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Filed pursuant to rule 424(b)(3)
Registration nos. 333-29777 and 333-29777-01
PROSPECTUS
$100,000,000
PMI CAPITAL I
OFFER TO EXCHANGE ITS 8.309% CAPITAL SECURITIES, SERIES A
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY
AND ALL OF ITS OUTSTANDING 8.309% CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT OF $1,000 PER CAPITAL SECURITY)
GUARANTEED, TO THE EXTENT DESCRIBED HEREIN, BY
THE PMI GROUP, INC.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON JULY 31, 1997, UNLESS EXTENDED.
PMI Capital I, a statutory business trust created under the laws of the
State of Delaware (the "Issuer Trust"), hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus (as the same may be
amended or supplemented from time to time, the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to $100,000,000 aggregate Liquidation Amount (as
defined herein) of its 8.309% Capital Securities, Series A (Liquidation Amount
$1,000 per Capital Security) (the "New Capital Securities"), which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like Liquidation Amount of its
outstanding 8.309% Capital Securities, Series A (Liquidation Amount $1,000 per
Capital Security) (the "Old Capital Securities"), of which $100,000,000
aggregate Liquidation Amount is outstanding. Pursuant to the Exchange Offer,
The PMI Group, Inc., a Delaware corporation (the "Company"), is also
exchanging (i) its guarantee with respect to the payment of Distributions (as
defined herein) and other payments on liquidation or redemption of the Old
Capital Securities (the "Old Guarantee") for a like guarantee with respect to
the New Capital Securities (the "New Guarantee"), and (ii) all of its
outstanding 8.309% Junior Subordinated Deferrable Interest Debentures, Series
A (the "Old Junior Subordinated Debentures"), of which $103,093,000 aggregate
principal amount is outstanding, for a like aggregate principal amount of its
8.309% Junior Subordinated Deferrable Interest Debentures, Series A (the "New
Junior Subordinated Debentures"), which New Guarantee and New Junior
Subordinated Debentures also have been registered under the Securities Act.
The Old Capital Securities, the Old Guarantee and the Old Junior Subordinated
Debentures are collectively referred to herein as the "Old Securities" and the
New Capital Securities, the New Guarantee and the New Junior Subordinated
Debentures are collectively referred to herein as the "New Securities."
The terms of the New Securities are identical in all material respects to
the respective terms of the Old Securities, except that (i) the New Securities
have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer applicable to the Old Securities,
(ii) the New Capital Securities will not provide for any increase in the
Distribution rate thereon, and (iii) the New Junior Subordinated Debentures
will not provide for any increase in the interest rate thereon. See
"Description of New Securities" and "Description of Old Securities." The New
Capital Securities are being offered for exchange in order to satisfy certain
obligations of the Company and the Issuer Trust under the Exchange and
Registration Rights Agreement, dated as of February 4, 1997 (the "Registration
Rights Agreement"), among the Company, the Issuer Trust and
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE NEW CAPITAL SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENT OF DISTRIBUTIONS ON THE NEW
CAPITAL SECURITIES MAY BE DEFERRED AND CERTAIN RELATED UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 1, 1997.
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the Initial Purchaser (as defined herein) of the Old Capital Securities. In
the event that the Exchange Offer is consummated, any Old Capital Securities
which remain outstanding after consummation of the Exchange Offer and the New
Capital Securities issued in the Exchange Offer will vote together as a single
class for purposes of determining whether holders of the requisite percentage
in outstanding Liquidation Amount thereof have taken certain actions or
exercised certain rights under the Trust Agreement (as defined herein).
The New Capital Securities offered hereby represent beneficial interests in
the Issuer Trust. The Company is the owner of all of the beneficial interests
represented by common securities of the Issuer Trust (the "Common Securities"
and, collectively with the Capital Securities (as defined herein), the "Trust
Securities"). The Issuer Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in 8.309% Junior
Subordinated Deferrable Interest Debentures, Series A (the "Junior
Subordinated Debentures"), issued by the Company. The Junior Subordinated
Debentures will mature on February 1, 2027 (the "Stated Maturity"). The
Capital Securities will have a preference under certain circumstances with
respect to cash distributions and amounts payable on liquidation, redemption
or otherwise over the Common Securities. See "Description of New Securities--
Description of Capital Securities--Subordination of Common Securities."
As used herein, (i) the "Indenture" means the Junior Subordinated Indenture
relating to the Junior Subordinated Debentures, as amended and supplemented
from time to time, between the Company and The Bank of New York, as trustee
(the "Debenture Trustee"), (ii) the "Trust Agreement" means the Amended and
Restated Trust Agreement relating to the Issuer Trust among the Company, as
Depositor, The Bank of New York, as Property Trustee (the "Property Trustee"),
The Bank of New York (Delaware), as Delaware Trustee (the "Delaware Trustee")
(the Property Trustee and Delaware Trustee collectively, the "Issuer
Trustees"), and the holders from time to time of the undivided beneficial
interests in the assets of the Issuer Trust, (iii) the "Guarantee" means the
Guarantee Agreement between the Company and The Bank of New York, as trustee
(the "Guarantee Trustee"), providing a guarantee, on the terms and conditions
described herein, for the benefit of holders of the Capital Securities, and
(iv) the "Expense Agreement" means the Expense Agreement between the Company
and the Issuer Trust. In addition, as the context may require, unless
expressly stated otherwise, (i) the "Capital Securities" means the Old Capital
Securities and the New Capital Securities, (ii) the "Junior Subordinated
Debentures" means the Old Junior Subordinated Debentures and the New Junior
Subordinated Debentures, and (iii) the "Guarantee" means the Old Guarantee and
the New Guarantee.
Except as provided below, the Capital Securities will be represented by
global Capital Securities in fully registered form, deposited with a custodian
for and registered in the name of a nominee of The Depository Trust Company
("DTC"). Beneficial interests in such Capital Securities will be shown on, and
transfers thereof will be effected through, records maintained by DTC and its
participants. Beneficial interests in such Capital Securities will trade in
DTC's Same-Day Funds Settlement System and secondary market trading activity
in such interests will therefore settle in immediately available funds. The
Capital Securities will be issued, and may be transferred only in blocks
having a Liquidation Amount of not less than $100,000 (100 Capital
Securities). See "Description of New Securities--Description of Capital
Securities--Book-Entry Delivery and Form."
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accumulating from the date of original issuance
and payable semi-annually in arrears on February 1 and August 1 of each year,
commencing August 1, 1997, at the annual rate of 8.309% of the Liquidation
Amount of $1,000 per Capital Security ("Distributions"). The Company has the
right to defer payment of interest on the Junior Subordinated Debentures at
any time or from time to time for a period not exceeding 10 consecutive semi-
annual periods with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. Upon the termination of any
such Extension Period and the payment of all amounts then due, the Company may
elect to begin a new Extension Period subject to the requirements set forth
herein. If interest payments on the Junior Subordinated Debentures are so
deferred, Distributions on the Capital Securities will also be deferred and
the Company will not be permitted, subject to certain exceptions described
herein, to declare or pay any cash distributions with respect to
2
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the Company's capital stock or debt securities of the Company that rank pari
passu in all respects with or junior to the Junior Subordinated Debentures.
During an Extension Period, interest on the Junior Subordinated Debentures
will continue to accrue (and the amount of Distributions to which holders of
the Capital Securities are entitled will accumulate) at the rate of 8.309% per
annum, compounded semi-annually, and holders of Capital Securities will be
required to recognize interest income for United States federal income tax
purposes. See "Description of New Securities--Description of Junior
Subordinated Debentures--Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), taken together, fully, irrevocably and unconditionally
guaranteed all of the Issuer Trust's obligations under the Capital Securities.
See "Relationship Among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee--Full and Unconditional Guarantee." The Guarantee
of the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Capital Securities, but only in each case to
the extent of funds held by the Issuer Trust, as described herein (the
"Guarantee"). See "Description of New Securities--Description of Guarantee."
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will have insufficient
funds to pay Distributions on the Capital Securities. The Guarantee does not
cover payment of Distributions when the Issuer Trust does not have sufficient
funds to pay such Distributions. In such event, a holder of Capital Securities
may institute a legal proceeding directly against the Company to enforce
payment of such Distributions to such holder. See "Description of New
Securities--Description of Junior Subordinated Debentures--Enforcement of
Certain Rights by Holders of Capital Securities." The Company is a holding
company which conducts its operations through its subsidiaries. The
obligations of the Company under the Guarantee and the Junior Subordinated
Debentures are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in "Description of New Securities--Description of
Junior Subordinated Debentures--Subordination") of the Company and are also
effectively subordinate to all existing and future liabilities of the
Company's subsidiaries. The Company will be substantially dependent on
dividends from its subsidiaries to meet its obligations under the Junior
Subordinated Debentures and the Guarantee. See "The PMI Group, Inc."
At March 31, 1997, the aggregate principal amount of Senior Indebtedness and
debt of the Company's subsidiaries was approximately $99.4 million.
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Junior Subordinated Debentures at Stated Maturity
or their earlier redemption. The Junior Subordinated Debentures are redeemable
prior to their Stated Maturity at the option of the Company (i) on or after
February 1, 2007, in whole at any time or in part from time to time, or (ii)
in whole (but not in part) prior to February 1, 2007 and within 90 days
following the occurrence of a Tax Event (as defined herein), in each case at a
redemption price set forth herein plus the accrued and unpaid interest on the
Junior Subordinated Debentures so redeemed to the date fixed for redemption.
See "Description of New Securities--Description of Junior Subordinated
Debentures--Redemption."
The Company, as the holder of the outstanding Common Securities, has the
right at any time to terminate the Issuer Trust and, after satisfaction of the
liabilities of creditors of the Issuer Trust as provided by applicable law,
cause the Junior Subordinated Debentures to be distributed to the holders of
the Capital Securities and Common Securities in liquidation of the Issuer
Trust, subject to the Property Trustee having received an opinion of counsel
to the effect that such distribution will not be a taxable event to holders of
Capital Securities. See "Description of New Securities--Description of Capital
Securities--Liquidation Distribution Upon Termination."
In the event of the termination of the Issuer Trust, after satisfaction of
liabilities to creditors of the Issuer Trust as required by applicable law,
the holders of the Capital Securities will be entitled to receive a
Liquidation
3
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Amount of $1,000 per Capital Security plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures, subject to
certain exceptions. See "Description of New Securities--Description of Capital
Securities--Liquidation Distribution Upon Termination."
The Issuer Trust is making the Exchange Offer of the New Capital Securities
in reliance on the position of the staff of the Division of Corporation
Finance of the Securities and Exchange Commission (the "Commission") as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, neither the Company nor the Issuer Trust has sought its
own interpretive letter, and there can be no assurance that the staff of the
Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Division of Corporation Finance, and subject to the two
immediately following sentences, the Company and the Issuer Trust believe that
New Capital Securities issued pursuant to this Exchange Offer in exchange for
Old Capital Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Capital Securities
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such New Capital Securities. However, any holder of Old Capital
Securities who is an "affiliate" of the Company or the Issuer Trust within the
meaning of Rule 405 under the Securities Act (an "Affiliate") or who intends
to participate in the Exchange Offer for the purpose of distributing New
Capital Securities, or any broker-dealer who purchased Old Capital Securities
from the Issuer Trust to resell pursuant to Rule 144A under the Securities Act
("Rule 144A") or any other available exemption under the Securities Act, (i)
will not be able to rely on the interpretations of the staff of the Division
of Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (ii) will not be permitted or entitled to tender such
Old Capital Securities in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer (a "Participating Broker-
Dealer") holds Old Capital Securities, then such Participating Broker-Dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required
to represent that (i) it is not an Affiliate, (ii) any New Capital Securities
to be received by it are being acquired in the ordinary course of its
business, (iii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Capital Securities, and (iv) if such holder is not a broker-dealer,
such holder is not engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities Act) of such New Capital
Securities. The Letter of Transmittal contains the foregoing representations.
Each Participating Broker-Dealer that receives New Capital Securities for its
own account pursuant to the Exchange Offer will be deemed to have acknowledged
by execution of the Letter of Transmittal or delivery of an Agent's Message
(as defined herein) that it acquired the Old Capital Securities for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Capital
Securities. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation
Finance of the Commission in the interpretive letters referred to above, the
Company and the Issuer Trust believe that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the New Capital
Securities received upon exchange of such Old Capital Securities (other than
Old Capital Securities which represent an unsold allotment from the original
sale of the Old Capital Securities) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an
4
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exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such New Capital Securities.
Accordingly, this Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer during the period
referred to below in connection with resales of New Capital Securities
received in exchange for Old Capital Securities where such Old Capital
Securities were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
and the Issuer Trust have agreed that this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of such New Capital Securities for a period ending
90 days after the Expiration Date (as defined herein) or, if earlier, when all
such New Capital Securities have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." Any person, including any
Participating Broker-Dealer, who is an Affiliate may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of New Capital Securities."
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of an Agent's Message, that
upon receipt of notice from the Company or the Issuer Trust of the occurrence
of any event or the discovery of any fact which makes any statement contained
or incorporated by reference in this Prospectus untrue in any material respect
or which causes this Prospectus to omit to state a material fact necessary in
order to make the statements contained or incorporated by reference herein, in
the light of the circumstances under which they were made, not misleading, or
of the occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of New
Securities pursuant to this Prospectus until the Company or the Issuer Trust
has amended or supplemented this Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemented Prospectus to
such Participating Broker-Dealer, or the Company or the Issuer Trust has given
notice that the sale of the New Securities may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Capital Securities. The New Capital
Securities will be a new issue of securities for which there currently is no
market. There can be no assurance as to the development or liquidity of any
market for the New Capital Securities. The Company currently does not intend
to apply for listing of the New Capital Securities on any securities exchange
or for quotation through the National Association of Securities Dealers
Automated Quotation System.
Any Old Capital Securities not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the same rights and will
be subject to the same limitations applicable thereto under the Trust
Agreement (except for those rights which terminate upon consummation of the
Exchange Offer). Following consummation of the Exchange Offer, the holders of
Old Capital Securities will continue to be subject to all of the existing
restrictions upon transfer thereof and neither the Company nor the Issuer
Trust will have any further obligation to such holders (other than under
certain limited circumstances) to provide for registration under the
Securities Act of the Old Capital Securities held by them. To the extent that
Old Capital Securities are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Capital Securities could be adversely
affected. See "Risk Factors--Consequences of a Failure to Exchange Old Capital
Securities."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD CAPITAL SECURITIES ARE URGED TO READ THIS
PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING
WHETHER TO TENDER THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER.
5
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Old Capital Securities may be tendered for exchange on or prior to 5:00
p.m., New York City time, July 31, 1997 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is
extended by the Company and the Issuer Trust (in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended). Tenders of Old Capital Securities may be withdrawn at any
time on or prior to the Expiration Date. The Exchange Offer is not conditioned
upon any minimum Liquidation Amount of Old Capital Securities being tendered
for exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company or the Issuer Trust and to the
terms and provisions of the Registration Rights Agreement. Old Capital
Securities may be tendered in whole or in part having a Liquidation Amount of
not less than $100,000 (100 Capital Securities) and or any integral multiple
of $1,000 Liquidation Amount (1 Capital Security) in excess thereof. The
Company has agreed to pay all expenses of the Exchange Offer, except as
otherwise specified herein. See "The Exchange Offer--Fees and Expenses." Each
New Capital Security will pay cumulative Distributions from the most recent
Distribution Date (as defined herein) on the Old Capital Securities
surrendered in exchange for such New Capital Securities or, if no
Distributions have been paid on such Old Capital Securities, from February 4,
1997. Holders of the Old Capital Securities whose Old Capital Securities are
accepted for exchange will not receive accumulated Distributions on such Old
Capital Securities for any period from and after the last Distribution Date on
such Old Capital Securities prior to the original issue date of the New
Capital Securities or, if no such Distributions have been paid, will not
receive any accumulated Distributions on such Old Capital Securities, and will
be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after such Distribution Date or, if no
such interest has been paid or duly provided for, from and after February 4,
1997. This Prospectus, together with the Letter of Transmittal, is being sent
to all registered holders of Old Capital Securities as of July 1, 1997.
Neither the Company nor the Issuer Trust will receive any proceeds from the
issuance of the New Capital Securities offered hereby. No dealer-manager is
being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
INVESTOR RELATIONS, THE PMI GROUP, INC., 601 MONTGOMERY STREET, SAN FRANCISCO,
CALIFORNIA 94111, TELEPHONE NUMBER (800) 876-4764. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 24, 1997.
THE NEW CAPITAL SECURITIES WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY IN
BLOCKS HAVING A LIQUIDATION AMOUNT OF NOT LESS THAN $100,000. ANY TRANSFER,
SALE OR OTHER DISPOSITION OF CAPITAL SECURITIES IN A BLOCK HAVING A
LIQUIDATION AMOUNT OF LESS THAN $100,000 SHALL BE DEEMED TO BE VOID AND OF NO
LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT TO BE THE
HOLDER OF SUCH CAPITAL SECURITIES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED
TO THE RECEIPT OF DISTRIBUTIONS ON SUCH CAPITAL SECURITIES, AND SUCH
TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH CAPITAL
SECURITIES.
Prospective purchasers must carefully consider the restrictions on purchase
set forth in "Notice to Investors" and "Certain ERISA Considerations."
6
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----------------
FOR NORTH CAROLINA RESIDENTS ONLY
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS THE COMMISSIONER PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
----------------
NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE I OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE") (EACH, A
"PLAN"), NO ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY REASON OF
ANY PLAN'S INVESTMENT IN THE ENTITY (A "PLAN ASSET ENTITY"), AND NO PERSON
INVESTING "PLAN ASSETS" OF ANY PLAN, MAY ACQUIRE OR HOLD THE CAPITAL
SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS
ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR
PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23, 95-60, 91-38, 90-1 OR
84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR
HOLDING. ANY PURCHASER OR HOLDER OF THE CAPITAL SECURITIES OR ANY INTEREST
THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF
THAT IT EITHER (A) IS NOT A PLAN OR A PLAN ASSET ENTITY AND IS NOT PURCHASING
SUCH SECURITIES ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN OR (B) IS
ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23, 95-60, 91-38,
90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION WITH RESPECT TO SUCH PURCHASE OR
HOLDING. SEE "NOTICE TO INVESTORS" AND "CERTAIN ERISA CONSIDERATIONS."
