Filed Pursuant to Rule 424(b)(4)
Registration No.333-104310
PROSPECTUS SUPPLEMENT
(To Prospectus Dated June 18, 2003)
13,500,000 SHARES
(CHUBB LOGO)
THE CHUBB CORPORATION
COMMON STOCK
------------------
We are selling 13,500,000 shares of our common stock, par value $1 per
share, in this offering.
Our common stock is listed on the New York Stock Exchange under the symbol
"CB." The last reported sale price of our common stock on the New York Stock
Exchange on June 18, 2003 was $60.21 per share.
In addition to these shares of common stock, we are concurrently offering
16,000,000 Equity Units, each of which will have a stated amount of $25 and
initially consist of a purchase contract pursuant to which the holder will agree
to purchase from us shares of our common stock on August 16, 2006 and a senior
note with a principal amount of $25 due on August 16, 2008. Neither offering is
conditioned on the other.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN "RISK
FACTORS" BEGINNING ON PAGE S-9 OF THIS PROSPECTUS SUPPLEMENT.
PER SHARE TOTAL
--------- ------------
Public offering price $59.50 $803,250,000
Underwriting discounts and commissions $ 2.38 $ 32,130,000
Proceeds, before expenses, to Chubb $57.12 $771,120,000
To the extent that the underwriters sell more than 13,500,000 shares of
common stock, the underwriters have the option to purchase up to an additional
2,025,000 shares of our common stock at the public offering price less the
underwriting discounts and commissions until 30 days after the date of this
prospectus supplement.
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 shares will be ready for delivery on or about June 24, 2003.
------------------
Joint Book-Running Managers
CITIGROUP GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
------------------
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANK SECURITIES
MORGAN STANLEY
WACHOVIA SECURITIES
The date of this prospectus supplement is June 18, 2003
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS SUPPLEMENT.
TABLE OF CONTENTS
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PAGE
----
PROSPECTUS SUPPLEMENT
Summary..................................................... S-1
Calculation of Our Underwriting Ratios...................... S-8
Risk Factors................................................ S-9
Cautionary Statement About Forward-Looking Statements....... S-15
Use of Proceeds............................................. S-17
Price Range of Common Stock and Dividend Policy............. S-17
Capitalization.............................................. S-18
Certain United States Federal Income Tax Considerations..... S-19
Underwriting................................................ S-21
Legal Matters............................................... S-23
PROSPECTUS
About This Prospectus....................................... ii
Forward-Looking Statements.................................. iii
The Chubb Corporation....................................... 1
The Chubb Capital Trusts.................................... 2
Use of Proceeds............................................. 4
Ratio of Consolidated Earnings to Fixed Charges............. 4
Description of Debt Securities.............................. 5
Description of Junior Subordinated Debentures............... 14
Description of Capital Stock................................ 25
Description of Depositary Shares............................ 29
Description of Warrants..................................... 32
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 34
Description of Preferred Securities......................... 35
Description of Guarantees................................... 47
Description of Corresponding Junior Subordinated
Debentures................................................ 50
Relationship Among the Preferred Securities, the
Corresponding Junior Subordinated Debentures and the
Guarantees................................................ 53
Plan of Distribution........................................ 55
Legal Matters............................................... 56
Experts..................................................... 56
Where You Can Find More Information......................... 56
Incorporation by Reference.................................. 56
i
SUMMARY
This summary highlights certain information incorporated by reference or
appearing elsewhere in this prospectus supplement or the accompanying
prospectus. As a result, it is not complete and does not contain all of the
information that you should consider before purchasing our common stock. You
should read the following summary in conjunction with the more detailed
information contained or incorporated by reference in this prospectus supplement
and the accompanying prospectus. References to "Chubb" are to The Chubb
Corporation. Unless the context otherwise requires, references to "we," "us" and
"our" refer to The Chubb Corporation and its consolidated subsidiaries.
THE CHUBB CORPORATION
The Chubb Corporation, incorporated in New Jersey in 1967, is a holding
company for a family of property and casualty insurance companies known
informally as the Chubb Group of Insurance Companies. Since 1882, we have
provided property and casualty insurance to businesses and individuals around
the world. According to A.M. Best, we are the 12th largest U.S. property and
casualty insurer based on 2002 net written premiums. Net premiums written means
direct premiums written, plus reinsurance premiums assumed, less reinsurance
premiums ceded.
At March 31, 2003, we had total assets of $35.5 billion and shareholders'
equity of $7.1 billion, and for the year ended December 31, 2002 we had
consolidated net income of $222.9 million. We employed approximately 13,300
persons worldwide at December 31, 2002.
OUR BUSINESS UNITS
Our property and casualty operations are divided into three strategic
business units:
CHUBB COMMERCIAL INSURANCE, OR CCI, offers a full range of commercial
customer insurance products, including coverage for multiple peril, casualty,
workers' compensation and property and marine. CCI is known for writing niche
business, where our expertise can add value for our agents, brokers and
policyholders. CCI had net premiums written of $3.4 billion in 2002,
representing 37% of our total for the year.
CHUBB SPECIALTY INSURANCE, OR CSI, offers a wide variety of specialized
executive protection and professional liability products for privately and
publicly owned companies, financial institutions, professional firms and
healthcare organizations. CSI also includes our surety and accident businesses,
as well as our reinsurance assumed business produced by Chubb Re. CSI had net
premiums written of $3.3 billion in 2002, representing 37% of our total for the
year.
CHUBB PERSONAL INSURANCE, OR CPI, offers products for individuals with fine
homes and possessions who require more coverage choices and higher limits than
are available with standard insurance policies. CPI had net premiums written of
$2.3 billion in 2002, representing 26% of our total for the year.
The following table shows the growth in net premiums written at each of our
strategic business units for 2001, 2002 and the first three months of 2003.
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------- ------------------------------------------------
% % %
2003 CHANGE 2002 2002 CHANGE 2001 CHANGE 2000
-------- ------ -------- -------- ------ -------- ------ --------
(IN MILLIONS)
Commercial Insurance (CCI)... $1,082.3 21.2% $ 892.9 $3,404.7 36.7% $2,490.8 6.4% $2,340.6
Specialty Insurance (CSI).... 1,027.4 29.2 795.5 3,328.9 33.7 2,489.6 9.7 2,269.8
Personal Insurance (CPI)..... 565.0 12.4 502.5 2,313.7 16.8 1,981.1 15.0 1,722.8
-------- -------- -------- -------- --------
Total net premiums
written.................. $2,674.7 22.1 $2,190.9 $9,047.3 30.0 $6,961.5 9.9 $6,333.2
======== ======== ======== ======== ========
S-1
STRATEGY
We believe that successfully executing the following strategies will permit
us to achieve premium and profitability growth in the property and casualty
insurance market.
MAINTAIN OUR POWERFUL BRAND AND STRONG COMPETITIVE POSITIONS IN OUR CHOSEN
MARKETS. We have, and intend to maintain, leading franchises in each of our
strategic markets. CCI is a leading provider of commercial insurance in the
middle market, which we believe offers the most significant immediate growth and
profit opportunities in the property and casualty market as a whole. CSI is a
market leader in the executive protection and financial institutions business.
CPI has a particularly strong position in the high net worth personal insurance
market, where we benefit from our well-established Masterpiece(R) brand name.
CAPITALIZE ON THE PROPERTY AND CASUALTY PRICING ENVIRONMENT. In late 1998
we began increasing rates in our commercial segment. Since 2001, the rate
structure within the property and casualty market has improved in each of our
segments. Our clear focus on property and casualty products and our strong
presence across the commercial, personal and specialty segments of the market
have enabled us to capitalize on price trends by improving rates throughout our
business units. We also have taken advantage of the favorable environment by
tightening policy terms and conditions throughout our product lines.
Improved property and casualty pricing dynamics contributed to our 30%
increase in net premiums written in 2002 compared to 2001, and to our 22%
increase in net premiums written in the first quarter of 2003 over the
comparable period in 2002. Our ability to increase our rates was also
fundamental to our achieving cash flow from operating activities of $2.4 billion
in 2002 compared to $1.0 billion in 2001, and $691 million in the first quarter
of 2003 compared to $415 million for the comparable period in 2002.
CONTINUE TO IMPROVE UNDERWRITING PERFORMANCE. Our profitability is
extremely sensitive to our underwriting results. The combined loss and expense
ratio, expressed as a percentage, is the key measure of underwriting
profitability traditionally used in the property and casualty business. We use
the statutory definition of combined loss and expense ratio: the sum of the
ratio of losses to premiums earned, or loss ratio, plus the ratio of statutory
underwriting expenses to premiums written, or expense ratio, after reducing both
premium amounts by dividends to policyholders. When the combined ratio is under
100%, underwriting results are generally considered profitable; when the
combined ratio is over 100%, underwriting results are generally considered
unprofitable.
We have undertaken a renewed focus on disciplined underwriting risk
evaluation and expense control, which is designed to maximize our underwriting
profitability within the constraints of a competitive industry and the
inherently unpredictable timing of the losses for which we insure. We believe
that this initiative is bearing positive results. Our statutory combined ratio
was 95.3% in the first quarter of 2003, which included 4.1 percentage points of
catastrophe losses. For information concerning the calculation of our
underwriting ratios, see "Calculation of Our Underwriting Ratios."
SUPPORT PROFITABILITY THROUGH POSITIVE INVESTMENT PERFORMANCE. In addition
to the effect of underwriting results, an insurer's profitability is driven to a
large degree by its income on invested assets. We have consistently recorded
growth in our investment results. Property and casualty investment income before
income taxes increased by 9% in the first quarter of 2003 over the comparable
period in 2002. This performance reflected an increase in invested assets
stemming from strong cash flow from operating activities over the period, as
well as $1 billion of capital contributions from Chubb to the operating
subsidiaries in late 2002. We maintain a high quality, well diversified
investment portfolio that supports our property and casualty business. At March
31, 2003, 87% of this portfolio consisted of fixed-income securities, 65% of
which were rated AAA or equivalent.
MAINTAIN A STRONG BALANCE SHEET AND RATINGS TO TAKE ADVANTAGE OF GROWTH
OPPORTUNITIES. The current property and casualty pricing environment, combined
with our strong competitive position across the
S-2
market, presents us with an attractive opportunity to grow premiums. To take
advantage of this opportunity we strive to maintain a balance sheet that can
support the strain of writing new business.
We believe the steps we have taken to manage our balance sheet provide us
with both the flexibility we need to pursue premium growth and the financial
strength our policyholders expect. In the fourth quarter of 2002 and the first
quarter of 2003 we raised a total of $1.1 billion in new financing, including
$600 million of equity units and $500 million of notes. At the same time, we
believe we have maintained a prudent degree of financial leverage, with a total
debt-to-capital ratio of 26.9% at March 31, 2003. Our senior unsecured debt is
currently rated A by S&P, A1 by Moody's, aa- by A.M. Best and A+ by Fitch. Our
property and casualty subsidiaries' financial strength is rated AA by S&P, Aa2
by Moody's, A++ by A.M. Best and AA by Fitch. The outlook on each of these
ratings is stable, except for the Fitch rating on our senior unsecured debt,
which was placed on negative outlook in March 2003.
RECENT DEVELOPMENTS
RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF 2003
The following discussion should be read in conjunction with "-- Summary
Historical Financial Data" and our Quarterly Report on Form 10-Q for the period
ended March 31, 2003, which is incorporated by reference.
Our net income was $224.6 million in the first quarter of 2003, an increase
of 13.3% over net income of $198.2 million in the first quarter 2002.
Net premiums written were $2.7 billion in the first quarter of 2003, an
increase of 22% compared with the first quarter of 2002. U.S. premiums grew 21%
over the comparable period in 2002, and we also achieved substantial premium
growth outside the United States; non-U.S. premiums grew 26% on a reported basis
and 16% in local currency terms. Premium growth in the first quarter was strong
in all segments of our business due primarily to higher rates.
Our statutory combined ratio for the first quarter of 2003 was 95.3%,
compared to 95.9% for the corresponding period in 2002. Catastrophe losses
during the first quarter of 2003 amounted to $94.9 million, which represented
4.1 percentage points of the statutory combined ratio, compared with $13.3
million, or 0.7 of a percentage point, in the first quarter of 2002. Our
statutory expense ratio decreased to 30.4% for the first quarter of 2003,
compared with 31.5% for the first quarter of 2002. The decrease in the statutory
expense ratio was due primarily to premiums written growing at a substantially
higher rate than overhead expenses. For information concerning the calculation
of our underwriting ratios, see "Calculation of Our Underwriting Ratios."
The following table shows our results by business unit for the first
quarter of 2003:
THREE MONTHS ENDED MARCH 31,
------------------------------------------
STATUTORY
COMBINED LOSS
AND EXPENSE
NET PREMIUMS WRITTEN RATIO
------------------------- --------------
2003 2002 2003 2002
----------- ----------- ------ -----
(UNAUDITED, IN MILLIONS)
Commercial Insurance (CCI)................................. $1,082.3 $ 892.9 86.5% 95.7%
Specialty Insurance (CSI).................................. 1,027.4 795.5 99.2 95.4
Personal Insurance (CPI)................................... 565.0 502.5 103.6 97.4
-------- --------
Total.................................................... $2,674.7 $2,190.9 95.3 95.9
======== ========
Chubb Commercial Insurance. CCI had premium growth of 21% in the first
quarter of 2003 over the comparable period in 2002. This premium growth resulted
from continued price increases and an
S-3
increase in our in-force policy count. Premiums from new accounts exceeded
non-renewed business by a 2-to-1 margin.
CCI's statutory combined ratio in the first quarter of 2003 was 86.5%,
compared to 95.7% in the first quarter of 2002. This improvement was due in
large part to the cumulative effect of price increases, better terms and
conditions and more stringent risk selection in recent years. CCI catastrophe
losses accounted for 3.4 points of the statutory combined ratio in the first
quarter of 2003, compared to 0.1 point in the first quarter of 2002.
Chubb Specialty Insurance. CSI had premium growth of 29% in the first
quarter of 2003 over the comparable period in 2002. Growth in executive
protection and the professional liability component of the financial
institutions business was primarily attributable to higher rates. In the
fidelity and standard commercial components of our financial institutions
business, rates continued to increase as well. Growth in our other specialty
business was primarily from Chubb Re; premiums produced by Chubb Re grew 58% in
the first quarter of 2003 over the comparable period in 2002.
CSI's statutory combined ratio in the first quarter of 2003 was 99.2%,
compared to 95.4% in the first quarter of 2002. Our executive protection
business produced unprofitable underwriting results in the first quarter of
2003, compared with near breakeven results in the first quarter of 2002. Results
in the first quarter of 2003 were affected by the adverse claim environment in
directors and officers liability and errors and omissions liability insurance.
Our financial institutions business produced unprofitable results in the first
quarter of 2003, compared with profitable results in the comparable period of
2002. The fidelity and standard commercial components of the financial
institutions business were highly profitable in the first quarters of 2003 and
2002, while results for the professional liability component were highly
unprofitable in both periods, but more so in the first quarter of 2003. This
deterioration was due to the same adverse claim trends experienced in our
executive protection business. Other specialty results were highly profitable in
the first quarters of both 2003 and 2002.
Chubb Personal Insurance. CPI had premium growth of 12% in the first
quarter of 2003 over the comparable period in 2002. Premium growth occurred in
all classes. However, as planned, growth in our in-force policy count continued
to slow.
CPI's statutory combined ratio in the first quarter of 2003 was 103.6%,
compared to 97.4% in the first quarter of 2002. This deterioration was due to
higher catastrophe losses, which represented 10.9 points of the statutory
combined ratio in the first quarter of 2003, compared to 2.4 points in the first
quarter of 2002.
RESTRUCTURING INITIATIVES
We have recently undertaken two initiatives to exit from or restructure
certain of our operations.
Run-off of CFS financial products business. In addition to our three
strategic insurance business units, in 2000 we organized Chubb Financial
Solutions, or CFS, to engage in developing and providing risk-financing services
through the capital and insurance markets. We recently completed a review of
CFS's strategic future. In April 2003 we announced our intention to run-off the
financial products portfolio of CFS to pursue the more attractive alternative of
deploying our capital to expand our traditional insurance business. We do not
intend to write any new credit derivative transactions, but might enter into
transactions for hedging and other risk management reasons in the future.
Restructuring of European operations. We have begun a profit improvement
initiative with respect to our Continental European operations, including
exiting the personal insurance business, except for the ultra-high net worth
market, and rationalizing our expense structure in the remaining commercial and
specialty operations. Our European operations were profitable in the first
quarter of 2003.
S-4
NEW SENIOR MANAGEMENT TEAM
In December 2002, Chubb transitioned to a new leadership team. John D.
Finnegan became our President and Chief Executive Officer and a member of our
board of directors. Prior to taking this position at Chubb, Mr. Finnegan had
been the Chairman and President of General Motors Acceptance Corporation and an
Executive Vice President of General Motors Corporation. In assuming the role of
Chief Executive Officer, Mr. Finnegan replaced our outgoing Chairman and Chief
Executive Officer, Dean R. O'Hare, who retired after a 39-year career with us.
Also in December 2002, Joel J. Cohen, previously our lead director, became
the Chairman of our board of directors, and the board elevated three veteran
Chubb leaders to the position of Vice Chairman. Thomas F. Motamed became our
Vice Chairman and Chief Operating Officer; John J. Degnan was named Vice
Chairman and Chief Administrative Officer; and Michael O'Reilly became Vice
Chairman, Chief Investment Officer and acting Chief Financial Officer. We are
conducting a search for a new Chief Financial Officer.
RECENT ANNOUNCEMENTS
On June 6, 2003, we announced that our preliminary estimate for after-tax
catastrophe losses in the two months ended May 31, 2003 is $49 million. In the
three months ended June 30, 2002, catastrophe losses were $7.0 million
after-tax. We also announced that we expect to record in the second quarter of
2003 an after-tax charge of $17 million as a result of a recent adverse
arbitration decision rendered against an insurance pool in which Chubb was
formerly a 5.5% participant. The decision related to a fire loss that occurred
in 1995 and involved property damage and business interruption.
WHERE YOU CAN FIND US
Our principal executive offices are located at 15 Mountain View Road,
Warren, New Jersey 07061-1615, and our telephone number is (908) 903-2000.
S-5
SUMMARY HISTORICAL FINANCIAL DATA
The following summary historical financial data for, and as of the end of,
each of the five years in the period ended December 31, 2002 have been derived
from Chubb's consolidated financial statements, which have been audited by Ernst
& Young LLP, Chubb's independent auditors. The data as of March 31, 2003 and
2002 and for the three months ended March 31, 2003 and 2002 have been derived
from Chubb's unaudited consolidated financial statements, which include, in the
opinion of Chubb's management, all adjustments, consisting of normal recurring
accruals, necessary to present fairly Chubb's consolidated results of operations
and financial position for the periods and dates presented. The summary
financial data should be read in conjunction with Chubb's consolidated financial
statements and the notes to the consolidated financial statements that are
incorporated by reference in this prospectus supplement and the accompanying
prospectus. Results for the three months ended March 31, 2003 are not
necessarily indicative of results for the full year.
AS OF OR FOR THE
THREE MONTHS ENDED
MARCH 31, AS OF OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- -------------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues............. $ 2,615.9 $ 2,105.2 $ 9,140.3 $ 7,754.0 $ 7,251.5 $ 6,729.6 $ 6,349.8
Net Income........... 224.6 198.2 222.9(1) 111.5(2) 714.6 621.1 707.0(3)
Net Income Per Share
(diluted).......... $ 1.31 $ 1.15 $ 1.29 $ 0.63 $ 4.01 $ 3.66 $ 4.19
Dividends Declared
per Common Share... $ 0.36 $ 0.35 $ 1.40 $ 1.36 $ 1.32 $ 1.28 $ 1.24
Total Assets......... $35,465.8 $30,372.8 $34,114.4 $29,449.0 $25,026.7 $23,537.0 $20,746.0
Invested Assets...... 22,381.1 17,987.6 21,012.4 17,783.9 17,000.6 16,019.4 14,755.3
Unpaid Claims and
Claim Expenses..... 16,885.3 15,454.3 16,713.1 15,514.9 11,904.6 11,434.7 10,356.5
Long-Term Debt....... 2,356.4 1,344.1 1,959.1 1,351.0 753.8 759.2 607.5
Shareholders'
Equity............. 7,118.9 6,641.4 6,859.2 6,525.3 6,981.7 6,271.8 5,644.1
Shareholders' Equity
per Common Share... $ 41.49(4) $ 38.83 $ 40.06 $ 38.37 $ 39.91 $ 35.74 $ 34.78
---------------
(1) Net income has been reduced by aggregate net losses of $700.0 million
($455.0 million after-tax or $2.63 per share) recognized in the third and
fourth quarters related to asbestos and toxic waste claims. Net income has
also been reduced by a tax valuation allowance of $40.0 million ($0.23 per
share) from not being able to recognize, for accounting purposes, certain
U.S. tax benefits related to European losses. Net income has been increased
by a reduction in net surety bond losses of $88.0 million ($57.2 million
after-tax or $0.33 per share) resulting from the settlement of litigation
related to Enron Corp.
(2) Net income has been reduced by net costs of $645.0 million ($420.0 million
after-tax or $2.39 per share) related to the September 11 attack and by net
surety bond losses of $220.0 million ($143.0 million after-tax or $0.81 per
share) arising from the bankruptcy of Enron Corp.
(3) Net income has been reduced by a restructuring charge of $40.0 million
($26.0 million after-tax or $0.15 per share).
(4) As adjusted for the sale of common stock in this offering and the concurrent
offering of Equity Units, shareholders' equity per common share would be
$42.26, based on our offering price of $59.50 per share.
S-6
THE OFFERING
For a description of our common stock and the stockholder rights attached
to our shares of common stock, see "Description of Capital Stock" in the
accompanying prospectus.
Issuer:....................... The Chubb Corporation
Common stock offered:......... 13,500,000 shares
Common stock to be outstanding
immediately after the
offering:..................... 185,305,623 shares
Concurrent offering:.......... In addition to these shares of common stock, we
are concurrently offering 16,000,000 Equity
Units, each of which will have a stated amount
of $25 and initially consist of a purchase
contract pursuant to which the holder will
agree to purchase from us shares of our common
stock on August 16, 2006 and a senior note with
a principal amount of $25 due on August 16,
2008. Neither offering is conditioned on the
other.
Use of proceeds:.............. We estimate that the net proceeds from the sale
of shares of common stock in this offering will
be approximately $771 million (approximately
$886 million if the underwriters exercise their
option to purchase additional shares in full)
and the net proceeds of the sale of our Equity
Units in the concurrent offering will be
approximately $388 million (approximately $446
million if the underwriters exercise their
option to purchase additional Equity Units in
full), in each case after deducting the
underwriting discount and commissions and
estimated offering expenses payable by us.
We expect to use the net proceeds from the
offerings for general corporate purposes,
including capital contributions to our
operating subsidiaries to support growth.
Listing:...................... New York Stock Exchange
New York Stock Exchange
Symbol:....................... CB
Unless otherwise indicated, all share information in this prospectus
supplement is based on the number of shares of common stock outstanding as of
May 30, 2003. The number of shares of common stock to be outstanding immediately
after this offering does not include 2,025,000 shares of common stock that the
underwriters have an option to purchase from us within 30 days of this
prospectus supplement, a maximum of approximately 7,700,000 shares of common
stock issuable pursuant to the purchase contracts in the concurrent offering of
Equity Units (subject to anti-dilution adjustments as provided in the purchase
contracts), a maximum of approximately 10,600,000 shares of common stock
issuable pursuant to our outstanding 7.00% Equity Units (subject to
anti-dilution adjustments as provided in the related warrants) and approximately
23,150,000 shares issuable pursuant to outstanding stock options.
S-7
CALCULATION OF OUR UNDERWRITING RATIOS
The combined loss and expense ratio, expressed as a percentage, is the key
measure of underwriting profitability traditionally used in the property and
casualty business. Chubb evaluates the performance of its insurance businesses
by using the combined loss and expense ratio calculated in accordance with
statutory accounting principles applicable to property and casualty insurance
companies. Using statutory accounting principles, the combined loss and expense
ratio is the sum of the ratio of losses to premiums earned (loss ratio) plus the
ratio of statutory underwriting expenses to premiums written (expense ratio)
after reducing both premium amounts by dividends to policyholders.
Statutory accounting principles differ in certain respects from generally
accepted accounting principles, or GAAP. Under statutory accounting principles,
policy acquisition and other underwriting expenses are recognized immediately,
not at the time premiums are earned. To convert underwriting expenses to a GAAP
basis, policy acquisition expenses are deferred and recognized over the period
in which the related premiums are earned. While the combined loss and expense
ratio is not defined in GAAP literature, we believe that, using the most
directly comparable GAAP measures, it would be defined as the sum of the ratio
of losses to premiums earned (loss ratio) plus the ratio of GAAP underwriting
expenses, including dividends to policyholders, to premiums earned (expense
ratio).
The expense ratio calculated using GAAP measures generally will be higher
than the statutory expense ratio. The magnitude of this difference generally
will be greater during periods of high premium growth and lesser during periods
of low premium growth. However, we do not believe that the differences in any
period would affect the analysis of underwriting trends in our insurance
businesses.
To demonstrate the differences, the following table shows, for the three
months ended March 31, 2003 and 2002, the loss ratio, the expense ratio and the
combined loss and expense ratio calculated on a statutory basis and calculated
using GAAP measures:
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------------
USING GAAP USING GAAP
STATUTORY MEASURES STATUTORY MEASURES
2003 2003 2002 2002
--------- ---------- --------- ----------
Loss Ratio................................ 64.9% 64.7% 64.4% 64.2%
Expense Ratio............................. 30.4 32.3 31.5 32.7
---- ---- ---- ----
Combined Loss and Expense Ratio........... 95.3% 97.0% 95.9% 96.9%
==== ==== ==== ====
S-8
RISK FACTORS
In considering whether to purchase our common stock, you should carefully
consider all of the information that we have included in or incorporated by
reference into this prospectus supplement and the accompanying prospectus. In
particular, you should carefully consider the risk factors described below.
