding shall have the right to do so by notice to
us and to the trustee.
Except as provided in the next sentence, the holders of a majority in
principal amount of a series of debt securities, by notice to the trustee, may
rescind an acceleration and its consequences if certain conditions are met,
including:
- We pay or deposit with the indenture trustee a sum sufficient to pay:
- all overdue interest,
- the principal of and any premium which have become due other than by the
declaration of acceleration and overdue interest on those amounts,
- any overdue sinking fund payments and overdue interest on such payments,
- interest on overdue interest to the extent lawful, and
- all amounts otherwise due to the indenture trustee under the indenture;
- the rescission would not conflict with any judgment or decree;
- all existing events of default on the series have been cured or waived
except nonpayment of principal or interest that has become due solely
because of the acceleration.
In the case of a series of junior subordinated debentures issued to a
Trust, the holders of a majority in aggregate liquidation amount of the trust
preferred securities issued by that Trust then outstanding shall also have the
right to rescind the acceleration and its consequences with respect to such
series, subject to the same conditions set forth above. (Section 5.2)
If an event of default occurs and is continuing on a series, the trustee
may pursue any available remedy to collect principal or interest then due on the
series, to enforce the performance of any provision applicable to the series, or
otherwise to protect the rights of the trustee and holders of the series.
(Section 5.3)
In the case of a series of junior subordinated debentures issued to a
Trust, any holder of the outstanding trust preferred securities issued by that
Trust shall have the right, upon the occurrence and continuance of an event of
default with respect to that series following our failure to pay timely
interest, principal or premium as described above, to sue us directly. In that
lawsuit the holder of the trust preferred securities can force us to pay to the
holder (instead of the Trust) the principal of, and premium, if any, and
interest on, junior subordinated debentures held by the Trust having a principal
amount equal to the aggregate principal amount of the trust preferred securities
held by that holder. (Section 5.8)
The trustee may require an indemnity satisfactory to it before it performs
any duty or exercises any right or power under the indenture or the debt
securities which if reasonably believes may expose it to any risk of loss or
liability. (Section 6.1) With some limitations, holders of a majority in
principal amount of the debt securities of a series may direct the trustee in
its exercise of any trust or power with respect to that series. (Section 5.12)
Except in the case of default in payment on a series, the trustee may withhold
notice of any continuing default with respect to the debt securities of that
series if it determines that withholding the notice is in the interest of
holders of the series. (Section 6.2) We are required to furnish
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the trustee annually a brief certificate as to our compliance with all terms and
conditions of the indenture. (Section 10.4)
The events of default specified in the indenture do not include a
cross-default provision. Thus, except to the extent provided in the securities
resolution establishing a series, a default by us on any other debt, including
any other series of debt securities, would not constitute an event of default
under the indenture (or in the case of an event of default as to any series, an
event of default as to any other series outstanding under the indenture). If a
securities resolution provides for a cross-default provision, the prospectus
supplement will describe the terms of that provision.
AMENDMENTS
Without the consent of any debt security holder, subject to certain
limitations, we may amend the indenture by entering into one or more
supplemental indentures of any of the following purposes:
- to cure any ambiguity, omission, defect or inconsistency;
- to provide for the assumption of our obligations to debt security holders
by the surviving company in the event of a merger or consolidation
requiring such assumption as described above under "-- Successor
Obligor";
- to provide that specific provisions of the indenture shall not apply to a
series of debt securities not previously issued;
- to create a series of debt securities and establish its terms;
- to provide for a separate trustee for one or more series of debt
securities; or
- to make any change that does not materially adversely affect the rights
of any debt security holder. (Section 9.1)
Unless the securities resolution provides otherwise, in which event the
prospectus supplement will describe the revised provision, we and the trustee
may amend the indenture by entering into one or more supplemental indentures
with the written consent of the holders of a majority in principal amount of the
debt securities of all series affected voting as one class. However, without the
consent of each debt security holder affected, no amendment may:
- reduce the principal amount of debt securities whose holders must consent
to an amendment or waiver;
- reduce the interest on or change the time for payment of interest on any
debt security (but this does not affect our right to elect to defer one
or more payments of interest as described below under "-- Certain
Provisions Relating to Junior Subordinated Debentures Issued to the HCC
Trusts -- Option to Defer Interest Payment Date");
- change the stated maturity of any debt security (subject to any right we
may have retained in the securities resolution and described in the
prospectus supplement);
- reduce the principal of any debt security or, if less than the principal
amount thereof, reduce the amount that would be due on acceleration of
any debt security thereof;
- change the currency in which the principal or interest on a debt security
is payable;
- make any change that materially adversely affects the right to convert or
exchange any debt security; or
- waive any default in payment of interest on or principal of a debt
security. (Section 9.2)
In the case of a series of junior subordinated debentures issued to a
Trust, we are not permitted to amend the indenture if such amendment adversely
affects the holders of the trust preferred securities of
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that Trust in any material respect, and no termination of the indenture shall
occur, without the prior consent of the holders of not less than a majority in
aggregate liquidation amount of the trust preferred securities then outstanding
unless and until the principal (and premium, if any) of the junior subordinated
debentures of that series and all accrued and unpaid interest thereon have been
paid in full. Furthermore, in the case of a series issued to a Trust, no
amendment can be made to the provisions of the indenture allowing holders of
trust preferred securities of that Trust to sue directly following our failure
to make timely payments on the junior subordinated debentures as described above
without the prior consent of the holder of each capital security then
outstanding unless and until the principal (and premium, if any) of the junior
subordinated debentures of that series and all accrued and unpaid interest
thereon have been paid in full. (Section 9.2)
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Debt securities of a series may be defeased at any time in accordance with
their terms and as set forth in the indenture and described briefly below,
unless the securities resolution establishing the terms of the series provides
otherwise. Any defeasance may terminate all of our obligations (with limited
exceptions) with respect to a series of debt securities and the indenture
("legal defeasance"), or it may terminate only our obligations under any
restrictive covenants which may be applicable to a particular series ("covenant
defeasance").
We may exercise our legal defeasance option even though we have also
exercised our covenant defeasance option. If we exercise the legal defeasance
option with respect to a series of debt securities, that series may not be
accelerated because of an event of default. (Section 4.2) If we exercise the
covenant defeasance option, that series of debt securities may not be
accelerated by reference to any restrictive covenants which may be applicable to
that particular series. (Section 4.3)
To exercise either defeasance option as to a series of debt securities, we
must:
- irrevocably deposit in trust (the "defeasance trust") with the trustee or
another trustee money or U.S. government obligations;
- deliver a certificate from a nationally recognized firm of independent
accountants expressing their opinion that the payments of principal and
interest when due on the deposited U.S. government obligations, without
reinvestment, plus any deposited money without investment, will provide
cash at the times and in the amounts necessary to pay the principal and
interest when due on all debt securities of the series to maturity or
redemption, as the case may be; and
- comply with certain other conditions. In particular, we must obtain an
opinion of tax counsel that the defeasance will not result in recognition
of any gain or loss to holders for federal income tax purposes.
U.S. government obligations are direct obligations of (a) the United States
or (b) an agency or instrumentality of the United States, the payment of which
is unconditionally guaranteed by the United States, which, in either case (a) or
(b), have the full faith and credit of the United States of America pledged for
payment and which are not callable at the issuer's option. It also includes
certificates representing an ownership interest in such obligations. (Section
4.4)
CERTAIN PROVISIONS RELATING TO JUNIOR SUBORDINATED DEBENTURES ISSUED TO THE HCC
TRUSTS
General. The junior subordinated debentures that we issue to a Trust may
be issued in one or more series under the indenture with terms corresponding to
the terms of a series of trust preferred securities issued by that Trust. The
principal amount of the junior subordinated debentures that we issue to a Trust
will be equal to the aggregate stated liquidation amount of the trust preferred
securities and common securities of that Trust. Concurrently with the issuance
of each Trust's trust preferred securities, each Trust will invest the proceeds
from the sale of the trust preferred securities and the consideration we pay
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for the common securities in a series of corresponding junior subordinated
debentures that we will issue to that Trust.
The prospectus supplement will describe specific terms relating to the
offering of each series of junior subordinated debentures. See "Description Of
Trust Related Junior Subordinated Debt Securities -- Terms."
