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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-13664
THE PMI GROUP, INC.
(Exact name of registrant as specified in its charter)
601 Montgomery Street
Delaware San Francisco, California 94111 94-3199675
State of Incorporation Address of principal executive offices I.R.S. Employer
Identification No.
(415) 788-7878
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock (common stock) held by
non-affiliates of the registrant as of the close of business on February 28,
1997 was $1,290,681,000, based on the closing sale price of the common stock on
the New York Stock Exchange consolidated tape on that date.
Number of shares outstanding of the Registrant's common stock, as of the close
of business on February 28, 1997: 34,134,084.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of the Annual Report to
Shareholders for the fiscal year ended December 31, 1996 are incorporated by
reference into Items 6 through 8 of Part II. Portions of the Proxy Statement for
registrant's 1997 Annual Meeting of Shareholders to be held on May 13, 1997 are
incorporated by reference into Items 10 through 13 of Part III. The Exhibit
Index is located on page 50.
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PART I
ITEM 1. BUSINESS
A. GENERAL
The PMI Group, Inc. ("TPG") is a holding company which conducts its business
through its direct wholly-owned subsidiaries PMI Mortgage Insurance Co. ("PMI"),
an Arizona corporation, Residential Guaranty Co. ("RGC"), an Arizona
corporation, PMI Mortgage Guaranty Co., an Arizona corporation and American
Pioneer Title Insurance Company ("APTIC"), a Florida corporation. In addition,
PMI owns all of the outstanding common stock of PMI Mortgage Services Co.
("MSC"), a California corporation. PMI also owns 45% of the outstanding shares
of common stock of CMG Mortgage Insurance Company ("CMG"), a Wisconsin
corporation. (TPG, its subsidiaries, MSC and CMG are collectively referred to
as the "Company").
TPG, through PMI, is one of the leading mortgage insurers in the United States.
In addition to primary mortgage insurance, TPG, through its subsidiaries,
provides title insurance, contract underwriting and various services and
products for the home mortgage finance industry. PMI was founded in 1972 and was
acquired by Allstate Insurance Company ("Allstate") in 1973. In April 1995,
Allstate sold a majority of TPG in an initial public offering (the "IPO").
PMI is licensed in all 50 states of the United States and the District of
Columbia. At December 31, 1996, the Company's total assets were $1,509,919,000
and its shareholders' equity was $986,862,000. At December 31, 1996, 84.0% of
the Company's $1,291,746,000 investment portfolio was invested in fixed income
securities, over 98% of which were investment grade. PMI's claims-paying ability
is currently rated "AA+" (Excellent) by Standard & Poor's Rating Services
("S&P"), "AA+" (Very Strong) by Fitch Investors Service, Inc. ("Fitch"), "AA+"
(Very High) by Duff & Phelps Credit Rating Co. ("Duff & Phelps") and "Aa2"
(Excellent) by Moody's Investors Service, Inc. ("Moody's"). See "L. Claims
Paying Ability --Ratings", below.
Strategy
The Company's strategy is to maintain a leading position in the private mortgage
insurance industry and enhance its profitability by increasing its insurance in
force, from which it earns premiums, while sustaining the quality of its
insurance portfolio through disciplined underwriting. PMI's overall risk
management is based on loan-by-loan underwriting and utilization of its
proprietary underwriting technology system ("pmiAURA(sm)"), and its
proprietary automated residential appraisal analysis system ("pmiTERRA(sm)").
(See "I. Underwriting Practices -- Role of Technology", below.) PMI continually
monitors and attempts to adjust the diversification of its insurance portfolio
by emphasizing more profitable geographic regions and risk characteristics.
The Company also seeks to develop ancillary businesses that support its core
mortgage insurance business, such as its investment in CMG, a joint venture with
CUNA Mutual Investment Corporation, which offers mortgage guaranty insurance for
mortgage loans originated by credit unions, reinsurance support provided by RCG
to PMI and CMG relating to the deep coverage requirements instituted by the
Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac") and MSC's contract underwriting services
for mortgage loan originators. See "M. Other Businesses", below.
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B. PRODUCTS
PMI provides mortgage insurance coverage for lenders who receive a down payment
of 20% or less from a borrower. PMI also provides mortgage insurance coverage
for lenders for mortgages with: (i) loan-to-value ratios ("LTVs") in excess of
90% and less than or equal to 95% ("95s"); (ii) LTVs equal to or less than 90%
and over 85% ("90s"); and (iii) LTVs in excess of 95% and up to 97% ("97s").
Fannie Mae and Freddie Mac require that 95s must have 30% coverage, 90s must
have 25% coverage, and 97s must have 30% coverage.
Primary Insurance
PMI issues primary insurance for first lien mortgage loans on one-to-four unit
residential properties, including condominiums. Primary coverage can be used on
any type of residential mortgage loan instrument approved by PMI and is
generally underwritten on a loan-by-loan basis. (See "I. Underwriting Practices
- -- Delegated Underwriting", below.) Primary mortgage insurance provides mortgage
default protection to lenders or investors on individual loans. PMI's obligation
to an insured with respect to a claim is determined by applying the appropriate
coverage percentage to the claim amount. In lieu of paying the coverage
percentage of the claim amount, PMI has the option of: (i) paying the entire
claim amount and taking title to the mortgaged property, or (ii) in the case of
certain sales, paying the difference between the sales proceeds received by the
insured and the claim amount up to a maximum of the coverage percentage. See "J.
Defaults and Claims -- Claims", below.
PMI offers coverage ranging from 6% to 35% of the total of the outstanding loan
principal, delinquent interest and certain expenses associated with a default
and the subsequent foreclosure of a mortgage loan ("claim amount"), with the
percentage of the total claim amount subject to payment by PMI in the event of a
claim on a mortgage loan that is the subject of primary insurance ("coverage
percentage") being predominantly in the 25% to 30% range for new insurance
written ("NIW") for the year ended December 31, 1996. Fannie Mae and Freddie Mac
requirements concerning levels of coverage on certain mortgages with high LTV
ratios had the effect of increasing the average coverage percentage for PMI to
26.1% for the year ended December 31, 1996 from 25.4% for the year ended
December 31, 1995. Certain states limit the amount of risk a mortgage insurer
may retain with respect to coverage of an insured loan to 25% of the
indebtedness to the insured. Coverage in excess of 25% of the indebtedness to
the insured ("deep coverage") must be reinsured. To minimize reliance on third
party reinsurers and to permit PMI to retain the premiums (and related risk) on
deep coverage business, TPG formed RGC to provide reinsurance of such deep
coverage to PMI and CMG. (See "K. Reinsurance -- RGC", below.) The coverage
percentage insured by PMI is determined by the lender, usually to comply with
Fannie Mae's and Freddie Mac's requirements to reduce the loss exposure on loans
purchased by them. At December 31, 1996, PMI's average coverage percentage on
insurance in force was 22.4%. See "C. Industry Overview-- Fannie Mae and Freddie
Mac", below.
Mortgage insurance coverage cannot be canceled by PMI, except for nonpayment of
premiums or certain material violations of PMI's Master Policy. Generally,
mortgage insurance remains renewable at the option of the insured for the life
of the loan at a rate fixed when the insurance on the loan was initially issued.
As a result, the impact of increased claims and incurred losses from policies
originated in a particular year generally cannot be offset by renewal premium
increases on policies in force or mitigated by nonrenewal of insurance coverage.
Mortgage insurance premiums are usually charged to the borrower by the mortgage
lender or loan servicer, which in turn remits the premiums to the mortgage
insurer. PMI has two basic types of premium payment plans.
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The first is a premium payment plan in which premiums are paid monthly over the
term of the coverage ("Monthly Premium Plan"). Under PMI's Monthly Premium Plan
only one or two months' premium is paid at the mortgage loan closing, and
thereafter monthly premiums are collected by the loan servicer for monthly
remittance to PMI. Monthly Premium Plans represented 95.1% of NIW in 1996. In
January 1996, PMI introduced a mortgage insurance product called pmiNU
MONTHLY(sm), under which the first monthly premium is payable at the time the
first monthly mortgage payment is due. This plan reduces the amount a borrower
would typically have to pay at closing, thereby, increasing mortgage loan
affordability.
The second type of premium payment plan requires the payment of the first-year
premium to be paid at the time of mortgage loan closing and annual renewal
premium payments are paid in advance each year thereafter ("Annual Premium
Plan"). Renewal payments generally are collected monthly from the borrower along
with the mortgage payment and held in escrow by the loan servicer for annual
remittance to PMI in advance of each renewal year. Annual Premium Plans
represented 4.1% of NIW in 1996.
PMI also offers a premium payment plan which requires an initial premium payment
that extends coverage for more than one year and involves a lump-sum payment at
the loan closing, which may be refundable if the coverage is canceled by the
insured lender (which generally occurs when the loan is repaid or the value of
the property has increased significantly). The single premium can be financed by
the borrower by adding it to the principal amount of the mortgage and generally
covers the greater of 10 years or amortization of the underlying loan to an 80%
LTV.
Risk-Sharing Products
In addition to standard primary insurance, PMI offers: (i) layered co-insurance,
a primary mortgage insurance program for a covered loan for which a mortgage
originator or a state housing authority retains liability for losses above a
certain level of aggregate losses and below a second specified level of
aggregate losses, above which the mortgage insurer retains liability; (ii)
pmiADVANTAGE(sm), a lender paid mortgage insurance program that provides
reductions from standard rates based on the quality of the business generated;
(iii) captive reinsurance, a program that allows a reinsurance company,
generally an affiliate of the lender, to assume mortgage insurance default
losses at a specified entry point up to a maximum aggregate exposure, up to an
agreed upon amount of total coverage; and (iv) pmiEXTRA(sm) coverage, a
product which provides an additional layer of primary mortgage insurance
coverage (up to 15%) on all insured loans in a portfolio sold to government
sponsored enterprises ("GSEs"). TPG has also offered a risk-sharing product that
is based on the performance of a specified group of mortgage insurance
policies. This product is designed to encourage quality originations and loss
mitigation by lenders. To date the risk-sharing products have not represented a
significant portion of PMI's or TPG's revenues. Several of the above risk-
sharing products are not presently offered by PMI or TPG in all states due to
the pendency of various regulatory issues. Management is unable to predict the
impact of these regulatory issues on these products. See "K. Reinsurance",
below.
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C. INDUSTRY OVERVIEW
Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are the predominant purchasers and sellers of
conventional mortgage loans in the United States, providing a direct link
between the primary mortgage origination markets and the capital markets.
Since 1970, Fannie Mae and Freddie Mac have been permitted to purchase
conventional high LTV mortgages only if the lender (i) secures private mortgage
insurance from an eligible insurer on those loans; (ii) retains a participation
of not less than 10% in the mortgage; or (iii) agrees to repurchase or replace
the mortgage in the event of a default under specified conditions. If the lender
retains a participation in the mortgage or agrees to repurchase or replace the
mortgage, applicable federal bank and savings institution regulations may
increase the level of capital required by the loan originations. Because loan
originators prefer to make loans that may be marketed in the secondary market to
Fannie Mae and Freddie Mac without having to hold such capital, they are
motivated to purchase mortgage insurance from insurers deemed eligible by Fannie
Mae and Freddie Mac. PMI is an authorized mortgage insurer for both Fannie Mae
and Freddie Mac. See "N. Regulation", below.
Since 1992, Fannie Mae and Freddie Mac have been subject to oversight
legislation for GSEs which simultaneously tightened their capital requirements
and set goals for affordable housing. Their goals are based on the percentage of
loans purchased by the GSEs, determined by the number of dwelling units securing
such loans. Fannie Mae's program of purchasing 97s is designed to help achieve
its stated goal that 30% of the units financed be low-to-moderate income
borrowers or in central cities. Fannie Mae also expanded its Community Home
Buyers Program to include a commitment to purchase a certain volume of 97s.
While 97s are likely to have greater risk than 95s, and, although priced higher,
97s have greater uncertainty as to pricing adequacy since they are relatively
new to the market place. PMI began offering a 97% product in the third quarter
of 1994. To aid in managing the greater risks, PMI offers pre-and post-loan
credit counseling to borrowers using the 97% product.
TPG believes that the GSEs' announced goals for 1996 were that at least 40% of
the units financed by each GSE be low- and moderate- income housing, and that
21% of such units be in underserved areas (which are defined as census tracts
with either a median income no greater than 90% of area median, or with a median
income no greater than 120% of area median income and a minority population of
at least 30%). TPG believes that the GSEs' goals to expand purchases of
affordable housing loans have increased the overall size of the total mortgage
insurance market because such loans are traditionally in excess of 80% LTV, with
a majority being in excess of 90% LTV.
To the extent Fannie Mae or Freddie Mac implements new eligibility requirements
for mortgage insurers, changes the pricing arrangements for purchasing retained
participation mortgages as compared to insured mortgages or alters or
liberalizes underwriting standards on low down payment mortgages it purchases,
private mortgage insurers, including PMI, will likely respond to or comply with
such actions. Such actions could have a material adverse impact on the results
of operations and financial condition of the Company. See "N. Regulation", and
"Q. Factors That May Affect Future Results and Market Price of Stock", below.
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Freddie Mac's and Fannie Mae's automated underwriting services Loan
Prospector(sm) and Desktop Underwriter(tm), respectively, can be used by
mortgage originators to determine whether Freddie Mac or Fannie Mae will
purchase a loan prior to closing. Through these systems, lenders are able to
obtain approval for mortgage guaranty insurance with any participating mortgage
insurer. PMI works with both agencies in offering insurance services through
their systems, while utilizing its proprietary risk management systems to
monitor the risk quality of loans insured through such systems. See "I.
Underwriting Practices -- Delegated Underwriting", below.
Fannie Mae announced in 1996 its intentions to revise its policies regarding
cancellation of mortgage guaranty insurance and the procedures its servicers
will be required to follow regarding notifying borrowers of their rights to
discontinue paying for mortgage guaranty coverage. To date, no final regulations
have been issued. See "N. Regulation", below
Industry Performance
The results of operations of a primary mortgage insurer are affected, among
other things, by: (i) the overall demand for and persistency of mortgage
insurance. Persistency is the percentage of insurance policies in force 12
months prior to such date which remain in force on such date. Demand and
persistency are related to the levels of home sales and refinancing activity,
which in turn are influenced by a number of economic and demographic factors and
trends, including housing affordability, interest rates, consumer confidence,
GDP growth, rates of employment and inflation, and the aging of the U.S.
population; (ii) the amount of NIW and any given mortgage insurer's percentage
thereof, which are affected by such mortgage insurer's ability to compete
against other private mortgage insurance companies as well as mortgage insurance
provided by the Federal Housing Administration ("FHA") and, to a lesser extent,
the Department of Veterans' Affairs (the "VA") and state housing insurance
funds, and by the extent to which lenders forego third-party coverage and retain
the full risk of loss on high LTV mortgage loans; (iii) the degree to which an
insurer is able to charge premiums commensurate with the ultimate cost of the
risks insured; (iv) claim frequency, which is influenced by national and
regional economic conditions (including recessions), the geographic dispersion
of risk in force, the borrower's equity in the home at the time of default, the
underlying mortgage amount, the type and term of the insured mortgage and the
type of property securing the mortgage; (v) claims severity, which is influenced
in part by the amount of accrued interest on the mortgage loan, the foreclosure
expenses and appreciation or depreciation in housing prices; (vi) an insurer's
expenses; and (vii) the performance of an insurer's investment portfolio. The
results of operations for PMI may be significantly affected in any period by any
of the foregoing factors, as well as those matters described in Section Q.
"Factors That May Affect Future Results and Market Price of Stock", below.
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The following table shows key financial performance ratios for the private
mortgage insurance industry since 1991. Private mortgage insurance industry
numbers for 1996 will not be available from Moody's Investors Service, Inc.,
until November 1997. The combined ratio is a principal indicator of a
private mortgage insurer's profitability on its insurance written. In respect
of any year, the lower the combined ratio, the higher an insurer's earnings
from its insurance underwriting activities, with a combined ratio below 100%
indicating an underwriting profit for such year.
<TABLE>
<CAPTION>
Private Mortgage Insurance Industry Performance Ratios(1)(2)
--------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Active Companies(3)
Loss ratio ............. 48.5% 56.1% 54.4% 47.2% 44.8%
Expense ratio .......... 24.2 25.5 24.3 25.4 26.2
------ ------ ------ ------ ------
Combined ratio ......... 72.7% 81.6% 78.7% 72.6% 71.0%
====== ====== ====== ====== ======
Total Industry
Loss ratio ............. 51.4% 59.5% 56.6% 57.3% 58.3%
Expense ratio .......... 23.6 25.1 24.4 25.2 24.1
------ ------ ------ ------ ------
Combined ratio ......... 75.0% 84.6% 81.0% 82.5% 82.4%
====== ====== ====== ====== ======
</TABLE>
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(1) Calculated using amounts determined under statutory accounting practices.
(2) Due to the increase in premiums written by active companies in recent years
and the runoff of pre-1985 business, which constituted the bulk of the nonactive
companies' operations, nonactive companies represent a decreasing percentage of
total industry figures shown in the table, constituting 3.3% of the total
industry net premiums earned in 1995.
(3) Includes mortgage insurers writing new mortgage insurance as of December 31,
1995.
Source: Moody's Investors Service, Inc. Global Credit Research (November 1996)
D. COMPETITION
The U.S. private mortgage insurance industry consists of nine active mortgage
insurers, including Mortgage Guaranty Insurance Corporation ("MGIC"), GE Capital
Mortgage Insurance Corporation ("GEMICO"), an affiliate of GE Capital
Corporation, and United Guaranty Residential Insurance Company ("UGC"), an
affiliate of American International Group, Inc. PMI is the third largest private
mortgage insurer in the United States based on new primary insurance written in
1996 and direct primary insurance in force at December 31, 1996. (Source: Inside
Mortgage Finance.) In 1996, MGIC possessed the largest share of the private
mortgage insurance market, with approximately 25.4% of new primary insurance
written, and GEMICO, PMI and UGC had market shares of approximately 18.5%, 14.7%
and 12.7%, respectively. (Source: Inside Mortgage Finance.) PMI presently
anticipates that competitive pressures related to the availability of mortgage
pool insurance will continue to negatively impact market share during the first
half of 1997, due primarily to PMI's decision not to offer mortgage pool
insurance. PMI's market share percentage includes 0.6% of the market held by
CMG. See Part II, Item VII--"Management's Discussion And Analysis Of Financial
Condition And Results of Operations".
PMI and other private mortgage insurers also compete directly with federal and
state governmental and quasi-governmental agencies, principally the FHA and, to
a lesser degree, the VA. These agencies sponsor government-backed mortgage
insurance programs which(1), accounted for 51.8%, 38.5% and 44.8% for 1994, 1995
and 1996, respectively, of all loans insured or guaranteed. The maximum
individual loan amount that the FHA can insure is currently $160,950 and the
maximum individual loan amount that the VA can insure has recently been
increased to $203,150. Private mortgage insurers have no limit as to individual
loan amounts that they can insure. Generally, PMI and other private mortgage
insurers have a greater variety of insurance products than the FHA and VA.
However, the FHA and VA
_____________________
(1) According to data from the Department of Housing and Urban Development
("HUD"), VA and Inside Mortgage Finance.
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generally have more flexible loan underwriting guidelines than PMI and the other
private mortgage insurers, the servicers of FHA- or VA-insured loans receive a
higher servicing fee than they generally receive from loans insured with private
mortgage insurance, and the FHA and VA provide higher insurance coverage
percentages than private mortgage insurers. In addition, FHA and VA regulations
allow the financing of almost all closing costs, including the initial mortgage
insurance premium; thus, resulting in little or no cash being required of the
borrower at closing. In contrast, mortgage lenders originating conventional
loans and using private mortgage insurance generally are unable to finance the
same level of closing costs, thus requiring the borrower to provide a greater
amount of cash at closing.
In addition to competition from federal agencies, PMI and other private mortgage
insurers face limited competition from state-supported mortgage insurance funds.
As of December 31, 1996, several states (among them, California, Connecticut,
Maryland, Massachusetts, New York and Vermont) have state housing insurance
funds which are either independent agencies or affiliated with state housing
agencies.
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The following table sets forth (i) the dollar amount of total mortgage loan
originations, (ii) mortgage loan originations insured by FHA/VA or private
mortgage insurance and (iii) the percentage of such insured loan originations to
total mortgage loan originations during the years 1992 through 1996:
<TABLE>
<CAPTION>
Total Mortgage Loan Originations
Year Ended December 31,
------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996(1) 1995 1994 1993 1992
-------- ------ ------ -------- -------
(Dollars in billions)
Total originations.. $808.1 $635.8 $773.1 $1,009.3 $893.7
FHA/VA and private
mortgage
insured $230.2 $178.9 $273.5 $257.5 $174.5
originations.......
Percentage of total
originations ....... 28.5% 28.1% 35.4% 25.5% 19.5%
</TABLE>
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(1) Total originations data for the year ended December 31, 1996 are estimated.
For the year ended December 31, 1996, total mortgage originations increased to
$808.1 billion from $635.8 billion for the year ended December 31, 1995 due to
positive economic factors. During 1995 and 1996, loan originations where the
borrower has only a 5% or less down payment have been running at historically
high levels. Concurrently, consumer debt had risen to record levels, negatively
affecting some borrowers' ability to meet their credit obligations on a timely
basis. The Company believes this high level of debt was a factor in 1995,
reflected in the poor quality of credit which occurred in several regions of the
country and resulted, in part, in the mortgage origination market showing a
decline during 1995. PMI expects the total volume of mortgage orginations to
decrease in 1997. See "P. Cautionary Statement" and "Q. Factors That May Affect
Future Results and Market Price of Stock", below.
<TABLE>
<CAPTION>
The following table indicates the relative share of the mortgage insurance
market based on NIW by FHA/VA and private mortgage insurers over the past five
years.
Federal Government and Private Mortgage Insurance Market Share
Year Ended December 31
1996(1) 1995 1994 1993 1992
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
FHA/VA.......................... 44.8% 38.5% 51.8% 46.9% 42.1%
Private Mortgage Insurance...... 55.2% 61.5% 48.2% 53.1% 57.9%
---------------------------------------------------------------
TOTAL........................... 100.0% 100.0% 100.0% 100.0% 100.0%
===============================================================
</TABLE>
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(1) Market share data for the year ended December 31, 1996 is estimated.
Various proposals are being discussed by Congress and certain federal agencies
to reform or modify the FHA. One such proposal relates to increasing the FHA
single-family loan limit to the same level as the Fannie Mae and Freddie Mac
conforming loan limit. If enacted, the FHA loan limit would be increased to
$214,600 nationwide. In another proposal, HUD is considering the viability of
sharing single-family mortgage risk between the FHA and other partners,
including private mortgage insurance
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companies. The Company is unable at this time to predict the scope and content
of such proposals, or whether any such proposals will be enacted into law, and,
if enacted, the effect on the Company, although the Company believes that any
increase in the FHA loan limit could adversely affect the competitive position
of PMI. In addition, the Office of the Comptroller of the Currency in 1996
granted permission to national banks to have a reinsurance company as a
wholly-owned operating subsidiary for the purpose of reinsuring mortgage
insurance written on loans originated by such bank. The Office of Thrift
Supervision is in the process of considering whether similar activities are
permitted for savings institutions. These reinsurance subsidiaries of national
banks or savings institutions could become significant competitors of the
Company in the future.
PMI and other private mortgage insurers also compete indirectly with mortgage
lenders that elect to retain the risk of loss from defaults on all or a portion
of their high LTV mortgage loans rather than obtain insurance for such risk. In
addition, Fannie Mae and Freddie Mac have in certain cases elected to accept a
spread account funded from a portion of the servicing fees or a credit
enhancement in lieu of mortgage insurance. Any change in legislation which
affects the risk-based capital rules imposed on banks and savings institutions,
or which change the GSEs' insurance requirements may affect the desirability of
foregoing insurance for savings institutions or the GSEs and, therefore, affect
the size of the insurance mortgage market. See "N. Regulation", below.
Certain mortgage insurers reinsure some portion of coverage issued to certain
lenders with affiliates of those lenders. In addition, PMI is pursuing various
risk-sharing arrangements for certain of its customers, including offering
various premium rates based on the risk characteristics, loss performance or
class of business of the loans to be insured, or the costs associated with doing
such business. While many factors are considered in determining rates, there can
be no assurance that the premiums charged will be adequate to compensate PMI for
the risks associated with the coverage provided to its customers. Management is
unable to predict the impact of these arrangements on their long-term
competitive effect. See "K. Reinsurance", below.
E. MORTGAGE INSURANCE INDUSTRY MARKET SHARE
PMI's and CMG's market share of NIW grew to 14.7% at December 31, 1996 from
13.5% at December 31, 1995. (Source: Inside Mortgage Finance.) Numerous factors
bear on the relative position of the private mortgage insurance industry versus
the "direct" government and quasi-governmental competition as well as the
"indirect" competition of lending institutions which choose to offer loans on an
uninsured basis. PMI's market share, as measured by NIW, declined in the fourth
quarter of 1996, compared to the third quarter of 1996, due primarily to PMI's
decision not to offer mortgage pool insurance. PMI presently anticipates that
competitive pressures related to the availability of mortgage pool insurance
will continue to negatively impact market share during the first half of 1997.
PMI's 1996 and 1995 market share includes approximately $810 million and $330
million, respectively, of NIW by CMG. See "D. Competition", above, "P.
Cautionary Statement" and Part II, Item VII, "Management's Discussion And
Analysis Of Financial Condition And Results of Operations".
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The following table shows (i) the amount of primary insurance in force and new
primary insurance written in the years 1992 through 1996 for all private
mortgage insurers and for PMI, and (ii) PMI's market share for each of those
periods.
<TABLE>
<CAPTION>
New Primary Insurance
Primary Insurance in Force (1) Written (2)
--------------------------------------------------------------------------------------------------
All Private All Private PMI
Mortgage PMI Market Mortgage Market
Year Insurers PMI Share Insurers PMI (3) Share
-------------------------------------------------------------------------------------------------
(Dollars in billions)
<S> <C> <C> <C> <C> <C> <C>
1992............................. $284.6 $43.7 15.4% $101.0 $19.4 19.2%
1993............................. 337.7 57.0 16.9 136.8 25.5 18.6
1994............................. 387.4 66.0 17.0 131.4 18.4 14.0
1995............................. 464.6 71.4 15.4 109.6 14.8 13.5
1996............................. 511.2 77.3 15.1 127.0 18.7 14.7
</TABLE>
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(1) Amounts shown are at period end and include active and inactive private
mortgage insurers. Source: MICA Fact Book.
(2) Does not include insurance written on seasoned loans (loans originated at
least 12 months prior to the date on which they are insured with primary
mortgage insurance). Source: Inside Mortgage Finance.
(3) Includes CMG NIW of $810 million and $330 million for the years ended
December 31, 1996 and 1995, respectively.
F. CUSTOMERS
PMI insures mortgage loans funded by mortgage originators. Mortgage originators
include mortgage bankers, savings institutions, commercial banks and other
mortgage lenders. During 1996 the mortgage origination industry experienced
significant consolidation, resulting in the market share for mortgage
originators being concentrated among a smaller number of higher volume financial
institutions. PMI expects this trend to continue into 1997. See "P. Cautionary
Statement", below.
For the year ended December 31, 1996, PMI's primary customers were mortgage
bankers, with the balance of its customers being savings institutions,
commercial banks and other mortgage lenders. Mortgage brokers originate loans on
behalf of mortgage lenders and are not master policyholders. As a result,
mortgage brokers are not the beneficiaries of policies issued by PMI. The
beneficiary under the master policy is the owner of the insured loan and,
accordingly, when a loan is sold, the purchaser of the loan is entitled to the
policy benefits.
To obtain primary insurance from PMI, a mortgage lender must first apply for and
receive a master policy from PMI. PMI's approval of a lender as a master
policyholder is based upon an evaluation of the lender's capacity to originate,
underwrite and service mortgage loans, its financial soundness, and its
management's demonstrated adherence to sound loan origination practices, among
other factors. Substantially all of PMI's customers obtain mortgage insurance
from more than one insurer. PMI had approximately 5,760 active master
policyholders at December 31, 1996 (lenders who have purchased insurance since
1992 but not including branches and affiliates).
PMI's master policy sets forth the general published terms and conditions of the
mortgage insurance coverage provided by PMI. The master policy does not obligate
the lender to secure insurance from PMI, nor, except in the case of delegated
underwriting, does it obligate PMI to issue insurance on a particular loan. The
master policy requires that the lender apply for insurance coverage on
individual loans and that a certificate must be issued for a loan before
coverage becomes effective. See "I. Underwriting Practices", below.
A foundation of PMI's business strategy is proactive risk selection. PMI
analyzes its portfolio in a number of ways to identify concentrations of risk.
PMI believes that the quality of its insurance portfolio is affected
predominantly by (i) the quality of loan originations (including the financial
strength
11
<PAGE>
of the borrower and the marketability of the property); (ii) the attributes of
loans insured (including LTV, purpose of loan, type of loan instrument and type
of underlying property securing the loan); (iii) the geographic dispersion of
the underlying properties subject to mortgage insurance; (iv) the seasoning of
the insured portfolio; and (v) the quality of lenders' operations from which PMI
receives loans to insure.
The composition of PMI's risk in force reflects several changes over the
five-year period from 1992 to 1996. The relatively low interest rates during
this period resulted in an increasing percentage of mortgages insured by PMI at
a fixed rate of interest. For example, such mortgages represented 80.6% of risk
in force at December 31, 1996, up from 73.2% at year-end 1992. Based on PMI's
experience, fixed rate loans represent less risk than adjustable rate mortgages
("ARMs") because claim frequency on ARMs is generally higher than on fixed rate
loans. Historically, borrowers prefer fixed rate mortgages during periods of low
or decreasing interest rates due to a borrower's desire to lock in what are
perceived to be desirable rates. PMI believes this trend will continue if
interest rates remain at their current levels or decrease (See "P. Cautionary
Statement" and "Q. Factors That May Affect Future Results and Market Price of
Stock", below.) PMI's percentage of risk in force has steadily increased during
the five-year period from 1992 to 1996, although the percentage of new risk
written comprised of 95s has decreased slightly from 51.7% for the year ended
December 31, 1995 to 50.4%, for the year ended December 31, 1996. PMI charges
higher premium rates for ARMs and 95s to compensate for the higher risk
associated with such loans, although there can be no certainty that the
differential in the higher premium rate will be adequate to compensate for the
higher risk.
12
<PAGE>
The following table reflects the percentage of PMI's direct risk in force (as
determined on the basis of information available on the date of mortgage
origination) by categories and as of the dates indicated:
<TABLE>
<CAPTION>
Direct Risk in Force
------------------------------------------------------------
As of December 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- --------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Direct Risk in Force
(In millions)........................... $ 17,336 $15,130 $13,243 $ 11,267 $ 8,676
======== ======= ======= =========== ===========
Lender Concentration:
Top 10 Lenders (by original applicant).. 26.0% 22.5% 20.4% 19.5% 18.3%
======== ======= ======= =========== ==========
LTV:
95s (1)................................. 44.7% 40.6% 35.7% 31.7% 30.4%
90s and below (2)....................... 55.3 59.4 64.3 68.3 69.6
-------- ----- ------ ------------- ---------
Total................................ 100.0% 100.0% 100.0% 100.0% 100.0%
======== ====== ====== ============= =========
Average Coverage Percentage.............. 22.4 % 21.2% 20.1% 19.8% 19.9%
======= ====== ====== ============ ========
Loan Type:
Fixed.................................. 80.6% 76.5% 74.1% 74.9% 73.2%
ARM.................................... 17.7 21.3 23.9 23.3 23.7
ARM (scheduled/potential negative
amortization).......................... 1.7 1.9 1.7 1.3 2.1
Other................................. 0 0.3 0.3 0.5 1.0
------- ----- ---- ----------- ------
Total................................. 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======= ====== =========== =======
Mortgage Term:
15 years and under..................... 9.4% 8.6% 10.3% 11.5% 9.9%
Over 15 years.......................... 90.6 91.4 89.7 88.5 90.1
------- ------- ------ ----------- -------
Total................................ 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ====== =========== ======
Property Type:
Single-family detached................. 86.7% 86.7% 86.3% 85.2% 83.0%
Condominium............................ 6.9 7.1 7.5 8.1 10.2
Other (3).............................. 6.4 6.2 6.2 6.7 6.8
------- ------ ------- ----------- ------
Total............................... 100.0% 100.0% 100.0% 100.0% 100.0%
======= ====== ======= =========== =======
Occupancy Status:
Primary residence...................... 99.2% 99.3% 99.4% 99.3% 99.3%
Second home............................ 0.6 0.5 0.3 0.3 0.2
Non-owner occupied..................... 0.2 0.2 0.3 0.4 0.5
------- ------- -------- ----------- --------
Total............................... 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======= ======= =========== ========
Loan Amount:
$100,000 or less........................ 28.3% 28.8% 29.9% 31.7% 35.0%
Over $100,000 and up to $151,725 (4).... 35.9 35.6 35.7 35.4 36.7
Over $151,725 and up to $203,150 (5).... 23.8 23.0 22.3 21.1 19.1
Over $203,150 and up to $250,000........ 5.1 5.7 5.5 5.4 4.6
Over $250,000........................... 6.9 6.9 6.6 6.4 4.6
------- --------- -------- ---------- --------
Total................................. 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
- ----------
(1) Includes 97s, representing 1.1% of PMI's risk in force as of December 31,
1996.
(2) PMI includes in its classification of 90s, for purposes of applying its
underwriting standards, determining premiums and in the table above, loans
where the borrower makes a down payment of 10% and finances the mortgage
insurance premium payment as part of the loan (thus, increasing the
principal balance of the loan to over 90% LTV). Fannie Mae classifies these
loans as 95s, which has had the effect of limiting the marketability of
these. At December 31, 1996, less than 5% of PMI's risk in force consisted
of these types of loans.
(3) Includes two-to-four unit dwellings, townhouses, row houses and
cooperatives.
(4) $151,725 was the maximum individual loan amount that the FHA could insure.
Such amount was increased to $152,363 in the third quarter of 1994 and
increased to $160,950 as of February 1997.
(5) $203,150 is the maximum principal balance of loans originated after November
1, 1992 eligible for purchase by Fannie Mae and Freddie Mac. After January
1996, the maximum principal balance of loans eligible for purchase increased
to $207,000 and further increased to $214,600 as of February 1997.
13
<PAGE>
G. SALES AND MARKETING
PMI's Marketing Department has primary responsibility for advertising, sales
materials, and the creation of new products and services. The Operations
Division of the Marketing Department is accountable for coordinating new product
development among all appropriate internal PMI functions. PMI's Strategic
Marketing Division focuses on emerging opportunities in PMI's markets, such as
new products and services and strategic alliances.
PMI employs a field sales force of over 100 people located throughout the
country to sell its products, and underwrites loans and services lenders through
19 field offices located in 17 states. PMI's sales force is made up of
individuals in five basic sales positions: (i) account representatives, who
provide day-to-day service to PMI's customers in a particular geographic
territory and who also work to expand the customer base within the sales
territory by making prospect calls; (ii) account executives, who are responsible
for sales in a particular geographic territory and who focus on loan officers,
branch managers and executives at PMI's customers; (iii) account managers, who
are responsible for sales in a one or two state area and provide services to
regional offices of PMI's customers; (iv) managing directors, who are
responsible for sales in a particular multistate sales region; and (v) national
account directors, who are responsible for sales management on a national level
and call on executives at PMI's largest customers. During 1996, PMI's sales
force received compensation comprised of a base salary with incentive
compensation tied to performance objectives.
H. PRICING
PMI's Actuarial Services Department has primary responsibility for setting
premium rates and for setting and reviewing PMI's reserves for losses and loss
adjustment expenses. In addition, the Strategic Pricing Division of the
Department works with the Strategic Marketing Division to develop and price new
products to meet emerging customer needs.
PMI's premium rates are based upon the expected risk of a claim on the insured
loan and take into account the LTV, loan type, mortgage term, occupancy status
and coverage percentage. In addition, PMI's premium rates take into account
persistency, operating expenses and reinsurance costs, assets pledged by the
borrower in lieu of a down payment, possible risk-sharing with the lender or
other parties, as well as company profit and capital needs, and the prices
offered by competitors.
PMI generally uses a national pricing strategy, although PMI underwrites loans
on the basis of both national and territorial underwriting guidelines. In
establishing national prices, PMI takes into account the geographic dispersion
of its book of insurance by considering the levels of claims expense that PMI
expects will be associated with different states. From time to time, regional
economies can perform much worse than the national average. PMI believes that a
national pricing strategy helps to offset deficiencies in one region with
surpluses in other regions on a year-to-year basis.
PMI's premium rates and policy forms are subject to regulation in every state in
which it is licensed to transact business in order to protect policyholders
against the adverse effects of excessive, inadequate or unfairly discriminatory
rates and to encourage competition in the insurance marketplace. In most states,
premium rates and policy forms must be filed prior to their use. In some states,
such rates and forms must also be approved prior to use. Changes in premium
rates are subject to being justified, generally on the basis of the insurer's
loss experience, expenses and future trend analysis. The general loss experience
in the mortgage insurance industry may also be considered.
14
<PAGE>
I. UNDERWRITING PRACTICES
Risk Management Approach
PMI underwrites its primary business based upon the historical performance of
risk factors of individual loan profiles, and utilizes automated underwriting
systems in the risk selection process to assist the underwriter with decision
making. PMI's underwriting process evaluates five categories of risk:
o BORROWER. An evaluation of the borrower's credit history is
an integral part of PMI's risk selection process. In addition
to the borrower's credit history, PMI analyzes several
factors, including the borrower's employment history, income,
funds needed for closing, and the details of the home
purchase.
o LOAN CHARACTERISTICS. PMI analyzes four general
characteristics of the loan product to quantify risk: (i)
LTV; (ii) type of loan instrument; (iii) type of property;
and (iv) purpose of the loan. Certain categories of loans are
generally not insured by PMI because such loans are deemed to
have an unacceptable level of risk, including loans on
non-owner occupied properties, loans with scheduled negative
amortization, and loans originated using limited
documentation.
o PROPERTY PROFILE. PMI reviews appraisals regarding
methodology used to determine the property price.
o HOUSING MARKET PROFILE. PMI places significant emphasis on
the condition of regional housing markets in determining its
underwriting guidelines. PMI analyzes the factors that impact
housing values in each of its major markets and closely
monitors regional market activity on a quarterly basis.
o MORTGAGE LENDER. PMI tracks the historical risk
performance of all customers that hold a master
policy. This information is factored into the determination
of the loan programs that PMI will approve for various
lenders.
PMI uses national and territorial underwriting guidelines to evaluate the
potential risk of default on mortgage loans submitted for insurance coverage.
The national guidelines have developed over time and take into account PMI's
loss experience and the underwriting guidelines of Fannie Mae and Freddie Mac.
In 1988, PMI developed a report called the Economic Real Estate Trends ("ERET")
to assist in analyzing regional and local market conditions. ERET assigns
ratings to 100 Metropolitan Statistical Areas ("MSAs") by tracking and analyzing
a number of economic and housing industry factors on a quarterly basis. This
report is used to help establish territorial underwriting guidelines which allow
PMI to take more or less risk in a given market based on such market's economic
condition. This rating is also incorporated in the automated appraisal review
process during the underwriting evaluation. PMI was the first mortgage insurance
company to provide mortgage originators with formal territorial underwriting
guidelines to address local real estate market conditions.
PMI expects its underwriters to utilize their knowledge of local markets, risk
management principles and business judgment in evaluating loans on their own
merits in conjunction with PMI's underwriting guidelines. Accordingly, PMI's
underwriting staff is trained to consider combined risk characteristics and
their impact in different real estate markets and have discretionary authority
to insure loans which
15
<PAGE>
are substantially in conformance with PMI's published underwriting guidelines.