PAYMENT OF OBLIGATIONS UNDER SURETY BONDS COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
The surety business tends to be characterized by infrequent but potentially
high severity losses. Since the end of 2001, we have been reducing our exposure
on an absolute basis and by specific bond type. The majority of our obligations
are intended to be performance-based guarantees. When losses occur, they are
mitigated by the customer's balance sheet, contract proceeds and bankruptcy
recovery.
Notwithstanding our efforts to manage and reduce our surety exposure, we
continue to have substantial commercial surety exposure for outstanding bonds.
In that regard, we have exposures related to commercial surety bonds issued on
behalf of companies that have experienced deterioration in creditworthiness.
Given the current economic climate and its impact on these and other companies,
there is an increased likelihood that we may experience an increase in filed
claims and may incur high severity losses. Such losses would be recorded if and
when claims are filed and determined to be valid.
In addition, as a result of disarray in the surety reinsurance market
caused by several years of declining prices and high losses, the availability of
surety reinsurance in the near term has been significantly reduced. As a result,
our future surety results could be more volatile.
We have in force several gas forward purchase surety bonds. The total
amount of bonds with one principal, Aquila, Inc., is approximately $540 million.
These bonds are uncollateralized. The combined amount of all other gas forward
surety bonds is approximately $235 million. Approximately $125 million of these
bonds are uncollateralized. There is currently no reinsurance in place covering
our obligations under any of these bonds.
These bonds are similar to some of the bonds that we issued on behalf of
Enron Corp., on which payment was triggered by Enron's bankruptcy in December
2001. Under the gas forward purchase surety bond structure, gas suppliers
entered into long-term gas purchase agreements pursuant to which they agreed to
supply specified quantities of gas to the beneficiaries under our surety bonds.
In exchange for the gas purchase agreement, the beneficiaries under our surety
bonds made an agreed upon advance payment for the gas. Our surety bonds secure
the suppliers' obligation to supply gas. Under the terms of these bonds, our
entire obligation to pay could be triggered if the related supplier failed to
provide gas under its forward purchase contracts or was the subject of a
bankruptcy filing.
Certain of these suppliers, including Aquila, Inc., have suffered ratings
downgrades. Each of the suppliers continues to perform its obligations under the
related gas forward purchase agreements. If payment under the Aquila surety
bonds were triggered or if payment under all of the other gas forward surety
bonds were triggered, such payments would have a material adverse effect on our
results of operations.
RESULTS OF CHUBB FINANCIAL SOLUTIONS ARE SUBJECT TO VOLATILITY FROM PERIOD TO
PERIOD.
Since its inception in 2000, CFS's non-insurance operations have been
primarily in the credit derivatives business, principally as a counterparty in
portfolio credit default swap contracts. These contracts generally require CFS
to make payment to a counterparty to the extent cumulative losses on a portfolio
of securities, loans or other debt obligations exceed a specified threshold. The
credit default swaps are carried at estimated fair value in our financial
statements, with changes in fair value reflected in income in the period of the
change. The fair value of our obligations under our credit default swaps is
subject to fluctuations arising from, among other factors, changes in credit
spreads, the financial ratings of referenced asset-backed securities, actual
credit events reducing subordination, credit correlation within a portfolio,
anticipated recovery rates related to potential defaults and changes in interest
rates. The non-insurance business of CFS produced a loss before taxes of $69.8
million for the year ended December 31, 2002 and income before taxes of $14.0
million in the first quarter of 2003, mostly due to mark-to-market adjustments.
Thus, income/loss from CFS is subject to volatility from period to period and
can create volatility in our reported earnings.
S-9
In April 2003, we announced that we intend to run-off the financial
products portfolio of CFS; nonetheless, we will remain exposed to the potential
income statement effects of CFS until substantially all of the portfolio has
been run-off, which we expect will take 3 to 5 years. We do not intend to write
any new credit derivative transactions but might enter into transactions for
hedging and other risk management reasons in the future.
WE MAY INCUR ADDITIONAL LOSSES IF OUR PROPERTY-LIABILITY LOSS RESERVES ARE
INSUFFICIENT.
The process of establishing loss reserves is complex and imprecise as it is
subject to variables that are influenced by significant judgmental factors. This
is true because claim settlements to be made in the future will be impacted by
changing rates of inflation and other economic conditions, changing legislative,
judicial and social environments and any changes in our claim handling
procedures.
Our loss reserves include amounts related to short tail and long tail
classes of business. Short tail classes consist principally of homeowners,
personal valuable articles and commercial property business. For these classes,
the estimation of loss reserves is less complex because claims are generally
reported and settled quickly and the claims relate to tangible property.
Long tail classes include directors and officers liability and other
executive protection coverages, commercial excess liability and other liability
classes. Most of our loss reserves relate to long tail liability classes of
business. For many liability claims, significant periods of time, ranging up to
several years or more, may elapse between the occurrence of the loss, the
reporting of the loss and the settlement of the claim. The longer the time span
between the incidence of a loss and the settlement of the claim, the more the
ultimate settlement amount can vary. For the long tail liability classes, a
relatively small proportion of net losses in the more recent accident years are
reported claims and an even smaller proportion are paid losses. Therefore, a
relatively large proportion of our net losses for these classes are reserves for
incurred but not reported losses -- claims that have not yet been reported to
us, some of which are not yet known to the insured, and future development on
reported claims. In fact, approximately 60% of our aggregate net loss reserves
at March 31, 2003 were for incurred but not reported losses.
We use a variety of actuarial methods that analyze experience trends and
other relevant factors to estimate loss reserves. These methods generally
utilize analyses of historical patterns of the development of paid and reported
losses by accident year by class of business. This process relies on the basic
assumption that past experience, adjusted for the effects of current
developments and likely trends, is an appropriate basis for predicting future
outcomes. For certain long tail classes of business where anticipated loss
experience is less predictable because of the small number of claims and/or
erratic claim severity patterns, estimates are based on both expected losses and
actual reported losses. These classes include directors and officers liability,
errors and omissions liability and commercial excess liability, among others.
For these classes, we judgmentally set ultimate losses for each accident year
based on our evaluation of loss trends and the current risk environment. The
expected ultimate losses are adjusted as the accident years mature.
Judicial decisions and legislative actions continue to broaden liability
and policy definitions and to increase the severity of claim payments. As a
result of this and other societal and economic developments, the uncertainties
inherent in estimating ultimate claim costs on the basis of past experience have
been exacerbated, further complicating the already complex loss reserving
process.
The uncertainties relating to asbestos and toxic waste claims on insurance
policies written many years ago are exacerbated by inconsistent court decisions
as well as judicial interpretation and legislative actions that in some cases
have tended to broaden coverage beyond the original intent of such policies and
in others have expanded theories of liability. The insurance industry as a whole
is engaged in extensive litigation over these coverage and liability issues and
is thus confronted with a continuing uncertainty in its efforts to quantify
these exposures.
Given the factors described above, it is not possible to quantify precisely
the ultimate exposure or range of exposures represented by claims and related
litigation. We have established reserves that represent our best estimate of
ultimate claims and claim adjustment expenses at March 31, 2003 based upon facts
currently known and the present state of the law and coverage litigation.
However, given the judicial decisions and legislative actions that have
broadened the scope of coverage and expanded theories of
S-10
liability in the past and the possibilities of similar interpretations in the
future, additional increases in loss reserves may emerge in future periods in an
amount that could be material to our results of operations.
THE EFFECTS OF EMERGING CLAIM AND COVERAGE ISSUES ON OUR BUSINESS ARE UNCERTAIN.
As industry practices and legal, judicial, social and other environmental
conditions change, unexpected and unintended issues related to claim and
coverage may emerge. These issues may adversely affect our business by either
extending coverage beyond our underwriting intent or by increasing the number or
size of claims. Recent examples of emerging claims and coverage issues include:
- increases in the number and size of water damage claims, including those
related to expenses for testing and remediation of mold conditions;
- the effects of disclosures by and investigations of public companies
relating to possible accounting irregularities, practices in the energy
and securities industries and other corporate governance issues, which
have caused increases in the frequency and severity of claims;
- changes in interpretation of the named insured provision with respect to
the uninsured/underinsured motorist coverage in commercial automobile
policies; and
- a growing trend of plaintiffs targeting property and casualty insurers in
purported class action litigation relating to claim-handling and other
practices.
The effects of these and other unforeseen emerging claim and coverage
issues are extremely hard to predict and could harm our business.
OUR LOSS RESERVES RELATING TO THE SEPTEMBER 11 TERRORIST ATTACK ARE SUBJECT TO
UNCERTAINTY.
We estimate that our gross claims and claim expenses from the September 11
attack were about $3.2 billion. Our net claims and claim expenses were estimated
to be $645 million due to various reinsurance agreements. Business interruption
claims from the September 11 attack will take some time to resolve, while
potential liability claims could take years to settle. Thus, our loss reserves
related to the September 11 attack are subject to uncertainty. It is possible
that our estimate of ultimate losses related to the September 11 attack may
change in the future and that the change in estimate could have a material
effect on our results of operations.
CATASTROPHE LOSSES COULD MATERIALLY REDUCE OUR PROFITABILITY.
As a property-liability insurance holding company, our insurance operations
expose us to claims arising out of catastrophes. We have experienced, and will
in the future experience, catastrophe losses which may materially reduce our
profitability or harm our financial condition. Catastrophes can be caused by
various natural events, including hurricanes, windstorms, earthquakes, hail,
severe winter weather and fires. Catastrophes can also be man-made, such as the
terrorist attack of September 11, 2001. Our estimated net costs incurred as a
result of the terrorist attack of September 11, 2001 totaled $645 million. The
frequency and severity of catastrophes are inherently unpredictable. It is
possible that both the frequency and severity of man-made catastrophic events
will increase.
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 larger areas,
especially those that are heavily populated. Claims resulting from natural or
man-made catastrophic events could cause substantial volatility in our financial
results for any fiscal quarter or year and could materially reduce our
profitability or harm our financial condition. Our ability to write new business
could also be affected. We believe that increases in the value and geographic
concentration of insured property and the effects of inflation could increase
the severity of claims from catastrophic events in the future. In addition,
states have from time to time passed legislation that has the effect of limiting
the ability of insurers to manage catastrophe risk, such as legislation
prohibiting insurers from withdrawing from catastrophe-prone areas.
S-11
RECENT MANAGEMENT CHANGES CAUSE UNCERTAINTY.
Dean R. O'Hare, who had been our Chief Executive Officer for 14 years,
retired as Chairman and Chief Executive Officer on November 30, 2002. John D.
Finnegan, formerly Executive Vice President of General Motors Corporation and
Chairman and President of General Motors Acceptance Corporation, became our
President and Chief Executive Officer and a Director on December 1, 2002.
In addition, since September 26, 2002, Michael O'Reilly, who has been our
Chief Investment Officer since 1988, has been our acting Chief Financial
Officer.
During the transition of the Chief Executive Officer position and until our
permanent Chief Financial Officer is identified, there may be uncertainty among
investors, rating agencies and others concerning our future direction and
operating philosophy. This uncertainty may increase the volatility of our market
price, and may adversely affect (or delay favorable actions with respect to) our
credit ratings.
IF OUR REAL ESTATE ASSETS ARE NOT SOLD OR DEVELOPED AS PRESENTLY CONTEMPLATED,
IMPAIRMENT LOSSES MAY BE RECOGNIZED.
At March 31, 2003, we owned land with a carrying value of $300 million that
we expect will be developed in the future and commercial properties and land
parcels under lease with a carrying value of approximately $175 million.
The recoverability of the carrying value of our real estate assets is
assessed based on our ability to fully recover costs through a future revenue
stream. The assumptions used reflect future improvement in demand for office
space, an increase in rental rates and the ability and intent to obtain
financing in order to hold and develop such remaining properties and protect our
interests over the long term. If the assets are not sold or developed or if
leased properties do not perform as presently contemplated, it is possible that
impairment losses may be recognized.
WE MAY NOT BE ABLE TO RECOVER ALL OF OUR DEFERRED TAX ASSETS RELATING TO LOSSES
AND FOREIGN TAXES INCURRED BY CHUBB EUROPE.
At December 31, 2002, our deferred income tax asset related to the expected
future U.S. tax benefit of the losses and foreign taxes incurred by Chubb
Insurance Company of Europe (Chubb Europe) was $140 million. To evaluate the
realization of this deferred tax asset, we must consider whether it is more
likely than not that Chubb Europe will generate sufficient taxable income to
realize the future tax benefit of the deferred tax asset. During the fourth
quarter of 2002, we established a valuation allowance of $40 million for the
portion of the deferred tax asset that we cannot realize for accounting
purposes. Results in Chubb Europe were profitable in the first quarter of 2003.
As a result, this deferred tax asset was reduced to $130 million at March 31,
2003. We did not adjust the valuation allowance in the first quarter of 2003. If
our estimates of future taxable income in Chubb Europe were revised upward or
downward, we would need to adjust the valuation allowance accordingly. Depending
on the amount of any such adjustment, the effect on our results of operations
could be significant.
CYCLICALITY OF THE PROPERTY-LIABILITY INSURANCE INDUSTRY MAY CAUSE FLUCTUATIONS
IN OUR RESULTS.
The property-liability insurance business, especially the commercial lines
business, historically has been characterized by periods of intense price
competition due to excess underwriting capacity, which has in the past had, and
could in the future have, an adverse effect on our results. Periods of intense
price competition historically have alternated with periods when shortages of
underwriting capacity have permitted attractive premium levels. We expect this
cyclicality to continue. The periods of intense price competition in the cycle
could harm our financial condition, profitability or cash flows.
S-12
A number of factors, including many that are volatile and unpredictable,
can have a significant impact on cyclical trends in the property-liability
insurance industry and the industry's profitability. These factors include:
- an apparent trend of courts to grant increasingly larger awards for
certain damages;
- catastrophic hurricanes, windstorms, earthquakes and other natural
disasters, as well as the occurrence of man-made disasters (e.g., the
September 11, 2001 terrorist attack);
- availability, price and terms of reinsurance;
- fluctuations in interest rates;
- changes in the investment environment that affect market prices of and
income and returns on investments; and
- inflationary pressures that may tend to affect the size of losses
experienced by insurance companies.
We cannot predict whether or when market conditions will improve, remain
constant or deteriorate. Negative market conditions may impair our ability to
write insurance at rates that we consider appropriate relative to the risk
assumed. If we cannot write insurance at appropriate rates, our ability to
transact business would be significantly adversely affected.
A DOWNGRADE IN OUR RATINGS COULD ADVERSELY IMPACT THE COMPETITIVE POSITIONS OF
OUR OPERATING BUSINESSES.
In the fourth quarter of 2002, several of the principal credit rating
agencies lowered their ratings on our financial strength and securities and S&P
placed us on negative outlook. Reasons given by S&P and Moody's for these
ratings actions included concerns about possible prospective capital strains due
to a high premium growth rate, current loss experience in certain specialty and
personal lines, pending management changes, volatility of our recent operating
performance, our continued exposure to catastrophe-related losses and Moody's
continuing concern about property/casualty insurers' exposure to asbestos
liabilities.
On March 24, 2003, S&P lowered our long-term counterparty credit and senior
debt ratings from A+ to A and removed them from CreditWatch. In the same action,
S&P lowered its counterparty credit and financial strength ratings on our
operating insurance companies from AA+ to AA and removed them from CreditWatch.
S&P currently has a stable outlook on these ratings.
If our credit ratings were downgraded, we could incur higher borrowing
costs. Financial strength ratings can be an important factor in establishing the
competitive position of our insurance subsidiaries. There can be no assurance
that our ratings will continue for any given period of time or that they will
not be changed. Further reductions in our ratings could adversely affect the
competitive positions of our operating businesses.
THE INABILITY OF OUR SUBSIDIARIES TO PAY DIVIDENDS TO US IN SUFFICIENT AMOUNTS
WOULD HARM OUR ABILITY TO MEET OUR OBLIGATIONS AND PAY FUTURE DIVIDENDS.
We are a holding company and rely primarily on dividends from our
subsidiaries to meet our obligations for payment of interest and principal on
outstanding debt obligations, dividends to shareholders and corporate expenses.
The ability of our insurance subsidiaries to pay dividends to us in the future
will depend on their statutory surplus, on earnings and on regulatory
restrictions. We and our insurance subsidiaries are subject to regulation by
some states as an insurance holding company system. Such regulation generally
provides that transactions between companies within the holding company system
must be fair and equitable. Transfers of assets among affiliated companies,
certain dividend payments from insurance subsidiaries and certain material
transactions between companies within the system may be subject to prior notice
to, or prior approval by, state regulatory authorities. Our insurance
subsidiaries are also subject to licensing and supervision by government
regulatory agencies in the jurisdictions in which they do business. These
regulations may set standards of solvency that must be met and maintained, the
nature of and limitations on investments and the nature of and limitations on
dividends to policyholders and shareholders. These regulations may affect our
subsidiaries' ability to provide us with dividends.
S-13
OUR BUSINESSES ARE HEAVILY REGULATED, AND CHANGES IN REGULATION MAY REDUCE OUR
PROFITABILITY AND LIMIT OUR GROWTH.
Our insurance subsidiaries are subject to extensive regulation and
supervision in the jurisdictions in which they conduct business. This regulation
is generally designed to protect the interests of policyholders, as opposed to
insurers and their shareholders and other investors, and relates to
authorization for lines of business, capital and surplus requirements,
investment limitations, underwriting limitations, transactions with affiliates,
dividend limitations, changes in control, premium rates and a variety of other
financial and nonfinancial components of an insurance company's business.
Virtually all states require insurers licensed to do business in that state
to bear a portion of the loss suffered by some insureds as the result of
impaired or insolvent insurance companies. In addition, in various states, our
insurance subsidiaries must participate in mandatory arrangements to provide
various types of insurance coverage to individuals or other entities that
otherwise are unable to purchase that coverage from private insurers. The effect
of these and similar arrangements could reduce our profitability in any given
period or limit our ability to grow our business.
In recent years, the state insurance regulatory framework has come under
increased federal scrutiny, and some state legislatures have considered or
enacted laws that may alter or increase state authority to regulate insurance
companies and insurance holding companies. Further, the National Association of
Insurance Commissioners, or NAIC, and state insurance regulators are reexamining
existing laws and regulations, specifically focusing on modifications to holding
company regulations, interpretations of existing laws and the development of new
laws. Any proposed or future legislation or NAIC initiatives may be more
restrictive than current regulatory requirements or may result in higher costs.
In response to the terrorist attack on September 11, 2001, the United
States Congress has enacted legislation designed to ensure, among other things,
the availability of insurance coverage for terrorist acts, including by
requiring insurers to provide such coverage in certain circumstances. The
Terrorism Risk Insurance Act of 2002 (the Terrorism Act) established a program
under which the federal government will share the risk of loss from certain acts
of international terrorism with the insurance industry. However, while the
provisions of the Terrorism Act will serve to mitigate our exposure in the event
of a large-scale terrorist attack, our deductible is substantial, approximately
$350 million in 2003. This legislation and any further governmental intervention
could materially and adversely affect us by, among other things, requiring
coverage for terrorist acts to be offered by insurers, benefiting our
competitors or reducing the demand for our products.
INTENSE COMPETITION FOR OUR PRODUCTS COULD HARM OUR ABILITY TO MAINTAIN OR
INCREASE OUR PROFITABILITY AND PREMIUM VOLUME.
The property and casualty insurance industry is highly competitive. We
compete not only with other stock companies but also with mutual companies,
other underwriting organizations and alternative risk sharing mechanisms. We
compete for business not only on the basis of price, but also on the basis of
availability of coverage desired by customers and quality of service, including
claim adjustment service. We may have difficulty in continuing to compete
successfully on any of these bases in the future.
If competition limits our ability to write new business at adequate rates,
our ability to transact business would be materially and adversely affected and
our results of operations would be adversely affected.
OUR STOCK PRICE MAY BE VOLATILE.
Factors such as quarterly variations in our financial results,
announcements by us or our competitors, developments affecting us and general
market volatility could cause the market price of our common stock to fluctuate
significantly.
S-14
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
The accompanying prospectus, as supplemented by this prospectus supplement,
contains and incorporates by reference "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties and are identified by
their use of terms and phrases such as "believe," "anticipate," "could,"
"estimate," "intend," "may," "plan," "expect" and similar expressions, including
references to assumptions. Such forward-looking statements may be included in,
but are not limited to, various filings made by us with the Securities and
Exchange Commission, which we refer to as the SEC. These statements relate to
analyses and other information that are based on forecasts of future results and
estimates of amounts not yet determinable. These statements also relate to our
future prospects, developments and business strategies. You should not place
undue reliance on these forward-looking statements, which reflect our
management's analysis, judgment, belief or expectation only as of the date of
this prospectus supplement.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for these forward-looking statements. In order to comply with the terms
of the safe harbor, we note that a variety of factors could cause our actual
results to differ significantly from the results discussed in the
forward-looking statements. The factors that could cause actual results to
differ materially from those suggested by any such statements include but are
not limited to those discussed or identified from time to time in our public
filings with the SEC and specifically include risks or uncertainties associated
with any one or more of the following:
- the availability of primary and reinsurance coverage, including the
implications relating to terrorism legislation and regulation;
- global political conditions and the occurrence of any terrorist attacks,
including any nuclear, biological or chemical events;
- the effects of the outbreak of war or hostilities around the world;
- premium price increases and profitability or growth estimates overall or
by lines of business or geographic area, and related expectations with
respect to the timing and terms of any required regulatory approvals;
- our expectations with respect to cash flow projections and investment
income and with respect to other income;
- the adequacy of loss reserves, including:
- our expectations relating to insurance losses from the September 11
attack and related reinsurance recoverables;
- our estimates relating to ultimate asbestos liabilities and related
reinsurance recoverables;
- any impact from the bankruptcy protection sought by various asbestos
producers and other related businesses;
- developments in judicial decisions or legislative actions relating to
coverage and liability for asbestos and toxic waste claims; and
- developments in judicial decisions or regulatory or legislative
actions relating to coverage and liability for mold claims;
- the impact of the current economic climate on companies on whose behalf
we have issued surety bonds, and in particular, on those companies that
have experienced deterioration in creditworthiness;
S-15
- the effects of disclosures by and investigations of public companies
relating to possible accounting irregularities, practices in the energy
and securities industries and other corporate governance issues,
including:
- the effects on the energy markets and the companies that participate
in them, in particular as they may relate to concentrations of risk in
our surety business;
- the effects on the capital markets and the markets for directors and
officers and errors and omissions insurance;
- claims and litigation arising out of accounting and other corporate
governance disclosures by other companies;
- claims and litigation arising out of investment banking practices; and
- legislative or regulatory proposals or changes, including the changes
in law and regulation required under the Sarbanes-Oxley Act of 2002;
- the impact of Severe Acute Respiratory Syndrome (SARS) on business and
our ability and the ability of our agents and brokers to travel and meet
with customers and prospective customers;
- any downgrade in our claims-paying, financial strength or credit ratings;
and
- general economic conditions, including:
- changes in interest rates, market credit spreads and the performance
of the financial markets, both generally and as they relate to credit
risks assumed by CFS;
- changes in domestic and foreign laws, regulations and taxes;
- changes in competition and pricing environments;
- regional or general changes in asset valuations;
- the occurrence of significant weather-related or other natural or
man-made disasters;
- the inability to reinsure certain risks economically;
- changes in the litigation environment; and
- general market conditions.
We assume no obligation to update or revise publicly any forward-looking
statements set forth in this prospectus supplement or any forward-looking
statements incorporated by reference herein, all of which speak as of the
respective dates thereof.
S-16
USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of common stock
in this offering, after deducting underwriting discounts and commissions and the
estimated expenses of this offering payable by us, will be approximately $771
million, or approximately $886 million if the underwriters exercise their option
in full to purchase additional shares. In addition, we expect to receive net
proceeds of approximately $388 million from the sale of Equity Units in our
concurrent offering, or approximately $446 million if the underwriters exercise
their option in full to purchase additional Equity Units.
We expect to use the aggregate net proceeds from this offering and the
concurrent offering of Equity Units for general corporate purposes, including
capital contributions to our operating subsidiaries to support growth.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock is listed on the New York Stock Exchange under the symbol
"CB."
The following table sets forth, for the periods indicated, the range of
high and low sale prices of the common stock reported on the New York Stock
Exchange, based on published financial sources, as well as dividends declared.
COMMON STOCK
---------------------------
HIGH LOW DIVIDENDS
------ ------ ---------
2001:
First Quarter............................................. $83.44 $65.27 $0.34
Second Quarter............................................ 79.00 64.32 0.34
Third Quarter............................................. 76.89 58.59 0.34
Fourth Quarter............................................ 77.66 66.02 0.34
2002:
First Quarter............................................. 75.32 65.20 0.35
Second Quarter............................................ 78.20 69.35 0.35
Third Quarter............................................. 70.51 53.91 0.35
Fourth Quarter............................................ 62.23 52.20 0.35
2003:
First Quarter............................................. 57.60 42.45 0.36
Second Quarter (through June 18, 2003)(1)................. 65.01 44.81 0.36
---------------
(1) Dividend to be paid on July 8, 2003 to shareholders of record on June 20,
2003.
SHAREHOLDERS
As of June 4, 2003, approximately 6,050 holders of record held our common
stock.
DIVIDEND POLICY
As indicated above, Chubb declared quarterly dividends during each of the
two most recent fiscal years in the amounts shown. The Board of Directors will
review its dividend policy periodically, and the declaration of dividends will
necessarily depend upon Chubb's earnings and financial requirements and other
factors within the discretion of the Board of Directors.
The operations of our subsidiaries are subject, in varying degrees, to
regulatory rules and restrictions on the payment of dividends. Consequently, our
ability to receive dividends from our subsidiaries may be affected from time to
time as a result of these rules and restrictions. For further information, see
"Risk Factors -- The inability of our subsidiaries to pay dividends to us in
sufficient amounts would harm our ability to meet our obligations and pay future
dividends."
S-17
CAPITALIZATION
The following table sets forth our consolidated capitalization as of March
31, 2003, on an:
- actual basis;
- as-adjusted basis to give effect to the repayment of short-term debt in
April 2003;
- as-adjusted basis to give effect to the repayment of short-term debt and
the concurrent Equity Units offering; and
- as-adjusted basis to give effect to the repayment of short-term debt, the
concurrent Equity Units offering and this offering of common stock.