----------------
NOTICE TO INVESTORS
Each purchaser of Capital Securities will be deemed to have represented and
agreed as follows:
The purchaser (A) is not itself, and is not acquiring Capital Securities
with "plan assets" of, an employee benefit or other plan subject to Title I of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code")
(each, a "Plan"), or an entity whose underlying assets include "plan assets"
by reason of any Plan's investment in the entity (a "Plan Asset Entity") or
(B)(1) is itself, or is acquiring Capital Securities with the assets of, an
"investment fund" (within the meaning of Part V(b) of PTCE 84-14) managed by a
"qualified professional asset manager" (within the meaning of Part V(a) of
PTCE 84-14) which has made or properly authorized the decision for such fund
to purchase Capital Securities, under circumstances such that PTCE 84-14 is
applicable to the purchase and holding of such Capital Securities, (2) is
itself, or is acquiring Capital Securities with the assets of, a Plan managed
by an "in-house asset manager" (within the meaning of Part IV(a) of PTCE 96-
23) which has made or properly authorized the decision for such Plan to
purchase Capital Securities, under circumstances such that PTCE 96-23 is
applicable to the purchase and holding of such Capital Securities, (3) is an
insurance company pooled separate account purchasing Capital Securities
pursuant to Part I of PTCE 90-1 or a bank collective investment fund
purchasing Capital Securities pursuant to Part I of PTCE 91-38, and, in either
case, no Plan owns more than 10% of the assets of such account or collective
fund (when aggregated with other Plans of the same employer (or its
affiliates) or employee organization), (4) is an insurance company using the
assets of its general account to purchase the Capital Securities pursuant to
Part I of PTCE 95-60, in which case the reserves and liabilities for the
general account contracts held by or on behalf of any Plan, together with any
other Plans maintained by the same employer (or its affiliates) or employee
organization, do not exceed 10% of the total reserves and liabilities of the
insurance company general account (exclusive of separate account liabilities),
plus surplus as set forth in the National Association of Insurance
Commissioners Annual Statement filed with the state of domicile of the
insurer, or (5) is itself, or is acquiring Capital Securities with the assets
of, a Plan that is otherwise eligible for exemptive relief with respect to its
purchase and holding of the Capital Securities. The Capital Securities will
bear legends reflecting the above restrictions.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Available Information..................................................... 9
Incorporation of Certain Documents by Reference........................... 9
Summary................................................................... 10
Risk Factors.............................................................. 14
The PMI Group, Inc........................................................ 19
PMI Capital I............................................................. 20
Use of Proceeds........................................................... 20
Capitalization............................................................ 21
Accounting Treatment...................................................... 21
Ratio of Earnings to Fixed Charges........................................ 22
The Exchange Offer........................................................ 22
Description of New Securities............................................. 31
Description of Old Securities............................................. 55
Relationship Among The Capital Securities, The Junior Subordinated
Debentures and The Guarantee............................................. 55
Certain Federal Income Tax Consequences................................... 57
Certain ERISA Considerations.............................................. 60
Plan of Distribution...................................................... 61
Validity of New Capital Securities........................................ 62
Experts................................................................... 62
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE ISSUER TRUST. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY OR THE ISSUER TRUST
SINCE THE DATE HEREOF.
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AVAILABLE INFORMATION
The Company and the Issuer Trust have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (of which
this Prospectus is a part) (together with all amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the contents of any contract or other document are
not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules thereto. For further information
regarding the Company and the securities offered hereby, reference is hereby
made to the Registration Statement and the exhibits and schedules thereto
which may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, the exhibits and schedules forming a
part thereof and the reports, proxy statements and other information filed by
the Company with the Commission in accordance with the Exchange Act can be
inspected and copied at the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington D.C. 20549, and at the following regional
offices of the Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information that are filed through
the Commission's Electronic Data Gathering, Analysis and Retrieval System.
This Web site can be accessed at http://www.sec.gov. In addition, the
Company's common stock is listed on the New York Stock Exchange and similar
information concerning the Company can be inspected and copied at the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
No separate financial statements of the Issuer Trust have been included
herein. The Company and the Issuer Trust do not consider that such financial
statements would be material to holders of the Capital Securities because the
Issuer Trust is a newly formed special purpose entity, has no operating
history or independent operations and is not engaged in and does not propose
to engage in any activity other than holding as trust assets the Junior
Subordinated Debentures of the Company and issuing the Trust Securities. The
Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully and unconditionally guaranteed all of the Issuer Trust's
obligations under the Capital Securities. See "PMI Capital I" and "Description
of New Securities." In addition, the Company does not expect that the Issuer
Trust will be filing reports under the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Company with the Commission are
incorporated by reference in this Prospectus:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1997;
and
(c) Current Report on Form 8-K dated February 21, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the New Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
respective dates of filing of
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such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or so superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of Securities, to whom this Prospectus is delivered, upon
written or oral request of such person, a copy of any or all of the documents
that have been incorporated by reference in this Prospectus (not including
exhibits to such documents unless such exhibits are specifically incorporated
by reference into such documents). Requests should be directed to The PMI
Group, Inc., 601 Montgomery Street, San Francisco, CA 94111, Attention:
Investor Relations; telephone: (800) 876-4764.
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED HEREIN AND
SHOULD BE READ IN CONJUNCTION WITH SUCH INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO, SUCH INFORMATION. CAPITALIZED TERMS USED HEREIN HAVE THE RESPECTIVE
MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROSPECTUS.
EXCHANGE OFFER
Up to $100,000,000 aggregate Liquidation Amount of New Capital Securities
are being offered in exchange for a like aggregate Liquidation Amount of Old
Capital Securities. Old Capital Securities may be tendered for exchange in
whole or in part in a Liquidation Amount of $100,000 (100 Capital Securities)
or any integral multiple of $1,000 in excess thereof, provided that if any Old
Capital Securities are tendered in exchange for part, the untendered
Liquidation Amount must be $100,000 or any integral multiple of $1,000 in
excess thereof. The Company and the Issuer Trust are making the Exchange Offer
in order to satisfy their obligations under the Registration Rights Agreement
relating to the Old Capital Securities. For a description of the procedures
for tendering Old Capital Securities, see "The Exchange Offer--Procedures for
Tendering Old Capital Securities."
EXPIRATION DATE. The Expiration Date of the Exchange Offer will be 5:00
p.m., New York City time, on July 31, 1997, unless the Exchange Offer is
extended by the Company and the Issuer Trust. See "The Exchange Offer--
Expiration Date; Extensions; Amendments."
CONDITIONS TO EXCHANGE OFFER. The Exchange Offer is subject to certain
conditions, which may be waived by the Company and the Issuer Trust in their
sole discretion. The Exchange Offer is not conditioned upon any minimum
Liquidation Amount of Old Capital Securities being tendered. See "The Exchange
Offer--Conditions to Exchange Offer." The Company and the Issuer Trust reserve
the right in their sole discretion, subject to applicable law, at any time and
from time to time, (i) to delay the acceptance of the Old Capital Securities
for exchange, (ii) to terminate the Exchange Offer if certain specified
conditions have not been satisfied, (iii) to extend the Expiration Date of the
Exchange Offer and retain all Old Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of holders of Old Capital
Securities to withdraw their tendered Old Capital Securities, or (iv) to waive
any condition or otherwise amend the terms of the Exchange Offer in any
respect. See "The Exchange Offer--Expiration Date; Extensions; Amendments."
WITHDRAWAL RIGHTS. Tenders of Old Capital Securities may be withdrawn at any
time on or prior to the Expiration Date by delivering a written notice of such
withdrawal to The Bank of New York, as Exchange Agent (the "Exchange Agent"),
in conformity with certain procedures set forth below under "The Exchange
Offer--Withdrawal Rights."
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PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES. Tendering holders of Old
Capital Securities must complete and sign a Letter of Transmittal in
accordance with the instructions contained therein and forward the same by
mail, facsimile or hand delivery, together with any other required documents,
to the Exchange Agent, either with the Old Capital Securities to be tendered
or in compliance with the specified procedures for guaranteed delivery of Old
Capital Securities. Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect tenders by book-entry transfer,
including an Agent's Message in lieu of the Letter of Transmittal. Holders of
Old Capital Securities registered in the name of a broker, dealer, commercial
bank, trust company or other nominee are urged to contact such person promptly
if they wish to tender Old Capital Securities pursuant to the Exchange Offer.
See "The Exchange Offer--Procedures for Tendering Old Capital Securities."
Letters of Transmittal and certificates representing Old Capital Securities
should not be sent to the Company or the Issuer Trust. Such documents should
only be sent to the Exchange Agent. Questions regarding how to tender and
requests for information should be directed to the Exchange Agent. See "The
Exchange Offer--Exchange Agent."
RESALES OF NEW CAPITAL SECURITIES. The Company and the Issuer Trust are
making the Exchange Offer in reliance on the position of the staff of the
Division of Corporation Finance of the Commission as set forth in certain
interpretive letters addressed to third parties in other transactions.
However, neither the Company nor the Issuer Trust has sought its own
interpretive letter and there can be no assurance that the staff of the
Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Division of Corporation Finance, and subject to the two
immediately following sentences, the Company and the Issuer Trust believe that
New Capital Securities issued pursuant to this Exchange Offer in exchange for
Old Capital Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Capital Securities
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such New Capital Securities. However, any holder of Old Capital
Securities who is an Affiliate or who intends to participate in the Exchange
Offer for the purpose of distributing the New Capital Securities, or any
broker-dealer who purchased the Old Capital Securities from the Issuer Trust
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act, (i) will not be able to rely on the interpretations of the
staff of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (ii) will not be permitted or
entitled to tender such Old Capital Securities in the Exchange Offer, and
(iii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or other transfer of such
Old Capital Securities unless such sale is made pursuant to an exemption from
such requirements. In addition, as described below, any Participating Broker-
Dealer must deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales of such New Capital Securities.
Each holder of Old Capital Securities that wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required
to represent that (i) it is not an Affiliate, (ii) any New Capital Securities
to be received by it are being acquired in the ordinary course of its
business, (iii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Capital Securities, and (iv) if such holder is not a broker-dealer,
such holder is not engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities Act) of such New Capital
Securities. The Letter of Transmittal contains the foregoing representations.
Each Participating Broker-Dealer will be deemed to have acknowledged by
execution of the Letter of Transmittal or delivery of an Agent's Message that
it acquired the Old Capital Securities for its own account as the result of
market-making activities or other trading activities and must agree that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Capital Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Company
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<PAGE>
and the Issuer Trust believe that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to the New Capital
Securities received upon exchange of such Old Capital Securities (other than
Old Capital Securities which represent an unsold allotment from the original
sale of the Old Capital Securities) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Capital Securities. Accordingly, this
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of New
Capital Securities received in exchange for Old Capital Securities where such
Old Capital Securities were acquired by such Participating Broker-Dealer for
its own account as a result of market-making or other trading activities.
Subject to certain provisions set forth in the Registration Rights Agreement
and to the limitations described below under "The Exchange Offer--Resale of
New Capital Securities," the Company and the Issuer Trust have agreed that
this Prospectus, as it may be amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in connection with resales of such
New Capital Securities for a period ending 90 days after the Expiration Date
or, if earlier, when all such New Capital Securities have been disposed of by
such Participating Broker-Dealer. See "Plan of Distribution." Any person,
including any Participating Broker-Dealer, who is an Affiliate may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of New Capital Securities."
EXCHANGE AGENT. The Exchange Agent is The Bank of New York. The address and
telephone and facsimile numbers of the Exchange Agent are set forth under "The
Exchange Offer--Exchange Agent" and in the Letter of Transmittal.
USE OF PROCEEDS
Neither the Company nor the Issuer Trust will receive any proceeds from the
issuance of the New Capital Securities offered hereby. See "Use of Proceeds."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS; CERTAIN ERISA CONSIDERATIONS
Holders of Old Capital Securities should review the information set forth
under "Certain Federal Income Tax Considerations" and "Certain ERISA
Considerations" prior to tendering Old Capital Securities in the Exchange
Offer.
NEW SECURITIES
GENERAL. The Capital Securities represent preferred undivided beneficial
interests in the assets of the Issuer Trust and will have a preference under
certain circumstances with respect to Distributions and amounts payable on
liquidation, redemption or otherwise over the Common Securities. See
"Description of New Securities--Description of Capital Securities;
Subordination of Common Securities." The sole assets of the Issuer Trust are
the Junior Subordinated Debentures, and payments under the Junior Subordinated
Debentures will be the sole revenue of the Issuer Trust. The Junior
Subordinated Debentures are unsecured subordinated debt securities issued
under the Indenture between the Company and The Bank of New York, as trustee.
SECURITIES OFFERED. The Issuer Trust is offering up to $100,000,000
aggregate Liquidation Amount of the Issuer Trust's New Capital Securities,
which have been registered under the Securities Act (Liquidation Amount $1,000
per Capital Security). The New Capital Securities will be issued, and the Old
Capital Securities were issued, under the Trust Agreement. The New Capital
Securities and any Old Capital Securities which remain outstanding after
consummation of the Exchange Offer will constitute a single series of Capital
Securities under the Trust Agreement and, accordingly, will vote together as a
single class for purposes of determining whether holders of the requisite
percentage in outstanding Liquidation Amount thereof have taken certain
actions or
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<PAGE>
exercised certain rights under the Trust Agreement. See "Description of New
Securities--Description of Capital Securities; General." The terms of the New
Capital Securities are identical in all material respects to the terms of the
Old Capital Securities, except that the New Capital Securities have been
registered under the Securities Act and therefore are not subject to certain
restrictions on transfer applicable to the Old Capital Securities and will not
provide for any increase in the Distribution rate thereon. See "The Exchange
Offer--Purpose of Exchange Offer," "Description of New Securities" and
"Description of Old Securities."
DISTRIBUTIONS. Holders of the Capital Securities will be entitled to receive
as a preference cumulative Distributions accruing from the date of original
issuance of the Old Capital Securities and payable semi-annually in arrears on
February 1 and August 1 of each year (the "Distribution Dates"), commencing
August 1, 1997, at the rate of 8.309% per annum, to the persons in whose names
the Capital Securities are registered at the close of business on the relevant
record dates. See "Description of New Securities--Description of Capital
Securities; Distributions."
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive accumulated Distributions on such Old Capital
Securities for any period from and after the last Distribution Date with
respect to such Old Capital Securities prior to the original issue date of the
New Capital Securities or, if no such Distributions have been made, will not
receive any accumulated Distributions on such Old Capital Securities, and will
be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after such Distribution Date or, if no
such Distributions have been made, from and after February 4, 1997.
RANKING. The Capital Securities will rank pari passu, and payments thereon
will be made pro rata, with the Common Securities except as described under
"Description of Capital Securities--Subordination of Common Securities." The
Junior Subordinated Debentures will rank pari passu with all other junior
subordinated debentures to be issued by the Company with substantially similar
subordination terms and which may be issued and sold (if at all) to other
trusts to be established by the Company (if any) ("Other Trusts"), and will be
unsecured and subordinate and junior in right of payment to the extent and in
the manner set forth in the Indenture to all Senior Indebtedness. See
"Description of New Securities--Description of Junior Subordinated
Debentures--Subordination." The Guarantee will rank pari passu with all other
guarantees (if any), to be issued by the Company with respect to capital
securities (if any), to be issued by Other Trusts and will constitute an
unsecured obligation of the Company and will rank subordinate and junior in
right of payment to the extent and in the manner set forth in the Guarantee
Agreement to all Senior Indebtedness of the Company. See "Description of New
Securities--Description of Guarantee."
EXTENSION PERIODS. Distributions on Capital Securities may be deferred for
the duration of any Extension Period selected by the Company with respect to
the payment of interest on the Junior Subordinated Debentures. No Extension
Period will exceed 10 consecutive semi-annual periods or extend beyond the
Stated Maturity. See "Description of New Securities--Description of Junior
Subordinated Debentures--Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount." So long as no Debenture Event of Default (as defined herein) has
occurred and is continuing, the Company has the right to defer payments of
interest on the Junior Subordinated Debentures at any time or from time to
time by extending the interest payment period thereon for Extension Periods of
up to 10 consecutive semi-annual periods with respect to each deferral period;
provided, however, that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures.
REDEMPTION. The Capital Securities are subject to mandatory redemption (i)
at the Stated Maturity upon repayment of the Junior Subordinated Debentures,
(ii) in whole but not in part prior to February 1, 2007 and contemporaneously
with the optional prepayment by the Company of the Junior Subordinated
Debentures upon the occurrence and continuation of a Tax Event and (iii) in
whole or in part at any time on or after February 1, 2007 contemporaneously
with the optional prepayment by the Company of the Junior Subordinated
Debentures, in each case at the applicable Redemption Price. See "Description
of New Securities--Description of Capital Securities--Redemption."
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<PAGE>
TRANSFER RESTRICTIONS. The Capital Securities will be issued, and may be
transferred, only in blocks having a Liquidation Amount of not less than
$100,000 (100 Capital Securities). Any transfer, sale or other disposition of
Capital Securities resulting in a block having a Liquidation Amount of less
than $100,000 shall be deemed to be void and of no legal effect whatsoever.
ERISA CONSIDERATIONS. Prospective purchasers must carefully consider the
restrictions on purchase set forth under "Notice to Investors" and "Certain
ERISA Considerations."
ABSENCE OF MARKET FOR OLD AND NEW CAPITAL SECURITIES. The New Capital
Securities will be a new issue of securities for which there currently is no
market. Goldman Sachs & Co., the initial purchaser of the Old Capital
Securities (the "Initial Purchaser"), informed the Company and the Issuer
Trust in connection with the offering of the Old Capital Securities that the
Initial Purchaser intended to make a market in the Old Capital Securities.
However, the Initial Purchaser is not obligated to make a market in the Old
Capital Securities or the New Capital Securities, and any such market making
activity with respect to the Old Capital Securities or the New Capital
Securities may be discontinued at any time without notice. Accordingly, no
assurance can be given that an active public or other market will develop for
the Old Capital Securities or the New Capital Securities or as to the
liquidity of or the trading market for the New Capital Securities or the Old
Capital Securities. The Company and the Issuer Trust do not intend to apply
for listing the Old Capital Securities or the New Capital Securities on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
RISK FACTORS
Holders of the Old Capital Securities should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters prior to tendering Old Capital Securities in
the Exchange Offer.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company for
the benefit of the holders of Capital Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness of the Company. At March 31, 1997, the aggregate
outstanding Senior Indebtedness of the Company was approximately $99.4
million. Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary, including PMI
Mortgage Insurance Co. ("PMI"), upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such distribution), is subject to the
prior claims of creditors of that subsidiary, except to the extent that the
Company may itself be recognized as a creditor of that subsidiary. In
addition, there are also various limitations on the extent to which the
Company's subsidiaries may pay dividends to the Company. See "The PMI Group,
Inc." Accordingly, the Junior Subordinated Debentures and the Guarantee will
be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders of Junior Subordinated Debentures and the
Guarantee should look only to the assets of the Company for payments on the
Junior Subordinated Debentures and the Guarantee. See "The PMI Group, Inc."
None of the Indenture, the Guarantee or the Trust Agreement places any
limitation on the amount of secured or unsecured debt, including Senior
Indebtedness, that may be incurred by the Company. See "Description of New
Securities--Description of Guarantee--Status of the Guarantee" and
"Description of Junior Subordinated Debentures--Subordination."
The ability of the Issuer Trust to pay amounts due on the Capital Securities
is solely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required.
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OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default under the Indenture (a "Debenture Event of
Default") has occurred or is continuing, the Company has the right under the
Indenture to defer the payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding 10
consecutive semi-annual periods with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. As a consequence of any such deferral, semi-
annual Distributions on the Capital Securities by the Issuer Trust will be
deferred (and the amount of Distributions to which holders of the Capital
Securities are entitled will accumulate additional Distributions thereon at
the rate of 8.309% per annum, compounded semi-annually from the relevant
payment date for such Distributions) during any such Extension Period. During
any such Extension Period, the Company may not, and may not permit any
subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company (including other junior subordinated
debentures) that rank pari passu in all respects with or junior in interest to
the Junior Subordinated Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions in common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee, (d) purchases of common stock related to the issuance of common
stock or rights under any of the Company's or its subsidiaries' benefit plans
for their directors, officers or employees and (e) purchases of fractional
interests of common stock in connection with a stock split, stock dividend or
a similar reclassification or combination). Prior to the termination of any
such Extension Period, the Company may further defer the payment of interest,
provided that no Extension Period may exceed 10 consecutive semi-annual
periods or extend beyond the Stated Maturity of the Junior Subordinated
Debentures. Upon the termination of any Extension Period and the payment of
all interest then accrued and unpaid (together with interest thereon at the
annual rate of 8.309%, compounded semi-annually, to the extent permitted by
applicable law), the Company may elect to begin a new Extension Period subject
to the above requirements. There is no limitation on the number of times that
the Company may elect to begin an Extension Period. See "Description of New
Securities--Description of Capital Securities--Distributions" and "Description
of New Securities--Description of Junior Subordinated Debentures--Option to
Extend Interest Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) in respect
of its pro rata share of the Junior Subordinated Debentures held by the Issuer
Trust for United States federal income tax purposes. As a result, a holder of
Capital Securities will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Issuer Trust if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount" and "--Sales or Redemption of Capital
Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Capital Securities is likely to
be affected. A holder that disposes of its Capital Securities during an
Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Capital Securities. In
addition, as a result of the existence of the Company's right to defer
interest payments, the market price of the Capital Securities (which represent
preferred beneficial interests in the Issuer Trust) may be more volatile than
the market prices of other securities on which original issue discount accrues
that are not subject to such deferrals.