Significant deviations from such guidelines require higher level underwriting
approval.
Underwriting Process
To obtain mortgage insurance on a specific mortgage loan, a master policyholder
typically submits an application to one of PMI's regional underwriting offices,
supported by various documents. Besides the standard full documentation
submission program, PMI also accepts applications for insurance under a reduced
documentation submission program (the "Quick Application Program"), which is
limited to those lenders with a track record of high quality business. The
amount of business written under the Quick Application Program was 18.5% of
PMI's NIW in 1996.
The documents submitted to PMI by the mortgage lender generally include a copy
of the borrower's loan application, an appraisal report or other statistical
evaluation on the property by either the lender's staff appraiser or an
independent appraiser, a written credit report on the borrower and, under the
standard full documentation submission program, a verification of the borrower's
employment, income and funds needed for the loan closing (principally, down
payment) and the home purchase contract. Once the loan package is received by
one of PMI's field underwriting offices, key borrower, property and loan product
information is extracted from the file by an underwriting staff member and
analyzed by pmiAURA(sm) and pmiTERRA(sm). Currently, a majority of
applications are approved by the automated underwriting systems and an insurance
certificate is automatically issued. Such applications generally have favorable
risk characteristics, such as strong borrower credit ratings, low borrower
debt-to-income ratios and stable borrower income histories. Any loans not
automatically approved are referred to an underwriter for review of the entire
insurance application package. The underwriter reviews the detailed systems
analysis and borrower, loan and property profiles to determine if the risk is
acceptable. The underwriter either approves, delays the final decision pending
receipt of more information or declines the application for insurance. PMI
generally responds within one business day after an application and supporting
documentation are received.
PMI's Quick Application Program allows selected lenders to submit insurance
applications that do not include all standard documents. The lender is required
to maintain written verification of employment and source of funds needed for
closing and other supporting documentation in its origination file. PMI may
schedule on-site audits of lenders' files on loans submitted under this program.
PMI's rejection rate declined to approximately 10% for the year ended December
31, 1996 from 12.6% for the year ended December 31, 1995, as a result of
improving real estate markets and the continued development of highly effective
risk management and monitoring tools. PMI shares its knowledge of risk
management principles and real estate economic conditions with customers to
improve the quality of submitted business and reduce the rejection rate.
Role of Technology
PMI was the first mortgage insurer to receive an application for insurance
electronically through an electronic data interchange ("EDI") link with a
lender. EDI links, through pmi PAPERLESS(sm), serve to reduce paperwork for
both PMI and its customers, streamline the process by which mortgage insurance
is applied for, reduce the number of errors associated with re-entering
information, and increase the speed with which PMI is able to respond to
applications, all of which can enhance PMI's relationship with lenders.
In 1987, PMI completed development of pmiAURA(sm) in conjunction with
Allstate. The system was developed utilizing five years of performance
information from approximately 300,000 borrower
16
<PAGE>
profiles. The system employs claim and risk statistical models to predict the
relative likelihood of default by a mortgage borrower. pmiAURA(sm) assigns all
applications received by PMI a risk score predicting the likelihood of default,
and automatically refers certain applications to underwriters based on higher
risk characteristics, territorial underwriting guidelines or other
administrative requirements. PMI has updated the pmiAURA(sm) database with newer
performance data of over 1.5 million loans, and has added economic and
demographic information to the database in order to enhance pmiAURA(sm)`s
predictive power. During 1996, the third generation of pmiAURA(sm) was released
and is expected to give lenders and investors a more complete picture of a
loan's relative risk of default and the MSA economic factors that are related to
default risk. This latest upgrade will enable the pmiAURA(sm) system to generate
three types of scores: a loan risk score that assesses the risk solely due to
the borrower, loan and property characteristics independent of market risk; a
market score which is a measure of the default risk due solely to the
metropolitan area economic conditions; and the pmiAURA(sm) Score, which combines
the information in the loan risk and market scores. PMI intends to further
update the model from time to time.
In 1991, the pmiTERRA(sm) system was installed to complement pmiAURA(sm) by
providing a fully automated appraisal analysis, and currently contains over
750,000 residential property profiles. This analysis determines if the appraiser
adequately supported the final estimate of value. A key ingredient in the
appraisal model is the economic market acceptability rating from ERET. This
rating allows pmiTERRA(sm) to evaluate an appraisal considering the health of
the real estate market in which the property is located.
The automated underwriting systems free underwriters from having to review the
highest quality applications, and enable the underwriters to focus on more
complex credit packages and market and lender analyses. In addition to their use
in underwriting almost all of PMI's mortgage insurance applications from
lenders, the automated underwriting systems provide daily reports that assist
underwriting management in monitoring the credit and property risk being
committed for mortgage insurance. On the basis of its experience with the
automated underwriting systems, PMI believes that, in addition to improving
underwriting results, these automated underwriting systems have improved PMI's
underwriting efficiency and have brought consistency to the underwriting
judgment process.
As an added benefit, pmiAURA(sm)'s extensive database provides detailed
performance reports of underwriting quality trends by geographic region, product
type, customer characteristics and other key factors. These reports allow PMI's
underwriting management to monitor risk quality on a daily basis and to
formulate long-term responses to developing risk quality trends. Ultimately,
such responses can lead to regional variations from, or permanent changes to,
PMI's underwriting guidelines. PMI also furnishes these performance reports to
lenders in order to help them to understand more completely the risk profiles of
the loans they originate and the applications PMI is most likely to approve.
Underwriting Personnel
PMI employs a field underwriting staff of over 200 located in 19 regional
underwriting offices. The field underwriters are limited in their authority to
approve certain mortgage loans. The authority levels are tied to underwriter
position, knowledge and experience, and relate to loan amounts, percentage of
insurance coverage and property type, depending on territorial guidelines. All
PMI underwriting offices are subject to on-site annual reviews conducted by home
office underwriting management and periodic quality-control checks performed by
the internal audit department. The corporate underwriting department also
completes a monthly file review of approved applications from each field office.
PMI's underwriting management personnel are eligible to participate in a bonus
plan; all other
17
<PAGE>
personnel are compensated solely by salary. PMI's field and corporate
underwriting managers have an average of over 14 years of loan underwriting
experience.
Delegated Underwriting
PMI's Partner Delivered Quality(R) Program (the "PDQ Program"), introduced in
1991, is a delegated underwriting program whereby approved lenders are allowed
to determine whether loans meet program guidelines and requirements approved by
PMI and are thus eligible for mortgage insurance. At present, over 1,100 lenders
actively approve applications under the PDQ Program. PMI's delegated business
accounted for 39.9% and 33.4% of PMI's NIW in 1996 and 1995, respectively, and
represented 22.7% of PMI's total risk in force at December 31, 1996. PMI
believes the percentage of risk in force written under the PDQ Program will
increase further in the future as the program is expanded to include additional
qualified lenders. Delegated underwriting enables PMI to meet mortgage lenders'
demands for immediate insurance coverage of certain loans. Such types of
programs have now become standard industry practice due, PMI believes, to
general customer satisfaction with delegated underwriting.
Under the PDQ Program, customers utilize their own PMI-approved underwriting
guidelines and eligibility requirements in determining whether PMI is committed
to insuring a loan. Once the lender notifies PMI of an insured loan, key loan
risk characteristics are evaluated by the pmiAURA(sm) model to monitor the
quality of delegated business on an ongoing immediate basis. Additionally, PMI
audits a representative sample of loans insured by each lender participating in
the PDQ Program on a regular basis to determine compliance with program
requirements. If a lender participating in the program tentatively commits PMI
to insure a loan which fails to meet all of the applicable underwriting
guidelines, PMI is obligated to insure such loan except under certain
narrowly-drawn exceptions to coverage (for example, maximum loan-to-value
criteria). Loans that are not eligible for the PDQ Program may be submitted to
PMI for insurance coverage through the normal process. PMI's PDQ Program is also
utilized to process loans approved by Freddie Mac's Loan Prospector(sm)
system. PMI has currently limited its participation with Loan Prospector(sm)
to only those lenders who are approved to use the PDQ program.
PMI believes that the performance of its delegated insured loans will not
vary materially over the long-term from the performance of all other insured
loans because: (i) only qualified lenders who demonstrate underwriting
proficiency are eligible for the program; (ii) only loans meeting average-to-
better underwriting eligibility criteria are eligible for the program; and (iii)
PMI has the ability to monitor the quality of loans submitted under the PDQ
Program with proprietary risk management tools and an on-site audit of each PDQ
lender. See "P. Cautionary Statement", below.
J. DEFAULTS AND CLAIMS
Defaults
PMI's default rate has increased to 2.19% at December 31, 1996 from the December
31, 1995 rate of 1.98%. This increase was primarily caused by a growth in the
inventory level of notices of delinquency ("NOD"), in 1996 due primarily to the
maturation of PMI's 1992, 1993 and 1994 books of business. PMI expects this
trend to continue in 1997. See "P. Cautionary Statement", below.
The claim process begins with the insurer's receipt of notification of a default
from the insured on an insured loan. Default is defined in the master policy as
the failure by the borrower to pay when due an amount equal to the scheduled
monthly mortgage payment under the terms of the mortgage. The
18
<PAGE>
master policy requires insureds to notify PMI of defaults generally within 130
days after the initial default. Generally, defaults are reported sooner, and the
average time for default reporting in 1996 by PMI insureds was approximately 60
days after initial default. PMI has historically included all defaults reported
by the lenders in its default inventory, regardless of the time period since the
initial default. The incidence of default is affected by a variety of
factors, including the reduction of the borrower's income, unemployment,
divorce, illness, the inability to manage credit and the level of interest
rates. Defaults that are not cured result in a claim to PMI. See "Claims" below.
Borrowers may cure defaults by making all delinquent loan payments or by selling
the property in full satisfaction of all amounts due under the mortgage.
The following table shows the number of loans insured by PMI, related loans in
default, default rate, dollar amount of insured loans in default and dollar
amount of direct risk with respect to insured loans in default.
Historical Default Rates
Total Insured Loans in Force
Year Ended December 31
(Dollars in thousands)
<TABLE>
<CAPTION>
_______________________________________________________________________
1996 1995 1994 1993 1992
_______________________________________________________________________
<S> <C> <C> <C> <C> <C>
Number of Insured
Loans in Force 700,084 657,800 612,806 543,924 428,745
Number of Loans
in Default 15,326 13,022 11,550 9,842 8,702
Default Rate 2.19% 1.98% 1.88% 1.81% 2.03%
Dollar Amount of
Insured Loans in
Default $1,597,706 $1,387,999 $1,198,301 $925,469 $741,792
Dollar Amount of
Risk in Force with
Respect to Insured
Loans in Default $348,632 $286,981 $243,426 $191,110 $157,290
</TABLE>
Default rates differ from region to region in the United States depending upon
economic conditions and cyclical growth patterns. The two tables below
illustrate the impact of economic cycles on the various regions of the United
States and the ten largest states by PMI's risk in force as of December 31,
1996. The South Central region (which includes the "Oil Patch" states)
experienced adverse economic conditions in the mid-to-late 1980s and New England
experienced adverse economic conditions in the early 1990s. Both regions have
subsequently recovered and show positive trends.
Default rates on PMI's California policies decreased to 3.81% at December 31,
1996, from 4.08% at December 31, 1995. Policies written in southern California
in the years 1989 through 1993, which are
19
<PAGE>
in the historically highest claim period, are also generally believed to have
been written at the high point of southern California real estate prices. Claim
sizes on California policies tend to be larger than the national average claim
size due to higher loan balances relative to other states. (See "Claims",
below). The California economy continues to recover more slowly than anticipated
when the policies were issued. Accordingly, California default rates for each of
the policy years since 1989 may continue to experience an average default rate
higher than the national average default rate. However, the default rates for
California experienced year over year improvements in the third and fourth
quarters of 1996, and management expects this trend to continue in 1997. See "P.
Cautionary Statement" and "Q. Factors That May Affect Future Results and Market
Price of Stock", below.
20
<PAGE>
<TABLE>
<CAPTION>
Default Rates By Region (1)
As of Period End,
---------------------------------------------------------------------------
1996 1995
---------------------------------------------------------------------------
Region 4th Q 3rd Q 2nd Q 1st Q 4th Q 3rd Q 2nd Q 1st Q 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pacific(2)....... 3.22% 3.03% 3.21 3.39% 3.34% 3.10% 3.09% 3.17% 2.99% 2.39% 1.97%
New England (3) 1.80 1.77 1.80 2.07 1.93 1.88 1.89 1.90 1.98 2.22 2.81
Northeast (4) . 2.52 2.38 2.22 2.33 2.22 2.14 2.09 2.09 2.11 2.19 2.53
South............ 1.67 1.63 1.55 1.64 1.51 1.56 1.76 1.70 1.76 1.87 2.42
Central(5)
Mid-Atlantic(6) 2.03 1.79 1.62 1.75 1.65 1.56 1.73 1.63 1.60 1.60 1.78
Great Lakes(7) 1.82 1.68 1.30 1.33 1.21 1.16 1.31 1.31 1.28 1.48 1.81
Southeast(8)..... 1.93 1.77 1.61 1.61 1.53 1.44 1.52 1.44 1.41 1.38 1.91
North............ 1.61 1.52 1.38 1.42 1.31 1.18 1.27 1.16 1.03 1.01 1.19
Central(9)
Plains(10)....... 1.21 1.08 1.02 0.81 0.89 0.78 0.75 0.69 0.68 0.72 0.96
Total Portfolio 2.19% 2.03% 1.96% 2.07% 1.98% 1.88% 1.95% 1.93% 1.88% 1.81% 2.03%
</TABLE>
(1) Defaults rates are shown by region on location of the underlying
property
(2) Includes California, Hawaii, Nevada, Oregon and Washington.
(3) Includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont.
(4) Includes New Jersey, New York and Pennsylvania.
(5) Includes Alaska, Arizona, Colorado, Louisiana, New Mexico, Oklahoma,
Texas and Utah.
(6) Includes Delaware, Maryland, Virginia, Washington, D.C. and West
Virginia.
(7) Includes Indiana, Kentucky, Michigan and Ohio.
(8) Includes Alabama, Arkansas, Florida, Georgia, Mississippi, North
Carolina, South Carolina and Tennessee.
(9) Includes Illinois, Minnesota, Missouri and Wisconsin.
(10) Includes Idaho, Iowa, Kansas, Montana, Nebraska, North Dakota, South
Dakota and Wyoming.
<TABLE>
<CAPTION>
PMI's Default Rates for Top 10 States by Total Risk in Force (1)
Percent of PMI's
Primary Risk
in Default Rate
Force as of --------------------------------------------------------
December 31, As of December 31,
--------------------------------------------------------
State 1996 1996 1995 1994 1993 1992
- ----- ----------- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
California 22.0% 3.81% 4.08% 3.72% 2.89% 2.35%
Florida 6.7 2.40 1.92 1.86 1.79 2.53
Texas 5.9 2.04 1.85 2.29 2.21 2.78
Virginia 4.8 1.54 1.18 1.20 1.24 1.50
Washington 4.3 1.58 1.21 0.96 0.96 0.84
Massachusetts 4.3 1.73 1.91 2.04 2.43 3.27
New York 4.1 2.59 2.30 2.00 1.99 2.31
Pennsylvania 4.0 2.13 1.91 1.72 1.83 2.05
Maryland 3.8 2.59 2.26 2.14 2.02 2.02
Illinois 3.7 2.14 1.84 0.60 1.71 1.59
Total Portfolio 100.0% 2.19% 1.98% 1.88% 1.81% 2.03%
</TABLE>
(1)Top ten states as determined by total risk in force as December 31, 1996.
Default rates are shown by states based on location of the underlying
property.
21
<PAGE>
Claims
The majority of claims under PMI policies have historically occurred during the
third through the sixth years after issuance of the policies. Insurance written
by PMI from the period January 1, 1991 through December 31, 1994 represents
55.4% of PMI's insurance in force at December 31, 1996, with the 1993 book of
business alone representing 22.5%. This substantial volume of PMI's business is
in its expected peak claim period. Consistent with increasing coverage
percentages and increasing mortgage principal amounts, claim amounts have risen
in recent years. Claims paid in 1996 were $130.1 million compared with $93.7
million in 1995. Also, PMI has been experiencing an acceleration in its claim
payment process. This acceleration is a result of Fannie Mae's and Freddie Mac's
loss mitigation efforts to make earlier determinations regarding delinquent
loans and to accelerate the loan foreclosure and claim process. PMI believes
that this is only an acceleration of the timing of payments, and will not
increase the expected number of claims ultimately paid by PMI. See "P.
Cautionary Statement" and "Q. Factors That May Affect Future Results and Market
Price of Stock", below.
Policies written in California accounted for approximately 73% and 67% of the
total dollar amount of claims paid in 1996 and 1995, respectively. Although PMI
expects that during 1997 California will continue to account for the majority of
total claims paid, PMI also anticipates that California claims paid as a
percentage of total claims paid will begin to decline consistent with the
decline in default rates on PMI's California policies. (See "Defaults", above).
Accordingly, PMI anticipates the average claim size to decrease over the long
term. See "P. Cautionary Statement" and "Q. Factors That May Affect Future
Results and Market Price of Stock", below.
The frequency of claims does not directly correlate to the frequency of defaults
because the rate at which defaults cure is influenced by (i) the individual
borrower's financial resources and circumstances, and (ii) regional economic
differences. Whether an uncured default leads to a claim principally depends on
the borrower's equity at the time of default and the borrower's (or the
insured's) ability to sell the home for an amount sufficient to satisfy all
amounts due under the mortgage loan. During the default period, PMI works with
the insured for possible early disposal of the underlying property when the
chance of the loan reinstating is minimal. Such dispositions typically result in
a savings to PMI over the percentage coverage amount payable under the master
policy.
Under the terms of PMI's master policy, the lender is required to file a claim
with PMI no later than 60 days after it has acquired title to the underlying
property, usually through foreclosure. An insurance claim amount includes (i)
the amount of unpaid principal due under the loan; (ii) the amount of
accumulated delinquent interest due on the loan (excluding late charges) to the
date of claim filing; (iii) expenses advanced by the insured under the terms of
the master policy, such as hazard insurance premiums, property maintenance
expenses and property taxes to the date of claim filing; and (iv) certain
foreclosure and other expenses, including attorneys' fees. Such claim amount is
subject to review and possible adjustment by PMI. Depending on the applicable
state foreclosure law, an average of about 12 months elapses from the date of
default to payment of a claim on an uncured default. PMI's master policy
excludes coverage on loans secured by property with physical damage, whether
caused by fire, earthquake or other hazard where the borrower's default was
caused primarily by an uninsured casualty.
PMI has the right to rescind coverage (and not pay a claim) if the lender, its
agents or the borrower misrepresent material information in the insurance
application. According to industry practice, a misrepresentation is generally
considered material if the insurer would not have agreed to insure the loan had
the true facts been known at the time of certificate issuance. In 1988, PMI
became the first mortgage insurer to offer an incontestability feature as part
of its master policy. This feature provides insureds relief from PMI's right of
rescission for material misrepresentations if parties other than the
22
<PAGE>
lender or its agents made such misrepresentations, provided that the borrower
has made at least 12 regularly scheduled payments on the loan from the
borrower's own funds.
Within 60 days after a claim has been filed, PMI has the option of: (i) paying
the coverage percentage specified in the certificate of insurance (usually 17%
to 30% multiplied by the claim amount); (ii) in the event the property is sold
pursuant to an arrangement made prior to or during the 60-day period after the
claim is filed (a "prearranged sale"), paying the lesser of (A) 100% of the
claim amount less the proceeds of sale of the property and (B) the coverage
percentage multiplied by the claim amount, or (iii) paying 100% of the claim
amount in exchange for the insured's conveyance to PMI of good and marketable
title to the property, with PMI then selling the property for its own account.
Properties acquired through the last option are included on PMI's balance sheet
in other assets as residential properties from claim settlements (also known as
"REO"). PMI attempts to choose the claim settlement option which best mitigates
the amount of its claim payment. Generally, however, PMI settles by paying the
coverage percentage multiplied by the claim amount. In 1996 and 1995, PMI
settled 11% and 13%, respectively, of the primary claims processed for payment
on the basis of a prearranged sale. In each of 1996 and 1995, PMI exercised the
option to acquire the property on less than 3% of the primary claims processed
for payment. At December 31, 1996, PMI owned $1.4 million of REO valued at the
lower of cost or estimated realizable value.
The ratio of the claim paid to the original risk in force relating to such loan
is referred to as claim severity and is a factor that influences PMI's losses.
The main determinants of claim severity are the accrued interest on the mortgage
loan and the foreclosure expenses. These amounts depend in part on the time
required to complete foreclosure, which varies depending on state laws.
Pre-foreclosure sales and other early workout efforts help to reduce overall
severity. The average claim severity level has decreased slightly from 99.9% in
1992 to 99.8% in 1996, but PMI expects this level will increase in 1997. See "P.
Cautionary Statement", below.
Technology for Claims and Servicing
Technology is an integral part of the claims and servicing process and PMI
believes that technology will continue to take on a greater role in increasing
internal efficiencies and improving customer service. PMI uses a personal
computer-based automated claim-for-loss worksheet program, developed in 1987,
which compiles pertinent data while automatically calculating the claim amount
and predicting the best settlement alternative. PMI also developed
ClaimEase(sm), a reduced documentation claim process which allows the insured
to file claims earlier, reduce paperwork and receive claim settlements more
quickly. To enhance efficiencies and ease of use for its customers, PMI
developed Document Free ClaimEase(sm), which is designed to require only an
addendum to the uniform claim-for-loss worksheet. In addition, several
technology tools have also been developed by PMI in 1995: pmiPHONE-CONNECT(sm),
which is a voice response application, enabling the insured to access PMI's
database by using their phones to inquire on the status of their coverages and
get information on billings, refunds, coverage and renewals; pmiPC-CONNECT(sm),
which gives the insured the ability to dial into PMI's database using a modem-
equipped personal computer to inquire about and update certain loan information,
including the filing of claims; PMI is also capable of receiving claims via EDI.
To contain costs and expand internal efficiencies, PMI uses optical imaging in
its claims functions, allowing PMI to eliminate the transfer and storage of
documents relating to claims. PMI, through its automatic default reporting
process ("ADR"), allows paperless reporting of default information by the
insured. In 1996, approximately 82% of all Notices of Delinquency were reported
using this ADR system.
23
<PAGE>
Cumulative Losses
Cumulative losses paid by PMI at the end of each successive year after the year
of original policy issuance ("policy year"), are expressed as a percentage of
the cumulative premiums written on such policies. For example, for the 1985
policy year, at the end of the third year after origination (1987), cumulative
losses paid on all policies originally issued in 1985 represented 18.8% of the
cumulative premiums written on such policies; by the end of the twelfth year
after origination (1996), this percentage was 65.8%.
In 1985, PMI adopted substantially more conservative underwriting standards
that, along with increased prices and generally improving economic conditions in
various regions, are believed to have contributed to the substantially lower
cumulative loss payment ratios in 1985 and subsequent years. PMI's cumulative
loss payment ratios have shown general improvement since policy year 1982. This
reflects both improved claims experience for the more recent years and higher
premium rates charged by PMI beginning in 1984. Policy years 1986 through 1988
generally have had the best cumulative loss payment ratios of any years since
1981. Policy years 1989 through 1992, in most cases, display somewhat higher
loss payment ratios than 1986 through 1988 at the same age of development. This
is due primarily to the increased refinancing of mortgages originated in policy
years 1989 to 1993, resulting in reduced aggregate premiums, and to higher
default rates on California loans, which have demonstrated relatively higher
persistency. PMI believes three years of payment history from the loan
origination date is required to assess cumulative loss experience. As a
result, policy year 1993 is the last year discussed.
Loss Reserves
A significant period of time may elapse between the occurrence of the borrower's
default on mortgage payments (the event triggering a potential future claims
payment), the reporting of such default to PMI and the eventual payment of the
claim related to such uncured default. To recognize the liability for unpaid
losses related to the default inventory, PMI (similar to other mortgage
insurers) establishes loss reserves in respect of defaults included in such
inventory, based upon the estimated claim rate and estimated average claim
amount. Included in loss reserves are loss adjustment expense ("LAE") reserves
and incurred, but not reported, reserves. These reserves are estimates and there
can be no assurance that PMI's reserves will prove to be adequate to cover
ultimate loss developments on reported defaults. The Company's profitability and
financial condition would be adversely affected to the extent that loss reserves
are insufficient to cover the actual related claims paid and expenses incurred.
Consistent with industry accounting practices, PMI does not establish loss
reserves in respect of estimated potential defaults that may occur in the
future.
PMI's reserving process for primary insurance segments default notifications by
year of receipt of the notice by PMI (the "report year method"). In the report
year method, ultimate claim rates and average claim amounts selected for the
current and each of the four prior report years are estimated based on past
experience and management judgment. Claim rates and amounts are also estimated
by region for the most recent report years to validate nationwide report year
estimates, which are then used in the normal reserving methodology. For each
report year, the claim rate, estimated average claim amount and the number of
reported defaults are multiplied together to determine the amount of direct
incurred losses for that report year. Losses paid to date for that report year
are subtracted from the estimated report year incurred losses to obtain the loss
reserve for that report year. The sum of the reserves for those five years,
together with a reserve for expected losses on the few defaults still pending
from prior years, yields the total loss reserve on reported defaults. PMI
reviews its claim rate and claim-report amount assumptions on at least a
quarterly basis and adjusts its loss reserves accordingly. The impact of
inflation is not explicitly isolated from other factors influencing the reserve
estimates, although inflation is implicitly included in the estimates. PMI does
not discount its loss reserves for financial reporting purposes.
24
<PAGE>
PMI's reserving process is based upon the assumption that past experience,
adjusted for the anticipated effect of current economic conditions and projected
future economic trends, provides a reasonable basis for estimating future
events. However, estimation of loss reserves is a difficult process, especially
in light of the rapidly changing economic conditions over the past few years in
certain regions of the United States. In addition, economic conditions that have
affected the development of the loss reserves in the past may not necessarily
affect development patterns in the future.
PMI's Actuarial Services department performs the loss reserve analysis. On the
basis of such loss reserve analysis, management believes that the loss reserves
are, in the aggregate, computed in accordance with commonly accepted loss
reserving standards and principles and meet the requirements of the insurance
laws and regulations of the State of Arizona. Management believes that the loss
reserves are a reasonable provision for all unpaid loss and LAE obligations
under the terms of its policies and agreements. See "P. Cautionary Statement"
and "Q. Factors That May Affect Future Results and Market Price of Stock",
below.
Such reserves are necessarily based on estimates and the ultimate net cost may
vary from such estimates. These estimates are regularly reviewed and updated
using the most current information available. Any resulting adjustments are
reflected in current financial statements. The following table is a
reconciliation of the beginning and ending reserve for losses and loss
adjustment expenses for each of the last three years:
<TABLE>
<CAPTION>
1996 1995 1994
(In thousands)
<S> <C> <C> <C>
Balance, January 1....................................... $192,087 $173,885 $135,471
Less reinsurance recoverables............................ 17,899 17,569 12,649
-------- -------- --------
Net Balance, January 1................................... 174,188 156,316 122,822
-------- -------- --------
Losses and loss adjustment expenses (principally in
respect of defaults occurring in)
Current year........................................... 161,740 133,536 121,464
Prior years............................................ (9,331) (20,699) (17,557)
-------- -------- --------
Total losses and loss adjustment expenses............. 152,409 112,837 103,907
-------- -------- --------
Losses and loss adjustment expense payment (principally
in respect of defaults occurring in)
Current year........................................... 23,353 16,180 13,651
Prior years............................................ 108,757 78,785 56,762
-------- -------- -------
Total payments....................................... 132,110 94,965 70,413
-------- -------- -------
Net balance, December 31................................. 194,487 174,188 156,316
Plus reinsurance recoverables............................ 5,287 17,899 17,569
-------- -------- --------
Balance, December 31..................................... $199,774 $192,087 $173,885
======== ======== ========
</TABLE>
As a result of changes in estimates of ultimate losses resulting from insured
events in prior years, the provision for losses and loss adjustment expenses
(net of reinsurance recoverables) decreased by $9.3 million, $20.7 million, and
$17.6 million in 1996, 1995 and 1994, respectively, due primarily to
lower-than-anticipated losses in California. Such re-estimates were based on
management's analysis of various economic trends (including the real estate
market and unemployment rates) and their effect on recent claim rate and claim
severity experience.
25
<PAGE>
K. REINSURANCE
The use of reinsurance as a source of capital and as a risk management tool is
well established within the mortgage insurance industry. In addition, certain
mortgage insurers, including PMI, have agreed to reinsure portions of the risk
written on loans originated by certain lenders with captive reinsurance
companies affiliated with such lenders. Reinsurance does not discharge PMI, as
the primary insurer, from liability to a policyholder. The reinsurer simply
agrees to indemnify PMI for the reinsurer's share of losses incurred under a
reinsurance agreement, unlike an assumption arrangement, where the assuming
reinsurer's liability to the policyholder is substituted for that of PMI's.
Forestview
In connection with its decision to discontinue its mortgage pool insurance
business segment, in 1993, PMI entered into a reinsurance agreement with
Forestview, a wholly-owned subsidiary of Allstate, whereby Forestview agreed to
reinsure all liabilities (net of amounts collected from third party reinsurers)
in connection with PMI's mortgage pool insurance business in exchange for
premiums received. In 1994, Forestview also agreed to assume PMI's mortgage pool
insurance business upon receipt of all required regulatory approvals. Pursuant
to the reinsurance agreement, during 1996 PMI ceded approximately $15.2 million
of premiums to Forestview, and Forestview reimbursed PMI for claims on the
covered policies in the amount of approximately $59.4 million. See "M. Other
Businesses -- Discontinued Operations" and "Q. Factors That May Affect Future
Results and Market Price of Stock", below.
Centre Re
Effective January 1992, PMI entered into a quota share reinsurance agreement
with Centre Reinsurance Company of New York and Centre Reinsurance International
Company (collectively, "Centre Re") whereby PMI ceded to Centre Re a portion of
PMI's liability under its primary insurance policies. The portion of PMI's
liability (and related premiums) ceded under the Centre Re agreement was
commuted and terminated effective December 31, 1996. PMI ceded to Centre Re 15%
of its liability (and 15% of the related premiums) under its primary policies
written in the years 1986 through 1992, 5% of its liability (and 5% of the
related premiums) under policies written in 1993, and for 1994 and 1995, 15% of
its liability (and 15% of the related premiums) for policies written in
California and 10% of its liability (and 10% of the related premiums) for
policies written in the rest of the United States. PMI did not cede any
liability or premiums for new business written in 1996. Centre Re's liability
under the Centre Re agreement is limited with respect to any policy year to 150%
of net premiums ceded for such policy year (defined as premiums ceded less
certain expenses). Under the Centre Re agreement, a ceding commission related to
premiums ceded was paid by Centre Re to PMI. See Part II, Item VII
"Management's Discussion And Analysis Of Financial Condition And Results of
Operations".
Capital Mortgage
In March 1994, PMI entered into a quota share reinsurance agreement with Capital
Mortgage Reinsurance Company ("Capital Mortgage") (claims-paying ability rating
of "AA+" at December 31, 1996 from S&P) whereby PMI ceded to Capital Mortgage 5%
of PMI's liability under its primary insurance policies written in 1993, 1994,
1995 and 1996 (and 5% of the related premiums). This agreement provides for a
ceding commission to be paid by Capital Mortgage to PMI relating to premiums
ceded. PMI has notified Capital Mortgage of its intention to cancel the
agreement on December 31, 1997. In the event of cancellation, Capital Mortgage
remains liable on a runoff basis for nine years (subject to either party's right
to commute the agreement at six years) and receives renewal premiums on the
ceded portion of the primary insurance in force at the time of cancellation of
the agreement.
26
<PAGE>
RGC
Pursuant to the deep coverage requirements imposed by Fannie Mae and Freddie
Mac, 95s and 97s eligible for sale to such agencies require insurance with a
coverage percentage of 30%, in contrast to the 25% and 28% coverages,
respectively, previously required by these agencies. Certain states limit the
amount of risk a mortgage insurer may retain with respect to coverage of an
insured loan to 25% of the indebtedness to the insured, and, as a result, the
deep coverage portion of such insurance must be reinsured. To minimize reliance
on third party reinsurers and to permit PMI and CMG to retain the premiums (and
related risk) on deep coverage business, TPG formed RGC to provide reinsurance
of such deep coverage to PMI and CMG. PMI and CMG use reinsurance provided by
RGC solely for purposes of compliance with statutory coverage limits. RGC was
capitalized with a $5.0 million capital contribution from TPG, and additional
capital contributions of $13.0 million were made by TPG to RGC during 1996.
While RGC has the ability to write direct mortgage insurance and to provide
reinsurance to unaffiliated mortgage insurers, TPG currently intends to have RGC
write reinsurance solely for PMI and CMG.
L. CLAIMS-PAYING ABILITY RATINGS
Certain national mortgage lenders and a large segment of the mortgage
securitization market, including Fannie Mae and Freddie Mac, generally will not
purchase mortgages or mortgage-backed securities unless the private mortgage
insurance on the mortgages has been issued by an insurer with a claims-paying
ability rating of at least "AA-" from S&P or Fitch, or "AA+" from Duff & Phelps
or at least "Aa3" from Moody's.
PMI has its claims-paying ability rated by S&P, Fitch, Duff & Phelps and
Moody's. These ratings are an indication to a mortgage insurer's customers of
the insurer's present financial strength and its capacity to pay future claims.
Ratings are generally considered an important element in a mortgage insurer's
ability to compete for new insurance business. Each of S&P, Duff & Phelps and
Fitch currently rate PMI's claim paying ability "AA+", while Moody's rates its
claims-paying ability "Aa2."
S&P defines insurers rated "AA+" as offering excellent financial security and
having the capacity to meet policyholder obligations that is strong under a
variety of economic and underwriting conditions. This claims-paying ability
rating by S&P is the second highest ranking possible out of eight possible
generic rating categories. Fitch defines insurance companies rated "AA+" to have
a very strong claims-paying ability and to be only slightly more susceptible
than companies rated "AAA" to exhibiting any weakening of financial strength due
to adverse business and economic developments. A claims-paying ability rating of
"AA+" by Fitch is the second highest ranking possible from that agency out of
ten possible generic ratings categories. Duff & Phelps defines insurance
companies rated "AA+" to have a very strong claims-paying ability and to be only
slightly more susceptible than companies rated "AA" to exhibiting any weakening
of financial strength due to adverse business and economic developments. Ratings
from S&P, Duff & Phelps and Fitch may be modified with a "+" or "-" sign to
indicate the relative position of a company within its category. Moody's defines
insurance companies whose claims-paying ability is rated "Aa" to offer excellent
financial security. A claims-paying ability rating of "Aa" by Moody's is the
second highest generic ranking possible from the agency out of nine possible
rating categories ("Aaa" being the highest). Moody's further distinguishes the
ranking of an insurer within its generic rating classification from Aa to B with
"1," "2" or "3" ("1" being the highest).
27
<PAGE>
When assigning a claims-paying ability rating, S&P, Fitch, Duff & Phelps and
Moody's generally consider: (i) the specific risks associated with the mortgage
insurance industry, such as regulatory climate, market demand, growth and
competition; (ii) management depth, corporate strategy and effectiveness of
operations; (iii) historical operating results and expectations of current and
future performance; and (iv) long-term capital structure, the ratio of debt to
equity, near-term liquidity and cash flow levels, as well as any reinsurance
relationships and the claims-paying ability ratings of such reinsurers.
Claims-paying ability ratings are based on factors relevant to policyholders,
agents, insurance brokers and intermediaries. Such ratings are not directed to
the protection of investors and do not apply to any securities issued by TPG.
Claims-paying ability ratings can be withdrawn or changed at any time by S&P,
Fitch, Duff & Phelps or Moody's for any reason. PMI's claims-paying ability
ratings by S&P, Fitch, Duff & Phelps and Moody's should be evaluated
independently of each other.
PMI's claims-paying ability ratings from certain national rating agencies have
been based in significant part on various capital support commitments from
Allstate ("Allstate Support Agreements"). On October 28, 1994, TPG entered into
a runoff support agreement with Allstate (the "Runoff Support Agreement") to
replace various capital support commitments that Allstate had previously
provided to PMI. Allstate agreed to pay claims on certain insurance policies
issued by PMI prior to October 28, 1994 if PMI's financial condition
deteriorates below specified levels, or if a third party brings a claim
thereunder or, in the alternative, Allstate may make contributions directly to
PMI or TPG. In the event that Allstate makes payments or contributions under the
Runoff Support Agreement, (which possibility management believes is remote),
Allstate would receive subordinated debt or preferred stock of PMI or TPG in
return.
M. OTHER BUSINESSES
TPG seeks to supplement its core mortgage insurance business and enhance its
customer relationships through ancillary businesses and may, from time to time,
invest in joint ventures or acquire related businesses. TPG, through certain
subsidiaries, provides title insurance and various services and products for the
home mortgage finance industry, such as contract underwriting and the licensing
of its proprietary underwriting systems and the licensing of REASON(R) software,
a real estate valuation program.
The revenues recognized for the year ended December 31, 1996 from TPG's
businesses other than mortgage insurance constituted approximately 12.7% of the
Company's consolidated revenues, compared to approximately 10.8% and 14.4%,
respectively, in 1995 and 1994.
American Pioneer Title Insurance Co.
PMI acquired APTIC, a Florida-based title insurance company, in 1992 as part of
its strategy to provide additional mortgage-related services to its customers.
APTIC is licensed in 31 states and the District of Columbia. Although APTIC is
currently writing business in 11 states, it primarily provides real estate title
insurance on residential property in Florida. A title insurance policy protects
the insured party against losses resulting from title defects, liens and
encumbrances existing as of the effective date of the policy and not
specifically excepted from the policy's coverage.
Based on direct premiums written during 1996, APTIC is ranked 5th among the 27
active title insurers conducting business in the State of Florida. For the year
ended December 31, 1996, 87.3% of APTIC's premiums earned came from its Florida
operations.
28
<PAGE>
APTIC generates title insurance business through both direct and indirect
marketing to realtors, attorneys and lenders. As a direct marketer, APTIC
operates, under the name Chelsea Title Company, a branch network of title
production facilities and real estate closing offices. As an indirect marketer,
APTIC recruits and works with corporate title agencies, attorney agencies and
approved attorneys. Its agency business accounted for 93.8% of APTIC's premiums
earned for the year ended December 31, 1996.
CMG Mortgage Insurance Company
CMG offers mortgage guaranty insurance for loans originated by credit unions.
CMG is operated as a joint venture between PMI and CUNA Mutual Investment
Corporation ("CMIC"), with PMI having a 45% ownership interest since September
1994. PMI and CMIC provide services to the venture, with CMIC providing
primarily sales and marketing services and PMI providing primarily insurance
operation services. CMIC is a part of the CUNA Mutual Group, which provides
insurance and selected financial services to credit unions and their members in
the United States and over 50 other countries.
As of December 31, 1996, CMG was licensed and operational in 49 states and the
District of Columbia. CMG is approved as a mortgage insurer by both Fannie Mae
and Freddie Mac, as well as by other purchasers of credit union originated
mortgage loans. Since inception, CMG has issued over 800 master policies to
credit union and credit union affiliated organizations nationwide. At December
31, 1996, CMG had over $1.1 billion of primary insurance in force.
Under the terms of the joint venture arrangement, at the end of the fifteen year
period, or earlier under certain limited conditions, CMIC has the right to
require PMI to sell, and PMI has the right to require CMIC to purchase, PMI's
interest in CMG for an amount equal to the then current fair market value. For
this purpose, fair market value will be determined by agreement between PMI and
CMIC, or failing such agreement, through appraisal by nationally recognized
investment banking firms.