This table should be read in conjunction with our historical financial
statements and the notes to those financial statements, which are incorporated
by reference into the accompanying prospectus. Neither the common stock offering
nor the Equity Units offering is conditioned on the other.
MARCH 31, 2003
-------------------------------------------------------------
AS ADJUSTED FOR
THE REPAYMENT
OF SHORT-TERM
DEBT, THE
AS ADJUSTED AS ADJUSTED FOR OFFERING OF
FOR THE THE REPAYMENT OF EQUITY UNITS
REPAYMENT OF SHORT-TERM DEBT AND THE OFFERING
SHORT-TERM AND THE OFFERING OF COMMON
ACTUAL DEBT OF EQUITY UNITS STOCK
-------- ------------ ---------------- ----------------
(UNAUDITED, IN MILLIONS, EXCEPT PER SHARE)
Short-Term Debt.......................... $ 257.0 $ -- $ -- $ --
Long-Term Debt........................... 2,356.4 2,356.4 2,756.4(1) 2,756.4(1)
Shareholders' Equity..................... 7,118.9 7,118.9 7,051.4(2) 7,822.5(2)(3)
-------- -------- -------- ---------
Total Capitalization................... $9,732.3 $9,475.3 $9,807.8 $10,578.9
======== ======== ======== =========
Debt as a Percentage of Total
Capitalization......................... 26.9% 24.9% 28.1% 26.1%
Debt as a Percentage of Total
Capitalization with Equity Units
Excluded from Debt(4).................. 20.7% 18.5% 17.9% 16.6%
Shareholders' Equity per Common Share.... $ 41.49 $ 41.49 $ 41.09 $ 42.26
---------------
(1) Assumes the sale of 16,000,000 Equity Units and no exercise of the
underwriters' option to purchase up to an additional 2,400,000 Equity Units.
(2) The amounts, as adjusted for the Equity Units offering, reflect an
adjustment of $57.5 million representing the approximate present value of
the contract adjustment payment payable in connection with the Equity Units
and assumes a fair market value of $0 for the purchase contracts. The
amounts, as adjusted for the Equity Units offering, also include the effect
of issuance costs.
(3) Assumes the sale of 13,500,000 shares of common stock and no exercise of the
underwriters' option to purchase up to an additional 2,025,000 shares. The
amounts, as adjusted for the offering of common stock, also include the
effect of issuance costs.
(4) Excludes the $600 million of senior notes issued in November 2002 as a
component of Equity Units and the $400 million of senior notes issued as a
component of the Equity Units to be delivered in our concurrent Equity Units
offering.
S-18
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relating to the purchase, ownership and disposition of
shares of our common stock to holders who hold shares of our common stock as
capital assets. This discussion is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations (including proposed Treasury
regulations) issued thereunder, Internal Revenue Service ("IRS") rulings and
pronouncements and judicial decisions now in effect, all of which are subject to
change, possibly with retroactive effect.
This discussion does not address all aspects of United States federal
income taxation that may be relevant to holders in light of their particular
circumstances, such as holders who are subject to special tax treatment (for
example, (1) banks, regulated investment companies, insurance companies, dealers
in securities or currencies or tax-exempt organizations, (2) persons holding
shares of common stock as part of a straddle, hedge, conversion transaction or
other integrated investment or (3) persons whose functional currency is not the
U.S. dollar), some of which may be subject to special rules, nor does it address
alternative minimum taxes, federal estate taxes or state, local or foreign
taxes. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
SHARES OF COMMON STOCK IN LIGHT OF THEIR OWN CIRCUMSTANCES.
U.S. HOLDERS
This discussion applies only to a holder of a share of common stock that is
(1) an individual citizen or resident of the United States, (2) a corporation,
or other entity taxable as a corporation, created or organized in or under the
laws of the United States or any state thereof or the District of Columbia or
(3) a partnership, estate or trust treated, for United States federal income tax
purposes, as a domestic partnership, estate or trust (referred to as a "U.S.
holder").
Any dividend on our common stock paid by us out of our current or
accumulated earnings and profits (as determined for United States federal income
tax purposes) will be includible in income by a U.S. holder of common stock when
received. Any such dividend will be eligible for the dividends-received
deduction if received by an otherwise qualifying corporate U.S. holder that
meets the holding period and other requirements for the dividends-received
deduction.
Recently enacted legislation reduces the effective tax rate on dividends
received by individuals through December 31, 2008. Dividends received by
individuals after December 31, 2008 will not benefit from this reduction in tax
rates.
Upon a disposition of our common stock, a U.S. holder will recognize
capital gain or loss in an amount equal to the difference between the amount
realized and such U.S. holder's adjusted tax basis in the common stock. Capital
gains of individuals derived in respect of capital assets held for more than one
year are taxed at reduced rates. The deductibility of capital losses is subject
to limitations.
NON-U.S. HOLDERS
If an investor is not a U.S. holder as defined above (a "non-U.S. holder"),
dividends paid to a non-U.S. holder of common stock generally will be subject to
withholding tax at a 30% rate or a reduced rate specified by an applicable
income tax treaty. In order to obtain a reduced rate of withholding, a non-U.S.
holder will be required to provide an IRS Form W-8BEN certifying its entitlement
to benefits under a treaty. The withholding tax does not apply to dividends paid
to a non-U.S. holder who provides a Form W-8ECI, certifying that the dividends
are effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States. Instead, the effectively connected dividends
will be subject to regular U.S. income tax as if the non-U.S. holder were a U.S.
holder. A non-U.S. corporation receiving effectively connected dividends may
also be subject to an additional "branch profits tax" imposed at a rate of 30%
(or a lower treaty rate).
In general, United States federal withholding tax will not apply to any
gain or income realized by a non-U.S. holder on the sale, exchange or other
disposition of common stock.
S-19
A non-U.S. holder generally will not be taxed on gain recognized from the
sale, exchange or other disposition of our common stock unless:
- the non-U.S. holder is an individual who holds our common stock as a
capital asset, is present in the United States for 183 days or more
during the taxable year of disposition and meets certain other conditions
(though any such person will generally be treated as a resident of the
United States),
- the gain is effectively connected with the non-U.S. holder's conduct of a
trade or business in the United States or, in some instances if an income
tax treaty applies, is attributable to a permanent establishment
maintained by the non-U.S. holder in the United States, or
- we are or have been a "U.S. real property holding corporation" for U.S.
federal income tax purposes at any time during the shorter of the five
year period ending on the date of disposition or the period that the
non-U.S. holder held our common stock.
We have determined that we are not, and we believe we will not become, a
U.S. real property holding corporation.
Individual non-U.S. holders who are subject to United States tax because
the holder was present in the United States for 183 days or more during the year
of disposition are taxed on their gains (including gains from sales of our
common stock and net of applicable United States losses from sales or exchanges
of other capital assets incurred during the year) at a flat rate of 30%. Other
non-U.S. holders who may be subject to United States federal income tax on the
disposition of our common stock will be taxed on such disposition in the same
manner in which citizens or residents of the United States would be taxed. In
addition, if any such gain is taxable because we are or were a U.S. real
property holding corporation, the buyer of our common stock will be required to
withhold a tax equal to 10% of the amount realized on the sale.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Unless a U.S. holder is an exempt recipient, such as a corporation,
payments on common stock and the proceeds received from the sale, exchange or
other disposition of common stock may be subject to information reporting and
may also be subject to United States federal backup withholding tax at the
applicable rate if such U.S. holder fails to supply an accurate taxpayer
identification number or otherwise fails to comply with applicable United States
information reporting or certification requirements. Any amounts so withheld may
be allowed as a credit against the holder's United States federal income tax
liability provided the required information is furnished to the IRS.
A U.S. holder will also be subject to information reporting with respect to
dividends on common stock and proceeds from the sale or other disposition of
common stock, unless such U.S. holder is a corporation or other exempt recipient
and appropriately establishes that exemption.
A non-U.S. holder may have to comply with certification procedures to
establish that such holder is not a U.S. person in order to avoid information
reporting and backup withholding tax.
S-20
UNDERWRITING
Citigroup Global Markets Inc., Goldman, Sachs & Co. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated are acting as joint bookrunning managers of
this offering, and are acting as representatives of the underwriters named
below.
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, each underwriter named below has
agreed to purchase, and we have agreed to sell to that underwriter, the number
of shares set forth opposite the underwriter's name.
NUMBER OF
UNDERWRITER SHARES
----------- ----------
Citigroup Global Markets Inc. .............................. 3,268,750
Goldman, Sachs & Co. ....................................... 3,268,750
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 3,268,750
Bear, Stearns & Co. Inc. ................................... 653,750
Credit Suisse First Boston LLC.............................. 653,750
Deutsche Bank Securities Inc. .............................. 653,750
Morgan Stanley & Co. Incorporated........................... 653,750
Wachovia Securities, Inc. .................................. 653,750
Blaylock & Partners, L.P.................................... 85,000
Dowling & Partners Securities, LLC.......................... 85,000
AG Edwards & Sons Inc....................................... 85,000
Keefe, Bruyette & Woods, Inc................................ 85,000
Legg Mason Wood Walker, Incorporated........................ 85,000
----------
Total..................................................... 13,500,000
==========
The underwriting agreement provides that the obligations of the
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the shares (other than those covered by the option
to purchase additional shares described below) if they purchase any of the
shares.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus
supplement and some of the shares to dealers at the public offering price less a
concession not to exceed $1.43 per share. The underwriters may allow, and the
dealers may reallow, a concession not to exceed $0.10 per share on sales to
other dealers. If all of the shares are not sold at the initial offering price,
the underwriters may change the public offering price and the other selling
terms.
If the underwriters sell more shares than the total set forth in the table
above, the underwriters have an option, exercisable for 30 days from the date of
this prospectus supplement, to purchase up to 2,025,000 additional shares at the
public offering price less the underwriting discount. To the extent the option
is exercised, each underwriter must purchase a number of additional shares
approximately proportionate to that underwriter's initial purchase commitment.
We and our executive officers and directors have agreed that, for a period
of 90 days from the date of this prospectus supplement, we and they will not,
without the prior written consent of the underwriters, dispose of, hedge or file
with the SEC a registration statement under the Securities Act with respect to,
any shares of our common stock or any securities convertible into or
exchangeable for our common stock. The foregoing sentence shall not apply to (A)
the shares in this offering and the equity units to be issued to the
underwriters in our concurrent equity units offering and (B)(i) the exercise of
options outstanding as of the date of this prospectus supplement, (ii)
dispositions of common stock by such executive officers or directors by gift to
members of such directors' or officers' immediate families or to trusts
established for
S-21
the benefit of members of such directors' or officers' immediate families
(provided that any such recipient agrees in writing as a condition to receiving
such common stock to be bound by the foregoing restrictions), (iii) dispositions
of common stock by such executive officers or directors by bona fide gift to
charitable organizations, (iv) our issuance of stock options and restricted
stock to employees, provided that such options are not exercisable, and such
restricted stock grants do not vest, before the expiration of the 90-day period,
(v) our issuance and sale of common stock pursuant to any employee stock option
plan, stock ownership plan or dividend reinvestment plan in effect on the date
of this prospectus supplement and (vi) our issuance of common stock issuable
upon the conversion of securities or the exercise of warrants outstanding on the
date of this prospectus supplement. The underwriters in their sole discretion
may release any of the securities subject to these lock-up agreements at any
time without notice.
Each underwriter has represented, warranted and agreed that:
- it has not offered or sold and, prior to the expiry of a period of six
months from the closing date, will not offer or sell any shares included
in this offering to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995;
- it has only communicated and caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement to
engage in investment activity (within the meaning of section 21 of the
Financial Services and Markets Act 2000 ("FSMA")) received by it in
connection with the issue or sale of any shares included in this offering
in circumstances in which section 21(1) of FSMA does not apply to us;
- it has complied and will comply with all applicable provisions of the
FSMA with respect to anything done by it in relation to the shares
included in this offering in, from or otherwise involving the United
Kingdom; and
- the offer in The Netherlands of the shares included in this offering is
exclusively limited to persons who trade or invest in securities in the
conduct of a profession or business (which include banks, stockbrokers,
insurance companies, pension funds, other institutional investors and
finance companies and treasury departments of large enterprises).
The following table shows the underwriting discounts and commissions that
we are to pay to the underwriters in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of common stock.
PAID BY CHUBB
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per share.................................................. $ 2.38 $ 2.38
Total...................................................... $32,130,000 $36,949,500
In connection with this offering, the underwriters may purchase and sell
the shares of common stock in the open market. These transactions may include
short sales, syndicate covering transactions and stabilizing transactions. Short
sales involve syndicate sales in excess of the number of shares to be purchased
by the underwriters in this offering, which creates a syndicate short position.
"Covered" short sales are sales made in an amount up to the number of shares
represented by the underwriters' over-allotment option. In determining the
source of shares to close out the covered syndicate short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the option to purchase additional shares. Transactions
to close out the covered syndicate short involve either purchases of shares in
the open market after the distribution has been completed or the exercise of the
option to purchase additional shares. The underwriters may also make "naked"
short sales of shares in excess of the option to purchase additional shares. The
underwriters must close out any naked short position by purchasing shares
S-22
in the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the shares in the open market after pricing that will adversely affect investors
who purchase in the offering. Stabilizing transactions consist of bids for or
purchases of shares in the open market while the offering is in progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
underwriters repurchase shares originally sold by that syndicate member in order
to cover syndicate short positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the shares. They may also cause the price of the
shares to be higher than the price that would otherwise exist in the open market
in the absence of these transactions. The underwriters may conduct these
transactions on the New York Stock Exchange or in the over-the-counter market,
or otherwise. If the underwriters commence any of these transactions, they may
discontinue them at any time.
We estimate that our portion of the total expenses of this offering will be
approximately $400,000.
The underwriters and their affiliates have performed investment banking,
commercial lending and advisory services for us from time to time for which they
have received customary fees and expenses. The underwriters may, from time to
time, engage in transactions with and perform services for us in the ordinary
course of their business.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters. The underwriters may agree to
allocate a number of shares of our common stock for sale to their online
brokerage account holders. The underwriters have advised us that they will
allocate shares of our common stock for Internet distributions on the same basis
as other allocations. In addition, shares of our common stock may be sold by the
underwriters to securities dealers who resell shares of our common stock to
online brokerage account holders.
We have agreed to indemnify the underwriters against some liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make because of any of those
liabilities.
LEGAL MATTERS
The validity of the shares will be passed upon for Chubb by Debevoise &
Plimpton, New York, New York and for the underwriters by Davis Polk & Wardwell,
New York, New York. Debevoise & Plimpton and Davis Polk & Wardwell will rely as
to all matters of New Jersey law upon the opinion of Drinker Biddle & Reath LLP,
Florham Park, New Jersey, counsel to Chubb.
S-23
PROSPECTUS
(CHUBB LOGO)
The Chubb Corporation
DEBT SECURITIES
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
WARRANTS
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
Chubb Capital Trust I
Chubb Capital Trust II
Chubb Capital Trust III
PREFERRED SECURITIES GUARANTEED
BY THE CHUBB CORPORATION
By this prospectus, we may offer from time to time up to $2,500,000,000 of
any combination of the securities described in this prospectus.
We will provide specific terms of the securities in supplements to this
prospectus. You should read this prospectus and any supplement carefully before
you invest. A supplement may also change or update information contained in this
prospectus.
We will not use this prospectus to confirm sales of any of our securities
unless it is attached to a prospectus supplement.
Unless we state otherwise in a prospectus supplement, we will not list any
of these securities on any securities exchange.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 18, 2003
TABLE OF CONTENTS
PAGE
----
About This Prospectus....................................... ii
Forward-Looking Statements.................................. iii
The Chubb Corporation....................................... 1
The Chubb Capital Trusts.................................... 2
Use of Proceeds............................................. 4
Ratio of Consolidated Earnings to Fixed Charges............. 4
Description of Debt Securities.............................. 5
Description of Junior Subordinated Debentures............... 14
Description of Capital Stock................................ 25
Description of Depositary Shares............................ 29
Description of Warrants..................................... 32
Description of Stock Purchase Contracts and Stock Purchase
Units..................................................... 34
Description of Preferred Securities......................... 35
Description of Guarantees................................... 47
Description of Corresponding Junior Subordinated
Debentures................................................ 50
Relationship Among the Preferred Securities, the
Corresponding Junior Subordinated Debentures and the
Guarantees................................................ 53
Plan of Distribution........................................ 55
Legal Matters............................................... 56
Experts..................................................... 56
Where You Can Find More Information......................... 56
Incorporation By Reference.................................. 56
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or the SEC, using a shelf registration
process. Under this shelf process, we may sell the securities described in this
prospectus from time to time. This prospectus provides you with a general
description of the securities we may offer. We may also add, update or change
information contained in this prospectus through one or more supplements to this
prospectus. Any statement that we make in this prospectus will be modified or
superseded by any statement made by us in a prospectus supplement. The rules of
the SEC allow us to incorporate by reference information into this prospectus.
The information incorporated by reference is considered to be a part of this
prospectus, and information that we file later with the SEC will automatically
update and supersede this information. See "Incorporation by Reference."
You should read both this prospectus and any prospectus supplement together
with additional information described under the heading "Where You Can Find More
Information."
No person has been authorized to give any information or to make any
representations, other than those contained or incorporated by reference in this
prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by Chubb, or any underwriter, agent,
dealer or remarketing firm. Neither the delivery of this prospectus nor any sale
made hereunder shall under any circumstances create any implication that there
has been no change in the affairs of Chubb since the date hereof or that the
information contained or incorporated by reference herein is correct as of any
time subsequent to the date of such information. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
by anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to any person to whom it is unlawful to make such offer or
solicitation.
References to "Chubb," "we," "us" and "our" in this prospectus are
references to The Chubb Corporation and its consolidated subsidiaries.
Chubb Capital Trust I, Chubb Capital Trust II and Chubb Capital Trust III,
each of which is referred to in this prospectus as a trust and which are
collectively referred to as the trusts, have no independent function other than
to issue preferred securities and common securities and to purchase junior
subordinated debentures as described in this prospectus. This prospectus does
not contain separate financial statements for the trusts. Chubb files
consolidated financial information with the SEC that will include financial
information regarding the trusts.
ii
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement and the documents and
information incorporated by reference in them contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and include
estimates and assumptions related to economic, competitive and legislative
developments. These include statements relating to trends in, or representing
management's beliefs about, our future strategies, operations and financial
results, as well as other statements including words such as "anticipate,"
"believe," "plan," "estimate," "expect," "intend," "may," "should" and other
similar expressions. Forward-looking statements are made based upon management's
current expectations and beliefs concerning trends and future developments and
their potential effects on the company. They are not guarantees of future
performance. Actual results may differ materially from those suggested by
forward-looking statements as a result of risks and uncertainties which include,
among others:
- the availability of primary and reinsurance coverage, including the
implications relating to terrorism legislation and regulation;
- global political conditions and the occurrence of any terrorist attacks,
including any nuclear, biological or chemical events;
- the effects of the outbreak of war or hostilities around the world;
- premium price increases and profitability or growth estimates overall or
by lines of business, or geographic area and related expectations with
respect to the timing and terms of any required regulatory approvals;
- our expectations with respect to cash flow projections and investment
income and with respect to other income;
- the adequacy of loss reserves, including:
- our expectations relating to insurance losses from the September 11
attack and related reinsurance recoverables;
- our estimates relating to ultimate asbestos liabilities and related
reinsurance recoverables;
- any impact from the bankruptcy protection sought by various asbestos
producers and other related businesses;
- developments in judicial decisions or legislative actions relating to
coverage and liability for asbestos and toxic waste claims; and
- developments in judicial decisions or regulatory actions relating to
coverage and liability for mold claims;
- the impact of the current economic climate on companies on whose behalf
we have issued surety bonds, and in particular, on those companies that
have experienced deterioration in creditworthiness;
- the effects of disclosures by and investigations of public companies
relating to possible accounting irregularities, practices in the energy
and securities industries and other corporate governance issues,
including:
- the effects on the energy markets and the companies that participate in
them, and in particular as they may relate to concentrations of risk in
our surety business;
- the effects on the capital markets and the markets for directors and
officers and errors and omissions insurance;
iii
- claims and litigation arising out of accounting and other corporate
governance disclosures by other companies;
- claims and litigation arising out of investment banking practices; and
- legislative or regulatory proposals or changes, including the changes in
law and regulation required under the Sarbanes-Oxley Act of 2002;
- the impact of Severe Acute Respiratory Syndrome (SARS) on business and
our ability and the ability of our agents and brokers to travel and meet
with customers and prospective customers;
- any downgrade in our claims-paying, financial strength or credit ratings;
and
- general economic conditions, including:
- changes in interest rates, market credit spreads and the performance of
the financial markets, both generally and as they relate to credit risks
assumed by our Chubb Financial Solutions unit;
- changes in domestic and foreign laws, regulations and taxes;
- changes in competition and pricing environments;
- regional or general changes in asset valuations;
- the occurrence of significant weather-related or other natural or
human-made disasters;
- the inability to reinsure certain risks economically;
- changes in the litigation environment; and
- general market conditions.
We undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
iv
THE CHUBB CORPORATION
The Chubb Corporation is a holding company for a family of property and
casualty insurance companies known informally as the Chubb Group of Insurance
Companies ("Chubb Group"). Since 1882, the Chubb Group has provided property and
casualty insurance to businesses and individuals around the world. At December
31, 2002, we had total assets of $34.1 billion and shareholders' equity of $6.9
billion. According to A.M. Best, the Chubb Group is the 13th largest U.S.
property and casualty insurance group based on 2002 net written premiums. With
more than 13,000 employees, the Chubb Group serves commercial and personal
customers through 8,000 independent agents and brokers worldwide.
Our property and casualty operations are divided into three strategic
business units. Chubb Commercial Insurance offers a full range of commercial
customer insurance products, including coverage for multiple peril, casualty,
workers' compensation and property and marine. Chubb Commercial Insurance is
known for writing niche business, where our expertise can add value for our
agents, brokers and policyholders. Chubb Specialty Insurance offers a wide
variety of specialized executive protection and professional liability products
for privately and publicly owned companies, financial institutions, professional
firms and healthcare organizations. Chubb Personal Insurance offers products for
individuals with fine homes and possessions who require more coverage choices
and higher limits than standard insurance policies.
As a holding company, our ability to continue to pay dividends to
shareholders and to satisfy our obligations, including the payment of interest
and principal on debt obligations, relies on the availability of liquid assets
at the holding company, which is dependent in large part on the dividend paying
ability of our property and casualty insurance subsidiaries. Various state
insurance laws restrict our property and casualty insurance subsidiaries as to
the amount of dividends they may pay to us without the prior approval of
regulatory authorities. The restrictions are generally based on net income and
on certain levels of policyholders' surplus as determined in accordance with
statutory accounting practices. Dividends in excess of such thresholds are
considered "extraordinary" and require prior regulatory approval. The maximum
dividend distribution that may be made by our property and casualty subsidiaries
to us during 2003 without prior approval is approximately $445 million.
Our principal executive offices are located at 15 Mountain View Road,
Warren, New Jersey 07061-1615, and our telephone number is (908) 903-2000.
THE CHUBB CAPITAL TRUSTS
We created each trust as a Delaware statutory trust pursuant to a trust
agreement. We will enter into an amended and restated trust agreement for each
trust, which will state the terms and conditions for the trust to issue and sell
its preferred securities and common securities. We will amend and restate each
trust agreement in its entirety substantially in the form filed as an exhibit to
the registration statement which includes this prospectus. Each trust agreement
will be qualified as an indenture under the Trust Indenture Act of 1939, as
amended, which we refer to in this prospectus as the "Trust Indenture Act."
Each trust exists for the exclusive purposes of:
- issuing and selling to the public preferred securities, representing
undivided beneficial interests in the assets of the trust;
- issuing and selling to us common securities, representing undivided
beneficial interests in the assets of the trust;
- using the proceeds from the sale of the preferred securities and common
securities to acquire a corresponding series of our junior subordinated
deferrable interest debentures, which we refer to in this prospectus as
the corresponding junior subordinated debentures;
- distributing the cash payments it receives from the corresponding junior
subordinated debentures it owns to you and the other holders of preferred
securities and to us as the holder of common securities; and
- engaging in other activities that are necessary, convenient, or
incidental to these purposes.
Accordingly, the corresponding junior subordinated debentures will be the
sole assets of each trust, and payments under the corresponding junior
subordinated debentures and a related expense agreement will be the sole revenue
of each trust.
We will own all of the common securities of each trust. The common
securities of a trust will rank equally with and payments will be made pro rata
with the preferred securities of the trust, except that if an event of default
under a trust agreement then exists, our rights as holder of the common
securities to payment of distributions and payments upon liquidation or
redemption will be subordinated to your rights as a holder of the preferred
securities of the trust. See "Description of Preferred
Securities -- Subordination of Common Securities."
Unless we state otherwise in a prospectus supplement, each trust has a term
of approximately 45 years. A trust may also terminate earlier. The trustees of
each trust will conduct its business and affairs. As holder of the common
securities we will appoint the trustees. Initially, the trustees will be:
- Bank One Trust Company, N.A., which will act as property trustee; and
- Bank One Delaware, Inc., which will act as Delaware trustee; and
- Two of our employees or officers, who will act as administrative
trustees.
Bank One Trust Company, N.A., as property trustee, will act as sole
indenture trustee under each trust agreement for purposes of compliance with the
provisions of the Trust Indenture Act. Bank One Trust Company, N.A. will also
act as trustee under the guarantee and the junior subordinated indenture
pursuant to which we will issue the corresponding junior subordinated
debentures. See "Description of Junior Subordinated Debentures" and "Description
of Guarantee."
The holder of the common securities of a trust, or the holders of a
majority in liquidation preference of the preferred securities, if an event of
default under the trust agreement has occurred and is continuing, will be
entitled to appoint, remove or replace the property trustee and/or the Delaware
trustee of the trust. You will not have the right to vote to appoint, remove or
2
replace the administrative trustees. Only we, as the holder of the common
securities, will have those voting rights. The duties and obligations of the
trustees are governed by the applicable trust agreement. We will pay all fees
and expenses related to the trusts and any offering of the preferred securities
and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of the trusts, except for payments made on the preferred securities
or the common securities, subject to the guarantee.