Unless otherwise specified in the applicable securities resolution, we will
covenant, as to each series of junior subordinated debentures:
- to maintain, directly or indirectly, 100% ownership of the common
securities of the Trust to which the corresponding junior subordinated
debentures have been issued (provided that certain successors which are
permitted pursuant to the indenture may succeed to our ownership of the
common securities);
- not to voluntarily terminate, wind-up or liquidate any Trust, except:
- in connection with a distribution of the junior subordinated debentures
to the holders of the trust preferred securities in liquidation of the
Trust; or
- in connection with certain mergers, consolidations or amalgamations
permitted by the related trust agreement; and
- to use our reasonable efforts, consistent with the terms and provisions
of the related trust agreement, to cause such Trust to remain classified
as a grantor trust and not as an association taxable as a corporation for
United States federal income tax purposes.
For additional covenants relating to payment of expenses of the HCC Trusts,
see "Description of Trust Preferred Securities -- Payment of Expenses."
Option to Defer Interest Payment Date. Unless otherwise stated in the
applicable prospectus supplement, we will have the right at any time and from
time to time during the term of any series of junior subordinated debentures
issued to a Trust to defer payments of interest by extending the interest
payment period for a specified number of consecutive periods. No deferral period
may extend beyond the maturity date of that series of junior subordinated
debentures. We may pay at any time all or any portion of the interest accrued to
that point during a deferral period. At the end of the deferral period or at a
redemption date, we will be obligated to pay all interest accrued and unpaid
(together with interest on the unpaid interest to the extent permitted by
applicable law). United States federal income tax consequences and special
considerations applicable to any junior subordinated debentures issued to a
Trust for which a deferral period has been elected will be described in the
applicable prospectus supplement. During any deferral period, or while we are in
default, we will be restricted in our ability to make payments or incur
obligations related to its capital stock or debt securities ranking equal to or
below the junior subordinated debentures. See "-- Restrictions on Certain
Payments."
Prior to the termination of any deferral period, we may extend the interest
payment period, and, after the termination of any deferral period and the
payment of all amounts due, we may decide to begin a new deferral period.
However, the deferral period may not extend beyond the maturity date of the
junior subordinated debentures.
If the trustee is the sole holder of the series of junior subordinated
debentures held by the Trust, we will give the trustee and the issuer trustees
of the Trust notice of our selection of any deferral period one business day
prior to the earlier of:
- the next date distributions on the trust preferred securities are
payable; or
- the date the Trust is required to give notice to the New York Stock
Exchange (or other applicable self-regulatory organization) or to holders
of its trust preferred securities of the record date or the date any
distribution on the trust preferred securities is payable.
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If the property trustee is not the sole holder of the series of junior
subordinated debentures, we will give the holders of the junior subordinated
debentures notice of our selection of any deferral period ten business days
prior to the earliest of:
- the next interest payment date; or
- the date upon which we are required to give notice to the NYSE (or other
applicable self-regulatory organization) or to holders of the junior
subordinated debentures of the record or payment date of any related
interest payment.
Redemption. The junior subordinated debentures and the applicable
securities resolution will provide the terms upon which we can redeem the junior
subordinated debentures at our option, and will specify a date prior to which we
will not be allowed to redeem the junior subordinated debentures, and after
which we will have the right to redeem the junior subordinated debentures, in
whole or in part, upon not less than 30 days nor more than 60 days notice to the
holder of the junior subordinated debentures at a redemption price or prices
stated in the applicable prospectus supplement.
If the junior subordinated debentures are redeemed only in part, they will
be redeemed pro rata or by lot or by any other method selected by the trustee.
If a partial redemption of the junior subordinated debentures would result in
delisting from any national securities exchange or other self-regulatory
organization on which the trust preferred securities of the Trust holding the
junior subordinated debentures are then listed, we will not be permitted to
effect a partial redemption and may only redeem the junior subordinated
debentures as a whole.
Except as otherwise specified in the applicable prospectus supplement and
subject to the provisions of the applicable securities resolution, if a Tax
Event (as defined below) or an Investment Company Event (as defined below) in
respect of a Trust occurs and is continuing, we have the option to redeem the
junior subordinated debentures held by that Trust, in whole, but not in part, at
any time within 90 days thereafter. If the applicable Trust is the holder of all
outstanding junior subordinated debentures, the proceeds of the redemption will
be used by the Trust to redeem its trust preferred securities and common
securities in accordance with their terms.
However, in the case of an occurrence of a Tax Event or an Investment
Company, if we can eliminate, within the 90 day period, such event by taking
some action, such as filing a form or making an election, or pursuing some other
similar reasonable measure which has no adverse effect on us, the relevant Trust
or the holders of the trust preferred securities or the common securities, we
will pursue that action instead of redemption. We will have no right to redeem
the junior subordinated debentures while such Trust or the property trustee is
pursuing any similar action based on its obligations under the trust agreement.
"Tax Event" means that the applicable Trust will have received an opinion
of counsel (which may be counsel to us or an affiliate) experienced in such
matters to the effect that, as a result of any
- amendment to, or change (including any announced proposed change) in the
laws or any regulations under the laws of the United States or any
political subdivision or taxing authority, or
- official administrative pronouncement or judicial decision interpreting
or applying the laws or regulations stated above whether or not the
pronouncement or decision is issued to or in connection with a proceeding
involving us or the Trust,
in each case which amendment or change is effective or which proposed change,
pronouncement, action or decision is announced on or after the date of issuance
of the applicable series of junior subordinated debentures pursuant to the
applicable securities resolution, there is more than an insubstantial risk that:
- the Trust is, or will be within 90 days of the date of the opinion of
counsel, subject to United States Federal income tax with respect to
income received or accrued on the junior subordinated debentures;
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- interest we pay on the corresponding junior subordinated debentures is
not, or will not be within 90 days of the date of the opinion of counsel,
deductible, in whole or in part, for United States Federal income tax
purposes; or
- the Trust is, or will be within 90 days of the date of the opinion of
counsel, subject to more than a de minimis amount of other taxes, duties
or other governmental charges.
"Investment Company Event" means that the applicable Trust will have
received an opinion of counsel experienced in such matters to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
courts, governmental agency or regulatory authority on or after the date of
original issuance of the trust preferred securities by the Trust, the Trust is
or will be considered an "investment company" that is required to be registered
under the Investment Company Act of 1940, as amended.
Restrictions on Certain Payments. Unless otherwise provided in the
applicable prospectus supplement, we will promise, as to each series of junior
subordinated debentures issued to a Trust, that it will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of its
capital stock;
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any of its debt securities (including other junior
subordinated debentures) that rank equally with or junior in interest to
the junior subordinated debentures; or
- make any guarantee payments with respect to any of the debt securities of
any of its subsidiaries if the guarantee ranks equally with or junior in
interest to the junior subordinated debentures;
other than:
- dividends or distributions payable in its common stock;
- payments under any guarantee relating to the trust preferred securities
of a Trust;
- purchases of common stock related to the issuance of common stock under
any employment agreement or benefit plan for its directors, officers or
employees; and
- obligations under any dividend reinvestment plan or stock purchase plan.
These restrictions apply only if:
- at that time an event has occurred that (a) with the giving of notice or
the lapse of time, or both, would constitute an event of default under
the indenture with respect to the junior subordinated debentures of that
series and (b) we shall not have taken reasonable steps to cure the
event;
- the junior subordinated debentures are held by a Trust and we are in
default with respect to payment of any obligations under the guarantee
relating to the trust preferred securities of that Trust; or
- we shall have given notice of its intention to begin an interest deferral
period and have not rescinded the notice, or any deferral period is
continuing.
REGARDING THE TRUSTEE
First Union National Bank will act as trustee and registrar for
registration and transfer of debt securities issued under the indenture.
(Section 3.6) The trustee, in its individual or any other capacity, may make
loans to, accept deposits from, and perform services for us or our affiliates,
and may otherwise deal with us or our affiliates, as if it were not the trustee.
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DESCRIPTION OF TRUST PREFERRED SECURITIES
The following section describes the general terms and provisions of the
trust preferred securities to which any prospectus supplement may relate. The
particular terms of the trust preferred securities offered by any Trust and the
extent to which any of these general provisions do not apply to its trust
preferred securities will be described in the prospectus supplement relating to
that Trust and its trust preferred securities.
The trust preferred securities will represent undivided beneficial
ownership interests in the assets of a Trust. The holders of the trust preferred
securities of a Trust will be entitled to a preference over holders of the
common securities of such Trust in some circumstances with respect to
distributions and amounts payable on redemption or liquidation. Holders of trust
preferred securities will also have other benefits as described in the
corresponding trust agreement.