PMI Mortgage Services Co.
MSC, established in 1993, provides a variety of technical products and mortgage
underwriting services through a staff of underwriters in 19 field offices. The
Customer Technology Department of MSC provides technical products and services
to PMI's customers. This department licenses use of pmiAURA(sm) and
pmiTERRA(sm) to customers for a fee, assists PMI's customers in establishing
EDI links with PMI, and provides other value added services.
In addition, the Risk Management Division of MSC provides contract underwriting
services that enable customers to improve the efficiency and quality of their
operations by outsourcing all or part of their mortgage loan underwriting to
MSC. Such contract underwriting services are provided for mortgage loans for
which PMI provides mortgage insurance and for loans on which PMI does not.
MSC also performs all of the mortgage insurance underwriting activities of CMG.
Contract underwriting services have become increasingly important to mortgage
lenders as they seek to reduce costs. Competition increased in 1996 among
mortgage insurance companies for contract underwriting customers. During 1996,
the Risk Management Division of MSC experienced significant growth in the number
of loans underwritten from approximately 18,000 loans in 1995 to approximately
87,000 loans in 1996.
29
<PAGE>
Discontinued Operations
In December 1993, PMI ceased writing new business in its mortgage pool insurance
business segment (except for honoring certain commitments in existence prior to
the decision to discontinue). This business segment offered mortgage pool
insurance which was separately underwritten and marketed and which had risk
characteristics different from PMI's primary insurance business. Due primarily
to PMI's decision not to offer mortgage pool insurance, PMI presently
anticipates that competitive pressures related to the availability of mortgage
pool insurance will continue to negatively impact its market share during the
first half of 1997. (See "D. Competition", above, and Part II, Item VII
"Management's Discussion And Analysis Of Financial Condition And Results of
Operations".)
In 1993, PMI entered into a reinsurance agreement with Forestview, a
wholly-owned subsidiary of Allstate, whereby Forestview agreed to reinsure all
liabilities (net of amounts collected from third party reinsurers) in connection
with PMI's mortgage pool insurance business in exchange for premiums received.
In 1994, Forestview also agreed to assume PMI's mortgage pool insurance business
upon receipt of all required regulatory approvals. Pursuant to this agreement,
during 1996 PMI ceded approximately $15.2 million of premiums to Forestview, and
Forestview reimbursed PMI for claims on the covered policies in the amount of
approximately $59.4 million.
N. REGULATION
Fannie Mae and Freddie Mac; State and Federal Legislation
Upon request by an insured, PMI must cancel the mortgage insurance for a
mortgage loan. Fannie Mae and Freddie Mac guidelines and several state statutes
currently contain various provisions which give borrowers the right to request
cancellation of mortgage insurance when specified conditions are met. Recently,
cancellation of mortgage insurance has received media attention, and various
additional federal and state statutes and regulations have been proposed, or
enacted, that generally require lenders to give borrowers notice of the
borrowers' rights to cancel mortgage guaranty insurance and, in some cases,
establish cancellation criteria. Fannie Mae has also announced its intent to
revise its mortgage cancellation guidelines and to require its servicers to give
notice to borrowers regarding cancellation rights. The mortgage insurance
industry trade association, Mortgage Insurance Companies of America ("MICA"),
has been actively working with congressional committees, Fannie Mae and several
state legislators and regulators regarding these various proposals.
Proposals which would require notification to borrowers of their cancellation
rights, and the circumstances under which borrowers may request cancellation or
mortgage insurance premiums may no longer be charged to borrowers, are evolving,
and it is difficult to predict which of the various proposals will be enacted or
adopted, and how they will be integrated. However, it appears likely that more
borrowers will receive notification of their rights concerning cancellation of
mortgage insurance, and that new standards for cancellation of mortgage
insurance for some types of loans will be established. It is also possible that
automatic cancellation of mortgage insurance at some point in the life of a loan
could become effective for some types of loans. Depending upon whether state
and/or federal laws are enacted and upon the nature and extent of revisions made
to the current proposals, the effect on the persistency of PMI's insurance in
force could vary substantially. See "P. Cautionary Statement" and "Q. Factors
That May Affect Future Results and Market Price of Stock".
PMI's ability to pay dividends to TPG is limited under the insurance laws of
Arizona. Such laws provide
30
<PAGE>
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 may not exceed the lesser of 10% of policyholders' surplus as of the
preceding year end, or the last calendar year's investment income. In accordance
with Arizona law, PMI is permitted to pay ordinary dividends to TPG of $30.7
million in 1997 without the prior approval of the Arizona Insurance Director.
Legislative and regulatory changes affecting the FHA and certain savings
institutions and commercial banks have affected and will continue to affect
demand for private mortgage insurance. For example, legislation has recently
been introduced that would increase the number of persons eligible for FHA or VA
mortgages. Any such expansion of eligibility would likely have an adverse effect
on PMI's ability to compete with the FHA or VA. In addition, the Office of the
Comptroller of the Currency granted permission in 1996, to national banks to
have a reinsurance company as a wholly-owned operating subsidiary for the
purpose of reinsuring mortgage insurance written on loans originated by such
bank. The Office of Thrift Supervision is in the process of considering whether
similar activities are permitted for savings institutions. The reinsurance
subsidiaries of national banks or savings institutions could become significant
competitors of the Company in the future.
0. EMPLOYEES
At December 31, 1996, TPG, including its subsidiaries had 878 full- and
part-time employees; 586 persons perform services primarily for PMI, 78 perform
services primarily for MSC, 8 of which perform services primarily for CMG and an
additional 206 persons are employed by APTIC. TPG's employees are not unionized
and TPG considers its employee relations to be good.
31
<PAGE>
P. CAUTIONARY STATEMENT
Cautionary Statement for purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995. The statements contained in this
document, including statements which are incorporated by reference, that are not
historical facts, and that relate to future plans, events or performance are
forward-looking statements. The Company's actual results may differ materially
from those expressed in any forward-looking statements made by the Company.
These forward-looking statements involve a number of risks or uncertainties
including, but not limited to, the factors set forth below.
Several factors such as economic recessions, falling housing values, rising
unemployment rates, deteriorating borrower credit, interest rate volatility,
legislation impacting borrowers' rights, or combinations of such factors might
affect the mortgage insurance industry in general and could materially and
adversely affect the Company's financial condition and results of operations.
Such economic events could materially and adversely impact the demand for
mortgage insurance, cause claims on policies issued by PMI to increase, and/or
cause a similar adverse increase in PMI's loss experience.
In addition to nationwide economic conditions, PMI could be particularly
affected by economic downturns in specific regions where a large portion of its
business is concentrated, particularly California where PMI has 22.0% of its
risk in force concentrated and where the default rate on all PMI policies in
force is 3.81% compared to 2.19% nationwide, as of December 31, 1996.
Several other factors that may influence the amount of NIW by PMI include
mortgage insurance industry volumes of new business, the impact of competitive
underwriting criteria and products including mortgage pool insurance, the effect
of risk-sharing structured transactions, changes in the performance of the
financial markets, general economic conditions that affect the demand for or
acceptance of the Company's products, changes in government housing policy,
changes in the statutory charters, regulations and coverage requirements of the
GSEs, banks and savings institutions, customer consolidation and other risk
factors listed from time to time in TPG's Securities and Exchange Commission
filings.
Q. FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
Potential Increase in Claims
Mortgage insurance coverage generally cannot be canceled by PMI and remains
renewable at the option of the insured for the life of the loan. As a result,
the impact of increased claims from policies originated in a particular year
generally cannot be offset by premium increases on policies in force or
mitigated by nonrenewal of insurance coverage. There can be no assurance,
however, that the premiums charged will be adequate to compensate PMI for the
risks and costs associated with the coverage provided to its customers.
32
<PAGE>
Recent Growth; Changes In Composition Of Insurance Written
The mortgage insurance industry has experienced a significant increase in NIW,
primarily as a result of historically low interest rates. Policies written by
PMI from January 1, 1991 through December 31, 1994 represent 55.4% of PMI's
insurance in force as of December 31, 1996. The majority of claims under PMI
policies have historically occurred during the third through the sixth years
after issuance of the policies. Thus, this substantial volume of PMI's business
is in its expected peak claims period, and management expects that the default
rate will rise in the future as such business continues through its expected
peak claims period. If actual claim frequency on such business significantly
exceeds expected claim frequency, the Company's financial condition and results
of operations could be materially and adversely affected.
The composition of PMI's NIW has included an increasing percentage of mortgages
with LTVs in excess of 90% and less than or equal to 95% ("95s"). At December
31, 1996, approximately 43.6% of PMI's risk in force consisted of 95s, which, in
PMI's experience, have had a claims frequency approximately twice that of
mortgages with LTVs equal to or less than 90% and over 85% ("90s"). PMI also
offers coverage for mortgages with LTVs in excess of 95% and up to 97% ("97s"),
which have even higher risk characteristics than 95s and greater uncertainty as
to pricing adequacy. PMI's NIW also includes adjustable rate mortgages ("ARMs"),
which, although priced higher, have risk characteristics that exceed the risk
characteristics associated with PMI's book of business as a whole. Although PMI
charges higher premium rates for loans which are ARMs and/or 95s and even higher
rates for 97s, the premiums earned on such products, and the associated
investment income, may ultimately prove to be inadequate to compensate for
future losses from such products.
Loss Reserves
PMI establishes loss reserves based upon estimates of the claim rate and average
claim amount, as well as the estimated costs, including legal and other fees, of
settling claims. Such reserves are based on estimates, which are regularly
reviewed and updated. There can be no assurance that PMI's reserves will prove
to be adequate to cover ultimate loss development on incurred defaults. The
Company's financial condition and results of operations could be materially and
adversely affected if PMI's reserve estimates are insufficient to cover the
actual related claims paid and expenses incurred.
Competition; Market Share
Numerous factors bear on the relative position of the private mortgage insurance
industry versus government and quasi-governmental competition as well as the
competition of lending institutions which choose to remain uninsured or to
reinsure through affiliates. PMI's market share, as measured by NIW declined in
the fourth quarter of 1996, compared to the third quarter of 1996, due primarily
to PMI's decision not to offer mortgage pool insurance. Management presently
anticipates that competitive pressures related to the availability of mortgage
pool insurance will continue to negatively impact market share during the first
half of 1997. The Company's financial condition and results of operation could
be materially and adversely affected by a continuing decline in its market
share.
TPG and PMI from time to time introduce new mortgage insurance products or
programs. The Company's financial condition and results of operations could be
materially and adversely affected if PMI or the Company experience delays in
introducing competitive new products or programs. In addition, for any
introduced product, there can be no assurance that such products or programs
will be as profitable as the Company's existing products and programs.
33
<PAGE>
Fannie Mae and Freddie Mac; State and Federal Legislation
Fannie Mae and Freddie Mac impose requirements on private mortgage insurers for
such insurers to be eligible to insure loans sold to such agencies. Any change
in PMI's existing eligibility status could have a material adverse effect on
the Company's financial condition and results of operations.
Proposals have been advanced which would allow Fannie Mae and Freddie Mac
greater flexibility in utilizing substitutes for private mortgage insurance. The
Company cannot predict whether any such proposals will be adopted or, if
adopted, whether such proposals would materially and adversely affect the
Company's financial condition and results of operations.
PMI must cancel mortgage insurance for a mortgage loan upon the request of the
insured. Fannie Mae and Freddie Mac have recently adopted guidelines which give
borrowers the right to request cancellation of mortgage insurance when specified
conditions are met. In addition, federal legislation has been introduced that
also addresses these issues and various states have enacted or proposed similar
legislation. Proposals concerning borrower notification of their cancellation
rights, cancellation criteria, or the point at which mortgage insurance premiums
may no longer be charged to borrowers, are still being formulated and remain
uncertain. Although it is expected that certain of these proposals will
eventually be enacted, the Company believes it is too early to ascertain their
impact.
Risk-to-Capital Ratio
Regulators specifically limit the amount of insurance risk that may be written
by PMI to a multiple of 25 times PMI's statutory capital (which includes the
contingency reserve). Other factors affecting PMI's risk-to-capital ratio
include: (i) regulatory review and oversight by the State of Arizona, PMI's
state of domicile for insurance regulatory purposes; (ii) limitations under the
Runoff Support Agreement discussed below, which prohibit PMI from paying any
dividends if, after the payment of any such dividend, PMI's risk-to-capital
ratio would equal or exceed 23 to 1, (iii) TPG's credit agreements, and (iv)
TPG's and PMI's credit or claims-paying ability ratings.
Significant losses could cause a material reduction in statutory capital,
causing an increase in the risk-to-capital ratio and thereby limit PMI's ability
to write new business. The inability to write new business could materially
adversely affect the Company's financial condition and results of operations.
Continuing Relationships with Allstate and Affiliates
Historically, Allstate provided capital and other business support services to
PMI pursuant to a variety of contractual arrangements with PMI and TPG. Pursuant
to the Runoff Support Agreement with Allstate, if PMI's risk-to-capital ratio
exceeds 23 to 1, Allstate will have certain limited rights and obligations to
pay amounts with respect to claims under PMI policies in effect prior to the
effective date of the Runoff Support Agreement (or to contribute capital to TPG
or to PMI for such purpose). In 1993, PMI entered into a reinsurance agreement
with Forestview, a wholly-owned subsidiary of Allstate, whereby Forestview
agreed to reinsure all liabilities (net of amounts collected from third party
reinsurers) in connection with PMI's mortgage pool insurance business in
exchange for premiums received. In 1994, Forestview also agreed to assume PMI's
mortgage pool insurance business upon receipt of all required regulatory
approvals. Significant claims have been paid on the policies covered by the
reinsurance agreement which amounts have been reimbursed by Forestview to PMI.
It is anticipated that additional significant claims will be paid in 1997 and
beyond.
34
<PAGE>
Due to the complex nature of numerous arrangements between Allstate and the
Company, Allstate has the ability to influence the policies and affairs of the
Company. The failure of Allstate to maintain its contractual commitments to the
Company could have a material adverse impact on the Company's financial
condition and results of operations.
ITEM 2. PROPERTIES
TPG leases its home office in San Francisco, California, which consists of
approximately 98,450 square feet of office space. The San Francisco lease
expires on December 31,1999. In addition, TPG leases space for 19 PMI and MSC
field offices. Such field office leases cover an average of 4,283 square feet
and have terms of not more than five years.
TPG believes its existing properties are well utilized and are suitable and
adequate for its present circumstances.
ITEM 3. LEGAL PROCEEDINGS
APTIC has been named as a defendant in a purported class action complaint filed
in the United States District Court for the Southern District of Florida. The
complaint alleges, among other things, violations of the Real Estate Settlement
Procedures Act ("RESPA"), intentional and negligent misrepresentations and
unfair trade practices in connection with payments and other consideration
purportedly paid to title agents. The complaint seeks damages under RESPA of
three times the amount of any charges for title insurance paid to APTIC by
purported class members, unspecified compensatory and punitive damages under
state law, attorneys' fees, court costs and injunctive relief. Based on
information presently available to the Company, management believes that the
ultimate outcome of this matter will not have a material adverse effect on the
Company's financial position or results of operations.
Various other legal actions and regulatory reviews are currently pending that
involve the Company and specific aspects of its conduct of business. In the
opinion of management, the ultimate liability or resolution in one or more of
the foregoing actions is not expected to have a material effect on the financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1996 to a vote of
shareholders through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF REGISTRANT
Set forth below is certain information regarding TPG's executive officers as of
December 31, 1996, including age as of April 1, 1997, and business experience
for at least the past five years.
W. Roger Haughton, 49, has been President and Chief Executive Officer of PMI
Mortgage Insurance Co. ("PMI"), TPG's principal subsidiary, since January 1993
and was elected to the same position with TPG in January 1995. Haughton came to
PMI in 1985 as Vice President of Underwriting, after 16 years with Allstate
Insurance Company ("Allstate"). In 1987, he was promoted to Vice
President/General Manager for PMI's Central Zone, responsible for all sales and
field office operations in that region. In 1989, he became Group Vice President
of Insurance Operations, where
35
<PAGE>
he assumed responsibility for management of PMI's Administration, Systems,
Underwriting, Claims and Actuarial Services departments. Effective March 1997,
Mr. Haughton is scheduled to commence a two-year term as President of the
Mortgage Insurance Companies of America ("MICA"), the industry trade
association. He is presently serving on the Fannie Mae National Advisory Council
for a two-year term. He also has a long history of active volunteerism with
various affordable housing organizations, including Habitat for Humanity, and
serves on the board of Social Impact. Mr. Haughton has been a Director of TPG
since January 1995 and a Director of PMI since May 1990.
L. Stephen Smith, 47, has been Executive Vice President of Field Operations of
PMI since May 1994 and was elected to the same position with TPG in January
1995. Prior thereto, he was PMI's Senior Vice President of Field Operations from
September 1993 to May 1994, Senior Vice President of Marketing and Customer
Technology from December 1991 to September 1993 and Vice President, General
Manager of PMI's eastern zone from September 1985 to December 1991.
John M. Lorenzen, Jr., 52, has been Executive Vice President of PMI since May
1994 and Chief Financial Officer of PMI since April 1989, and was elected to the
same position with TPG in January 1995. Prior thereto, he was PMI's Senior Vice
President from April 1989 to May 1994 and Vice President -- Finance from April
1985 to April 1989.
Claude J. Seaman, 50, has been Executive Vice President of Insurance Operations
and Assistant Secretary of PMI since May 1994, and was elected to the same
position with TPG in January 1995. Prior thereto, he was PMI's Senior Vice
President of Insurance Operations from March 1993 to May 1994, Vice President of
Claims from December 1991 to March 1993 and Vice President of Underwriting from
January 1987 to December 1991.
Victor J. Bacigalupi, 53, has been Senior Vice President, General Counsel and
Secretary of TPG and PMI since November 1996. Prior to joining TPG, he was a
partner of Bronson, Bronson & McKinnon LLP, since February 1992.
Richard D. Bryan, 51, has been Senior Vice President, and Chief Information
Officer of TPG and PMI since August 1996. Prior to joining TPG, he was Executive
Vice President, Servicing at Freddie Mac from 1994 to 1995. He first joined
Freddie Mac in 1984, serving as Senior Vice President, Information Services and
previously held the positions of Executive Vice President, Operations and Acting
National Sales Director from 1991 to 1994.
Bradley M. Shuster, 42, has been Senior Vice President, Treasurer and Chief
Investment Officer of PMI since August 1995, and was elected to the same
position with TPG, in September, 1995. Prior thereto, he was an audit partner
with the accounting firm of Deloitte & Touche LLP from May 1988 to July 1995.
36
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
COMMON STOCK
- ------------
TPG is listed on the New York Stock Exchange and the Pacific Exchange under the
trading symbol PMA. As of December 31, 1996 there were 34,509,819 shares issued
and outstanding. As of February 28, 1997 there were 34,134,084 shares issued and
outstanding held by approximately 30 shareholders of record and approximately
8,511 beneficial owners of shares held by brokers and fiduciaries.
The following table shows the high, low and closing common stock prices by
quarter from the New York Stock Exchange Composite Listing for the two years
ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
High Low Close High Low Close
----------------------------------------------------------
First quarter 51 3/4 41 1/2 43 5/8 * * *
Second quarter 46 1/4 40 42 1/2 45 36 43 3/8
Third quarter 54 3/8 39 7/8 53 1/8 48 1/8 42 1/4 47 3/8
Fourth quarter 60 52 1/8 55 3/8 53 1/2 40 3/4 45 1/4
</TABLE>
______________
*Prior to Initial Public Offering
PREFERRED STOCK
- ---------------
TPG's Board of Directors is authorized to issue up to 5,000,000 shares of
preferred stock of TPG in classes or series and to fix the designations,
preferences, qualifications, limitations or restrictions of any class or series
with respect to the rate and nature of dividends, the price and terms and
conditions on which shares may be reedemmed, the amount payable in the event of
voluntary or involuntary liquidation, the terms and conditions for conversion or
exchange into any other class or series of the stock, voting rights and other
terms. The Company may issue, without the approval of the holders of common
stock, preferred stock which has voting, dividend or liquidation rights superior
to the common stock and which may adversely affect the rights of the holders of
common stock.
PAYMENT OF DIVIDENDS AND POLICY
- -------------------------------
Payment of future dividends is subject to a declaration by TPG's Board of
Directors. The dividend policy is also dependent on the ability of PMI to pay
dividends to TPG, which is influenced by, among other factors, regulatory
restrictions by the Arizona Department of Insurance. (See Part I."N. Regulation"
and Part II, Item VIII, Financial Statement Note 11 - "Dividends and
Shareholders' Equity".)
During the second quarter of 1995, TPG's Board of Directors declared its first
dividend on common stock of $0.05 per share, and has declared and paid a
quarterly dividend of $0.05 per share through the first quarter of 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference from portions
of The PMI Group, Inc. 1996 Annual Report to Shareholders as filed under Exhibit
13.1.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated by reference from portions
of The PMI Group, Inc. 1996 Annual Report to Shareholders as filed under Exhibit
13.1.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference from portions
of The PMI Group, Inc. 1996 Annual Report to Shareholders as filed under Exhibit
13.1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning TPG's Directors and Executive Officers as required by
this Item is incorporated by reference from TPG's 1997 Proxy Statement under the
captions "Nominees For Director of TPG" and "Section 16(a) Beneficial Ownership
Reporting Compliance". Information regarding Executive Officers of TPG is
included in a separate item captioned "Executive Officers of Registrant" in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from TPG's
1997 Proxy Statement under the captions "Directors Compensation and Benefits"
and "Executive Compensation".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from TPG's
1997 Proxy Statement under the caption "Security Ownership of Certain Beneficial
Owners and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from TPG's
1997 Proxy Statement under the captions "Transactions with Allstate" and
"Compensation Committee Interlocks and Insider Participation".
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: The financial statements listed in the accompanying
Index to Consolidated Financial Statements and Financial Statement Schedules are
filed as part of this Form 10-K.
2. Financial Statement Schedules: The financial statement schedules listed in
the accompanying Index to Consolidated Financial Statements and Financial
Statement Schedules are filed as part of the Form 10-K. All other schedules are
omitted because of the absence of conditions under which they are required or
because the required information is included in the consolidated financial
statements or notes thereto.
3. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed
as part of this Form 10-K.
(b) Reports on Form 8-K: (i) On November 25, 1996, TPG filed a report on Form
8-K to file an Indenture dated November 19, 1996 in connection with the sale by
TPG of 6 3/4% notes in the amount of $100 million due November 15, 2006. (ii) On
February 21, 1997, TPG filed a report on Form 8-K to file a news release dated
January 31, 1997 in connection with an agreement to sell $100 million 8.309%
Capital Securities, Series A, representing beneficial interest in PMI Capital I,
a trust created under the laws of Delaware.
39
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
[Item 14(A) 1 and 2]
Page
-------------------------------------
Annual Report to
Consolidated Financial Statements Form 10-K Shareholders
- --------------------------------- --------- -----------------
<S> <C> <C>
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 N/A 42
Consolidated Balance Sheets as of December 31, 1996 and
1995 N/A 43
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, N/A 44
1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 N/A 45
Notes to Consolidated Financial Statements N/A 47
Report of Independent Auditors N/A 61
Financial Statement Schedules
- -----------------------------
Report of Independent Auditors on Financial
Statement Schedules 42 N/A
Schedules at and for the specified years in the three-year period
ended December 31, 1996:
Schedule I -- Summary of investments
other than investments in 43 N/A
related parties
Schedule II -- Condensed financial
information of Registrant 44 N/A
Schedule III -- Supplementary insurance
information 48 N/A
Schedule IV -- Reinsurance 49 N/A
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on the 28th day of March, 1997.
The PMI Group, Inc.
BY: /S/ W. Roger Haughton
---------------------
W. Roger Haughton
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 28, 1997 by the following persons on behalf of
the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/S/ W. Roger Haughton President, Chief
- --------------------- Executive Officer,
W. Roger Haughton Director March 28, 1997
/S/ John M. Lorenzen, Jr.Executive Vice President, March 28, 1997
- -------------------------Chief Financial Officer,
John M. Lorenzen and Assistant Secretary
(Principal Financial Officer)
/S/ William A. Seymore Vice President, March 28, 1997
- ---------------------- Controller
William A. Seymore (and Principal Accounting Officer)
/S/ Edward M. Liddy Chairman and Director March 28, 1997
- -------------------
Edward M. Liddy
/S/ Donald C. Clark Director March 28, 1997
- -------------------
Donald C. Clark
/S/ Wayne E. Hedien Director March 28, 1997
- -------------------
Wayne E. Hedien
/S/ Kenneth T. Rosen Director March 28, 1997
- --------------------
Kenneth T. Rosen
/S/ Richard L. Thomas Director March 28, 1997
- ---------------------
Richard L. Thomas
/S/ Mary Lee Widener Director March 28, 1997
- --------------------
Mary Lee Widener
</TABLE>
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The PMI Group, Inc.:
We have audited the consolidated financial statements of The PMI Group, Inc. and
subsidiaries as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, and have issued our report thereon dated
January 22, 1997 (February 4, 1997 as to Note 16); such consolidated financial
statements and report are included in your 1996 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also included the
consolidated financial statement schedules of The PMI Group, Inc. and
subsidiaries, listed in Item 14(a)2. These consolidated financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/S/ Deloitte & Touche LLP
- -------------------------
San Francisco, California
January 22, 1997
42
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1996
<TABLE>
<CAPTION>
Cost/ Amount at
Amortized Market which shown in
Type of Investment Cost Value the balance sheet
(In thousands) ---------- ---------- -----------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and
government agencies and authorities ... $ 89,131 $ 88,590 $ 88,590
States, municipalities and
political subdivisions................. 831,213 875,001 875,001
All other corporate...................... 121,990 121,665 121,665
Redeemable preferred stocks................. 236 258 258
---------- ---------- ----------
Total fixed maturities.............. 1,042,570 $1,085,514 1,085,514
---------- ========== ----------
Equity securities:
Common stocks:
Banks, trust and insurance companies..... 1,705 $ 2,080 2,080
Industrial, miscellaneous and all other 76,070 110,503 110,503
Non-redeemable preferred stocks............. 305 388 388
------- ---------- --------
Total equity securities............. 78,080 $ 112,971 112,971
------ ========== --------
Short-term investments......................... 81,876 81,876
------- --------
Total investments, other than
related party................... $1,202,526 $1,280,361
========== ==========
</TABLE>
43
<PAGE>
THE PMI GROUP, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
PARENT COMPANY ONLY
December 31, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C> <C>
(Dollars in thousands) 1996 1995
---------- --------
ASSETS
Investment portfolio, at market value:
Fixed income securities (cost - $56,157)..................... $ 55,881 $ --
Short-term investments....................................... 49,377 30,230
---------- ---------
Total investment portfolio.................................. 105,258 30,230
Cash........................................................... 83 241
Investment in subsidiaries, at equity in net assets............ 987,105 846,177
Other assets................................................... 2,741 419
--------- --------
Total assets................................................ $1,095,187 $877,067
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term debt............................................... $ 99,342 $ --
Accounts payable - affiliates................................ 5,359 4,232
Other liabilities............................................ 3,624 2,332
--------- --------
Total liabilities............................................. 108,325 6,564
--------- -------
Commitments and contingent liabilities (Note A) -- --
Shareholders' equity:
Preferred stock-$.01 par value; 5,000,000 shares authorized.. -- --
Common stock -- $.01 par value; 125,000,000 shares
authorized, 35,047,619 and 35,011,494 shares issued........ 350 350
Additional paid-in capital................................... 258,059 256,507
Unrealized gains............................................. 50,709 56,761
Retained earnings............................................ 707,885 556,969
--------- ---------
1,017,003 870,587
Less cost of treasury shares
(537,800 and 2,000 shares at cost).......................... 30,141 84
---------- --------
Total shareholders' equity................................. 986,862 870,503
---------- --------
Total liabilities and shareholders' equity................. $1,095,187 $877,067
========== ========
</TABLE>
See accompanying supplementary notes to Parent company
condensed financial statements.
44
<PAGE>
THE PMI GROUP, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
PARENT COMPANY ONLY
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
(In thousands)
Revenue:
Equity in undistributed net income of subsidiaries $158,418 $134,642 $104,551
Investment income, net.............................. 2,532 1,651 1,937
Capital gains, net.................................. 113 -- --
--------- ------- -------
Total revenue.................................... 161,063 136,293 106,488
--------- ------- -------
Expenses:
Operating expenses.................................. 437 519 --
Interest expense.................................... 907 -- --
-------- -------- --------
Total expenses................................... 1,344 519 --
-------- -------- --------
Income before tax..................................... 159,719 135,774 106,488
Provision for income tax.............................. 1,801 543 356
-------- -------- --------
Net income............................................ $157,918 $135,231 $106,132
======== ======== ========
</TABLE>
See accompanying supplementary notes to Parent company
condensed financial statements.
45
<PAGE>
THE PMI GROUP, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
PARENT COMPANY ONLY
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(In thousands)
Cash flows from operating activities:
Net income.............................................. $ 157,918 $ 135,231 $ 106,132
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization........................................ 185 80 (26)
Equity in undistributed net income of subsidiaries (158,418) (134,642) (104,551)
Capital gains, net.................................. (113) -- --
Increase in payable to affiliates................... 1,127 4,232 --
Other............................................... (551) (43) 299
--------- --------- ---------
Net cash provided by operating activities................... 148 4,858 1,854
--------- --------- ---------
Cash flows from investing activities:
Dividends from subsidiaries............................... 26,300 10,000 --
Investment in subsidiaries................................ (14,683) -- (40,853)
Purchase of fixed income securities....................... (77,037) -- (35,185)
Investment collections of fixed income securities......... 20,848 -- 35,211
Net increase in short-term investments.................... (19,147) (11,253) (18,977)
--------- --------- ---------
Net cash used in investing activities....................... (63,719) (1,253) (59,804)
--------- --------- ---------
Cash flows from financing activities:
Issuance of long-term debt................................ 99,337 -- --
Dividends paid to shareholders............................ (7,002) (3,500) --
Proceeds from exercise of stock options................... 1,135 170 --
Purchase of The PMI Group, Inc. common stock.............. (30,057) (84) --
Capital contributions from Allstate....................... -- -- 58,000
--------- --------- ---------
Net cash provided by (used in) financing activities......... 63,413 (3,414) 58,000
--------- --------- ---------
Net increase (decrease) in cash and equivalents............. (158) 191 50
Cash at beginning of year................................... 241 50 --
--------- --------- ---------
Cash at end of year......................................... $ 83 $ 241 $ 50
========= ========= =========
</TABLE>
See accompanying notes to Parent Company condensed
financial statements.
46
<PAGE>
THE PMI GROUP, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY ONLY
SUPPLEMENTARY NOTES
Note A
The accompanying Parent Company ("TPG") financial statements should be read
in conjunction with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements (including Notes 9 and 10 related to Long-term
obligations and Commitments and contingent liabilities) appearing on pages 42
through 59 of The PMI Group, Inc. 1996 Annual Report to Shareholders.
Note B
During 1996, TPG received $21.4 million of non-cash dividends from a
subsidiary.
47
<PAGE>
<TABLE>
<CAPTION>
THE PMI GROUP, INC. AND SUBSIDIARIES
SCHEDULE III -
SUPPLEMENTARY INSURANCE
INFORMATION as of and for
the Years Ended December 31,
1996, 1995 and 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserve for
Losses and Losses and Amortization
Deferred Loss Net Loss of Deferred Other
Acquisition Adjustment Unearned Premiums Investment Adjustment Acquisition Operating Premiums
Segment Costs Expenses Premiums Earned Income Expenses Costs Expenses * Written
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
1996:
Mortgage Guaranty $31,633 $190,425 $116,951 $359,527 $66,280 $150,642 $48,302 $29,688 $349,809
Title.............. -- 9,349 -- 53,211 1,162 1,767 -- 48,012 53,211
------- -------- ------- -------- ------- -------- ------- ------- --------
Total $31,633 $199,774 $116,951 $412,738 $67,442 $152,409 $48,302 $77,700 $403,020
======= ======== ======== ======== ======= ======== ======= ======= ========
1995:
Mortgage Guaranty $22,986 $183,615 $140,322 $288,453 $61,022 $110,962 $52,881 $22,234 $273,718
Title.............. -- 8,472 -- 40,303 1,019 1,875 -- 36,547 40,303
------- -------- -------- -------- ------- -------- ------- ------- --------
Total $22,986 $192,087 $140,322 $328,756 $62,041 $112,837 $52,881 $58,781 $314,021
======= ======== ======== ======== ======= ======== ======= ======= ========
1994:
Mortgage Guaranty $25,602 $166,390 $157,021 $250,943 $55,895 $101,642 $48,147 $28,922 $232,345
Title.............. -- 7,495 -- 45,402 879 2,265 -- 40,458 45,402
------- --------- -------- -------- ------- ------- ------- ------- --------
Total $25,602 $173,885 $157,021 $296,345 $56,774 $103,907 $48,147 $69,380 $277,747
======= ======== ======== ======== ======= ======== ======= ======= ========
</TABLE>
* Includes ancillary services.
48
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Percentage
Ceded Assumed of Amount
Gross To Other From Other Net Assumed to
Amount Companies Companies Amount Net
-------- ---------- ---------- ------ ------------
(In thousands)
Premiums earned for the
year ended December 31,
1996:
<S> <C> <C> <C> <C> <C>
Mortgage Guaranty $372,439 $ 13,546 $ 634 $359,527 0.2%
Title ........... 53,392 181 -- 53,211 0.0%
-------- -------- -------- -------- ----
Total ........ $425,831 $ 13,727 $ 634 $412,738 0.2%
======== ======== ======== ======== ====
1995:
Mortgage Guaranty $312,020 $ 26,979 $ 3,412 $288,453 1.2%
Title ........... 40,439 136 -- 40,303 0.0%
-------- -------- -------- -------- ----
Total ........ $352,459 $ 27,115 $ 3,412 $328,756 1.0%
======== ======== ======== ======== ====
1994:
Mortgage Guaranty $276,092 $ 29,133 $ 3,984 $250,943 1.6%
Title ........... 45,385 -- 17 45,402 0.0%
-------- -------- ------- -------- ----
Total ........ $321,477 $ 29,133 $ 4,001 $296,345 1.4%
======== ======== ======== ======== ====
</TABLE>
49
<PAGE>
INDEX TO EXHIBITS
-----------------
[Item 14(a)3]
Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1(b) Restated Certificate of Incorporation of the Registrant.
3.2(e) By-laws of the Registrant as amended November 15, 1995.
4.1(b) Specimen common stock Certificate.
4.2(h) Indenture dated as of November 19, 1996 between The PMI
Group, Inc. and the Bank of New York Trustee in connection
with sale of $100,000,000 aggregate principal amount of 6
3/4% Notes due November 15, 2006.
4.3 The Junior Subordinated Indenture dated February 4, 1997
between The PMI Group, Inc. and The Bank of New York, Inc.
10.1(b)* PMI Mortgage Insurance Co. Annual Incentive Plan.
10.2* The PMI Group, Inc. Equity Incentive Plan. (Amended &
Restated).
10.3(g)* The PMI Group, Inc. Stock Plan for Non-Employee Directors.
(Amended & Restated).
10.4(a) Form of 1984 Master Policy of PMI Mortgage Insurance Co.
10.5(a) Form of 1994 Master Policy of PMI Mortgage Insurance Co.
10.6(a) CMG Shareholders Agreement dated September 8, 1994 between
CUNA Mutual Investment Corporation and PMI Mortgage Insurance
Co.
10.7(b) Runoff Support Agreement dated October 28, 1994 between
Allstate Insurance Company, the Registrant and PMI Mortgage
Insurance Co.
10.8(a) Mortgage Pool Guaranty Insurance Reinsurance Treaty effective
February 14, 1994 ceded by PMI Mortgage Insurance Co. to
Forestview Mortgage Insurance Co. (formerly PMI Insurance
Co.).
10.9(a) First Amendment Agreement made as of October 27, 1994 between
PMI Mortgage Insurance Co. and Forestview Mortgage Insurance
Co. (formerly PMI Insurance Co.).
10.10(a) Mortgage Guaranty Insurance Reinsurance Treaty effective
December 31, 1991 ceded by PMI Mortgage Insurance Co. to
Forestview Mortgage Insurance Co. (formerly PMI Insurance
Co.).
10.11(a) Termination Agreement made as of October 27, 1994 between PMI
Mortgage Insurance Co. and Forestview Mortgage Insurance Co.
(formerly PMI Insurance Co.).
10.12(c) Form of Separation Agreement between the Registrant, PMI
Mortgage Insurance Co., The Allstate Corporation and Allstate
Insurance Company.
50
<PAGE>
10.13(a) Agreement dated June 23, 1994 between PMI Mortgage Insurance
Co. and Allstate Insurance Company regarding cash/remittance
processing.
10.14(b) Form of Services Agreement between the Registrant, PMI
Mortgage Insurance Co., and Forestview Mortgage Insurance Co.
10.15(d) Form of Research Center Services Agreement between PMI
Mortgage Insurance Co. and Allstate Insurance Company.
10.16(b) Form of Tax Sharing Agreement among the Registrant, the
Registrant's subsidiaries, The Allstate Corporation, Allstate
Insurance Company and Sears, Roebuck and Co.
10.17(a) Mortgage Insurance Variable Quota Share Reinsurance Treaty
effective January 1, 1991 issued to PMI Mortgage Insurance
Co. by Hannover Ruckversicherungs-Aktiengesellschaft
("Hannover").
10.18(a) First Amendment to Mortgage Insurance Variable Quota Share
Reinsurance Treaty made as of January 1, 1992 between
Hannover and PMI Mortgage Insurance Co.
10.19(a) Primary Mortgage Insurance Policy Year Quota Share
Reinsurance Agreement effective January 1, 1992 issued to PMI
Mortgage Insurance Co. by Centre Reinsurance Company of New
York and Centre Reinsurance International Company, with
Endorsement No. I effective January 1, 1992, Endorsement No.
II effective January 1, 1992, Endorsement No. III effective
January 1, 1994 and Endorsement No. IV effective December 29,
1994.
10.20(a) Quota Share Primary Reinsurance Agreement No. 15031-940
effective January 1, 1994 issued to PMI Mortgage Insurance
Co. by Capital Mortgage Reinsurance Company.
10.21(a) First Amendment to the Quota Share Primary Mortgage
Reinsurance Agreement (No. 15031-940) made as of October 1,
1994 between PMI Mortgage Insurance Co. and Capital Mortgage
Reinsurance Company.
10.22(a) Form of Indemnification Agreement between the Registrant and
its officers and directors.
10.23(a) Form of Human Resources Allocation Agreement among the
Registrant, PMI Mortgage Insurance Co., Sears, Roebuck and
Co., The Allstate Corporation and Allstate Insurance Company.
10.24(a) Per Mortgage Excess of Loss Reinsurance Treaty effective
January 1, 1994 issued to PMI Mortgage Insurance Co. by
Hannover.
10.25(f) Form of Investment Services Agreement among the Registrant,
PMI Mortgage Insurance Co., PMI Mortgage Services Co., PMI
Reinsurance Co., PMI Securities Co. and Scudder, Stevens &
Clark, Inc.
10.26(c)* The PMI Group, Inc. Retirement Plan.
10.27* The PMI Group, Inc. Long Term Incentive Plan.
51
<PAGE>
10.28 Exchange and Registration Rights Agreement made as of
February 4,1997 among The PMI Group Inc., PMI Capital I and
Goldman Sachs & Co.
10.29 The Guarantee Agreement, dated February 4, 1997 between The
PMI Group, Inc. (As Guarantor) and The Bank of New York (As
Trustee).
10.30 Amended and Restated Trust Agreement dated as of February 4,
1997 among The PMI Group, Inc., as Depositor, The Bank of New
York, as Property Trustee, and The Bank of New York
(Delaware), as Delaware Trustee.