The principal executive office of each trust is c/o The Chubb Corporation,
15 Mountain View Road, Warren, New Jersey 07061-1615, Attention: Secretary, and
the telephone number of each trust is (908) 903-2000.
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USE OF PROCEEDS
Unless we state otherwise in a prospectus supplement, we intend to use the
proceeds from the sale of the securities offered by this prospectus for general
corporate purposes. We will include a more detailed description of the use of
proceeds of any specific offering of securities in the prospectus supplement
relating to that offering.
RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of consolidated earnings to fixed
charges for each of the five years in the period ended December 31, 2002 and for
the quarter ended March 31, 2003:
FOR THE YEAR ENDED DECEMBER 31,
FOR THE THREE MONTHS ---------------------------------------
ENDED MARCH 31, 2003 1998 1999 2000 2001 2002
-------------------- ----- ----- ----- ------ ------
Ratio of Earnings to Fixed
Charges................. 7.92 16.03 10.40 11.48 0.49(1) 2.59(2)
---------------
(1) For the year ended December 31, 2001, consolidated earnings were not
sufficient to cover fixed charges by $46.0 million. Consolidated earnings
for the period, as defined, reflect a $635.0 million loss before income
taxes from the September 11 attack in the United States and net surety bond
losses before income taxes of $220.0 million arising from the bankruptcy of
Enron Corp.
(2) Consolidated earnings, as defined, for the year ended December 31, 2002
reflect net losses of $700.0 million before income taxes recognized in the
third and fourth quarters related to asbestos and toxic waste claims and a
reduction in net surety losses of $88.0 million before income taxes
resulting from the settlement of litigation related to Enron.
For the purpose of computing the above ratios of consolidated earnings to
fixed charges, consolidated earnings consist of income from continuing
operations before income taxes excluding income or loss from equity investees,
plus those fixed charges that were charged against income and distributions from
equity investees. Fixed charges consist of interest expense before reduction for
capitalized interest and the portion of rental expense (net of rental income
from subleased properties) which is considered to be representative of the
interest factors in the leases.
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DESCRIPTION OF DEBT SECURITIES
We may offer unsecured senior debt securities or subordinated debt
securities. We refer to the senior debt securities and the subordinated debt
securities together in this prospectus as the debt securities. We will issue the
senior debt securities in one or more series under an indenture, which we refer
to as the senior indenture, as supplemented from time to time between us and
Bank One Trust Company, N.A., as successor in interest to the First National
Bank of Chicago, as trustee. We will issue the subordinated debt securities in
one or more series under an indenture, which we refer to as the subordinated
indenture, as supplemented from time to time between us and Bank One Trust
Company, N.A., as successor in interest to the First National Bank of Chicago,
as trustee. We refer to the senior indenture and the subordinated indenture
together as the indentures.
The following description of the terms and provisions of the debt
securities and the indentures is a summary. It summarizes only those terms of
the debt securities and portions of the indentures which we believe will be most
important to your decision to invest in our debt securities. You should keep in
mind, however, that it is the indentures, and not this summary, which define
your rights as a debtholder. There may be other provisions in the indentures
which are also important to you. You should read the indentures for a full
description of the terms of the debt. The senior indenture and the subordinated
indenture are incorporated by reference as exhibits to the registration
statement that includes this prospectus. See "Where You Can Find More
Information" for information on how to obtain copies of the senior indenture and
the subordinated indenture.
For purposes of this section, "Chubb", "we", "us", and "our", refer solely
to The Chubb Corporation and not to any of its subsidiaries.
RANKING
Our debt securities will be unsecured obligations. Our senior debt
securities will rank equally with all of our other unsecured and unsubordinated
obligations. Our subordinated debt securities will be subordinate and junior in
right of payment to all of our senior debt. See "-- Subordination Under the
Subordinated Indenture."
Since we are a non-operating holding company, most of our operating assets
are owned by our subsidiaries. We rely primarily on dividends from these
subsidiaries to meet our obligations for payment of principal and interest on
our outstanding debt obligations and corporate expenses. Accordingly, the debt
securities will be effectively subordinated to all existing and future
liabilities of our subsidiaries, and you should rely only on our assets for
payments on the debt securities. The amount of dividend distributions to us from
our insurance subsidiaries may be restricted by state insurance laws and
regulations as administered by state insurance departments. See "The Chubb
Corporation."
Unless we state otherwise in the applicable prospectus supplement, the
indentures do not limit us from incurring or issuing other secured or unsecured
debt under either of the indentures or any other indenture that we may have
entered into or enter into in the future. See "-- Subordination Under the
Subordinated Indenture" and the prospectus supplement relating to any offering
of subordinated debt securities.
TERMS OF THE DEBT SECURITIES
We may issue debt securities in one or more series, through an indenture
that supplements the senior indenture or the subordinated indenture or through a
resolution of our board of directors or an authorized committee of our board of
directors.
You should refer to the applicable prospectus supplement for the specific
terms of the debt securities. These may include the following:
- classification as senior or subordinated debt securities;
- the title, designation and purchase price;
- any limit upon the aggregate principal amount;
- maturity date(s) or the method of determining maturity date(s);
5
- the interest rate(s), if any, and the method for calculating the interest
rate(s), if any;
- the interest payment dates and the record dates for the interest
payments;
- circumstances, if any, in which interest may be deferred;
- dates from which interest will accrue and the method of determining those
dates;
- dates on which premium, if any, will be paid;
- place(s) where we will pay principal, premium, if any, and interest and
where you may present the debt securities for registration of transfer or
exchange;
- place(s) where notices and demands relating to the debt securities and
the indentures may be made;
- authorized denominations, if other than denominations of $1,000;
- currency or currencies, if other than the currency of the United States,
in which principal, premium, if any, and interest will be paid or in
which the debt securities will be denominated;
- if the amount of payments of principal, premium, if any, and interest on
the debt securities may be determined with reference to an index and how
such amounts will be determined;
- any special United States federal income tax consequences of the debt
securities;
- any special accounting considerations applicable to the debt securities;
- any mandatory or optional redemption terms or prepayment or sinking fund
provisions;
- any additions, modifications or deletions, in the events of default or
covenants specified in the indenture relating to the debt securities;
- if other than the principal amount of debt securities, the portion of the
principal amount of the debt securities that is payable upon declaration
of acceleration of maturity;
- whether the debt securities will be issued in whole or in part in the
form of one or more global securities;
- whether a temporary global security is issued and the terms upon which
temporary debt securities may be exchanged for definitive debt
securities;
- appointment of any trustees, authenticating or paying agent(s), transfer
agent(s) or any other agents with respect to a series of debt securities;
- in the case of the subordinated indenture, the terms and conditions of
any right we would have or any option you would have to convert or
exchange the debt securities into other securities, cash or property of
Chubb;
- in the case of the subordinated indenture, any provisions regarding
subordination; and
- other specific terms, not inconsistent with the provisions of the
indentures.
(Section 2.3 of each indenture)
Debt securities may also be issued under the indentures upon exercise of
warrants or delivery upon settlement of Stock Purchase Contracts. See
"Description of Warrants."
SPECIAL PAYMENT TERMS OF THE DEBT SECURITIES
We may issue one or more series of debt securities at a substantial
discount below their stated principal amount. These may bear no interest or
interest at a rate which at the time of issuance is below market rates. We will
describe United States federal income tax consequences and special
considerations relating to any series in the applicable prospectus supplement.
The purchase price of any of the debt securities may be payable in one or
more foreign currencies or currency units. The debt securities may be
denominated in one or more foreign currencies or currency units, or the
principal of, premium, if any, or interest on any debt securities
6
may be payable in one or more foreign currencies or currency units. We will
describe the restrictions, elections, United States federal income tax
considerations, specific terms and other information relating to the debt
securities and any foreign currencies or foreign currency units in the
applicable prospectus supplement.
If we use any index to determine the amount of payments of principal of,
premium, if any, or interest on any series of debt securities, we will also
describe in the applicable prospectus supplement the special United States
federal income tax, accounting and other considerations applicable to the debt
securities.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless we state otherwise in the applicable prospectus supplement, we will
issue the debt securities in fully registered form without coupons and in
denominations of $1,000 and integral multiples of $1,000. (Section 2.7 of each
indenture)
Except as we may describe in the applicable prospectus supplement, debt
securities of any series will be exchangeable for other debt securities of the
same series, in any authorized denominations, of a like aggregate principal
amount and bearing the same interest rate. You may present debt securities for
exchange as described above, or for registration of transfer, at the office of
the securities registrar or at the office of any transfer agent we designate for
that purpose. You will not incur a service charge but you will be required to
pay any taxes and other governmental charges as described in the indentures. We
will appoint the trustees as securities registrar under the indentures. We will
specify the transfer agent in the applicable prospectus supplement. We may at
any time designate additional transfer agents. (Sections 2.7 and 2.8 of each
indenture)
REDEMPTION
Unless we state otherwise in the applicable prospectus supplement, debt
securities will not be subject to any sinking fund. (Section 12.1 of each
indenture)
If a series of debt securities is redeemable, we will specify the terms of
redemption with respect to the series in the applicable prospectus supplement.
Unless we state otherwise in the applicable prospectus supplement, we may redeem
debt securities in denominations larger than $1,000 but only in integral
multiples of $1,000 (or such other authorized denomination thereof). (Section
12.2 of each indenture)
We will mail notice of any redemption of your debt securities at least 30
days but not more than 60 days before the redemption date to you at your
registered address. Unless we default in payment of the redemption price, on and
after the redemption date interest will cease to accrue on the debt securities
or the portions called for redemption. (Section 12.2 of each indenture)
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may not consolidate with, merge into or sell, convey or lease all or
substantially all of our assets to any individual, corporation, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof, nor
permit any such entity to consolidate with, merge into or sell, convey or lease
all or substantially all of its assets to us unless:
- we are the surviving corporation or the successor corporation is a
corporation organized under the laws of any domestic jurisdiction and
assumes our obligations on the debt securities and under the indentures;
- after giving effect to such transaction no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default will have occurred and be continuing; and
- Chubb or the surviving entity will have delivered to the trustee an
officers' certificate and opinion of counsel stating that the transaction
or series of transactions and a supplemental
7
indenture, if any, complies with this covenant and that all conditions
precedent in the indenture relating to the transaction or series of
transactions have been satisfied.
This covenant would not apply to the direct or indirect conveyance,
transfer or lease of all or any portion of the stock, assets or liabilities of
any of our wholly owned subsidiaries to us or to our other wholly owned
subsidiaries. This covenant also would not apply to any recapitalization
transaction, a change of control of Chubb or a highly leveraged transaction
unless such transaction or change of control were structured to include a merger
of consolidation by us or the conveyance, transfer or lease of our assets
substantially as an entirety. (Sections 9.1, 9.2 and 9.3 of each indenture)
EVENTS OF DEFAULT
These are "Events of Default" under the indentures with respect to each
series of debt securities:
(1) failure to pay principal, or premium, if any, when due;
(2) failure to pay any interest when due, continued for 30 days;
(3) default in the payment of any sinking fund installment when due and
payable;
(4) failure to perform, or breach of, any covenant or warranty of Chubb
contained in the applicable indentures for 60 days under the senior
debt indenture, and 90 days under the subordinated debt indenture,
after written notice from the trustee or the holders of at least 25% in
principal amount of the relevant series of outstanding debt securities;
(5) certain events of bankruptcy, insolvency or reorganization of Chubb;
and
(6) any other event of default described in the applicable board resolution
or supplemental indenture under which the series of debt securities is
issued.
If an Event of Default occurs and is continuing, the trustee may, and at
the written request of holders of a majority in aggregate principal amount of
the securities of each series affected by the Event of Default and upon the
trustee's receipt of indemnification to its satisfaction will, proceed to
protect and enforce its rights and those of the holders of such securities.
If an Event of Default, other than an Event of Default specified in clause
(5) (or an event of default specified in clause (4) with respect to less than
all series of debt securities then outstanding), occurs and is continuing, with
respect to the debt securities of any series, then the trustee or the holders of
at least 25% in aggregate principal amount of the outstanding debt securities of
that series (each series acting as a separate class) may require us to repay
immediately the entire principal amount of the outstanding debt securities of
that series, or such lesser amount as may be provided in the terms of the
securities, together with all accrued and unpaid interest and premium, if any.
(Sections 5.1 and 5.10 of each indenture)
If an Event of Default under an indenture specified in clause (4) occurs
and is continuing with respect to all series of debt securities then outstanding
under the relevant indenture or an Event of Default specified in clause (5)
occurs and is continuing, then the trustee or the holders of at least 25% in
aggregate principal amount of all of the debt securities then outstanding under
the relevant indenture (treated as one class) may require us to repay
immediately the entire principal amount of the outstanding debt securities, or
such lesser amount as may be provided in the terms of the securities, together
with all accrued and unpaid interest, if any. (Sections 5.1 and 5.10 of each
indenture)
Any Event of Default with respect to a particular series of debt securities
under the relevant indenture may be waived by the holders of a majority of the
aggregate principal amount of the outstanding debt securities of such series, or
of all the outstanding debt securities under the relevant indenture, as the case
may be, except in each case a failure to pay principal of or premium, if any, or
interest on such debt security. (Sections 5.1 and 5.10 of each indenture)
8
The trustee will, within 90 days of the occurrence of an Event of Default
that has not been cured, provide notice to the holders of any series of debt
securities effected. The trustee may withhold notice to the holders of any
default, except in the payment of principal of or interest or premium on, or
sinking fund payment in respect of, the securities, if the trustee considers it
in the interest of the holders to do so. (Section 5.11 of each indenture)
We are required to furnish to the trustee an annual statement as to
compliance with all conditions and covenants under the indenture. (Section 3.5
of each indenture)
MODIFICATION OF THE INDENTURES
We may generally amend the indenture with the consent of the holders of a
majority in aggregate principal amount of the outstanding debt securities of
each series affected by the amendment. However, we may not amend the indentures
without the consent of each holder affected, in order to, among other things:
- extend the final maturity of any debt security;
- reduce the principal amount of any debt security;
- reduce the rate or extend the time of payment of interest on any debt
security;
- reduce the amount payable on redemption of any debt security, or reduce
the amount of principal of an original issue discount debt security that
would be due and payable on an acceleration of the maturity of such debt
security or the amount of such debt security provable in bankruptcy;
- change the currency of payment of principal of or interest on any debt
security;
- extend the time or reduce the amount of any payment to any sinking fund
or analogous obligation relating to any debt security;
- impair or affect the right of any security holder to institute suit for
payment on such security or any right of repayment at the option of the
security holder;
- reduce the percentage of debt securities of any series that must consent
to an amendment to an indenture;
- reduce the percentage of debt securities of any series necessary to
consent to waive any past default under an indenture to less than a
majority; or
- modify any of the provisions of the sections of such indenture relating
to supplemental indentures with the consent of the holders of debt
securities, except to increase the percentage of holders or to provide
that provisions of the indenture cannot be modified or waived without the
consent of the holder of each affected debt security. (Section 8.2 of
each indenture)
A supplemental indenture which changes or eliminates any covenant or other
provision of an indenture which has expressly been included solely for the
benefit of one or more particular series of debt securities, or which modifies
the rights of the holders of debt securities of such series with respect to such
covenant or other provision, will not affect the rights under the indenture of
the holders of the debt securities of any other series. (Section 8.2 of each
indenture)
We and the trustee may amend the indentures without the consent of any
holder of debt securities in order to:
- secure any debt securities issued under such indenture;
- evidence the succession of another corporation and assumption of our
obligations in the case of a merger or consolidation;
- add to the covenants of Chubb or add additional events of default;
- cure ambiguities, defects or inconsistencies, provided that such action
does not adversely affect any holders of securities issued under such
indenture;
9
- establish the form and terms of debt securities of any series;
- provide for a successor trustee with respect to one or more series of
securities issued under such indenture or to provide for or facilitate
the administration of the trusts under the indenture by more than one
trustee;
- permit or facilitate the issuance of securities in bearer form or provide
for uncertificated securities to be issued under such indenture; or
- change or eliminate any provision of such indenture, provided that any
such change or elimination will become effective only when there is no
security outstanding of any series created prior to the execution of such
supplemental indenture which is entitled to the benefit of such
provision. (Section 8.1 of each indenture)
SATISFACTION AND DISCHARGE
Each indenture provides that when, among other things, all debt securities
of any outstanding series not previously delivered to the trustee for
cancellation:
- have become due and payable; or
- will become due and payable at their stated maturity within one year; or
- are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee,
and we deposit or cause to be deposited with the trustee, in trust, an amount in
cash or United States government obligations sufficient to pay and discharge the
entire indebtedness on the debt securities of that series not previously
delivered to the trustee for cancellation, for the principal, premium, if any,
and interest to the date of the deposit or to the stated maturity, as the case
may be, then the indenture will cease to be of further effect with respect to
all debt securities of that series, other than as to certain transfers and
exchanges and other rights identified in the indenture, and we will be deemed to
have satisfied and discharged the indenture with respect to all debt securities
of that series. However, we will continue to be obligated to pay all other sums
due under the indenture and to provide the officers' certificates and opinions
of counsel described in the indenture. (Section 10.1 of each indenture)
DEFEASANCE
Unless we state otherwise in the applicable prospectus supplement, the
senior indenture provides that we will be deemed to have paid and discharged the
entire indebtedness with respect to all outstanding debt securities of any
series, other than as to certain transfers and exchanges, if, among other
things:
- we irrevocably deposit with the trustee money in an amount in the
currency or currencies in which the debt securities of that series are
payable or cash or United States government obligations, or a combination
thereof, as trust funds in an amount certified to be sufficient to pay on
each date that they become due and payable, the principal of and interest
on, all outstanding debt securities of such series;
- we deliver to the trustee an opinion of counsel to the effect that:
- the holders of the senior debt securities of such series will not
recognize income, gain or loss for United States federal income tax
purposes as a result of the defeasance; and
- the defeasance will not otherwise alter those holders' United States
federal income tax treatment of principal and interest payments on the
senior debt securities of such series; this opinion must be based on a
ruling of the Internal Revenue Service or a change in United States
federal income tax law occurring after the date of this prospectus,
since that result would not occur under current tax law; and
10
- no event of default under the senior indenture with respect to the debt
securities of such series has occurred and is continuing.
(Section 10.1 of the senior indenture)
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
identified in a prospectus supplement. Unless it is exchanged for debt
securities in definitive form, a global certificate may generally be transferred
only as a whole unless it is being transferred to certain nominees of the
depositary. Unless otherwise stated in the prospectus supplement the Depository
Trust Company, New York, New York, or DTC, will act as depositary.
We will describe the specific terms of the depositary arrangement in the
applicable prospectus supplement. We expect that the following provisions will
generally apply to these depositary arrangements.
BENEFICIAL INTERESTS IN A GLOBAL SECURITY
Ownership of beneficial interests in a registered global security will be
limited to persons, called participants, that have accounts with the depositary
or persons that may hold interests through participants. Upon the issuance of a
registered global security, the depositary will credit, on its book-entry
registration and transfer system, the participants' accounts with the respective
principal or face amounts of the securities beneficially owned by the
participants. Any dealers, underwriters or agents participating in the
distribution of the securities will designate the accounts to be credited.
Ownership of beneficial interests in a registered global security will be shown
on, and the transfer of ownership interests will be effected only through,
records maintained by the depositary, with respect to interests of participants,
and on the records of participants, with respect to interests of persons holding
through participants. The laws of some states may require that some purchasers
of securities take physical delivery of these securities in definitive form.
These laws may impair your ability to own, transfer or pledge beneficial
interests in registered global securities.
So long as the depositary, or its nominee, is the registered owner of a
global security, that depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the securities represented by the
registered global security for all purposes under the applicable indenture.
Except as described below, you:
- will not be entitled to have the securities represented by the registered
global security registered in your names;
- will not receive or be entitled to receive physical delivery of the
securities in definitive form; and
- will not be considered the owners or holders of the securities under the
indenture.
PAYMENTS OF PRINCIPAL, PREMIUM AND INTEREST
We will make principal, premium, if any, and interest payments on a
registered global security to the depositary that is the registered holder of
the global security or its nominee. The depositary for the global security will
be solely responsible and liable for all payments made on account of your
beneficial ownership interests in the registered global security and for
maintaining, supervising and reviewing any records relating to your beneficial
ownership interests.
We expect that the depositary or its nominee, upon receipt of principal,
premium, if any, or interest payment in respect of a global security,
immediately will credit participants' accounts with amounts in proportion to
their respective beneficial interests in the principal amount of the global
security as shown on the records of the depositary or its nominee. We also
expect that payments by participants to you, as an owner of a beneficial
interest in a registered global security held through those participants, will
be governed by standing instructions and customary practices, as is now the
11
case with securities held for the accounts of customers in bearer form or
registered in "street name." These payments will be the responsibility of those
participants.
PAYMENT AND PAYING AGENTS
Unless we state otherwise in an applicable prospectus supplement, we will
pay principal of, premium, if any, and interest on your debt securities at the
office of the trustee in the City of New York or at the office of any paying
agent that we may designate.
Unless we state otherwise in the applicable prospectus supplement, we will
pay any interest on debt securities to the registered owner of the debt security
at the close of business on the regular record date for the interest, except in
the case of defaulted interest. (Section 2.7 of each indenture) We may at any
time designate additional paying agents or rescind the designation of any paying
agent. We must maintain a paying agent in each place of payment for the debt
securities. (Section 3.2 of each indenture)
Any moneys or government obligations deposited with, or paid to, the
trustee or any paying agent, or then held by us in trust, for the payment of the
principal of, and interest on, any debt security that remain unclaimed for three
years after the principal or interest has become due and payable will, at our
request, be repaid to us. After repayment to us, you are entitled to seek
payment only from us as a general unsecured creditor. (Section 10.4 of each
indenture)
CONVERSION OR EXCHANGE
The subordinated indenture permits us to issue debt securities that we may
convert or exchange into common stock or other securities of Chubb. We will
describe the specific terms on which the subordinated debt securities may be
converted or exchanged in the applicable prospectus supplement. The conversion
or exchange may be mandatory, at your option, or at our option, as specified in
the applicable prospectus supplement. The applicable prospectus supplement will
describe the manner in which the shares of common stock or other securities you
would receive would be converted or exchanged.
SUBORDINATION UNDER THE SUBORDINATED INDENTURE
The debt securities we issue under the subordinated indenture will
constitute part of the subordinated debt of Chubb. These subordinated debt
securities will be subordinate and junior in right of payment, to the extent and
in the manner set forth in the subordinated indenture, to all "senior
indebtedness" of Chubb. The subordinated indenture defines "senior indebtedness"
as the principal of, premium, if any, and unpaid interest on the following,
whether outstanding at the date of the subordinated indenture or later incurred
or created:
- indebtedness of Chubb for money borrowed, including purchase money
obligations, evidenced by notes or other written obligations;
- indebtedness of Chubb evidenced by notes, debentures, bonds or other
securities issued under the provisions of an indenture or similar
instrument;
- obligations of Chubb as lessee under capitalized leases and leases of
property made as part of any sale and leaseback transactions;
- indebtedness of others of any of the kinds described in the preceding
clauses assumed or guaranteed by Chubb; and
- renewals, extensions and refundings of, and indebtedness and obligations
of a successor corporation issued in exchange for, or in replacement of,
indebtedness and obligations described in the preceding clauses unless
such indebtedness, obligation, renewal, extension or refunding expressly
provides that it is not superior in right of payment to the subordinated
debt securities;
provided, that senior indebtedness does not include any indebtedness issued
under the subordinated indenture or any indebtedness or obligation if the terms
of such indebtedness or obligation
12
expressly provide that such indebtedness or obligation is not senior in right of
payment to the debt securities issued under the subordinated indenture or
expressly provide that such indebtedness or obligation is pari passu with or
junior to the debt securities issued under the subordinated indenture.
The subordinated indenture does not limit the amount of senior indebtedness
that we may incur. (Subordinated indenture section 14.1)
No payment of the principal or interest on the indebtedness evidenced by
the subordinated debt securities may be made if, at the time of such payment or
immediately after giving effect thereto, there exists any default with respect
to any senior indebtedness and the default is the subject of judicial
proceedings or if Chubb receives notice of the default from any holder of senior
indebtedness or a trustee for such senior indebtedness.
Upon any acceleration of the maturity of any series of subordinated debt
securities resulting from an event of default, Chubb must give notice of the
acceleration to holders of the senior indebtedness and may not pay holders of
such series of subordinated debt securities until 120 days after the
acceleration and then only if all principal of, premium, if any, and interest on
senior indebtedness due at that time (whether by acceleration or otherwise) is
first paid in full. In the event of any payment or distribution of assets or
securities upon any dissolution, winding up, total or partial liquidation or
reorganization or similar proceeding relating to Chubb, all principal of,
premium, if any, and interest due on all senior indebtedness must be paid in
full before holders of the subordinated debt securities are entitled to receive
or retain any payment. As a result of such subordination, in the event of
insolvency, creditors of Chubb who are holders of senior indebtedness and
general creditors of Chubb, may recover more, ratably, than holders of the
subordinated debt securities. (Subordinated indenture sections 14.1, 14.2, 14.3)
If this prospectus is being delivered in connection with a series of
subordinated debt securities, the accompanying prospectus supplement or the
information incorporated in this prospectus by reference will set forth the
approximate amount of senior indebtedness outstanding as of the end of the most
recent fiscal quarter.
GOVERNING LAW
The debt securities and each indenture will be governed by and construed in
accordance with the laws of the State of New York.
INFORMATION CONCERNING THE TRUSTEES
The trustee under each indenture will have all the duties and
responsibilities of an indenture trustee specified in the Trust Indenture Act.
Neither trustee is required to expend or risk its own funds or otherwise incur
personal financial liability in performing its duties or exercising its rights
and powers if it reasonably believes that it is not reasonably assured of
repayment or adequate indemnity. (Section 6.1 of each indenture.)