We have summarized the material provisions of the trust preferred
securities and each trust agreement below. The form of trust agreement has been
filed as an exhibit to the registration statement of which this prospectus forms
a part. You should read the form of trust agreement for provisions that may be
important to you. You should also consider applicable provisions of the Trust
Indenture Act. Each of the Trusts is a legally separate entity, and the assets
of one are not available to satisfy the obligations of the other.
GENERAL
The trust preferred securities of a Trust will rank equally, and payments
on the trust preferred securities will be made pro rata, with the common
securities of that Trust except as described under "-- Subordination of Common
Securities." Legal title to the junior subordinated debentures issued to a Trust
will be held by the property trustee in trust for the benefit of the holders of
the trust preferred securities of that Trust and for us as holder of the common
securities of that Trust. Each guarantee agreement we execute for the benefit of
the holders of a Trust's trust preferred securities will be a guarantee on a
junior subordinated basis with, but will not guarantee payment of distributions
or amounts payable on redemption or liquidation of, such trust preferred
securities if the Trust does not have funds available to make such payments. See
"Description of Trust Related Guarantees."
DISTRIBUTIONS
Distributions on the trust preferred securities will be cumulative, will
accumulate from the date of original issuance and will be payable on the dates
specified in the applicable prospectus supplement. Except as specified in the
applicable prospectus supplement, in the event that any date on which
distributions are payable on the trust preferred securities is not a business
day, payment of the distribution will be made on the next succeeding day that is
a business day (without any interest or other payment in respect of the delay),
with the same force and effect as if made on the originally specified date.
However, if the next business day is in the next calendar year, payment of
distributions will be made on the preceding business day. Each date on which
distributions are payable is referred to in this prospectus as a distribution
date.
A Trust's trust preferred securities represent undivided beneficial
ownership interests in the assets of that Trust. The distributions on each
capital security will be payable at a rate specified in the prospectus
supplement for that capital security. The amount of distributions payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months unless otherwise specified in the applicable prospectus supplement.
Distributions to which holders of trust preferred securities are entitled will
accumulate interest at the rate per annum specified in the applicable prospectus
supplement. Distributions on trust preferred securities as used in this
prospectus includes these additional distributions unless otherwise stated.
The revenue of each Trust available for distribution to holders of its
trust preferred securities will be limited to payments it receives from us under
the junior subordinated debentures it owns. Each Trust will
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invest the proceeds from the issuance and sale of its common securities and
trust preferred securities in the corresponding junior subordinated debentures,
and it will have no other assets. See "Description of Trust Related Junior
Subordinated Debt Securities -- Certain Provisions Relating to Junior
Subordinated Debentures Issued to the HCC Trusts." If we do not make interest
payments on the junior subordinated debentures held by a Trust, the property
trustee will not have funds available to pay distributions on the trust
preferred securities of that Trust. We have guaranteed the payment of
distributions (if and to the extent the Trust has funds legally available for
the payment of distributions and cash sufficient to make the payments) on a
limited basis as set forth herein under "Description of Trust Related
Guarantees."
We may defer interest on any series of junior subordinated debentures for a
specified number of consecutive interest payment periods. See "Description of
Trust Related Junior Subordinated Debt Securities -- Certain Provisions Relating
to Junior Subordinated Debentures Issued to the HCC Trustee -- Option to Defer
Interest Payment Date." If we defer interest payments on the corresponding
junior subordinated debentures held by a Trust, the Trust will defer payments on
its trust preferred securities.
Distributions on the trust preferred securities will be payable to the
holders as they appear on the register of the Trust on the relevant record
dates, which, as long as the trust preferred securities remain in book-entry
form, will be one business day prior to the relevant distribution date. Subject
to any applicable laws and regulations and to the provisions of the applicable
trust agreement, each distribution payment will be made as described under
"Book-Entry Issuance." In the event any trust preferred securities are not in
book-entry form, the relevant record date for such trust preferred securities
shall be a date at least 15 days prior to the relevant distribution date, as
specified in the applicable prospectus supplement.
PAYMENT OF EXPENSES
Pursuant to the indenture, we have agreed to pay all debts and obligations
(other than distributions on the common securities and trust preferred
securities) and all costs and expenses of the Trusts and to pay any and all
taxes, duties, assessments or other governmental charges (other than United
States withholding taxes) imposed by the United States or any other taxing
authority. This includes, but is not limited to, all costs and expenses relating
to the organization of the Trusts, the fees and expenses of the property
trustee, the Delaware trustee and the administrators and all costs and expenses
relating to the operation of the Trusts. As a result, the net amounts received
and retained by a Trust after paying these fees, expenses, debts and obligations
will be equal to the amounts the Trust would have received and retained had no
fees, expenses, debts and obligations been incurred by or imposed on it. Our
promise to pay these obligations is for the benefit of, and shall be enforceable
by, any creditor to whom the fees, expenses, debts and obligations are owed,
whether or not the creditor has received notice of the promise. Any creditor may
enforce these obligations directly against us, and we have agreed to irrevocably
waive any right or remedy that would otherwise require that any creditor take
any action against the Trust or any other person before proceeding against us.
We will execute such additional agreements as may be necessary to give full
effect to these promises.
REDEMPTION OR EXCHANGE
If we repay or redeem, in whole or in part, any junior subordinated
debentures that have been issued to a Trust, whether at maturity or earlier, the
proceeds from the repayment or redemption shall be applied by the property
trustee to redeem a like amount of the trust preferred securities and the common
securities of that Trust. The property trustee will give you at least 30 but no
more than 60 days notice, and the redemption price will be equal to the sum of:
- the aggregate liquidation amount of the trust preferred securities and
common securities being redeemed; plus
- accumulated but unpaid distributions on to the redeemed trust preferred
securities and common securities to the date of redemption; plus
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- the related amount of the premium, if any, that we pay upon the
concurrent redemption of corresponding junior subordinated debentures.
See "Description of Trust Related Junior Subordinated Debt
Securities -- Certain Provisions Relating to Junior Subordinated Debentures
Issued to the HCC Trusts -- Redemption."
If we are repaying or redeeming less than all of any series of junior
subordinated debentures held by a Trust on a redemption date, then the proceeds
from the repayment or redemption shall be allocated to redeem the trust
preferred securities and common securities issued by that Trust, pro rata. The
amount of premium, if any, that we pay to redeem all or any part of any series
of junior subordinated debentures held by a Trust will also be allocated pro
rata to the redemption of the trust preferred securities and common securities
issued by that Trust.
We will have the right to redeem any series of junior subordinated
debentures:
- subject to the conditions described under "Description of Trust Related
Junior Subordinated Debt Securities -- Certain Provisions Relating to
Junior Subordinated Debentures Issued to the HCC Trusts -- Redemption";
or
- as may be otherwise specified in the applicable prospectus supplement.
We have the right to terminate a Trust at any time and, after satisfaction
of any liabilities to creditors of that Trust as provided by applicable law, to
cause the junior subordinated debentures owned by that Trust to be distributed
to the holders of the trust preferred securities and common securities in
liquidation of that Trust.
If provided in the applicable prospectus supplement, we will have the right
to extend or shorten the maturity of any series of junior subordinated
debentures at the time that we exercise our right to elect to terminate a Trust
and cause the junior subordinated debentures held by that Trust to be
distributed to the holders of the trust preferred securities and common
securities in liquidation of that Trust. However, we can extend the maturity
only if the conditions specified in the applicable prospectus supplement are met
at the time the election is made and at the time of the extension.
After the liquidation date fixed for any distribution of junior
subordinated debentures to the holders of any series of trust preferred
securities:
- that series of trust preferred securities will no longer be deemed to be
outstanding;
- The Depository Trust Company ("DTC") or its nominee, as the record holder
of the trust preferred securities, will receive a registered global
certificate or certificates representing the junior subordinated
debentures to be delivered in the distribution;
- We shall use our reasonable efforts to list the junior subordinated
debentures on the NYSE or on such other exchange, interdealer quotation
system or self-regulatory organization as such trust preferred securities
are then listed; and
- any certificates representing that series of trust preferred securities
not held by DTC or its nominee will be deemed to represent the junior
subordinated debentures having a principal amount equal to the stated
liquidation amount of that series of trust preferred securities, bearing
accrued and unpaid interest in an amount equal to the accrued and unpaid
distributions on that series of trust preferred securities until the
certificates are presented to the administrators or their agent for
transfer or reissuance.