11.1 Statement re: computation of per share earnings.
13.1 Selected Financial Data, Management's Discussion and
Analysis of Financial Condition and Results of Operations and
Financial Statements Supplementary Data portions of The PMI
Group, Inc.'s 1996 Annual Report to Shareholders.
21.1 Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedule.
99.1(i) News Release.
_________________________
(a) Previously filed with the Company's Form S-1 Registration Statement
(No. 33-88542), which became effective in April 1995 ("Form S-1").
(b) Previously filed with Amendment No. 1 to Form S-1, filed with the SEC
on March 2, 1995.
(c) Previously filed with Amendment No. 2 to Form S-1, filed with the SEC
on March 13, 1995.
(d) Previously filed with Amendment No. 3 to Form S-1, filed with the SEC
on April 5, 1995.
(e) Previously filed with Form 8-K, filed with the SEC on November 29,
1995.
(f) Previously filed with Form 10-K for the year ended December
31, 1995, filed with the SEC on March 28, 1996.
(g) Previously filed with Form 10-Q, filed with the SEC on September 30,
1996.
(h) Previously filed with Form 8-K, filed with the SEC on November 25,
1996.
(i) Previously filed with Form 8-K, filed with the SEC on February 21,
1997.
* Compensatory or benefit plan in which certain executive officers or
Directors of The PMI Group, Inc., or its subsidiaries are eligible to
participate.
52
<PAGE>
EXHIBIT 4.3
- --------------------------------------------------------------------------------
THE PMI GROUP, INC.
to
THE BANK OF NEW YORK
Trustee
----------------
JUNIOR SUBORDINATED INDENTURE
Dated as of February 4, 1997
----------------
- --------------------------------------------------------------------------------
<PAGE>
THE PMI GROUP, INC.
Reconciliation and tie between the Trust Indenture Act of 1939 (including
cross-references to provisions of Sections 310 to and including 317 which,
pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by the
Trust Reform Act of 1990, are a part of and govern the Indenture whether or not
physically contained therein) and the Junior Subordinated Indenture, dated as of
February 4, 1997.
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C> <C>
ss.310 (a) (1), (2) and (5)...............................................................6.9
(a) (3)............................................................................Not Applicable
(a) (4)............................................................................Not Applicable
(b)................................................................................6.8
...................................................................................6.10
(c)................................................................................Not Applicable
ss.311 (a)................................................................................6.13(a)
(b)................................................................................6.13(b)
(b) (2)............................................................................7.3(a) (2)
...................................................................................7.3(a) (2)
ss.312 (a)................................................................................7.1
...................................................................................7.2(a)
(b)................................................................................7.2(b)
(c)................................................................................7.2(c)
ss.313 (a)................................................................................7.3(a)
(b)................................................................................7.3(b)
(c)................................................................................7.3(a), 7.3(b)
(d)................................................................................7.3(c)
ss.314 (a) (1), (2) and (3)...............................................................7.4
(a) (4)............................................................................10.5
(b)................................................................................Not Applicable
(c) (1)............................................................................1.2
(c) (2)............................................................................1.2
(c) (3)............................................................................Not Applicable
(d)................................................................................Not Applicable
(e)................................................................................1.2
(f)................................................................................Not Applicable
ss.315 (a)................................................................................6.1(a)
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(b)................................................................................6.2
...................................................................................7.3(a) (6)
(c)................................................................................6.1(b)
(d)................................................................................6.1(c)
(d) (1)............................................................................6.1(a) (1)
(d) (2)............................................................................6.1(c) (2)
(d) (3)............................................................................6.1(c) (3)
(e)................................................................................5.14
ss.316 (a)................................................................................1.1
(a) (1) (A)........................................................................5.12
(a) (1) (B)........................................................................5.13
(a) (2)............................................................................Not Applicable
(b)................................................................................5.8
(c)................................................................................1.4(f)
ss.317 (a) (1)............................................................................5.3
(a) (2)............................................................................5.4
(b)................................................................................10.3
ss.318 (a)................................................................................1.7
-----------------------------------------------------
</TABLE>
- ------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Junior Subordinated Indenture.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION
Section 1.1. Definitions. ........................................................................1
Section 1.2. Compliance Certificate and Opinions.................................................10
Section 1.3. Forms of Documents Delivered to Trustee ............................................11
Section 1.4. Acts of Holders.....................................................................11
Section 1.5. Notices, Etc. to Trustee and Company................................................13
Section 1.6. Notice to Holders; Waiver. .........................................................14
Section 1.7. Conflict with Trust Indenture Act. .................................................14
Section 1.8. Effect of Headings and Table of Contents. ..........................................14
Section 1.9. Successors and Assigns. ............................................................14
Section 1.10. Separability Clause. ...............................................................14
Section 1.11 Benefits of Indenture. .............................................................15
Section 1.12. Governing Law. .....................................................................15
Section 1.13. Non-Business Days. .................................................................15
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally. ...................................................................15
Section 2.2. Form of Face of Security. ..........................................................16
Section 2.3. Form of Reverse of Security. .......................................................21
Section 2.4. Additional Provisions Required in Global Security. .................................25
Section 2.5. Form of Trustee's Certificate of Authentication. ...................................25
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms. ...................................................................25
Section 3.2. Denominations. .....................................................................28
Section 3.3. Execution, Authentication, Delivery and Dating. ....................................28
Section 3.4. Temporary Securities. ..............................................................30
Section 3.5. Global Securities...................................................................30
Section 3.6. Registration, Transfer and Exchange Generally, Certain
Transfers and Exchanges; Securities Act Legends. .........................32
Section 3.7. Mutilated, Destroyed, Lost and Stolen Securities. ..................................35
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.8. Payment of Interest; Interest Rights Preserved. ....................................35
Section 3.9. Persons Deemed Owners. .............................................................37
Section 3.10. Cancellation. ......................................................................37
Section 3.11. Computation of Interest. ...........................................................37
Section 3.12. Deferrals of Interest Payment Dates. ...............................................38
Section 3.13. Right of Set-Off. ..................................................................39
Section 3.14. Agreed Tax Treatment. ..............................................................39
Section 3.15. CUSIP Numbers. .....................................................................39
Section 3.16. References to Interest..............................................................39
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture. ...........................................40
Section 4.2. Application of Trust Money. ........................................................41
ARTICLE V
REMEDIES
Section 5.1. Events of Default. .................................................................41
Section 5.2. Acceleration of Maturity; Rescission and Annulment. ................................42
Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. ...................44
Section 5.4. Trustee May File Proofs of Claim. ..................................................44
Section 5.5. Trustee May Enforce Claim Without Possession of Securities. ........................45
Section 5.6. Application of Money Collected. ....................................................45
Section 5.7. Limitation on Suits. ...............................................................46
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium
and Interest; Direct Action by Holders of Capital Securities. ............47
Section 5.9. Restoration of Rights and Remedies. ................................................47
Section 5.10. Rights and Remedies Cumulative. ....................................................47
Section 5.11. Delay or Omission Not Waiver. ......................................................48
Section 5.12. Control by Holders. ................................................................48
Section 5.13. Waiver of Past Defaults. ...........................................................48
Section 5.14. Undertaking for Costs. .............................................................49
Section 5.15. Waiver of Usury, Stay or Extension Laws. ...........................................49
ARTICLE VI
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities. ...............................................49
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 6.2. Notice of Defaults. ................................................................51
Section 6.3. Certain Rights of Trustee. .........................................................51
Section 6.4. Not Responsible for Recitals or Issuance of Securities. ............................52
Section 6.5. May Hold Securities. ...............................................................52
Section 6.6. Money Held in Trust. ...............................................................53
Section 6.7. Compensation and Reimbursement. ....................................................53
Section 6.8. Disqualification; Conflicting Interests. ...........................................53
Section 6.9. Corporate Trustee Required; Eligibility. ...........................................54
Section 6.10. Resignation and Removal; Appointment of Successor. .................................54
Section 6.11. Acceptance of Appointment by Successor. ............................................56
Section 6.12. Merger, Conversion, Consolidation or Succession to Business. .......................57
Section 6.13. Preferential Collection of Claims Against Company. .................................57
Section 6.14. Appointment of Authenticating Agent. ...............................................57
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders...........................59
Section 7.2. Preservation of Information, Communications to Holders. ............................59
Section 7.3. Reports by Trustee. ................................................................60
Section 7.4. Reports by Company. ................................................................60
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms. ..............................61
Section 8.2. Successor Corporation Substituted. .................................................61
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders. ................................62
Section 9.2. Supplemental Indentures with Consent of Holders. ...................................63
Section 9.3. Execution of Supplemental Indentures................................................65
Section 9.4. Effect of Supplemental Indentures. .................................................65
Section 9.5. Conformity with Trust Indenture Act. ...............................................65
Section 9.6. Reference in Securities to Supplemental Indentures. ................................65
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
COVENANTS
<S> <C> <C>
Section 10.1. Payment of Principal, Premium and Interest. ........................................65
Section 10.2. Maintenance of Office or Agency. ...................................................66
Section 10.3. Money for Security Payments to be Held in Trust. ...................................66
Section 10.4. Statement as to Compliance. ........................................................67
Section 10.5. Waiver of Certain Covenants. .......................................................68
Section 10.6. Additional Sums. ...................................................................68
Section 10.7. Additional Covenants. ..............................................................68
Section 10.8. Original Issue Discount. ...........................................................69
Section 10.9. Delivery of Certain Information.....................................................70
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Applicability of This Article. .....................................................70
Section 11.2. Election to Redeem; Notice to Trustee. .............................................70
Section 11.3. Selection of Securities to be Redeemed. ............................................71
Section 11.4. Notice of Redemption. ..............................................................71
Section 11.5. Deposit of Redemption Price. .......................................................72
Section 11.6. Payment of Securities Called for Redemption. .......................................72
Section 11.7. Right of Redemption of Securities Initially Issued to a PMI Trust. .................73
ARTICLE XII
SINKING FUNDS
Section 12.1. Applicability of Article. ..........................................................73
Section 12.2. Satisfaction of Sinking Fund Payments with Securities. .............................74
Section 12.3. Redemption of Securities for Sinking Fund. .........................................74
ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness. .....................................76
Section 13.2. No Payment When Senior Indebtedness in Default; Payment
Over Proceeds Upon Dissolution, Etc.........................................76
Section 13.3. Payment Permitted If No Default.....................................................77
Section 13.4. Subrogation to Rights of Holders of Senior Indebtedness.............................78
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 13.5. Provisions Solely to Define Relative Rights. .......................................78
Section 13.6. Trustee to Effectuate Subordination. ...............................................79
Section 13.7. No Waiver of Subordination Provisions. .............................................79
Section 13.8. Notice to Trustee. .................................................................79
Section 13.9. Reliance on Judicial Order or Certificate of Liquidating Agent. ....................80
Section 13.10. Trustee Not Fiduciary for Holders of Senior Indebtedness. ..........................80
Section 13.11. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights. ................................................80
Section 13.12. Article Applicable to Paying Agents. ...............................................81
</TABLE>
ANNEX A - Form of Trust Agreement
ANNEX B - Form of Amended and Restated Trust Agreement
ANNEX C - Form of Guarantee Agreement
ANNEX D - Form of Restricted Securities Certificate
ANNEX E - Form of Unrestricted Securities Certificate
vii
<PAGE>
JUNIOR SUBORDINATED INDENTURE, dated as of February 4, 1997, between
THE PMI GROUP, INC., a Delaware corporation (hereinafter called the "Company")
having its principal office at 601 Montgomery Street, San Francisco, California
94111, and THE BANK OF NEW YORK, INC., a New York banking corporation, as
Trustee (hereinafter called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured junior
subordinated debt securities in series (hereinafter called the "Securities") of
substantially the tenor hereinafter provided, including, without limitation,
Securities issued to evidence loans made to the Company of the proceeds from the
issuance from time to time by one or more business trusts (each a "PMI Trust,"
and, collectively, the "PMI Trusts") of preferred trust interests in such Trusts
(the "Capital Securities") and common interests in such Trusts (the "Common
Securities" and, collectively with the Capital Securities, the "Trust
Securities"), and to provide the terms and conditions upon which the Securities
are to be authenticated, issued and delivered.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities or of any series thereof, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
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For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
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(3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and the term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles which are generally accepted at the date or time of such computation;
provided, that when two or more principles are so generally accepted, it shall
mean that set of principles consistent with those in use by the Company; and
(4) The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"Act" when used with respect to any Holder has the meaning specified in
Section 1.4.
"Additional Interest" means the interest, if any, that shall accrue on any
interest on the Securities of any series the payment of which has not been made
on the applicable Interest Payment Date and which shall accrue at the rate per
annum specified or determined as specified in such Security.
"Additional Sums" has the meaning specified in Section 10.6.
"Additional Taxes" means the sum of any additional taxes, duties and other
governmental charges to which a PMI Trust has become subject from time to time
as a result of a Tax Event.
"Administrative Trustee" means, in respect of any PMI Trust, each Person
appointed by the Company to serve as administrative trustee of such PMI Trust,
solely in such Person's capacity as Administrative Trustee of such PMI Trust
under such Trust Agreement and not in such Person's individual capacity, or any
successor administrative trustee appointed as therein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, no PMI Trust to which
Securities have been issued shall be deemed to be an Affiliate of the Company.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depository.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of the Depository for such Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities of
one or more series.
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"Board of Directors" means either the board of directors of the Company or
any committee of that board duly authorized to act hereunder.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors, and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day other than (i) a Saturday or Sunday, (ii) 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 (iii) a day on which the
Corporate Trust Office of the Trustee, or, with respect to the Securities of a
series initially issued to a PMI Trust, the principal office of the Property
Trustee under the related Trust Agreement, is closed for business.
"Capital Securities" has the meaning specified in the first recital of this
Indenture.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Securities" has the meaning specified in the first recital of this
Indenture.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor corporation shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor corporation.
"Company Request" and "Company Order" mean, respectively, the written
request or order signed in the name of the Company by its Chairman of the Board,
its Vice Chairman of the Board, its President or a Vice President, and by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office as of the date of this Indenture is located at 101 Barclay Street, Floor
21 West, New York, New York 10286.
"corporation" includes a corporation, association, company, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.8.
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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 this
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 for, directly or indirectly, as obligor
or otherwise.
"Depository" means, with respect to the Securities of any series issuable
or issued in whole or in part in the form of one or more Global Securities, the
Person designated as Depository by the Company pursuant to Section 3.1 with
respect to such series (or any successor thereto).
"Discount Security" means any security which provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
"Distributions," with respect to the Trust Securities issued by a PMI
Trust, means amounts payable in respect of such Trust Securities as provided in
the related Trust Agreement and referred to therein as "Distributions."
"Dollar" means the currency of the United States of America that, as at the
time of payment, is legal tender for the payment of public and private debts.
"DTC" means The Depository Trust Company.
"Event of Default" unless otherwise specified in the supplemental indenture
creating a series of Securities has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 1.4.
"Extension Period" has the meaning specified in Section 3.12.
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"Global Security" means a Security in the form prescribed in Section 2.4
evidencing all or part of a series of Securities, issued to the Depository or
its nominee for such series, and registered in the name of such Depository or
its nominee.
"Guarantee Agreement" means the Guarantee Agreement substantially in the
form attached hereto as Annex C, or substantially in such form as may be
specified as contemplated by Section 3.1 with respect to the Securities of any
series, in each case as amended from time to time.
"Holder" means a Person in whose name a Security is registered in the
Securities Register.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of each particular series of Securities established as
contemplated by Section 3.1.
"Institutional Accredited Investor" means an institution that is an
accredited investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act.
"Interest Payment Date" means as to each series of Securities the Stated
Maturity of an installment of interest on such Securities.
"Maturity" when used with respect to any Security means the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at the Stated Maturity or by declaration of acceleration, call
for redemption or otherwise.
"Notice of Default" means a written notice of the kind specified in Section
5.1(3).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company, and delivered to the Trustee. One of the officers signing an
Officers' Certificate given pursuant to Section 10.4 shall be the principal
executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be acceptable to the Trustee.
"Original Issue Date" means the date of issuance specified as such in each
Security.
"Other Securities" means Securities transferred, upon exchange or
otherwise, to holders of "Other Capital Securities" as defined in the related
Trust Agreement.
"Outstanding" means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
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(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for whose payment money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent in trust for the
Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other Securities
have been authenticated and delivered or which have been paid pursuant to
Section 3.7, unless proof satisfactory to the Trustee is presented that any such
Securities are held by Holders in whose hands such Securities are valid, binding
and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which a Responsible Officer of the Trustee
knows to be so owned shall be so disregarded. Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor. Upon the written request of the Trustee, the Company shall furnish to
the Trustee promptly an Officers' Certificate listing and identifying all
Securities, if any, known by the Company to be owned or held by or for the
account of the Company, or any other obligor on the Securities or any Affiliate
of the Company or such obligor, and, subject to the provisions of Section 6.1,
the Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Securities not
listed therein are Outstanding for the purpose of any such determination.
"PMI Guarantee" means the guarantee by the Company of distributions on the
Capital Securities of a PMI Trust to the extent provided in the applicable
Guarantee Agreement.
"PMI Trust" has the meaning specified in the first recital of this
Indenture.
"Paying Agent" means the Trustee or any Person authorized by the Company to
pay the principal of (and premium, if any) or interest on any Securities on
behalf of the Company.
"Performance Notes" means any of the Performance Notes issued by the
Company pursuant to a Note Purchase Agreement to originators of residential
mortgage loans on which PMI Mortgage Insurance Co., a wholly-owned subsidiary of
the Company, has issued mortgage guarantee insurance policies.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
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"Place of Payment" means, with respect to the Securities of any series, the
place or places where the principal of (and premium, if any) and interest on the
Securities of such series are payable pursuant to Section 3.1.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any security
authenticated and delivered under Section 3.7 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the lost, destroyed
or stolen Security.
"Proceeding" has the meaning specified in Section 13.2.
"Property Trustee" means, in respect of any PMI Trust, the commercial bank
or trust company identified as the "Property Trustee" in the related Trust
Agreement, solely in its capacity as Property Trustee of such PMI Trust under
such Trust Agreement and not in its individual capacity, or its successor in
interest in such capacity, or any successor property trustee appointed as
therein provided.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
with respect to the Securities of a series means, unless otherwise provided
pursuant to Section 3.1 with respect to Securities of a series, the date which
is fifteen days next preceding such Interest Payment Date (whether or not a
Business Day).
"Regulation D" means Regulation D under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Responsible Officer" means, when used with respect to the Trustee, any
vice president, any assistant vice president, any assistant treasurer, any trust
officer or assistant trust officer or any other officer of the corporate trust
department of the Trustee customarily performing functions similar to those
performed by any of the above designated officers, and also, with respect to a
particular corporate trust matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Restricted Security" means each Security required pursuant to Section
3.6(c) to bear a Restricted Securities Legend.
"Restricted Securities Certificate" means a certificate substantially in
the form set forth in Annex D.
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"Restricted Securities Legend" means a legend substantially in the form of
the legend required in the form of Security set forth in Section 2.2 to be
placed upon a Restricted Security.
"Rights Plan" means a plan of the Company providing for the issuance by the
Company to all holders of its Common Stock of rights entitling the holders
thereof to subscribe for or purchase shares of Common Stock or any class or
series of preferred stock, which rights (i) are deemed to be transferred with
such shares of Common Stock, (ii) are not exercisable and (iii) are also issued
in respect of future issuances of Common Stock, in each case until the
occurrence of a specified event or events.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144A Information" has the meaning specified in Section 10.9.
"Securities" or "Security" means any debt securities or debt security, as
the case may be, authenticated and delivered under this Indenture.
"Securities Act" means the Securities Act of 1933 (or any successor
statute), as it may be amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 3.6.
"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 this 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 Securities or to other
Debt which is pari passu with, or subordinated to, the Securities; 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, (iv) any Securities and
(v) any Performance Notes issued by the Company.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.8.
"Stated Maturity" when used with respect to any Security or any installment
of principal thereof or interest thereon means the date specified pursuant to
the terms of such Security as the date on which the principal of such Security
or such installment of interest is due and payable, in the case
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of such principal, as such date may be shortened or extended as provided
pursuant to the terms of such Security and this Indenture.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For purposes of this definition, "voting stock" means stock which ordinarily has
voting power for the election of directors, whether at all times or only so long
as no senior class of stock has such voting power by reason of any contingency.
"Successor Security" of any particular Security means every Security issued
after, and evidencing all or a portion of the same debt as that evidenced by,
such particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.7 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Tax Event" means the receipt by a PMI Trust of an Opinion of Counsel (as
defined in the relevant Trust Agreement) 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 of such PMI Trust under the relevant Trust
Agreement, there is more than an insubstantial risk that (i) such PMI Trust is,
or will be within 90 days of the date of such Opinion of Counsel, subject to
United States Federal income tax with respect to income received or accrued on
the corresponding series of Securities issued by the Company to such PMI Trust,
(ii) interest payable by the Company on such corresponding series of Securities
is not, or within 90 days of the date of such Opinion of Counsel, will not be,
deductible by the Company, in whole or in part, for United States Federal income
tax purposes or (iii) such PMI Trust is, or will be within 90 days of the date
of such Opinion of Counsel, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
"Trust Agreement" means the Trust Agreement substantially in the form
attached hereto as Annex A, as amended by the form of Amended and Restated Trust
Agreement substantially in the form attached hereto as Annex B, or substantially
in such form as may be specified as contemplated by Section 3.1 with respect to
the Securities of any series, in each case as amended from time to time.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder and, if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
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"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbb), as amended and as in effect on the date as of this
Indenture, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the first recital of this
Indenture.
"Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Annex E.
"Vice President" when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
Section 1.2. Compliance Certificate and Opinions.
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Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition precedent),
if any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent (including covenants compliance with which
constitute a condition precedent), if any, have been complied with, except that
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than the certificates provided
pursuant to Section 10.4) shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
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Section 1.3. Forms of Documents Delivered to Trustee.
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In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.4. Acts of Holders.
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(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments is or are delivered to the
Trustee, and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 6.1) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved by the affidavit of a witness of such execution or by
the certificate of any notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a Person acting in other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
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(c) The fact and date of the execution by any Person of any such instrument
or writing, or the authority of the Person executing the same, may also be
proved in any other manner which the Trustee deems sufficient and in accordance
with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder of
the same Security and the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
(f) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities of any series entitled to
give, make or take any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this Indenture to be
given, made or taken by Holders of Securities of such series, provided that the
Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of the relevant series on such record date, and no other Holders,
shall be entitled to take the relevant action, whether or not such Holders
remain Holders after such record date, provided that no such action shall be
effective hereunder unless taken on or prior to the applicable Expiration Date
(as hereinafter in this Section 1.4(f) provided) by Holders of the requisite
principal amount of Outstanding Securities of such series on such record date.
Nothing in this paragraph shall be construed to prevent the Company from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities of the relevant series in the manner set forth in
Section 1.6.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities of any series entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.2, (iii) any request to institute
proceedings referred to in Section 5.7(2) or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date, provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of
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Outstanding Securities of such series on such record date. Nothing in this
paragraph shall be construed to prevent the Trustee from setting a new record
date for any action for which a record date has previously been set pursuant to
this paragraph (whereupon the record date previously set shall automatically and
with no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders and the applicable
Expiration Date to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day, provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the other party hereto in writing, and
to each Holder of Securities of the relevant series in the manner set forth in
Section 10.6, on or prior to the existing Expiration Date. If an Expiration Date
is not designated with respect to any record date set pursuant to this Section,
the party hereto which set such record date shall be deemed to have initially
designated the 180th day after such record date as the Expiration Date with
respect thereto, subject to its right to change the Expiration Date as provided
in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be
later than the 180th day after the applicable record date.
(g) Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
Section 1.5. Notices, Etc. to Trustee and Company.
----------------------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder, any holder of Capital Securities or the
Company shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its Corporate Trust
Office, or
(2) the Company by the Trustee, any Holder or any holder of Capital
Securities shall be sufficient for every purpose (except as otherwise provided
in Section 5.1) hereunder if in writing and mailed, first class, postage
prepaid, to the Company addressed to it at the address of its principal office
specified in the first paragraph of this instrument or at any other address
previously furnished in writing to the Trustee by the Company.
13
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Section 1.6. Notice to Holders; Waiver.
-----------------------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to each Holder affected
by such event, at the address of such Holder as it appears in the Securities
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. In case, by reason of
the suspension of or irregularities in regular mail service or for any other
reason, it shall be impossible or impracticable to mail notice of any event to
Holders when said notice is required to be given pursuant to any provision of
this Indenture or of the relevant Securities, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice. Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Holders shall be filed with
the Trustee, but such filing shall not be a condition precedent to the validity
of any action taken in reliance upon such waiver.
Section 1.7. Conflict with Trust Indenture Act.
-------------------------------------------------
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the Trust Indenture
Act through operation of Section 318(c) thereof, such imposed duties shall
control. This Indenture, the Company and the Trustee shall be deemed for all
purposes hereof to be subject to and governed by the Trust Indenture Act to the
same extent as would be the case if this Indenture were so qualified on the date
hereof.
Section 1.8. Effect of Headings and Table of Contents.
--------------------------------------------------------
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.9. Successors and Assigns.
--------------------------------------
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 1.10. Separability Clause.
------------------------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
14
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Section 1.11 Benefits of Indenture.
-------------------------------------
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors and
assigns, the holders of Senior Indebtedness, the Holders of the Securities and,
to the extent expressly provided in Sections 5.2, 5.8, 5.9, 5.11, 5.13, 9.1 and
9.2, the holders of Capital Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
Section 1.12. Governing Law.
------------------------------
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflict of
laws principles.
Section 1.13. Non-Business Days.
----------------------------------
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding any
other provision of this Indenture or the Securities) payment of interest or
principal (and premium, if any) need not be made on such date, but may be made
on the next succeeding Business Day (and no interest shall accrue for the period
from and after such Interest Payment Date, Redemption Date or Stated Maturity,
as the case may be, until such next succeeding Business Day) 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 Interest Payment Date or Redemption Date or at the
Stated Maturity).
ARTICLE II
SECURITY FORMS
Section 2.1. Forms Generally.
-------------------------------
The Securities of each series and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article, or
in such other form or forms as shall be established by or pursuant to a Board
Resolution or in one or more indentures supplemental hereto, in each case with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may be required to comply with applicable tax laws or the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Company
15
<PAGE>
and delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 3.3 with respect to the authentication and delivery of
such Securities.
The Trustee's certificate of authentication shall be substantially in the
form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such securities.
Securities distributed to holders of Book-Entry Capital Securities upon the
dissolution of a PMI Trust shall be distributed in the form of one or more
Global Securities registered in the name of a Depository or its nominee, and
deposited with the Security Registrar, as custodian for such Depository, or held
by such Depository, for credit by the Depository to the respective accounts of
the beneficial owners of the Securities represented thereby (or such other
accounts as they may direct). Securities distributed to holders of Capital
Securities other than Book-Entry Capital Securities upon the dissolution of a
PMI Trust shall not be issued in the form of a Global Security or any other form
intended to facilitate book-entry trading in beneficial interests in such
Securities.
Section 2.2. Form of Face of Security.
----------------------------------------
If the Security is a Restricted Security, then insert - THIS
-----------------------------------------------------
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A) BY [THE INITIAL INVESTOR][AN INVESTOR WHO
WAS PRIOR TO THE DISTRIBUTION OF THIS SECURITY HOLDING RELATED CAPITAL
SECURITIES AS AN INITIAL INVESTOR THEREOF] (1) TO A PERSON WHO THE
TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) ACQUIRING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN
BOOK-ENTRY FORM AS SET FORTH IN (A) ABOVE OR TO AN INSTITUTIONAL INVESTOR
THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 OF REGULATION
D
16
<PAGE>
UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE
UNITED STATES. IF THIS SECURITY IS OWNED BY AN INITIAL INVESTOR THAT IS NOT
A QUALIFIED INSTITUTIONAL BUYER, IT MAY NOT BE HELD IN BOOK-ENTRY FORM AND
MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE TRANSFER COMPLIES
WITH THE FOREGOING RESTRICTIONS AS PROVIDED IN THE INDENTURE REFERRED TO
BELOW. THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE
FOREGOING RESTRICTIONS.]
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 THIS
SECURITY 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 THIS SECURITY 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
THIS SECURITY 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.
[If applicable, insert -THE RECEIPT AND ACCEPTANCE OF THIS SECURITY OR
---------------------
ANY INTEREST HEREIN BY OR ON BEHALF OF THE HOLDER HEREOF OR ANY BENEFICIAL
OWNER SHALL CONSTITUTE THE ACCEPTANCE BY THE HOLDER HEREOF AND ALL OTHERS
HAVING A BENEFICIAL INTEREST IN THIS SECURITY OF ALL OF THE TERMS AND
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT REFERRED TO HEREIN.]
17
<PAGE>
THE PMI GROUP, INC.
(Title of Security)
No. $
THE PMI GROUP, INC., a corporation organized and existing under the laws of
Delaware (hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to _______________, or registered assigns, the principal
sum of __________ Dollars [if the Security is a Global Security, then insert, if
applicable--, or such other principal amount as may be set forth in the records
of the Securities Registrar hereinafter referred to in accordance with the
Indenture,] on _______, . The Company further promises to pay interest on said
principal sum from __________, or from the most recent interest payment date
(each such date, an "Interest Payment Date") on which interest has been paid or
duly provided for, [monthly] [quarterly] [semi-annually] [if applicable,
insert--(subject to deferral as set forth herein)] in arrears on [insert
applicable Interest Payment Dates] of each year, commencing _______, _____, at
the rate of ____% per annum [if applicable, insert - , provided that such rate
is subject to increase as provided in the Registration Rights Agreement
hereinafter referred to,] [if applicable, insert-- plus Additional Sums, if
any,] until the principal hereof shall have become due and payable [if
applicable, insert-- , plus Additional Interest, if any, at the rate of ___% per
annum,] and interest on any overdue principal, premium or Additional Sums and
(without duplication and to the extent that payment of such interest is
enforceable under applicable law) on any overdue installment of interest [if
applicable, insert-- (including Additional Interest)] at the rate of ___% per
annum, compounded [monthly] [quarterly] [semi-annually] from the dates such
amounts are due until they are paid or made available for payment, and such
interest on overdue amounts shall be payable on demand. The amount of interest
payable for any period less than a full interest period shall be computed on the
basis of twelve 30-day months and a 360-day year. The amount of interest payable
for any full interest period shall be computed by dividing the rate per annum by
[twelve][four][two]. In the event that any date on which interest is payable on
this Security is not a Business Day, then a payment of the interest 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 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 the payment was originally payable.
A "Business Day" shall mean any day other than (i) a Saturday or Sunday, (ii) 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 (iii) a day on which the
Corporate Trust Office of the Trustee [if applicable, insert-- , or the
principal office of the Property Trustee under the Trust Agreement hereinafter
referred to for [PMI Capital ___,]] is closed for business. The interest
installment so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in the Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities is registered
at the close of business on the Regular Record Date for such interest
installment, which shall be the [insert definition of Regular Record Dates]. Any
such interest installment not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name this
18
<PAGE>
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
[If applicable, insert - So long as no Event of Default has occurred and is
continuing, the Company shall have the right at any time during the term of this
Security to defer payment of interest on this Security, at any time or from time
to time, for up to _____ consecutive [monthly] [quarterly] [semi-annual]
interest payment periods with respect to each deferral period (each an
"Extension Period"), during which Extension Periods the Company shall have the
right to make partial payments of interest on any Interest Payment Date, and] at
the end of which the Company shall pay all interest then accrued and unpaid [if
applicable, insert - (together with Additional Interest thereon to the extent
permitted by applicable law)]; provided, however, that no Extension Period shall
extend beyond the Stated Maturity of the principal of this Security; provided,
further, that during any such Extension Period, the Company shall not, and shall
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 that rank pari passu in all respects with or
junior in interest to this Security 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
this Security (other than (a) dividends or distributions in Common Stock, (b)
any declaration of a dividend in connection with the implementation of a Rights
Plan, or the issuance of any Common Stock or any class or series of preferred
stock of the Company under any Rights Plan in the future, or the redemption or
repurchase of any such rights pursuant to a Rights Plan, (c) payments under any
PMI 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 extend the interest payment period,
provided that no Extension Period shall exceed ______ consecutive [months]
[quarters] [semi-annual periods] or extend beyond the Stated Maturity of the
principal of this Security. Upon the termination of any such Extension Period
and upon 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, but each installment of interest that would otherwise
have been due and payable during such Extension shall bear Additional Interest
(to the extent that the payment of such interest shall be legally enforceable)
at the rate of ___% per annum, compounded [monthly] [quarterly] [semi-annually]
and calculated as set forth in the first paragraph of this Security, from the
dates on which amounts would otherwise have been due and payable until paid or
made available for payment. The Company shall give the Holder of this Security
and the Trustee notice of its election to begin any Extension Period at least
one Business Day prior to the next succeeding
19
<PAGE>
Interest Payment Date on which interest on this Security would be payable but
for such deferral [if applicable, insert - or so long as this Security is held
by [insert name of applicable PMI Trust], at least one Business Day prior to the
earlier of (i) the date on which Distributions on the Capital Securities would
have been payable but for such deferral or (ii) the date the Property Trustee is
required to give notice to any applicable self-regulatory organization or to
holders of such 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].
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in the United States, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts [if applicable, insert - ;provided, however, that at the option of
the Company payment of interest may be made (i) by check mailed to the address
of the Person entitled thereto as such address shall appear in the Securities
Register or (ii) by wire transfer in immediately available funds at such place
and to such account as may be designated by the Person entitled thereto as
specified in the Securities Register].
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and junior in right of payments to the prior payment
in full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such actions as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes. Each
Holder hereof, by his acceptance hereof, waives all notice of the acceptance of
the subordination provisions contained herein and in the Indenture by each
holder of Senior Indebtedness, whether now outstanding or hereafter incurred,
and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
THE PMI GROUP, INC.
By:
------------------------
20
<PAGE>
Name:
-------------------------
Title:
-------------------------
Attest:
- --------------------------------
Section 2.3. Form of Reverse of Security.
------------------------------------------
This Security is one of a duly authorized issue of securities of the Company
(herein called the "Securities"), issued and to be issued in one or more series
under a Junior Subordinated Indenture, dated as of February 4, 1997 (herein
called the "Indenture"), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Trustee, the Company and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the face hereof [if applicable, insert - limited in aggregate
principal amount to $ ].
All terms used in this Security that are defined in the Indenture [if
applicable, insert - or in the Amended and Restated Trust Agreement, dated as of
___________, ____, as amended (the "Trust Agreement"), for [PMI Capital ___ ,]
among THE PMI GROUP, INC., as Depositor, and the Trustees named therein, shall
have the meanings assigned to them in the Indenture [if applicable, insert - or
the Trust Agreement, as the case may be].
[If applicable, insert - The Company may at any time, at its option, on or
------------------
after _________, ____, and subject to the terms and conditions of Article XI of
the Indenture, redeem this Security in whole at any time or in part from time to
time, without premium or penalty, at a redemption price equal to 100% of the
principal amount thereof plus accrued and unpaid interest [if applicable, insert
---------------------
including Additional Interest, if any,] to the Redemption Date.]
[If applicable, insert - The Company may, at its option, on or after
---------------------
_________, ____, and subject to the terms and conditions of Article XI of the
Indenture, redeem this Security in whole at any time or in part from time to
time, at the following Redemption Prices (expressed as percentages of the
principal amount): If redeemed during the 12-month period beginning __________,
Redemption
Year Price
--------- -----------------
21
<PAGE>
and at 100% on or after _________, ____, together in the case of any such
redemption with accrued interest to but excluding the Redemption Date.]
[If applicable, insert - Upon the occurrence and during the continuation of a
---------------------
Tax Event in respect of the PMI Trust, the Company may, at its option, [if
applicable, insert - at any time] [if applicable, insert - before _________,
-------------
____ and] within 90 days of the occurrence of such Tax Event redeem this
Security, in whole but not in part, subject to the provisions of Article XI of
the Indenture, at a redemption price equal to [describe formulation].]
In the event of redemption of this Security in part only, a new Security or
Securities of this series for the unredeemed portion hereof will be issued in
the name of the Holder hereof upon the cancellation hereof.
[If applicable, insert - Subject to certain limitations in the Indenture, at
---------------------
any time when the Company is not subject to Section 13 or 15(d) of the United
States Securities Exchange Act of 1934, as amended, upon the request of a Holder
of this Security, the Company will promptly furnish or cause to be furnished
Rule 144A Information (as defined below) to such Holder, or to a prospective
purchaser of this Security designated by any such Holder to the extent required
to permit compliance by such Holder with Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), in connection with the resale of this
Security. "Rule 144A Information" shall be such information as is specified
pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provisions thereto).]
[If applicable, insert - Whenever there is a reference, in any context, to the
---------------------
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security, such mention shall be deemed to include mention of the payment of
[Registration Default Interest] [insert applicable defined term] as defined in
the Exchange and Registration Rights Agreement among the Company, [insert name
of applicable PMI Trust] and [insert name(s) of applicable initial
purchaser(s)], dated ________, _____, (the "Registration Rights Agreement") to
the extent that, in such context, [Registration Default Interest] [insert
applicable defined term] is, was or would be payable in respect of this Security
and express mention of the payment of Registration Default Interest [insert
applicable defined term] (if applicable) in any provision of this Security shall
not be construed as excluding Registration Default Interest [insert applicable
defined term] in those provisions of this Security where such express mention is
not made.]
The Indenture contains provisions for satisfaction and discharge of the entire
indebtedness of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and obligations
of the Company and of the Holders of the Securities, with the
22
<PAGE>
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities of each series to be affected by such supplemental
indenture. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such series,
to waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
[If the Security is not a Discount Security, insert - As provided in and
subject to the provisions of the Indenture, if an Event of Default with respect
to the Securities of this series at the time Outstanding occurs and is
continuing, then and in every such case the Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Securities of this series may
declare the principal amount of all the Securities of this series to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders), provided that, in the case of the Securities of this
series issued to a PMI Trust, if upon an Event of Default, the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of this series fails to declare the principal of all the Securities of this
series to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount of the Capital Securities of such PMI Trust then
outstanding shall have such right by a notice in writing to the Company and the
Trustee; and upon any such declaration the principal amount of and the accrued
interest [if applicable, insert (including any Additional Interest)] on all the
Securities of this series shall become immediately due and payable, provided
that the payment of principal and interest [if applicable, insert - (including
any Additional Interest)] on such Securities shall remain subordinated to the
extent provided in Article XIII of the Indenture.]
[If the Security is a Discount Security, insert - As provided in and subject
to the provisions of the Indenture, if an Event of Default with respect to the
Securities of this series at the time Outstanding occurs and is continuing, then
and in every such case the Trustee or the Holders of not less than such portion
of the principal amount as may be specified in the terms of this series may
declare an amount of principal of the Securities of this series to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders), provided that, in the case of the Securities of this
series issued to a PMI Trust, if upon an Event of Default, the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of this series fails to declare the principal of all the Securities of this
series to be immediately due and payable, the holders of at least 25% in
aggregate Liquidation Amount of the Capital Securities of such PMI Trust then
outstanding shall have such right by a notice in writing to the Company and the
Trustee. Such amount shall be equal to [insert formula for determining the
amount]. Upon any such declaration, such amount of the principal of and the
accrued interest [if applicable, insert - (including any Additional Interest)]
on all the Securities of this series shall become immediately due and payable,
provided that the payment of principal and interest [if applicable, insert -
(including any Additional Interest)] on such Securities shall remain
subordinated to the extent provided in Article XIII of the Indenture. Upon
23
<PAGE>
payment (i) of the amount of principal so declared due and payable and (ii) of
interest on any overdue principal and overdue interest (in each case to the
extent that the payment of such interest shall be legally enforceable), all of
the Company's obligations in respect of the payment of the principal of and
interest, if any, on this Security shall terminate.]