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TAX EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, the Company
has the right, but not the obligation, to redeem the Junior Subordinated
Debentures in whole (but not in part) prior to February 1, 2007 and within 90
days following the occurrence of such Tax Event and therefore cause a
mandatory redemption of the Trust Securities before February 1, 2007. Any such
redemption shall be at a price equal to the Make-Whole Amount (as defined in
"Description of New Securities--Description of Capital Securities--
Redemption").
A "Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance
of the Capital Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of such opinion, will not be, deductible by the
Company, in whole or in part, for United States federal income tax purposes or
(iii) the Issuer Trust is, or will be within 90 days of the date of the
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
See "--Possible Tax Law Changes Affecting the Capital Securities" for a
discussion of certain legislative proposals that, if adopted, could give rise
to a Tax Event, which may permit the Company to cause a redemption of the
Capital Securities prior to February 1, 2007.
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holders of all of the outstanding Common Securities have the right at
any time to terminate the Issuer Trust and, after satisfaction of the
liabilities of creditors of the Issuer Trust as provided by applicable law,
cause the Junior Subordinated Debentures to be distributed to the holders of
the Capital Securities and Common Securities in liquidation of the Issuer
Trust, subject to the Property Trustee having received an opinion of counsel
to the effect that such distribution will not be a taxable event to holders of
Capital Securities. See "Description of New Securities--Description of Capital
Securities--Liquidation Distribution Upon Termination."
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
Junior Subordinated Debentures that may be distributed in exchange for Capital
Securities if a liquidation of the Issuer Trust occurs. Accordingly, the
Capital Securities that an investor may purchase, whether pursuant to the
offer made hereby or in the secondary market, or the Junior Subordinated
Debentures that a holder of Capital Securities may receive on liquidation of
the Issuer Trust, may trade at a discount to the price that the investor paid
to purchase the Capital Securities offered hereby. Because holders of Capital
Securities may receive Junior Subordinated Debentures on termination of the
Issuer Trust, prospective purchasers of Capital Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and
should carefully review all the information regarding the Junior Subordinated
Debentures contained herein. See "Description of New Securities--Description
of Junior Subordinated Debentures."
RIGHTS UNDER THE GUARANTEE
The Bank of New York will act as the trustee under the Guarantee (the
"Guarantee Trustee") and will hold the Guarantee for the benefit of the
holders of the Capital Securities. The Bank of New York will also act as
Debenture Trustee for the Junior Subordinated Debentures and as Property
Trustee and The Bank of New York (Delaware) will act as Delaware Trustee under
the Trust Agreement. The Guarantee guarantees to the holders of
16
<PAGE>
the Capital Securities the following payments, to the extent not paid by the
Issuer Trust: (i) any accumulated and unpaid Distributions required to be paid
on the Capital Securities, to the extent that the Issuer Trust has funds on
hand available therefor at such time, (ii) the Redemption Price with respect
to any Capital Securities called for redemption, to the extent that the Issuer
Trust has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary termination, winding-up or liquidation of the Issuer
Trust (unless the Junior Subordinated Debentures are distributed to holders of
the Capital Securities), the lesser of (a) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions to the date of payment to
the extent that the Issuer Trust has funds on hand available therefor at such
time and (b) the amount of assets of the Issuer Trust remaining available for
distribution to holders of the Capital Securities on liquidation of the Issuer
Trust. The Guarantee is subordinate as described under "--Ranking of
Subordinated Obligations Under the Guarantee and the Junior Subordinated
Debentures." The holders of not less than a majority in aggregate Liquidation
Amount of the Capital Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust
power conferred upon the Guarantee Trustee under the Guarantee. Any holder of
the Capital Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Issuer Trust, the Guarantee Trustee or any other
person or entity. If the Company were to default on its obligation to pay
amounts payable under the Junior Subordinated Debentures, the Issuer Trust
would lack funds for the payment of Distributions or amounts payable on
redemption of the Capital Securities or otherwise, and, in such event, holders
of the Capital Securities would not be able to rely upon the Guarantee for
payment of such amounts. Instead, in the event a Debenture Event of Default
shall have occurred and be continuing and such event is attributable to the
failure of the Company to pay interest on or principal of the Junior
Subordinated Debentures on the payment date on which such payment is due and
payable, then a holder of Capital Securities may institute a legal proceeding
directly against the Company for enforcement of payment to such holder of the
principal of or interest on such Junior Subordinated Debentures having a
principal amount equal to the aggregate Liquidation Amount of the Capital
Securities of such holder (a "Direct Action"). In connection with such Direct
Action, the Company will have a right of set-off under the Indenture to the
extent of any payment made by the Company to such holder of Capital Securities
in the Direct Action. Except as described herein, holders of Capital
Securities will not be able to exercise directly any other remedy available to
the holders of the Junior Subordinated Debentures or assert directly any other
rights in respect of the Junior Subordinated Debentures. See "Description of
New Securities--Description of Junior Subordinated Debentures--Enforcement of
Certain Rights by Holders of Capital Securities," "--Debenture Events of
Default" and "Description of New Securities--Description of Guarantee." The
Trust Agreement provides that each holder of Capital Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will generally have limited voting rights
relating only to the modification of the Capital Securities and the exercise
of the Issuer Trust's rights as holder of Junior Subordinated Debentures.
Holders of Capital Securities will not be entitled to appoint, remove or
replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events described herein. The Property Trustee and the
holders of all of the Common Securities may amend the Trust Agreement without
the consent of holders of Capital Securities to ensure that the Issuer Trust
will be classified for United States federal income tax purposes as a grantor
trust. See "Description of New Securities--Description of Capital Securities--
Voting Rights; Amendment of Trust Agreement" and "--Removal of Issuer
Trustees; Appointment of Successors."
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the United States Treasury Department proposed legislation that
would, among other things, deny an issuer a deduction for United States
federal income tax purposes for the payment of interest on instruments with
characteristics similar to the Junior Subordinated Debentures. If the proposed
legislation were enacted in its current form, it is not expected to apply
17
<PAGE>
to the Junior Subordinated Debentures because the proposed effective date for
this provision is the date of first committee action. Under current law, the
Company will be able to deduct interest on the Junior Subordinated Debentures.
There can be no assurance, however, that current or future legislative
proposals or final legislation will not affect the ability of the Company to
deduct interest on the Junior Subordinated Debentures. Such a change could
give rise to a Tax Event, which may permit the Company to cause a redemption
of the Capital Securities before February 1, 2007. See "Description of New
Securities--Description of Junior Subordinated Debentures--Redemption" and
"Description of New Securities--Description of Capital Securities--
Redemption." See also "Certain Federal Income Tax Consequences--Possible Tax
Law Changes."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD CAPITAL SECURITIES
The Old Capital Securities have not been registered under the Securities Act
or any state securities laws and therefore may not be offered, sold or
otherwise transferred except in compliance with the registration requirements
of the Securities Act and any other applicable securities laws, or pursuant to
an exemption therefrom or in a transaction not subject thereto, and in each
case in compliance with certain other conditions and restrictions. Old Capital
Securities which remain outstanding after consummation of the Exchange Offer
will continue to bear a legend reflecting such restrictions on transfer. In
addition, upon consummation of the Exchange Offer, holders of Old Capital
Securities which remain outstanding will not be entitled to any rights to have
such Old Capital Securities registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). The Company and the Issuer Trust do not intend to
register under the Securities Act any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer (subject to such limited
exceptions, if applicable).
To the extent that Old Capital Securities are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Old Capital Securities
could be adversely affected. In addition, although the Old Capital Securities
have been designated for trading in the Private Offerings, Resale and Trading
through Automatic Linkages ("PORTAL") market, to the extent that Old Capital
Securities are tendered and accepted in connection with the Exchange Offer,
any trading market for Old Capital Securities which remain outstanding after
the Exchange Offer could be adversely affected.
The New Capital Securities and any Old Capital Securities which remain
outstanding after consummation of the Exchange Offer will constitute a single
series of Capital Securities under the Trust Agreement and, accordingly, will
vote together as a single class for purposes of determining whether holders of
the requisite percentage in outstanding Liquidation Amount thereof have taken
certain actions or exercised certain rights under the Trust Agreement. See
"Description of New Securities--Description of Capital Securities--General."
The Old Capital Securities provide that, if the Exchange Offer is not
consummated by July 31, 1997, the Distribution rate borne by the Old Capital
Securities will increase by 0.25% per annum commencing on August 1, 1997,
until the Exchange Offer is consummated. See "Description of Old Securities."
Following consummation of the Exchange Offer, the Old Capital Securities will
not be entitled to any increase in the Distribution rate thereon. The New
Capital Securities will not be entitled to any such increase in the
Distribution rate thereon.
ABSENCE OF PUBLIC MARKET
The Old Capital Securities have not been registered under the Securities Act
and will be subject to restrictions on transferability to the extent that they
are not exchanged for the New Capital Securities. Although the New Capital
Securities will generally be permitted to be resold or otherwise transferred
by the holders (who are not Affiliates) without compliance with the
registration requirements under the Securities Act, they will constitute a new
issue of securities with no established trading market. Capital Securities may
be transferred by the holders thereof only in blocks having a Liquidation
Amount of not less than $100,000 (100 Capital Securities). The Company and the
Issuer Trust were advised by the Initial Purchaser in connection with the
offering of the Old Capital Securities that the Initial Purchaser intended to
make a market in the Old Capital
18
<PAGE>
Securities. However, the Initial Purchaser is not obligated to make a market
in the Old Capital Securities or the New Capital Securities and any such
market-making activity with respect to the Old Capital Securities or the New
Capital Securities may be discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer. Accordingly, no assurance can be given that an active public or other
market will develop for the New Capital Securities or the Old Capital
Securities or as to the liquidity of or the trading market for the New Capital
Securities or the Old Capital Securities. If an active public market does not
develop, the market price and liquidity of the New Capital Securities may be
adversely affected.
If a public trading market develops for the New Capital Securities, future
trading prices of such securities will depend on many factors, including,
among other things, prevailing interest rates, results of operations and the
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the New Capital Securities may trade at a discount.
Notwithstanding the registration of the New Capital Securities in the
Exchange Offer, holders who are Affiliates may publicly offer for sale or
resell the New Capital Securities only in compliance with the provisions of
Rule 144 under the Securities Act.
Each Participating Broker-Dealer that receives New Capital Securities for
its own account must acknowledge that it will deliver a prospectus in
connection with any resale of such New Capital Securities. See "Plan of
Distribution."
EXCHANGE OFFER PROCEDURES
Issuance of the New Capital Securities in exchange for Old Capital
Securities pursuant to the Exchange Offer will be made only after a timely
receipt by the Exchange Agent of such Old Capital Securities, a properly
completed and duly executed Letter of Transmittal or Agent's Message in lieu
thereof and all other required documents. Therefore, holders of the Old
Capital Securities desiring to tender such Old Capital Securities in exchange
for New Capital Securities should allow sufficient time to ensure timely
delivery. Neither the Company, the Issuer Trust, nor the Exchange Agent is
under any duty to give notification of defects or irregularities with respect
to the tenders of Old Capital Securities for exchange.
THE PMI GROUP, INC.
The Company is a holding company which conducts its business through its
direct wholly-owned subsidiaries, PMI, an Arizona corporation, and American
Pioneer Title Insurance Company, a Florida title insurance company, and
various other direct or indirect reinsurance and service subsidiaries. PMI
also owns 45% of the outstanding shares of common stock of CMG Mortgage
Insurance Company, a Wisconsin insurance company.
The Company, through PMI, is the third largest private mortgage insurer in
the United States with new primary insurance written of $17.9 billion and
$14.5 billion for the years ended December 31, 1996 and 1995, respectively,
and $3.1 billion and $3.9 billion for the first quarter of 1997 and 1996,
respectively. Direct primary insurance in force was $77.3 billion at December
31, 1996. In addition to primary mortgage insurance, the Company, through its
subsidiaries, provides title insurance and various services and products for
the home mortgage finance industry.
Because the Company is a holding company, the right of the Company to
participate in the assets of any subsidiary upon the latter's liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such distribution) will be subject to
the claims of the subsidiary's creditors, which will take priority except to
the extent that the Company may itself be a creditor with recognized
19
<PAGE>
claims against that subsidiary. There are also various limitations on the
extent to which the Company's subsidiaries may pay dividends to the Company.
PMI's ability to pay dividends is limited under Arizona law. The insurance
laws of Arizona provide that (i) PMI may pay dividends out of available
surplus and (ii) without prior approval of the Arizona Insurance Director,
such dividends during any 12-month period shall not exceed the lesser of 10%
of policyholders' surplus as of the preceding year end or the last calendar
year's net investment income. Available surplus includes paid-in surplus and
accordingly, at December 31, 1996, the most constraining limitation of Arizona
law was the limitation based on 10% of policyholders' surplus. In accordance
with Arizona law, PMI is permitted to pay ordinary dividends to the Company of
$30.7 million in 1997. In addition, PMI received permission from the Arizona
Insurance Director to pay an extraordinary cash dividend of $45 million to the
Company, which is scheduled to be paid on July 16, 1997.
PMI was founded in 1972 and was acquired by Allstate Insurance Company
("Allstate") in 1973. In April 1995, Allstate sold a majority of the Company
in an initial public offering. Allstate continues to own approximately 30% of
the outstanding capital stock of the Company. The principal executive offices
of the Company are located at 601 Montgomery Street, San Francisco, California
94111, telephone (415) 788-7878.
PMI CAPITAL I
The Issuer Trust is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement executed by the Company, as Depositor, The
Bank of New York, as Property Trustee and The Bank of New York (Delaware), as
Delaware Trustee, and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on January 24, 1997. The Issuer Trust's business
and affairs are conducted by its trustees: initially, The Bank of New York, as
Property Trustee, and The Bank of New York (Delaware), as Delaware Trustee. In
addition, three individuals who are employees or officers of or affiliated
with the holder of a majority of the Common Securities, will act as
administrative trustees with respect to the Issuer Trust (the "Administrative
Trustees"). The Issuer Trust exists for the exclusive purposes of (i) issuing
and selling the Trust Securities, (ii) using the proceeds from the sale of
Trust Securities to acquire Junior Subordinated Debentures issued by the
Company and (iii) engaging in only those other activities necessary or
incidental thereto (such as registering the transfer of the Trust Securities).
Accordingly, the Junior Subordinated Debentures and the right to reimbursement
of expenses under the related Expense Agreement will be the sole assets of the
Issuer Trust, and payments under the Junior Subordinated Debentures and the
related Expense Agreement will be the sole revenue of the Issuer Trust.
All of the Common Securities will be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Capital Securities, except that upon the occurrence and continuance
of an event of default under the Trust Agreement resulting from an event of
default under the Indenture, the rights of the holders of the Common
Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Capital Securities. See "Description of Capital Securities--
Subordination of Common Securities." The Company will acquire Common
Securities in an aggregate liquidation amount equal to 3% of the total capital
of the Issuer Trust. The Issuer Trust has a term of 31 years, but may
terminate earlier as provided in the Trust Agreement. The principal executive
office of the Issuer Trust is 601 Montgomery Street, San Francisco, California
94111, Attention: Administrative Trustees, and its telephone number is (415)
788-7878.
USE OF PROCEEDS
Neither the Company nor the Issuer Trust will receive any proceeds from the
issuance of the New Capital Securities offered hereby. The Old Capital
Securities surrendered in exchange for the New Capital Securities will be
retired and cancelled.
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<PAGE>
The proceeds from the sale of the Old Capital Securities were invested by
the Issuer Trust in the Old Junior Subordinated Debentures. The net proceeds
from the sale of the Old Junior Subordinated Debentures were added by the
Company to its general corporate funds and have been or will be used for
general corporate purposes, which may include, without limitation,
repurchasing the Company's common stock, financing possible future
acquisitions and funding investments in, or extension of credit to, the
Company's subsidiaries. Pending such use, the Company may temporarily invest
the net proceeds in investment grade marketable securities.
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of March 31, 1997 which reflects the sale of the Capital
Securities and the use of proceeds therefrom. The information set forth below
should be read in conjunction with the historical financial statements
incorporated herein by reference. The Exchange Offer will have no effect on
the capitalization of the Company.
<TABLE>
<CAPTION>
AT MARCH 31,
1997
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Long-Term Debt................................................. $ 99,359
----------
Company Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trust Holding Solely Junior Subordinated Deferrable
Interest Debentures of the Company(a)......................... 100,000
----------
Shareholders' Equity
Preferred Stock, par value $0.01 per share--5,000,000 shares
authorized, no shares issued and outstanding................ --
Common Stock, par value $0.01 per share--125,000,000 shares
authorized, 35,052,600 shares issued........................ 351
Additional Paid-In Capital................................... 258,225
Unrealized Net Gains on Investments.......................... 26,442
Retained Earnings............................................ 755,332
Treasury Stock, 1,104,300 shares............................. (60,363)
----------
Total Shareholders' Equity................................. 979,987
----------
Total Capitalization..................................... $1,179,346
==========
</TABLE>
- --------
(a) The Capital Securities are issued by the Issuer Trust. The sole assets of
the Issuer Trust consist of approximately $103,093,000 principal amount of
Junior Subordinated Debentures issued by the Company to the Issuer Trust
and the Expense Agreement. The Junior Subordinated Debentures bear
interest at the rate of 8.309% per annum and will mature on February 1,
2027. The Company owns all of the Common Securities of the Issuer Trust.
ACCOUNTING TREATMENT
For financial reporting purposes, the Issuer Trust is treated as a
subsidiary of the Company and, accordingly, the accounts of the Issuer Trust
are included in the consolidated financial statements of the Company. The
Capital Securities will be presented as a separate line item in the
consolidated balance sheets of the Company, entitled "Company Obligated
Mandatorily Redeemable Capital Securities of Subsidiary Trust Holding Solely
Junior Subordinated Deferrable Interest Debentures of the Company" and
appropriate disclosures about the Capital Securities, the Guarantee and the
Junior Subordinated Debentures will be included in the notes to the
consolidated financial statements. For financial reporting purposes, the
Company will record Distributions payable on the Capital Securities as an
expense in the consolidated statements of income.
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<PAGE>
The Company expects that future reports of the Company will: (i) present the
capital securities issued by any trusts created by the Company on the
Company's balance sheet in the separate line item entitled "Company Obligated
Mandatorily Redeemable Capital Securities of Subsidiary Trusts Holding Solely
Junior Subordinated Deferrable Interest Debentures of the Company"; (ii)
include in a footnote to the financial statements disclosure that the sole
assets of the trusts are the junior subordinated debentures and the related
expense agreement (specifying as to each trust the principal amount, interest
rate and maturity date of junior subordinated debentures held); and (iii) if
Staff Accounting Bulletin 53 treatment is sought, include, in an audited
footnote to the financial statements, disclosures that (a) the trusts are
wholly owned, (b) the sole assets of the trusts are the junior subordinated
debentures held and the related expense agreement, and (c) the obligations of
the Company under the junior subordinated debentures, the relevant indenture,
trust agreement and guarantee, in the aggregate, constitute a full and
unconditional guarantee by the Company of such trust's obligations under the
capital securities issued by such trust.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company and its consolidated subsidiaries for the periods indicated. For
purposes of computing the ratio of earnings to fixed charges, "earnings"
represent consolidated earnings from continuing operations before income taxes
plus fixed charges. "Fixed charges" consist of interest (and the portion of
rental expense deemed representative of the interest factor).