Bank One Trust Company, N.A. is the trustee under the senior indenture and
will be the trustee under the subordinated indenture. The trustee's current
address is 153 West 51st Street, New York, New York 10019. Bank One is acting as
the successor to the original trustee, The First National Bank of Chicago.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
We will issue the junior subordinated deferrable interest debentures, which
we refer to as the junior subordinated debentures, in one or more series under
an indenture, which we refer to as the junior subordinated indenture, as
supplemented from time to time, between us and Bank One Trust Company, N.A., as
debenture trustee.
The following description of the terms of the junior subordinated
debentures and the junior subordinated indenture is a summary. It summarizes
only those terms of the junior subordinated debentures and the junior
subordinated indenture which we believe will be most important to your decision
to invest in our junior subordinated debentures. You should keep in mind,
however, that it is the junior subordinated indenture, and not this summary,
which defines your rights as a holder of our junior subordinated debentures.
There may be other provisions in the junior subordinated indenture which are
also important to you. You should read the junior subordinated indenture for a
full description of the terms of the junior subordinated debentures. The junior
subordinated indenture is filed as an exhibit to the registration statement that
includes this prospectus. See "Where You Can Find More Information" for
information on how to obtain a copy of the junior subordinated indenture.
For purposes of this section, "Chubb", "we", "us" and "our" refer solely to
The Chubb Corporation and not to any of its subsidiaries.
RANKING
Our junior subordinated debentures will be unsecured obligations. Each
series of junior subordinated debentures will rank equally with all other series
of junior subordinated debentures. Our junior subordinated debentures will be
subordinate and junior in right of payment, as described in the junior
subordinated indenture, to all of our debt other than debt which ranks equally
with or junior to the junior subordinated debentures. See "-- Subordination
under the Junior Subordinated Indenture."
Since we are a non-operating holding company, most of our operating assets
are owned by our subsidiaries. We rely primarily on dividends from these
subsidiaries to meet our obligations for payment of principal and interest on
our outstanding debt obligations and corporate expenses. Accordingly, the junior
subordinated debentures will be effectively subordinated to all existing and
future liabilities of our subsidiaries, and you should rely only on our assets
for payments on the junior subordinated debentures. The amount of dividend
distributions to us from our insurance subsidiaries may be restricted by state
insurance laws and regulations as administered by state insurance departments.
See "The Chubb Corporation."
Unless we state otherwise in the applicable prospectus supplement, the
junior subordinated indenture does not limit us from incurring or issuing other
secured or unsecured debt under the junior subordinated indenture or any other
indenture that we may have entered into or enter into in the future. See
"-- Subordination under the Junior Subordinated Indenture" and the prospectus
supplement relating to any offering of junior subordinated debentures.
TERMS OF THE JUNIOR SUBORDINATED DEBENTURES
We may issue the junior subordinated debentures in one or more series,
through an indenture that supplements the junior subordinated indenture or
through a resolution of our board of directors or an authorized committee of our
board of directors.
You should refer to the applicable prospectus supplement for the specific
terms of the junior subordinated debentures. These may include the following:
- the title, designation and purchase price;
- any limit upon the aggregate principal amount;
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- maturity date(s) or the method of determining the maturity date(s);
- the interest rate(s), if any, and the method for calculating the interest
rate(s) if any;
- the interest payment dates, and the record dates for the interest
payments;
- circumstances, if any, in which interest may be deferred;
- dates from which interest will accrue and the method of determining those
dates;
- dates on which premium, if any, will be paid;
- place(s) where we may pay principal, premium, if any, and interest and
where you may present the junior subordinated debentures for registration
of transfer or exchange;
- place(s) where notices and demands relating to the junior subordinated
debentures and the junior subordinated indenture may be made;
- authorized denominations, if other than denominations of $25;
- currency or currencies, if other than the currency of the United States,
in which principal, premium, if any, and interest will be paid or in
which the junior subordinated debentures will be denominated;
- any index or indices used to determine the amount of payments of
principal of and premium, if any, on the junior subordinated debentures
of any series or the manner in which such amounts will be determined;
- any special United States federal income tax consequences of the junior
subordinated debentures;
- any special accounting considerations applicable to the junior
subordinated debentures;
- any mandatory or optional redemption terms or prepayment or sinking fund
provisions;
- any additions, modifications or deletions, in the events of default or
covenants specified in the junior subordinated indenture;
- if other than the principal amount of the junior subordinated debentures,
the portion of the principal amount of junior subordinated debentures
that is payable upon declaration of acceleration of maturity;
- whether the junior subordinated debentures will be issued in whole or in
part in the form of one or more global securities;
- whether a temporary global security is issued and the terms upon which
temporary junior subordinated debentures may be exchanged for definitive
junior subordinated debentures;
- appointment of any trustees, authenticating or paying agent(s), transfer
agent(s) or any other agents with respect to a series of junior
subordinated debentures;
- the terms and conditions of any right we would have or any option you
would have to convert or exchange the junior subordinated debentures into
any other securities or property of Chubb;
- the form(s) of the Trust Agreement, Amended and Restated Trust Agreement
and Guarantee Agreement, if different from the forms attached hereto;
- the relative degree, if any, to which the junior subordinated debentures
will be senior to or be subordinated to other series of junior
subordinated debentures in right of payment; and
- other specific terms, not inconsistent with the provisions of the junior
subordinated indenture.
(Section 301)
Junior subordinated debentures may also be issued under the junior
subordinated indenture upon the exercise of warrants. See "Descriptions of
Warrants."
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SPECIAL PAYMENT TERMS OF THE JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
We may issue one or more series of junior subordinated debentures at a
substantial discount below their stated principal amount. These may bear no
interest or interest at a rate which at the time of issuance is below market
rates. We will describe United States federal income tax consequences and
special considerations relating to any series in the applicable prospectus
supplement.
The purchase price of any of the junior subordinated debentures may be
payable in one or more foreign currencies or currency units. The junior
subordinated debentures may be denominated in one or more foreign currencies or
currency units, or the principal of, premium, if any, or interest on any junior
subordinated debentures may be payable in one or more foreign currencies or
currency units. We will describe the restrictions, elections, United States
federal income tax considerations, specific terms and other information relating
to the junior subordinated debentures and any foreign currencies or foreign
currency units in the applicable prospectus supplement.
If we use any index to determine the amount of payments of principal of,
premium, if any, or interest on any series of junior subordinated debentures, we
will also describe in the applicable prospectus supplement the special United
States federal income tax, accounting and other considerations applicable to the
junior subordinated debentures.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless we state otherwise in the applicable prospectus supplement, we will
issue the junior subordinated debentures in fully registered form without
coupons in denominations of $25 and integral multiples of $25. (Section 302)
Except as we may describe in the applicable prospectus supplement, junior
subordinated debentures of any series will be exchangeable for other junior
subordinated debentures of the same series, in any authorized denominations, of
a like aggregate principal amount, of the same original issue date and stated
maturity and having the same terms. You may present junior subordinated
debentures for exchange as described above, or for registration of transfer, at
the office of the securities registrar or at the office of any transfer agent we
designate for that purpose. You will not incur a service charge but you will be
required to pay any taxes and other governmental charges as described in the
junior subordinated indenture. We will appoint the debenture trustee as
securities registrar under the junior subordinated indenture. We will specify
the transfer agent in the applicable prospectus supplement. We may at any time
designate additional transfer agents. (Section 305)
If we redeem any junior subordinated debentures, neither we nor the
debenture trustee will be required to:
- issue, transfer or exchange junior subordinated debentures during a
period beginning at the opening of business 15 days before the day of
selection for redemption of the junior subordinated debentures and ending
at the close of business on the day of mailing of the relevant notice of
redemption; or
- transfer or exchange any junior subordinated debentures selected for
redemption in whole or in part, except for any portion not redeemed of
any junior subordinated debenture that is being redeemed in part.
(Section 305)
REDEMPTION
Unless we state otherwise in the applicable prospectus supplement, junior
subordinated debentures will not be subject to any sinking fund. (Section 1201)
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Unless we state otherwise in the applicable prospectus supplement, we may,
at our option and at any time, redeem any series of junior subordinated
debentures, in whole or in part, at a redemption price equal to 100% of the
principal amount plus accrued and unpaid interest to the redemption date. We may
redeem junior subordinated debentures in part only in the amount of $25 or
integral multiples of $25 (or such other authorized denomination thereof).
(Sections 1101 and 1107)
NOTICE OF REDEMPTION
We will mail notice of any redemption of your junior subordinated
debentures not less than 30, nor more than 60 days before the redemption date to
you at your registered address. Unless we default in payment of the redemption
price, on and after the redemption date interest will cease to accrue on the
junior subordinated debentures or the portions called for redemption. (Section
1104)
OPTION TO EXTEND INTEREST PAYMENT DATE
If provided in the applicable prospectus supplement, we will have the right
during the term of any series of junior subordinated debentures to extend the
interest payment period for a specified number of interest payment periods,
subject to the terms, conditions and covenants specified in the applicable
prospectus supplement. However, we may not extend these interest payments beyond
the maturity of the junior subordinated debentures. We will describe the United
States federal income tax consequences and special considerations relating to
any junior subordinated debentures in the applicable prospectus supplement.
If we exercise this right, during the extension period we and our
subsidiaries may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment on, any of our capital stock; or
- make any payment of principal of, premium, if any, or interest on, or
repay, repurchase or redeem any debt securities that rank equally with or
junior in interest to the junior subordinated debentures or make any
related guarantee payments,
other than:
- dividends or distributions in our common stock;
- redemptions or purchases of any rights pursuant to our rights plan, or
any successor to our rights plan, and the declaration of a dividend of
these rights in the future; and
- payments under any Chubb guarantee of distributions on preferred
securities of a Chubb trust under the applicable guarantee agreement.
(Section 311)
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may not consolidate with or merge into any other corporation or convey,
transfer or lease all or substantially all of our properties and assets to any
individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof, nor permit any such entity to consolidate with or
merge into us or convey, transfer or lease all or substantially all of its
properties and assets to us unless:
- we are the surviving corporation or the successor corporation is a
corporation organized under the laws of any domestic jurisdiction and
assumes our obligations on the junior subordinated debentures and under
the junior subordinated indenture;
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- after giving effect to such transaction no Event of Default, and no event
which, after notice or lapse of time or both, would become an Event of
Default will have occurred and be continuing;
- in the case of corresponding junior subordinated debentures, the
transaction is permitted under the related trust agreement and guarantee
and does not give rise to any breach or violation of the related trust
agreement or guarantee; and
- other conditions described in the junior subordinated indenture are met.
This covenant would not apply to the direct or indirect conveyance,
transfer or lease of all or any portion of the stock, assets or liabilities of
any of our wholly owned subsidiaries to us or to our other wholly owned
subsidiaries. This covenant also would not apply to any recapitalization
transaction, a change of control of Chubb or a highly leveraged transaction
unless such transaction or change of control were structured to include a merger
of consolidation by us or the conveyance, transfer or lease of our assets
substantially as an entirety. (Section 801)
DEBENTURE EVENTS OF DEFAULT
These are "Events of Default" under the junior subordinated indenture with
respect to each series of junior subordinated debentures:
(1) failure to pay principal, or premium, if any, when due;
(2) failure to pay any interest when due, continued for 30 days;
(3) default in the payment of any sinking fund installment when due and
payable;
(4) failure to perform, or breach, of specified covenants or warranties of
Chubb contained in the indenture for 90 days, after written notice from
the debenture trustee or the holders of at least 25% in principal
amount of the relevant series of outstanding junior subordinated
debentures;
(5) certain events of bankruptcy, insolvency or reorganization of Chubb;
and
(6) any other event of default described in the applicable board resolution
or supplemental indenture under which the series of junior subordinated
debentures is issued.
If an Event of Default occurs and is continuing, the trustee may, and at
the written request of holders of a majority in aggregate principal amount of
the securities of each series affected by the Event of Default and upon the
trustee's receipt of indemnification to its satisfaction will, proceed to
protect and enforce its rights and those of the holders of such junior
subordinated debentures.
If an Event of Default, other than an Event of Default specified in clause
(5) (or an event of default specified in clause (4) with respect to less than
all series of junior subordinated debentures then outstanding), occurs and is
continuing, with respect to the junior subordinated debentures of any series,
then the trustee or the holders of at least 25% in aggregate principal amount of
the outstanding junior subordinated debentures of that series (each series
acting as a separate class) may require us to repay immediately the entire
principal amount of the outstanding junior subordinated debentures of that
series, or such lesser amount as may be provided in the terms of the junior
subordinated debentures, together with all accrued and unpaid interest and
premium, if any. In the case of corresponding junior subordinated debentures, if
the debenture trustee or the holders of the corresponding junior subordinated
debentures fail to make this declaration, the holders of at least 25% in
aggregate liquidation preference of the corresponding series of preferred
securities will have that right. (Section 502)
If an Event of Default specified in clause (4) occurs and is continuing
with respect to all series of junior subordinated debentures then outstanding
under the junior subordinated indenture or an Event of Default specified in
clause (5) occurs and is continuing, then the trustee or the holders of at least
25% in aggregate principal amount of all of the junior subordinated debentures
then outstanding under the junior subordinated indenture (treated as one class)
may require us to repay
18
immediately the entire principal amount of the outstanding junior subordinated
debentures, or such lesser amount as may be provided in the terms of the junior
subordinated debentures, together with all accrued and unpaid interest, if any.
In the case of corresponding junior subordinated debentures, if the debenture
trustee or the holders of the corresponding junior subordinated debentures fail
to make this declaration, the holders of at least 25% in aggregate liquidation
preference of the corresponding series of preferred securities will have that
right. (Section 502)
Any Event of Default with respect to a particular series of junior
subordinated debentures under the junior subordinated indenture may be waived by
the holders of a majority of the aggregate principal amount of the outstanding
junior subordinated debentures of such series, or of all the outstanding junior
subordinated debentures under the junior subordinated indenture, as the case may
be, except in each case a failure to pay principal of or premium, if any, or
interest on such junior subordinated debenture. (Section 502)
The debenture trustee will, within 90 days after actual knowledge of the
debenture trustee of the occurrence of an Event of Default that has not been
cured, provide notice to the holders of any series of junior subordinated
debentures effected. The debenture trustee may withhold notice to the holders of
any default, except in the payment of principal of or interest or premium on, or
sinking fund payment in respect of, the junior subordinated debentures, if the
debenture trustee considers it in the interest of the holders to do so. (Section
602)
We are required to furnish to the debenture trustee an annual statement as
to compliance with all conditions and covenants under the junior subordinated
indenture. (Section 1004)
DIRECT ACTIONS BY PREFERRED SECURITY HOLDERS
If a debenture event of default is attributable to our failure to pay
interest or principal on the corresponding junior subordinated debentures on the
date the interest, premium, if any, or principal is payable, you, as a holder of
preferred securities, may institute a legal proceeding directly against us,
which we refer to in this prospectus as a "direct action," for enforcement of
payment to you of the principal, of, premium, if any, or interest on the
corresponding junior subordinated debentures having a principal amount equal to
the aggregate liquidation preference of your related preferred securities.
(Section 508)
We may not amend the junior subordinated indenture to remove the right to
bring a direct action without the prior written consent of the holders of all of
the preferred securities. If the right to bring a direct action is removed, the
applicable issue may become subject to the reporting obligations under the
Securities Exchange Act of 1934. We have the right under the junior subordinated
indenture to set-off any payment made to you as a holder of preferred securities
by us in connection with a direct action. You will not be able to exercise
directly any other remedy available to holders of the corresponding junior
subordinated debentures.
You will not be able to exercise directly any remedies other than those
described in the preceding paragraph available to holders of the junior
subordinated debentures unless there has been an event of default under the
trust agreement.
MODIFICATION OF THE JUNIOR SUBORDINATED INDENTURE
We and the debenture trustee may, without the consent of the holders of
junior subordinated debentures, amend, waive or supplement the junior
subordinated indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies. However, no action may
materially adversely affect the interests of holders of any series of junior
subordinated debentures or, in the case of corresponding junior subordinated
debentures, the holders of the related series of preferred securities so long as
they remain outstanding. We may also amend the junior subordinated indenture to
maintain the qualification of the junior subordinated indenture under the Trust
Indenture Act. (Section 901)
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We and the debenture trustee may modify and amend the junior subordinated
indenture in a manner affecting the rights of the holders of junior subordinated
debentures with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding junior subordinated debentures of
each series affected. However, no modification or amendment may, without the
consent of the holder of each outstanding junior subordinated debenture
affected:
- change the stated maturity of the junior subordinated debentures;
- reduce the principal amount of the junior subordinated debentures;
- reduce the rate or, except as permitted by the junior subordinated
indenture and the terms of the series of junior subordinated debentures,
extend the time of payment of interest on the junior subordinated
debentures; or
- reduce the percentage of the holders of outstanding junior subordinated
debentures necessary to modify or amend the junior subordinated
indenture.
(Section 902)
In the case of corresponding junior subordinated debentures, so long as any
of the related series of preferred securities remain outstanding:
- no such modification may be made that adversely affects the holders of
the related series of preferred securities;
- no termination of the junior subordinated indenture may occur; and
- no waiver of any debenture event of default or compliance with any
covenant under the junior subordinated indenture may be effective,
without the prior consent of the holders of at least a majority of the aggregate
liquidation preference of the related series of preferred securities unless the
principal of, and premium, if any, on, the corresponding junior subordinated
debentures and all accrued and unpaid interest on the corresponding junior
subordinated debentures have been paid in full and other conditions are
satisfied.
In addition, we and the debenture trustee may execute, without your
consent, any supplemental indenture for the purpose of creating any new series
of junior subordinated debentures. (Section 902)
SATISFACTION AND DISCHARGE
The junior subordinated indenture provides that when, among other things,
all junior subordinated debentures not previously delivered to the debenture
trustee for cancellation:
- have become due and payable; or
- will become due and payable at their stated maturity within one year of
the date of deposit; or
- are to be called for redemption within one year under arrangements
satisfactory to the debenture trustee for the giving of notice of
redemption by the debenture trustee;
and we deposit or cause to be deposited with the debenture trustee, in trust, an
amount in cash or United States government obligations sufficient to pay and
discharge the entire indebtedness on the junior subordinated debentures not
previously delivered to the debenture trustee for cancellation, for the
principal, premium, if any, and interest to the date of the deposit or to the
stated maturity, as the case may be, then the junior subordinated indenture will
cease to be of further effect and we will be deemed to have satisfied and
discharged the junior subordinated indenture. However, we will continue to be
obligated to pay all other sums due under the junior subordinated indenture and
to provide the officers' certificates and opinions of counsel described in the
junior subordinated indenture. (Section 401)
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DEFEASANCE
Unless we state otherwise in the applicable prospectus supplement, the
junior subordinated indenture provides that we will be deemed to have paid and
discharged the entire indebtedness, other than as to certain transfers and
exchanges, with respect to all outstanding junior subordinated debentures of any
series if, among other things:
- we irrevocably deposit with the trustee cash or United States government
obligations or a combination thereof, as trust funds in an amount
certified to be sufficient to pay on each date that they become due and
payable, the principal of and interest on, all outstanding junior
subordinated debentures of such series;
- we deliver to the trustee an officers' certificate and an opinion of
counsel to the effect that all conditions precedent in the junior
subordinated indenture relating to the satisfaction and discharge of the
entire indebtedness on the outstanding securities of such series have
been complied with. (Section 403)
GLOBAL JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures of a series may be issued in whole or in
part in the form of one or more global junior subordinated debentures that will
be deposited with a depositary identified in a prospectus supplement. Unless it
is exchanged for junior subordinated debentures in definitive form, a global
junior subordinated debenture may not be transferred unless it is being
transferred to certain nominees of the depositary. Unless otherwise stated in
the prospectus supplement, the Depositary Trust Company, New York, New York, or
DTC, will act as depositary. We will issue global junior subordinated debentures
only in registered form and in either temporary or permanent form.
We will describe the specific terms of the depositary arrangement in the
applicable prospectus supplement. We expect that the following provisions will
generally apply to these depositary arrangements.
BENEFICIAL INTERESTS IN A GLOBAL JUNIOR SUBORDINATED DEBENTURE
Ownership of beneficial interests in a registered global junior
subordinated debenture will be limited to persons, called participants, that
have accounts with the depositary or persons that may hold interests through
participants. Upon the issuance of a registered global junior subordinated
debenture, the depositary will credit, on its book-entry registration and
transfer system, the participants' accounts with the respective principal or
face amounts of the debentures beneficially owned by the participants. Any
dealers, underwriters or agents participating in the distribution of the
debentures will designate the accounts to be credited, or we will designate such
accounts if the junior subordinated debentures are issued directly by us.
Ownership of beneficial interests in a registered global junior subordinated
debenture will be shown on, and the transfer of ownership interests will be
effected only through, records maintained by the depositary, with respect to
interests of participants, and on the records of participants, with respect to
interests of persons holding through participants. The laws of some states may
require that some purchasers of debentures take physical delivery of these
debentures in definitive form. These laws may impair your ability to own,
transfer or pledge beneficial interests in registered global junior subordinated
debenture.
So long as the depositary or its nominee is the registered owner of a
global junior subordinated debenture, the depositary or nominee will be
considered the sole owner or holder of the junior subordinated debentures
represented by the global junior subordinated debenture for all purposes under
the junior subordinated indenture. Except as provided below, you
- will not be entitled to have any of the individual junior subordinated
debentures represented by the global junior subordinated debenture
registered in your name;
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- will not receive or be entitled to receive physical delivery of any
junior subordinated debentures in definitive form; and
- will not be considered the owner or holder of the junior subordinated
debentures under the junior subordinated indenture.
PAYMENTS OF PRINCIPAL, PREMIUM AND INTEREST
We will make principal, premium, if any, and interest payments on a
registered global junior subordinated debenture to the depositary that is the
registered holder of the global junior subordinated debenture or its nominee.
The depositary for the global junior subordinated debentures will be solely
responsible and liable for all payments made on account of your beneficial
ownership interests in the registered global junior subordinated debenture and
for maintaining, supervising and reviewing any records relating to your
beneficial ownership interests.
We expect that the depositary or its nominee, upon receipt of principal,
premium, if any, or interest payment in respect of a global junior subordinated
debenture, immediately will credit participants' accounts with amounts in
proportion to their respective beneficial interests in the principal amount of
the global junior subordinated debenture as shown on the records of the
depositary or its nominee. We also expect that payments by participants to you,
as an owner of a beneficial interest in a registered global junior subordinated
debenture held through those participants, will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
These payments will be the responsibility of those participants.
PAYMENT AND PAYING AGENTS
Unless we state otherwise in the applicable prospectus supplement, we will
pay principal of, premium, if any, and interest on your junior subordinated
debentures at the office of the debenture trustee in the City of New York or at
the office of any paying agent that we may designate.
Unless we state otherwise in the applicable prospectus supplement, we will
pay any interest on junior subordinated debentures to the registered owner of
the junior subordinated debenture at the close of business on the regular record
date for the interest, except in the case of defaulted interest. (Section 307)
We may at any time designate additional paying agents or rescind the designation
of any paying agent. We must maintain a paying agent in each place of payment
for the junior subordinated debentures. (Section 1002)
Any moneys deposited with the debenture trustee or any paying agent, or
then held by us in trust, for the payment of the principal of, premium, if any,
and interest on any junior subordinated debenture that remain unclaimed for two
years after the principal, premium, if any, or interest has become due and
payable will, at our request, be repaid to us. After repayment to us, you are
entitled to seek payment only from us as a general unsecured creditor. (Section
1003)
CONVERSION OR EXCHANGE
The junior subordinated indenture permits us to issue junior subordinated
debentures that we may convert or exchange into preferred securities or other
securities or property of Chubb. We will describe the specific terms on which
junior subordinated debentures may be converted or exchanged in the applicable
prospectus supplement. The conversion or exchange may be mandatory, at your
option or at our option. The applicable prospectus supplement will state the
manner in which the preferred securities or other securities you would receive
would be converted or exchanged.
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SUBORDINATION UNDER THE JUNIOR SUBORDINATED INDENTURE
The junior subordinated debentures we issue under the junior subordinated
indenture will constitute part of the subordinated debt of Chubb. These junior
subordinated debentures will be subordinate and junior in right of payment, to
the extent and in the manner set forth in the junior subordinated indenture, to
all "senior indebtedness" of Chubb. The junior subordinated indenture defines
"senior indebtedness" as the principal of, premium, if any, and unpaid interest
on the following, whether outstanding at the date of the junior subordinated
indenture or later incurred or created:
- indebtedness of Chubb for money borrowed, including purchase money
obligations, evidenced by notes or other written obligations;
- indebtedness of Chubb evidenced by notes, debentures, bonds or other
securities issued under the provisions of an indenture or similar
instrument;
- obligations of Chubb as lessee under capitalized leases and leases of
property made as part of any sale and leaseback transactions;
- indebtedness of others of any of the kinds described in the preceding
clauses assumed or guaranteed by Chubb; and
- renewals, extensions and refundings of, and indebtedness and obligations
of a successor corporation issued in exchange for, or in replacement of,
indebtedness and obligations described in the preceding clauses unless
such indebtedness, obligation, renewal, extension or refunding expressly
provides that it is not superior in right of payment to the subordinated
debt securities;
provided, that senior indebtedness does not include any indebtedness issued
under the junior subordinated indenture or any indebtedness or obligation if the
terms of such indebtedness or obligation expressly provide that such
indebtedness or obligation is not senior in right of payment to junior
subordinated debentures issued under the junior subordinated indenture or
expressly provide that such indebtedness or obligation is pari passu with or
junior to junior subordinated debentures issued under the junior subordinated
indenture.
The junior subordinated indenture does not limit the amount of senior
indebtedness that we may incur.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to us, the holders of senior debt will first be
entitled to receive payment in full of principal of, premium, if any, and
interest on the senior debt before the holders of junior subordinated debentures
or, in the case of corresponding junior subordinated debentures, the property
trustee on behalf of the holders, will be entitled to receive or retain any
payment of the principal, premium, if any, or interest on the junior
subordinated debentures.
If the maturity of any junior subordinated debentures is accelerated, the
holders of all senior debt outstanding at the time of the acceleration will
first be entitled to receive payment in full of all amounts due, including any
amounts due upon acceleration, before you will be entitled to receive any
payment of the principal of, premium, if any, or interest on the junior
subordinated debentures.