[If the Security is entitled to registration rights, insert - The Holder of
----------------------------------------------------------
this Security (and any Person that has a beneficial interest in this Security)
is entitled to the benefits of and agrees to be bound by the terms of the
Registration Rights Agreement, as the same may be amended from time to time,
executed by the Company and the PMI Trust.]
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest [if applicable, insert - (including any Additional Interest)] on this
---------------------
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Securities Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company maintained under Section 10.2 of the Indenture duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee shall treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Securities of this series are issuable only in registered form without
coupons in denominations of $_________ and any integral multiple [if applicable,
-------------
insert - of $_____] in excess thereof. As provided in the Indenture and subject
- ------
to certain limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities of such series
of a different authorized denomination, as requested by the Holder surrendering
the same.
The Company and, by its acceptance of this Security or a beneficial interest
therein, the Holder of, and any Person that acquires a beneficial interest in,
this Security agree that for United States Federal, state and local tax purposes
it is intended that this Security constitute indebtedness.
24
<PAGE>
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO CONFLICT OF LAWS PRINCIPLES.
Section 2.4. Additional Provisions Required in Global Security.
-----------------------------------------------------------------
Any Global Security issued hereunder shall, in addition to the provisions
contained in Sections 2.2 and 2.3, bear a legend in substantially the following
form:
"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE AND MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY."
Section 2.5. Form of Trustee's Certificate of Authentication.
---------------------------------------------------------------
This is one of the Securities referred to in the within mentioned Indenture.
Dated:
The Bank of New York,
as Trustee
By:
------------------------
Authorized Signatory
ARTICLE III
THE SECURITIES
Section 3.1. Title and Terms.
-------------------------------
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of Securities of a series:
25
<PAGE>
(a) the title of the securities of such series, which shall distinguish the
Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.4, 3.5, 3.6, 3.7, 9.6 or 11.6 and except for any
Securities that, pursuant to Section 3.3, are deemed never to have been
authenticated and delivered hereunder); provided, however, that the authorized
-----------------
aggregate principal amount of such series may be increased above such amount by
a Board Resolution to such effect;
(c) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof;
(d) the rate or rates, if any, at which the Securities of such series shall
bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable in respect of any Securities of such series,
the Interest Payment Dates on which such interest shall be payable, the right,
pursuant to Section 3.11 or as otherwise set forth therein, of the Company to
defer or extend an Interest Payment Date, and the Regular Record Date for the
interest payable on any Interest Payment Date or the method by which any of the
foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any) and
interest on the Securities of such series shall be payable, the place or places
where the Securities of such series may be presented for registration of
transfer or exchange, and the place or places where notices and demands to or
upon the Company in respect of the Securities of such series may be made;
(f) the period or periods within or the date or dates on which, if any, the
price or prices at which and the terms and conditions upon which the Securities
of such series may be redeemed, in whole or in part, at the option of the
Company;
(g) the obligation or the right, if any, of the Company to redeem, repay or
purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions, or at the option of a Holder thereof, and
the period or periods within which, the price or prices at which, the currency
or currencies (including currency unit or units) in which and the other terms
and conditions upon which Securities of the series shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
(h) the denominations in which any Securities of such series shall be
issuable, if other than denominations of $1,000 and any integral multiple
thereof;
(i) if other than Dollars, the currency or currencies (including currency
unit or units) in which the principal of (and premium, if any) and interest, if
any, on the Securities of the series shall be
26
<PAGE>
payable, or in which the Securities of the series shall be denominated and the
manner of determining the equivalent thereof in Dollars for purposes of the
definition of Outstanding;
(j) the additions, modifications or deletions, if any, in the Events of
Default or covenants of the Company set forth herein with respect to the
Securities of such series;
(k) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series that shall be payable upon
declaration of acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to the
Securities of such series as shall be necessary to permit or facilitate the
issuance of the Securities of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons;
(m) any index or indices used to determine the amount of payments of
principal of and premium, if any, on the Securities of such series or the manner
in which such amounts will be determined;
(n) whether the Securities of the series, or any portion thereof, shall
initially be issuable in the form of a temporary Global Security representing
all or such portion of the Securities of such series and provisions for the
exchange of such temporary Global Security for definitive Securities of such
series;
(o) if applicable, that any Securities of the series shall be issuable in
whole or in part in the form of one or more Global Securities and, in such case,
the respective Depositories for such Global Securities, the form of any legend
or legends which shall be borne by any such Global Security in addition to or in
lieu of that set forth in Section 2.4 and any circumstances in addition to or in
lieu of those set forth in Section 3.6 in which any such Global Security may be
exchanged in whole or in part for Securities registered, and any transfer of
such Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depository for such Global Security or a nominee
thereof;
(p) the appointment of any Paying Agent or Agents for the Securities of
such series;
(q) the terms of any right to convert or exchange Securities of such series
into any other securities or property of the Company, and the additions or
changes, if any, to this Indenture with respect to the Securities of such series
to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated Trust
Agreement and Guarantee Agreement, if different from the forms attached hereto
as Annexes A, B and C, respectively;
27
<PAGE>
(s) the relative degree, if any, to which the Securities of the series
shall be senior to or be subordinated to other series of Securities in right of
payment, whether such other series of Securities are Outstanding or not; and
(t) whether the Securities of the series shall be entitled to the benefits
of a registration rights agreement.
(u) any other terms of the Securities of such series (which terms shall not
be inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided herein or in or pursuant
to such Board Resolution and set forth in such Officers' Certificate or in any
such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
The Securities shall be subordinated in right of payment to Senior
Indebtedness as provided in Article XIII.
Unless otherwise provided with respect to the Securities of any series, at
the option of the Company, interest on the Securities of any series that bears
interest may be paid (i) by mailing a check to the address of the person
entitled thereto as such address shall appear in the Security Register or (ii)
by wire transfer in immediately available funds at such place and to such
account as may be designated by the person entitled thereto as specified in the
Security Register.
Section 3.2. Denominations.
-----------------------------
The Securities of each series shall be in registered form without coupons
and shall be issuable in denominations of $1,000 and any integral multiple
thereof, unless otherwise specified as contemplated by Section 3.1.
Section 3.3. Execution, Authentication, Delivery and Dating.
--------------------------------------------------------------
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced or impressed thereon and
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or
28
<PAGE>
any of them have ceased to hold such offices prior to the authentication and
delivery of such Securities or did not hold such offices at the date of such
Securities. At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities of any series executed by
the Company to the Trustee for authentication, together with a Company Order for
the authentication and delivery of such Securities, and the Trustee in
accordance with the Company Order shall authenticate and deliver such
Securities. If the form or terms of the Securities of the series have been
established by or pursuant to one or more Board Resolutions as permitted by
Sections 2.1 and 3.1, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 6.1) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 2.1, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant
to Board Resolution as permitted by Section 3.1, that such terms have been
established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
29
<PAGE>
signatories, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder. Notwithstanding the foregoing, if any Security shall
have been authenticated and delivered hereunder but never issued and sold by the
Company, and the Company shall deliver such Security to the Trustee for can
cellation as provided in Section 3.10, for all purposes of this Indenture such
Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits of this Indenture.
Section 3.4. Temporary Securities.
------------------------------------
Pending the preparation of definitive Securities of any series, the Company
may execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten, mimeographed or otherwise produced, in any denomination,
substantially of the tenor of the definitive Securities of such series in lieu
of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series to be prepared without unreasonable delay.
After the preparation of definitive Securities, the temporary Securities shall
be exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for that purpose
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and make available for delivery in exchange therefor one or more
definitive Securities of the same series, of any authorized denominations having
the same Original Issue Date and Stated Maturity and having the same terms as
such temporary Securities. Until so exchanged, the temporary Securities of any
series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series.
Section 3.5. Global Securities.
-------------------------------
(a) Each Global Security issued under this Agreement shall be registered in
the name of the Depository designated by the Company for such Global Security or
a nominee thereof and delivered to such Depository or a nominee thereof or
custodian therefor, and each such Global Security shall constitute a single
Security for all purposes of this Agreement.
(b) Notwithstanding any other provision in this Agreement, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depository for such Global Security or a nominee
thereof unless (a) such Depository advises the Trustee in writing that such
Depository is no longer willing or able to properly discharge its
responsibilities as Depository with respect to such Global Security, and the
Company is unable to locate a qualified successor, (b) the Company executes and
delivers to the Trustee a Company Order stating that the Company elects to
30
<PAGE>
terminate the book-entry system through the Depository, or (c) there shall have
occurred and be continuing an Event of Default.
(c) If any Global Security is to be exchanged for other Securities or
cancelled in whole, it shall be surrendered by or on behalf of the Depository or
its nominee to the Security Registrar for exchange or cancellation as provided
in this Article III. If any Global Security is to be exchanged for other
Securities or cancelled in part, or if another Security is to be exchanged in
whole or in part for a beneficial interest in any Global Security, then either
(i) such Global Security shall be so surrendered for exchange or cancellation as
provided in this Article III or (ii) the principal amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or cancelled, or equal to the principal amount of such other Security
to be so exchanged for a beneficial interest therein, as the case may be, by
means of an appropriate adjustment made on the records of the Security
Registrar, whereupon the Trustee, in accordance with the Applicable Procedures,
shall instruct the Depository or its authorized representative to make a
corresponding adjustment to its records. Upon any such surrender or adjustment
of a Global Security by the Depository, accompanied by registration
instructions, the Trustee shall, subject to Section 3.5(b) and as otherwise
provided in this Article III, authenticate and make available for delivery any
Securities issuable in exchange for such Global Security (or any portion
thereof) in accordance with the instructions of the Depository. The Trustee
shall not be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be fully protected in relying on, such
instructions.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article III, Section 9.6 or 11.6 or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security, unless such Security is registered in the name of a Person other than
the Depository for such Global Security or a nominee thereof.
(e) The Depository or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security shall be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depository or its nominee or its Agent Members.
Neither the Trustee nor the Securities Registrar shall have any liability in
respect of any transfers effected by the Depository.
(f) The rights of owners of beneficial interests in a Global Security shall
be exercised only through the Depository and shall be limited to those
established by law and agreements between such owners and the Depository and/or
its Agent Members.
31
<PAGE>
Section 3.6. Registration, Transfer and Exchange Generally, Certain
-------------------------------------------------------------------
Transfers and Exchanges; Securities Act Legends.
- ------------------------------------------------
(a) The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed "Securities Registrar"
for the purpose of registering Securities and transfers of Securities as herein
provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company designated for that purpose the Company shall execute,
and the Trustee shall authenticate and make available for delivery, in the name
of the designated transferee or transferees, one or more new Securities of the
same series of any authorized denominations, of a like aggregate principal
amount, of the same Original Issue Date and Stated Maturity and having the same
terms and bearing such restrictive legends as may be required by this Indenture.
At the option of the Holder, Securities may be exchanged for other
Securities of the same series of any authorized denominations, of a like
aggregate principal amount, of the same Original Issue Date and Stated Maturity
and having the same terms and bearing such restrictive legends as may be
required by this Indenture, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any securities are so surrendered for exchange,
the Company shall execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to receive.
All Securities issued upon any transfer or exchange of Securities shall be
the valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Securities surrendered upon such
transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if
so required by the Company or the Securities Registrar) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange of
Securities, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (a) to issue, transfer or exchange any Security of
any series during a period beginning at the opening of business 15 days before
the day of selection for redemption of Securities pursuant to Article XI and
ending at the close of business on the day of mailing of notice of redemption or
(b) to transfer or exchange any Security so selected for redemption in whole or
in part, except, in the case of any Security to be redeemed in part, any portion
thereof not to be redeemed.
32
<PAGE>
(b) Certain Transfers and Exchanges. Notwithstanding any other provision of
-------------------------------
this Indenture, transfers and exchanges of Securities and beneficial interests
in a Global Security of the kinds specified in this Section 3.6(b) shall be made
only in accordance with this Section 3.6(b).
(i) Restricted Non-Global Security to Global Security. If the Holder
-------------------------------------------------
of a Restricted Security (other than a Global Security) wishes at any time to
transfer all or any portion of such Security to a Person who wishes to take
delivery thereof in the form of a beneficial interest in a Global Security, such
transfer may be effected only in accordance with the provisions of this Clause
(b)(i) and subject to the Applicable Procedures. Upon receipt by the Security
Registrar of (A) such Security as provided in Section 3.6(a) and written
instructions satisfactory to the Security Registrar directing that a beneficial
interest in the Global Security in a specified principal amount not greater than
the principal amount of such Security be credited to a specified Agent Member's
account and (B) a Restricted Securities Certificate duly executed by such Holder
or his attorney duly authorized in writing, then the Security Registrar shall
cancel such Security (and issue a new Security in respect of any untransferred
portion thereof) as provided in Section 3.6(a) and increase the aggregate
principal amount of the Global Security by the specified principal amount as
provided as provided in Section 3.5(c).
(ii) Non-Global Security to Non-Global Security. A Security that is
------------------------------------------
not a Global Security may be transferred, in whole or in part, to a Person who
takes delivery in the form of another Security that is not a Global Security as
provided in Section 3.6(a), provided that if the Security to be transferred in
whole or in part is a Restricted Security, then the Security Registrar shall
have received a Restricted Securities Certificate duly executed by the
transferor Holder or his attorney duly authorized in writing.
(iii) Exchanges between Global Security and Non-Global Security. A
---------------------------------------------------------
beneficial interest in a Global Security may be exchanged for a Security that is
not a Global Security as provided in Section 3.5.
(iv) Certain Initial Transfers of Non-Global Securities. In the case
--------------------------------------------------
of Securities initially issued other than in global form, an initial transfer or
exchange of such Securities that does not involve any change in beneficial
ownership may be made to an Institutional Accredited Investor or Investors as if
such transfer or exchange were not an initial transfer or exchange; provided
that written certification shall be provided by a Holder of such Securities to
the Securities Registrar that such transfer or exchange does not involve a
change in beneficial ownership.
(c) Restricted Securities Legend. Except as set forth below, all
----------------------------
Securities shall bear a Restricted Securities Legend:
(i) subject to the following Clauses of this Section 3.6(c), a
Security or any portion thereof which is exchanged, upon transfer or otherwise,
for a Global Security or any portion thereof shall bear the Restricted
Securities Legend;
33
<PAGE>
(ii) subject to the following Clauses of this Section 3.6(c), a new
Security which is not a Global Security and is issued in exchange for another
Security (including a Global Security) or any portion thereof, upon transfer or
otherwise, shall bear a Restricted Securities Legend;
(iii) after the date which is three years following the Original Issue
Date of a Security, a new Security (other than a Global Security) which does not
bear a Restricted Securities Legend shall, unless the Securities Registrar is
otherwise instructed by the Company in writing, be issued in exchange for or in
lieu of a Restricted Security or any portion thereof which bears such a legend
if the Trustee has received an Unrestricted Securities Certificate, in the form
of Exhibit E hereto, duly executed by the Holder of such legended Restricted
Security or his attorney duly authorized in writing, and after such date and
receipt of such certificate, the Trustee shall authenticate and deliver such a
new Security in exchange for or in lieu of such other Security as provided in
this Article III;
(iv) any Securities issued pursuant to an effective registration
statement under the Securities Act in exchange for Outstanding Securities and
any Securities which are sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act (including a shelf registration
statement), together with their Successor Securities shall not bear a Restricted
Securities Legend; the Company shall inform the Trustee in writing of the
effective date of any such registration statement registering Securities under
the Securities Act and shall notify the Trustee at any time when prospectuses
may not be delivered with respect to Securities to be sold pursuant to such
registration statement;
(v) a new Security (other than a Global Security) which does not bear
a Restricted Securities Legend may be issued in exchange for or in lieu of a
Restricted Security or any portion thereof which bears such a legend if, in the
Company's judgment, placing such a legend upon such new Security is not
necessary to ensure compliance with the registration requirements of the
Securities Act, and the Trustee, at the written direction of the Company in the
form of an Officers' Certificate, shall authenticate and deliver such a new
Security as provided in this Article III;
(vi) notwithstanding the foregoing provisions of this Section 3.6(c),
a Successor Security of a Security that does not bear a Restricted Securities
Legend shall not bear such form of legend unless the Company has reasonable
cause to believe that such Successor Security is a "restricted security" within
the meaning of Rule 144, in which case the Trustee, at the written direction of
the Company in the form of an Officer's Certificate, shall authenticate and
deliver a new Security bearing a Restricted Securities Legend in exchange for
such Successor Security as provided in this Article III; and
(vii) Securities distributed to a holder of Capital Securities upon
dissolution of a PMI Trust shall bear a Restricted Securities Legend if the
Capital Securities so held bear a similar legend.
34
<PAGE>
Section 3.7. Mutilated, Destroyed, Lost and Stolen Securities.
----------------------------------------------------------------
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Company or the Trustee to save
each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same issue
and series of like tenor and principal amount, having the same Original Issue
Date and Stated Maturity, and bearing a number not contemporaneously
outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security, and
(ii) such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and upon its request the Trustee shall authenticate and make available for
delivery, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same issue and series of like tenor and principal amount, having the same
Original Issue Date and Stated Maturity as such destroyed, lost or stolen
Security, and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
Section 3.8. Payment of Interest; Interest Rights Preserved.
--------------------------------------------------------------
Interest on any Security of any series which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date, shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such interest
in respect of Securities of such series, except that, unless otherwise provided
in the Securities of such series, interest payable on the Stated Maturity of the
principal of a Security shall
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be paid to the Person to whom principal is paid. The initial payment of interest
on any Security of any series which is issued between a Regular Record Date and
the related Interest Payment Date shall be payable as provided in such Security
or in the Board Resolution pursuant to Section 3.1 with respect to the related
series of Securities.
Any interest on any Security which is payable, but is not timely paid or
duly provided for, on any Interest Payment Date for Securities of such series
(herein called "Defaulted Interest"), shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed payment, and
at the same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the Persons entitled to such Defaulted Interest as
in this Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not less
than 10 days after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company of such Special Record
Date and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first class, postage prepaid, to each Holder of a
Security of such series at the address of such Holder as it appears in the
Securities Register not less than 10 days prior to such Special Record Date. The
Trustee may, in its discretion, in the name and at the expense of the Company,
cause a similar notice to be published at least once in a newspaper, customarily
published in the English language on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, but such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose names the Securities of
such series (or their respective Predecessor Securities) are registered on such
Special Record Date and shall no longer be payable pursuant to the following
Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of the series in respect of which interest is in default
may be listed and, upon such notice as may be required by such exchange (or by
the Trustee if the Securities are not listed), if, after notice given by the
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Company to the Trustee of the proposed payment pursuant to this Clause, such
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
Section 3.9. Persons Deemed Owners.
-------------------------------------
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 3.8) any interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
No holder of any beneficial interest in any Global Security held on its
behalf by a Depository shall have any rights under this Indenture with respect
to such Global Security, and such Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by a Depository or impair, as between a Depository and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depository (or its nominee) as
Holder of any Security.
Section 3.10. Cancellation.
-----------------------------
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee, and any such Securities and Securities surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and all Securities so delivered shall be promptly canceled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture.
Section 3.11. Computation of Interest.
----------------------------------------
Except as otherwise specified as contemplated by Section 3.1 for Securities
of any series, interest on the Securities of each series for any partial period
shall be computed on the basis of a 360-day year of twelve 30-day months and the
actual days elapsed in a partial month in such period, and interest on the
Securities of each series for a full period shall be computed by dividing the
rate per annum by the number of interest periods that together constitute a full
twelve months.
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Section 3.12. Deferrals of Interest Payment Dates.
----------------------------------------------------
If specified as contemplated by Section 2.1 or Section 3.1 with respect to
the Securities of a particular series, so long as no Event of Default has
occurred and is continuing, the Company shall have the right, at any time during
the term of such series, from time to time to defer the payment of interest on
such Securities for such period or periods as may be specified as contemplated
by Section 3.1 (each, an "Extension Period") during which Extension Periods the
Company shall have the right to make partial payments of interest on any
Interest Payment Date. No Extension Period shall end on a date other than an
Interest Payment Date. At the end of any such Extension Period the Company shall
pay all interest then accrued and unpaid on the Securities (together with
Additional Interest thereon, if any, at the rate specified for the Securities of
such series to the extent permitted by applicable law); provided, however, that
no Extension Period shall extend beyond the Stated Maturity of the principal of
the Securities of such series; provided, further, that during any such Extension
Period, the Company shall not, and shall not permit any Subsidiary to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of the Company's capital
stock, or (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 Securities of such
series 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 Securities of such
series (other than (a) dividends or distributions in Common Stock, (b) any
declaration of a dividend in connection with the implementation of a Rights
Plan, or the issuance of any Common Stock of any class or series of preferred
stock of the Company under any Rights Plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under any PMI
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 extend the interest payment period, provided
that no Extension Period shall exceed the period or periods specified in such
Securities or extend beyond the Stated Maturity of the principal of such
Securities. Upon the termination of any Extension Period and upon 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, subject to the above
requirements, but each installment of interest that would otherwise have been
due and payable during such Extension Period shall bear Additional Interest as
and to the extent as may be specified as contemplated by Section 3.1. The
Company shall give the Holders of the Securities of such series and the Trustee
notice of its election to begin any such Extension Period at least one Business
Day prior to the next succeeding Interest Payment Date on which interest on
Securities of such series would be payable but for such deferral or, with
respect to any Securities of a series issued to PMI Trust, so long as any such
Securities are held by such PMI Trust, at least one Business Day prior to the
earlier of (i) the date the Distributions on the Capital Securities of such PMI
Trust would have been payable but for such deferral, (ii) the date the Property
Trustee of such PMI Trust is required to give notice to any applicable
self-
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regulatory organization or to holders of such 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 Trustee shall promptly give notice of the Company's election to begin
any such Extension Period to the Holders of the Outstanding Securities of such
series.
Section 3.13. Right of Set-Off.
---------------------------------
With respect to the Securities of a series issued to a PMI Trust,
notwithstanding anything to the contrary herein, the Company shall have the
right to set-off any payment it is otherwise required to make thereunder in
respect of any such Security to the extent the Company has theretofore made, or
is concurrently on the date of such payment making, a payment under the PMI
Guarantee relating to such Security or under Section 5.8 hereof.
Section 3.14. Agreed Tax Treatment.
-------------------------------------
Each Security issued hereunder shall provide that the Company and, by its
acceptance of a Security or a beneficial interest therein, the Holder of, and
any Person that acquires a beneficial interest in, such Security agree that for
United States Federal, state and local tax purposes it is intended that such
Security constitutes indebtedness.
Section 3.15. CUSIP Numbers.
------------------------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption or other related material as a convenience to Holders; provided
that any such notice or other related material may state that no representation
is made as to the correctness of such numbers either as printed on the
Securities or as contained in any notice of redemption or other related material
and that reliance may be placed only on the other identification numbers printed
on the Securities, and any such redemption shall not be affected by any defect
in or omission of such numbers. The Company will promptly notify the Trustee of
any change in the CUSIP number.
Section 3.16. References to Interest.
---------------------------------------
Whenever in this Indenture there is mentioned, in any context, the payment
of the principal of, premium, if any, or interest on, or in respect of, any
Security of any series that is issued in connection with, and subject to the
benefits of, any registration rights agreement, such mention shall be deemed to
include mention of the payment of registration default interest or any other
liquidated damages specified in such registration rights agreement to the extent
that, in such context, such registration default interest or other liquidated
damages is, was or would be payable in respect thereof pursuant to the
provisions of such registration rights agreement and express mention of the
payment of registration default interest or other liquidated damages (if
applicable) in any provision hereof shall
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not be construed as excluding registration default interest or other liquidated
damages in those provisions hereof where such express mention is not made.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indenture.
-------------------------------------------------------
This Indenture shall, upon Company Request, cease to be of further effect
(except as to any surviving rights of registration of transfer or exchange of
Securities herein expressly provided for and as otherwise provided in this
Section 4.1) and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.7 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 10.3) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year of the date of deposit, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at
the expense, of the Company,
and the Company, in the case of Clause (B) (i), (ii) or (iii)
above, has deposited or caused to be deposited with the Trustee
as trust funds in trust for such purpose an amount in the
currency or currencies in which the Securities of such series are
payable sufficient to pay and discharge the entire indebtedness
on such Securities not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest
(including any Additional Interest) to the date of such deposit
(in the case of Securities which have become due and payable) or
to the Stated Maturity or Redemption Date, as the case may be;
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(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that all conditions precedent herein provided
for relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, or the earlier
resignation or removal of the Trustee or any Authenticating Agent, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Trustee to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 10.3 shall survive.
Section 4.2. Application of Trust Money.
------------------------------------------
Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 shall be held in trust and
applied by the Trustee, in accordance with the provisions of the Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which such money or obligations have been
deposited with or received by the Trustee.
ARTICLE V
REMEDIES
Section 5.1. Events of Default.
---------------------------------
"Event of Default," wherever used herein with respect to the Securities of
any series, means any one of the following events that has occurred and is
continuing (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):
(1) default in the payment of any interest upon any Security of that
series, including any Additional Interest in respect thereof, when it becomes
due and payable, and continuance of such default for a period of 30 days
(subject to the deferral of any due date in the case of an Extension Period); or
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(2) default in the payment of the principal of (or premium, if any, on) any
Security of that series at its Maturity; or
(3) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Company in this Indenture (other than a covenant or
warranty a default in the performance of which or the breach of which is
elsewhere in this Section specifically dealt with), and continuance of such
default or breach for a period of 90 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities of that series a written notice specifying such default
or breach and requiring it to be remedied; or
(4) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case or
proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company under any applicable Federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order unstayed
and in effect for a period of 60 consecutive days; or
(5) the commencement by the Company of a voluntary case or proceeding under
any applicable Federal or state bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by it to the entry of a decree or order for relief in
respect of the Company in an involuntary case or proceeding under any applicable
Federal or state bankruptcy, insolvency, reorganization or other similar law or
to the commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, or the
consent by it to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Company or any substantial part of its
property, or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company in furtherance
of any such action; or
(6) any other Event of Default provided with respect to Securities of that
series.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
------------------------------------------------------------------
If an Event of Default (other than an Event of Default specified in Section
5.1(4) or 5.1(5)) with respect to Securities of any series at the time
Outstanding occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series may declare the principal amount (or, if the
Securities of that series are Discount Securities, such portion of the principal
amount as may be specified in the terms of that
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series) of all the Securities of that series to be due and payable immediately,
by a notice in writing to the Company (and to the Trustee if given by Holders),
provided that, in the case of the Securities of a series issued to a PMI Trust,
if, upon an Event of Default, the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities of that series fail to declare
the principal of all the Securities of that series to be immediately due and
payable, the holders of at least 25% in aggregate Liquidation Amount (as defined
in the related Trust Agreement) of the corresponding series of Capital
Securities then outstanding shall have such right by a notice in writing to the
Company and the Trustee; and upon any such declaration such principal amount (or
specified portion thereof) of and the accrued interest (including any Additional
Interest) on all the Securities of such series shall become immediately due and
payable. Payment of principal and interest (including any Additional Interest)
on such Securities shall remain subordinated to the extent provided in Article
XIII notwithstanding that such amount shall become immediately due and payable
as herein provided. If an Event of Default specified in Section 5.1(4) or 5.1(5)
with respect to Securities of any series at the time Outstanding occurs, the
principal amount of all the Securities of that series (or, if the Securities of
that series are Discount Securities, such portion of the principal amount of
such Securities as may be specified by the terms of that series) shall
automatically, and without any declaration or other action on the part of the
Trustee or any Holder, become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay:
(A) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(2) all Events of Default with respect to Securities of that series, other
than the non-payment of the principal of Securities of that series which has
become due solely by such acceleration, have been cured or waived as provided in
Section 5.13.
In the case of Securities of a series issued to a PMI Trust, the holders of
a majority in aggregate Liquidation Amount (as defined in the related Trust
Agreement) of the related series of Capital
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Securities issued by such PMI Trust shall also have the right to rescind and
annul such declaration and its consequences by written notice to the Company and
the Trustee, subject to the satisfaction of the conditions set forth in Clauses
(1) and (2) above of this Section 5.2.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement
-------------------------------------------------------------------
by Trustee.
- ----------
The Company covenants that if:
(1) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security when such interest becomes
due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (and premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal, including any sinking fund payment or
analogous obligations (and premium, if any) and interest (including any
Additional Interest); and, in addition thereto, all amounts owing the Trustee
under Section 6.7.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
------------------------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
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(a) the Trustee (irrespective of whether the principal of the Securities of
any series shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal (and premium, if any) or
interest (including any Additional Interest)) shall be entitled and empowered,
by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (including any Additional Interest) owing and
unpaid in respect to the Securities and to file such other papers or documents
as may be necessary or advisable and to take any and all actions as are
authorized under the Trust Indenture Act in order to have the claims of the
Holders and any predecessor to the Trustee under Section 6.7 allowed in any such
judicial proceedings; and
(ii) in particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby authorized
by each Holder to make such payments to the Trustee for distribution in
accordance with Section 5.6, and in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
Section 5.5. Trustee May Enforce Claim Without Possession of Securities.
--------------------------------------------------------------------------
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of all the amounts owing the Trustee and any predecessor Trustee
under Section 6.7, its agents and counsel, be for the ratable benefit of the
Holders of the Securities in respect of which such judgment has been recovered.
Section 5.6. Application of Money Collected.
----------------------------------------------
Any money or property collected or to be applied by the Trustee with
respect to a series of Securities pursuant to this Article shall be applied in
the following order, at the date or dates fixed
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by the Trustee and, in case of the distribution of such money or property on
account of principal (or premium, if any) or interest (including any Additional
Interest), upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 6.7;
SECOND: Subject to Article XIII, to the payment of the amounts then due and
unpaid upon such series of Securities for principal (and premium, if any) and
interest (including any Additional Interest), in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such series of
Securities for principal (and premium, if any) and interest (including any
Additional Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
Section 5.7. Limitation on Suits.
-----------------------------------
No Holder of any Securities of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture or for the
appointment of a receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the Outstanding
Securities of that series shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Securities, or to obtain or to seek to obtain
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priority or preference over any other of such Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and
ratable benefit of all such Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium
-------------------------------------------------------------------------
and Interest; Direct Action by Holders of Capital Securities.
- -------------------------------------------------------------
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Sections 3.8
and 3.12) interest (including any Additional Interest) on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such right shall not be impaired without the consent of
such Holder. In the case of Securities of a series issued to a PMI Trust, any
holder of the corresponding series of Capital Securities issued by such PMI
Trust shall have the right, upon the occurrence of an Event of Default described
in Section 5.1(1) or 5.1(2), to institute a suit directly against the Company
for enforcement of payment to such holder of principal of (premium, if any) and
(subject to Sections 3.8 and 3.12) interest (including any Additional Interest)
on the Securities having a principal amount equal to the aggregate Liquidation
Amount (as defined in the related Trust Agreement) of such Capital Securities of
the corresponding series held by such holder.
Section 5.9. Restoration of Rights and Remedies.
--------------------------------------------------
If the Trustee, any Holder or any holder of Capital Securities has
instituted any proceeding to enforce any right or remedy under this Indenture
and such proceeding has been discontinued or abandoned for any reason, or has
been determined adversely to the Trustee, such Holder or such holder of Capital
Securities, then and in every such case the Company, the Trustee, the Holders
and such holder of Capital Securities shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Trustee, the
Holders and the holders of Capital Securities shall continue as though no such
proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
-----------------------------------------------
Except as otherwise provided in the last paragraph of Section 3.7, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
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Section 5.11. Delay or Omission Not Waiver.
---------------------------------------------
No delay or omission of the Trustee, any Holder of any Security or any
holder of any Capital Security to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to
the Holders and the right and remedy given to the holders of Capital Securities
by Section 5.8 may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee, the Holders or the holders of Capital Securities, as
the case may be.
Section 5.12. Control by Holders.
-----------------------------------
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, with respect to the Securities of
such series, provided that:
(1) such direction shall not be in conflict with any rule of law or with
this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have the
right to decline to follow such direction if a Responsible Officer or Officers
of the Trustee shall, in good faith, determine that the proceeding so directed
would be unjustly prejudicial to the Holders not joining in any such direction
or would involve the Trustee in personal liability.
Section 5.13. Waiver of Past Defaults.
----------------------------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series affected thereby and, in the case of any
Securities of a series issued to a PMI Trust, the holders of a majority in
aggregate Liquidation Amount (as defined in the related Trust Agreement) Capital
Securities issued by such PMI Trust, may waive any past default hereunder and
its consequences with respect to such series except a default:
(1) in the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
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Any such waiver shall be deemed to be on behalf of the Holders of all the
Securities of such series or, in the case of a waiver by holders of Capital
Securities issued by such PMI Trust, by all holders of Capital Securities issued
by such PMI Trust.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
--------------------------------------
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities of
any series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest (including any
Additional Interest) on any Security on or after the respective Stated
Maturities expressed in such Security.
Section 5.15. Waiver of Usury, Stay or Extension Laws.
--------------------------------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities.
---------------------------------------------------
(a) Except during the continuance of an Event of Default,
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(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case of
any such certificates or opinions which by any provisions hereof are
specifically required to be furnished to the Trustee, the Trustee shall be under
a duty to examine the same to determine whether or not they conform to the
requirements of this Indenture, but need not confirm or investigate the accuracy
of mathematical calculations or other facts stated therein.
(b) In case an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
Holders pursuant to Section 5.12 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Indenture with respect
to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
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Section 6.2. Notice of Defaults.
----------------------------------
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities of any series, the Trustee shall transmit by mail to all Holders of
Securities of such series, as their names and addresses appear in the Securities
Register, notice of such default, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
of the principal of (or premium, if any) or interest (including any Additional
Interest) on any Security of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of Securities of such series; and provided, further,
that, in the case of any default of the character specified in Section 5.1(3),
no such notice to Holders of Securities of such series shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to Securities of such
series.
Section 6.3. Certain Rights of Trustee.
-----------------------------------------
Subject to the provisions of Section 6.1:
(a) the Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
Security or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and the advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
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(f) the Trustee shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may make
such inquiry or investigation into such facts or matters as it may see fit, and,
if the Trustee shall determine to make such inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(h) the Trustee shall not be liable for any action taken, suffered, or
omitted to be taken by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it by
this Indenture; and
(i) the Trustee shall not be deemed to have notice of any Event of Default
unless a Responsible Officer of the Trustee has actual knowledge thereof or
unless written notice of any event which is in fact such a default is received
by the Trustee at the Corporate Trust Office of the Trustee, and such notice
references the Securities and this Indenture.
Section 6.4. Not Responsible for Recitals or Issuance of Securities.
----------------------------------------------------------------------
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of the Securities or the proceeds thereof.
Section 6.5. May Hold Securities.
-----------------------------------
The Trustee, any Authenticating Agent, any Paying Agent, any Securities
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
6.8 and 6.13, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Securities
Registrar or such other agent.
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Section 6.6. Money Held in Trust.
-----------------------------------
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Company.
Section 6.7. Compensation and Reimbursement.
----------------------------------------------
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for all
services rendered by it hereunder in such amounts as the Company and the Trustee
shall agree from time to time (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(2) to reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad faith;
and
(3) to indemnify each of the Trustees or any predecessor Trustee for, and
to hold it harmless against, any loss, liability or expense (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel) incurred without negligence or bad faith, arising out of or in
connection with the acceptance or administration of this trust or the
performance of its duties hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The obligations of the
Company under this Section 6.7 shall survive the termination of this Indenture
or the earlier resignation or removal of the Trustee.
To secure the Company's payment obligations in this Section, the Company
and the Holders agree that the Trustee shall have a lien prior to the Securities
on all money or property held or collected by the Trustee. Such lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Bankruptcy Reform Act of 1978 or any successor statute.
Section 6.8. Disqualification; Conflicting Interests.
-------------------------------------------------------
The Trustee for the Securities of any series issued hereunder shall be
subject to the provisions of Section 310(b) of the Trust Indenture Act. Nothing
herein shall prevent the Trustee from filing
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with the Commission the application referred to in the second to last paragraph
of said Section 310(b).
Section 6.9. Corporate Trustee Required; Eligibility.
-------------------------------------------------------
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the United
States of America or of any State or Territory or the District of Columbia,
authorized under such laws to exercise corporate trust powers and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority, or
(b) a corporation or other Person organized and doing business under the
laws of a foreign government that is permitted to act as Trustee pursuant to a
rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then,
for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article. Neither the Company nor any Person directly or indirectly
controlling, controlled by or under common control with the Company shall serve
as Trustee for the Securities of any series issued hereunder.
Section 6.10. Resignation and Removal; Appointment of Successor.
------------------------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
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(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written request
therefor by the Company or by any Holder who has been a bona fide Holder of a
Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall fail
to resign after written request therefor by the Company or by any such Holder,
or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee with respect to all Securities, or (ii)
subject to Section 5.14, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee with respect to the Securities of
that or those series. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee with respect to the Securities of such series and supersede
the successor Trustee appointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so appointed by the
Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, subject to Section 5.14, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage
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prepaid, to the Holders of Securities of such series as their names and
addresses appear in the Securities Register. Each notice shall include the name
of the successor Trustee with respect to the Securities of such series and the
address of its Corporate Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
-------------------------------------------------------
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more series, the Company, the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an instrument in writing or an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, each successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates, (2) if the retiring Trustee is not retiring with respect to all
Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee, and (3) shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such instrument in writing or supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such instrument in writing or supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts, and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
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(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all rights, powers and trusts referred to in paragraph
(a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
Section 6.12. Merger, Conversion, Consolidation or Succession to
-------------------------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to the Trustee may
authenticate such Securities either in the name of any predecessor Trustee or in
the name of such successor Trustee, and in all cases the certificate of
authentication shall have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the Trustee shall have.
Section 6.13. Preferential Collection of Claims Against Company.
------------------------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
Section 6.14. Appointment of Authenticating Agent.
----------------------------------------------------
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to authenticate Securities of such series issued upon original issue
and upon exchange, registration of transfer or partial redemption thereof or
pursuant to Section 3.6, and Securities so authenticated shall be entitled to
the benefits of this Indenture and shall be valid and obligatory for all
purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, or of any State or Territory or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or
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examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of an Authenticating Agent shall be the successor
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provision of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 6.7.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
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This is one of the Securities referred to in the within mentioned
Indenture.
Dated:
The Bank of New York,
As Trustee
By:
------------------------
As Authenticating Agent
By:
-----------------------
Authorized Signatory
ARTICLE VII
HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
-------------------------------------------------------------------------
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each Regular Record Date in
each year, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished,
excluding from any such list names and addresses received by the Trustee in its
capacity as Securities Registrar.
Section 7.2. Preservation of Information, Communications to Holders.
----------------------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
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Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided in the Trust
Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
Section 7.3. Reports by Trustee.
----------------------------------
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act, at the times and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than 60 days after December 31 in
each calendar year, commencing 60 days after the first December 31 after the
first issuance of Securities under this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each securities exchange upon which any
Securities are listed and also with the Commission. The Company will notify the
Trustee when any Securities are listed on any securities exchange.
Section 7.4. Reports by Company.
----------------------------------
The Company shall file with the Trustee and with the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided in the Trust Indenture Act; provided that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act shall be filed with
the Trustee within 15 days after the same is required to be filed with the
Commission. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall continue to file with the Commission and provide the
Trustee with the annual reports and the information, documents and other reports
which are specified in Sections 13 and 15(d) of the Exchange Act. The Company
also shall comply with the other provisions of Trust Indenture Act Section
314(a).