We cannot predict the market prices for the trust preferred securities or
the junior subordinated debentures that may be distributed in exchange for trust
preferred securities. As a result, the trust preferred securities that an
investor may purchase, or the junior subordinated debentures that an investor
may receive on termination and liquidation of a Trust, may trade at a lower
price than the investor paid to purchase the trust preferred securities.
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REDEMPTION AND EXCHANGE PROCEDURES
Any trust preferred securities that are redeemed on any redemption date
will be redeemed with the proceeds received by the Trust from the
contemporaneous redemption of the junior subordinated debentures held by that
Trust. Redemptions of the trust preferred securities will be made and the
redemption price will be payable on each redemption date only to the extent that
the related Trust has cash on hand available for the payment of such redemption
price. See "-- Subordination of Common Securities."
If a Trust gives a notice of redemption in respect of its trust preferred
securities, then, by 12:00 noon, New York City time, on the redemption date, the
property trustee will deposit irrevocably with DTC funds sufficient to pay the
applicable redemption price to the extent funds are available. The property
trustee will give DTC irrevocable instructions and authority to pay the
redemption price to the holders of such trust preferred securities. See
"Book-Entry Issuance." If the trust preferred securities are no longer in book-
entry form, the property trustee, to the extent funds are available, will
irrevocably deposit with the paying agent for the trust preferred securities
funds sufficient to pay the applicable redemption price and will give the paying
agent irrevocable instructions and authority to pay the redemption price to the
holders of the trust preferred securities upon surrender of the certificates
evidencing their trust preferred securities.
Except as specified in the applicable prospectus supplement, in the event
that any date fixed for redemption of trust preferred securities is not a
business day, then payment of the redemption price payable on such date will be
made on the next succeeding day which is a business day (and without any
interest or other payment in respect of any delay). However, if the next
business day is in the next calendar year, the redemption price will be payable
on the preceding business day. In the event that payment of the redemption price
in respect of trust preferred securities called for redemption is improperly
withheld or refused and not paid either by the Trust or by us pursuant to the
guarantee as described under "Description of Trust Related Guarantees," then:
- distributions on those trust preferred securities will continue to accrue
at the then applicable rate from the redemption date originally
established by the Trust for those trust preferred securities to the date
the redemption price is actually paid; and
- the actual payment date will be the date fixed for redemption for
purposes of calculating the redemption price.
Payment of the redemption price on the trust preferred securities and any
distribution of corresponding junior subordinated debentures to holders of trust
preferred securities will be made to the applicable record holders thereof as
they appear on the register for the trust preferred securities on the relevant
record date. The record date will be one business day prior to the relevant
redemption date or liquidation date, as applicable, except that if any trust
preferred securities are not in book-entry form, the relevant record date for
those trust preferred securities shall be a date at least 15 days prior to the
redemption date or liquidation date, as applicable, as specified in the
applicable prospectus supplement.
If a Trust redeems less than all of its trust preferred securities and
common securities, then the aggregate liquidation amount of trust preferred
securities and common securities to be redeemed will be allocated pro rata
between the trust preferred securities and the common securities based upon
their respective aggregate liquidation amounts. Within 60 days of the redemption
date, the property trustee will select the trust preferred securities to be
redeemed from among the outstanding trust preferred securities not previously
called for redemption. The property trustee may use any method of selection it
deems to be fair and reasonable.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of trust preferred securities
or common securities to be redeemed at the holder's registered address.
Unless we default in payment of the redemption price on the junior
subordinated debentures, on and after the redemption date, interest ceases to
accrue on the junior subordinated debentures or portions
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thereof (and distributions cease to accrue on the trust preferred securities or
portions thereof issued by the Trust that holds such junior subordinated
debentures) called for redemption.
If notice of redemption has been given and funds deposited as required,
then upon the date of such deposit all rights of the holders of the trust
preferred securities called for redemption will cease, except the right to
receive the redemption price, but without interest on the redemption price, and
the trust preferred securities will cease to be outstanding.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the redemption price of, each Trust's
trust preferred securities and common securities, as applicable, generally shall
be made pro rata based upon their respective aggregate liquidation amounts.
However, if on any distribution date or redemption date an event of default with
respect to any junior subordinated debenture held by a Trust has occurred and is
continuing, then:
- We shall not pay any distribution on, or redemption price of, any of the
Trust's common securities, and we can not make any other payment on
account of the redemption, liquidation or other acquisition of such
common securities, unless
- all accumulated and unpaid distributions on all of the Trust's
outstanding trust preferred securities are paid in full in cash for all
distribution periods terminating on or prior to any payment on the
common securities,
- in the case of a payment of the redemption price, the full amount of the
redemption price on all of the Trust's outstanding trust preferred
securities then called for redemption shall have been paid 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 Trust's trust preferred securities then due and payable.
In the case of any event of default with respect to any junior subordinated
debentures held by a Trust, we (as holder of the Trust's common securities) will
be deemed to have waived any right to act with respect to the event of default
under the applicable trust agreement until the effect of all events of default
with respect to such trust preferred securities has been cured, waived or
otherwise eliminated. Until any events of default under the applicable trust
agreement with respect to the trust preferred securities have been cured, waived
or otherwise eliminated, the property trustee is required to act solely on
behalf of the holders of the trust preferred securities and not on our behalf as
holder of the Trust's common securities, and only the holders of such trust
preferred securities will have the right to direct the property trustee to act
on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to each trust agreement, each Trust will automatically terminate
upon the expiration of its term or on the first to occur of:
- specified events relating to our bankruptcy, dissolution or liquidation;
- our written direction to the property trustee, as depositor, to dissolve
the Trust and distribute the corresponding junior subordinated debentures
to the holders of the trust preferred securities in exchange for the
trust preferred securities (which direction is optional and wholly within
our discretion as depositor);
- the redemption of all of the Trust's trust preferred securities and
common securities; and
- the entry of an order for the dissolution of the Trust by a court of
competent jurisdiction.
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If an early termination occurs for any reason other than the redemption of
all of the trust preferred securities and common securities, the Trust will be
liquidated by the property trustee as expeditiously as the issuer trustees
determine to be possible. Except as provided in the next sentence, the issuer
trustees will distribute (after satisfaction of any liabilities to creditors of
such Trust as provided by applicable law) to the holders of such trust preferred
securities and common securities a like amount of the corresponding junior
subordinated debentures. However, if such a distribution is determined by the
property trustee not to be practical, the holders of the trust preferred
securities will be entitled to receive out of the assets of the Trust available
for distribution to holders (after satisfaction of any liabilities to creditors
of the Trust as provided by applicable law) a liquidation distribution in an
amount equal to the aggregate of the liquidation amount plus accrued and unpaid
distributions thereon to the date of payment. If the liquidation distribution
can be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate liquidation distribution, then the amounts payable
directly by the Trust on its trust preferred securities will be paid on a pro
rata basis.
As the holder of the Trust's common securities, we will be entitled to
receive distributions upon any liquidation pro rata with the holders of its
trust preferred securities. However, if an event of default relating to the
junior subordinated debentures held by a Trust has occurred and is continuing,
that Trust's trust preferred securities will have a priority over its common
securities.
ADDITIONAL AMOUNTS
If at any time a Trust is required to pay any taxes, duties, assessments or
governmental charges of whatever nature, other than withholding taxes, imposed
by the United States, or any other taxing authority, then we will be required to
pay additional amounts on the junior subordinated debt securities. The
additional amounts will be sufficient so that the net amounts received and
retained by the Trust after paying any such taxes, duties, assessments or other
governmental charges will be not less than the amounts the Trust would have
received had no such taxes, duties, assessments or other governmental charges
been imposed. This means that the Trust will be in the same position it would
have been if it did not have to pay such taxes, duties, assessments or other
charges.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes a "trust event of default"
under each trust agreement with respect to the trust preferred securities issued
by a Trust thereunder (whatever the reason for the trust event of default):
- an event of default with respect to the junior subordinated debentures
issued under the indenture to the Trust occurs (see "Description of Trust
Related Junior Subordinated Debt Securities -- Defaults");
- the property trustee does not pay any distribution within 30 days of its
due date, provided that no deferral period is continuing;
- the property trustee does not pay any redemption price of any trust
security when it becomes due and payable;
- the default by an issuer trustee in the performance, or breach, in any
material respect, of any covenant or warranty of the issuer trustees in
the trust agreement (other than a default in the payment of any
distribution or any redemption price as provided above), and continuation
of that default or breach for a period of 90 days after there has been
given, by registered or certified mail, to the defaulting issuer trustee
by the holders of at least 25% in aggregate liquidation preference of the
outstanding trust preferred securities of the applicable Trust, a written
notice specifying the default or breach and requiring it to be remedied
and stating that the notice is a "notice of default" under the trust
agreement; or
- the property trustee files for bankruptcy or certain other events in
bankruptcy or insolvency occur and a successor property trustee is not
appointed within 60 days.