No payment of the principal or interest on the indebtedness evidenced by
the junior subordinated debentures may be made if, at the time of such payment
or immediately after giving effect thereto, there exists any default with
respect to any senior indebtedness and the default is the subject of judicial
proceedings or if Chubb receives notice of the default from any holder of senior
indebtedness or a trustee for such senior indebtedness. (Section 1304)
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If this prospectus is being delivered in connection with a series of junior
subordinated debentures, the accompanying prospectus supplement or the
information incorporated in this prospectus by reference will set forth the
approximate amount of senior indebtedness outstanding as of the end of the most
recent fiscal quarter.
GOVERNING LAW
The junior subordinated indenture and the junior subordinated debentures
will be governed by and construed in accordance with the laws of the State of
New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The trustee under the junior subordinated indenture will have all the
duties and responsibilities of an indenture trustee specified in the Trust
Indenture Act. The debenture trustee is not required to expend or risk its own
funds or otherwise incur personal financial liability in performing its duties
or exercising its rights and powers if it reasonably believes that it is not
reasonably assured of repayment or adequate indemnity.
Bank One Trust Company, N.A. is the debenture trustee under the junior
subordinated indenture. The trustee's current address is 153 West 51st Street,
New York, New York 10019.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our restated certificate of incorporation, as amended, authorizes us to
issue 600,000,000 shares of common stock, par value $1.00 per share, and
4,000,000 shares of preferred stock, par value $1.00 per share. As of December
31, 2002 there were issued 180,296,834 shares of common stock, of which
9,095,162 were treasury shares and 171,201,672 were outstanding, and we had no
preferred stock issued or outstanding. Holders of common stock have received a
right entitling them, when the right becomes exercisable to purchase shares of
Series B Participating Cumulative Preferred Stock. See "-- Shareholders Rights
Plan."
In November 2002, we issued 24 million mandatorily exercisable warrants to
purchase shares of our common stock. The warrants were issued as part of our 7%
equity units and must be exercised on or prior to November 16, 2005. For further
discussion of the warrants and equity units, including the number of common
shares issuable thereunder, see our Annual Report on Form 10-K for the year
ended December 31, 2002, incorporated herein by reference.
The following description of our capital stock is a summary. It summarizes
only those aspects of our capital stock which we believe will be most important
for your decision to invest in our capital stock. You should keep in mind,
however, that it is our restated certificate of incorporation, as amended, our
bylaws, as amended, and the New Jersey Business Corporation Act, and not this
summary, which define your rights as a holder of our capital stock. There may be
other provisions in these documents which are also important to you. You should
read these documents for a full description of the terms of our capital stock.
Our restated certificate of incorporation, as amended, and our bylaws, as
amended, are incorporated by reference as exhibits to the registration statement
that includes this prospectus. See "Where You Can Find More Information" for
information on how to obtain copies of these documents.
COMMON STOCK
The holders of common stock, subject to the provisions of New Jersey law
and the preferential rights of the holders of any shares of preferred stock, are
entitled to dividends when and as declared by the board of directors. The
holders of common stock have one vote per share on all matters submitted to a
vote of the shareholders, and the right to the net assets of Chubb in
liquidation after payment of any amounts due to creditors and in respect of our
preferred stock. Holders of shares of common stock are not entitled as a matter
of right to any preemptive or subscription rights and are not entitled to
cumulative voting for directors. All outstanding shares of common stock are, and
the shares of common stock issued under this prospectus, will be, fully paid and
non-assessable.
Our common stock is listed on the New York Stock Exchange under the symbol
"CB".
Under New Jersey law, the affirmative vote of two-thirds of the votes cast
is required for shareholder approval of any merger or any plan of consolidation
as well as for any sale, lease, exchange or other disposition of all, or
substantially all, of the assets of Chubb, if not in the usual and regular
course of its business, and for any liquidation, dissolution or amendment of the
certificate of incorporation. All other shareholder action is decided by a
majority of the votes cast at a meeting of shareholders.
Our bylaws, as amended, provide that the annual meeting of shareholders
will be held on such date and at such time as shall be designated by the board
of directors and as stated in a written notice which is mailed or delivered to
each shareholder at least ten days, but not more than sixty days, prior to any
shareholder meeting. Our bylaws, as amended, provide that shareholder meetings
may be held in the State of New Jersey or at such other place as may be
designated by the board of directors and stated in the written notice of
meeting.
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Our restated certificate of incorporation, as amended, further provides
that the board of directors has the power, except as provided by statute, in its
discretion, to use or apply any funds of Chubb lawfully available for that
purpose to purchase or acquisition of shares of the capital stock or bonds or
other securities of Chubb:
- in the market or otherwise, at such price as may be fixed by the board;
- to such extent and in such manner and for such purposes and upon such
terms as the board may deem expedient; and
- as may be permitted by law.
The transfer agent and registrar for the common stock is EquiServe Trust
Company, N.A., 525 Washington Boulevard, Jersey City, New Jersey 07303.
PREFERRED STOCK
Under our restated certificate of incorporation, as amended, we are
authorized to issue up to 4,000,000 shares of preferred stock.
Shares of preferred stock of Chubb may be issued in one or more series and
the shares of all series will rank pari passu and be identical in all respects,
except that with respect to each series the board of directors may fix, among
other things:
- the rate of dividends payable on the preferred stock;
- the time and prices of redemption;
- the amount payable upon voluntary redemption;
- the retirement or sinking fund, if any;
- the conversion rights, if any;
- the voting rights, if any (in addition to the voting right described
below);
- the restrictions, if any, on:
- the creation of indebtedness of Chubb or any subsidiary of Chubb; or
- the issuance of stock ranking on a parity with or senior to the shares
of preferred stock either as to dividends or on liquidation;
- the restrictions, if any, on:
- the payment of dividends on common stock;
- the acquisition of common stock; or
- any other class or classes of stock of Chubb, other than preferred
stock, ranking on a parity with or junior to the shares of preferred
stock either as to dividends or on liquidation; and
- the number of shares to comprise such series.
Each series of preferred stock will be entitled to receive an amount
payable on liquidation, dissolution or winding up, fixed for each series, plus
all dividends accumulated to the date of final distribution, before any payment
or distribution of assets of Chubb is made on common stock. Shares of preferred
stock that have been issued and reacquired in any manner by Chubb, including
shares redeemed, shares purchased and retired and shares that have been
converted into shares of another series or class, may be reissued as part of the
same or another series of preferred stock. In accordance with our restated
certificate of incorporation, as amended, the 4,000,000 authorized but
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unissued shares of preferred stock may be issued pursuant to resolution of the
board of directors without the vote of the holders of any capital stock of
Chubb.
SHAREHOLDERS RIGHTS PLAN
We have a shareholder rights agreement under which each shareholder has a
right for each share of common stock held. Each right entitles the registered
holder to purchase from Chubb a unit consisting of one one-thousandth of a share
of Series B Participating Cumulative Preferred Stock, par value $1.00 per share,
at a purchase price of $240 per unit. The rights are subject to adjustment to
prevent dilution of the interests represented by each right. The description and
terms of the rights are set forth in a rights agreement between Chubb and
EquiServe Trust Company, N.A., as rights agent. We have summarized portions of
the rights agreement. The summary is not complete. The rights agreement has been
filed as an exhibit to the registration statement that we have filed with the
SEC and that includes this prospectus. You should read the rights agreement for
the provisions that may be important to you.
The shareholder rights plan is reviewed and evaluated at least once each
year by a committee of independent directors to determine if the maintenance of
the shareholder rights plan continues to be in the best interest of Chubb, its
shareholders and any other relevant constituencies of Chubb. Following a review,
the committee of independent directors will communicate its conclusions to the
full board of directors, including any recommendation as to whether the
shareholder rights plan should be modified or the rights should be redeemed.
DISTRIBUTION DATE
The rights are attached to all outstanding shares of common stock and trade
with the common stock until the rights become exercisable, and no separate
rights certificates will be distributed. The rights will separate from the
common stock and a distribution date will occur upon the earlier of either of
the following:
- 10 days following the date of any public announcement that a person or
group of affiliated or associated persons, referred to in this prospectus
as an acquiring person, has acquired beneficial ownership of 20% or more
of the outstanding shares of common stock; or
- 10 business days following the commencement of a tender offer or exchange
offer that would result in a person or group becoming an acquiring
person.
The rights are not exercisable until the distribution date and will expire
at the close of business on March 12, 2009 unless previously redeemed by Chubb
as described below.
EVIDENCE OF RIGHTS
Until the distribution date, or earlier redemption or expiration of the
rights:
- the rights will be evidenced by the common stock certificates and will be
transferred with and only with such common stock certificates;
- new common stock certificates issued after March 31, 1999 will contain a
notation incorporating the rights agreement by reference; and
- the surrender for transfer of any certificates for common stock will also
constitute the transfer of the rights associated with the common stock
represented by such certificates.
As soon as practicable after the distribution date, rights certificates
will be mailed to holders of record of common stock as of the close of business
on the distribution date and, thereafter the separate rights certificates alone
will represent the rights. Except as otherwise determined by the board of
directors, only shares of common stock issued prior to the distribution date
will be issued with rights.
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TRIGGERING EVENT AND EFFECT OF TRIGGERING EVENT
If any person becomes an acquiring person:
- proper provision will be made so that each holder of a right, other than
rights that are, or (under the circumstances specified in the rights
agreement) were, beneficially owned by an acquiring person (which will
thereafter be void), will have the right to receive upon exercise the
number of shares of common stock having a market value of two times the
exercise price of the right; or
- at the option of our board of directors, at any time until such acquiring
person becomes the beneficial owner of 50% or more of the shares of
common stock, Chubb may exchange the rights, other than rights that are,
or (under the circumstances specified in the rights agreement) were,
beneficially owned by an acquiring person (which will thereafter be
void), for shares of common stock at an exchange ratio of one share of
common stock per right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction. If, at any time following
the date of any public announcement that an acquiring person has acquired
beneficial ownership of 20% or more of the outstanding shares of common
stock, Chubb is acquired in a merger or other business combination
transaction, or 50% or more of Chubb's assets or earning power is sold,
each holder of a right shall thereafter have the right to receive, upon
exercise, common stock of the acquiring company having a value equal to
two times the exercise price of the right. The events described in this
paragraph are referred to as triggering events.
ADJUSTMENTS
The purchase price payable, and the number of units of preferred stock or
other securities or property issuable, upon exercise of the rights are subject
to adjustment from time to time to prevent dilution upon the occurrence of one
of the following:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the preferred stock;
- if holders of the preferred stock are granted rights or warrants to
subscribe for preferred stock, or convertible securities at less than the
current market price of the preferred stock; or
- upon the distribution to holders of the preferred stock of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
No adjustment in the purchase price will be required until cumulative
adjustments amount to at least 1% of the purchase price. No fractional units
will be issued and, in lieu of fractional units, an adjustment in cash will be
made based on the market price of the preferred stock on the last trading date
prior to the date of exercise.
REDEMPTION
The rights may be redeemed in whole, but not in part, at a price of $.01
per right by the board of directors at any time prior to the earlier of:
- a person or group of persons becoming an acquiring person; and
- March 12, 2009.
Immediately upon the action of the board of directors ordering redemption
of the rights, the rights will terminate and thereafter the only right of the
holders of rights will be to receive the redemption price.
Until a right is exercised, the holder will have no rights as a shareholder
of Chubb (beyond those as an existing shareholder), including the right to vote
or to receive dividends. As long as the rights are attached to the common stock,
Chubb will issue one right with each new share of common stock issued.
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DESCRIPTION OF DEPOSITARY SHARES
We may elect to offer depositary shares representing receipts for
fractional interests in debt securities, junior subordinated debentures or
preferred stock. In this case, we will issue receipts for depositary shares,
each of which will represent a fraction of a debt security, junior subordinated
debenture or share of a particular series of preferred stock, as the case may
be.
We will deposit the debt securities, junior subordinated debentures or
shares of any series of preferred stock represented by depositary shares under a
deposit agreement between us and a depositary which we will name in the
applicable prospectus supplement. Subject to the terms of the deposit agreement,
as an owner of a depositary share you will be entitled, in proportion to the
applicable fraction of a debt security, junior subordinated debenture or share
of preferred stock represented by the depositary share, to all the rights and
preferences of the debt security, junior subordinated debenture or preferred
stock, as the case may be, represented by the depositary share, including, as
the case may be, interest, dividend, voting, redemption, sinking fund, repayment
at maturity, subscription and liquidation rights.
The following description of the terms of the deposit agreement is a
summary. It summarizes only those terms of the deposit agreement which we
believe will be most important to your decision to invest in our depositary
shares. You should keep in mind, however, that it is the deposit agreement, and
not this summary, which defines your rights as a holder of depositary shares.
There may be other provisions in the deposit agreement which are also important
to you. You should read the deposit agreement for a full description of the
terms of the depositary shares. The form of the deposit agreement is filed as an
exhibit to the registration statement that includes this prospectus. See "Where
You Can Find More Information" for information on how to obtain a copy of the
deposit agreement.
INTEREST, DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all payments of interest, cash dividends or
other cash distributions received on the debt securities, junior subordinated
debentures or preferred stock, as the case may be, to you in proportion to the
number of depositary shares that you own.
In the event of a payment of interest or distribution other than in cash,
the depositary will distribute property received by it to you in an equitable
manner, unless the depositary determines that it is not feasible to make a
distribution. In that case the depositary may sell the property and distribute
the net proceeds from the sale to you.
REDEMPTION OF DEPOSITARY SHARES
If we redeem a series of debt securities, junior subordinated debentures or
preferred stock represented by depositary shares, the depositary will redeem
your depositary shares from the proceeds received by the depositary resulting
from the redemption. The redemption price per depositary share will be equal to
the applicable fraction of the redemption price per debt security, junior
subordinated debenture or share of preferred stock, as the case may be, payable
in relation to the redeemed series of debt securities, junior subordinated
debentures or preferred stock. Whenever we redeem debt securities, junior
subordinated debentures or shares of preferred stock held by the depositary, the
depositary will redeem as of the same redemption date the number of depositary
shares representing, as the case may be, the debt securities, junior
subordinated debentures or shares of preferred stock redeemed. If fewer than all
the depositary shares are to be redeemed, the depositary shares to be redeemed
will be selected by lot, proportionately or by any other equitable method as the
depositary may determine.
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VOTING THE PREFERRED STOCK OR EXERCISE OF RIGHTS UNDER THE INDENTURES OR THE
JUNIOR SUBORDINATED INDENTURE
Upon receipt of notice of any meeting at which you are entitled to vote, or
of any request for instructions or directions from you as holder of debt
securities, junior subordinated debentures or preferred stock, the depositary
will mail to you the information contained in that notice. Each record holder of
the depositary shares on the record date will be entitled to instruct the
depositary how to vote the amount of the preferred stock represented by that
holder's depositary shares or how to give instructions or directions with
respect to the debt securities, junior subordinated debentures or preferred
stock, as the case may be, represented by that holder's depository shares. The
record date for the depositary shares will be the same date as the record date
for the debt securities, junior subordinated debentures or preferred stock, as
the case may be. The depositary will endeavor, to the extent practicable, to
vote the amount of the preferred stock, or to give instructions or directions
with respect to the debt securities or junior subordinated debentures, as the
case may be, represented by the depositary shares in accordance with those
instructions. We will agree to take all reasonable action which the depositary
may deem necessary to enable the depositary to do so. The depositary will
abstain from voting shares of the preferred stock or giving instructions or
directions with respect to the debt securities or junior subordinated
debentures, as the case may be, if it does not receive specific instructions
from you.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
We and the depositary may amend the form of depositary receipt evidencing
the depositary shares and any provision of the deposit agreement at any time.
However, any amendment which materially and adversely alters the rights of the
holders of the depositary shares will not be effective unless the amendment has
been approved by the holders of at least a majority of the depositary shares
then outstanding.
The deposit agreement will terminate if:
- all outstanding depositary shares have been redeemed; or
- there has been a final distribution in respect of the preferred stock,
including in connection with our liquidation, dissolution or winding up,
or a complete repayment or redemption of the debentures or junior
subordinated debentures and the distribution, repayment or redemption
proceeds, as the case may be, have been distributed to you.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so. We also may, at any time, remove the depositary. Any
resignation or removal will take effect upon the appointment of a successor
depositary and its acceptance of such appointment. We must appoint the successor
depositary within 60 days after delivery of the notice of resignation or
removal. The successor depositary must be a bank or trust company having its
principal office in the United States and having a combined capital and surplus
of at least $50,000,000.
CHARGES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges of
the depositary in connection with the initial deposit of the debt securities,
junior subordinated debentures or preferred stock, as the case may be, and
issuance of depositary receipts, all withdrawals of shares of debt securities,
junior subordinated debentures or preferred stock, as the case may be, by you
and any repayment or redemption of the debt securities, junior subordinated
debentures or preferred stock, as the case may be. You will pay other transfer
and other taxes and governmental charges, as well as the other charges that are
expressly provided in the deposit agreement to be for your account.
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MISCELLANEOUS
The depositary will forward all reports and communications from us which
are delivered to the depositary and which we are required or otherwise determine
to furnish to holders of debt securities, junior subordinated debentures or
preferred stock, as the case may be.
Neither we nor the depositary will be liable under the deposit agreement to
you other than for the depositary's gross negligence, willful misconduct or bad
faith. Neither we nor the depositary will be obligated to prosecute or defend
any legal proceedings relating to any depositary shares, debt securities, junior
subordinated debentures or preferred stock unless satisfactory indemnity is
furnished. We and the depositary may rely upon written advice of counsel or
accountants, or upon information provided by persons presenting debt securities,
junior subordinated debentures or preferred stock for deposit, you or other
persons believed to be competent and on documents which we and the depositary
believe to be genuine.
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DESCRIPTION OF WARRANTS
We may issue warrants, including warrants to purchase debt securities,
preferred stock or common stock. We may issue warrants independently or together
with any other securities, and they may be attached to or separate from those
securities. We will issue the warrants under warrant agreements between us and a
bank or trust company, as warrant agent, that we will describe in the prospectus
supplement relating to the warrants that we offer.
The following description of the terms of the warrants is a summary. It
summarizes only those terms of the warrants and the warrant agreement which we
believe will be most important to your decision to invest in our warrants. You
should keep in mind, however, that it is the warrant agreement and the warrant
certificate relating to the warrants, and not this summary, which defines your
rights as a warrantholder. There may be other provisions in the warrant
agreement and the warrant certificate relating to the warrants which are also
important to you. You should read these documents for a full description of the
terms of the warrants. Forms of these documents are filed as exhibits to the
registration statement that includes this prospectus. See "Where You Can Find
More Information" for information on how to obtain copies of these documents.
DEBT WARRANTS
We will describe in the applicable prospectus supplement the specific terms
of warrants to purchase debt securities that we may offer, the warrant agreement
relating to the debt warrants and the warrant certificates representing the debt
warrants.
You should refer to the applicable prospectus supplement for the specific
terms of the warrants. These may include the following:
- the title of the debt warrants;
- the debt securities for which the debt warrants are exercisable;
- the aggregate number of the debt warrants;
- the principal amount of debt securities that you may purchase upon
exercise of each debt warrant, and the price or prices at which we will
issue the debt warrants;
- the procedures and conditions relating to the exercise of the debt
warrants;
- the designation and terms of any related debt securities issued with the
debt warrants, and the number of debt warrants issued with each debt
security;
- the date, if any, from which you may separately transfer the debt
warrants and the related securities;
- the date on which your right to exercise the debt warrants commences, and
the date on which your right expires;
- the maximum or minimum number of the debt warrants which you may exercise
at any time;
- any special United States federal income tax consequences of the debt
warrants;
- any special accounting considerations applicable to the debt warrants;
- any terms providing for the mandatory exercise of the debt warrants;
- any other terms of the debt warrants and terms, procedures and
limitations relating to your exercise of the debt warrants; and
- the terms of the securities you may purchase upon exercise of the debt
warrants.
We will also describe in the applicable prospectus supplement any
provisions for a change in the exercise price or expiration date of the debt
warrants and the kind, frequency and timing of any notice to be given. You may
exchange debt warrant certificates for new debt warrant certificates of
different denominations and may exercise debt warrants at the corporate trust
office of the warrant agent or any other office that we indicate in the
applicable prospectus supplement. Prior to exercise, you will not have any of
the rights of holders of the debt securities purchasable
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upon that exercise and will not be entitled to payments of principal, premium,
if any, or interest on the debt securities purchasable upon the exercise.
OTHER WARRANTS
We may issue other warrants. You should refer to the applicable prospectus
supplement for the specific terms of those warrants. These may include the
following:
- the title of the warrants;
- the securities, which may include preferred stock or common stock, for
which you may exercise the warrants;
- the aggregate number of the warrants;
- the number of securities that you may purchase upon exercise of each
warrant, and the price or prices at which we will issue the warrants;
- the procedures and conditions relating to the exercise of the warrants;
- the designation and terms of any related securities issued with the
warrants, and the number of warrants issued with each security;
- the date, if any, from which you may separately transfer the warrants and
the related securities;
- the date on which your right to exercise the warrants commences, and the
date on which your right expires;
- the maximum or minimum number of the warrants which you may exercise at
any time;
- any special United States federal income tax consequences of the
warrants;
- any special accounting considerations applicable to the warrants;
- any other terms of the warrants and terms, procedures and limitations
relating to your exercise of the warrants; and
- the designation and terms of the common stock, preferred stock or other
securities you may purchase upon exercise of the warrants.
We will also describe in the applicable prospectus supplement any
provisions for a change in the exercise price or expiration date of the warrants
and the kind, frequency and timing of any notice to be given. You may exchange
warrant certificates for new warrant certificates of different denominations and
may exercise warrants at the corporate trust office of the warrant agent or any
other office that we indicate in the applicable prospectus supplement. Prior to
the exercise of your warrants, you will not have any of the rights of holders of
the preferred stock, common stock or other securities purchasable upon that
exercise and will not be entitled to dividend payments, if any, or voting rights
of the preferred stock, common stock or other securities purchasable upon the
exercise.
EXERCISE OF WARRANTS
We will describe in the applicable prospectus supplement the principal
amount or the number of our securities that you may purchase for cash upon
exercise of a warrant, and the exercise price. You may exercise a warrant as
described in the applicable prospectus supplement at any time up to the close of
business on the expiration date stated in the prospectus supplement. Unexercised
warrants will become void after the close of business on the expiration date, or
any later expiration date that we determine.
We will forward the securities purchasable upon the exercise as soon as
practicable after receipt of payment and the properly completed and executed
warrant certificate at the corporate trust office of the warrant agent or other
office stated in the applicable prospectus supplement. If you exercise less than
all of the warrants represented by the warrant certificate, we will issue you a
new warrant certificate for the remaining warrants.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
We may issue stock purchase contracts, including contracts obligating you
to purchase from us, and us to sell to you, a specific number of shares of
common stock or preferred stock at a future date or dates. The price per share
of preferred stock or common stock may be fixed at the time the stock purchase
contracts are issued or may be determined by reference to a specific formula
described in the stock purchase contracts. We may issue stock purchase contracts
separately or as a part of units each consisting of a stock purchase contract
and debt securities, preferred securities or debt obligations of third parties,
including United States Treasury securities, securing your obligations to
purchase the preferred stock or the common stock under the stock purchase
contract. The stock purchase contracts may require us to make periodic payments
to you or vice versa and the payments may be unsecured or prefunded on some
basis. The stock purchase contracts may require you to secure your obligations
in a specified manner. We will describe in the applicable prospectus supplement
the terms of any stock purchase contracts or stock purchase units.
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DESCRIPTION OF PREFERRED SECURITIES
The trustees of each trust will issue on behalf of the trust preferred
securities and common securities of the trust. The preferred securities will
represent preferred undivided beneficial interests in the assets of the related
trust. As a holder of preferred securities of the trust, you will generally be
entitled to a preference with respect to distributions and amounts payable on
redemption or liquidation over the common securities of the trust, as well as
other benefits as described in the corresponding trust agreement. Each of the
trusts is a legally separate entity and the assets of one are not available to
satisfy the obligations of any of the others.
The following description of the terms of the preferred securities and form
of trust agreement is a summary. It summarizes only those features of the
preferred securities and terms of the form of trust agreement which we believe
will be most important to your decision to invest in the preferred securities.
You should keep in mind, however, that it is the applicable trust agreement and
form of amended and restated trust agreement and not this summary, which define
your rights as a holder. There may be other provisions in the trust agreement
and form of amended and restated trust agreement which are also important to
you. You should read these documents for a full description of the terms of the
preferred securities. They are filed as exhibits to the registration statement
that includes this prospectus. See "Where You Can Find More Information" for
information on how to obtain copies of these documents.
Each trust agreement will be qualified under the Trust Indenture Act. The
terms of the preferred securities of each trust will include those stated in the
applicable trust agreement and those made part of the trust agreement by
reference to the Trust Indenture Act. The amended and restated trust agreement
for each trust will be executed at the time the trust issues any preferred
securities and will be filed with the Securities and Exchange Commission on Form
8-K or by a post-effective amendment to the registration statement that includes
this prospectus. You should also read the applicable prospectus supplement,
which will contain additional information and may update or change some of the
information below.
GENERAL
The trust agreement for each trust authorizes the administrative trustees
to issue on behalf of the trust preferred securities that have the terms
described in this prospectus and in the applicable prospectus supplement. The
preferred securities will represent undivided beneficial interests in the assets
of the applicable trust. The proceeds from the sale of each trust's preferred
and common securities will be used by the trust to purchase a series of
corresponding junior subordinated debentures that we issue. The corresponding
junior subordinated debentures will be held in trust by the property trustee for
the benefit of the holders of the preferred and common securities of the
applicable trust.
The terms of the preferred securities of each trust will mirror the terms
of the corresponding junior subordinated debentures held by the applicable
trust. If interest payments on the corresponding junior subordinated debentures
held by the applicable trust are deferred as described below, distributions on
the preferred securities will also be deferred. The assets of the trust
available for distribution to the holders of its preferred securities generally
will be limited to payments under the series of corresponding junior
subordinated debentures held by the trust.