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ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
--------------------------------------------------------------------
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:
(1) in case the Company shall consolidate with or merge into another Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, the corporation formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust
organized and existing under the laws of the United States of America or any
State or the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form satisfactory
to the Trustee, the due and punctual payment of the principal of (and premium,
if any) and interest (including any Additional Interest) on all the Securities
and the performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing;
(3) in the case of the Securities of a series issued to a PMI Trust, such
consolidation, merger, conveyance, transfer or lease is permitted under the
related Trust Agreement and PMI Guarantee and does not give rise to any breach
or violation of the related Trust Agreement or PMI Guarantee; and
(4) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease and any such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with; and the Trustee, subject to Section 6.1,
may rely upon such Officers' Certificate and Opinion of Counsel as conclusive
evidence that such transaction complies with this Section 8.1.
Section 8.2. Successor Corporation Substituted.
-------------------------------------------------
Upon any consolidation or merger by the Company with or into any other
Person, or any conveyance, transfer or lease by the Company of its properties
and assets substantially as an entirety to any Person in accordance with Section
8.1, the successor corporation formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease
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is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; and in the event of any
such conveyance, transfer or lease the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities and may be
dissolved and liquidated.
Such successor Person may cause to be signed, and may issue either in its
own name or in the name of the Company, any or all of the Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor Person instead
of the Company and subject to all the terms, conditions and limitations in this
Indenture prescribed, the Trustee shall authenticate and shall deliver any
Securities which previously shall have been signed and delivered by the officers
of the Company to the Trustee for authentication pursuant to such provisions and
any Securities which such successor Person thereafter shall cause to be signed
and delivered to the Trustee on its behalf for the purpose pursuant to such
provisions. All the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities theretofore or
thereafter issued in accordance with the terms of this Indenture as though all
of such Securities had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form may be made in the Securities thereafter to be
issued as may be appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders.
------------------------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company herein and in
the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or with
the Trustee or to surrender any right or power herein conferred upon the
Company; or
(3) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 or 3.1; or
(4) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating
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that such covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the Company; or
(5) to add any additional Events of Default for the benefit of the Holders
of all or any series of Securities (and if such additional Events of Default are
to be for the benefit of less than all series of Securities, stating that such
additional Events of Default are expressly being included solely for the benefit
of such series); or
(6) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination (a) shall become effective only
when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit of
such provision or (b) shall not apply to any Outstanding Securities; or
(7) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture, provided that such action pursuant to this clause (7) shall not
adversely affect the interest of the Holders of Securities of any series in any
material respect or, in the case of the Securities of a series issued to a PMI
Trust and for so long as any of the corresponding series of Capital Securities
issued by such PMI Trust shall remain outstanding, the holders of such Capital
Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 6.11(b); or
(9) to comply with the requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act.
Section 9.2. Supplemental Indentures with Consent of Holders.
---------------------------------------------------------------
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders of Securities of such series under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) except to the extent permitted by Section 3.12 or as otherwise
specified as contemplated by Section 2.1 or Section 3.1 with respect to the
deferral of the payment of interest on the Securities of any series, change the
Stated Maturity of the principal of, or any installment of interest (including
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any Additional Interest) on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or reduce any premium payable upon the
redemption thereof, or reduce the amount of principal of a Discount Security
that would be due and payable upon a declaration of acceleration of the Maturity
thereof pursuant to Section 5.2, or change the place of payment where, or the
coin or currency in which, any Security or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding Securities
of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 5.13 or Section
10.5, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Security affected thereby;
provided, further, that, in the case of the Securities of a series issued to a
- -----------------
PMI Trust, so long as any of the corresponding series of Capital Securities
issued by such PMI Trust remains outstanding, (i) no such amendment shall be
made that adversely affects the holders of such Capital Securities in any
material respect, and no termination of this Indenture shall occur, and no
waiver of any Event of Default or compliance with any covenant under this
Indenture shall be effective, without the prior consent of the holders of at
least a majority of the aggregate Liquidation Amount of such Capital Securities
then outstanding unless and until the principal (and premium, if any) of the
Securities of such series and all accrued and, subject to Section 3.8, unpaid
interest (including any Additional Interest) thereon have been paid in full and
(ii) no amendment shall be made to Section 5.8 of this Indenture that would
impair the rights of the holders of Capital Securities provided therein without
the prior consent of the holders of each Capital Security then outstanding
unless and until the principal (and premium, if any) of the Securities of such
series and all accrued and (subject to Section 3.8) unpaid interest (including
any Additional Interest) thereon have been paid in full.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture that has expressly been included solely for the
benefit of one or more particular series of Securities or Capital Securities, or
which modifies the rights of the Holders of Securities or holders of Capital
Securities of such series with respect to such covenant or other provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Securities or holders of Capital Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
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Section 9.3. Execution of Supplemental Indentures.
----------------------------------------------------
In executing or accepting the additional trusts created by any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 6.1) shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this Indenture, and that
all conditions precedent have been complied with. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise or
that may subject it to any liability.
Section 9.4. Effect of Supplemental Indentures.
-------------------------------------------------
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
---------------------------------------------------
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. Reference in Securities to Supplemental Indentures.
------------------------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities of such series.
ARTICLE X
COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
-----------------------------------------------------------
The Company covenants and agrees for the benefit of each series of
securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of such Securities and this Indenture.
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Section 10.2. Maintenance of Office or Agency.
------------------------------------------------
The Company will maintain in each Place of Payment for any series of
Securities, an office or agency where Securities of that series may be presented
or surrendered for payment and an office or agency where Securities of that
series may be surrendered for transfer or exchange and where notices and demands
to or upon the Company in respect of the Securities of that series and this
Indenture may be served. The Company initially appoints the Trustee, acting
through its Corporate Trust Office, as its agent for said purposes. The Company
will give prompt written notice to the Trustee of any change in the location of
any such office or agency. If at any time the Company shall fail to maintain
such office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
of such purposes, and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Securities of any series for such purposes. The Company will give
prompt written notice to the Trustee of any such designation and any change in
the location of any such office or agency.
Section 10.3. Money for Security Payments to be Held in Trust.
----------------------------------------------------------------
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of such
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided, and will promptly notify the Trustee of its
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to 10:00 a.m. New York City time on each due date of the principal of or
interest on any Securities, deposit with a Paying Agent a sum sufficient to pay
the principal (and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such principal and
premium (if any) or interest, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
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(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable to it
as a Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the 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 Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall
(unless otherwise required by mandatory provision of applicable escheat or
abandoned or unclaimed property law) be paid on Company Request to the Company,
or (if then held by the Company) shall (unless otherwise required by mandatory
provision of applicable escheat or abandoned or unclaimed property law) be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 10.4. Statement as to Compliance.
-------------------------------------------
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company ending after the date hereof, an Officers'
Certificate covering the preceding calendar year, stating whether or not to the
best knowledge of the signers thereof the Company is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Company shall
be in default, specifying all
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such defaults and the nature and status thereof of which they may have
knowledge. For the purpose of this Section 10.4, compliance shall be determined
without regard to any grace period (other than an Extension Period) or
requirement of notice provided pursuant to the terms of this Indenture.
Section 10.5. Waiver of Certain Covenants.
--------------------------------------------
The Company may omit in any particular instance to comply with any covenant
or condition provided pursuant to Section 3.1, 9.1(3) or 9.1(4) with respect to
the Securities of any series, if before or after the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities of such series shall, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company in respect of any such covenant
or condition shall remain in full force and effect.
Section 10.6. Additional Sums.
--------------------------------
In the case of the Securities of a series issued to a PMI Trust, so long as
no Event of Default has occurred and is continuing and except as otherwise
specified as contemplated by Section 2.1 or Section 3.1, in the event that (i) a
PMI Trust is the Holder of all of the Outstanding Securities of such series and
(ii) a Tax Event in respect of such PMI Trust shall have occurred and be
continuing, the Company shall pay to such PMI Trust (and its permitted
successors or assigns under the related Trust Agreement) as Holder of the
Securities of such series for so long as such PMI Trust (or its permitted
successor or assignee) is the registered holder of any Securities of such
series, such additional sums as may be necessary in order that the amount of
Distributions (including any Additional Amounts (as defined in such Trust
Agreement)) paid by such PMI Trust on the related Capital Securities and Common
Securities that at any time remain outstanding in accordance with the terms
thereof shall not be reduced as a result of any Additional Taxes (the
"Additional Sums"). Whenever in this Indenture or the Securities there is a
reference in any context to the payment of principal of or interest on the
Securities, such mention shall be deemed to include mention of the payments of
the Additional Sums provided for in this paragraph to the extent that, in such
context, Additional Sums are, were or would be payable in respect thereof
pursuant to the provisions of this paragraph and express mention of the payment
of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made.
Section 10.7. Additional Covenants.
-------------------------------------
The Company covenants and agrees with each Holder of Securities of each
series that it shall not, and it shall not permit any Subsidiary of the Company
to, (a) 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 (b) make any payment of principal of or interest or premium,
if any, on or repay, repurchase or redeem any debt securities of the Company
that rank pari passu in all
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respects with or junior in interest to the Securities of such series or (c) make
any guarantee payments with respect to any guarantee by the Company of debt
securities of any subsidiary of the Company if such guarantee ranks pari passu
with or junior in interest to the Securities (other than (a) dividends or
distributions in Common Stock, (b) any declaration of a dividend in connection
with the implementation of a Rights Plan, the issuance of any Common Stock of
any class or series of preferred stock of the Company under any Rights Plan in
the future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under any PMI 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 an Event of Default with respect to the Securities of such
series and (B) in respect of which the Company shall not have taken reasonable
steps to cure, (ii) if the Securities of such series are held by a PMI Trust,
the Company shall be in default with respect to its payment of any obligations
under the PMI Guarantee relating to the Capital Securities issued by such PMI
Trust or (iii) the Company shall have given notice of its election to begin an
Extension Period with respect to the Securities of such series as provided
herein and shall not have rescinded such notice, or such Extension Period, or
any extension thereof, shall be continuing.
The Company also covenants with each Holder of Securities of a series
issued to a PMI Trust (i) to maintain directly or indirectly 100% ownership of
the Common Securities of such PMI Trust; provided, however, that any permitted
successor of the Company hereunder may succeed to the Company's ownership of
such Common Securities, (ii) as holder of the Common Securities not to
voluntarily terminate, wind-up or liquidate such PMI Trust, except (a) in
connection with a distribution of the Securities of such series to the holders
of Capital Securities in liquidation of such PMI Trust or (b) in connection with
certain mergers, consolidations or amalgamations permitted by the related Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of such Trust Agreement, to cause such PMI Trust to remain classified
as a grantor trust and not an association taxable as a corporation for United
States federal income tax purposes.
Section 10.8. Original Issue Discount.
----------------------------------------
On or before December 15 of each year during which any Securities are
outstanding, the Company shall furnish to each Paying Agent such information as
may be reasonably requested by each Paying Agent in order that each Paying Agent
may prepare the information which it is required to report for such year on
Internal Revenue Service Forms 1096 and 1099 pursuant to Section 6049 of the
Internal Revenue Code of 1986, as amended. Such information shall include the
amount of original issue discount includible in income for each $1,000 of
principal amount at Stated Maturity of outstanding Securities during such year.
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Section 10.9. Delivery of Certain Information.
------------------------------------------------
At any time when the Company is not subject to Section 13 or 15(d) of the
Exchange Act, upon the request of a Holder of a Security, the Company will
promptly furnish or cause to be furnished Rule 144A Information (as defined
below) to such Holder, or to a prospective purchaser of any such Security
designated by any such Holder to the extent required to permit compliance by
such Holder with Rule 144A under the Securities Act (or any successor provision
thereto) in connection with the resale of any such Security; provided, however,
that the Company shall not be required to furnish such information in connection
with any request made on or after the date which is three years from the later
of (i) the date such a Security (or any such Predecessor Security) was last
acquired from the Company or (ii) the date such Security (or any such
Predecessor Security) was last acquired from an "affiliate" of the Company
within the meaning of Rule 144 under the Securities Act (or any successor
provision thereto). "Rule 144A Information" shall be such information as is
specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto).
ARTICLE XI
REDEMPTION OF SECURITIES
Section 11.1. Applicability of This Article.
----------------------------------------------
Redemption of Securities of any series (whether by operation of a sinking
fund or otherwise) as permitted or required by any form of Security issued
pursuant to this Indenture shall be made in accordance with such form of
Security and this Article; provided, however, that if any provision of any such
form of Security shall conflict with any provision of this Article, the
provision of such form of Security shall govern. Except as otherwise set forth
in the form of Security for such series, each Security of such series shall be
subject to partial redemption only in the amount of $1,000 or integral multiples
thereof.
Section 11.2. Election to Redeem; Notice to Trustee.
------------------------------------------------------
The election of the Company to redeem any Securities shall be evidenced by
or pursuant to a Board Resolution. In case of any redemption at the election of
the Company of any of the Securities of any particular series and having the
same terms, the Company shall, not less than 30 nor more than 60 days prior to
the Redemption Date (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee and, in the case of Securities of a series held by
a PMI Trust, the related Property Trustee of such date and of the principal
amount of Securities of that series to be redeemed and provide the additional
information required to be included in the notice or notices contemplated by
Section 11.4. In the case of any redemption of Securities prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities, the Company shall furnish the Trustee with an Officers' Certificate
and an Opinion of Counsel evidencing compliance with such restriction.
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Section 11.3. Selection of Securities to be Redeemed.
-------------------------------------------------------
If less than all the Securities of any series are to be redeemed (unless
all the Securities of such series and of a specified tenor are to be redeemed or
unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of a
portion of the principal amount of any Security of such series to be redeemed.
If less than all the Securities of such series and of a specified tenor are to
be redeemed (unless such redemption affects only a single Security), the
particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series and specified tenor not previously called for redemption in
accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for partial redemption and the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed. If the
Company shall so direct, Securities registered in the name of the Company, any
Affiliate or any Subsidiary thereof shall not be included in the Securities
selected for redemption.
Section 11.4. Notice of Redemption.
-------------------------------------
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth day,
prior to the Redemption Date, to each Holder of Securities to be redeemed, at
the address of such Holder as it appears in the Securities Register.
With respect to Securities of each series to be redeemed, each notice of
redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price or if the Redemption Price cannot be calculated
prior to the time the notice is required to be sent, the estimate of the
Redemption Price provided pursuant to the Indenture together with a statement
that it is an estimate and that the actual Redemption Price will be calculated
on the third Business Day prior to the Redemption Date (if such an estimate of
the Redemption Price is given, a subsequent notice shall be given as set forth
above setting forth the Redemption Price promptly following the calculation
thereof);
(c) if less than all Outstanding Securities of such particular series and
having the same terms are to be redeemed, the identification (and, in the case
of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
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(d) that on the Redemption Date, the Redemption Price will become due and
payable upon each such Security or portion thereof, and that interest thereon,
if any, shall cease to accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(f) that the redemption is for a sinking fund, if such is the case; and
(g) such other provisions as may be required in respect of the terms of a
particular series of Securities.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall not be
irrevocable. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice by mail or any
defect in the notice to the Holder of any Security designated for redemption as
a whole or in part shall not affect the validity of the proceedings for the
redemption of any other Security.
Section 11.5. Deposit of Redemption Price.
--------------------------------------------
Prior to 10:00 a.m. New York City time on the Redemption Date specified in
the notice of redemption given as provided in Section 11.4, the Company will
deposit with the Trustee or with one or more Paying Agents (or if the Company is
acting as its own Paying Agent, the Company will segregate and hold in trust as
provided in Section 10.3) an amount of money sufficient to pay the Redemption
Price of, and any accrued interest (including Additional Interest) on, all the
Securities which are to be redeemed on that date.
Section 11.6. Payment of Securities Called for Redemption.
------------------------------------------------------------
If any notice of redemption has been given as provided in Section 11.4, the
Securities or portion of Securities with respect to which such notice has been
given shall become due and payable on the date and at the place or places stated
in such notice at the applicable Redemption Price, together with accrued
interest (including any Additional Interest) to the Redemption Date. On
presentation and surrender of such Securities at a Place of Payment in said
notice specified, the said securities or the specified portions thereof shall be
paid and redeemed by the Company at the applicable Redemption Price, together
with accrued interest (including any Additional Interest) to the Redemption
Date; provided, however, that, unless otherwise specified as contemplated by
Section 3.1, installments of interest whose Stated Maturity is on or prior to
the Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
3.8.
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Upon presentation of any Security redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder thereof, at
the expense of the Company, a new Security or Securities of the same series, of
authorized denominations, in aggregate principal amount equal to the unredeemed
portion of the Security so presented and having the same Original Issue Date,
Stated Maturity and terms. If a Global Security is so surrendered, such new
Security (subject to Section 3.5) will also be a new Global Security.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
Section 11.7. Right of Redemption of Securities Initially Issued to a
------------------------------------------------------------------------
PMI Trust.
- ---------
In the case of the Securities of a series initially issued to a PMI Trust,
except as otherwise specified as contemplated by Section 3.1, the Company, at
its option, may redeem such Securities (i) on or after the date specified in
such Security, in whole at any time or in part from time to time, or (ii) upon
the occurrence and during the continuation of a Tax Event, at any time within 90
days following the occurrence of such Tax Event in respect of such PMI Trust, in
whole (but not in part), in each case at a Redemption Price specified as
contemplated by Section 3.1.
ARTICLE XII
SINKING FUNDS
Section 12.1. Applicability of Article.
-----------------------------------------
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms of
any Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any sinking fund payment in excess of such minimum amount which is
permitted to be made by the terms of such Securities of any series is herein
referred to as an "optional sinking fund payment." If provided for by the terms
of any Securities of any series, the cash amount of any sinking fund payment may
be subject to reduction as provided in Section 12.2. Each sinking fund payment
shall be applied to the redemption (or purchase by tender or otherwise) of
Securities of any series as provided for by the terms of such Securities.
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Section 12.2. Satisfaction of Sinking Fund Payments with Securities.
----------------------------------------------------------------------
In lieu of making all or any part of a mandatory sinking fund payment with
respect to any Securities of a series in cash, the Company may at its option, at
any time no more than 16 months and no less than 30 days prior to the date on
which such sinking fund payment is due, deliver to the Trustee Securities of
such series (together with the unmatured coupons, if any, appertaining thereto)
theretofore purchased or otherwise acquired by the Company, except Securities of
such series that have been redeemed through the application of mandatory or
optional sinking fund payments pursuant to the terms of the Securities of such
series, accompanied by a Company Order instructing the Trustee to credit such
obligations and stating that the Securities of such series were originally
issued by the Company by way of bona fide sale or other negotiation for value;
provided that the Securities to be so credited have not been previously so
credited. The Securities to be so credited shall be received and credited for
such purpose by the Trustee at the redemption price for such Securities, as
specified in the Securities so to be redeemed, for redemption through operation
of the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
Section 12.3. Redemption of Securities for Sinking Fund.
----------------------------------------------------------
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
such Securities pursuant to the terms of such Securities, the portion thereof,
if any, which is to be satisfied by payment of cash in the currency in which the
Securities of such series are payable (except as provided pursuant to Section
3.1) and the portion thereof, if any, which is to be satisfied by delivering and
crediting Securities pursuant to Section 12.2 and will also deliver to the
Trustee any Securities to be so delivered. Such Officers' Certificate shall be
irrevocable and upon its delivery the Company shall be obligated to make the
cash payment or payments therein referred to, if any, on or before the
succeeding sinking fund payment date. In the case of the failure of the Company
to deliver such Officers' Certificate (or, as required by this Indenture, the
Securities and coupons, if any, specified in such Officers' Certificate) by the
due date therefor, the sinking fund payment due on the succeeding sinking fund
payment date for such series shall be paid entirely in cash and shall be
sufficient to redeem the principal amount of the Securities of such series
subject to a mandatory sinking fund payment without the right to deliver or
credit securities as provided in Section 12.2 and without the right to make the
optional sinking fund payment with respect to such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in cash
plus any unused balance of any preceding sinking fund payments made with respect
to the Securities of any particular series shall be applied by the Trustee (or
by the Company if the Company is acting as its own Paying Agent) on the sinking
fund payment date on which such payment is made (or, if such payment is made
before a sinking fund payment date, on the sinking fund payment date immediately
following the date of such payment) to the redemption of Securities of such
series at the Redemption Price specified in such Securities with respect to the
sinking fund. Any sinking fund moneys not so applied or allocated by the Trustee
(or, if the Company is acting as its own Paying Agent, segregated and
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held in trust by the Company as provided in Section 10.3) for such series and
together with such payment (or such amount so segregated) shall be applied in
accordance with the provisions of this Section 12.3. Any and all sinking fund
moneys with respect to the Securities of any particular series held by the
Trustee (or if the Company is acting as its own Paying Agent, segregated and
held in trust as provided in Section 10.3) on the last sinking fund payment date
with respect to Securities of such series and not held for the payment or
redemption of particular Securities of such series shall be applied by the
Trustee (or by the Company if the Company is acting as its own Paying Agent),
together with other moneys, if necessary, to be deposited (or segregated)
sufficient for the purpose, to the payment of the principal of the Securities of
such series at Maturity. The Trustee shall select the Securities to be redeemed
upon such sinking fund payment date in the manner specified in Section 11.3 and
cause notice of the redemption thereof to be given in the name of and at the
expense of the Company in the manner provided in Section 11.4. Such notice
having been duly given, the redemption of such Securities shall be made upon the
terms and in the manner stated in Section 11.6. On or before each sinking fund
payment date, the Company shall pay to the Trustee (or, if the Company is acting
as its own Paying Agent, the Company shall segregate and hold in trust as
provided in Section 10.3) in cash a sum in the currency in which Securities of
such series are payable (except as provided pursuant to Section 3.1) equal to
the principal, premium, if any, and any interest accrued to the Redemption Date
for Securities or portions thereof to be redeemed on such sinking fund payment
date pursuant to this Section 12.3.
Neither the Trustee nor the Company shall redeem any Securities of a series
with sinking fund moneys or mail any notice of redemption of Securities of such
series by operation of the sinking fund for such series during the continuance
of a default in payment of interest, if any, on any Securities of such series or
of any Event of Default (other than an Event of Default occurring as a
consequence of this paragraph) with respect to the Securities of such series,
except that if the notice of redemption shall have been provided in accordance
with the provisions hereof, the Trustee (or the Company, if the Company is then
acting as its own Paying Agent) shall redeem such Securities if cash sufficient
for that purpose shall be deposited with the Trustee (or segregated by the
Company) for that purpose in accordance with the terms of this Article XII.
Except as aforesaid, any moneys in the sinking fund for such series at the time
when any such default or Event of Default shall occur and any moneys thereafter
paid into such sinking fund shall, during the continuance of such default or
Event of Default, be held as security for the payment of the Securities and
coupons, if any, of such series; provided, however, that in case such default or
-----------------
Event of Default shall have been cured or waived herein, such moneys shall
thereafter be applied on the next sinking fund payment date for the Securities
of such series on which such moneys may be applied pursuant to the provisions of
this Section 12.3.
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ARTICLE XIII
SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Indebtedness.
------------------------------------------------------------
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and subject
in right of payment to the prior payment in full of all Senior Indebtedness.
Section 13.2. No Payment When Senior Indebtedness in Default;__Payment Over
---------------------------------------------------------------------------
of Proceeds Upon Dissolution, Etc.
- ----------------------------------
In the event that the Company shall default in the payment of any principal
of (or premium, if any) or interest 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, upon written notice of
such default to the Company by the holders of Senior Indebtedness or any trustee
therefor, unless and until such default shall have been cured or waived or shall
have ceased to exist, no direct or indirect payment (in cash, property,
securities, by set-off or otherwise) shall be made or agreed to be made on
account of the principal of (or premium, if any) or interest on any of the
Securities, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Securities.
In the event of (a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceedings relating
to the Company, its creditors or its property, (b) any proceeding for the
liquidation, dissolution or other winding up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings, (c)
any assignment by the Company for the benefit of creditors or (d) any other
marshalling of the assets of the Company (each such event, if any, herein
sometimes referred to as a "Proceeding"), all Senior Indebtedness due or to
become due (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 (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 these subordination provisions with respect to the
indebtedness evidenced by the Securities, 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) ("Junior
Securities"), shall be made to any Holder of any of the Securities on account of
the principal of (and premium, if any) on any Securities. Any payment or
distribution, whether in cash, securities or other property (other than Junior
Securities) which would otherwise (but for these subordination provisions) be
payable or deliverable in respect of the Securities of any series shall be paid
or delivered directly to the holders of Senior Indebtedness in accordance with
the priorities then
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existing among such holders until all Senior Indebtedness (including any
interest thereon accruing after the commencement of any Proceeding) shall have
been paid in full.
In the event of any Proceeding, after payment in full of all sums owing
with respect to Senior Indebtedness, the Holders of the Securities, together
with the holders of any obligations of the Company ranking on a parity with the
Securities, 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 on the Securities 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 any obligations of
the Company ranking junior to the Securities and such other obligations.
In the event that, notwithstanding the foregoing, any payment or
distribution of any character or any security, whether in cash, securities or
other property (other than Junior Securities), shall be received by the Trustee
or any Holder in contravention of any of the terms hereof and before all Senior
Indebtedness shall have been paid in full, and if such fact shall, at or prior
to the time of such payment, distribution or security, have been made known to
the Trustee or such Holder, as the case may be, 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. In
the event of the failure of the Trustee or any Holder to endorse or assign any
such payment, distribution or security, each holder of Senior Indebtedness is
hereby irrevocably authorized to endorse or assign the same.
The Trustee and Holders will take such action (including, without
limitation, the delivery of this Indenture to an agent for the holders of Senior
Indebtedness or consent to the filing of a financing statement with respect
hereto) as may, in the opinion of counsel designated by the holders of a
majority in principal amount of the Senior Indebtedness at the time outstanding,
be necessary or appropriate to assure the effectiveness of the subordination
effected by these provisions.
The provisions of this Section 13.2 shall not impair any rights, interests,
remedies or powers of any secured creditor of the Company in respect of any
security interest the creation of which is not prohibited by the provisions of
this Indenture.
The securing of any obligations of the Company, otherwise ranking on a
parity with the Securities or ranking junior to the Securities, shall not be
deemed to prevent such obligations from constituting, respectively, obligations
ranking on a parity with the Securities or ranking junior to the Securities.
Section 13.3. Payment Permitted If No Default.
------------------------------------------------
Nothing contained in this Article or elsewhere in this Indenture, or in any
of the Securities, shall prevent (a) the Company at any time, except during the
conditions described in the first paragraph
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of Section 13.2 or the pendency of any Proceeding referred to in Section 13.2,
from making payments at any time of principal of (and premium, if any) or
interest (including Additional Interest) on the Securities, or (b) the
application by the Trustee of any moneys deposited with it hereunder to the
payment of or on account of the principal of (and premium, if any) or interest
(including any Additional Interest) on the Securities or the retention of such
payment by the Holders, if, at the time of such application by the Trustee, it
did not have knowledge that such payment would have been prohibited by the
provisions of this Article.
Section 13.4. Subrogation to Rights of Holders of Senior Indebtedness.
------------------------------------------------------------------------
Subject to the payment in full of all amounts due or to become due on all
Senior Indebtedness, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Indebtedness
pursuant to the provisions of this Article (equally and ratably with the holders
of all indebtedness of the Company which by its express terms is subordinated to
Senior Indebtedness of the Company to substantially the same extent as the
Securities are subordinated to the Senior Indebtedness and is entitled to like
rights of subrogation by reason of any payments or distributions made to holders
of such Senior Indebtedness) to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of (and
premium, if any) and interest on the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions of this Article to
the holders of Senior Indebtedness by Holders of the Securities or the Trustee,
shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
Section 13.5. Provisions Solely to Define Relative Rights.
-----------------------------------------------------------
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as between the Company and the Holders of the Securities,
the obligations of the Company, which are absolute and unconditional, to pay to
the Holders of the Securities the principal of (and premium, if any) and
interest (including any Additional Interest) on the Securities as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders of the Securities and
creditors of the Company other than their rights in relation to the holders of
Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture including, without limitation, filing and voting claims in
any Proceeding, subject to the rights, if any, under this Article of the holders
of Senior
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Indebtedness to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
Section 13.6. Trustee to Effectuate Subordination.
---------------------------------------------------
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be necessary
or appropriate to acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
Section 13.7. No Waiver of Subordination Provisions.
-----------------------------------------------------
No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
be otherwise charged with.
Without in any way limiting the generality of the immediately preceding
paragraph, the holders of Senior Indebtedness may, at any time and from to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness, or otherwise amend or supplement in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
Section 13.8. Notice to Trustee.
----------------------------------
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by the
Trustee in respect of the Securities. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from any trustee, agent or
representative therefor; provided, however, that if the Trustee shall not have
received the notice provided for in this Section at least three Business Days
prior to the date upon which by the terms hereof any monies may become payable
for any purpose (including, without limitation, the payment of the principal of
(and premium, if any) interest (including any Additional
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Interest) on any Security), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were received and
shall not be affected by any notice to the contrary which may be received by it
within three Business Days prior to such date.
Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a holder of Senior Indebtedness (or a trustee or attorney-in-fact
therefor) to establish that such notice has been given by a holder of Senior
Indebtedness (or a trustee or attorney-in-fact therefor). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Senior Indebtedness to participate in
any payment or distribution pursuant to this Article, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction of the Trustee as
to the amount of Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 13.9. Reliance on Judicial Order or Certificate of Liquidating
-------------------------------------------------------------------------
Agent.
- -----
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Section 6.1, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other Person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
Section 13.10. Trustee Not Fiduciary for Holders of Senior Indebtedness.
--------------------------------------------------------------------------
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holders if it shall in good faith mistakenly pay over
or distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article or otherwise.
Section 13.11. Rights of Trustee as Holder of Senior Indebtedness;
---------------------------------------------------------------------------
Preservation of Trustee's Rights.
- ---------------------------------
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness which may at
any time be held by it, to the same extent as
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any other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
Section 13.12. Article Applicable to Paying Agents.
-----------------------------------------------------
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; provided, however, that
Section 13.11 shall not apply to the Company or any Affiliate of the Company if
it or such Affiliate acts as Paying Agent.
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* * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
THE PMI GROUP, INC.
By:
--------------------
Attest:
- ------------------------------
THE BANK OF NEW YORK,
as Trustee
By:
--------------------
Attest:
- ------------------------------
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ANNEX D -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to ss. 3.6(b) of the Indenture)
[-------------------------],
as Security Registrar
[address]
Re: ____________ of [PMI Capital __] (the "Trust")
(the "Securities")
Reference is made to the Indenture, dated as of ____________,
1997 (the "Indenture"), entered into between The PMI Group, Inc., and The Bank
of New York, as Trustee. Terms used herein and defined in the Indenture or in
Regulation S, Rule 144A or Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate principal
amount of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through a Depository or an Agent Member in the name of the Undersigned, as or on
behalf of the Owner. If the Specified Securities are not represented by a Global
Security, they are registered in the name of the Undersigned, as or on behalf of
the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in the form of
a Restricted Security. In connection with such transfer, the Owner hereby
certifies that, unless such transfer is being effected pursuant to an
83
<PAGE>
effective registration statement under the Securities Act, it is being effected
in accordance with Rule 144A, Rule 904 of Regulation S or Rule 144 under the
Securities Act and all applicable securities laws of the states of the United
States and other jurisdictions. Accordingly, the Owner hereby further certifies
as:
(1) Rule 144A Transfers. If the transfer is being
effected in accordance with Rule 144A:
(A) the Specified Securities are being transferred to
a person that the Owner and any person acting on its behalf
reasonably believe is a "qualified institutional buyer" within
the meaning of Rule 144A, acquiring for its own account or for
the account of a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf
have taken reasonable steps to ensure that the Transferee is
aware that the Owner may be relying on Rule 144A in connection
with the transfer; and
(2) Rule 904 Transfers. If the transfer is being
effected in accordance with Rule 904:
(A) the Owner is not a distributor of the Securities,
an affiliate of the Company or any such distributor or a person
acting in behalf of any of the foregoing;
(B) the offer of the Specified Securities was not
made to a person in the United States;
(C) either;
(i) at the time the buy order was
originated, the Transferee was outside the United
States or the Owner and any person acting on its
behalf reasonably believed that the Transferee was
outside the United States, or
(ii) the transaction is being executed in,
on or through the facilities of the Eurobond market,
as regulated by the Association of International Bond
Dealers, or another designated offshore securities
market and neither the Owner nor any person acting on
its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the
United States by or on behalf of the Owner or any affiliate
thereof; and
(E) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities act.
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<PAGE>
(3) Rule 144 Transfers. If the transfer is being
effected pursuant to Rule 144:
(A) the transfer is occurring after a holding period
of at least two years (computed in accordance with paragraph
(d) of Rule 144) has elapsed since the date the Specified
Securities were acquired from the Company or from an affiliate
(as such term is defined in Rule 144) of the Company,
whichever is later, and is being effected in accordance with
the applicable amount, manner of sale and notice requirements
of paragraphs (e), (f) and (h) of Rule 144; or
(B) the transfer is occurring after a holding period
of at least three years has elapsed since the date the
Specified Securities were acquired from the Company or from an
affiliate (as such term is defined in Rule 144) of the
Company, whichever is later, and the Owner is not, and during
the preceding three months has not been, an affiliate of the
Company.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers (as
defined in the related Trust Agreement).
Dated:
----------------------------------------
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this
certificate.)
By:
-------------------------------
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the person
signing on behalf of the Undersigned
must be stated.)
85
<PAGE>
ANNEX E -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Capital Securities Legends pursuant to ss. 3.6(c)
of the Indenture)
[-------------------------],
as Security Registrar
[address]
Re: _________________________ of [PMI Capital __]
(the "Trust") (the "Securities")
Reference is made to the Indenture, dated as of ____________,
1997 (the "Indenture"), between The PMI Group, Inc. and The Bank of New York, as
Trustee. Terms used herein and defined in the Indenture or in Rule 144 under the
U.S. Securities Act of 1933 (the "Securities Act") are used herein as so
defined.
This certificate relates to $_____________ aggregate principal
amount of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: Yes ___ No ___ (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner".
If the Specified Securities are represented by a Global Security, they are held
through the Depository or an Agent Member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
exchanged for Securities bearing no Restricted Securities Legend pursuant to
Section 3.6(c) of the Indenture. In connection
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<PAGE>
with such exchange, the Owner hereby certifies that either (i) the exchange is
occurring after a period of at least three years has elapsed since the date the
Specified Securities were acquired from the Company or from an affiliate (as
such term is defined in Rule 144) of the Company, whichever is later, and the
Owner is not, and during the preceding three months has not been, an affiliate
of the Company or (ii) the Specified Securities have been sold pursuant to an
effective Registration Statements under the Securities Act. The Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers (as
defined in the related Trust Agreement).
Dated:
----------------------------------------------
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this
certificate.)
By:
--------------------------------
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the person
signing on behalf of the Undersigned
must be stated.)
87
<PAGE>
EXHIBIT 10.2
THE PMI GROUP, INC.
EQUITY INCENTIVE
PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
<TABLE>
<S> <C> <C> <C>
1. Purpose................................................................ 1
2. Definitions............................................................ 1
3. Scope of the Plan...................................................... 5
(a) Number of Shares Available For Delivery Under the
Plan.......................................................... 5
(b) Effect of Expiration or Termination........................... 5
(c) Treasury Stock................................................ 5
(d) Committee Discretion to Cancel Options........................ 5
4. Administration ....................................................... 6
(a) Committee Administration...................................... 6
(b) Board Reservation and Delegation ............................. 6
(c) Committee Authority........................................... 6
(d) Committee Determinations Final................................ 7
5. Eligibility............................................................ 7
6. Conditions to Grants................................................... 8
(a) General Conditions............................................ 8
(b) Grant of Replacement Options.................................. 8
(c) Grant of Options and Option Price.............................10
(d) Grant of Incentive Stock Options..............................10
(e) Grant of Reload Options.......................................12
(f) Grant of Shares of Restricted Stock...........................13
(g) Grant of Unrestricted Stock...................................15
(h) Grant of Performance Shares...................................15
7. Non-transferability....................................................16
8. Exercise...............................................................17
(a) Exercise of Options...........................................17
(b) Special Rules for Section 16 Grantees.........................18
(c) Permissible Shares Issued.....................................18
9. Loans and Guarantees...................................................18
10. Notification under Section 83(b).......................................19
11. Mandatory Withholding Taxes............................................19
12. Elective Share Withholding.............................................19
13. Termination of Employment..............................................20
(a) Restricted Stock................................................20
(b) Other Awards....................................................20
(c) Maximum Extension...............................................21
14. Equity Incentive Plans of Foreign Subsidiaries.........................21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
15. Substituted Awards.....................................................21
16. Securities Law Matters.................................................22
17. No Funding Required....................................................22
18. No Employment Rights...................................................22
19. Rights as a Stockholder................................................22
20. Nature of Payments.....................................................23
21. Non-Uniform Determinations.............................................23
22. Adjustments............................................................23
23. Amendment of the Plan..................................................24
24. Termination of the Plan................................................24
25. No Illegal Transactions................................................24
26. Controlling Law........................................................24
27. Severability...........................................................24
</TABLE>
ii
<PAGE>
The Plan. The PMI Group, Inc., having established The PMI Group, Inc.
--------
Equity Incentive Plan, hereby amends and restates the Plan, effective as of
February 14, 1996. The amended and restated Plan is subject to ratification by
an affirmative vote of the holders of a majority of the Stock who are present in
person or by proxy and entitled to vote at the 1996 Annual Meeting of
Stockholders.
1. Purpose. The primary purpose of the Plan is to provide a means by which
-------
key employees of the Company and its Subsidiaries can acquire and maintain stock
ownership, thereby strengthening their commitment to the success of the Company
and its Subsidiaries and their desire to remain employed by the Company and its
Subsidiaries. Another purpose of the Plan is to provide continuation of
benefits and opportunities provided to former participants in any of the Sears
Plans, or the Allstate Plan, which benefits and opportunities were lost,
terminated, forfeited, canceled (with or without the consent of the granter) or
reduced as a result of the Company's initial public offering ("IPO"), by
providing for the grant of substitute Awards hereunder. The Plan also is
intended to attract and retain key employees and to provide such employees with
additional incentive and reward opportunities designed to encourage them to
enhance the profitable growth of the Company and its Subsidiaries.
2. Definitions.
-----------
As used in the Plan, terms defined parenthetically immediately after their
use shall have the respective meanings provided by such definitions and the
terms set forth below shall have the following meanings (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
(a) "Allstate Option" means an option granted under the Allstate Plan.
(b) "Allstate Plan" means The Allstate Corporation Equity Incentive Plan.
(c) "Award" means, individually or collectively, a grant under the Plan of
options, restricted Stock, unrestricted Stock or performance shares.
(d) "Award Agreement" means the written agreement by which an Award is
evidenced.
(e) "Board" means the board of directors of the Company.
(f) "Committee" means the committee of the Board appointed pursuant to
Article 4.
<PAGE>
(g) "Company" means The PMI Group, Inc., a Delaware corporation.
(h) "Disability" means, as relates to the exercise of an incentive stock
option after Termination of Employment, a permanent and total disability within
the meaning of Section 22(e)(3) of the Internal Revenue Code, and for all other
purposes, a mental or physical condition which, in the opinion of the Committee,
renders a Grantee unable or incompetent to carry out the job responsibilities
which such Grantee held or the duties to which such Grantee was assigned at the
time the disability was incurred, and which is expected to be permanent or for
an indefinite duration.
(i) "Effective Date" means the date described in the first paragraph of the
Plan.
(j) "Fair Market Value" of the Stock means, as of any applicable date
(other than the Effective Date) the mean between the high and low prices of the
Stock as reported on the New York Stock Exchange Composite Tape, or if there
were no sales on such date, on the next preceding date on which there was such a
reported sale, provided, however, that if the Stock is acquired and sold in a
simultaneous sale pursuant to the provisions of Article 8(a)(iv), Fair Market
Value means the price received upon such sale. Solely as of the effective date
of the IPO, Fair Market Value of the Stock means the price to the public
pursuant to the form of final prospectus used in connection with the IPO, as
indicated on the cover page of such prospectus or otherwise.