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Within 90 days after learning of the occurrence of any trust event of
default, the property trustee is required to transmit notice of the trust event
of default to the holders of the Trust's trust preferred securities, to the
administrators and to us, as depositor, unless the trust event of default has
been cured or waived.
If an event of default with respect to a corresponding junior subordinated
debenture has occurred and is continuing, the trust preferred securities shall
have a preference over the common securities upon termination of the Trust as
described above. See "-- Liquidation Distribution upon Termination." The
existence of a trust event of default with respect to a Trust does not entitle
the holders of trust preferred securities issued by that Trust to cause the
redemption of the trust preferred securities.
REMOVAL OF ISSUER TRUSTEES
We as the holder of the common securities of a Trust may remove either
issuer trustee at any time, unless an event of default with respect to junior
subordinated debentures held by that Trust has occurred and is continuing. If a
trust event of default resulting from an event of default with respect to junior
subordinated debentures held by that Trust has occurred and is continuing, the
property trustee and the Delaware trustee may be removed by the holders of a
majority in liquidation amount of the outstanding trust preferred securities of
that Trust. In no event will the holders of the trust preferred securities have
the right to vote to appoint, remove or replace the administrators: that right
belongs exclusively to us as the holder of the common securities. No resignation
or removal of an issuer trustee and no appointment of a successor trustee will
be effective until the successor trustee accepts its appointment in accordance
with the provisions of the applicable trust agreement.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the property trustee or the Delaware trustee
that is not a natural person may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which 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 each trust agreement,
provided such corporation shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, CONVERSIONS, AMALGAMATIONS OR REPLACEMENTS OF THE HCC
TRUSTS
A Trust may not merge or consolidate with or into, convert into, amalgamate
or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below, as described in "-- Liquidation Distribution upon Termination"
or as described in the prospectus supplement with respect to the trust preferred
securities. A Trust may, at our request, with the consent the holders of a
majority of its trust preferred securities, merge or consolidate with or into,
convert into, amalgamate or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust organized as such
under the laws of any state; provided, that:
- the successor entity either (a) expressly assumes all of the obligations
of the Trust with respect to its trust preferred securities or (b)
substitutes for the trust preferred securities other successor securities
having substantially the same terms as the trust preferred securities so
long as the successor securities rank the same as the trust preferred
securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise;
- We expressly appoint a trustee of such successor entity possessing the
same powers and duties as the property trustee as the holder of the
corresponding junior subordinated debentures;
- 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 trust preferred securities are then
listed, if any;
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- the merger, consolidation, conversion, amalgamation, replacement,
conveyance, transfer or lease does not cause the trust preferred
securities (including any successor securities) to be downgraded by a
nationally recognized statistical rating organization;
- the merger, consolidation, conversion, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the trust preferred
securities (including any successor securities) in any material respect;
- the successor entity has a purpose substantially similar to that of the
Trust;
- prior to the merger, consolidation, conversion, amalgamation,
replacement, conveyance, transfer or lease, the property trustee has
received an opinion from independent counsel to the Trust experienced in
such matters to the effect that:
- the merger, consolidation, conversion, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the trust preferred
securities (including any successor securities) in any material respect,
and
- following the merger, consolidation, conversion, 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; and
- We or any permitted successor or assignee own all of the common
securities of the successor entity and guarantees the obligations of the
successor entity under the successor securities at least to the extent
provided by the guarantee.
Notwithstanding the general provisions described above, a Trust shall not,
except with the consent of holders of 100% in liquidation amount of the trust
preferred securities, merge with or into, consolidate, convert into, amalgamate,
or be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if such merger,
consolidation, conversion, amalgamation, replacement, conveyance, transfer or
lease would cause the Trust or the successor entity to be classified as other
than a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF EACH TRUST AGREEMENT
The holders of the trust preferred securities will have only the voting
rights described below and under "Description of Trust Related
Guarantees -- Amendments and Assignment," plus any voting rights required by
law.
Each trust agreement may be amended from time to time by us and the
property trustee, without the consent of the holders of the trust preferred
securities:
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to
address matters or questions arising under the trust agreement in a way
which is consistent with the other provisions of the trust agreement; or
- to modify, eliminate or add to any provisions of the trust agreement if
necessary to ensure that the Trust will be classified for United States
federal income tax purposes as a grantor trust or to ensure that the
Trust will not be required to register as an "investment company" under
the Investment Company Act.
However, in the case of the first clause, the action must not adversely
affect in any material respect the interests of any holder of trust preferred
securities and common securities. Any amendment of the trust agreement becomes
effective when we give notice of the amendment to the holders of the trust
preferred securities and common securities.
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Each trust agreement may be amended by us and the property trustee with:
- the consent of holders representing not less than a majority (based upon
liquidation amounts) of the outstanding trust preferred securities and
common securities; and
- receipt by the property trustee of an opinion of counsel experienced in
such matters to the effect that the amendment or the exercise of any
power granted to the issuer trustees in accordance with the 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.
However, without the consent of each holder of trust preferred securities
and common securities, no amendment may:
- change the amount or timing of any distribution on the trust preferred
securities and common securities or otherwise adversely affect the amount
of any distribution required to be made in respect of the trust preferred
securities and common securities as of a specified date; or
- restrict the right of a holder of trust preferred securities and common
securities to sue for the enforcement of any distribution payment.
The property trustee is required to notify each holder of trust preferred
securities whenever the property trustee is notified of a default with respect
to the corresponding junior subordinated debentures. Furthermore, so long as any
junior subordinated debentures are held by the property trustee, the issuer
trustees are not permitted to:
- direct the time, method and place of conducting any proceeding for any
remedy available to the trustee under the indenture, or execute any trust
or power conferred on the property trustee with respect to the junior
subordinated debentures;
- waive any past default that is waivable under the indenture governing the
junior subordinated debentures;
- exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures shall be due and payable; or
- give a required consent to any amendment, modification or termination of
the indenture, the applicable securities resolution or the junior
subordinated debentures
unless, in each case, they first obtain the approval of the holders of a
majority in aggregate liquidation amount of all outstanding trust preferred
securities. However, where the indenture requires the consent of each affected
holder of junior subordinated debentures, the property trustee cannot give the
consent without first obtaining the consent of each holder of the trust
preferred securities. The property trustee cannot revoke any action previously
authorized or approved by a vote of the holders of the trust preferred
securities except by subsequent vote of the holders of the trust preferred
securities.
In addition to obtaining approval of the holders of the trust preferred
securities as described above, the issuer trustees are required to obtain an
opinion of counsel to the effect that the proposed action will not cause the
Trust to be classified as a corporation for United States federal income tax
purposes.
Any required approval of holders of trust preferred securities may be given
either at a meeting of holders of trust preferred securities or pursuant to a
written consent. The property trustee must notify record holders of trust
preferred securities of any meeting in the manner set forth in each trust
agreement.
No vote or consent of the holders of trust preferred securities will be
required for a Trust to redeem and cancel its trust preferred securities in
accordance with the applicable trust agreement.
Whenever holders of trust preferred securities are entitled to vote or
consent under any of the circumstances described above, neither we nor the
issuer trustees will be permitted to vote. For purposes of
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any vote or consent, any of the trust preferred securities that we own (or that
are owned by the issuer trustees or our affiliates) will be treated as if they
were not outstanding.
PAYMENT AND PAYING AGENCY
The depositary for the trust preferred securities will make payments in
respect of the trust preferred securities by crediting the relevant accounts at
the depositary on the applicable distribution dates. If any trust preferred
securities of a Trust are not held by the depositary, then the paying agent will
mail checks to registered holders of the trust preferred securities as their
addresses appear on its register. Unless otherwise specified in the applicable
prospectus supplement, the paying agent shall initially be the property trustee
and any co-paying agent chosen by the property trustee and acceptable to the
administrators and to us. The paying agent can resign upon 30 days' written
notice to the property trustee and to us. If the property trustee resigns as
paying agent, the property trustee will appoint a bank or trust company
acceptable to the administrators to act as paying agent.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable prospectus supplement, the
property trustee will act as registrar and transfer agent for the trust
preferred securities.