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------- ----------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges......................... 20.3x 89.9x 67.0x 89.3x 88.5x 73.5x 73.4x
</TABLE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF EXCHANGE OFFER
In connection with the sale of the Old Capital Securities, the Company and
the Issuer Trust entered into the Registration Rights Agreement with the
Initial Purchaser, pursuant to which the Company and the Issuer Trust agreed
to use their reasonable efforts to file and cause to be declared effective by
the Commission a registration statement with respect to the exchange of the
Old Capital Securities for capital securities with terms identical in all
material respects to the terms of the Old Capital Securities. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company and the Issuer Trust under the Registration Rights Agreement. The
form and terms of the New Capital Securities are the same as the form and
terms of the Old Capital Securities, except that the New Capital Securities
(i) have been registered under the Securities Act and therefore will not be
subject to certain restrictions on transfer applicable to the Old Capital
Securities, and (ii) will not provide for any increase in the Distribution
rate thereon. In that regard, the Old Capital Securities provide, among other
things, that, if the Exchange Offer is not consummated by July 31, 1997, the
Distribution rate borne by the Old Capital Securities will increase by 0.25%
per annum until the Exchange Offer is consummated. Upon consummation of the
Exchange Offer, holders of Old Capital Securities will not be entitled to any
increase in the Distribution rate thereon or any further registration rights
under the Registration Rights Agreement, except under limited circumstances.
See "Risk Factors--Consequences of a Failure to Exchange Old Capital
Securities" and "Description of Old Securities."
The Exchange Offer is not being made to, nor will the Issuer Trust or the
Company accept tenders for exchange from, holders of Old Capital Securities in
any jurisdiction in which the Exchange Offer or the acceptance thereof would
not be in compliance with the securities or blue sky laws of such
jurisdiction.
22
<PAGE>
Unless the context requires otherwise, the term "holder" with respect to the
Exchange Offer means any person in whose name the Old Capital Securities are
registered on the books of the Issuer Trust or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Old Capital Securities are held of record by DTC who desires to
deliver such Old Capital Securities by book-entry transfer at DTC.
Pursuant to the Exchange Offer, the Company will exchange as soon as
practicable after the date hereof, the Old Guarantee for the New Guarantee and
all of the Old Junior Subordinated Debentures, of which $103,093,000 aggregate
principal amount is outstanding, for a like aggregate principal amount of the
New Junior Subordinated Debentures. The New Guarantee and New Junior
Subordinated Debentures have been registered under the Securities Act.
TERMS OF EXCHANGE
The Issuer Trust hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $100,000,000 aggregate Liquidation Amount of New Capital
Securities for a like aggregate Liquidation Amount of Old Capital Securities
properly tendered on or prior to the Expiration Date and not properly
withdrawn in accordance with the procedures described below. The Issuer Trust
will issue, promptly after the Expiration Date, an aggregate Liquidation
Amount of up to $100,000,000 of New Capital Securities in exchange for a like
aggregate Liquidation Amount of outstanding Old Capital Securities tendered
and accepted in connection with the Exchange Offer. Holders may tender their
Old Capital Securities in whole or in part in a Liquidation Amount of not less
than $100,000 or any integral multiple of $1,000 in excess thereof, provided
that if any Old Capital Securities are tendered in exchange for part, the
untendered Liquidation Amount must be $100,000 or any integral multiple of
$1,000 in excess thereof.
The Exchange Offer is not conditioned upon any minimum Liquidation Amount of
Old Capital Securities being tendered. As of the date of this Prospectus,
$100,000,000 aggregate Liquidation Amount of the Old Capital Securities is
outstanding.
Holders of Old Capital Securities do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Old Capital Securities which are
not tendered for or are tendered but not accepted in connection with the
Exchange Offer will remain outstanding and be entitled to the benefits of the
Trust Agreement, but will not be entitled to any further registration rights
under the Registration Rights Agreement, except under limited circumstances.
See "Risk Factors--Consequences of a Failure to Exchange Old Capital
Securities" and "Description of Old Securities."
If any tendered Old Capital Securities are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein
or otherwise, certificates for any such unaccepted Old Capital Securities will
be returned, without expense, to the tendering holder thereof promptly after
the Expiration Date.
Holders who tender Old Capital Securities in connection with the Exchange
Offer will not be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange of Old Capital Securities in connection with the Exchange Offer.
The Company will pay all charges and expenses, other than certain applicable
taxes described below, in connection with the Exchange Offer. See "--Fees and
Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR ANY ADMINISTRATIVE TRUSTEE
OR ANY TRUSTEE OF THE ISSUER TRUST MAKES ANY RECOMMENDATION TO HOLDERS OF OLD
CAPITAL SECURITIES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR
ANY PORTION OF THEIR OLD CAPITAL SECURITIES PURSUANT TO THE EXCHANGE OFFER. IN
ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD CAPITAL SECURITIES MUST MAKE THEIR
23
<PAGE>
OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE
AGGREGATE AMOUNT OF OLD CAPITAL SECURITIES TO TENDER AFTER READING THIS
PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING WITH THEIR ADVISERS,
IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on July 31,
1997, unless the Exchange Offer is extended by the Company and the Issuer
Trust (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended).
The Company and the Issuer Trust expressly reserve the right in their sole
discretion, subject to applicable law, at any time and from time to time, (i)
to delay the acceptance of the Old Capital Securities for exchange, (ii) to
terminate the Exchange Offer (whether or not any Old Capital Securities have
theretofore been accepted for exchange) if the Company and the Issuer Trust
determine, in their sole discretion, that any of the events or conditions
referred to under "--Conditions to the Exchange Offer" have occurred or exist
or have not been satisfied, (iii) to extend the Expiration Date of the
Exchange Offer and retain all Old Capital Securities tendered pursuant to the
Exchange Offer, subject, however, to the right of holders of Old Capital
Securities to withdraw their tendered Old Capital Securities as described
under "--Withdrawal Rights," and (iv) to waive any condition or otherwise
amend the terms of the Exchange Offer in any respect. If the Exchange Offer is
amended in a manner determined by the Company and the Issuer Trust to
constitute a material change, or if the Company and the Issuer Trust waive a
material condition of the Exchange Offer, the Company and the Issuer Trust
will promptly disclose such amendment by means of an amended or supplemented
Prospectus that will be distributed to the registered holders of the Old
Capital Securities, and the Company and the Issuer Trust will extend the
Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and
by making a public announcement thereof, and such announcement in the case of
an extension will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date. Without
limiting the manner in which the Company and the Issuer Trust may choose to
make any public announcement and subject to applicable law, the Company and
the Issuer Trust shall have no obligation to publish, advertise or otherwise
communicate any such public announcement other than by issuing a release to an
appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW CAPITAL SECURITIES
Upon the terms and subject to the conditions of the Exchange Offer, the
Issuer Trust will exchange, and will issue to the Exchange Agent, New Capital
Securities for Old Capital Securities validly tendered and not withdrawn
(pursuant to the withdrawal rights described under "--Withdrawal Rights")
promptly after the Expiration Date.
In all cases, delivery of New Capital Securities in exchange for Old Capital
Securities tendered and accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of (i) Old
Capital Securities or a book-entry confirmation of a book-entry transfer of
Old Capital Securities into the Exchange Agent's account at DTC, including an
Agent's Message if the tendering holder has not delivered a Letter of
Transmittal, (ii) the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees or (in the
case of a book-entry transfer) an Agent's Message in lieu of the Letter of
Transmittal, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a book-
entry transfer of Old Capital Securities into the Exchange Agent's account at
DTC. The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgement
from the tendering participant, which
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acknowledgement states that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Issuer Trust and the Company
may enforce such Letter of Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, the Company and
the Issuer Trust will be deemed to have accepted for exchange, and thereby
exchanged, Old Capital Securities validly tendered and not withdrawn as, if
and when the Issuer Trust gives oral or written notice to the Exchange Agent
of the Company's and the Issuer Trust's acceptance of such Old Capital
Securities for exchange pursuant to the Exchange Offer. The Exchange Agent
will act as agent for the Company and the Issuer Trust for the purpose of
receiving tenders of Old Capital Securities, Letters of Transmittal and
related documents, and as agent for tendering holders for the purpose of
receiving Old Capital Securities, Letters of Transmittal and related documents
and transmitting New Capital Securities to validly tendering holders. Such
exchange will be made promptly after the Expiration Date. If for any reason
whatsoever, acceptance for exchange or the exchange of any Old Capital
Securities tendered pursuant to the Exchange Offer is delayed (whether before
or after the Company's and the Issuer Trust's acceptance for exchange of Old
Capital Securities) or the Company and the Issuer Trust extend the Exchange
Offer or are unable to accept for exchange or exchange Old Capital Securities
tendered pursuant to the Exchange Offer, then, without prejudice to the
Company's and the Issuer Trust's rights set forth herein, the Exchange Agent
may, nevertheless, on behalf of the Company and the Issuer Trust and subject
to Rule 14e-l(c) under the Exchange Act, retain tendered Old Capital
Securities and such Old Capital Securities may not be withdrawn except to the
extent tendering holders are entitled to withdrawal rights as described under
"--Withdrawal Rights."
Pursuant to the Letter of Transmittal or Agent's Message in lieu thereof, a
holder of Old Capital Securities will warrant and agree in the Letter of
Transmittal that it has full power and authority to tender, exchange, sell,
assign and transfer Old Capital Securities, that the Issuer Trust will acquire
good, marketable and unencumbered title to the tendered Old Capital
Securities, free and clear of all liens, restrictions, charges and
encumbrances, and the Old Capital Securities tendered for exchange are not
subject to any adverse claims or proxies. The holder also will warrant and
agree that it will, upon request, execute and deliver any additional documents
deemed by the Company, the Issuer Trust or the Exchange Agent to be necessary
or desirable to complete the exchange, sale, assignment, and transfer of the
Old Capital Securities tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD CAPITAL SECURITIES
VALID TENDER. Except as set forth below, in order for Old Capital Securities
to be validly tendered pursuant to the Exchange Offer, a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, or (in the case of a book-entry tender) an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must be received by the Exchange Agent at its address set forth
under "--Exchange Agent," and either (i) tendered Old Capital Securities must
be received by the Exchange Agent, or (ii) such Old Capital Securities must be
tendered pursuant to the procedures for book-entry transfer set forth below
and a book-entry confirmation, including an Agent's Message if the tendering
holder has not delivered a Letter of Transmittal, must be received by the
Exchange Agent, in each case on or prior to the Expiration Date, or (iii) the
guaranteed delivery procedures set forth below must be complied with.
If less than all of the Old Capital Securities are tendered, a tendering
holder should fill in the amount of Old Capital Securities being tendered in
the appropriate box on the Letter of Transmittal and the untendered
Liquidation Amount must be $100,000 or any integral multiple of $1,000 in
excess thereof. The entire amount of Old Capital Securities delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL,
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RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE
IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE
TIMELY DELIVERY.
BOOK ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Capital Securities at DTC for purposes of the Exchange
Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the Old Capital Securities
by causing DTC to transfer such Old Capital Securities into the Exchange
Agent's account at DTC in accordance with DTC's procedures for transfers.
However, although delivery of Old Capital Securities may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or an Agent's Message in lieu of the Letter
of Transmittal, and any other required documents, must in any case be
delivered to and received by the Exchange Agent at its address set forth under
"--Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Capital Securities need not
be endorsed and signature guarantees on the Letter of Transmittal are
unnecessary unless (i) a certificate for the Old Capital Securities is
registered in a name other than that of the person surrendering the
certificate or (ii) such registered holder completes the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" in the Letter of
Transmittal. In the case of (i) or (ii) above, such certificates for Old
Capital Securities must be duly endorsed or accompanied by a properly executed
bond power, with the endorsement or signature on the bond power and on the
Letter of Transmittal guaranteed by a firm or other entity identified in Rule
17Ad-15 under the Exchange Act as an "eligible guarantor institution,"
including (as such terms are defined therein): (i) a bank; (ii) a broker,
dealer, municipal securities broker or dealer or government securities broker
or dealer; (iii) a credit union; (iv) a national securities exchange,
registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 1 to the Letter of Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Capital Securities
pursuant to the Exchange Offer and the certificates for such Old Capital
Securities are not immediately available or time will not permit all required
documents to reach the Exchange Agent on or before the Expiration Date, or the
procedures for book-entry transfer cannot be completed on a timely basis, such
Old Capital Securities may nevertheless be tendered, provided that all of the
following guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Capital Securities, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof), with any required signature
guarantees and any other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Capital
Securities in exchange for Old Capital Securities tendered and accepted for
exchange pursuant to the Exchange Offer will in all cases be made
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only after timely receipt by the Exchange Agent of Old Capital Securities, or
of a book-entry confirmation with respect to such Old Capital Securities, and
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof), together with any required
signature guarantees and any other documents required by the Letter of
Transmittal. Accordingly, the delivery of New Capital Securities might not be
made to all tendering holders at the same time, and will depend upon when Old
Capital Securities, book-entry confirmations with respect to Old Capital
Securities and other required documents are received by the Exchange Agent.
The Company's and the Issuer Trust's acceptance for exchange of Old Capital
Securities tendered pursuant to any of the procedures described above will
constitute a binding agreement among the tendering holder, the Company and the
Issuer Trust upon the terms and subject to the conditions of the Exchange
Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange
of any tendered Old Capital Securities will be determined by the Company and
the Issuer Trust, in their sole discretion, whose determination shall be final
and binding on all parties. The Company and the Issuer Trust reserve the
absolute right, in their sole discretion, to reject any and all tenders
determined by them not to be in proper form or the acceptance of which, or
exchange for, may, in the view of counsel to the Company or the Issuer Trust,
be unlawful. The Company and the Issuer Trust also reserve the absolute right,
subject to applicable law, to waive any of the conditions of the Exchange
Offer as set forth under "--Conditions to the Exchange Offer" or any condition
or irregularity in any tender of Old Capital Securities of any particular
holder whether or not similar conditions or irregularities are waived in the
case of other holders.
The Company's and the Issuer Trust's interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding. No tender of Old Capital
Securities will be deemed to have been validly made until all irregularities
with respect to such tender have been cured or waived. Neither the Company,
the Issuer Trust, any affiliates or assigns of the Company or the Issuer
Trust, the Exchange Agent nor any other person shall be under any duty to give
any notification of any irregularities in tenders or incur any liability for
failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Issuer
Trust, proper evidence satisfactory to the Company and the Issuer Trust, in
their sole discretion, of such person's authority to so act must be submitted.
A beneficial owner of Old Capital Securities that are held by or registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee or custodian is urged to contact such entity promptly if such
beneficial holder wishes to participate in the Exchange Offer.
RESALES OF NEW CAPITAL SECURITIES
The Issuer Trust is making the Exchange Offer for the Capital Securities in
reliance on the position of the staff of the Division of Corporation Finance
of the Commission as set forth in certain interpretive letters addressed to
third parties in other transactions. However, neither the Company nor the
Issuer Trust sought its own interpretive letter, and there can be no assurance
that the staff of the Division of Corporation Finance of the Commission would
make a similar determination with respect to the Exchange Offer as it has in
such interpretive letters to third parties. Based on these interpretations by
the staff of the Division of Corporation Finance, and subject to the two
immediately following sentences, the Company and the Issuer Trust believe that
New Capital Securities issued pursuant to this Exchange Offer in exchange for
Old Capital Securities may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Capital Securities
are acquired in the ordinary course of such holder's business and that such
holder is
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not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Capital Securities. However, any holder of Old Capital Securities who
is an Affiliate or who intends to participate in the Exchange Offer for the
purpose of distributing New Capital Securities, or any broker-dealer who
purchased Old Capital Securities from the Issuer Trust to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (i) will
not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (ii) will not be permitted or entitled to tender such
Old Capital Securities in the Exchange Offer, and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Capital Securities
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, Participating Broker-Dealers must deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resales of New Capital Securities.
Each holder of Old Capital Securities who wishes to exchange Old Capital
Securities for New Capital Securities in the Exchange Offer will be required
to represent that (i) it is not an Affiliate, (ii) any New Capital Securities
to be received by it are being acquired in the ordinary course of its
business, (iii) it has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of
such New Capital Securities, and (iv) if such holder is not a broker-dealer,
such holder is not engaged in, and does not intend to engage in, a
distribution (within the meaning of the Securities Act) of such New Capital
Securities. The Letter of Transmittal contains the foregoing representations.
Each Participating Broker-Dealer will be deemed to have acknowledged by
execution of the Letter of Transmittal or delivery of an Agent's Message that
it acquired the Old Capital Securities for its own account as the result of
market-making activities or other trading activities and must agree that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Capital Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, the Company and the Issuer Trust
believe that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the New Capital Securities received upon
exchange of such Old Capital Securities (other than Old Capital Securities
which represent an unsold allotment from the original sale of the Old Capital
Securities) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale
of such New Capital Securities. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales
of New Capital Securities received in exchange for Old Capital Securities
where such Old Capital Securities were acquired by such Participating Broker-
Dealer for its own account as a result of market-making or other trading
activities. Subject to certain provisions set forth in the Registration Rights
Agreement, the Company and the Issuer Trust have agreed that this Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Capital
Securities for a period ending 90 days after the Expiration Date or, if
earlier, when all such New Capital Securities have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." Any person, including
any Participating Broker-Dealer, who is an Affiliate may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Capital
Securities pursuant to the Exchange Offer will be deemed to have agreed, by
execution of the Letter of Transmittal or delivery of an Agent's Message in
lieu thereof, that, upon receipt of notice from the Company or the Issuer
Trust of the occurrence of any event or the discovery of any fact which makes
any statement contained or incorporated by reference in this Prospectus untrue
in any material respect or which causes this Prospectus to omit to state a
material fact necessary in order to make the statements contained or
incorporated by reference herein, in light of the circumstances under which
they were made, not misleading or of the occurrence of certain other events
specified in the Registration Rights Agreement, such Participating Broker-
Dealer will suspend the sale of New
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Securities pursuant to this Prospectus until the Company or the Issuer Trust
has amended or supplemented this Prospectus to correct such misstatement or
omission and has furnished copies of the amended or supplemented Prospectus to
such Participating Broker-Dealer or the Company or the Issuer Trust has given
notice that the sale of the New Securities may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Capital Securities may
be withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its address set forth under "--Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Capital Securities to be withdrawn,
the aggregate principal amount of Old Capital Securities to be withdrawn, and
(if certificates for such Old Capital Securities have been tendered) the name
of the registered holder of the Old Capital Securities as set forth on the Old
Capital Securities, if different from that of the person who tendered such Old
Capital Securities. If Old Capital Securities have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such
Old Capital Securities, the tendering holder must submit the certificate
numbers shown on the particular Old Capital Securities to be withdrawn and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Old Capital Securities tendered for the
account of an Eligible Institution. If Old Capital Securities have been
tendered pursuant to the procedures for book-entry transfer set forth in "--
Procedures for Tendering Old Capital Securities," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Old Capital Securities, in which case a notice of withdrawal
will be effective if delivered to the Exchange Agent by written, telegraphic,
telex or facsimile transmission. Withdrawals of tenders of Old Capital
Securities may not be rescinded. Old Capital Securities properly withdrawn
will not be deemed validly tendered for purposes of the Exchange Offer, but
may be retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "--Procedures for
Tendering Old Capital Securities."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company and the
Issuer Trust, in their sole discretion, whose determination shall be final and
binding on all parties. Neither the Company, the Issuer Trust, any affiliates
or assigns of the Company or the Issuer Trust, the Exchange Agent nor any
other person shall be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure
to give any such notification. Any Old Capital Securities which have been
tendered but which are withdrawn will be returned to the holder thereof
promptly after withdrawal.