(k) "Fiscal Year" means the fiscal year of the Company.
(l) "Grant Date" means the date of grant of an Award determined in
accordance with Article 6.
(m) "Grantee" means an individual who has been granted an Award.
(n) "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and regulations and rulings thereunder. References to a particular
section of the Internal Revenue Code shall include references to successor
provisions.
(o) "IPO" means such term as defined in the first paragraph of the Plan.
(p) "Minimum Consideration" means the $.01 par value per share or such
larger amount determined pursuant to resolution of the Board to be capital
within the meaning of Section 154 of the Delaware General Corporation Law.
(q) "Net Operating Income Per Share" means as to any Fiscal Year, (i) the
Company's net income from operations, net of
2
<PAGE>
after-tax realized capital gains and losses, divided by (ii) the weighted
average number of shares of Stock outstanding during the Fiscal Year, plus
dilutive common equivalent shares calculated in accordance with Accounting
Principles Board Opinion No. 15. Net Operating Income Per Share for a multi-
Fiscal Year period means the average of Net Operating Income Per Share
calculated separately for each Fiscal Year of such multi-Fiscal Year period.
(r) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(s) "Option Price" means the per share purchase price of (i) Stock subject
to an option or (ii) restricted Stock subject to an option.
(t) "Parent" means Allstate Insurance Company.
(u) "Performance Goals" means the goal(s) (or combined goal(s)) determined
by the Committee (in its discretion) to be applicable to a Grantee with respect
to an Award. As determined by the Committee, the Performance Goals (if any)
applicable to an Award may provide for a targeted level or levels of achievement
using one or more of the following measures: (i) Net Operating Income per Share,
(ii) Return on Equity, and (iii) Total Return. The Performance Goals may differ
from Grantee to Grantee and from Award to Award.
(v) "Plan" means The PMI Group, Inc. Equity Incentive Plan, as set forth in
this instrument and as hereafter amended from time to time.
(w) "PMI Group Grantee" means any individual who is employed on the
Effective Date by The PMI Group, Inc. or any of its Subsidiaries.
(x) "Reload Option" has the meaning specified in Article 6(e).
(y) "Retirement" means a Termination of Employment occurring on or after an
individual attains age 65, or a Termination of Employment approved by the
Company as an early retirement; provided that in the case of a Section 16
Grantee, such early retirement must be approved by the Committee.
(z) "Return on Equity" means as to any Fiscal Year, the Company's net
income after taxes expressed as a percentage of average stockholders' equity.
For this purpose, average stockholders' equity shall be calculated as the
average of stockholders' equity on the first and last days of the Fiscal Year,
and excluding unrealized gains and losses.
(aa) "Sears" means Sears, Roebuck and Co., a New York corporation.
3
<PAGE>
(bb) "Sears Option" means an option granted under a Sears Plan.
(cc) "Sears Plans" means the following plans of Sears: the 1994 Employees
Stock Plan, the 1990 Employees Stock Plan, the 1986 Employees Stock Plan, the
1982 Employees Stock Plan, the 1978 Employees Stock Plan and the 1979 Incentive
Compensation Plan.
(dd) "SEC" means the Securities and Exchange Commission.
(ee) "Section 16 Grantee" means a person subject to potential liability
with respect to equity securities of the Company under Section 16(b) of the 1934
Act.
(ff) "Stock" means common stock of the Company, par value $.01 per share.
(gg) "Subsidiary" means a corporation as defined in Section 424(f) of the
Internal Revenue Code, with the Company being treated as the employer
corporation for purposes of this definition.
(hh) "10% Owner" means a person who owns stock (including stock treated as
owned under Section 424(d) of the Internal Revenue Code) possessing more than
10% of the Voting Power of the Company.
(ii) "Termination of Employment" occurs the first day on which an
individual is for any reason no longer employed by the Company or any of its
Subsidiaries, or by the Parent or any of its subsidiaries, or with respect to an
individual who is an employee of a Subsidiary or a subsidiary of the Parent, the
first day on which the Company (or the Parent, as the case may be) no longer
owns voting securities possessing at least 50% of the Voting Power of such
Subsidiary (or subsidiary of the Parent, as the case may be).
(jj) "Total Return" means as to any Fiscal Year or multi-Fiscal Year
period, the total return (change in share price plus reinvestment of any
dividends) of the Stock, as compared to the total return of an index or indexes
selected by the Committee. For this purpose, the Committee shall choose from
among (i) the Standard & Poor's 500 Composite Index, (ii) the Standard & Poor's
Financial Miscellaneous Index, (iii) the Russell 1000 Index, and (iv) the
Russell 1000 Financial Services Index.
(kk) "Voting Power" means the combined voting power of the then-outstanding
voting securities entitled to vote generally in the election of directors.
4
<PAGE>
3. Scope of the Plan.
-----------------
(a) Number of Shares Available For Delivery Under the Plan. A maximum of
------------------------------------------------------
1,400,000 shares of Stock shall be authorized for issuance and delivery on
account of the exercise of Awards, including Awards of Replacement Options. No
more than an aggregate of 300,000 shares of the aforesaid 1,400,000 shares of
Stock may be granted under Article 6(f) and (g). No more than 150,000 shares of
Stock may be granted as stock options to any employee during the duration of the
Plan. During any Fiscal Year, no Grantee shall be granted more than 20,000
performance shares. Shares of Stock issuable under the Plan may be either
authorized but unissued shares of Stock or Treasury Stock.
(b) Effect of Expiration or Termination. If and to the extent an Award
-----------------------------------
shall expire or terminate for any reason without having been exercised in full
(including, without limitation, a cancellation and regrant of an option pursuant
to Article 4(c)(vii)), or shall be forfeited, without, in either case, the
Grantee having enjoyed any of the benefits of stock ownership (other than voting
rights or dividends that are likewise forfeited), the shares of Stock (including
restricted Stock) associated with such Award shall become available for other
Awards. Except in the case of a Reload Option granted to a Section 16 Grantee,
the grant of a Reload Option shall not reduce the number of shares of Stock
available for other Awards.
(c) Treasury Stock. The Committee shall have the authority to cause the
--------------
Company to purchase from time to time shares of Stock to be held as treasury
shares and used for or in connection with Awards.
(d) Committee Discretion to Cancel Options. Except with respect to options
--------------------------------------
granted pursuant to Article 6(b), the Committee may, in its discretion, elect at
any time, should it determine it is in the best interest of the Company's
stockholders to cancel any options granted hereunder, to cancel all or any of
the options granted hereunder and pay the holders of any such options an amount
(payable in such proportion as the Committee may determine in cash or in Stock
(valued at the Fair Market Value of a share of Stock on the date of cancellation
of such option)) equal to the number of shares of Stock subject to such canceled
option, multiplied by the amount (if any) by which the Fair Market Value of
Stock on the date of cancellation of the option exceeds the Option Price;
provided that if the Committee should determine that not making payment of such
amount to the holders of such option upon the cancellation would be in the best
interests of stockholders of the Company (ignoring in such determination the
cost of such payment and considering only other matters), the Committee may void
options granted hereunder and declare that no payment shall be made to the
holders of such options.
5
<PAGE>
4. Administration.
--------------
(a) Committee Administration. Subject to Article 4(b), the Plan shall be
------------------------
administered by the Committee, which shall consist of not less than two persons
appointed by the Board, who are directors of the Company and not employees of
the Parent, the Company or any of its Subsidiaries. Membership on the Committee
shall be subject to such limitations (including, if appropriate, a change in the
minimum number of members of the Committee) as the Board deems appropriate to
permit transactions pursuant to the Plan to be exempt from potential liability
under Section 16(b) of the 1934 Act and to comply with Section 162 (m) of the
Internal Revenue Code.
(b) Board Reservation and Delegation. The Board may, in its discretion,
--------------------------------
reserve to itself or delegate to another committee of the Board any or all of
the authority and responsibility of the Committee with respect to Awards to
Grantees who are not Section 16 Grantees at the time any such delegated
authority or responsibility is exercised. Such other committee may consist of
one or more directors who may, but need not be, officers or employees of the
Company or of any of its Subsidiaries. To the extent that the Board has reserved
to itself or delegated the authority and responsibility of the Committee to such
other committee, all references to the Committee in the Plan shall be to such
other committee.
(c) Committee Authority. The Committee shall have full and final authority,
-------------------
in its sole and absolute discretion, but subject to the express provisions of
the Plan, as follows:
(i) to grant Awards,
(ii) to determine (A) when Awards may be granted, and (B) whether
or not specific Awards shall be identified with other specific Awards, and
if so, whether they shall be exercisable cumulatively with, or
alternatively to, such other specific Awards,
(iii) to interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan,
(iv) to prescribe, amend, and rescind rules and regulations
relating to the Plan, including, without limitation, rules with respect to
the exercisability and nonforfeitability of Awards upon the Termination of
Employment of a Grantee,
(v) to determine the terms and provisions of the Award
Agreements, which need not be identical and, with the consent of the
Grantee, to modify any such Award Agreement at any time,
6
<PAGE>
(vi) to cancel options in accordance with the provision of
Section 3(d),
(vii) except as provided in Section 4(c)(vi) hereof, to cancel,
with the consent of the Grantee, outstanding Awards, and to grant new
Awards in substitution thereof,
(viii) to accelerate the exercisability of, and to accelerate or
waive any or all of the restrictions and conditions applicable to, any
Award,
(ix) to authorize foreign Subsidiaries to adopt plans as provided
in Article 14,
(x) to make such adjustments or modifications to Awards to
Grantees working outside the United States as are necessary and advisable
to fulfill the purposes of the Plan,
(xi) to authorize any action of or make any determination by the
Company as the Committee shall deem necessary or advisable for carrying out
the purposes of the Plan,
(xii) to make appropriate adjustments to, cancel or continue
Awards in accordance with Article 22, and
(xiii) to impose such additional conditions, restrictions, and
limitations upon the grant, exercise or retention of Awards as the
Committee may, before or concurrently with the grant thereof, deem
appropriate, including, without limitation, requiring simultaneous exercise
of related identified Awards, and limiting the percentage of Awards which
may from time to time be exercised by a Grantee.
(d) Committee Determinations Final. The determination of the Committee
------------------------------
on all matters relating to the Plan or any Award Agreement shall be conclusive
and final. No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award.
5. Eligibility. Awards may be granted to any employee of the Company or
-----------
any of its Subsidiaries. In selecting the individuals to whom Awards may be
granted, as well as in determining the number of shares of Stock subject to, and
the other terms and conditions applicable to, each Award, the Committee shall
take into consideration such factors as it deems relevant in promoting the
purposes of the Plan.
7
<PAGE>
6. Conditions to Grants.
--------------------
(a) General Conditions.
------------------
(i) In accordance with its powers under the Plan, the Committee
may grant replacement options (including Reload Options) in accordance with
this Article 6 to preserve those opportunities and benefits of PMI Group
Grantees which were terminated, forfeited, canceled, or reduced in
connection with the IPO.
(ii) The Grant Date of an Award shall be the date on which the
Committee grants the Award or such later date as specified in advance by
the Committee.
(iii) The term of each Award (subject to Article 6(b), with
respect to replacement Awards and Articles 6(d) and 6(e) with respect to
incentive stock options and Reload Options, respectively) shall be a period
of not more than 12 years from the Grant Date, and shall be subject to
earlier termination as herein provided.
(iv) A Grantee may, if otherwise eligible, be granted additional
Awards in any combination.
(v) The Committee may grant Awards with terms and conditions
which differ among the Grantees thereof. To the extent not set forth in the
Plan, the terms and conditions of each Award shall be set forth in an Award
Agreement.
(b) Grant of Replacement Options. Subject to Article 3(a), the
----------------------------
Committee may grant options ("Replacement Options") under the Plan to each PMI
Group Grantee who holds unexercised Sears Options (whether or not
nonforfeitable) and unexercised Allstate Options (whether or not forfeitable) at
the Effective Date; provided that such PMI Group Grantee's right to exercise any
Sears Options and Allstate Options has been forfeited or canceled in connection
with the IPO. The Award Agreement with respect to such Replacement Options shall
provide that the Grantee may exercise a Replacement Option at the same time as
he would have been able to exercise the Sears Option or Allstate Option it
replaces, subject to Article 8(b), if applicable.
(i) Replacement of Sears Options.
----------------------------
(A) The Option Price for a Replacement Option shall be
determined by the following formula; provided that in no event shall
the Option Price be less than the Minimum Consideration:
Option Price = A x B
-----
C
8
<PAGE>
Any fraction of a cent shall be rounded down to the next full cent.
(B) The number of shares of Stock for which the Replacement
Option is exercisable shall be determined in accordance with the
following formula:
Number of Shares = C x D
-----
B
Any fractional share shall be rounded up to the next full share.
(C) In the foregoing formulas,
"A" is the option exercise price for a Sears Option being
replaced,
"B" is the Fair Market Value of a share of Stock as of the
effective date of the IPO,
"C" is the Fair Market Value of a Sears common share as of the
effective date of the IPO, and
"D" is the number of Sears common shares for which the Sears
Option being replaced is exercisable.
(D) Each Replacement Option shall have the same terms and
conditions (other than the Option Price and the number of shares of
Stock, but including any provision for Reload Options) as, and not
give the Grantee any benefits he did not have, under the corresponding
Sears Option.
(ii) Replacement of Allstate Options.
-------------------------------
(A) The Option Price for a Replacement Option shall be
determined by the following formula; provided that in no event shall
the Option Price be less than the Minimum Consideration:
Option Price = A x B
-----
C
Any fraction of a cent shall be rounded down to the next full cent.
(B) The number of shares of Stock for which the Replacement
Option is exercisable shall be determined in accordance with the
following formula:
Number of Shares = C x D
-----
9
<PAGE>
B
Any fractional share shall be rounded up to the next full share.
(C) In the foregoing formulas,
"A" is the option exercise price for an Allstate Option being
replaced,
"B" is the Fair Market Value of a share of Stock as of the
effective date of the IPO,
"C" is the Fair Market Value of an Allstate common share as of
the effective date of the IPO, and
"D" is the number of Allstate common shares for which the
Allstate Option being replaced is exercisable.
(D) Each Replacement Option shall have the same terms and
conditions (other than the Option Price and the number of shares of
Stock, but including any provision for Reload Options) as, and not
give the Grantee any benefits he did not have, under the corresponding
Allstate Option.
(c) Grant of Options and Option Price. Other than for purposes of
---------------------------------
Replacement Options as set forth in Article 6(b) above, the Committee may, in
its discretion, grant options (which may be options to acquire unrestricted
Stock or restricted Stock) to any employee eligible under Article 5 to receive
Awards. No later than the Grant Date of any option, the Committee shall
determine the Option Price; provided that the Option Price shall, except as
provided in subsection (d) below and in Article 15, not be less than 100% of the
Fair Market Value of the Stock on the Grant Date.
(d) Grant of Incentive Stock Options. At the time of the grant of any
--------------------------------
option other than a Replacement Option, the Committee may designate that such
option shall be made subject to additional restrictions to permit it to qualify
as an "incentive stock option" under the requirements of Section 422 of the
Internal Revenue Code. Any option designated as an incentive stock option:
(i) shall have an Option Price of (A) not less than 100% of the
Fair Market Value of the Stock on the Grant Date or (B) in the case of a
10% Owner, not less than 110% of the Fair Market Value of the Stock on the
Grant Date;
(ii) shall have a term of not more than 10 years (five years, in
the case of a 10% Owner) from the Grant
10
<PAGE>
Date, and shall be subject to earlier termination as provided herein or in
the applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value (determined
for each incentive stock option at its Grant Date) of Stock with respect to
which incentive stock options are exercisable for the first time by such
Grantee during any calendar year (under the Plan and any other employee
stock option plan of the Grantee's employer or any parent (including but
not limited to Allstate Insurance Company and Sears) or subsidiary thereof
("Other Plans")), determined in accordance with the provisions of Section
422 of the Internal Revenue Code, which exceeds $100,000 (the "$100,000
Limit");
(iv) shall, if the aggregate Fair Market Value of Stock
(determined on the Grant Date) with respect to all incentive stock options
previously granted under the Plan and any Other Plans ("Prior Grants") and
any incentive stock options under such grant (the "Current Grant") which
are exercisable for the first time during any calendar year would exceed
the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant exercisable for the
first time by the Grantee during any calendar year which would be,
when added to any portions of any Prior Grants exercisable for the
first time by the Grantee during such calendar year with respect to
stock which would have an aggregate Fair Market Value (determined as
of the respective Grant Date for such options) in excess of the
$100,000 Limit shall, notwithstanding the terms of the Current Grant,
be exercisable for the first time by the Grantee in the first
subsequent calendar year or years in which it could be exercisable for
the first time by the Grantee when added to all Prior Grants without
exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any
portion of a Current Grant could not be exercised under the provisions
of the immediately preceding sentence during any calendar year
commencing with the calendar year in which it is first exercisable
through and including the last calendar year in which it may by its
terms be exercised, such portion of the Current Grant shall not be an
incentive stock option, but shall be exercisable as a separate option
at such date or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the date
the Plan is adopted or the date the Plan is approved by the stockholders of
the Company; and
11
<PAGE>
(vi) shall require the Grantee to notify the Committee of any
disposition of any Stock issued pursuant to the exercise of the incentive
stock option under the circumstances described in Section 421(b) of the
Internal Revenue Code (relating to certain disqualifying dispositions),
within 10 days of such disposition.
Notwithstanding the foregoing and Article 4(c)(v), the Committee may take any
action with respect to any option, including but not limited to an incentive
stock option, without the consent of the Grantee, in order to prevent such
option from being treated as an incentive stock option.
(e) Grant of Reload Options. The Committee may provide in an Award
-----------------------
Agreement, including an Award Agreement for the grant of a Replacement Option
when the Replaced Sears Option or Replaced Allstate Option included a reload
option for Sears shares or Allstate shares, respectively, as the case may be,
that a Grantee who exercises all or any portion of an option for shares of Stock
which have a Fair Market Value equal to not less than 100% of the Option Price
for such options ("Exercised Options") and who paid the Option Price with shares
of Stock shall be granted, subject to Article 3, an additional option ("Reload
Option") for a number of shares of stock equal to the sum ("Reload Number") of
the number of shares of Stock tendered to exercise the Exercised Options plus,
if so provided by the Committee, the number of shares of Stock, if any, retained
by the Company in connection with the exercise of the Exercised options to
satisfy any federal, state or local tax withholding requirements.
Reload Options shall be subject to the following terms and conditions:
(i) the Grant Date for each Reload Option shall be the date of
exercise of the Exercised Option to which it relates;
(ii) subject to Article 6(e)(iii) below, the Reload Option may be
exercised at any time during the unexpired term of the Exercised Option
(subject to earlier termination thereof as provided in the Plan and in the
applicable Award Agreement); and
(iii) the terms of the Reload Option shall be the same as the
terms of the Exercised Option to which it relates, except that (A) the
Option Price shall be the Fair Market Value of the Stock on the Grant Date
of the Reload Option and (B) no Reload Option may be exercised within one
year from the Grant Date thereof.
12
<PAGE>
(f) Grant of Shares of Restricted Stock.
-----------------------------------
(i) The Committee may, in its discretion, grant shares of
restricted Stock to any employee eligible under Article 5 to receive
Awards.
(ii) Before the grant of any shares of restricted Stock, the
Committee shall determine, in its discretion:
(A) whether the certificates for such shares shall be
delivered to the Grantee or held (together with a stock power executed
in blank by the Grantee) in escrow by the Secretary of the Company
until such shares become nonforfeitable or are forfeited,
(B) the per share purchase price of such shares, which may
be zero provided, however, that
(1) the per share purchase price of all such shares
(other than treasury shares) shall not be less than the Minimum
Consideration for each such share; and
(2) if such shares are to be granted to a Section 16
Grantee, the per share purchase price of any such shares shall
also be at least 50% of the Fair Market Value of the Stock on the
Grant Date unless such shares are granted for no monetary
consideration (in which case treasury shares are to be delivered)
or with a purchase price per share equal to the Minimum
Consideration for the Stock, and
(C) the restrictions applicable to such grant;
(iii) Payment of the purchase price (if greater than zero) for
shares of restricted Stock shall be made in full by the Grantee before the
delivery of such shares and, in any event, no later than 10 days after the
Grant Date for such shares. Such payment may, at the election of the
Grantee, be made in any one or any combination of the following:
(A) cash,
(B) Stock valued at its Fair Market Value on the date of
payment or, if the date of payment is not a business day, the next
succeeding business day, or
(C) with the approval of the Committee, shares of restricted
Stock, each valued at the Fair Market Value of a share of Stock on the
date of payment
13
<PAGE>
or, if the date of payment is not a business day, the next succeeding
business day
provided, however, that, in the case of payment in Stock or restricted
Stock,
(1) the use of Stock or restricted Stock in payment of
such purchase price by a Section 16 Grantee is subject to the
prior receipt by the Company of either a favorable opinion of
counsel for the Company or a "no action" letter from the staff of
the SEC with respect to the exemption of such use of stock from
potential liability under Section 16(b) of the 1934 Act or the
inapplicability of such Section;
(2) in the discretion of the Committee and to the
extent permitted by law, payment may also be made in accordance
with Article 9; and
(3) if the purchase price for restricted Stock ("New
Restricted Stock") is paid with shares of restricted Stock ("Old
Restricted Stock"), the restrictions applicable to the New
Restricted Stock shall be the same as if the Grantee had paid for
the New Restricted Stock in cash unless, in the judgment of the
Committee, the Old Restricted Stock was subject to a greater risk
of forfeiture, in which case a number of shares of New Restricted
Stock equal to the number of shares of Old Restricted Stock
tendered in payment for New Restricted Stock may in the
discretion of the Committee be subject to the same restrictions
as the Old Restricted Stock, determined immediately before such
payment.
(iv) The Committee may, but need not, provide that all or any
portion of a Grantee's Award of restricted Stock shall be forfeited
(A) except as otherwise specified in the Award Agreement,
upon the Grantee's Termination of Employment within a specified time
period after the Grant Date, or
(B) if the Company or the Grantee does not achieve specified
performance goals within a specified time period after the Grant Date
and before the Grantee's Termination of Employment, or
(C) upon failure to satisfy such other restrictions as the
Committee may specify in the Award Agreement.
14
<PAGE>
(v) If a share of restricted Stock is forfeited, then
(A) the Grantee shall be deemed to have resold such share of
restricted Stock to the Company at the lesser of (1) the purchase
price paid by the Grantee (such purchase price shall be deemed to be
zero dollars ($0) if no purchase price was paid) or (2) the Fair
Market Value of a share of Stock on the date of such forfeiture;
(B) the Company shall pay to the Grantee the amount
determined under clause (A) of this sentence as soon as is
administratively practical; and
(C) such share of restricted Stock shall cease to be
outstanding, and shall no longer confer on the Grantee thereof any
rights as a stockholder of the Company, from and after the date of the
Company's tender of the payment specified in clause (B) of this
sentence, whether or not such tender is accepted by the Grantee.
(vi) Any share of restricted Stock shall bear an appropriate
legend specifying that such share is non-transferable and subject to the
restrictions set forth in the Plan. If any shares of restricted Stock
become nonforfeitable, the Company shall cause certificates for such shares
to be issued or reissued without such legend and delivered to the Grantee
or, at the request of the Grantee, shall cause such shares to be credited
to a brokerage account specified by the Grantee.
(g) Grant of Unrestricted Stock. The Committee may, in its discretion,
---------------------------
grant shares of unrestricted Stock to any employee eligible under Article 5 to
receive Awards.
(h) Grant of Performance Shares.
---------------------------
(i) The Committee may, in its discretion, grant performance
shares to any employee eligible under Article 5 to receive Awards.
(ii) Each performance share shall have an initial value equal to
the Fair Market Value of a share of Stock on the date of grant.
(iii) The Committee shall set performance objectives in its
discretion which, depending on the extent to which they are met, will
determine the number of performance shares that will be paid out to the
Participants. The time period during which the performance objectives must
be met shall be called the "Performance Period".
15
<PAGE>
(iv) The Committee may set performance objectives based upon the
achievement of Company-wide, divisional, or individual goals, applicable
Federal or state securities laws, or any other basis determined by the
Committee in its discretion. For purposes of qualifying grants of
performance shares as "performance-based compensation" under Section 162(m)
of the Internal Revenue Code, the Committee, in its discretion, may
determine that the performance objectives applicable to performance shares
shall be based on the achievement of Performance Goals. The Performance
Goals shall be set by the Committee on or before the latest date
permissible to enable the performance shares to qualify as "performance-
based compensation" under Section 162(m) of the Internal Revenue Code. In
granting performance shares which are intended to qualify under Code
Section 162(m), the Committee shall follow any procedures determined by it
from time to time to be necessary or appropriate to ensure qualification of
the performance shares under Internal Revenue Code Section 162(m) (e.g., in
----
determining the Performance Goals).
(v) After the applicable Performance Period has ended, the
Grantee shall be entitled to receive a payout of the number of performance
shares earned over the Performance Period, to be determined as a function
of the extent to which the corresponding performance objectives have been
achieved. Payment of earned performance shares shall be made as soon as
practicable after the expiration of the applicable Performance Period. The
Committee, in its sole discretion, may pay earned performance shares in the
form of cash, in shares of Stock (which have an aggregate Fair Market Value
equal to the value of the earned performance Shares at the close of the
applicable Performance Period) or in a combination thereof.
7. Non-transferability. Each Award (other than unrestricted Stock)
-------------------
granted hereunder shall by its terms not be assignable or transferable other
than by will or the laws of descent and distribution and may be exercised,
during the Grantee's lifetime, only by the Grantee. Each share of restricted
Stock shall be non-transferable until such share becomes nonforfeitable.
Notwithstanding the foregoing, the Grantee may, to the extent provided in the
Plan and in a manner specified by the Committee, (a) designate in writing a
beneficiary to exercise his options after the Grantee's death, and (b) transfer
an option (other than an incentive stock option) to a revocable, inter vivos
trust as to which the Grantee is both the settlor and the trustee, but in no
event shall any such transfer be effective unless the Company shall have
received a favorable opinion of counsel for the Company or the staff of the SEC
shall have issued an interpretive or "no action" letter to the effect that
transfers made on a basis substantially consistent with this Article would not
violate the conditions for the exemption provided by SEC Rule 16b-3.
16
<PAGE>
8. Exercise.
--------
(a) Exercise of Options. Subject to Articles 4, 6, 14 and 17, and such
-------------------
terms and conditions as the Committee may impose, each option shall be
exercisable in one or more installments commencing not earlier than the first
anniversary of the Grant Date of such option; provided, however, that in the
case of a Replacement Option, such option shall be exercisable commencing not
earlier than the first anniversary of the grant date of the Sears Option or
Allstate Option it replaces. Options shall not be exercisable for twelve months
following a hardship distribution that is subject to Treasury Regulation (S)
1.401(k)-1(d)(2)(iv)(B)(4), except to the extent permitted thereunder. Each
option shall be exercised by delivery to the Company of written notice of intent
to purchase a specific number of shares of Stock or restricted Stock subject to
the option. The Option Price of any shares of Stock or restricted Stock as to
which an option shall be exercised shall be paid in full at the time of the
exercise. Payment may, at the election of the Grantee, or if specified, as
provided in the Award Agreement, be made in any one or any combination of the
following forms:
(i) check in such form as may be satisfactory to the Committee,
(ii) Stock valued at its Fair Market Value on the date of
exercise or, if the date of exercise is not a business day, the next
succeeding business day; provided that for the exercise of a Replacement
Option, such Stock must have been held for at least six months, valued at
the Fair Market Value on the date of exercise,
(iii) Except with respect to the exercise of a Replacement Sears
Option, with the approval of the Committee, shares of restricted Stock,
each valued at the Fair Market Value of a share of Stock on the date of
exercise or, if the date of exercise is not a business day, the next
succeeding business day, or
(iv) Except with respect to the exercise of a Replacement Sears
option, through simultaneous sale through a broker of shares of
unrestricted Stock acquired on exercise, as permitted under Regulation T of
the Federal Reserve Board.
If restricted Stock ("Tendered Restricted Stock") is used to pay the
Option Price for Stock, then a number of shares of Stock acquired on exercise of
the option equal to the number of shares of Tendered Restricted Stock shall be
subject to the same restrictions as the Tendered Restricted Stock, determined as
of the date of exercise of the option. If the Option Price for restricted Stock
is paid with Tendered Restricted Stock, and if the Committee determines that the
restricted Stock acquired on exercise of the option is subject to restrictions
("Greater
17
<PAGE>
Restrictions") that cause it to have a greater risk of forfeiture than the
Tendered Restricted Stock, then notwithstanding the preceding sentence, all the
restricted Stock acquired on exercise of the option shall be subject to such
Greater Restrictions.
Shares of unrestricted Stock acquired by a Grantee on exercise of an
option shall be delivered to the Grantee or, at the request of the Grantee,
shall be credited directly to a brokerage account specified by the Grantee.
(b) Special Rules for Section 16 Grantees. Subject to Articles 6 and
-------------------------------------
15, no option shall be exercisable by a Section 16 Grantee during the first six
months after its Grant Date, except as exempted from Section 16(b) of the 1934
Act under Rule 16a-2(d) under the 1934 Act. This limitation shall not apply if
the Grantee dies or incurs a Disability before the end of the six-month period.
(c) Permissible Shares Issued. No shares of Stock shall be issued
-------------------------
hereunder upon option exercise except shares of Stock available under Article
3(a). Each Grantee, by acceptance of an award, waives all rights to specific
performance or injunctive or other equitable relief and acknowledges that he has
an adequate remedy at law in the form of damages.
9. Loans and Guarantees. The Committee may, in its discretion except with
--------------------
respect to the Replacement of a Sears Option:
(a) allow a Grantee to defer payment to the Company of all or any
portion of (i) the Option Price of an option, (ii) the purchase price of a share
of restricted Stock, or (iii) any taxes associated with a benefit hereunder
which is not a cash benefit at the time such benefit is so taxable, or
(b) cause the Company to guarantee a loan from a third party to the
Grantee, in an amount equal to all or any portion of such option Price, purchase
price, or any related taxes. Any such payment deferral or guarantee by the
Company pursuant to this Article 9 shall be, on a secured or unsecured basis,
for such periods, at such interest rates, and on such other terms and conditions
as the Committee may determine. Notwithstanding the foregoing, a Grantee shall
not be entitled to defer the payment of such Option Price, purchase price, or
any related taxes unless the Grantee (i) enters into a binding obligation to pay
the deferred amount and (ii) except with respect to treasury shares, pays upon
exercise of an option or grant of shares of restricted Stock, as the case may
be, an amount equal to or greater than the aggregate Minimum Consideration
therefor. If the Committee has permitted a payment deferral or caused the
Company to guarantee a loan pursuant to this Article 9, then the Committee may,
in its discretion, require the immediate payment of such deferred amount or the
immediate release of such guarantee upon the Grantee's Termination of Employment
or if the Grantee sells or otherwise
18
<PAGE>
transfers the Grantee's shares of Stock purchased pursuant to such deferral or
guarantee.
10. Notification under Section 83(b). The Committee may, on the Grant Date
--------------------------------
or any later date, prohibit a Grantee from making the election described below.
If the Committee has not prohibited such Grantee from making such election, and
the Grantee shall, in connection with the exercise of any option, or the grant
of any share of restricted Stock, make the election permitted under Section
83(b) of the Internal Revenue Code (i.e., an election to include in such
Grantee's gross income in the year of transfer the amounts specified in Section
83(b) of the Internal Revenue Code), such Grantee shall notify the Company of
such election within 10 days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and notification required pursuant to
regulations issued under the authority of Section 83(b) of the Internal Revenue
Code.
11. Mandatory Withholding Taxes.
---------------------------
(a) Whenever under the Plan, cash or shares of Stock are to be
delivered upon exercise or payment of an Award or upon a share of restricted
Stock becoming nonforfeitable, or any other event with respect to rights and
benefits hereunder, the Company shall be entitled to require as a condition of
delivery (i) that the Grantee remit an amount sufficient to satisfy all federal,
state, and local withholding tax requirements related thereto, (ii) the
withholding of such sums from compensation otherwise due to the Grantee or from
any shares of Stock due to the Grantee under the Plan or (iii) any combination
of the foregoing.
(b) If any disqualifying disposition described in Article 6(c)(vi) is
made with respect to shares of Stock acquired under an incentive stock option
granted pursuant to the Plan or any election described in Article 10 is made,
then the person making such disqualifying disposition or election shall remit to
the Company an amount sufficient to satisfy all federal, state, and local
withholding taxes thereby incurred; provided that, in lieu of or in addition to
the foregoing, the Company shall have the right to withhold such sums from
compensation otherwise due to the Grantee or from any shares of Stock due to the
Grantee under the Plan.
12. Elective Share Withholding.
--------------------------
(a) Subject to the prior approval of the Committee and to Article
12(b), a Grantee may elect the withholding ("Share Withholding") by the Company
of a portion of the shares of Stock otherwise deliverable to such Grantee upon
the exercise or payment of an Award or upon a share of restricted Stock's
becoming nonforfeitable (each a "Taxable Event") having a Fair Market Value
equal to
19
<PAGE>
(i) the minimum amount necessary to satisfy required federal,
state, or local withholding tax liability attributable to the Taxable
Event; or
(ii) with the Committee's prior approval, a greater amount, not
to exceed the estimated total amount of such Grantee's tax liability with
respect to the Taxable Event.
(b) Each Share Withholding election by a Grantee shall be subject to
the following restrictions:
(i) any Grantee's election shall be subject to the Committee's
right to revoke its approval of Share Withholding by such Grantee at any
time before the Grantee's election if the Committee has reserved the right
to do so at the time of its approval;
(ii) if the Grantee is a Section 16 Grantee, such Grantee's
election shall be subject to the disapproval of the Committee at any time,
whether or not the Committee has reserved the right to do so;
(iii) the Grantee's election must be made before the date (the
"Tax Date") on which the amount of tax to be withheld is determined;
(iv) the Grantee's election shall be irrevocable;
(v) a Section 16 Grantee may not elect Share Withholding to the
extent that such Share Withholding is to occur within six months after the
grant of the related option (except if the Grantee dies or incurs a
Disability before the end of the six-month period); and
(vi) a Section 16 Grantee must elect Share Withholding during the
ten business day period beginning on the third business day after the
release of the Company's quarterly or annual summary statement of sales and
earnings.
13. Termination of Employment.
-------------------------
(a) Restricted Stock. Except as otherwise provided by the Committee on
----------------
or after the Grant Date, a Grantee's shares of restricted Stock that are
forfeitable shall be forfeited upon the Grantee's Termination of Employment.
(b) Other Awards. If a Grantee has a Termination of Employment, then,
------------
unless otherwise provided in the Grant Agreement, any unexercised option to the
extent exercisable on the date of the Grantee's Termination of Employment may be
exercised by the Grantee, in whole or in part, at any time within three months
following such Termination of Employment, except that
20
<PAGE>
(i) if the Grantee's Termination of Employment is on account of
Disability, then any unexercised option (except a Replacement of a Sears
Option) to the extent exercisable at the date of such Termination of
Employment, may be exercised, in whole or in part, by the Grantee at any
time within two years after the date of such Termination of Employment; and
(ii) if the Grantee's Termination of Employment is on account of
Retirement, then any unexercised option to the extent exercisable at the
date of such Termination of Employment, may be exercised, in whole or in
part, by the Grantee at any time within (a) two years after the date of
such Termination of Employment, in the case of a Replacement Sears Option
or (b) five years after the date of such Termination of Employment in the
case of all other options.
(iii) if the Grantee's Termination of Employment is caused by the
death of the Grantee or if the Grantee's death occurs during the period
following Termination of Employment during which the option would be
exercisable under the preceding clause of Article 13(b) or under Article
13(b)(i) or (ii), then any unexercised option to the extent exercisable on
the date of the Grantee's death, may be exercised, in whole or in part, at
any time within two years after the Grantee's death by the Grantee's
personal representative or by the person to whom the option is transferred
by will or the applicable laws of descent and distribution.
(c) Maximum Extension. Notwithstanding the foregoing, no Award shall
-----------------
be exercisable beyond the maximum term permitted under the original Award
Agreement unless with respect to any option except a Replacement Sears option,
the Committee explicitly extends such original term, in which case such term
shall not be extended beyond the maximum term permitted by the Plan.
14. Equity Incentive Plans of Foreign Subsidiaries. The Committee may
----------------------------------------------
authorize any foreign Subsidiary to adopt a plan for granting Awards ("Foreign
Equity Incentive Plan"). All awards granted under such Foreign Equity Incentive
Plans shall be treated as grants under the Plan. Such Foreign Equity Incentive
Plans shall have such terms and provisions as the Committee permits not
inconsistent with the provisions of the Plan and which may be more restrictive
than those contained in the Plan. Awards granted under such Foreign Equity
Incentive Plans shall be governed by the terms of the Plan except to the extent
that the provisions of the Foreign Equity Incentive Plans are more restrictive
than the terms of the Plan, in which case such terms of the Foreign Equity
Incentive Plans shall control.
15. Substituted Awards. Except with respect to Replacement Options, the
------------------
Committee may grant substitute awards for any
21
<PAGE>
canceled Award granted under this Plan or any plan of any entity acquired by the
Company or any of its Subsidiaries in accordance with this Article 15. If the
Committee cancels any Award (granted under this Plan, or any plan of any entity
acquired by the Company or any of its Subsidiaries), and a new Award is
substituted therefor, then the Committee may, in its discretion, determine the
terms and conditions of such new Award, and may provide that the Grant Date of
the canceled Award shall be the date used to determine the earliest date or
dates for exercising the new substituted Award under Article 8 hereof so that
the Grantee may exercise the substituted Award at the same time as if the
Grantee had held the substituted Award since the Grant Date of the canceled
Award.
16. Securities Law Matters.
----------------------
(a) If the Committee deems necessary to comply with the Securities Act
of 1933, the Committee may require a written investment intent representation by
the Grantee and may require that a restrictive legend be affixed to certificates
for shares of Stock.
(b) If based upon the opinion of counsel for the Company, the
Committee determines that the exercise or nonforfeitability of, or delivery of
benefits pursuant to, any Award could violate any applicable provision of (i)
federal or state securities law or regulations or (ii) the listing requirements
of any national securities exchange on which are listed any of the Company's
equity securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as the case may be, but the Company shall use its
best efforts to cause such exercise, nonforfeitability or delivery to comply
with all such provisions at the earliest practicable date.
17. No Funding Required. Benefits payable under the Plan to any person
-------------------
shall be paid directly by the Company. The Company shall not be required to
fund, or otherwise segregate assets to be used for payment of, benefits under
the Plan.
18. No Employment Rights. Neither the establishment of the Plan, nor the
--------------------
granting of any Award shall be construed to (a) give any Grantee the right to
remain employed by the Company or any of its Subsidiaries or to any benefits not
specifically provided by the Plan or (b) in any manner modify the right of the
Company or any of its Subsidiaries to modify, amend, or terminate any of its
employee benefit plans.
19. Rights as a Stockholder. A Grantee shall not, by reason of any Award
-----------------------
(other than restricted Stock) have any right as a stockholder of the Company
with respect to the shares of Stock which may be deliverable upon exercise or
payment of such Award until such shares have been delivered to him. Shares of
restricted Stock held by a Grantee or held in escrow by the Secretary of the
Company shall confer on the Grantee all rights
22
<PAGE>
of a stockholder of the Company, except as otherwise provided in the Plan or the
Award Agreement. The Committee, in its discretion, at the time of grant of
restricted Stock, may permit or require the payment of cash dividends thereon to
be deferred and, if the Committee so determines, reinvested in additional
restricted Stock to the extent shares are available under Article 3, or
otherwise reinvested in Stock. Stock dividends, deferred cash dividends and
dividends in the form of property other than cash, issued with respect to
restricted Stock shall, unless otherwise provided in the Award Agreement, be
treated as additional shares of restricted Stock that are subject to the same
restrictions and other terms as apply to the shares with respect to which such
dividends are issued. The Committee may, in its discretion, provide for
crediting and payment of interest on deferred cash dividends.