Each Trust will register transfers of its trust preferred securities
without charge, but will require payment of any tax or other governmental
charges that may be imposed in connection with any transfer or exchange. The
Trusts will not register transfers of their trust preferred securities after the
relevant trust preferred securities are called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee undertakes to perform only the duties that are
specifically set forth in each trust agreement, other than during the
continuance of a trust event of default. After a trust event of default, the
property trustee is required to 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 has no obligation to exercise
any of its powers under the applicable trust agreement at the request of any
holder of trust preferred securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that it might incur by doing so. If
no trust event of default has occurred and is continuing and the property
trustee is required to decide between alternative courses of action, construe
ambiguous provisions in the applicable trust agreement or is unsure of the
application of any provision of the applicable trust agreement, then we will
have the right to tell the property trustee which action to take unless the
matter is one on which holders of trust preferred securities are entitled to
vote. If we do not give any directions, the property trustee will take whatever
action it deems advisable and in the best interests of the holders of the trust
preferred securities and common securities. The property trustee will have no
liability except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The property trustee and the administrators are authorized and directed to
operate the Trusts in such a way that:
- no Trust will be:
- deemed to be an "investment company" required to be registered under the
Investment Company Act or
- classified as an association taxable as a corporation for United States
federal income tax purposes; and
- the junior subordinated debentures will be treated as our indebtedness
for United State federal income tax purposes.
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Holders of the trust preferred securities have no preemptive or similar
rights.
No Trust may borrow money or issue debt or mortgage or pledge any of its
assets.
DESCRIPTION OF TRUST RELATED GUARANTEES
When the trust preferred securities and common securities of any series are
issued by a Trust, we will execute and deliver a guarantee agreement for the
benefit of the holders of the trust preferred securities of that series. The
guarantee agreement will be qualified as an indenture under the Trust Indenture
Act. First Union National Bank will act as guarantee trustee under each
guarantee for the purposes of compliance with the Trust Indenture Act, and will
hold the guarantee for the benefit of the holders of the related Trust's trust
preferred securities.
We have summarized the material provisions of the guarantees below. The
form of the guarantee agreement has been filed as an exhibit to the registration
statement of which this prospectus forms a part, and you should read the
guarantee agreement for provisions that may be important to you. Reference in
this summary to trust preferred securities means that Trust's trust preferred
securities to which a guarantee relates.
GENERAL
We will promise to pay the guarantee payments to the holders of the trust
preferred securities, as and when due, regardless of any defense, right of
set-off or counterclaim that the Trust may have or assert other than the defense
of payment. Our obligations under the guarantee will rank equal to the
corresponding junior subordinated debentures and will be junior and subordinated
to the Senior Debt. The guarantee payments include the following, to the extent
not paid by or on behalf of the related Trust:
- any accumulated and unpaid distributions required to be paid on the trust
preferred securities, but only if and to the extent that the applicable
Trust has funds on hand available for the distributions at that time;
- the redemption price with respect to any trust preferred securities
called for redemption, if and to the extent that the applicable Trust has
funds on hand available to pay the redemption price at that time; or
- upon a voluntary or involuntary termination, winding up or liquidation of
a Trust (unless the corresponding junior subordinated debentures are
distributed to the holders of the trust preferred securities), the lesser
of:
- the liquidation distribution; and
- the amount of assets of the applicable Trust remaining available for
distribution to holders of trust preferred securities.
Our obligation to make a guarantee payment may be satisfied either by our
direct payment of the required amounts to the holders of the applicable trust
preferred securities or by causing the Trust to pay them.
Each guarantee will be an irrevocable guarantee on a junior subordinated
basis of the related Trust's obligations in respect of the trust preferred
securities, but will apply only to the extent that the related Trust has funds
sufficient to make the required payments. If we do not make interest payments on
the junior subordinated debentures held by a Trust, the Trust will not be able
to pay distributions on its trust preferred securities.
We may also agree to guarantee the obligations of the Trusts with respect
to the common securities to the same extent as the guarantee to holders of the
trust preferred securities. However, if there is an event of default with
respect to a corresponding junior subordinated debenture, holders of trust
preferred securities issued by that Trust will have priority over holders of
common securities issued by that Trust.
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STATUS OF THE GUARANTEES
Each guarantee will constitute our unsecured obligation and will rank
subordinate and junior in right of payment to all of our Senior Debt.
Each guarantee will rank equally with all other guarantees issue relating
to trust preferred securities issued by the Trusts. Each guarantee will
constitute a guarantee of payment and not of collection (i.e., the guaranteed
party may institute a legal proceeding directly against us as the guarantor to
enforce its rights under the guarantee without first suing anyone else). Each
guarantee will be held for the benefit of the holders of the related trust
preferred securities. Each guarantee will be discharged only by payment of the
guarantee payments in full (to the extent not paid by the Trust) or by
distribution of the corresponding junior subordinated debentures to the holders
of the trust preferred securities. None of the guarantees places a limitation on
the amount of additional Senior Debt or subordinated debt that we may incur. We
expect from time to time to incur additional indebtedness constituting Senior
Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of the related trust preferred securities in any material respect (in
which case no vote will be required), no guarantee may be amended without the
prior approval of the holders of not less than a majority of the aggregate
liquidation amount of the related outstanding trust preferred securities. The
manner of obtaining any required approval will be as set forth under
"Description of Trust Preferred Securities -- Voting Rights; Amendment of Each
Trust Agreement." All guarantees and agreements contained in each guarantee
agreement will bind our successors, assigns, receivers, trustees and
representatives and will benefit the holders of the related trust preferred
securities then outstanding.
EVENTS OF DEFAULT
We will be in default under any guarantee agreement if (a) we do not make
required payments or (b) we are notified that we have not performed some other
obligation and have not cured that failure within 90 days.
The holders of a majority in aggregate liquidation amount of the related
trust preferred securities have the right:
- to direct the time, method and place of conducting any proceeding for any
remedy available to the guarantee trustee in respect of the guarantee
agreement; or
- to direct the exercise of any power conferred upon the guarantee trustee
under the guarantee agreement.
Holders of a majority in aggregate liquidation amount of the related trust
preferred securities also have the right to waive any past event of default and
its consequences.
Any holder of the trust preferred securities may institute a legal
proceeding directly against us to enforce the Trust's rights under the guarantee
agreement without first instituting a legal proceeding against the Trust, the
guarantee trustee or anyone else.
As guarantor, we are required to file annually with the guarantee trustee a
certificate stating whether or not we are is in compliance with all the
conditions and covenants applicable to us under the guarantee agreement.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee will perform only the duties that are specifically
set forth in each guarantee agreement, other than during the occurrence and
continuance of a default by us in performance of any guarantee. After we default
and while the default continues, the guarantee trustee must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs.
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Subject to this provision and so long as no default under the applicable
guarantee agreement has occurred and is continuing, the guarantee trustee is
under no obligation to exercise any of the powers vested in it by any guarantee
agreement at the request of any holder of any trust preferred securities unless
it is offered reasonable indemnity against the costs, expenses and liabilities
that it might incur by doing so.
TERMINATION OF THE GUARANTEES
Each guarantee will terminate upon full payment of the redemption price of
the related trust preferred securities, upon full payment of the amounts payable
upon liquidation of the related Trust or upon distribution of corresponding
junior subordinated debentures to the holders of the related trust preferred
securities. Each guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the related trust preferred
securities must restore payment of any sums paid under the trust preferred
securities or the guarantee.
RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES, THE CORRESPONDING JUNIOR
SUBORDINATED SECURITIES AND THE GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
We irrevocably guarantee payments of distributions and other amounts due on
the trust preferred securities (to the extent the applicable Trust has funds
available for the payment of the distributions) as and to the extent set forth
under "Description of Trust Related Guarantees." Taken together, our obligations
under each series of junior subordinated debentures, the related securities
resolution, the indenture, the related trust agreement and the related guarantee
agreement provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of distributions and other amounts due on the related
series of trust preferred securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
the full 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 trust preferred securities. See "The HCC
Trusts," "Description of Trust Preferred Securities," and "Description of Trust
Related Junior Subordinated Debt Securities -- Certain Provisions Relating to
Junior Subordinated Debentures Issued to the HCC Trusts."
If and to the extent that we do not make payments on any series of
corresponding junior subordinated debentures, the Trust will not pay
distributions or other amounts due on its trust preferred securities. The
guarantees do not cover payment of distributions when the related Trust does not
have sufficient funds to pay the distributions. In that event, the remedy for a
holder of the trust preferred securities issued by that trust is to institute a
legal proceeding directly against us for enforcement of payment of the
distributions to such holder. Our obligations under each guarantee are
subordinate and junior in right of payment to all of our Senior Debt.