Under the guarantee agreement related to each trust, we will agree to make
payments of distributions and payments on redemption or liquidation with respect
to the trust's preferred securities, but only to the extent the trust has funds
available to make those payments and has not made the payments. Our obligations
under the applicable guarantee, expense agreement, trust agreement, junior
subordinated indenture and corresponding junior subordinated debentures will
provide a full, irrevocable and unconditional commitment by us regarding amounts
due on the preferred securities issued by each trust. See "Relationship Among
the Preferred Securities, the Corresponding Junior Subordinated Debentures and
the Guarantees."
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RANKING OF PREFERRED SECURITIES
The preferred securities of a trust will rank equally, and we will make
payments proportionately with the common securities of the trust except as
described under "-- Subordination of Common Securities." The preferred
securities of each trust represent preferred undivided beneficial interests in
the assets of the trust. The property trustee will hold legal title to the
corresponding junior subordinated debentures in trust for the benefit of the
holders of the related preferred securities and common securities.
Each guarantee agreement that we execute for your benefit, as a holder of
preferred securities of a trust, will be a guarantee on a subordinated basis
with respect to the related preferred securities. However, our guarantee will
not guarantee payment of distributions or amounts payable on redemption or
liquidation of the preferred securities when the related trust does not have
funds on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS ON THE PREFERRED SECURITIES
Each trust will pay the distributions on the preferred securities and
common securities at a rate specified in the applicable prospectus supplement.
The amount of distributions the trust must pay for any period will be
computed on the basis of a 360-day year of twelve 30-day months unless we
otherwise specify in the applicable prospectus supplement. Distributions that
are in arrears may bear interest at the rate per annum specified in the
applicable prospectus supplement. The term "distributions" as we use it in this
prospectus includes any additional amounts provided in the trust agreement.
Distributions on the preferred securities will be cumulative, will accrue
from the date of original issuance and will be payable on the dates specified in
the applicable prospectus supplement. If any date on which distributions are
payable on the preferred securities is not a business day, the trust will
instead make the payment on the next succeeding day that is a business day, and
without any interest or other payment on account of the delay. However, if that
business day is in the next succeeding calendar year, the trust will make the
payment on the immediately preceding business day. In each case payment will be
made with the same force and effect as if made on the date the payment was
originally due. When we use the term "business day" in this prospectus, we mean
any day other than a Saturday or a Sunday, or a day on which banking
institutions in the City of New York are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office of
the property trustee or the debenture trustee is closed for business.
If provided in the applicable prospectus supplement, we have the right
under the junior subordinated indenture, which is the contract that provides the
terms for the corresponding junior subordinated debentures, to extend the
interest payment period for a specified number of periods. However, we may not
extend these interest payments beyond the maturity of the corresponding junior
subordinated debentures. As a consequence of any extension, distributions on the
related preferred securities would be deferred by the trust during the extension
period. These distributions would continue to accumulate additional
distributions at the rate per annum set forth in the prospectus supplement.
If we exercise this right, during the extension period we and our
subsidiaries may not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment on, any of our capital stock; or
- make any payment of principal, premium, if any, or interest on or repay,
repurchase or redeem any debt securities that rank equally with or junior
in interest to the corresponding junior subordinated debentures or make
any related guarantee payments,
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other than:
- dividends or distributions in our common stock;
- redemptions or purchases of any rights pursuant to our rights plan, or
any successor to our rights plan, and the declaration of a dividend of
these rights in the future; and
- payments under any guarantee.
We anticipate that the revenue of each trust available for distribution to
you, as a holder of preferred securities, will be limited to payments under the
corresponding junior subordinated debentures in which the trust will invest the
proceeds from the issuance and sale of its preferred securities and its common
securities. See "Description of Junior Subordinated Debentures."
If we do not make interest payments on the corresponding junior
subordinated debentures, the property trustee will not have funds available to
pay distributions on the related preferred securities. The payment of
distributions, if and to the extent the trust has funds legally available for
the payment of these distributions is guaranteed by us on a limited basis as set
forth under "Description of Guarantees."
The trust will pay distributions on the preferred securities to you
provided you are entered in the register of the trust on the relevant record
dates. As long as the preferred securities remain in book-entry form, the record
date will be one business day prior to the relevant distribution date. If any
preferred securities are not in book-entry form, the record date for the
preferred securities will be the date 15 days prior to the relevant distribution
date.
REDEMPTION AND VOLUNTARY DISTRIBUTION
REDEMPTION UPON REPAYMENT OR REDEMPTION OF THE CORRESPONDING JUNIOR
SUBORDINATED DEBENTURES
Upon the repayment or redemption, in whole or in part, of any corresponding
junior subordinated debentures, the property trustee must apply the proceeds
from that repayment or redemption to redeem a like amount of the preferred
securities and common securities of the related trust. This redemption must be
made upon not less than 30 nor more than 60 days' notice to you. Unless we state
otherwise in the applicable prospectus supplement, the redemption price will be
equal to 100% of the aggregate liquidation amount of the preferred and common
securities redeemed, plus accumulated and unpaid distributions on the preferred
and common securities redeemed up to but not including the date of redemption.
See "Description of Junior Subordinated Debentures -- Redemption."
If less than all of any series of corresponding junior subordinated
debentures are repaid or redeemed, then the proceeds from the repayment or
redemption will be allocated to redeem a proportionate amount of each of the
preferred securities and the common securities. The amount of premium, if any,
paid by us upon the redemption of all or any part of any series of any
corresponding junior subordinated debentures repaid or redeemed will be
allocated proportionately to the redemption of the preferred securities and the
common securities.
We must repay the principal of the corresponding junior subordinated
debentures when they are due. In addition, unless we state otherwise in the
applicable prospectus supplement, we may, at our option and at any time, redeem
any series of corresponding junior subordinated debentures
- in whole or in part, subject to the conditions we describe under
"Description of Junior Subordinated Debentures -- Redemption"; or
- as we may otherwise specify in the applicable prospectus supplement.
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When we use the term "like amount," we mean:
- with respect to a redemption of any series of preferred securities,
preferred securities having a liquidation amount equal to that portion of
the principal amount of corresponding junior subordinated debentures to
be contemporaneously redeemed, the proceeds of which will be used to pay
the redemption price of the preferred securities; and
- with respect to a distribution of corresponding junior subordinated
debentures to you, as a holder of preferred securities in connection with
a dissolution or liquidation of the related trust, corresponding junior
subordinated debentures having a principal amount equal to the
liquidation amount of your preferred securities.
When we use the term "liquidation amount," we mean the stated amount of $25
per preferred security and common security.
VOLUNTARY DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Unless we provide otherwise in the applicable prospectus supplement, we may
elect, at any time, to terminate the trust and cause the corresponding junior
subordinated debentures to be distributed to you, as a holder of the preferred
securities, and us, as the holder of the common securities, in liquidation of
the trust.
After the liquidation date fixed for any distribution of corresponding
junior subordinated debentures for any series of preferred securities:
- the series of preferred securities will no longer be deemed to be
outstanding;
- DTC or its nominee, as the record holder of the series of preferred
securities, will receive a registered global certificate or certificates
representing the corresponding junior subordinated debentures to be
delivered upon that distribution; and
- any certificates representing the series of preferred securities not held
by DTC or its nominee will be deemed to represent the corresponding
junior subordinated debentures having a principal amount equal to the
stated liquidation preference of the series of preferred securities, and
bearing accrued and unpaid interest in an amount equal to the accrued and
unpaid distributions on the series of preferred securities until you
present the certificates to the administrative trustees or their agent
for transfer or reissuance.
We can make no assurance as to what the market prices would be for the
preferred securities or the corresponding junior subordinated debentures that
may be distributed to you in exchange for your preferred securities if a
dissolution and liquidation of a trust were to occur. Accordingly, the preferred
securities that you purchase, or the corresponding junior subordinated
debentures that you receive on dissolution and liquidation of a trust, may trade
at a discount to the price that you paid to purchase the preferred securities.
REDEMPTION PROCEDURES
The trust will redeem the preferred securities and common securities on
each redemption date at the redemption price with the applicable proceeds from
the contemporaneous redemption of the corresponding junior subordinated
debentures. The trust will make redemptions of the preferred securities and pay
the redemption price only to the extent that it has funds available for the
payment of the redemption price. See "-- Subordination of Common Securities."
If a trust gives notice to you of redemption of your preferred securities,
then by 12:00 noon, New York City time, on the redemption date, to the extent
funds are available, the property trustee will irrevocably deposit with DTC
funds sufficient to pay the applicable redemption price and will give DTC
irrevocable instructions and authority to pay the redemption price to you. See
"-- Global Preferred Securities."
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If the preferred securities are no longer in book-entry form, the trust, to
the extent funds are available, will irrevocably deposit with the paying agent
for the preferred securities funds sufficient to pay the applicable redemption
price to you and will give the paying agent irrevocable instructions and
authority to pay the redemption price to you upon surrender of your
certificates.
The trust will pay any distributions payable on or prior to the redemption
date for any preferred securities called for redemption to you on the relevant
record dates for the distribution. If the trust has given notice of redemption
and has deposited the required funds, then upon the date of the deposit, all
your rights will cease, except your right to receive the redemption price,
without interest on that redemption price, and your preferred securities will
cease to be outstanding. If any date fixed for redemption of preferred
securities is not a business day, then the trust will pay the redemption price
on the next succeeding day which is a business day, and without any interest or
other payment on account of the delay. However, if the business day falls in the
next calendar year, the trust will make the payment on the immediately preceding
business day. If payment of the redemption price is improperly withheld or
refused and not paid either by the trust or by us pursuant to the guarantee as
described under "Description of Guarantees," distributions on the preferred
securities will continue to accrue at the then applicable rate, from the
redemption date originally established by the trust for the preferred securities
to the date the redemption price is actually paid. In this case the actual
payment date will be the date fixed for redemption for purposes of calculating
the redemption price.
Subject to applicable law, including the United States federal securities
laws, we or our subsidiaries may at any time purchase outstanding preferred
securities by tender, in the open market or by private agreement.
The trust will make payment of the redemption price on the preferred
securities and any distribution of corresponding junior subordinated debentures
to the applicable record holders as they appear on the register for the
preferred securities on the relevant record date. This date will generally be
one business day prior to the relevant redemption date or liquidation date.
However, if any preferred securities are not in book-entry form, the relevant
record date for the preferred securities will be the date 15 days prior to the
redemption date or liquidation date.
If less than all of the preferred securities and common securities issued
by a trust are to be redeemed on a redemption date, then the aggregate
liquidation amount of the preferred securities and common securities to be
redeemed will be allocated proportionately among the preferred securities and
the common securities. The property trustee will select the particular preferred
securities to be redeemed on a proportionate basis not more than 60 days prior
to the redemption date from the outstanding preferred securities not previously
called for redemption, by any method that the property trustee deems fair and
appropriate. This method may provide for the selection for redemption of
portions, equal to $25 or an integral multiple of $25, of the liquidation amount
of preferred securities. The property trustee will promptly notify the trust
registrar in writing of the preferred securities selected for redemption and, in
the case of any preferred securities selected for partial redemption, the
liquidation amount of the preferred securities to be redeemed.
SUBORDINATION OF COMMON SECURITIES
The trust will make payment of distributions, any additional amounts and
the redemption price on the preferred securities and common securities
proportionately based on the liquidation amount of the preferred securities and
common securities. However, if on any distribution date or redemption date a
debenture event of default exists, the trust will not make any payment on the
common securities unless payment in full in cash of all accumulated and unpaid
distributions, any additional amounts and the full amount of the redemption
price on all of the outstanding preferred securities of the trust, has been made
or provided for. The property trustee will apply all available funds first to
the payment in full in cash of all distributions on the preferred securities
then due and payable.
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If any event of default resulting from a debenture event of default exists,
we, as holder of the common securities of the trust, will be deemed to have
waived any right to act with respect to the event of default under the trust
agreement until the effect of all those events of default with respect to the
preferred securities has been cured, waived or otherwise eliminated. Until any
events of default under the trust agreement with respect to the preferred
securities have been so cured, waived or otherwise eliminated, the property
trustee will act solely on your behalf, as a holder of the preferred securities,
and not on our behalf as holder of the common securities, and only you acting
with the other holders will have the right to direct the property trustee to act
on your behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Each trust will automatically terminate upon expiration of its term or the
redemption of all of the preferred securities of the trust. In addition, we will
terminate the trust on the first to occur of:
- our bankruptcy, dissolution or liquidation;
- a tax event or an investment company event, as described in the trust
agreement, or the trust is not or will not be taxed as a grantor trust
but a tax event has not occurred, and written direction is given to the
property trustee within 45 days of such event to terminate the trust;
- the redemption of all of the preferred securities; and
- the entry of an order for the dissolution of the trust by a court of
competent jurisdiction.
If an early termination occurs as described in the clauses above, the
trustees will liquidate the trust as expeditiously as the trustees determine to
be possible by distributing, after satisfaction of liabilities to creditors of
the trust as provided by applicable law, to the holders of the preferred
securities and common securities a like amount of corresponding junior
subordinated debentures. If the property trustee determines that this
distribution is not practical, you will be entitled to receive out of the assets
of the trust available for distribution, after satisfaction of liabilities to
creditors of the trust as provided by applicable law, an amount equal to the
aggregate of the liquidation amount plus accrued and unpaid distributions to the
date of payment. We refer to this liquidation amount in this prospectus as the
"liquidation distribution." If the trust can make the liquidation distribution
only in part because it has insufficient assets available to pay the full
aggregate liquidation distribution, then it will pay the amounts on a
proportionate basis. We, as the holder of the common securities, will be
entitled to receive distributions upon any liquidation proportionately with you,
and the other holders of the preferred securities, except that if an event
exists that constitutes an event of default under the corresponding series of
junior subordinated debentures, the preferred securities will have a priority
over the common securities. A supplemental indenture may provide that if an
early termination occurs as described in the third clause above, the
corresponding junior subordinated debentures may be subject to optional
redemption in whole, but not in part.
EVENTS OF DEFAULT; NOTICE
Under the terms of the trust agreements, each of the following constitutes
an event of default for a series of preferred securities:
- the occurrence of an event of default under the corresponding series of
junior subordinated debentures (see "Description of Junior Subordinated
Debentures -- Debenture Events of Default");
- default by the property trustee in the payment of any distribution when
it becomes due and payable, and continuation of that default for a period
of 30 days;
- default by the property trustee in the payment of any redemption price of
the preferred securities or common securities when it becomes due and
payable;
- default in the performance, or breach, in any material respect, of any
covenant or warranty of the trustees in the trust agreement, other than a
covenant or warranty a default in the
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performance of which or the breach of which is dealt with in the second
and third clauses above, and continuation of the default or breach for a
period of 60 days after there has been given to the defaulting trustee or
trustees by the holders of at least 10% in aggregate liquidation amount
of the outstanding preferred securities, 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 such trust agreement; or
- the bankruptcy or insolvency of the property trustee and our failure to
appoint a successor property trustee within 60 days of that event.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee will transmit
notice of the event of default to you, the administrative trustees and us, as
depositor, unless the event of default has been cured or waived. We, as
depositor, and the administrative trustees are required to file annually with
the property trustee a certificate as to whether or not we are and they are in
compliance with all the conditions and covenants applicable to them and to us
under the trust agreement.
If an event of default under the corresponding series of junior
subordinated debentures then exists, the preferred securities will have a
preference over the common securities upon termination of the trust. See
"-- Liquidation Distribution upon Termination."
The existence of an event of default does not entitle you to accelerate the
maturity of the corresponding junior subordinated debentures.
MODIFICATION OF THE JUNIOR SUBORDINATED INDENTURE
In the case of corresponding junior subordinated debentures, so long as any
of the related series of preferred securities remain outstanding:
- no modification of the junior subordinated indenture may be made that
adversely affects the holders of the preferred securities;
- no termination of the junior subordinated indenture may occur; and
- no waiver of any event of default or compliance with any covenant under
the junior subordinated indenture with respect to the corresponding
series of junior subordinated debentures may be effective,
without the prior consent of the holders of at least a majority of the aggregate
liquidation preference of the related preferred securities unless the principal
of, and premium, if any on, the corresponding junior subordinated debentures and
all accrued and unpaid interest on the corresponding junior subordinated
debentures have been paid in full and other conditions are satisfied.
REMOVAL OF TRUSTEES
Unless an event of default under the corresponding series of junior
subordinated debentures exists, the holder of the common securities may remove
any trustee. If a debenture event of default exists, the holders of a majority
in liquidation amount of the outstanding preferred securities may remove the
property trustee and the Delaware trustee. In no event will you have the right
to vote to appoint, remove or replace the administrative trustees. These voting
rights are vested exclusively in us as the holder of the common securities. No
resignation or removal of a trustee and no appointment of a successor trustee
will be effective until the acceptance of appointment by the successor trustee
in accordance with the provisions of the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default then exists, for the purpose of meeting the
legal requirements of the Trust Indenture Act or of any jurisdiction in which
any part of the trust property may be located, we, as the holder of the common
securities, and the administrative trustees will have power to
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appoint one or more persons either to act as a co-trustee, jointly with the
property trustee, of all or any part of the trust property, or to act as
separate trustee. These persons will have the powers provided in the instrument
of appointment, and we may vest in that person or persons any property, title,
right or power deemed necessary or desirable, subject to the provisions of the
trust agreement. If an event of default under the corresponding series of junior
subordinated debentures exists, the property trustee alone will have power to
make that appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any corporation into which the property trustee, the Delaware trustee or
any administrative trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the trustee is a party, or
any corporation succeeding to all or substantially all the corporate trust
business of the trustee, will be the successor of such trustee under the trust
agreements, provided that the corporation is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUSTS
A trust may not merge with or into, consolidate, amalgamate, or be replaced
by, or convey, transfer or lease its properties and assets substantially as an
entirety to any corporation or other body, except as described below.
A trust may, at our request, with the consent of the administrative
trustees and without your consent, merge with or into, consolidate, amalgamate,
or be replaced by a trust organized under the laws of any state. However, the
following conditions must be satisfied:
- the successor entity must either:
- expressly assume all of the obligations of the trust relating to the
preferred securities; or
- substitute for the preferred securities other securities having
substantially the same terms and the same ranking as the preferred
securities;
- we must expressly appoint a trustee of the successor entity possessing
the same powers and duties as the property trustee as the holder of the
corresponding junior subordinated debentures;
- the successor securities must be listed upon notification of issuance, on
any national securities exchange or other organization on which the
preferred securities are then listed;
- the merger, consolidation, amalgamation or replacement must not cause the
preferred securities, including any successor securities, to be
downgraded by any nationally recognized statistical rating organization;
- the merger, consolidation, amalgamation or replacement must not adversely
affect the rights, preferences and privileges of holders of the preferred
securities, including any successor securities, in any material respect;
- the successor entity must have a purpose identical to that of the trust;
- prior to the merger, consolidation, amalgamation or replacement, we must
have received an opinion from independent counsel to the trust
experienced in such matters to the effect that:
- the merger, consolidation, amalgamation or replacement, does not
adversely affect the rights, preferences and privileges of holders of
the preferred securities, including any successor securities, in any
material respect; and
- following the merger, consolidation, amalgamation or replacement,
neither the trust nor the successor entity will be required to register
as an investment company under the Investment Company Act; and
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- we or any permitted successor or assignee must own all of the common
securities of the successor entity and guarantee the obligations of such
successor entity under the successor securities at least to the extent
provided by the guarantee.
However, a trust may not, except with the consent of holders of 100% in
liquidation amount of the preferred securities, consolidate, amalgamate, merge
with or into, or be replaced by any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if it would cause the
trust or the successor entity to be classified as other than a grantor trust for
federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of Guarantees-Amendments
and Assignment" and as otherwise required by law and the applicable trust
agreement, you will have no voting rights.
We and the trustees may amend a trust agreement without your consent:
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement which may be inconsistent with any other provision, or to make
any other provisions with respect to matters or questions arising under
the trust agreement, which are not inconsistent with the other provisions
of the trust agreement; or
- to modify, eliminate or add to any provisions of the trust agreement to
the extent necessary to ensure that the trust will be classified for
federal income tax purposes as a grantor trust at all times that any
preferred securities and common securities are outstanding, 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 above, the action may not adversely
affect in any material respect the interests of the holders of the preferred
securities or our interests, as the holder of the common securities. Any
amendments of the trust agreement will become effective when notice is given to
you and us.
We and the trustees may also amend a trust agreement with:
- the consent of holders representing not less than a majority, based upon
liquidation amounts, of the outstanding preferred securities and common
securities; and
- receipt by the trustees of an opinion of counsel to the effect that the
amendment or the exercise of any power granted to the trustees under the
amendment will not affect the status of the trust as a grantor trust for
federal income tax purposes or its exemption from the status of an
"investment company" under the Investment Company Act.
Without both your and our consent a trust agreement may not be amended to:
- change the amount or timing of any distribution on the preferred
securities and common securities or otherwise adversely affect the amount
of any distribution of the preferred securities and common securities as
of a specified date; or
- restrict your or our right to institute suit for the enforcement of any
payment on or after that date.
So long as any corresponding junior subordinated debentures are held by the
property trustee, the trustees may not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the debenture trustee, or for executing any trust or
power conferred on the debenture trustee with respect to the
corresponding junior subordinated debentures;
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- waive any past default that is waivable under specified sections of the
junior subordinated indenture;
- exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures is due and payable; or
- consent to any amendment, modification or termination of the junior
subordinated indenture or the corresponding junior subordinated
debentures, where that consent is required
without, in each case, obtaining the prior approval of the holders of a majority
in aggregate liquidation amount of all outstanding preferred securities.
However, where a consent under the junior subordinated indenture would require
the consent of each holder of corresponding junior subordinated debentures
affected by the consent, no consent may be given by the property trustee without
the prior consent of each holder of the related preferred securities.
The trustees may not revoke any action previously authorized or approved by
a vote of the preferred securities except by subsequent vote of the holders of
the preferred securities. The property trustee will notify you of any notice of
default with respect to the corresponding junior subordinated debentures. In
addition to obtaining the approval of the holders of the preferred securities
prior to taking any of these actions, the trustees must obtain an opinion of
counsel experienced in these matters to the effect that the trust will not be
classified as a corporation or partnership for United States federal income tax
purposes on account of the action.
Any required approval of holders of preferred securities may be given at a
meeting of holders of preferred securities convened for that purpose or through
a written consent. The property trustee will cause a notice of any meeting at
which you are entitled to vote, or of any matter upon which action by written
consent is to be taken, to be given to each holder of record of preferred
securities in the manner set forth in the trust agreement.
Your vote or consent is not required for a trust to redeem and cancel the
preferred securities under the applicable trust agreement.
Any preferred securities that are owned by us, the trustees or any of our
affiliates or any affiliate of the trustees, will, for purposes of a vote or
consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
Each trust may issue a series of preferred securities in the form of one or
more global preferred securities that will be deposited with a depositary
identified in a prospectus supplement. Unless otherwise stated in the applicable
prospectus supplement, the Depositary Trust Company, New York, New York, or DTC,
will act as depositary. The trusts will issue global preferred securities only
in fully registered form and in either temporary or permanent form. Unless it is
exchanged for individual preferred securities, a global preferred security may
not be transferred unless it is being transferred to certain nominees of the
depositary.
We will describe the specific terms of the depositary arrangement in the
applicable prospectus supplement. We expect that the following provisions will
generally apply to these depositary arrangements.
BENEFICIAL INTERESTS IN A GLOBAL PREFERRED SECURITY
If a trust issues a global preferred security, the depositary for the
global preferred security or its nominee will credit on its book-entry
registration and transfer system the aggregate liquidation amounts of the
individual preferred securities represented by the global preferred securities
to the accounts of participants. The accounts will be designated by the dealers,
underwriters or agents for the preferred securities, or by us if the preferred
securities are offered and sold directly by the trust. Ownership of beneficial
interests in a global preferred security will be limited to participants
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or persons that may hold the trust interests through participants. Ownership and
transfers of beneficial interests in the global preferred security will be shown
on, and effected only through, records maintained by the applicable depositary
or its nominee, for interests of participants, and the records of participants,
for interests of persons who hold through participants. The laws of some states
may require that you take physical delivery of the securities in definitive
form. These limits and laws may impair your ability to transfer beneficial
interests in a global preferred security.
So long as the depositary or its nominee is the registered owner of the
global preferred security, the depositary or nominee will be considered the sole
owner or holder of the preferred securities represented by the global preferred
security for all purposes under the trust agreement. Except as provided below,
you:
- will not be entitled to have any of the individual preferred securities
represented by the global preferred security registered in your name;
- will not receive or be entitled to receive physical delivery of any
preferred securities in definitive form; and
- will not be considered the owner or holder of the preferred security
under the trust agreement.
PAYMENTS OF DISTRIBUTIONS
The trust will pay distributions on global preferred securities to the
depositary that is the registered holder of the global security, or its nominee.
The depositary for the preferred securities will be solely responsible and
liable for all payments made on account of your beneficial ownership interests
in the global preferred security and for maintaining, supervising and reviewing
any records relating to your beneficial ownership interests.
We expect that the depositary or its nominee, upon receipt of any payment
of liquidation amount, premium or distributions, immediately will credit
participants' accounts with amounts in proportion to their respective beneficial
interests in the aggregate liquidation amount of the global preferred security
as shown on the records of the depositary or its nominee. We also expect that
payments by participants to owners of beneficial interests in the global
preferred security held through those participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
These payments will be the responsibility of those participants.
Further, the trust may specify that you may, on terms acceptable to us, the
property trustee and the depositary for the global preferred security, receive
definitive preferred securities in exchange for your beneficial interests in a
global preferred security, subject to any limitations described in the
prospectus supplement relating to the preferred securities. In that instance,
you will be entitled to physical delivery of definitive preferred securities
equal in liquidation amount to that beneficial interest and to have the
preferred securities registered in your name. Unless otherwise provided in the
applicable prospectus supplement, those definitive preferred securities will be
issued in denominations of $25 and integral multiples of $25.