DISTRIBUTIONS ON NEW CAPITAL SECURITIES
Holders of Old Capital Securities whose Old Capital Securities are accepted
for exchange will not receive accumulated Distributions on such Old Capital
Securities for any period from and after the last Distribution Date with
respect to such Old Capital Securities prior to the original issue date of the
New Capital Securities or, if no such Distributions have been made, will not
receive any accumulated Distributions on such Old Capital Securities, and will
be deemed to have waived the right to receive any Distributions on such Old
Capital Securities accumulated from and after such Distribution Date or, if no
such Distributions have been made, from and after February 4, 1997.
CONDITIONS TO EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Company and the Issuer Trust will not be required
to accept for exchange, or to exchange, any Old Capital Securities for any New
Capital Securities, and, as described below, may terminate the Exchange Offer
(whether
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or not any Old Capital Securities have theretofore been accepted for exchange)
or may waive any conditions to or amend the Exchange Offer, if any of the
following conditions have occurred or exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the staff
of the Commission which permits the New Capital Securities issued pursuant
to the Exchange Offer in exchange for Old Capital Securities to be offered
for resale, resold and otherwise transferred by holders thereof (other than
broker-dealers and any such holder which is an Affiliate) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Capital Securities are acquired in
the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the
distribution of such New Capital Securities;
(b) any action or proceeding shall have been instituted or threatened in
any court or by or before any governmental agency or body with respect to
the Exchange Offer which, in the Company's and the Issuer Trust's judgment,
would reasonably be expected to impair the ability of the Issuer Trust or
the Company to proceed with the Exchange Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's and the Issuer Trust's judgment, would
reasonably be expected to impair the ability of the Issuer Trust or the
Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States
federal or New York State authorities which, in the Company's and the
Issuer Trust's judgment, would reasonably be expected to impair the ability
of the Issuer Trust or the Company to proceed with the Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority which, in the Company's and
the Issuer Trust's judgment, would reasonably be expected to impair the
ability of the Issuer Trust or the Company to proceed with the Exchange
Offer;
(f) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Company or the Issuer Trust, threatened for that purpose or any
governmental approval has not been obtained, which approval the Company and
the Issuer Trust shall deem necessary for the consummation of the Exchange
Offer as contemplated hereby; or
(g) any change, or any development involving a prospective change, in the
business or financial affairs of the Issuer Trust or the Company or any of
its subsidiaries has occurred which, in the judgment of the Company and the
Issuer Trust, might materially impair the ability of the Issuer Trust or
the Company to proceed with the Exchange Offer.
If the Company and the Issuer Trust determine in their sole discretion that
any of the foregoing events or conditions has occurred or exists or has not
been satisfied, the Company and the Issuer Trust may, subject to applicable
law, terminate the Exchange Offer (whether or not any Old Capital Securities
have theretofore been accepted for exchange) or may waive any such condition
or otherwise amend the terms of the Exchange Offer in any respect. If such
waiver or amendment constitutes a material change to the Exchange Offer, the
Company and the Issuer Trust will promptly disclose such waiver by means of an
amended or supplemented Prospectus that will be distributed to the registered
holders of the Old Capital Securities, and the Company and the Issuer Trust
will extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
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EXCHANGE AGENT
The Bank of New York been appointed as Exchange Agent for the Exchange
Offer. Delivery of the Letters of Transmittal and any other required
documents, questions, requests for assistance, and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed
to the Exchange Agent as follows:
The Bank of New York
101 Barclay Street-7E
New York, NY 10286
Attention: Shilpa Privedi
Telephone: (212) 815-5789
Facsimile: (212) 815-6339
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Capital Securities, and in handling
or tendering for their customers.
Holders who tender their Old Capital Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however, New
Capital Securities are to be delivered to, or are to be issued in the name of,
any person other than the registered holder of the Old Capital Securities
tendered, or if a transfer tax is imposed for any reason other than the
exchange of Old Capital Securities in connection with the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
Neither the Company nor the Issuer Trust will make any payment to brokers,
dealers or others soliciting acceptances of the Exchange Offer.
DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement for the Issuer Trust, the
Issuer Trustees on behalf of the Issuer Trust have issued the Old Capital
Securities and the Common Securities and will issue the New Capital
Securities. The New Capital Securities will represent preferred undivided
beneficial interests in the assets of the Issuer Trust and the holders thereof
will be entitled to a preference in certain circumstances with respect to
Distributions and amounts payable on redemption or liquidation over the Common
Securities of the Issuer Trust, as well as other benefits as described in the
Trust Agreement. The Trust Agreement has been qualified under the Trust
Indenture Act. This summary of certain provisions of the Capital Securities,
the Common Securities and the Trust Agreement describes the material terms
thereof but does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Trust
Agreement, including the definitions therein of certain terms
GENERAL
The Capital Securities (including the Old Capital Securities and the New
Capital Securities) will be limited to $100,000,000 aggregate Liquidation
Amount outstanding. The Capital Securities will rank pari passu, and payments
will be made thereon pro rata, with the Common Securities except as described
under "--Subordination of
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Common Securities." Legal title to the Junior Subordinated Debentures will be
held by the Issuer Trust in trust for the benefit of the holders of the
Capital Securities and Common Securities. The Guarantee Agreement executed by
the Company for the benefit of the holders of the Capital Securities will be a
guarantee on a subordinated basis with respect to the Capital Securities but
will not guarantee payment of Distributions or amounts payable on redemption
or liquidation of such Capital Securities when the Issuer Trust does not have
funds on hand available to make such payments. See "--Description of
Guarantee."
DISTRIBUTIONS
Distributions on the Capital Securities are cumulative from the date of
original issuance of the Old Capital Securities and are payable as a
preference at the annual rate of 8.309% of the stated Liquidation Amount of
$1,000, payable semi-annually in arrears on February 1 and August 1 of each
year (each a "Distribution Date"), to the holders of the Capital Securities at
the close of business on the January 15 or July 15, as the case may be, next
preceding the relevant Distribution Date. The first Distribution Date for the
Capital Securities will be August 1, 1997. The amount of Distributions payable
for any period less than a full Distribution period will be computed on the
basis of a 360-day year of twelve 30-day months. Distributions payable for
each full Distribution period will be computed by dividing the rate per annum
by two. In the event that any date on which Distributions are payable on the
Capital Securities is not a day other than (a) a Saturday or Sunday, (b) 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 (c) a day on which the
Property Trustee's Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business (a "Business Day"), then payment of
the Distributions payable on such date will be made on the next succeeding day
that is a Business Day (and without any additional Distributions or other
payment in respect of any such delay).
So long as no Event of Default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture to defer the payment
of interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 10 consecutive semi-annual periods with
respect to each Extension Period, provided that no Extension Period may extend
beyond the Stated Maturity of the Junior Subordinated Debentures. As a
consequence of any such election, semi-annual Distributions on the Capital
Securities will be deferred by the Issuer Trust during any such Extension
Period. Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon at the rate per annum of
8.309% thereof, compounded semi-annually from the relevant payment date for
such Distributions, computed on the basis of a 360-day year of twelve 30-day
months. Additional Distributions payable for each full Distribution period
will be computed by dividing the rate per annum by two. The term
"Distributions" as used herein shall include any such additional
Distributions. During any such Extension Period, the Company may not, and may
not permit any subsidiary of the Company to (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire, or make a liquidation
payment with respect to, any of the Company's capital stock, (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu in all respects
with or junior in interest to the Junior Subordinated Debentures or (iii) make
any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company if such guarantee ranks pari
passu with or junior in interest to the Junior Subordinated Debentures (other
than (a) dividends or distributions in common stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee, (d) purchases of common stock related to the
issuance of common stock or rights under any of the Company's or its
subsidiaries' benefit plans for their directors, officers or employees and (e)
purchases of fractional interests of common stock in connection with a stock
split, stock dividend or a similar reclassification or combination). Prior to
the termination of any such Extension Period, the Company may further defer
the payment of interest, provided that no Extension Period may exceed 10
consecutive semi-annual periods or extend beyond the Stated Maturity of the
Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due, the Company may elect to begin
a new Extension Period. There is no limitation on the number of times that the
Company may elect to begin an Extension Period. See "--Description of Junior
Subordinated Debentures--Option To Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
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The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
The revenue of the Issuer Trust available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures." If the
Company does not make interest payments on the Junior Subordinated Debentures,
the Issuer Trust will not have funds available to pay Distributions on the
Capital Securities. The payment of Distributions (if and to the extent the
Issuer Trust has funds legally available for the payment of such Distributions
and cash sufficient to make such payments) is guaranteed by the Company on a
limited basis as set forth herein under "--Description of Guarantee."
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Junior
Subordinated Debentures, whether at their Stated Maturity or upon earlier
redemption as provided in the Indenture, the proceeds from such repayment or
redemption shall be applied by the Property Trustee to redeem a Like Amount
(as defined below) of the Trust Securities, upon not less than 30 nor more
than 60 days' notice, at a redemption price (the "Redemption Price") equal to
the aggregate Liquidation Amount of such Trust Securities plus accumulated but
unpaid Distributions thereon to the date of redemption (the "Redemption Date")
and the related amount of the premium, if any, paid by the Company upon the
concurrent redemption of such Junior Subordinated Debentures. See "--
Description of Junior Subordinated Debentures--Redemption." If less than all
of the Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption pro rata of the Capital Securities and the Common
Securities. The amount of premium, if any, paid by the Company upon the
redemption of all or any part of Junior Subordinated Debentures to be repaid
or redeemed on a Redemption Date shall be allocated to the redemption pro rata
of the Capital Securities and the Common Securities.
The Company has the right to redeem the Junior Subordinated Debentures (i)
on or after February 1, 2007, in whole at any time or in part from time to
time, or (ii) in whole (but not in part) prior to February 1, 2007 and within
90 days following the occurrence of a Tax Event (as defined below). A
redemption of the Junior Subordinated Debentures would cause a mandatory
redemption of the Capital Securities and Common Securities.
The Redemption Price, in the case of a redemption under (i) above, shall
equal the following prices expressed in percentages of the Liquidation Amount
(as defined below) together with accrued Distributions to but excluding the
date fixed for redemption. If redeemed during the 12-month period beginning
February 1:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2007.......................................... 104.1545%
2008.......................................... 103.7391
2009.......................................... 103.3236
2010.......................................... 102.9082
2011.......................................... 102.4927
2012.......................................... 102.0773
2013.......................................... 101.6618
2014.......................................... 101.2464
2015.......................................... 100.8309
2016.......................................... 100.4155
</TABLE>
and at 100% on or after February 1, 2017.
The Redemption Price, in the case of a redemption following a Tax Event as
described under (ii) above, shall equal for each Trust Security the Make-Whole
Amount for a corresponding $1,000 principal amount of Junior Subordinated
Debentures together with accrued Distributions to but excluding the date fixed
for
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redemption. The "Make-Whole Amount" shall be equal to the greater of (i) 100%
of the principal amount of such Junior Subordinated Debentures or (ii) as
determined by a Quotation Agent (as defined below), the sum of the present
values of the principal amount and premium payable as part of the Redemption
Price with respect to an optional redemption of such Junior Subordinated
Debentures on February 1, 2007, together with scheduled payments of interest
from the prepayment date to February 1, 2007 (the "Remaining Life"), in each
case discounted to the Redemption Date on a semi-annual basis (assuming a 360-
day year consisting of 30-day months) at the Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate plus (i) 1.15% if such Redemption Date occurs on or before
February 1, 1998 or (ii) 0.50% if such Redemption Date occurs after February
1, 1998.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently
published statistical release designated "H.15(519)" or any successor
publication which is published weekly by the Federal Reserve and which
establishes yields on actively traded United States Treasury securities
adjusted to constant maturity under the caption "Treasury Constant
Maturities," for the maturity corresponding to the Remaining Life (if no
maturity is within three months before or after the Remaining Life, yields for
the two published maturities most closely corresponding to the Remaining Life
shall be determined and the Treasury Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such Redemption Date. The Treasury
Rate shall be calculated on the third Business Day preceding the Redemption
Date.
"Comparable Treasury Issue" means with respect to any Redemption Date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing
new issues of corporate debt securities of comparable maturity to the
Remaining Life. If no United States Treasury security has a maturity which is
within a period from three months before to three months after February 1,
2007, the two most closely corresponding United States Treasury securities
shall be used as the Comparable Treasury Issue, and the Treasury Rate shall be
interpolated or extrapolated on a straight-line basis, rounding to the nearest
month using such securities.
"Comparable Treasury Price" means, with respect to any Redemption Date, (A)
the average of five Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Debenture Trustee obtains fewer than five such
Reference Treasury Dealer Quotations, the average of all such Quotations.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Capital Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used to
pay the Redemption Price of the Trust Securities and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities
in connection with a dissolution or liquidation of the Issuer Trust, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Quotation Agent" means Goldman, Sachs & Co. and their respective
successors; provided, however, that if the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Company shall substitute therefor another Primary
Treasury Dealer.
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<PAGE>
"Reference Treasury Dealer" means (i) the Quotation Agent and (ii) any other
Primary Treasury Dealer selected by the Debenture Trustee after consultation
with the Company.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Debenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted
in writing to the Debenture Trustee by such Reference Treasury Dealer at 5:00
p.m., New York City time, on the third Business Day preceding such Redemption
Date.
"Tax Event" means the receipt by the Issuer Trust of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance
of such Capital Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer Trust is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on the Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion, will not be, deductible by
the Company, in whole or in part, for United States federal income tax
purposes or (iii) the Issuer Trust is, or will be within 90 days of the date
of such opinion, subject to more than a de minimis amount of other taxes,
duties or other governmental charges.
PAYMENT OF ADDITIONAL SUMS. In the event a Tax Event has occurred and is
continuing and the Issuer Trust is the holder of all of the Junior
Subordinated Debentures, the Company will pay Additional Sums, if any (as
defined below), on the Junior Subordinated Debentures.
"Additional Sums" means such additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Issuer Trust on
the outstanding Capital Securities and Common Securities of the Issuer Trust
shall not be reduced as a result of any additional taxes, duties and other
governmental charges to which the Issuer Trust has become subject as a result
of a Tax Event.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that the Issuer Trust has funds on hand
available for the payment of such Redemption Price. See also "--Subordination
of Common Securities."
If the Issuer Trust gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date,
to the extent funds are available, in the case of Capital Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Capital Securities. With respect to Capital Securities not held
in book-entry form, the Property Trustee, to the extent funds are available,
will irrevocably deposit with the paying agent for the Capital Securities
funds sufficient to pay the applicable Redemption Price and will give such
paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their certificates evidencing
the Capital Securities. Notwithstanding the foregoing, Distributions payable
on or prior to the Redemption Date for any Capital Securities called for
redemption shall be payable to the holders of the Capital Securities on the
relevant record dates for the related Distribution Dates. If notice of
redemption shall have been given and funds deposited as required, then upon
the date of such deposit, all rights of the holders of such Capital Securities
so called for redemption will cease, except the right of the holders of such
Capital Securities to receive the Redemption Price, but without interest on
such Redemption Price, and such Capital Securities will cease to
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<PAGE>
be outstanding. In the event that any date fixed for redemption of Capital
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay),
except that, if such Business Day falls in the next calendar year, such
payment will be made on the immediately preceding Business Day. In the event
that payment of the Redemption Price in respect of Capital Securities called
for redemption is improperly withheld or refused and not paid either by the
Issuer Trust or by the Company pursuant to the Guarantee as described under
"Description of Guarantee," Distributions on such Capital Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by the Issuer Trust for such Capital Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement.
If less than all of the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the
relative Liquidation Amounts of such classes. The particular Capital
Securities to be redeemed shall be selected on a pro rata basis not more than
60 days prior to the Redemption Date by the Property Trustee from the
outstanding Capital Securities not previously called for redemption by such
method as the Property Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of Capital Securities
provided that the holder of such Capital Securities has at least 100 Capital
Securities remaining after the redemption or if the Capital Securities are
then held in the form of a Global Capital Security (as defined below), in
accordance with DTC's customary procedures. The Property Trustee shall
promptly notify the Securities Registrar in writing of the Capital Securities
selected for redemption and, in the case of any Capital Securities selected
for partial redemption, the Liquidation Amount thereof to be redeemed. For all
purposes of the Trust Agreement, unless the context otherwise requires, all
provisions relating to the redemption of Capital Securities shall relate, in
the case of any Capital Securities redeemed or to be redeemed only in part, to
the portion of the aggregate Liquidation Amount of Capital Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Capital Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either
by the Issuer Trust or the Company pursuant to the Guarantee, Distributions
will cease to accumulate on the Capital Securities or portions thereof) called
for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Issuer Trust's
Capital Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amount of such Capital Securities and Common
Securities; provided, however, that if on any Distribution Date or Redemption
Date a Debenture Event of Default shall have occurred and be continuing, no
payment of any Distribution on, or Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of such Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full
amount of such Redemption Price on all of the outstanding Capital Securities
then called for redemption, shall have been made or provided for, and all
funds available to the Property Trustee shall first be applied to the payment
in full in cash of all Distributions on, or the Redemption Price of, the
Capital Securities then due and payable.
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<PAGE>
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be
deemed to have waived any right to act with respect to any such Event of
Default under the Trust Agreement until the effect of all such Events of
Default with respect to such Capital Securities have been cured, waived or
otherwise eliminated. Until any such Events of Default under the Trust
Agreement with respect to the Capital Securities have been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
holders of such Capital Securities and not on behalf of the holders of the
Common Securities, and only the holders of such Capital Securities will have
the right to direct the Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
The amount payable on the Capital Securities in the event of any liquidation
of the Issuer Trust is $1,000 per Capital Security plus accumulated and unpaid
Distributions, which may be in the form of a distribution of such amount in
Junior Subordinated Debentures, subject to certain exceptions.
The holders of all of the outstanding Common Securities have the right at
any time to terminate the Issuer Trust and, after satisfaction of the
liabilities of creditors of the Issuer Trust as provided by applicable law,
cause the Junior Subordinated Debentures to be distributed to the holders of
the Capital Securities and Common Securities in liquidation of the Issuer
Trust, subject to the Property Trustee having received an opinion of counsel
to the effect that such distribution will not be a taxable event to holders of
Capital Securities.
Pursuant to the Trust Agreement, the Issuer Trust shall automatically
terminate upon expiration of its term and shall terminate on the first to
occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
holders of the Common Securities; (ii) the distribution of a Like Amount of
the Junior Subordinated Debentures to the holders of its Trust Securities, if
the holders of Common Securities have given written direction to the Property
Trustee to terminate the Issuer Trust (which direction is optional and wholly
within the discretion of the holders of Common Securities); (iii) redemption
of all of the Trust Securities as described under "Description of Capital
Securities--Redemption" and (iv) the entry of an order for the dissolution of
the Issuer Trust by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (iv)
above, the Issuer Trust shall be liquidated by the Property Trustee as
expeditiously as the Property Trustee determines to be possible by
distributing, after satisfaction of liabilities to creditors of the Issuer
Trust as provided by applicable law, to the holders of such Trust Securities a
Like Amount of the Junior Subordinated Debentures, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of the Issuer Trust
available for distribution to holders, after satisfaction of liabilities to
creditors of the Issuer Trust as provided by applicable law, an amount equal
to, in the case of holders of Capital Securities, the aggregate of the
Liquidation Amount plus accumulated and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Issuer Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer Trust on its
Capital Securities shall be paid on a pro rata basis. The holders of the
Common Securities will be entitled to receive distributions upon any such
liquidation pro rata with the holders of the Capital Securities, except that
if a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a priority over the Common Securities.