SUFFICIENCY OF PAYMENTS
As long as we make payments when due on each series of junior subordinated
debentures, those payments will be sufficient to cover distributions and other
payments due on the related trust preferred securities. This is primarily
because:
- the aggregate principal amount of each series of junior subordinated
debentures will be equal to the sum of the aggregate stated liquidation
amount of the related trust preferred securities and related common
securities;
- the interest rate and interest and other payment dates on each series of
junior subordinated debentures will match the distribution rate and
distribution and other payment dates for the related trust preferred
securities;
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- we, as issuer of the junior subordinated debentures, have promised to pay
any and all costs, expenses and liabilities of each Trust except the
Trust's obligations under its trust preferred securities; and
- each trust agreement provides that the Trust will not engage in any
activity that is not consistent with the limited purposes of the Trust.
We have the right to set-off any payment we are otherwise required to make
under the indenture if and to the extent we have already made, or are
concurrently making, a payment under the related guarantee agreement.
ENFORCEMENT RIGHTS OF HOLDERS OF TRUST PREFERRED SECURITIES
A holder of any capital security may institute a legal proceeding directly
against us to enforce our rights under the related guarantee agreement without
first instituting a legal proceeding against the guarantee trustee, the related
Trust or anyone else.
Our default or event of default under any other senior or subordinated
indebtedness would not necessarily constitute a trust event of default. However,
in the event of payment defaults under, or acceleration of, our Senior Debt, the
subordination provisions of the applicable securities resolution will provide
that no payments may be made in respect of the corresponding junior subordinated
debentures until the Senior Debt has been paid in full or any payment default
thereunder has been cured or waived. Our failure to make required payments on
any series of corresponding junior subordinated debentures would constitute a
trust event of default.
LIMITED PURPOSE OF HCC TRUSTS
Each Trust's trust preferred securities evidence undivided beneficial
ownership interests in the assets of that Trust, and each Trust exists for the
sole purposes of issuing its trust preferred securities and common securities,
investing the proceeds in junior subordinated debentures and engaging in only
those other activities necessary, convenient or incidental to those purposes. A
principal difference between the rights of a holder of a capital security and a
holder of a corresponding junior subordinated debenture is that the holder of a
junior subordinated debenture is entitled to receive from us the principal
amount of and interest accrued on the junior subordinated debenture held, while
the holder of a capital security is entitled to receive distributions from the
Trust (or from us under the applicable guarantee agreement) if and to the extent
the Trust has funds available for the payment of the distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination of any Trust involving the
liquidation of the junior subordinated debentures held by that Trust, the
holders of the related trust preferred securities will be entitled to receive
the liquidation distribution in cash, out of assets of the Trust (and after
satisfaction of creditors of the Trust as provided by applicable law). See
"Description of Trust Preferred Securities -- Liquidation Distribution upon
Termination." If we become subject to any voluntary or involuntary liquidation
or bankruptcy, the property trustee, as holder of the corresponding junior
subordinated debentures, would be one of our junior subordinated creditors. The
property trustee would be subordinated in right of payment to all of our Senior
Debt, but it would be entitled to receive payment in full of principal and
interest before our shareholders receive payments or distributions. We are the
guarantor under each guarantee agreement and pursuant to the indenture, as
borrower, has agreed to pay all costs, expenses and liabilities of each Trust
(other than the Trust's obligations to the holders of its trust preferred
securities). Accordingly, in the event of our liquidation or bankruptcy the
positions of a holder of trust preferred securities and of a holder of
corresponding junior subordinated debentures are expected to be substantially
the same relative to our other creditors and to our shareholders.
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BOOK-ENTRY ISSUANCE
"STREET NAME" AND OTHER INDIRECT HOLDERS
Investors who hold trust preferred securities in accounts at banks or
brokers will generally not be recognized as legal holders of trust preferred
securities. This is called holding in "Street Name." Instead, the applicable
Trust would recognize only the bank or broker that directly holds, or the
financial institution the bank or broker uses to hold, its trust preferred
securities. These intermediary banks, brokers and other financial institutions
pass along distributions and other payments on the trust preferred securities,
either because they agree to do so in their customer agreements or because they
are legally required to. If you hold trust preferred securities in "Street
Name," you should check with your own institution to find out:
- how it handles securities payments and notices,
- whether it imposes fees or charges,
- how it would handle voting if ever required,
- whether and how you can instruct it to send you trust preferred
securities registered in your own name so you can be a direct holder as
described below, and
- how it would pursue rights under the trust preferred securities if there
were a default or other event triggering the need for holders to act to
protect their interests.
DIRECT HOLDERS
A Trust's obligations, as well as our obligations, the trustees and those
of any third parties employed by an HCC Trust, or the issuer trustees, run only
to individuals, corporations or other entities who are registered as holders of
trust preferred securities. As noted above, a Trust does not have obligations to
a holder of trust preferred securities who holds in "Street Name" or other
indirect means, either because the holder chooses to hold trust preferred
securities in that manner or because the trust preferred securities are issued
in the form of global securities as described below. For example, once a Trust
makes payment to the registered holder, the Trust has no further responsibility
for the payment even if that holder is legally required to pass the payment
along to a holder as a "Street Name" customer but does not do so.
GLOBAL SECURITIES
The trust preferred securities will be issued in the form of global
securities, and, therefore, the ultimate beneficial owners can only be indirect
holders. The global securities will be registered in the name of DTC or its
nominee and the trust preferred securities included in the global security may
not be transferred in the name of any other direct holder unless the special
circumstances described below occur. Any person wishing to own trust preferred
securities must be so indirectly by virtue of an account with a broker, bank or
other financial institution that in turn has an account with DTC.
Special Investor Considerations for Global Securities. As an indirect
holder, an investor's rights relating to a global security will be governed by
the account rules of the investor's financial institution and of DTC, as well as
the general laws relating to securities transfers. An investor should be aware
that because the trust preferred securities are issued only in the form of
global securities:
- the investor will not be able to get the trust preferred securities
registered in his or her own name,
- the investor will not be able to receive physical certificates for his or
her interest in the trust preferred securities,
- the investor will be a "Street Name" holder and must look to his or her
own bank or broker for payments on the trust preferred securities and
protection of his or her legal rights relating to the trust preferred
securities (see "-- 'Street Name' and Other Indirect Holders" above),
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- the investor may not be able to sell interests in the trust preferred
securities to some insurance companies and other institutions that are
required by law to own their securities in the form of physical
certificates,
- DTC's policies will govern payments, transfers, exchange and other
matters relating to the investor's interest in the global security (see
"-- The DTC System" below; we, the Trusts and the issuer trustees have no
responsibility for any aspect of DTC's actions or for its records of
ownership interests in the global security, nor do they supervise DTC in
any way), and
- payment for purchases and sales in the market for corporate bonds and
notes is generally made in next-day funds. In contrast, DTC will usually
require that interests in a global security be purchased or sold within
its system using same-day funds. This difference could have some effect
on how global security interests trade, but neither we nor any Trust
knows what the effect will be.
Special Situations When Global Security Will Be Terminated. In a few
special situations, the global security will terminate and interests in it will
be exchanged for physical certificates representing capital securities. After
the exchange, the choice of whether to hold trust preferred securities directly
or in "Street Name" will be up to the investor. Investors must consult their own
bank or brokers to find out how to have their interests in trust preferred
securities transferred to their own name, so that they will be direct holders.
The rights of "Street Name" investors and direct holders in the trust preferred
securities are described above under "-- 'Street Name' and Other Indirect
Holders" and "-- Direct Holders."
The special situations for termination of a global security are:
- DTC notifies us or a Trust that it is unwilling, unable or no longer
qualified to continue as the depositary for the trust preferred
securities;
- we in our sole discretion determines that the global security will be
exchangeable for certificated trust preferred securities; or
- an event of default under the trust agreement has occurred and has not
been cured and the holders of a majority in liquidation amount of the
outstanding trust preferred securities determine that the global security
will be exchangeable for certificated trust preferred securities.
When a global security terminates, DTC (and not us or the issuer trustees)
is responsible for deciding the names of the institutions that will be the
initial direct holders.
THE DTC SYSTEM
DTC has advised us that it is a limited-purpose trust company created to
hold securities for its participating organizations (the "Participations"). DTC
also facilitates the clearance and settlement between Participants in
transactions of securities deposited with DTC through changes in the account
records of its Participants. The Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. The Underwriters are Participants in the DTC System. Access to
DTC's system is also available to other entities such as securities brokers and
dealers, banks and trust companies that work through a Participant (the
"Indirect Participants").