PAYMENT AND PAYING AGENTS
Unless otherwise provided in the applicable prospectus supplement, each
trust will make payments on the preferred securities to DTC, which will credit
the relevant accounts at DTC on the applicable distribution dates. However, if
any preferred securities are not held by DTC, the trust will make the payments
by check mailed to the address of the holder entitled to the payment as shown on
the register. Unless otherwise provided in the applicable prospectus supplement,
the paying agent will initially be the property trustee, together with any
co-paying agent chosen by the property trustee and acceptable to the
administrative trustees and us. The paying agent may resign as paying agent upon
30 days' written notice to the property trustees and us. If the property trustee
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ceases to be the paying agent, the administrative trustees will appoint a
successor to act as paying agent. The successor must be a bank or trust company
acceptable to the administrative trustees and us.
REGISTRAR AND TRANSFER AGENT
Unless otherwise provided in the applicable prospectus supplement, the
property trustee will act as registrar and transfer agent for the preferred
securities.
The trust will register transfers of preferred securities without charge,
but upon your payment of any tax or other governmental charges that may be
imposed in connection with any transfer or exchange. The trust will not be
required to register the transfer of its preferred securities after the
preferred securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, unless an event of default then exists, will be
required to perform only those duties that are specifically set forth in the
applicable trust agreement. After an event of default, the property 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. However, the property trustee is
under no obligation to exercise any of the powers vested in it by the trust
agreement at your request unless you offer reasonable indemnity against the
costs, expenses and liabilities that it might incur. If no event of default then
exists and the property trustee is required to decide between alternative causes
of action, construe ambiguous provisions in a trust agreement or is unsure of
the application of any provision of a trust agreement, and the matter is not one
on which holders are entitled under the trust agreement to vote, then the
property trustee will take such action as is directed by us. If it is not so
directed, the property trustee will take such action as it deems advisable and
in the best interests of the holders of the preferred securities and the holder
of the common securities and will have no liability except for its own bad
faith, negligence or willful misconduct.
MISCELLANEOUS
Each trust agreement authorizes and directs the administrative trustees to
operate the trust in such a way that the trust will not be deemed to be an
investment company required to be registered under the Investment Company Act or
taxed as a corporation or partnership for federal income tax purposes, and in
such a way that the corresponding junior subordinated debentures will be treated
as our indebtedness for United States federal income tax purposes. We and the
administrative trustees are authorized to take any action, not inconsistent with
applicable law, the certificate of trust or the trust agreement, that we and the
administrative trustees determine in our discretion to be necessary or desirable
for these purposes, as long as the action does not materially adversely affect
the interests of the holders of the preferred securities.
You have no preemptive or similar rights as a holder of preferred
securities. No trust may borrow money or issue debt or mortgage or pledge any of
its assets.
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DESCRIPTION OF GUARANTEES
At the same time as the issuance by a trust of its preferred securities, we
will execute and deliver a guarantee for your benefit as a holder of the
preferred securities. Bank One Trust Company, N.A. will act as indenture trustee
under each guarantee for the purposes of compliance with the Trust Indenture
Act. Each guarantee will be qualified as an indenture under the Trust Indenture
Act.
The following description of the terms of the guarantees is a summary. It
summarizes only those portions of the guarantees which we believe will be most
important to your decision to invest in the preferred securities. You should
keep in mind, however, that it is the guarantees, and not this summary, which
define your rights. There may be other provisions in the guarantees which are
also important to you. You should read each guarantee itself for a full
description of its terms. The form of the guarantees are filed as exhibits to
the registration statement that includes this prospectus. See "Where You Can
Find More Information" for information on how to obtain copies of the
guarantees. The terms of each guarantee will include those stated in the
applicable guarantee and those made part of the guarantee by reference to the
Trust Indenture Act. Each guarantee will be executed at the time the related
trust issues any preferred securities and will be filed with the SEC on a Form
8-K or by a post-effective amendment to the registration statement that includes
this prospectus. When we refer in this summary to preferred securities, we mean
the preferred securities issued by a trust to which a guarantee relates.
GENERAL TERMS OF THE GUARANTEES
We will irrevocably agree to pay in full on a subordinated basis, to the
extent described below, the guarantee payments, as defined below, to you, as and
when due, regardless of any defense, right of set-off or counterclaim that the
trust may have or assert other than the defense of payment.
The following payments, which we refer to in this prospectus as the
"guarantee payments," to the extent not paid by or on behalf of the related
trust, will be subject to the guarantees:
- any accrued and unpaid distributions required to be paid to you on the
related preferred securities, to the extent that the trust has funds
available for the payments;
- the redemption price, including all accrued and unpaid distributions to
the date of redemption with respect to any preferred securities called
for redemption by the trust, to the extent that the trust has funds
available for the payments; or
- upon a voluntary or involuntary dissolution, winding-up or liquidation of
the trust, unless the corresponding junior subordinated debentures are
distributed to you, the lesser of:
- the liquidation distribution; and
- the amount of assets of the trust remaining available for distribution
to you.
Our obligation to make a guarantee payment may be satisfied by us directly
paying to you the required amounts or by causing the trust to pay the amounts to
you.
Each guarantee will be an irrevocable guarantee on a subordinated basis of
the related trust obligations under the preferred securities, but will apply
only to the extent that the related trust has funds sufficient to make the
payments. It is not a guarantee of collection.
If we do not make interest payments on the corresponding junior
subordinated debentures held by the trust, we expect that the trust will not pay
distributions on the preferred securities and will not have funds legally
available for those payments. The guarantees will rank subordinate and junior in
right of payment to all of our debt other than debt which ranks equally with or
junior to the guarantees. See "-- Status of the Guarantees."
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As a non-operating holding company, most of our operating assets and the
assets of our consolidated subsidiaries are owned by our subsidiaries. We rely
primarily on dividends from our subsidiaries to meet our obligations for payment
of principal and interest on our outstanding debt obligations and corporate
expenses. Accordingly, our obligations under the guarantees will be effectively
subordinated to all existing and future liabilities of our subsidiaries. You
should rely only on our assets for payments we owe. The payment of dividends by
our insurance company subsidiaries may be restricted by state insurance laws and
regulations as administered by state insurance departments. See "The Chubb
Corporation."
Unless we state otherwise in the applicable prospectus supplement, the
guarantees do not limit the amount of secured or unsecured debt that we may
incur. We expect from time to time to incur additional senior debt.
We have, through the guarantees, the trust agreements, the junior
subordinated debentures, the junior subordinated indenture and related expense
agreements, taken together, fully, irrevocably and unconditionally guaranteed
all of the obligations of the trusts under the preferred securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes a guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the obligations of the trust under the preferred
securities. See "Relationship Among the Preferred Securities, the Corresponding
Junior Subordinated Debentures and the Guarantees."
STATUS OF THE GUARANTEES
The guarantees will constitute unsecured obligations of Chubb and will rank
subordinate and junior in right of payment to all "senior indebtedness" of
Chubb. Senior indebtedness for this purpose has the same meaning as for the
junior subordinated debentures.
Unless we state otherwise in the applicable prospectus supplement, the
guarantee of a series of preferred securities will rank equally with the
guarantees relating to all other series of preferred securities that we may
issue. A guarantee will constitute a guarantee of payment and not of collection,
which means that the guaranteed party may institute a legal proceeding directly
against us to enforce its rights under the guarantee without first instituting a
legal proceeding against the trust, the guarantee trustee or any other person or
entity. The property trustee of the related trust will hold the guarantees for
your benefit. The guarantees will not be discharged except by payment of the
guarantee payments in full to the extent not paid by the trust or upon
distribution of the corresponding junior subordinated debentures to you.
AMENDMENTS AND ASSIGNMENT
We may not amend a guarantee without the prior approval of the holders of
not less than a majority of the aggregate liquidation amount of the outstanding
related preferred securities, except for any changes which do not materially
adversely affect the rights of the holders of the preferred securities, in which
case no vote will be required. The manner of obtaining any approval will be as
set forth under "Description of Preferred Securities -- Voting Rights; Amendment
of Trust Agreement."
All guarantees and agreements contained in a guarantee will bind our
successors, assigns, receivers, trustees and representatives and will inure to
the benefit of the holders of the related preferred securities then outstanding.
EVENTS OF DEFAULT
An event of default under a guarantee will occur when we fail to perform
any of our payment or other obligations under the guarantee. The holders of not
less than a majority in aggregate liquidation amount of the related preferred
securities have the right to direct the time, method and
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place of conducting any proceeding for any remedy available to the guarantee
trustee under the guarantee or to direct the exercise of any trust or power
conferred upon the guarantee trustee under the guarantee.
You may institute a legal proceeding directly against us to enforce your
rights under a guarantee without first instituting a legal proceeding against
the trust, the guarantee trustee or any other person or entity.
We, as guarantor, are required to file annually with each guarantee trustee
a certificate as to whether or not we are in compliance with all the conditions
and covenants applicable to us under the guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, unless a default by us in the performance of the
guarantee then exists, is required to perform only those duties that are
specifically set forth in the guarantee. After a default under the guarantee,
the guarantee trustee must exercise the same degree of care and skill as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs. However, the guarantee trustee is under no obligation to
exercise any of the powers vested in it by the guarantee at your request unless
you offer reasonable indemnity against the costs, expenses and liabilities that
it might incur.
TERMINATION OF THE GUARANTEES
Each guarantee will terminate and be of no further force and effect upon:
- full payment of the redemption price of the related preferred securities;
- full payment of the amounts payable upon liquidation of the related
trust; or
- the distribution of corresponding junior subordinated debentures to the
holders in exchange for the related preferred securities.
The guarantee will continue to be effective or will be reinstated if at any
time you must restore payment of any sums paid under the preferred securities or
the guarantees.
GOVERNING LAW
The guarantees will be governed by and construed in accordance with the
laws of the State of New York.
EXPENSE AGREEMENTS
We will enter into an expense agreement with each trust. Under each expense
agreement, we will irrevocably and unconditionally guarantee to each person or
entity to whom the relevant trust becomes indebted or liable, the full payment
of any costs, expenses or liabilities of the trust, other than obligations of
the trust to pay to you the amounts due to you under the terms of the preferred
securities.
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DESCRIPTION OF CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
The corresponding junior subordinated debentures are to be issued in one or
more series under the junior subordinated indenture, with terms corresponding to
the terms of the related preferred securities. The terms of the junior
subordinated debentures and the junior subordinated indenture are generally
described under "Description of Junior Subordinated Debentures." The following
summary describes the terms of the corresponding junior subordinated debentures
and the junior subordinated indenture that will apply in the specific case of
our issuing junior subordinated debentures to a trust in the context of that
trust issuing related preferred securities to you.
The following description of the terms of the corresponding junior
subordinated debentures and the junior subordinated indenture is a summary. It
summarizes only those portions of the junior subordinated indenture which we
believe will be most important to your decision to invest in the preferred
securities. You should keep in mind, however, that it is the junior subordinated
indenture, and not this summary, which defines your rights. There may be other
provisions in the junior subordinated indenture which are also important to you.
You should read the form of the junior subordinated indenture itself for a full
description of its terms. The junior subordinated indenture is filed as an
exhibit to the registration statement that includes this prospectus. See "Where
You Can Find More Information" for information on how to obtain a copy of the
junior subordinated indenture.
GENERAL TERMS OF THE CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
At the same time a trust issues preferred securities, the trust will invest
the proceeds from the sale of the preferred securities and the consideration
paid by us for the common securities in a series of corresponding junior
subordinated debentures issued by us to the trust. Each series of corresponding
junior subordinated debentures will be in the principal amount equal to the
aggregate stated liquidation amount of the related preferred securities plus our
investment in the common securities and, unless we state otherwise in the
applicable prospectus supplement, will rank equally with all other series of
corresponding junior subordinated debentures. The corresponding junior
subordinated debentures will be unsecured and subordinate and junior in right of
payment to the extent and in the manner set forth in the junior subordinated
indenture to all our senior debt. See "Description of Junior Subordinated
Debentures -- Subordination" and the prospectus supplement relating to any
offering of related preferred securities.
REDEMPTION
Unless we state otherwise in the applicable prospectus supplement, we may,
at our option and at any time, redeem any series of corresponding junior
subordinated debentures, in whole or in part, at a redemption price equal to
100% of the principal amount plus accrued and unpaid interest to the redemption
date. We may redeem corresponding junior subordinated debentures in
denominations larger than $25 but only in integral multiples of $25.
We will mail notice of any redemption of your junior subordinated
debentures at least 30 days but not more than 60 days before the redemption date
to you at your registered address. Unless we default in payment of the
redemption price, on and after the redemption date interest will cease to accrue
on the debt securities or the portions called for redemption.
For so long as the applicable trust is the holder of all the outstanding
series of corresponding junior subordinated debentures, the trust will use the
proceeds of any redemption to redeem the corresponding preferred securities. We
may not redeem a series of corresponding junior subordinated debentures in part
unless all accrued and unpaid interest has been paid in full on all outstanding
corresponding junior subordinated debentures of the series for all interest
periods terminating on or prior to the redemption date.
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COVENANTS OF THE CHUBB CORPORATION
We will covenant in the junior subordinated indenture for each series of
corresponding junior subordinated debentures that we will pay additional sums to
the trust if:
- the trust that has issued the corresponding series of preferred
securities and common securities is the holder of all of the
corresponding junior subordinated debentures;
- a tax event, as defined therein, exists; and
- we have not redeemed the corresponding junior subordinated debentures or
terminated the trust.
We will also covenant, for each series of corresponding junior subordinated
debentures, that we and our subsidiaries will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment on any of our capital stock; or
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities, including other corresponding
junior subordinated debentures, that rank equally with or junior in
interest to the corresponding junior subordinated debentures or make any
related guarantee payments,
other than:
- dividends or distributions in our common stock;
- redemptions or purchases of any rights pursuant to our rights plan, or
any successor to our rights plan, and the declaration of a dividend of
these rights in the future; and
- payments under any guarantee of preferred securities,
if at that time:
- there has occurred any event of which we have actual knowledge that with
the giving of notice or the lapse of time, or both, would constitute an
event of default under the junior subordinated indenture for that series
of corresponding junior subordinated debentures which we have not taken
reasonable steps to cure;
- we are in default on our payment of any obligations under the related
guarantee; or
- we have given notice of our selection of an extension period as provided
in the junior subordinated indenture for that series of corresponding
junior subordinated debentures and have not rescinded that notice, or the
extension period, or any extension, is continuing.
We will also covenant, for each series of corresponding junior subordinated
debentures:
- to maintain, by ourselves or our permitted successors, directly or
indirectly 100% ownership of the common securities of the trust to which
corresponding junior subordinated debentures have been issued;
- not to voluntarily terminate, wind-up or liquidate any trust, except in
connection with a distribution of corresponding junior subordinated
debentures to you in liquidation of the trust, or in connection with
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 the trust to remain a statutory
trust and not to be classified as an association taxable as a corporation
for United States federal income tax purposes.
When we use the term "additional sums," we mean the additional amounts that
may be necessary in order that the amount of distributions then due and payable
by a trust on its
51
outstanding preferred securities and common securities will not be reduced as a
result of any additional taxes, duties and other governmental charges to which
the trust has become subject as a result of a tax event.
RIGHTS OF PREFERRED SECURITYHOLDERS
If a debenture event of default is attributable to our failure to pay
interest or principal on the corresponding junior subordinated debentures on the
date the interest or principal is payable, you, as a holder of related preferred
securities may institute a legal proceeding directly against us, which we refer
to in this prospectus as a direct action, for enforcement of payment to you of
the principal of or interest on the corresponding junior subordinated debentures
having a principal amount equal to the aggregate liquidation preference of your
related preferred securities.
We may not amend the junior subordinated indenture to remove the right to
bring a direct action without the prior written consent of the holders of all of
the related preferred securities. If the right to bring a direct action is
removed, the applicable issue may become subject to the reporting obligations
under the Securities Exchange Act of 1934. We have the right under the junior
subordinated indenture to set-off any payment made to you as a holder of
preferred securities by us in connection with a direct action.
If an event of default under the junior subordinated indenture with respect
to an outstanding series of junior subordinated debentures occurs and is
continuing, and if the debenture trustee or the holders of not less than 25% in
aggregate principal amount of the outstanding junior subordinated debentures of
that series fail to declare the principal amount of all of the junior
subordinated debentures of that series to be due and payable immediately, the
holders of 25% in aggregate liquidation amount of the related series of
preferred securities may by written notice thereof to us and to the debenture
trustee declare the principal amount of the junior subordinated debentures of
that series to be due and payable.
You will not be able to exercise directly any remedies other than those
described in the preceding three paragraphs available to holders of a series of
the junior subordinated debentures unless there has been an event of default
under the corresponding trust agreement.
DISTRIBUTION OF THE CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
If provided in the applicable prospectus supplement, we will have the right
to extend or shorten the maturity of any series of corresponding junior
subordinated debentures at the time that we exercise our right to elect to
terminate the related trust and cause the corresponding junior subordinated
debentures to be distributed to the holders of the preferred securities and
common securities in liquidation of the trust.
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RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE CORRESPONDING
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEES
As long as payments of interest and other payments are made when due on
each series of corresponding junior subordinated debentures, these payments will
be sufficient to cover distributions and other payments due on the related
preferred securities, primarily because:
- the aggregate principal amount of each series of corresponding junior
subordinated debentures will be equal to the sum of the aggregate stated
liquidation amount of the corresponding preferred securities and
corresponding common securities;
- the interest rate and interest and other payment dates on each series of
corresponding junior subordinated debentures will match the distribution
rate and distribution and other payment dates for the corresponding
preferred securities;
- we will pay for all and any costs, expenses and liabilities of the trust
except the obligations of the trust to holders of its preferred
securities under the preferred securities; and
- each trust agreement further provides that the trust will not engage in
any activity that is not consistent with the limited purposes of the
trust.
We will irrevocably guarantee payments of distributions and other amounts
due on the preferred securities, to the extent the trust has funds available for
the payment of such distributions, as set forth under "Description of
Guarantees."
Taken together, our obligations under each series of junior subordinated
debentures, the junior subordinated indenture, the related trust agreement, the
related expense agreement and the related guarantee provide a full, irrevocable
and unconditional guarantee by us of payments of distributions and other amounts
due on the related series of preferred securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes the guarantee. It is only the combined operation of these documents
that has the effect of providing a full, irrevocable and unconditional guarantee
of the obligations of the trust under the preferred securities. If and to the
extent that we do not make payments on any series of corresponding junior
subordinated debentures, the related trust will not pay distributions or other
amounts due on its preferred securities.
Notwithstanding anything to the contrary in the junior subordinated
indenture, we have the right to set-off any payment we are otherwise required to
make under the junior subordinated indenture with and to the extent we have made
or are making a payment under the related guarantee.
You may institute a legal proceeding directly against us to enforce your
rights under the related guarantee without first instituting a legal proceeding
against the guarantee trustee, the related trust or any other person or entity.
The preferred securities of each trust evidence your rights to the benefits
of the trust. Each trust exists for the sole purpose of issuing its preferred
securities and common securities, investing the proceeds from the sale of such
securities in corresponding junior subordinated debentures and related purposes.
A principal difference between your rights as a holder of a preferred
security and the rights of a holder of a corresponding junior subordinated
debenture is that a holder of a corresponding junior subordinated debenture will
accrue, and, subject to the permissible extension of the interest period, is
entitled to receive, interest on the principal amount of corresponding junior
subordinated debentures held, while you are only entitled to receive
distributions if and to the extent the trust has funds available for the payment
of those distributions.
Upon any voluntary or involuntary termination, winding-up or liquidation of
any trust involving the liquidation of the corresponding junior subordinated
debentures, you will be entitled to
53
receive, out of assets held by the trust, the liquidation distribution in cash.
See "Description of Preferred Securities -- Liquidation Distribution upon
Termination."
Upon any voluntary or involuntary liquidation or bankruptcy of Chubb, the
property trustee, as holder of the corresponding junior subordinated debentures,
would be a subordinated creditor. In this case, the property trustee would be
subordinated in right of payment to all senior indebtedness of Chubb, but
entitled to receive payment in full of principal and interest, before any of our
stockholders receive payments or distributions. Since we are the guarantor under
each guarantee and have agreed to pay for all costs, expenses and liabilities of
each trust, your position as a holder of the preferred securities and the
position of a holder of the corresponding junior subordinated debentures
relative to other creditors and to our stockholders in the event of liquidation
or bankruptcy of our company would be substantially the same.
A default or event of default under any senior indebtedness of Chubb would
not constitute a default or event of default under the junior subordinated
indenture. However, in the event of payment defaults under, or acceleration of,
senior indebtedness, the subordination provisions of the junior subordinated
indenture provide that we may not make payments on the corresponding junior
subordinated debentures until the senior indebtedness has been paid in full or
any payment default under the senior indebtedness has been cured or waived. Our
failure to make required payments on any series of corresponding junior
subordinated debentures would constitute an event of default under the junior
subordinated indenture.
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PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus through agents,
underwriters or dealers, or directly to purchasers.
We may use agents who we designate to solicit offers to purchase the
securities.
- We will name any agent involved in offering or selling securities, and
disclose any commissions that we will pay to the agent, in the applicable
prospectus supplement.
- Unless we indicate otherwise in the applicable prospectus supplement, our
agents will act on a best efforts basis for the period of their
appointment.
- Our agents may be deemed to be underwriters under the Securities Act of
1933, as amended, of any of the securities that they offer or sell.
We may use an underwriter or underwriters in the offer or sale of our
securities.
- If we use an underwriter or underwriters, we will execute an underwriting
agreement with the underwriter or underwriters at the time that we reach
an agreement for the sale of the securities.
- We will include the names of the specific managing underwriter or
underwriters, as well as the names of any other underwriters, and the
terms of the transactions, including the compensation the underwriters
and dealers will receive, in the applicable prospectus supplement.
- The underwriters will use the applicable prospectus supplement to sell
the securities.
We may use a dealer to sell the securities.
- If we use a dealer, we, as principal, will sell the securities to the
dealer.
- The dealer will then sell the securities to the public at varying prices
that the dealer will determine at the time it sells our securities.
- We will include the name of the dealer and the terms of our transactions
with the dealer in the applicable prospectus supplement.
We may solicit directly offers to purchase the securities, and we may
directly sell the securities to institutional or other investors. We will
describe the terms of our direct sales in the applicable prospectus supplement.
We may also offer and sell securities, if so indicated in the applicable
prospectus supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms referred to as remarketing firms, acting as principals for
their own accounts or as our agents. Any remarketing firm will be identified and
the terms of its agreement, if any, with us, and its compensation will be
described in the applicable prospectus supplement. Remarketing firms may be
deemed to be underwriters under the Securities Act in connection with the
securities they remarket.
We may indemnify agents, underwriters, dealers and remarketing firms
against certain liabilities, including liabilities under the Securities Act. Our
agents, underwriters, and dealers, or their affiliates, may be customers of,
engage in transactions with or perform services for us, in the ordinary course
of business.
We may authorize our agents and underwriters to solicit offers by certain
institutions to purchase the securities at the public offering price under
delayed delivery contracts.
- If we use delayed delivery contracts, we will disclose that we are using
them in the applicable prospectus supplement and will tell you when we
will demand payment and delivery of the securities under the delayed
delivery contracts.
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- These delayed delivery contracts will be subject only to the conditions
that we describe in the applicable prospectus supplement.
- We will describe in the applicable prospectus supplement the commission
that underwriters and agents soliciting purchases of the securities under
delayed contracts will be entitled to receive.
LEGAL MATTERS
Unless we state otherwise in the applicable prospectus supplement, the
validity of any securities offered by us under this prospectus, other than any
preferred securities, will be passed upon for us by Debevoise & Plimpton, New
York, New York. Such counsel may rely on the opinion of Drinker Biddle & Reath
LLP, Florham Park, New Jersey, as to matters of New Jersey law. The validity of
any preferred securities will be passed upon for the trusts by Richards, Layton
& Finger, P.A., Wilmington, Delaware. The validity of any securities will be
passed upon for any underwriters or agents by counsel that we will name in the
applicable prospectus supplement.
EXPERTS
The consolidated financial statements and schedules of The Chubb
Corporation appearing in The Chubb Corporation's Annual Report (Form 10-K) for
the year ended December 31, 2002 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement that we filed with the
SEC. The registration statement, including the attached exhibits, contains
additional relevant information about us and the trusts. The rules of the SEC
allow us to omit from this prospectus some of the information included in the
registration statement. This information may be inspected and copied at, or
obtained at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of these public
reference facilities. The SEC maintains an Internet site, http://www.sec.gov,
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. This URL is intended to
be an inactive textual reference only. It is not intended to be an active
hyperlink to the SEC's website. The information on the SEC's website, which
might be accessible through a hyperlink resulting from this URL, is not and is
not intended to be part of this prospectus and is not incorporated into this
prospectus by reference.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended. We fulfill our obligations with respect to such
requirements by filing periodic reports and other information with the SEC.
These reports and other information are available as provided above and may also
be inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005.
INCORPORATION BY REFERENCE
The rules of the SEC allow us to incorporate by reference information into
this prospectus. The information incorporated by reference is considered to be a
part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. This prospectus
incorporates by reference the documents listed below:
- our Annual Report on Form 10-K for the year ended December 31, 2002;
56
- our amendment to our Annual Report on Form 10-K for the year ended
December 31, 2002 on Form 10-K/A filed with the SEC on March 13, 2003;
- our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003;
- our amendment to our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 on Form 10-Q/A filed with the SEC on June 12, 2003;
- our Current Reports on Form 8-K filed on January 21, 2003, March 14, 2003
and June 6, 2003;
- the information under the captions indicated in Part III of our Annual
Report on Form 10-K on pages 3 through 11, 14 through 25 and 38 of our
Proxy Statement dated March 28, 2003; and
- all documents filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Securities Exchange Act of 1934 after the date of this prospectus.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the documents referred to above
which have been or may be incorporated by reference in this prospectus. You
should direct requests for those documents to The Chubb Corporation, 15 Mountain
View Road, P.O. Box 1615, Warren, New Jersey 07061-1615, Attention: Secretary
(telephone: 908-903-2000).
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13,500,000 SHARES
(CHUBB LOGO)
The Chubb Corporation
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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Joint Book-Running Managers
CITIGROUP GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
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BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANK SECURITIES
MORGAN STANLEY
WACHOVIA SECURITIES
------------
JUNE 18, 2003
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