After the liquidation date fixed for any distribution of Junior Subordinated
Debentures (i) the Capital Securities will no longer be deemed to be
outstanding, (ii) DTC or its nominee, as the record holder of the Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the
Capital Securities and bearing accrued and unpaid interest in an amount equal
to the accumulated and unpaid Distributions on the Capital Securities until
such certificates are presented to the Security Registrar for transfer or
reissuance.
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<PAGE>
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and the Issuer Trust is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the
Capital Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures.
There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities if a dissolution and liquidation of the Issuer Trust were
to occur. Accordingly, the Capital Securities that an investor may purchase,
or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of the Issuer Trust, may trade at a discount to
the price that the investor paid to purchase the Capital Securities offered
hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Junior Subordinated Debentures--Debenture Events of
Default"); or
(ii) default by the Issuer Trust in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period
of 30 days; or
(iii) default by the Issuer Trust in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Issuer Trustees by
the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Capital Securities, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee if a successor Property Trustee has not
been appointed within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrative Trustees, unless such Event of Default shall have been cured or
waived. The Company, as Depositor, and the Administrative Trustees are
required to file annually with the Property Trustee a certificate as to
whether or not they are in compliance with all the conditions and covenants
applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Capital
Securities shall have a preference over the Common Securities upon termination
of the Issuer Trust as described above. See "--Liquidation Distribution Upon
Termination." The existence of an Event of Default does not entitle the
holders of Capital Securities to accelerate the maturity thereof.
REMOVAL OF ISSUER TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of a majority in Liquidation Amount of Capital Securities may
remove an Issuer Trustee for cause or, if an Event of Default has occurred and
is continuing, with or without cause. Unless an Event of Default described in
(i), (ii) or (iii) of the definition thereof or an event which with notice
and/or lapse of time would constitute such an Event of Default (collectively,
an "Issuer Trust Default") shall have occurred and be continuing, any Issuer
Trustee may be removed at any time by the holder of the Common Securities. If
an Issuer
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<PAGE>
Trustee shall resign, be removed by the holder of the Common Securities or the
holders of a majority in Liquidation Amount of the Capital Securities, become
incapable of acting as trustee, or if a vacancy shall occur in the office of
any Issuer Trustee for any cause, (i) unless an Issuer Trust Default has
occurred and is continuing, the holder of the Common Securities, or (ii) if an
Issuer Trust Default has occurred and is continuing, the applicable Issuer
Trustee (except if such Issuer Trustee was removed by the holder of the Common
Securities or the holders of a majority in Liquidation Amount of Capital
Securities or if a Debenture Event of Default has occurred and is continuing),
or the holders of at least 25% in Liquidation Amount of Capital Securities,
shall appoint a successor. If a successor has not been appointed, any holder
of Capital Securities or Common Securities or the Property Trustee may
petition a court in the State of Delaware to appoint a successor. Any Delaware
Trustee must meet the applicable requirements of Delaware law. Any Property
Trustee must be a national or state-chartered bank and at the time of
appointment have capital and surplus of at least $50,000,000. No resignation
or removal of an Issuer Trustee and no appointment of a successor trustee
shall be effective until the acceptance of appointment by the successor
trustee in accordance with the provisions of the Trust Agreement.
In no event will the holders of the Capital Securities have the right to
appoint, remove or replace the Administrative Trustees, which voting rights
are vested exclusively in the holders of the Common Securities.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Trustee
shall be a party, or any entity succeeding to all or substantially all the
corporate trust business of such Trustee, shall be the successor of such
Trustee under the Trust Agreement, provided such entity shall be otherwise
qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUER TRUST
The Issuer 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 entity, except as described below or as
otherwise set forth in the Trust Agreement. The Issuer Trust may, at the
request of the holders of the Common Securities and with the consent of the
holders of a majority based on Liquidation Amount of the Capital Securities,
merge with or into, consolidate, amalgamate, or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to, a
trust organized as such under the laws of any State; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Issuer Trust with respect to the Capital Securities or (b) substitutes for the
Capital Securities other securities having substantially the same terms as the
Capital Securities (the "Successor Securities") so long as the Successor
Securities have the same priority as the Capital Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) a
trustee of such successor entity is appointed possessing the same powers and
duties as the Property Trustee as the holder of the Junior Subordinated
Debentures, (iii) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Capital Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect, (v)
such successor entity has a purpose substantially identical to that of the
Issuer Trust, (vi) prior to such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, the Issuer Trust has received an
opinion from independent counsel experienced in such matters to the effect
that (a) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Capital Securities (including any Successor
Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither the Issuer Trust nor such successor entity will be required to
register as an investment company under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and (vii) the Company or any permitted
successor or assignee owns all of the common securities of such successor
entity and guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Issuer Trust shall not, except with the
consent of holders of 100% in Liquidation Amount of the Capital Securities,
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consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets substantially as an entirety to,
any other entity or permit any other entity to consolidate, amalgamate, merge
with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Issuer Trust or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the
consent of the holders of the Capital Securities (i) to cure any ambiguity,
correct or supplement any provisions in the Trust Agreement that may be
inconsistent with any other provision, or to make any other provisions with
respect to matters or questions arising under the Trust Agreement, which shall
not be inconsistent with the other provisions of the Trust Agreement, or (ii)
to modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the Issuer Trust will be
classified for United States federal income tax purposes as a grantor trust at
all times that any Trust Securities are outstanding or to ensure that the
Issuer Trust will not be required to register as an "investment company" under
the Investment Company Act; provided, however, such action shall not adversely
affect in any material respect the interests of any holder of Trust
Securities, and any amendments of the Trust Agreement shall become effective
when notice thereof is given to the holders of Trust Securities. The Trust
Agreement may be amended by the holders of a majority of the Common Securities
and the Property Trustee with (i) the consent of holders representing not less
than a majority (based upon Liquidation Amounts) of the outstanding Capital
Securities and (ii) receipt by the Issuer Trustees of an opinion of counsel to
the effect that such amendment or the exercise of any power granted to the
Issuer Trustees in accordance with such amendment will not affect the Issuer
Trust's status as a grantor trust for United States federal income tax
purposes or the Issuer Trust's exemption from status as an "investment
company" under the Investment Company Act. Notwithstanding the foregoing,
without the consent of each holder of Trust Securities, the Trust Agreement
may not be amended to (i) change the amount or timing of any Distribution on
the Trust Securities or otherwise adversely affect the amount of any
Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Issuer Trust,
the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee,
or executing any trust or power conferred on the Debenture Trustee with
respect to the Junior Subordinated Debentures, (ii) waive any past default
that is waivable under Section 5.13 of the Indenture, (iii) exercise any right
to rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the holders of a majority in
aggregate Liquidation Amount of all outstanding Capital Securities; provided,
however, that where a consent under the Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such
consent shall be given by the Property Trustee without the prior consent of
each holder of the Capital Securities. The Issuer Trustees shall not revoke
any action previously authorized or approved by a vote of the holders of the
Capital Securities except by subsequent vote of the holders of the Capital
Securities. The Property Trustee shall notify each holder of Capital
Securities of any notice of default with respect to the Junior Subordinated
Debentures. In addition to obtaining the foregoing approvals of the holders of
the Capital Securities, prior to taking any of the foregoing actions, the
Issuer Trustees shall obtain an opinion of counsel experienced in such matters
to the effect that the Issuer Trust will not be classified as an association
taxable as a corporation for United States federal income tax purposes on
account of such action.
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Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
given to each holder of record of Capital Securities in the manner set forth
in the Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
BOOK ENTRY, DELIVERY AND FORM
The Capital Securities will be issued in fully registered form, in minimum
blocks of at least 100 (representing a minimum of $100,000 Liquidation
Amount).
New Capital Securities initially will be represented by one or more Capital
Securities in registered, global form (collectively, the "Global Capital
Securities"). The Global Capital Securities will be deposited on issuance with
the Property Trustee as custodian for DTC, in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Capital Securities may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee. Beneficial interests in the Global Capital Securities may
not be exchanged for Capital Securities in certificated form except in the
limited circumstances described below. See "--Exchange of Book-Entry Capital
Securities for Certificated Capital Securities."
DEPOSITARY PROCEDURES. DTC has advised the Issuer Trust and the Company that
DTC is a limited-purpose trust company created to hold securities for its
participating organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers
(including the Initial Purchaser), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Issuer Trust and the Company that, pursuant to
procedures established by it, ownership of interests in the Global Capital
Securities will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Capital
Securities).
Investors in the Global Capital Securities may hold their interests therein
directly through DTC if they are Participants in such system, or indirectly
through organizations (including the Euroclear System ("Euroclear") and Cedel
Bank, S.A. ("CEDEL")) which are Participants in such system. All interests in
a Global Capital Security, including those held through Euroclear or CEDEL,
may be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or CEDEL may also be subject to the procedures and
requirements of such system. The laws of some states require that certain
persons take physical delivery in certificated form of securities that they
own. Consequently, the ability to transfer beneficial interests in a Global
Capital Security to such persons will be limited to that extent. Because DTC
can act only on behalf of
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Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a Global Capital
Security to pledge such interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such interests. For certain other restrictions on the transferability of the
Capital Securities, see "--Exchange of Book-Entry Capital Securities for
Certificated Capital Securities."
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their names, will
not receive physical delivery of Capital Securities in certificated form and
will not be considered the registered owners or holders thereof under the
Trust Agreement for any purpose.
Payments in respect of the Global Capital Security registered in the name of
DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder under the Trust Agreement. Under the terms
of the Trust Agreement, the Property Trustee will treat the persons in whose
names the Capital Securities, including the Global Capital Securities, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Property Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Capital Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Capital Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Issuer Trust and the Company that its current practice, upon
receipt of any payment in respect of securities such as the Capital
Securities, is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in Liquidation Amount of beneficial interests in the relevant
security as shown on the records of DTC unless DTC has reason to believe it
will not receive payment on such payment date. Payments by the Participants
and the Indirect Participants to the beneficial owners of the Capital
Securities will be governed by standing instructions and customary practices
and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the Property Trustee,
the Issuer Trust or the Company. Neither the Issuer Trust nor the Company nor
the Property Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the Capital Securities,
and the Issuer, the Company and the Property Trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee for
all purposes.
Except for trades involving only Euroclear and CEDEL participants, interests
in the Global Capital Securities will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Capital Securities described herein, cross-market transfers between the
Participants in DTC, on the one hand, and Euroclear or CEDEL participants, on
the other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective
depositary; however, such cross-market transactions will require delivery of
instructions to Euroclear or CEDEL, as the case may be, by the counterparty in
such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or CEDEL, as
the case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its respective depositary or take action to effect
final settlement on its behalf by delivering or receiving interests in the
relevant Global Capital Securities in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. Euroclear participants and CEDEL participants may not deliver
instructions directly to the depositaries for Euroclear or CEDEL.
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Because of the time zone differences, the securities account of a Euroclear
or CEDEL participant purchasing an interest in a Global Capital Security from
a Participant in DTC will be credited, and any such crediting will be reported
to the relevant Euroclear or CEDEL participant, during the securities
settlement processing day (which must be a business day for Euroclear and
CEDEL) immediately following the settlement date of DTC. Cash received in
Euroclear or CEDEL as a result of sales of interest in a Global Capital
Security by or through a Euroclear or CEDEL participant to a Participant in
DTC will be received with value on the settlement date of DTC but will be
available in the relevant Euroclear or CEDEL cash account only as of the
business day for Euroclear or CEDEL following DTC's settlement date.
DTC has advised the Issuer Trust and the Company that it will take any
action permitted to be taken by a holder of Capital Securities only at the
direction of one or more Participants to whose account with DTC interests in
the Global Capital Securities are credited and only in respect to such portion
of the Liquidation Amount of the Capital Securities as to which such
Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Trust Agreement, DTC reserves the right
to exchange the Global Capital Securities for Capital Securities in
certificated form and to distribute such Capital Securities to its
Participants.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Issuer Trust
and the Company believe to be reliable, but neither the Issuer Trust nor the
Company takes responsibility for the accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interest in the Global Capital Securities among
participants in DTC, Euroclear and CEDEL, they are under no obligation to
perform or to continue to perform such Procedures, and such procedures may be
discontinued at any time. Neither the Issuer Trust or the Company nor the
Property Trustee will have any responsibility for the performance by DTC,
Euroclear or CEDEL or their respective participants or indirect participants
of their respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL
SECURITIES. A Global Capital Security is exchangeable for Capital Securities
in registered certificated form if (i) DTC notifies the Property Trustee that
it is unwilling or unable to continue as depositary for the Global Capital
Security (the "Depositary") and the Property Trustee is unable to locate a
qualified successor Depositary, (ii) the Issuer Trust elects to terminate the
book-entry system through DTC, or (iii) there shall have occurred a Debenture
Event of Default.
PAYMENT AND PAYING AGENCY. Payments in respect of the Capital Securities
held in global form shall be made to the Depositary, which shall credit the
relevant accounts at the Depositary on the applicable Distribution Dates.
Payments in respect of Capital Securities that are not held by the Depositary
shall be made by check mailed to the address of the holder entitled thereto as
such address shall appear on the register maintained by the Securities
Registrar appointed under the Trust Agreement. The paying agent (the "Paying
Agent") shall initially be the Property Trustee and any co-paying agent chosen
by the Property Trustee and acceptable to the Administrative Trustees. The
Paying Agent shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Property Trustee and the Administrative Trustees. In the
event that the Property Trustee shall no longer be the Paying Agent, the
Property Trustee shall appoint a successor (which shall be a bank or trust
company acceptable to the Administrative Trustees) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT. The Property Trustee will act as registrar and
transfer agent for the Capital Securities. Registration of transfers of
Capital Securities will be effected without charge by or on behalf of the
Issuer Trust, but upon payment of any tax or other governmental charges that
may be imposed in connection with any transfer or exchange. The Issuer Trust
will not be require to register or cause to be registered the transfer of any
Capital Securities after such Capital Securities have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his
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or her own affairs. Subject to this provision, the Property Trustee is under
no obligation to exercise any of the powers vested in it by the Trust
Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. If no Event of Default has occurred and is
continuing and the Property Trustee is required to decide between alternative
courses of action, construe ambiguous provisions in the Trust Agreement or is
unsure of the application of any provision of the Trust Agreement, and the
matter is not one on which holders of Capital Securities are entitled under
the Trust Agreement to vote, then the Property Trustee shall take such action
as it deems advisable and in the best interests of the holders of the Trust
Securities and will have no liability except for its own bad faith, negligence
or willful misconduct.
For information concerning the relationships between The Bank of New York,
the Property Trustee and the Company, see "Description of Junior Subordinated
Debentures--Information Concerning the Debenture Trustee."
MISCELLANEOUS
The Administrative Trustees and the Property Trustee are authorized and
directed to conduct the affairs of and to operate the Issuer Trust in such a
way that the Issuer Trust will not be deemed to be an "investment company"
required to be registered under the Investment Company Act or classified as an
association taxable as a corporation for United States federal income tax
purposes and so that the Junior Subordinated Debentures will be treated as
indebtedness of the Company for United States federal income tax purposes. In
this connection, the Administrative Trustees and the Property Trustee are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Issuer Trust or the Trust Agreement, that the
Property Trustee and the holders of Common Securities determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of
the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
The Issuer Trust may not borrow money or issue debt or mortgage or pledge
any of its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Old Junior Subordinated Debentures were issued and the New Junior
Subordinated Debentures are to be issued under the Junior Subordinated
Indenture dated as of February 4, 1997 as supplemented from time to time (as
so supplemented, the "Indenture"), between the Company and The Bank of New
York, as Debenture Trustee. The Indenture has been qualified under the Trust
Indenture Act. This summary of certain terms and provisions of the
Subordinated Debentures and the Indenture describes the material terms thereof
but does not purport to be complete, and where reference is made to particular
provisions of the Indenture, such provisions, including the definitions of
certain terms, some of which are not otherwise defined herein, are qualified
in their entirety by reference to all of the provisions of the Indenture and
those terms made a part of the Indenture by the Trust Indenture Act.
GENERAL
Concurrently with the issuance of the Old Capital Securities, the Issuer
Trust invested the proceeds thereof, together with the consideration paid by
the Company for the Common Securities, in the Old Junior Subordinated
Debentures issued by the Company.
Pursuant to the Exchange Offer, the Company will exchange the Old Junior
Subordinated Debentures for the New Junior Subordinated Debentures as soon as
practicable after the date hereof. No Old Junior Subordinated Debentures will
remain outstanding after such exchange. The Junior Subordinated Debentures
will bear interest at the annual rate of 8.309% of the principal amount
thereof, payable semi-annually in arrears on February 1 and August 1 of each
year (each, an "Interest Payment Date"), commencing August 1, 1997, to the
person in whose name each Junior Subordinated Debenture is registered at the
close of business on the January 15 and July 15 next preceding such Interest
Payment Date. It is anticipated that, until the liquidation, if any, of the
Issuer Trust,
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each Junior Subordinated Debenture will be held in the name of the Issuer
Trust in trust for the benefit of the holders of the Trust Securities. The
amount of interest payable for any period less than a full interest period
will be computed on the basis of a 360-day year of twelve 30-day months. The
amount of interest payable for any full interest period will be computed by
dividing the rate per annum by two. In the event that any date on which
interest is payable on the Junior Subordinated Debentures is not a Business
Day, then payment of the interest payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at
the rate per annum of 8.309% thereof, compounded semi-annually and computed on
the basis of a 360-day year of twelve 30- day months. The amount of additional
interest payable for any full interest period will be computed by dividing the
rate per annum by two. The term "interest" as used herein shall include semi-
annual interest payments, interest on semi-annual interest payments not paid
on the applicable Interest Payment Date and Additional Sums (as defined under
"--Description of New Securities--Redemption"), as applicable.
The Junior Subordinated Debentures will mature on February 1, 2027 (the
"Stated Maturity").
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Company. Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary, including PMI,
upon such subsidiary's liquidation or reorganization or otherwise (and thus
the ability of holders of the Capital Securities to benefit indirectly from
such distribution), is subject to the prior claims of creditors of that
subsidiary, except to the extent that the Company may itself be recognized as
a creditor of that subsidiary. In addition, there are various limitations on
the extent to which the Company's subsidiaries may pay dividends to the
Company. Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of the Company's
subsidiaries, and holders of Junior Subordinated Debentures should look only
to the assets of the Company for payments on the Junior Subordinated
Debentures. See "The PMI Group, Inc." The Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Indebtedness, whether under the Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise.
See "--Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under the Indenture has occurred and is
continuing, the Company has the right under the Indenture at any time during
the term of the Junior Subordinated Debentures to defer the payment of
interest at any time or from time to time for a period not exceeding 10
consecutive semi-annual periods with respect to each Extension Period,
provided that no Extension Period may extend beyond the Stated Maturity of the
Junior Subordinated Debentures. At the end of such Extension Period, the
Company must pay all interest then accrued and unpaid (together with interest
thereon at the annual rate of 8.309%, compounded semi-annually and computed on
the basis of a 360-day year of twelve 30-day months, to the extent permitted
by applicable law). The amount of additional interest payable for any full
interest period will be computed by dividing the rate per annum by two. During
an Extension Period, interest will continue to accrue and holders of Junior
Subordinated Debentures (or holders of Capital Securities while outstanding)
will be required to accrue interest income for United States federal income
tax purposes. See "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock, (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank pari passu in all respects with or
junior in interest to the Junior Subordinated Debentures or (iii) make any
guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary of the Company if such guarantee ranks pari
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passu with or junior in interest to the Junior Subordinated Debentures (other
than (a) dividends or distributions in common stock of the Company, (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee, (d) purchases of common stock related to the
issuance of common stock or rights under any of the Company's or its
subsidiaries' benefit plans for their directors, officers or employees, and
(e) purchases of fractional interests of common stock in connection with a
stock split, stock dividend or a similar reclassification or combination).