When you purchase trust preferred securities through the DTC system, the
purchases must be made by or through a Participant, who will receive credit for
the trust preferred securities on DTC's records. Since you actually own the
trust preferred securities, you are the beneficial owner and your ownership
interest will only be recorded on the Participants' or Indirect Participants'
records. DTC has no knowledge of your individual ownership of the trust
preferred securities. DTC's records only show the identity of the Participants
and the amount of the trust preferred securities held by or through them. You
will not receive a written confirmation of your purchase or sale or any periodic
statement directly from DTC. You will receive these from your Participant or
Indirect Participant. Thus the Participants or Indirect Participants are
responsible for keeping accurate account of the holdings of their customers like
you.
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Any redemption notices will be sent by us and the applicable Trust directly
to DTC, who will in turn inform the Participants, who will then contact you as a
beneficial holder. If less than all of the trust preferred securities are being
redeemed, DTC's current practice is to choose by lot the amount of the interest
of each Participant to be redeemed. The Participant will then use an appropriate
method to allocate the redemption price among its beneficial holders like you.
It is DTC's current practice, upon receipt of any payment of distributions
or liquidation amount, to credit Participants' accounts on the payment date
based on their holdings of beneficial interests in the global securities as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to Participants whose accounts are credited with
trust preferred securities on a record date by using an omnibus proxy. Payments
by Participants to owners of beneficial interests in the global securities, and
voting by Participants, will be based on the customary practices between the
Participants and owners of beneficial interests, as is the case with the trust
preferred securities held for the account of customers registered in "Street
Name." However, payments will be the responsibility of the Participants and not
of DTC, the issuer trustees, the Trusts or us.
We have obtained the information concerning DTC and DTC's book-entry system
from sources that we believe to be accurate, but we are not responsibility for
the accuracy of this information. In addition, we are not responsible for the
performance by DTC, its Participants or any Indirect Participants of any of
their obligations.
REGISTRATION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures initially will be issued in certificated
form and registered in the name of the property trustee. If in the future the
junior subordinated debentures are distributed to the holders of trust preferred
securities in exchange for the trust preferred securities and at that time the
trust preferred securities are represented by a global security, the junior
subordinated debentures would also be represented by a global security. In this
event, we expect that the book-entry arrangements applicable to the trust
preferred securities would be similar to those applicable to the junior
subordinated debentures.
PLAN OF DISTRIBUTION
We or a Trust may distribute the securities described in this prospectus or
any prospectus supplement from time to time in one or more transactions at a
fixed price or prices (which may be changed from time to time), at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Each prospectus supplement will describe the
method of distribution of the securities offered under that prospectus
supplement.
We or a Trust may sell securities directly, through agents designated from
time to time, through underwriting syndicates led by one or more managing
underwriters or through one or more underwriters acting alone. Each prospectus
supplement will describe the terms of the securities to which the prospectus
supplement relates, the name or names of any underwriters or agents with whom we
or a Trust have entered into arrangements with respect to the sale of such
securities, the public offering or purchase price of such securities and the net
proceeds we or a Trust will receive from such sale.
In addition, each prospectus supplement will describe any underwriting
discounts and other items constituting underwriters' compensation, any discounts
and commissions allowed or paid to dealers, if any, any commissions allowed or
paid to agents, and the securities exchange or exchanges, if any, on which the
subject securities will be listed.
Any underwriter or agent participating in the distribution of the
securities may be deemed to be an underwriter, as that term is defined in the
Securities Act, of the offered securities and sold and any discounts or
commissions received by them, and any profit realized by them on the same or
resale of the securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Certain of any such underwriters and
agents, including their associates, may be customers of, engage in transactions
with and perform services for us and our subsidiaries in the ordinary course of
business.
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Securities may also be offered and sold, if so indicated in the prospectus
supplement, in connection with a remarketing upon their purchase, in accordance
with a redemption or repayment pursuant to their terms, by one or more firms
("remarketing firms") acting as principals for their own accounts or as agents
for either of us. Any remarketing firm will be identified and the terms of its
agreement, if any, with us and its compensation will be described in the
prospectus supplement. Remarketing firms may be deemed to be underwriters in
connection with the securities remarketed thereby.
If any underwriter or any selling group member intends to engage in
stabilizing, syndicate short covering transactions, penalty bids or any other
transaction in connection with the offering of securities that may stabilize,
maintain, or otherwise affect the price of those securities, such intention and
a description of such transactions will be described in the prospectus
supplement.
Agents and underwriters may be entitled under agreements entered into with
us and/or the applicable Trust to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof. Certain of any such agents and
underwriters, including their associates, may be customers of, engage in
transactions with, or perform services for, us and our subsidiaries in the
ordinary course of business.
Except as indicated in the applicable prospectus supplement, the securities
are not expected to be listed on a securities exchange, except for the common
stock, which is listed on the NYSE, and any underwriters or dealers will not be
obligated to make a market in securities. We cannot predict the activity or
liquidity of any trading in the securities.
CERTAIN LEGAL MATTERS
Unless otherwise indicated in the applicable prospectus supplements, the
validity of the securities offered by this prospectus will be passed upon (a)
for us by Haynes and Boone, LLP, our legal counsel and (b) for the Trusts (with
respect to the validity of the trust preferred securities under Delaware law) by
Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel
to us and the Trusts.
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EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of HCC Insurance Holdings, Inc. for the year
ended December 31, 2000 and to the Current Report on Form 8-K dated June 14,
2001 of HCC Insurance Holdings, Inc. have been so incorporated in reliance on
the reports of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created by those laws; provided, however, that any statements of HCC
Capital Trust I and Capital Trust II, neither of which is subject to the
reporting requirements of Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, do not fall within such safe harbors. These
forward-looking statements include information about possible or assumed future
results of our operations. All statements, other than statements of historical
facts, included or incorporated by reference in this prospectus that address
activities, events or developments that we expect or anticipate may occur in the
future, including, such things as future capital expenditures, business
strategy, competitive strengths, goals, growth of our business and operations,
plans, and references to future success may be considered forward-looking
statements. Also, when we use words such as "anticipate," "believe," "estimate,"
"expect," "intend," "plan," "probably" or similar expressions, we are making
forward-looking statements.
Many risks and uncertainties may impact the matters addressed in these
forward-looking statements. Many possible events or factors could affect our
future financial results and performance. These could cause our results or
performance to differ materially from those we express in our forward-looking
statements. Although we believe that the assumptions underlying our
forward-looking statements are reasonable, any of these assumptions, and
therefore also the forward-looking statements based on these assumptions, could
themselves prove to be inaccurate. In light of the significant uncertainties
inherent in the forward-looking statements included in this prospectus, our
inclusion of this information is not a representation by us or any other person
that our objectives and plans will be achieved. You should consider these risks
and those we set out in the Risk Factors section of this prospectus before you
purchase our securities.
Our forward-looking statements speak only as of the date made and we will
not update these forward-looking statements unless the securities laws require
us to do so. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus may not occur.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. The SEC maintains an internet site http://www.sec.gov
that contains reports, proxy and information statements, and other information
regarding issuers (including us) that file documents with the SEC
electronically. Our SEC filings may be obtained from that web site. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference
facilities. You may also read and copy any document we file with the SEC at the
following SEC public reference facilities:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Room of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549.
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The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information that we file
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
make with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until we terminate the offering:
- Our Annual Report on Form 10-K for the year ended December 31, 2000;
- Our Current Report on Form 8-K dated February 23, 2001;
- Our Current Report on Form 8-K dated March 2, 2001;
- Our Current Report on Form 8-K dated May 11, 2001;
- Our Current Report on Form 8-K dated June 14, 2001; and
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.
Any person, including any beneficial owner, may request a copy of these
filings, at no cost, by writing or telephoning us at the following address:
Investor Relations
HCC Insurance Holdings, Inc.
13403 Northwest Freeway
Houston, TX 77040
713-690-7300
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$150,000,000
HCC INSURANCE HOLDINGS, INC.
2.00% CONVERTIBLE NOTES DUE 2021
[HCC LOGO]
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PROSPECTUS SUPPLEMENT
AUGUST 20, 2001
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Joint Book-Running Managers
BANC OF AMERICA SECURITIES LLC SALOMON SMITH BARNEY
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FIRST UNION SECURITIES, INC.
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