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest, provided that no Extension Period may exceed 10
consecutive semi-annual periods or extend beyond the Stated Maturity of the
Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due on any Interest Payment Date,
the Company may elect to begin a new Extension Period subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Property Trustee and the
Debenture Trustee notice of its election of such Extension Period at least one
Business Day prior to the earlier of (i) the date the Distributions on the
Capital Securities would have been payable except for the election to begin
such Extension Period, (ii) the date the Property Trustee is required to give
notice to any applicable self-regulatory organization or to holders of the
Capital Securities of the record date and (iii) the date such Distributions
are payable, but in any event not less than one Business Day prior to such
record date. The Property Trustee is required to give notice of the Company's
election to begin a new Extension Period to the holders of the Capital
Securities. There is no limitation on the number of times that the Company may
elect to begin an Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after February 1, 2007, in whole at any time
or in part from time to time, or (ii) in whole (but not in part) prior to
February 1, 2007 and within 90 days following the occurrence of a Tax Event
(as defined under "-- Description of Capital Securities--Redemption"), in each
case at the redemption price described below. The proceeds of any such
redemption will be used by the Issuer Trust to redeem the Trust Securities.
The redemption price in the case of a redemption under (i) above shall equal
the following prices, expressed in percentages of the principal amount
together with accrued interest to but excluding the date fixed for redemption.
If redeemed during the 12-month period beginning February 1:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
YEAR ----------
<S> <C>
2007............................................................ 104.1545%
2008............................................................ 103.7391
2009............................................................ 103.3236
2010............................................................ 102.9082
2011............................................................ 102.4927
2012............................................................ 102.0773
2013............................................................ 101.6618
2014............................................................ 101.2464
2015............................................................ 100.8309
2016............................................................ 100.4155
</TABLE>
and at 100% on or after February 1, 2017.
The redemption price, in the case of a redemption following a Tax Event as
described under (ii) above, shall equal the Make-Whole Amount (as defined
under "--Description of New Securities--Redemption"), together with accrued
interest to but excluding the date fixed for redemption.
ADDITIONAL SUMS
If the Issuer Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures such
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amounts as shall be required so that the Distributions payable by the Issuer
Trust shall not be reduced as a result of any such additional taxes, duties or
other governmental charges. The Company has covenanted in the Indenture that,
if and so long as (i) the Issuer Trust is the holder of all Junior
Subordinated Debentures and (ii) a Tax Event in respect of the Issuer Trust
has occurred and is continuing, the Company will pay to the Issuer Trust such
Additional Sums (as defined under "--Description of New Securities--
Redemption").
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will be registered in the name of the
Issuer Trust. In the event that the Junior Subordinated Debentures are
distributed to holders of Capital Securities, it is anticipated that the
depositary arrangements for the Junior Subordinated Debentures will be
substantially identical to those in effect for the Capital Securities. See "--
Description of New Securities--Book Entry, Delivery and Form."
Payments on Junior Subordinated Debentures represented by a global security
will be made to DTC, as the depository for the Junior Subordinated Debentures.
In the event Junior Subordinated Debentures are issued in definitive
registered form, principal and interest will be payable, the transfer of the
Junior Subordinated Debentures will be registrable, and Junior Subordinated
Debentures will be exchangeable for Junior Subordinated Debentures of other
denominations of a like aggregate principal amount, at the corporate trust
office of the Debenture Trustee in New York, New York, or at the offices of
any paying agent or transfer agent, as applicable, appointed by the Company,
provided that payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto or by wire
transfer.
The Junior Subordinated Debentures will be issuable only in registered form
without coupons in minimum denominations of $100,000 and integral multiples of
$1,000 in excess thereof. Junior Subordinated Debentures will be exchangeable
for other Junior Subordinated Debentures, of any authorized denominations, of
a like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the Securities Registrar or at the office of
any transfer agent designated by the Company for such purpose without service
charge and upon payment of any taxes and other governmental charges as
described in the Indenture. The Company will appoint the Debenture Trustee as
Securities Registrar under the Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Junior
Subordinated Debentures and ending at the close of business on the day of
mailing of the relevant notice of redemption or (ii) transfer or exchange any
Junior Subordinated Debentures so selected for redemption, except, in the case
of any Junior Subordinated Debentures being redeemed in part, any portion
thereof not to be redeemed.
Any moneys deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the Company,
be repaid to the Company and the holder of such Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company
for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted, that it will not, and will not permit any
subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment
of principal of or interest or
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premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu in all respects with or junior in interest to the
Junior Subordinated Debentures or (iii) make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions in common stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee, (d) purchases of common stock related to the issuance of common
stock or rights under any of the Company's or its subsidiaries' benefit plans
for their directors, officers or employees, and (e) purchases of fractional
interests of common stock in connection with a stock split, stock dividend or
a similar reclassification or combination), if at such time (i) there shall
have occurred any event of which the Company has actual knowledge that (a)
with the giving of notice or the lapse of time, or both, would constitute a
Debenture Event of Default under the Indenture with respect to the Junior
Subordinated Debentures and (b) in respect of which the Company shall not have
taken reasonable steps to cure, (ii) if such Junior Subordinated Debentures
are held by the Issuer Trust, the Company shall be in default with respect to
its payment of any obligations under the Guarantee or (iii) the Company shall
have given notice of its selection of an Extension Period as provided in the
Indenture with respect to the Junior Subordinated Debentures and shall not
have rescinded such notice, or such Extension Period, or any extension
thereof, shall be continuing.
The Company has covenanted in the Indenture, (i) to maintain directly or
indirectly 100% ownership of the Common Securities of the Issuer Trust,
provided that certain successors which are permitted pursuant to the Indenture
may succeed to the Company's ownership of the Common Securities, (ii) as
holder of the Common Securities, not to voluntarily terminate, wind-up or
liquidate the Issuer Trust, except (a) in connection with a distribution of
Junior Subordinated Debentures to the holders of the Capital Securities in
liquidation of the Issuer Trust or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement and (iii) to
use its reasonable efforts, consistent with the terms and provisions of the
Trust Agreement, to cause the Issuer Trust to remain classified as a grantor
trust and not as an association taxable as a corporation for United States
federal income tax purposes.
MODIFICATION OF INDENTURE
From time to time the Company and the Debenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interests of the holders of
the Junior Subordinated Debentures or the holders of the Capital Securities so
long as they remain outstanding) and qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act. The Indenture
contains provisions permitting the Company and the Debenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Junior Subordinated Debentures, to modify the Indenture in a manner affecting
the rights of the holders of the Junior Subordinated Debentures; provided,
that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures, or reduce the principal amount
thereof or any premium payable upon redemption, or reduce the rate or extend
the time of payment of interest thereon or (ii) reduce the percentage of
principal amount of Junior Subordinated Debentures, the holders of which are
required to consent to any such modification of the Indenture, provided that,
so long as any of the Capital Securities remain outstanding, no such
modification may be made that adversely affects the holders of such Capital
Securities in any material respect, and no termination of the Indenture may
occur, and no waiver of any Debenture Event of Default or compliance with any
covenant under the Indenture may be effective, without the prior consent of
the holders of at least a majority of the aggregate Liquidation Amount of such
Capital Securities unless and until the principal of the Junior Subordinated
Debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions are satisfied.
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DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred
and is continuing constitutes a "Debenture Event of Default" with respect to
the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in the case of
an Extension Period); or
(ii) failure to pay any principal or premium, if any, on the Junior
Subordinated Debentures when due whether at maturity, upon redemption, by
declaration of acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
the Company from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of the outstanding Junior
Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Debenture
Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the Capital Securities shall have such
right. The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures may annul such declaration and waive the
default if the default (other than the non-payment of the principal of Junior
Subordinated Debentures which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee. Should the holders of Junior Subordinated Debentures fail
to annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the Capital Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders
of all the Junior Subordinated Debentures, waive any past default, except a
default in the payment of principal or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture. Should the holders
of such Junior Subordinated Debentures fail to waive any such past default,
the holders of a majority in aggregate Liquidation Amount of the Capital
Securities shall have such right. The Company is required to file annually
with the Debenture Trustee a certificate as to whether or not the Company is
in compliance with all the conditions and covenants applicable to it under the
Indenture.
In case a Debenture Event of Default shall occur and be continuing, the
Property Trustee will have the right to declare the principal of and the
interest on the Junior Subordinated Debentures, and any other amounts payable
under the Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of Capital Securities may institute a
legal proceeding directly against the Company for enforcement of payment to
such holder of the principal of or interest on such Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the related Capital
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Securities of such holder (a "Direct Action"). The Company may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Capital Securities. The
Company shall have the right under the Indenture to set-off any payment made
to such holder of Capital Securities by the Company in connection with a
Direct Action.
The holders of the Capital Securities would not be able to exercise directly
any remedies available to the holders of the Junior Subordinated Debentures
other than those set forth in the preceding paragraph unless there shall have
been an Event of Default under the Trust Agreement. See "--Description of
Capital Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate
with or merge into the Company or convey, transfer or lease its properties and
assets substantially as an entirety to the Company, unless (i) in case the
Company consolidates with or merges into another Person or conveys, transfers
or leases its properties and assets substantially as an entirety to any
Person, the successor Person is organized under the laws of the United States
or any state or the District of Columbia, and such successor Person expressly
assumes the Company's obligations on the Junior Subordinated Debentures issued
under the Indenture; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time,
or both, would become a Debenture Event of Default, shall have occurred and be
continuing; (iii) such transaction is permitted under the Trust Agreement and
Guarantee and does not give rise to any breach or violation of the Trust
Agreement or Guarantee; and (iv) certain other conditions as prescribed in the
Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Debenture Trustee funds, in trust, for the
purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if
any) and interest and Additional Sums to the date of the deposit or to the
Stated Maturity, as the case may be, then the Indenture will cease to be of
further effect (except as to the Company's obligations to pay all other sums
due pursuant to the Indenture and to provide the officers' certificates and
opinions of counsel described therein), and the Company will be deemed to have
satisfied and discharged the Indenture.
SUBORDINATION
The Junior Subordinated Debentures shall be subordinate and junior in right
of payment, to the extent set forth in the Indenture, to all Senior
Indebtedness (as defined below) of the Company. In the event that the Company
shall default in the payment of any principal, premium, if any, or interest,
if any, on any Senior Indebtedness when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration of
acceleration or otherwise, then, unless and until such default shall have been
cured or waived or shall have ceased to exist or all Senior Indebtedness shall
have been paid, no direct or indirect payment (in cash, property, securities,
by set-off or otherwise) shall be made or agreed to be made for principal,
premium, if any, or interest, if any, on the Junior Subordinated Debentures,
or in respect of any redemption, repayment, retirement, purchase or other
acquisition of any of the Junior Subordinated Debentures.
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"Debt" means with respect to the Company, whether recourse is to all or a
portion of the assets of the Company and whether or not contingent, (i) every
obligation of the Company for money borrowed; (ii) every obligation of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of the Company with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of the Company; (iv) every obligation of the Company
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of the
Company; (vi) all indebtedness of the Company whether incurred on or prior to
the date of the Indenture or thereafter incurred, for claims in respect of
derivative products, including interest rate, foreign exchange rate and
commodity forward contracts, options and swaps and similar arrangements; and
(vii) every obligation of the type referred to in clauses (i) through (vi) of
another Person and all dividends of another Person the payment of which, in
either case, the Company has guaranteed or is responsible or liable, directly
or indirectly, as obligor or otherwise.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether
or not such claim for post-petition interest is allowed in such proceeding),
on Debt of the Company, whether incurred on or prior to the date of the
Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are not superior in right of payment to the
Junior Subordinated Debentures; provided, however, that Senior Indebtedness
shall not be deemed to include (i) any Debt of the Company which when incurred
and without respect to any election under Section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company, (ii)
any Debt of the Company to any of its subsidiaries, (iii) Debt to any employee
of the Company and (iv) any other debt securities issued pursuant to the
Indenture.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Company, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
principal of or premium, if any, or interest, if any, on the Junior
Subordinated Debentures. In such event, any payment or distribution on account
of the principal of or premium, if any, or interest, if any, on the Junior
Subordinated Debentures, whether in cash, securities or other property (other
than securities of the Company or any other corporation provided for by a plan
of reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in the subordination provisions with respect to
the Junior Subordinated Debentures, to the payment of all Senior Indebtedness
at the time outstanding, and to any securities issued in respect thereof under
any such plan of reorganization or readjustment), which would otherwise (but
for the subordination provisions) be payable or deliverable in respect of the
Junior Subordinated Debentures shall be paid or delivered directly to the
holders of Senior Indebtedness in accordance with the priorities then existing
among such holders until all Senior Indebtedness (including any interest
thereon accruing after the commencement of any such proceedings) shall have
been paid in full.
In the event of any such proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company
ranking on a parity with the Junior Subordinated Debentures, shall be entitled
to be paid from the remaining assets of the Company the amounts at the time
due and owing on account of unpaid principal of and premium, if any, and
interest, if any, on the Junior Subordinated Debentures and such other
obligations before any payment or other distribution, whether in cash,
property or otherwise, shall be made on account of any capital stock or
obligations of the Company ranking junior to the Junior Subordinated
Debentures and such other obligations. If any payment or distribution on
account of the principal of and premium, if any, or interest, if any, on the
Junior Subordinated Debentures of any character or any security, whether in
cash, securities or other
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property (other than securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment the payment of which
is subordinate, at least to the extent provided in the subordination
provisions with respect to the Junior Subordinated Debentures, to the payment
of all Senior Indebtedness at the time outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment) shall be received by any holder of any Junior Subordinated
Debentures in contravention of any of the terms hereof and before all the
Senior Indebtedness shall have been paid in full, such payment or distribution
or security shall be received in trust for the benefit of, and shall be paid
over or delivered and transferred to, the holders of the Senior Indebtedness
at the time outstanding in accordance with the priorities then existing among
such holders for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all such Senior Indebtedness
in full. By reason of such subordination, in the event of the insolvency of
the Company, holders of Senior Indebtedness may receive more, ratably, and
holders of the Junior Subordinated Debentures having a claim pursuant to such
securities may receive less, ratably, than the other creditors of the Company.
Such subordination will not prevent the occurrence of any Event of Default in
respect of the Junior Subordinated Debentures.
The Indenture places no limitation on the amount of additional Senior
Indebtedness that may be incurred by the Company. The Company expects from
time to time to incur additional indebtedness constituting Senior
Indebtedness.
GOVERNING LAW
The Indenture and the 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 Debenture Trustee is under no obligation to exercise any of the powers
vested in it by the Indenture at the request of any holder of Junior
Subordinated Debentures, unless offered reasonable indemnity by such holder
against the costs, expenses and liabilities which might be incurred thereby.
The Debenture Trustee is not required to expend or risk its own funds or
otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
The Bank of New York, the Debenture Trustee, also serves as trustee under an
indenture for Senior Indebtedness (the "2006 Indenture"), pursuant to which
$100,000,000 aggregate principal amount of the Company's 6 3/4% Notes Due
November 15, 2006 are outstanding. In the event of a default under the
Indenture, due to The Bank of New York's relationship with the Company as
trustee under the 2006 Indenture, The Bank of New York would be deemed, under
the Trust Indenture Act, to have a conflicting interest and would be required
to eliminate such conflict within 90 days, apply to the Commission for
permission to continue as Trustee or resign as Trustee or resign as trustee
under the 2006 Indenture. In addition, the Company and certain of its
affiliates maintain deposit accounts and/or conduct other banking transactions
with The Bank of New York.
DESCRIPTION OF GUARANTEE
The Old Guarantee was entered into by the Company concurrently with the
issuance by the Issuer Trust of the Old Capital Securities, for the benefit of
the holders from time to time of the Old Capital Securities. As soon as
practicable after the date hereof, the Old Guarantee will be exchanged by the
Company for the New Guarantee. The New Guarantee has been qualified under the
Trust Indenture Act. This summary of certain provisions of the Guarantee
describes the material terms of the Guarantee but does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Guarantee Agreement, including the definitions
therein of certain terms, and the Trust Indenture Act. The Guarantee Trustee
will hold the Guarantee for the benefit of the holders of the Capital
Securities.
GENERAL
The Company has agreed (and under the New Guarantee will agree) to pay in
full on a subordinated basis, to the extent set forth herein, the Guarantee
Payments (as defined below) to the holders of the Capital Securities,
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as and when due, regardless of any defense, right of set-off or counterclaim
that such Issuer Trust may have or assert other than the defense of payment.
The following payments with respect to the Capital Securities, to the extent
not paid by or on behalf of the Issuer Trust (the "Guarantee Payments"), will
be subject to the Guarantee: (i) any accrued and unpaid Distributions required
to be paid on such Capital Securities, to the extent that the Issuer Trust has
funds on hand available therefor at such time, (ii) the Redemption Price with
respect to any Capital Securities called for redemption, to the extent that
the Issuer Trust has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary termination, winding up or liquidation of the
Issuer Trust (unless the Junior Subordinated Debentures are distributed to
holders of the Capital Securities), the lesser of (a) the sum of the
Liquidation Amount of $1,000 per Capital Security plus accumulated and unpaid
Distributions plus any unpaid premium and (b) the amount of assets of the
Issuer Trust remaining available for distribution to holders of Capital
Securities on liquidation of the Issuer Trust. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of the Capital Securities or by causing
the Issuer Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer Trust's obligations under the Capital Securities, but will apply
only to the extent that the Issuer Trust has funds sufficient to make such
payments, and is not a guarantee of collection.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Issuer Trust, the Issuer Trust will not be able to pay
Distributions on the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "--Status of the
Guarantee." Because the Company is a holding company, the right of the Company
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of that subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. In addition, there
are various limitations on the extent to which the Company's subsidiaries may
pay dividends to the Company. See "The PMI Group, Inc." Accordingly, the
Company's obligations under the Guarantee will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and
claimants should look only to the assets of the Company for payments
thereunder. See "The PMI Group, Inc." The Guarantee does not limit the
incurrence or issuance of other secured or unsecured debt of the Company,
including Senior Indebtedness, whether under the Indenture or any other
indenture that the Company may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the Issuer
Trust's obligations under the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations under the Capital
Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior
Indebtedness of the Company in the same manner as Junior Subordinated
Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Capital
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Issuer Trust or upon
distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures. The Guarantee does not place a limitation on the
amount of additional Senior Indebtedness that may be incurred by the Company.
The Company expects from time to time to incur additional indebtedness
constituting Senior Indebtedness.
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AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under "--Description of the New Securities--Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders
of the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Issuer Trust, the Guarantee
Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or
her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Capital Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
For information concerning the relationship between The Bank of New York,
the Guarantee Trustee, and the Company, see "Description of Junior
Subordinated Debentures--Information Concerning the Debenture Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Capital Securities, upon full payment
of the amounts payable upon liquidation of the Issuer Trust or upon
distribution of Junior Subordinated Debentures to the holders of the Capital
Securities. The Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the Capital Securities must restore payment of any sums
paid under the Capital Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by the Company under the
Trust Agreement (the "Expense Agreement"), the Company has irrevocably and
unconditionally guaranteed to each person or entity to whom the Issuer Trust
becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Issuer
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Trust, other than obligations of the Issuer Trust to pay to the holders of the
Capital Securities or other similar interests in the Issuer Trust the amounts
due such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be.
DESCRIPTION OF OLD SECURITIES
The terms of the Old Securities are identical in all material respect to the
New Securities, except that (i) the Old Securities have not been registered
under the Securities Act, are subject to certain restrictions on transfer and
are entitled to certain rights under the Registration Rights Agreement (which
rights will terminate upon consummation of the Exchange Offer, except under
limited circumstances); (ii) the New Capital Securities will not provide for
any increase in the Distribution rate thereon; and (iii) the New Junior
Subordinated Debentures will not provide for any increase in the interest rate
thereon. The Registration Rights Agreement provides, that, in the event that
the Exchange Offer is not consummated on or prior to July 31, 1997, or, in
certain limited circumstances, in the event a shelf registration statement
(the "Shelf Registration Statement") with respect to the resale of the Old
Capital Securities is not filed or declared effective within a specified time,
then interest will accrue (in addition to the interest rate on the Junior
Subordinated Debentures) at the rate of 0.25% per annum on the principal
amount of the Junior Subordinated Debentures, and Distributions will accrue
(in addition to the stated Distribution rate on the Capital Securities) at the
rate of 0.25% per annum on the Liquidation Amount of the Capital Securities,
for the period from the occurrence of such event until such time as the
Exchange Offer is consummated or any required Shelf Registration Statement is
filed or declared effective. The New Securities are not, and upon consummation
of the Exchange Offer the Old Securities will not be, entitled to any such
additional interest or Distributions. Accordingly, holders of Old Capital
Securities should review the information set forth under "Risk Factors--
Certain Consequences of Failure to Exchange Old Capital Securities" and
"Description of New Securities."
RELATIONSHIP AMONG THE CAPITAL SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Issuer Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of Guarantee." Taken together, the Company's
obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement, the Expense Agreement and the Guarantee provide, in the aggregate,
a full, irrevocable and unconditional guarantee of payments of Distributions
and other amounts due on the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer Trust's obligations under the Capital
Securities. If and to the extent that the Company does not make payments on
the Junior Subordinated Debentures, the Issuer Trust will not pay
Distributions or other payments due on the Capital Securities. The Guarantee
does not cover payment of Distributions when the Issuer Trust does not have
sufficient funds to pay such Distributions or other payments. In such event,
the remedy of a holder of the Capital Securities is to institute a legal
proceeding directly against the Company for enforcement of payment of such
Distributions or other payments to such holder. The obligations of the Company
under the Guarantee are subordinate and junior in right of payment to all
Senior Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate stated Liquidation Amount
of the Capital Securities and Common Securities, (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
Capital Securities, (iii) the Company shall pay
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for all and any costs, expenses and liabilities of the Issuer Trust except the
Issuer Trust's obligations to holders of its Capital Securities, and (iv) the
Trust Agreement further provides that the Issuer Trust will not engage in any
activity that is not consistent with the limited purposes of the Issuer Trust.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with, and to the extent the Company has theretofore made or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Issuer Trust
or any other person or entity.
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default under the Trust Agreement or an Event of
Default. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness of the Company, the subordination provisions of the
Indenture provide that no payments may be made in respect of the Junior
Subordinated Debentures until such Senior Indebtedness has been paid in full
or any payment default thereunder has been cured or waived. Failure to make
required payments on the Junior Subordinated Debentures would constitute an
Event of Default.
LIMITED PURPOSE OF ISSUER TRUST
The Issuer Trust's Capital Securities evidence undivided beneficial
interests in the assets of the Issuer Trust, and the Issuer Trust exists for
the sole purpose of issuing its Capital Securities and Common Securities and
investing the proceeds thereof in the Junior Subordinated Debentures. A
principal difference between the rights of a holder of a Capital Security and
a holder of Junior Subordinated Debentures is that a holder of Junior
Subordinated Debentures is entitled to receive from the Company the principal
amount of and interest accrued on Junior Subordinated Debentures held, while a
holder of Capital Securities is entitled to receive Distributions from the
Issuer Trust (or from the Company under the Guarantee) if and to the extent
the Issuer Trust has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
the Issuer Trust involving the liquidation of the Junior Subordinated
Debentures, after satisfaction of the liabilities of creditors of the Issuer
Trust as required by applicable law, the holders of the Capital Securities
will be entitled to receive, out of assets held by the Issuer Trust, the
Liquidation Distribution in cash. See "Description of New Securities--
Liquidation Distribution Upon Termination." Upon any voluntary or involuntary
liquidation or bankruptcy of the Company, the Issuer Trust, as holder of the
Junior Subordinated Debentures, would be a subordinated creditor of the
Company, subordinated in right of payment to all Senior Indebtedness as set
forth in the Indenture, but entitled to receive payment in full of principal
and interest, before any stockholders of the Company receive payments or
distributions. Since the Company is the guarantor under the Guarantee and has
agreed to pay for all costs, expenses and liabilities of the Issuer Trust
(other than the Issuer Trust's obligations to the holders of its Capital
Securities), the positions of a holder of the Capital Securities and a holder
of such Junior Subordinated Debentures relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of Capital Securities.
This summary only addresses the tax consequences to a person that acquires
Capital Securities on their original issue at their original offering price
and that is (i) an individual citizen or resident of the United States, (ii) a
corporation or partnership organized in or under the laws of the United States
or any state thereof or the District of Columbia or (iii) an estate or trust
the income of which is subject to United States federal income tax regardless
of source (a "United States Person"). This summary does not address all tax
consequences that may be applicable to a United States Person that is a
beneficial owner of Capital Securities, nor does it address the tax
consequences to (i) persons that are not United States Persons, (ii) persons
that may be subject to special treatment under United States federal income
tax law, such as banks, insurance companies, thrift institutions, regulated
investment companies, real estate investment trusts, tax-exempt organizations
and dealers in securities or currencies, (iii) persons that will hold Capital
Securities as part of a position in a "straddle" or as part of a "hedging,"
"conversion" or other integrated investment transaction for federal income tax
purposes, (iv) persons whose functional currency is not the United States
dollar or (v) persons that do not hold Capital Securities as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Orrick, Herrington & Sutcliffe LLP, special counsel
to the Company and the Issuer Trust. This summary is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal
Revenue Service rulings and pronouncements and judicial decisions now in
effect, all of which are subject to change at any time. Such changes may be
applied retroactively in a manner that could cause the tax consequences to
vary substantially from the consequences described below, possibly adversely
affecting a beneficial owner of Capital Securities. In particular, legislation
has been proposed that could adversely affect the Company's ability to deduct
interest on the Junior Subordinated Debentures, which may in turn permit the
Company to cause a redemption of the Capital Securities. See "--Possible Tax
Law Changes." An opinion of counsel is not binding on the Internal Revenue
Service or the courts, and the authorities on which this summary is based are
subject to various interpretations. It is therefore possible that the federal
income tax treatment of the purchase, ownership and disposition of Capital
Securities may differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES, AS WELL AS
THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE ISSUER TRUST
In connection with the issuance of the Old Capital Securities, Orrick,
Herrington & Sutcliffe LLP has rendered its opinion to the effect that, under
then current law and assuming compliance with the terms of the Trust
Agreement, and based on certain facts and assumptions contained in such
opinion, the Issuer Trust will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each beneficial owner of Capital Securities (a
"Securityholder") will be treated as owning an undivided beneficial interest
in the Junior Subordinated Debentures. Accordingly, each Securityholder will
be required to include in its gross income its pro rata share of the items of
income realized with respect to the Junior Subordinated Debentures whether or
not cash is actually distributed to the Securityholders. See "--Interest
Income and Original Issue Discount." No amount included in income with respect
to the Capital Securities will be eligible for the dividends-received
deduction.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Final Treasury Regulations issued on June 11, 1996 generally provide that
stated interest on a debt instrument is not "qualified stated interest" and,
therefore, will give rise to original issue discount ("OID") unless such
interest is unconditionally payable in cash or in property (other than debt
instruments of the issuer)
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at least annually at a single fixed rate. Interest is considered to be
unconditionally payable only if reasonable legal remedies exist to compel
timely payment or the debt instrument otherwise provides terms and conditions
that make the likelihood of late payment (other than late payment that occurs
within a reasonable grace period) or non-payment a "remote contingency."
Under the Indenture, the Company has the right, at any time and from time to
time during the term of the Junior Subordinated Debentures to defer payments
of interest by extending the interest payment period for a period not
exceeding 10 consecutive semi-annual periods with respect to each Extension
Period. Unless the likelihood of exercise of such right to defer is remote,
the Junior Subordinated Debentures would be issued with OID. During any
Extension Period, (a) the Company will not be permitted to declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of its capital stock, and (b) the
Company will not be permitted to make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company that rank pari passu with or
junior to the Junior Subordinated Debentures (although these restrictions will
not apply to dividends or distributions in common stock of the Company and in
certain other limited situations). See "Description of Junior Subordinated
Debentures--Option to Extend Interest Payment Period." The Company currently
believes that the adverse impact that the imposition of such restrictions
would have on the Company and the value of the equity securities of the
Company makes the likelihood of the Company exercising its right to defer
payments of interest on the Junior Subordinated Debentures remote.
Accordingly, the Company believes that the stated interest on the Junior
Subordinated Debentures should be considered unconditionally payable for
purposes of the OID provisions of the Code and that the Junior Subordinated
Debentures should not be considered to have been issued with OID. As a result,
each Securityholder will be required to include interest payments in taxable
income at the time accrued or received in accordance with its own method of
accounting. There can be no assurance, however, that the Internal Revenue
Service will agree with such determination.
However, if the Company does exercise its right to defer payments of
interest thereon, the Junior Subordinated Debentures will be considered to be
retired and reissued for their adjusted issue price at such time, and the
Junior Subordinated Debentures thereafter will be considered to have been
issued with OID. In such case, all the interest payments thereafter payable
will be treated as OID. If the payments were treated as OID (either because
the Company exercises the right to defer interest payments or because the
exercise of such right was not remote at the time of issuance), holders must
include that discount in income on an economic accrual basis before the
receipt of cash attributable to the interest, regardless of their method of
tax accounting. The amount of OID that accrues in any semi-annual period will
approximately equal the amount of the interest that accrues in that semi-
annual period at the stated interest rate. In the event that the interest
payment period is extended, holders will continue to accrue OID approximately
equal to the amount of the interest payment due at the end of the extended
interest payment period on an economic accrual basis over the length of the
extended interest period. A Securityholder that disposes of the Capital
Securities during an Extension Period may suffer a loss because the market
value of the Capital Securities likely will fall if the Company exercises its
option to defer payments of interest on the Junior Subordinated Debentures. To
the extent the selling price is less than the Securityholder's adjusted tax
basis (which will include all accrued but unpaid interest), a Securityholder
will recognize a capital loss.
EXCHANGE OFFER
The exchange of an Old Capital Security for a New Capital Security pursuant
to the terms and conditions of the Exchange Offer should have no United States
federal income tax consequences. The New Capital Security received in exchange
for the Old Capital Security should be treated for United States federal
income tax purposes as a continuation of the exchanged Old Capital Security.
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DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL
SECURITIES
Under current law, a distribution by the Issuer Trust of the Junior
Subordinated Debentures, as described under the caption "Description of
Capital Securities--Liquidation Distribution Upon Termination" will be non-
taxable and will result in the Securityholder receiving directly his pro rata
share of the Junior Subordinated Debentures previously held indirectly through
the Issuer Trust, with a holding period and aggregate tax basis equal to the
holding period and aggregate tax basis such Securityholder had in its Capital
Securities before such distribution.
SALES OR REDEMPTION OF CAPITAL SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Capital
Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized and the Securityholder's adjusted tax
basis in the Capital Securities sold or so redeemed. A Securityholder's
adjusted tax basis in the Capital Securities will be increased by any OID
included in gross income and decreased by any interest payments not treated as
"qualified stated interest" (as defined above). See "--Interest Income and
Original Issue Discount." Gain or loss recognized by a Securityholder on
Capital Securities held for more than one year generally will be taxable as
long-term capital gain or loss. Amounts attributable to accrued interest with
respect to a Securityholder's pro rata share of the Junior Subordinated
Debentures not previously included in income will be taxable as ordinary
income.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid or OID accrued on the Capital Securities held of
record by United States Persons (other than corporations and other exempt
Securityholders) will be reported to the Internal Revenue Service. "Backup"
withholding at a rate of 31% will apply to payments of interest to non-exempt
United States Persons unless the Securityholder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Capital Securities to or
through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
establishes an exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information
is furnished to the Internal Revenue Service.
It is anticipated that income on the Capital Securities will be reported to
holders on Form 1099 and mailed to holders of the Capital Securities by
January 31 following each calendar year.
POSSIBLE TAX LAW CHANGES
On February 6, 1997, as part of President Clinton's Fiscal 1998 Budget
Proposal, the United States Treasury Department proposed legislation that
would, among other things, deny an issuer a deduction for United States
federal income tax purposes for the payment of interest on instruments with
characteristics similar to the Junior Subordinated Debentures. If the proposed
legislation were enacted in its current form, it is not expected to apply to
the Junior Subordinated Debentures because the proposed effective date for
this provision is the date of first committee action. Under current law, the
Company will be able to deduct interest on the Junior Subordinated Debentures.
There can be no assurance, however, that current or future legislative
proposals or final legislation will not affect the ability of the Company to
deduct interest on the Junior Subordinated Debentures. Such a change could
give rise to a Tax Event, which may permit the Company to cause a redemption
of the Capital Securities. See "Description of Capital Securities--
Redemption."
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CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an
investment in the Capital Securities. Accordingly, among other factors, the
fiduciary should consider whether the investment would satisfy the prudence
and diversification requirements of ERISA and would be consistent with the
documents and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("Parties in Interest") with respect to
such Plan. A violation of these "prohibited transaction" rules may result in
an excise tax or other liabilities under ERISA and/or Section 4975 of the Code
for such persons, unless exemptive relief is available under an applicable
statutory or administrative exemption. Employee benefit plans that are
governmental plans (as defined in Section 3(32) of ERISA), certain church
plans (as defined in Section 3(33) of ERISA) and foreign plans (as described
in Section 4(b)(4) of ERISA) are not subject to the requirements of ERISA or
Section 4975 of the Code.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Issuer Trust would be
deemed to be "plan assets" of a Plan for purposes of ERISA and Section 4975 of
the Code if "plan assets" of the Plan were used to acquire an equity interest
in the Trust and no exception were applicable under the Plan Assets
Regulation. An "equity interest" is defined under the Plan Assets Regulation
as any interest in an entity other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features and specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the assets
of the Issuer Trust would not be deemed to be "plan assets" of investing Plans
if, immediately after the most recent acquisition of any equity interest in
the Trust, less than 25% of the value of each class of equity interests in the
Trust were held by Plans, other employee benefit plans not subject to ERISA or
Section 4975 of the Code (such as governmental, church and foreign plans), and
entities holding assets deemed to be "plan assets" of any Plan (collectively,
"Benefit Plan Investors"). No assurance can be given by the Initial Purchasers
that the value of the Capital Securities held by Benefit Plan Investors will
be less than 25% of the total value of such Capital Securities at the
completion of the initial offering or thereafter, and no monitoring or other
measures will be taken with respect to the satisfaction of the conditions to
this exception. All of the Common Securities will be purchased and held by the
Company.
Certain transactions involving the Issuer Trust could be deemed to
constitute direct or indirect prohibited transactions under ERISA and Section
4975 of the Code with respect to a Plan if the Capital Securities were
acquired with "plan assets" of such Plan and assets of the Issuer Trust were
deemed to be "plan assets" of Plans investing in the Issuer Trust. For
example, if the Company is a Party in Interest with respect to an investing
Plan (either directly or indirectly by reason of its subsidiaries'
activities), extensions of credit between the Company and the Issuer Trust (as
represented by the Junior Subordinated Debentures and the Guarantee) would
likely be prohibited by Section 406(a)(1)(B) of ERISA and Section
4975(c)(1)(B) of the Code, unless exemptive relief were available under an
applicable administrative exemption (see below). In addition, if the Company
were considered to be a fiduciary with respect to the Issuer Trust as a result
of certain powers it holds (such as the powers to remove and replace the
Property Trustee and the Administrative Trustees), the optional redemption or
acceleration of the Junior Subordinated Debentures could be considered to be
prohibited transactions under Section 406(b) of ERISA and Section
4975(c)(1)(E) of the Code.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief for direct or indirect prohibited
transactions resulting from the purchase or holding of the Capital Securities,
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assuming that assets of the Issuer Trust were deemed to be "plan assets" of
Plans investing in the Trust (see above). Those class exemptions are PTCE 96-
23 (for certain transactions determined by in-house asset managers), PTCE 95-
60 (for certain transactions involving insurance company general accounts),
PTCE 91-38 (for certain transactions involving bank collective investment
funds), PTCE 90-1 (for certain transactions involving insurance company
separate accounts), and PTCE 84-14 (for certain transactions determined by
independent qualified professional asset managers).
Because the Capital Securities may be deemed to be equity interests in the
Issuer Trust for purposes of applying ERISA and Section 4975 of the Code, the
Capital Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any person investing "plan assets" of
any Plan, unless such purchaser or holder is eligible for the exemptive relief
available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable
exemption. Any purchaser or holder of the Capital Securities or any interest
therein will be deemed to have represented by its purchase and holding thereof
that it either (a) is not a Plan or a Plan Asset Entity and is not purchasing
such securities on behalf of or with "plan assets" of any Plan or (b) is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38,
90-1 or 84-14 or another applicable exemption with respect to such purchase or
holding. See "Notice to Investors" herein.
In order to seek to avoid the prohibited transactions discussed above if the
Company were considered to be a fiduciary with respect to the Issuer Trust, as
well as to delineate fiduciary responsibility appropriately, each investing
Plan, by purchasing the Capital Securities, will be deemed to have (i)
directed the Issuer Trust to invest in the Junior Subordinated Debentures and
(ii) appointed The Bank of New York as Property Trustee under the Trust
Agreement responsible for certain administrative functions with respect to the
Capital Securities. The appointment of The Bank of New York as Property
Trustee does not extend its duties beyond those set forth in the Trust
Agreement and The Bank of New York expressly assumes no other fiduciary
responsibilities to an investing Plan, including without limitation any duty
with respect to the prudence or diversification of investments under the Plan.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing the Capital Securities on behalf of or with "plan assets" of any
Plan consult with their counsel regarding the potential consequences if the
assets of the Issuer Trust were deemed to be "plan assets" and the
availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14
or any other applicable exemption.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Capital Securities for its own account
in connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Capital Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by Participating Broker-Dealers during the period referred to below in
connection with resales of New Capital Securities received in exchange for Old
Capital Securities if such Old Capital Securities were acquired by such
Participating Broker-Dealers for their own accounts as a result of market-
making activities or other trading activities. The Company and the Issuer
Trust have agreed that this Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating Broker-Dealer in connection
with resales of such New Capital Securities for a period ending 90 days after
the Expiration Date (subject to extension under certain limited circumstances
described herein) or, if earlier, when all such New Capital Securities have
been disposed of by such Participating Broker-Dealer. See "The Exchange
Offer--Resales of New Capital Securities." The Company and the Issuer Trust
will not receive any proceeds from the issuance of the New Capital Securities
offered hereby. New Capital Securities received by broker-dealers for their
own accounts in connection with the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Capital Securities or
a
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combination of such methods of resale, at market prices prevailing at the time
of resale at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Capital Securities. Any broker-dealer that resells New Capital Securities that
were received by it for its own account in connection with the Exchange Offer
and any broker or dealer that participates in a distribution of such New
Capital Securities may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any such resale of New Capital
Securities and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
VALIDITY OF NEW CAPITAL SECURITIES
Certain matters of Delaware law relating to the validity of the New Capital
Securities, the enforceability of the Trust Agreement and the creation of the
Issuer Trust will be passed upon by Richards, Layton & Finger, special
Delaware Counsel to the Company and the Issuer Trust. The validity of the New
Guarantee and the New Junior Subordinated Debentures will be passed upon for
the Company by Orrick, Herrington & Sutcliffe LLP, San Francisco, California.
Certain matters relating to United States federal income tax considerations
will be passed upon for the Company by Orrick, Herrington & Sutcliffe LLP.
EXPERTS
The consolidated financial statements and schedules of the Company and
subsidiaries incorporated in this Prospectus by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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