20. Nature of Payments. Any and all grants, payments of cash, or
------------------
deliveries of shares of Stock hereunder shall constitute special incentive
payments to the Grantee and shall not be taken into account in computing the
amount of salary or compensation of the Grantee for the purposes of determining
any pension, retirement, death or other benefits under (a) any pension,
retirement, profit-sharing, bonus, life insurance or other employee benefit plan
of the Company or any of its Subsidiaries or (b) any agreement between the
Company or any Subsidiary, on the one hand, and the Grantee, on the other hand,
except as such plan or agreement shall otherwise expressly provide.
21. Non-Uniform Determinations. Neither the Committee's nor the Board's
--------------------------
determinations under the Plan need be uniform and may be made by the Committee
or the Board selectively among persons who receive, or are eligible to receive,
Awards (whether or not such persons are similarly situated). Without limiting
the generality of the foregoing, the Committee shall be entitled, among other
things, to make non-uniform and selective determinations, to enter into non-
uniform and selective Award Agreements as to (a) the identity of the Grantees,
(b) the terms and provisions of Awards, and (c) the treatment, under Article 13,
of Terminations of Employment.
22. Adjustments. Subject to Article 6, the Committee may make such
-----------
provision with respect to Awards, including without limitation, equitable
adjustment of
(a) the aggregate numbers of shares of Stock available under Articles
3(a) and 3(b),
(b) the number of shares of Stock or shares of restricted Stock
covered by an Award, and
(c) the Option Price, or
the termination or continuation of an Award as it may determine to be
appropriate and equitable to reflect a stock dividend,
23
<PAGE>
stock split, reverse stock split, share combination, recapitalization, merger,
consolidation, acquisition of property or shares, separation, spin-off,
reorganization, stock rights offering, liquidation, or similar event, of or by
the Company.
23. Amendment of the Plan. The Board may from time to time in its
---------------------
discretion amend or modify the Plan without the approval of the stockholders of
the Company, except as such stockholder approval may be required (a) to permit
transactions in Stock pursuant to the Plan to be exempt from potential liability
under Section 16(b) of the 1934 Act, (b) to permit the Company to deduct, in
computing its income tax liability pursuant to the provisions of the Internal
Revenue Code, compensation resulting from Awards, (c) to retain incentive stock
option treatment under Section 422 of the Internal Revenue Code, or (d) under
the listing requirements of any securities exchange on which are listed any of
the Company's equity securities.
24. Termination of the Plan. The Plan shall terminate on the tenth (10th)
-----------------------
anniversary of the Effective Date or at such earlier time as the Board may
determine. Any termination, whether in whole or in part, shall not affect (a)
any Award then outstanding under the Plan, or (b) the Company's ability to make
adjustments to or cancel or continue Awards in accordance with Article 22.
25. No Illegal Transactions. The Plan and all Awards granted pursuant to
-----------------------
it are subject to all laws and regulations of any governmental authority which
may be applicable thereto; and notwithstanding any provision of the Plan or any
Award, Grantees shall not be entitled to exercise Awards or receive the benefits
thereof and the Company shall not be obligated to deliver any Stock or pay any
benefits to a Grantee if such exercise, delivery, receipt or payment of benefits
would constitute a violation by the Grantee or the Company of any provision of
any such law or regulation.
26. Controlling Law. The law of the State of Delaware except its law with
---------------
respect to choice of law, shall be controlling in all matters relating to or
arising out of the Plan or any Award.
27. Severability. If all or any part of the Plan is declared by any court
------------
or governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not declared to
be unlawful or invalid. Any Article or part of an Article so declared to be
unlawful or invalid shall, if possible, be construed in a manner which will give
effect to the terms of such Article or part of an Article to the fullest extent
possible while remaining lawful and valid.
24
<PAGE>
EXHIBIT 10.27
The PMI Group Inc. Long-Term Incentive Plan
-------------------------------------------
The Long-Term Incentive Plan pays cash amounts tied to (a) specific financial
measures supporting continued growth, profitability and increased shareholder
value and/or (b) individual performance objectives. These measures and
objectives are identified by management and approved by the Compensation and
Nominating Committee of the Board ("Committee") on an annual basis. Under the
Long-Term Incentive Plan, an annual incentive cash award is designed to provide
market median levels of compensation for performance that met individual and/or
annual financial benchmarks set at the beginning of the year and approved by the
Committee.
Similarly, the Committee certifies annually that awards payable as annual
incentives correspond to performance goals and the target level established at
the beginning of the year. Provided the participant satisfies the threshold
level of individual or financial performance, the cash award payable can range
from 25% to 100% of the participant's base salary. Generally, the Long-Term
Incentive Plan cash payments to executives are based solely on Company
performance. The Company's independent auditors perform certain Long Term
Incentive Plan recomputation procedures and issue a report to the Company of
their result. The Committee retains discretion to alter the award otherwise
payable to any executive and/or to pay a bonus for the achievement of the other
objectives.
<PAGE>
EXHIBIT 10.28
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of February 4, 1997,
among The PMI Group, Inc., a Delaware corporation (the "Company"), PMI Capital
I, a Delaware statutory business trust (the "Trust"), and Goldman, Sachs & Co.
as the initial purchaser (the "Initial Purchaser") of the 8.309% Capital
Securities, Series A of the Trust, which are guaranteed by the Company.
1. Certain Definitions.
-----------------------
For purposes of this Registration Rights Agreement, the following terms
shall have the following respective meanings:
(a) "Administrative Trustees" shall mean the Administrative Trustees
appointed pursuant to the Trust Agreement.
(b) "Capital Securities" shall mean the 8.309% Capital Securities,
Series A, Liquidation Amount $1,000 per Capital Security, to be issued
under the Trust Agreement and sold to the Initial Purchaser, and securities
issued in exchange therefor, other than Debentures, or in lieu thereof
pursuant to the Trust Agreement.
(c) "Closing Date" shall mean the date on which the Capital Securities
are initially issued.
(d) "Commission" shall mean the Securities and Exchange Commission, or
any other Federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular
purpose.
(e) "Debentures" shall mean the 8.309% Junior Subordinated Deferrable
Interest Debentures, Series A due February 1, 2027 of the Company to be
issued under the Indenture, and securities issued in exchange therefor or
in lieu thereof pursuant to the Indenture.
(f) "Effective Time", in the case of (i) an Exchange Offer, shall mean
the time and date as of which the Commission declares the Exchange Offer
Registration Statement effective or as of which the Exchange Offer
Registration Statement otherwise becomes effective, and (ii) a Shelf
Registration, shall mean the time and date as of which the Commission
declares the Shelf Registration effective or as of which the Shelf
Registration otherwise becomes effective.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, or
any successor thereto, as the same shall be amended from time to time.
(h) "Exchange Capital Securities" shall have the meaning assigned
thereto in Section 2(a) hereof.
(i) "Exchange Debentures " shall have the meaning assigned thereto in
Section 2(a) hereof.
(j) "Exchange Guarantee " shall have the meaning assigned thereto in
Section 2(a) hereof.
<PAGE>
(k) "Exchange Offer" shall have the meaning assigned thereto in Section
2(a) hereof.
(l) "Exchange Offer Registration Statement" shall have the meaning
assigned thereto in Section 2(a) hereof.
(m) "Exchange Registration" shall have the meaning assigned thereto in
Section 3(f) hereof.
(n) "Exchange Securities" shall have the meaning assigned thereto in
Section 2(a) hereof.
(o) "Guarantee" shall mean the guarantee of the Capital Securities by
the Company under the Guarantee Agreement, dated as of February 4, 1997,
between the Company and The Bank of New York, as Guarantee Trustee.
(p) The term "holder" shall mean the Initial Purchaser for so long as
it owns any Registrable Securities, and such of its respective successors
and assigns who acquire Registrable Securities, directly or indirectly,
from such person or from any successor or assign of such person, in each
case for so long as such person owns any Registrable Securities.
(q) "Indenture" shall mean the Junior Subordinated Indenture, dated as
of February 4, 1997, between the Company and The Bank of New York, as
Trustee, as the same shall be amended from time to time.
(r) "Initial Purchaser" shall have the meaning assigned thereto in the
introductory paragraph hereto.
(s) "Liquidation Amount" shall mean the stated amount of $1,000 per
Trust Security.
(t) The term "person" shall mean a corporation, association,
partnership, organization, business, individual, government or political
subdivision thereof or governmental agency.
(u) "Private Exchange" shall have the meaning assigned thereto in
Section 2(a) hereof.
(v) "Private Exchange Securities" shall have the meaning assigned
thereto in Section 2(a) hereof.
(w) "Registrable Securities" shall mean the Securities and the Private
Exchange Securities; provided, however, that such Securities shall cease to
-------- -------
be Registrable Securities when (i) in the circumstances contemplated by
Section 2(a) hereof, such Securities have been exchanged for Exchange
Securities in an Exchange Offer as contemplated in Section 2(a) (provided
--------
that any Exchange Securities received by a broker-dealer in an Exchange
Offer in exchange for Registrable Securities that were not acquired by the
broker-dealer directly from the Company will also be Registrable Securities
through and including the earlier of the 90th day after the Exchange Offer
is completed or such time as such broker-dealer no longer owns such
Exchange Securities); (ii) in the circumstances contemplated by Section
2(b) hereof, a registration statement registering such Securities or
Private Exchange Securities under the Securities Act has been declared or
becomes effective and such Securities or Private Exchange Securities have
been sold or otherwise transferred by the holder thereof pursuant to such
effective registration
-2-
<PAGE>
statement or, in the case of the Private Exchange Securities, such
registration statement has been kept effective for 60 days; (iii) such
Securities or Private Exchange Securities are or may be sold pursuant to
Rule 144 or any successor provision under circumstances in which any legend
borne by such Securities or Private Exchange Securities relating to
restrictions on transferability thereof, under the Securities Act or
otherwise, is removed or such Securities or Private Exchange Securities are
eligible to be sold pursuant to paragraph (k) of Rule 144; or (iv) such
Securities or Private Exchange Securities shall cease to be outstanding.
When used in connection with a Shelf Registration effected pursuant to
Section 2(b)(iv) hereof, the term Registrable Securities shall in such
context be deemed to refer only to the Private Exchange Securities.
(x) "Registration Default" shall have the meaning assigned thereto in
Section 2(c) hereof.
(y) "Registration Default Interest" shall have the meaning assigned
thereto in Section 2(c) hereof.
(z) "Registration Default Distributions" shall have the meaning
assigned thereto in Section 2(c) hereof.
(aa) "Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
(bb) "Resale Period" shall have the meaning assigned thereto in Section
2(a) hereof.
(cc) "Restricted Holder" shall mean (i) a holder that is an affiliate
of the Company within the meaning of Rule 405, (ii) a holder who acquires
Exchange Securities outside the ordinary course of such holder's business
or (iii) a holder who has arrangements or understandings with any person to
participate in the Exchange Offer for the purpose of distributing Exchange
Securities.
(dd) "Rule 144," "Rule 405" and "Rule 415" shall mean, in each case,
such rule promulgated under the Securities Act.
(ee) "Securities" shall mean, collectively, the Capital Securities,
the Guarantee and the Debentures.
(ff) "Securities Act" shall mean the Securities Act of 1933.
(gg) "Shelf Registration" shall have the meaning assigned thereto in
Section 2(b) hereof.
(hh) "Trust Agreement" shall mean the Amended and Restated Trust
Agreement, dated as of February 4, 1997, among the Company, as Depositor,
The Bank of New York, as Property Trustee, and The Bank of New York
(Delaware), as Delaware Trustee.
(ii) "Trust Indenture Act" shall mean the Trust Indenture Act of 1939,
or any successor thereto, and the rules, regulations and forms promulgated
thereunder, all as the same shall be amended from time to time.
-3-
<PAGE>
(jj) "Trust Securities" shall mean collectively the Capital Securities
and the Common Securities to be issued under the Trust Agreement to the
Company.
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of this
Registration Rights Agreement, and the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Registration Rights Agreement as
a whole and not to any particular Section or other subdivision. Unless the
context otherwise requires, any reference to a statute, rule or regulation
refers to the same (including any successor statute, rule or regulation thereto)
as it may be amended from time to time.
2. Registration Under the Securities Act.
-----------------------------------------
(a) Except as set forth in Section 2(b) below, the Company and the Trust
agree to use their reasonable efforts to file under the Securities Act within
150 days after the Closing Date, a registration statement (the "Exchange Offer
Registration Statement") relating to an offer to exchange (the "Exchange Offer")
any and all of the Securities for a like aggregate amount of capital securities
issued by the Trust and guaranteed by the Company and underlying junior
subordinated deferrable interest debentures of the Company, which capital
securities, guarantee and debentures are identical to the Capital Securities,
the Guarantee and the Debentures, respectively (and are entitled to the benefits
of trust indentures which have been qualified under the Trust Indenture Act)
except that (other than the Private Exchange Securities (as defined below), if
any) they have been registered pursuant to an effective registration statement
under the Securities Act, do not contain restrictions on transfers and, in the
case of such capital securities and debentures, do not contain provisions for
the additional distributions and additional interest, as the case may be,
contemplated in Section 2(c) below (such new securities hereinafter called the
"Exchange Capital Securities", the "Exchange Guarantee" and the "Exchange
Debentures", respectively, and together the "Exchange Securities"). The Company
and the Trust agree to use their reasonable efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act within 180
days after the Closing Date. The Exchange Offer will be registered under the
Securities Act on the appropriate form and will comply with all applicable
tender offer rules and regulations under the Exchange Act. The Company and the
Trust further agree to use their reasonable efforts to commence and complete the
Exchange Offer promptly after the Exchange Offer Registration Statement has
become effective, hold the Exchange Offer open for not less than 30 days and
exchange Exchange Securities for all Securities that have been properly tendered
and not validly withdrawn on or prior to the expiration of the Exchange Offer.
The Exchange Offer will be deemed to have been completed only if the Exchange
Securities received by holders other than Restricted Holders in the Exchange
Offer for Securities are, upon receipt, transferable by each such holder without
restriction under the Securities Act and the Exchange Act and without material
restrictions under the Blue Sky or securities laws of a substantial majority of
the States of the United States of America. The Exchange Offer shall be deemed
to have been completed upon the earlier to occur of (i) the Company and the
Trust having exchanged the Exchange Securities or Private Exchange Securities
for all outstanding Securities pursuant to the Exchange Offer and (ii) the
Company having exchanged, pursuant to the Exchange Offer, Exchange Securities or
Private Exchange Securities for all Securities that have been properly tendered
and not validly withdrawn before the expiration of the Exchange Offer, which
shall be on a date that is at least 30 days following the commencement of the
Exchange Offer. The Company and the Trust agree (x) to include in the
registration statement a prospectus for use in connection with any resales of
Exchange Securities by a holder that is a broker-dealer, other than resales of
-4-
<PAGE>
Exchange Securities received by a broker-dealer pursuant to the Exchange Offer
in exchange for Registrable Securities acquired by such broker-dealer directly
from the Trust, and (y) to keep the Exchange Offer Registration Statement
effective for a period (the "Resale Period") beginning when Exchange Securities
are first issued in the Exchange Offer and ending upon the earlier of (i) either
(a) the expiration of the 90th day after the Exchange Offer has been completed
or (b) in the event the Company and the Trust have at any time notified any
broker-dealers pursuant to Section 3(f)(iii) hereof, the day beyond the 90th day
after the Exchange Offer has been completed that reflects an additional period
of days equal to the number of days during all of the periods from and including
the dates the Company and the Trust give notice pursuant to Section 3(f)(ii)
hereof to and including the date when broker-dealers receive an amended or
supplemented prospectus necessary to permit resales of Exchange Securities or to
and including the date on which the Company and the Trust give notice that the
resale of Exchange Securities under the Exchange Offer Registration Statement
may resume or (ii) such time as such broker-dealers no longer own any
Registrable Securities. With respect to such registration statement, each
broker-dealer that holds Exchange Securities received in an Exchange Offer in
exchange for Registrable Securities not acquired by it directly from the Trust
shall have the benefit of the rights of indemnification and contribution set
forth in Section 6 hereof.
If, prior to consummation of the Exchange Offer, the Initial Purchaser
holds any Securities acquired by it and having the status of an unsold allotment
in the initial distribution, the Company shall, upon the request of the Initial
Purchaser, simultaneously with the delivery of the Exchange Securities in the
Exchange Offer issue and deliver to the Initial Purchaser in exchange (the
"Private Exchange") for such Securities held by the Initial Purchaser a like
aggregate amount of capital securities issued by the Trust and guaranteed by the
Company and underlying junior subordinated deferrable interest debentures of the
Company that are identical in all material respects to the Exchange Securities
(the "Private Exchange Securities") (and which are issued pursuant to the same
indenture and trust agreement as the Exchange Securities) except for the
placement of a restrictive legend on such Private Exchange Securities. The
Private Exchange Securities shall bear the same CUSIP number as the Exchange
Securities.
(b) If (i) prior to the consummation of the Exchange Offer existing
applicable law or Commission interpretations are changed such that the Exchange
Capital Securities, Exchange Guarantee and Exchange Debentures to be received by
holders other than Restricted Holders in the Exchange Offer for Registrable
Securities are not or would not be, upon receipt, transferable by each such
holder without restriction under the Securities Act, (ii) the Exchange Offer
Registration Statement is not declared effective within 180 days of the Closing
Date, (iii) the Company has received an opinion of counsel, rendered by a law
firm having a recognized national tax practice, to the effect that, as a result
of the consummation of the Exchange Offer, there is more than an insubstantial
risk that (a) the Trust is, or will be, subject to United States Federal income
tax with respect to income received or accrued on the Debentures, (b) interest
payable by the Company on the Debentures is not, or will not be, deductible by
the Company, in whole or in part, for United States Federal income tax purposes,
or (c) the Trust is, or will be, subject to more than a de minimis amount of
-- -------
other taxes, duties or other governmental charges, or (iv) the Exchange Offer is
commenced prior to the date that is 90 days after the Closing Date and any
holder of Private Exchange Securities so requests at any time after the
consummation of the Private Exchange, then in addition to or in lieu of
conducting the Exchange Offer contemplated by Section 2(a), the Company and the
Trust shall file, at the Company's sole expense, under the Securities Act as
-5-
<PAGE>
promptly as practicable a "shelf" registration statement providing for the
registration of, and the sale on a continuous or delayed basis by the holders
of, all of the Registrable Securities (except that in the case of clause (iv)
such registration statement shall provide for the registration of only the
Private Exchange Securities), pursuant to Rule 415 or any similar rule that may
be adopted by the Commission (the "Shelf Registration"). In the case of clauses
(i), (ii) and (iii) the Administrative Trustees will promptly deliver to the
holders of the Capital Securities, the Property Trustee and the Delaware
Trustee, or the Company will promptly deliver to the holders of the Debentures,
if not the Trust, and in the case of clause (iv) the Administrative Trustees or
the Company will promptly deliver to the holders of the Private Exchange
Securities, written notice that the Company and the Trust will be complying with
the provisions of this Section 2(b). The Company and the Trust agree to use
their reasonable efforts to cause the Shelf Registration to become or be
declared effective and to keep such Shelf Registration continuously effective
for a period ending on (A) in the case of a Shelf Registration effected pursuant
to clause (i), (ii) or (iii) above, the earlier of (i) either (x) such date as
all of the Securities and Private Exchange Securities have ceased to be
Registrable Securities or (y) in the event the Company or the Trust have at any
time suspended the use of the prospectus contained in the Shelf Registration
pursuant to Section 3(c) hereof, the date beyond the date specified in clause
(x) that reflects an additional period of days equal to the number of days
during all of the periods from and including the dates the Company and the Trust
give notice of such suspension pursuant to Section 3(c) to and including the
date when holders of Registrable Securities receive an amended or supplemented
prospectus necessary to permit resales of Registrable Securities under the Shelf
Registration or to and including the date on which the Company and Trust give
notice that the resale to Registrable Securities may resume or (ii) such time as
there are no longer any Registrable Securities outstanding, and (B) in the case
of a Shelf Registration effected pursuant to clause (iv) above, the earlier of
(i) either (x) the date that is 60 days after the Effective Time with respect to
such Shelf Registration or (y) in the event the Company or the Trust have at any
time suspended the use of the prospectus contained in the Shelf Registration
pursuant to Section 3(c) hereof, the date beyond the date specified in clause
(x) that reflects an additional period of days equal to the number of days
during all of the periods from and including the dates the Company and the Trust
give notice of such suspension pursuant to Section 3(c) to and including the
date when holders of Private Exchange Securities receive an amended or
supplemented prospectus necessary to permit resales of Private Exchange
Securities under the Shelf Registration or to and including the date on which
the Company and Trust give notice that the resale to Private Exchange Securities
may resume or (ii) such time as the holders of Private Exchange Securities shall
notify the Company and the Trust that they have sold all of the outstanding
Private Exchange Securities under such Shelf Registration. The Company and the
Trust further agree to supplement or make amendments to the Shelf Registration,
as and when required by the rules, regulations or instructions applicable to the
registration form used by the Company and the Trust for such Shelf Registration
or by the Securities Act or rules and regulations thereunder for shelf
registration, and the Company and the Trust agree to furnish to the holders of
the Registrable Securities copies of any such supplement or amendment prior to
its being used or promptly following its filing with the Commission.
(c) If the Company or the Trust fail to comply with this Registration
Rights Agreement or if the Exchange Offer Registration Statement or the Shelf
Registration fails to become effective (any such event a "Registration
Default"), then, as liquidated damages (which shall be the sole remedy of
holders of the Trust Securities and the Debentures), registration default
interest (the "Registration Default Interest") shall become payable in respect
of the Debentures, and corresponding registration
-6-
<PAGE>
default Distributions (the "Registration Default Distributions"), shall become
payable on the Trust Securities as follows:
(i) if (A) neither the Exchange Offer Registration Statement nor a
Shelf Registration is filed with the Commission on or prior to the 150th
day after the Closing Date or (B) notwithstanding that the Company and the
Trust have consummated or will consummate an Exchange Offer, the Company
and the Trust are required to file a Shelf Registration and such Shelf
Registration is not filed on or prior to the date required by this
Registration Rights Agreement, then commencing on the day after either such
required filing date, Registration Default Interest shall accrue on the
principal amount of the Debentures, and Registration Default Distributions
shall accumulate on the Liquidation Amount of the Trust Securities, each at
a rate of 0.25% per annum; or
(ii) if (A) neither the Exchange Offer Registration Statement nor a
Shelf Registration is declared effective by the Commission on or prior to
the 30th day after the applicable required filing date or (B)
notwithstanding that the Company and the Trust have consummated or will
consummate an Exchange Offer, the Company and the Issuer are required to
file a Shelf Registration and such Shelf Registration is not declared
effective by the Commission on or prior to the 30th day after the date such
Shelf Registration was required to be filed, then commencing on the 31st
day after the applicable required filing date, Registration Default
Interest shall accrue on the principal amount of the Debentures, and
Registration Default Distributions shall accumulate on the Liquidation
Amount of the Trust Securities, each at a rate of 0.25% per annum; or
(iii) if (A) the Trust and the Company have not exchanged Exchange
Securities for all Securities validly tendered, in accordance with the
terms of the Exchange Offer on or prior to the 30th day after the date on
which the Exchange Offer Registration Statement was declared effective or
(B) if applicable, the Shelf Registration has been declared effective and
such Shelf Registration ceases to be effective at any time prior to the
date on which all Securities and Private Exchange Securities have been
disposed of thereunder or otherwise cease to be Registrable Securities,
then Registration Default Interest shall accrue on the principal amount of
Debentures, and Registration Default Distributions shall accumulate on the
Liquidation Amount of the Trust Securities, each at a rate of 0.25% per
annum commencing on (x) the 31st day after such effective date, in the case
of (A) above, or (y) the day such Shelf Registration ceases to be effective
in the case of (B) above;
provided, however, that neither the Registration Default Interest rate on the
- -----------------
Debentures nor the Registration Default Distributions rate on the Liquidation
Amount of the Trust Securities shall exceed in the aggregate 0.25% per annum;
provided, further, however, that (1) upon the filing of the Exchange Offer
- --------------------------
Registration Statement or a Shelf Registration (in the case of clause (i)
above), (2) upon the effectiveness of the Exchange Offer Registration Statement
or a Shelf Registration (in the case of clause (ii) above), (3) upon the
exchange of Exchange Securities for all Securities tendered (in the case of
clause (iii) (A) above) or upon the effectiveness of the Shelf Registration
which had ceased to remain effective (in the case of clause (iii) (B) above), or
(4) upon such date as all of the Securities have ceased to be Registrable
Securities, Registration Default Interest on the Debentures, and Registration
Default Distributions on the Liquidation Amount of the Trust Securities as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue; provided
--------
-7-
<PAGE>
further, however, that in the event of a Registration Default resulting from the
- ----------------
failure by the Company and the Trust to comply with its obligations with respect
to a Shelf Registration pursuant to Section 2(b)(iv), and if it would not cause
the Trust to be classified as an association taxable as a corporation for United
States federal income tax purposes, then Registration Default Distributions
shall accumulate only on the Private Exchange Securities.
(d) Any reference herein to a registration statement shall be deemed to
include any document incorporated therein by reference as of the applicable
Effective Time and any reference herein to any post-effective amendment to a
registration statement shall be deemed to include any document incorporated
therein by reference as of a time after such Effective Time.
(e) Notwithstanding any other provisions of this Registration Rights
Agreement, in the event that Debentures are distributed to holders of Capital
Securities in liquidation of the Trust pursuant to the Trust Agreement (a) all
references in this Section 2 and Section 3 to Securities, Registrable Securities
and Exchange Securities shall not include the Capital Securities and Guarantee
or Exchange Capital Securities and Exchange Guarantee issued or to be issued in
exchange therefor in the Exchange Offer, (ii) all requirements for action to be
taken by the Trust in this Section 2 and Section 3 shall cease to apply and all
requirements for action to be taken by the Company in this Section 2 and Section
3 shall apply to Debentures and Exchange Debentures issued or to be issued in
exchange therefor in the Exchange Offer.
3. Registration Procedures.
---------------------------
The following provisions shall apply to registration statements filed
pursuant to Section 2:
(a) At or before the Effective Time of the Exchange Offer or the Shelf
Registration, as the case may be, the Company and the Trust shall qualify the
Indenture, the Trust Agreement and the Guarantee under the Trust Indenture Act.
(b) In connection with the Company's and the Trust's obligations with
respect to the Shelf Registration, if applicable, the Company and the Trust
shall, as soon as reasonably practicable (or as otherwise specified herein):
(i) prepare and file with the Commission a registration statement with
respect to the Shelf Registration on any form which may be utilized by the
Trust and the Company and which shall permit the disposition of the
Registrable Securities in accordance with the intended method or methods
thereof, as specified in writing by the holders of the Registrable
Securities (except that in connection with a Shelf Registration effected
pursuant to Section 2(b)(iv) hereof, such methods shall not include an
underwritten offering unless the Company shall consent in its sole
discretion), and use their reasonable efforts to cause such registration
statement to become effective as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included
therein as may be necessary to effect and maintain the effectiveness of
such registration statement for the period specified in Section 2(b) hereof
and as may be required by the applicable rules and regulations of the
Commission and the instructions applicable to the form of such registration
statement, and furnish to the holders
-8-
<PAGE>
of the Registrable Securities copies of any such supplement or amendment
simultaneously with or prior to its being used or filed with the
Commission;
(iii) comply, as to all matters within the Company's and the Trust's
control, with the provisions of the Securities Act with respect to the
disposition of all of the Registrable Securities covered by such
registration statement in accordance with the intended methods of
disposition by the holders thereof provided for in such registration
statement;
(iv) provide to any of (A) the underwriters (which term, for purposes
of this Registration Rights Agreement, shall include a person deemed to be
an underwriter within the meaning of Section 2(11) of the Securities Act),
if any, thereof, (B) the sales or placement agent, if any, therefor, (C)
counsel for such underwriters or agent and (D) not more than one counsel
for all the holders of such Registrable Securities who so request of the
Company in writing the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with
the Commission and each amendment or supplement thereto;
(v) for a reasonable period prior to the filing of such registration
statement, and throughout the period specified in Section 2(b), make
available at reasonable times at the Company's principal place of business
or such other reasonable place for inspection by the persons referred to in
Section 3(b)(iv) who shall certify to the Company and the Trust that they
have a current intention to sell the Registrable Securities pursuant to the
Shelf Registration such financial and other information and books and
records of the Company, and cause the officers, employees, counsel and
independent certified public accountants of the Company to respond to such
inquiries, as shall be reasonably necessary, in the judgment of the
respective counsel referred to in such Section, to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act;
provided, however, that each such party shall be required to maintain in
-------- -------
confidence and not to disclose to any other person any information or
records reasonably designated by the Company in writing as being
confidential, until such time as (A) such information becomes a matter of
public record (whether by virtue of its inclusion in such registration
statement or otherwise), or (B) such person shall be required so to
disclose such information pursuant to a subpoena or order of any court or
other governmental agency or body having jurisdiction over the matter
(subject to the requirements of such order, and only after such person
shall have given the Company prompt prior written notice of such
requirement), or (C) such information is required to be set forth in such
registration statement or the prospectus included therein or in an
amendment to such registration statement or an amendment or supplement to
such prospectus in order that such registration statement, prospectus,
amendment or supplement, as the case may be, does not contain an untrue
statement of a material fact or omit to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(vi) promptly notify the managing underwriter or underwriters, if any,
thereof and, except in the case of clause (B) below, the sales or placement
agent, if any, therefor and the selling holders of Registrable Securities,
provided in each case that the Company has received written notice of the
names and addresses of such persons, and confirm such advice in writing,
(A) when the prospectus or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to any
registration statement or any post-effective amendment, when the same has
become effective, (B) of any comments by the Commission and by the Blue
-9-
<PAGE>
Sky or securities commissioner or regulator of any state with respect
thereto or any request by the Commission for amendments or supplements to
such registration statement or prospectus or for additional information,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the initiation or
threatening of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Company or the Trust contemplated by
Section 3(b)(xv) or Section 5 cease to be true and correct in all material
respects, (E) of the receipt by the Company or the Trust of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose or (F) at any time when a
prospectus is required to be delivered under the Securities Act, that such
registration statement, prospectus, prospectus amendment or supplement or
post-effective amendment does not conform in all material respects to the
applicable requirements of the Securities Act and the Trust Indenture Act
and the rules and regulations of the Commission thereunder or contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(vii) use their reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date;
(viii) if requested by any managing underwriter or underwriters or any
placement or sales agent, promptly incorporate in a prospectus supplement
or post-effective amendment such information as is required by the
applicable rules and regulations of the Commission and as such managing
underwriter or underwriters or such agent specifies should be included
therein relating to the terms of the sale of such Registrable Securities,
including information with respect to the liquidation amount or principal
amount, as the case may be, of Registrable Securities being sold by any
holder or agent or to any underwriters, the name and description of such
holder, agent or underwriter, the offering price of such Registrable
Securities and any discount, commission or other compensation payable in
respect thereof, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the offering of the
Registrable Securities to be sold by such holder or agent or to such
underwriters; and make all required filings of such prospectus supplement
or post-effective amendment promptly after notification of the matters to
be incorporated in such prospectus supplement or post-effective amendment;
(ix) furnish upon request to each holder of Registrable Securities,
each placement or sales agent, if any, therefor, each underwriter, if any,
thereof and the respective counsel referred to in Section 3(b)(iv) an
executed copy (or, in the case of a holder of Registrable Securities, a
conformed copy) of such registration statement, each such amendment and
supplement thereto (in each case including all exhibits thereto (in the
case of a holder of Registrable Securities, upon request) and documents
incorporated by reference therein) and such number of copies of such
registration statement (excluding exhibits thereto and documents
incorporated by reference therein unless specifically so requested by such
holder, agent or underwriter, as the case may be) and of the prospectus
included in such registration statement (including each preliminary
prospectus and any summary prospectus), in conformity in all material
respects with the applicable requirements of the Securities Act and the
Trust Indenture Act and the rules and regulations of the Commission
thereunder, and such other documents, as such holder, agent, if
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<PAGE>
any, and underwriter, if any, may reasonably request in order to facilitate
the offering and disposition of the Registrable Securities owned by such
holder, offered or sold by such agent or underwritten by such underwriter
and to permit such holder, agent and underwriter to satisfy the prospectus
delivery requirements of the Securities Act; and the Company and the Trust
hereby consent to the use of such prospectus (including such preliminary
and summary prospectus) and any amendment or supplement thereto by each
such holder and by any such agent and underwriter, in each case in the form
most recently provided to such person by the Company or the Trust, in
connection with the offering and sale of the Registrable Securities covered
by the prospectus (including such preliminary and summary prospectus) or
any supplement or amendment thereto;
(x) use their reasonable efforts to (A) register or qualify the
Registrable Securities to be included in such registration statement under
such securities laws or Blue Sky laws of such United States jurisdictions
as any holder of such Registrable Securities and each placement or sales
agent, if any, therefor and underwriter, if any, thereof shall reasonably
request, (B) keep such registrations or qualifications in effect and comply
with such laws so as to permit the continuance of offers, sales and
dealings therein in such jurisdictions during the period the Shelf
Registration is required to remain effective under Section 2(b) above and
for so long as may be necessary to enable any such holder, agent or
underwriter to complete its distribution of Securities pursuant to such
registration statement but in any event not later than the date through
which the Company and the Trust are required to keep the Shelf Registration
effective pursuant to Section 2(b) and (C) take any and all other actions
as may be reasonably requested to enable each such holder, agent, if any,
and underwriter, if any, to consummate the disposition in such
jurisdictions of such Registrable Securities; provided, however, that
-----------------
neither the Company nor the Trust shall be required for any such purpose to
(1) qualify as a foreign corporation in any jurisdiction wherein it would
not otherwise be required to qualify but for the requirements of this
Section 3(b)(x), (2) consent to general service of process in any such
jurisdiction or (3) make any changes to its certificate of incorporation or
by-laws or any agreement between it and its stockholders;
(xi) use its reasonable efforts to obtain the consent or approval of
each governmental agency or authority, whether Federal, state or local,
which may be required to be obtained by the Company or the Trust to effect
the Shelf Registration or the offering or sale in connection therewith or
to enable the selling holder or holders to offer, or to consummate the
disposition of, their Registrable Securities;
(xii) cooperate with the holders of the Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
which certificates shall be printed, lithographed or engraved, or produced
by any combination of such methods, and which shall not bear any
restrictive legends, except as may be required by applicable law; and, in
the case of an underwritten offering, enable such Registrable Securities to
be in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
the Registrable Securities;
(xiii) provide a CUSIP number for all applicable Registrable
Securities, not later than the Effective Time;
-11-
<PAGE>
(xiv) enter into one or more underwriting agreements, engagement
letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, including customary provision relating
to indemnification and contribution, and take such other actions in
connection therewith as any holders of Registrable Securities aggregating
at least a majority in aggregate liquidation amount or principal amount, as
the case may be, of the Registrable Securities at the time outstanding
shall reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities; provided, that the Company and the Trust
--------
shall not be required to enter into any such agreement more than once with
respect to all of the Registrable Securities and may delay entering into
such agreement until the consummation of any underwritten public offering
which the Company shall have then undertaken;
(xv) if the offering contemplated by such registration statement is an
underwritten offering, (A) make such representations and warranties to the
holders of such Registrable Securities and the underwriters thereof in
form, substance and scope as are customarily made in connection with an
offering of similar capital securities or debt securities, as the case may
be pursuant to any agreement or to a registration statement filed on the
form applicable to the Shelf Registration; (B) obtain an opinion or
opinions of counsel to the Company and an opinion or opinions of counsel to
the Trust in each case in customary form and covering such matters, of the
type customarily covered by such an opinion in connection with an offering
of similar capital securities or debt securities, as the case may be, as
the managing underwriters may reasonably request, addressed to the
underwriters thereof and dated the date of the closing under the
underwriting agreement relating thereto (it being agreed that the matters
to be covered by such opinion shall include but not be limited to the due
incorporation and valid existence of the Company and certain subsidiaries;
the qualification of the Company and certain subsidiaries to transact
business as foreign corporations, other than such jurisdictions in which
the failure to be so qualified would not result in a material adverse
effect; the due authorization, execution and delivery of the underwriting
agreement; the due authorization, execution, authentication and issuance,
and the validity and enforceability, of the Securities; the absence of
material legal or governmental proceedings involving the Company; the
absence of governmental approvals required to be obtained in connection
with the Shelf Registration, the offering and sale of the Registrable
Securities, this Registration Rights Agreement or the underwriting
agreement, except such approvals as may be required by the Securities Act
or the Trust Indenture Act or under state securities or Blue Sky laws; the
compliance as to form of such registration statement and any documents
incorporated by reference therein and of the Indenture with the
requirements of the Securities Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder, respectively; and, a
statement by such counsel to the effect that nothing has come to their
attention that would cause them to believe that as of the date of the
opinion and of the registration statement or most recent post-effective
amendment thereto, as the case may be, such registration statement and the
prospectus included therein, as then amended or supplemented, and the
documents incorporated by reference therein (in each case other than the
financial statements and other financial information contained therein)
contain an untrue statement of a material fact or omit to state therein a
material fact necessary to make the statements therein not misleading (in
the case of such documents, in the light of the circumstances existing at
the time that such documents were filed with the Commission under the
Exchange Act); (C) obtain a "cold comfort" letter or letters from the
independent certified public accountants of the Company addressed to the
underwriters thereof, dated (i) the effective date of such registration
statement and (ii) the effective date of any prospectus supplement to the
prospectus included in such
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<PAGE>
registration statement or post-effective amendment to such registration
statement which includes audited financial statements as of a date or for a
period subsequent to that of the latest such statements included in such
prospectus (and, if such registration statement contemplates an
underwritten offering pursuant to any prospectus supplement to the
prospectus included in such registration statement or post-effective
amendment to such registration statement which includes unaudited or
audited financial statements as of a date or for a period subsequent to
that of the latest such statements included in such prospectus, dated the
date of the closing under the underwriting agreement relating thereto),
such letter or letters to be in customary form and covering such matters of
the type customarily covered by letters of such type in public offerings of
debt securities; (D) deliver such documents and certificates, including
officers' or trustees' or Administrative Trustees' certificates, as
applicable, as may be reasonably requested by the managing underwriters
thereof to evidence the accuracy of the representations and warranties made
pursuant to clause (A) above or those contained in Section 5(a) hereof and
the compliance with or satisfaction of any agreements or conditions
contained in the underwriting agreement entered into by the Company or the
Trust; and (E) undertake such obligations relating to expense
reimbursement, indemnification and contribution as are provided in Section
6 hereof;
(xvi) notify in writing each holder of Registrable Securities of any
proposal by the Company and/or the Trust to amend or waive any provision of
this Registration Rights Agreement pursuant to Section 9(h) hereof and of
any amendment or waiver effected pursuant thereto, each of which notices
shall contain the text of the amendment or waiver proposed or effected, as
the case may be; and
(xvii) comply with all applicable rules and regulations of the
Commission and make generally available to the Company's security holders
as soon as practicable but in any event not later than eighteen months
after the effective date of such registration statement, an earning
statement of the Company and its subsidiaries complying with Section 11(a)
of the Securities Act (including, at the option of the Company, Rule 158
thereunder).
In case any of the foregoing obligations is dependent upon information provided
or to be provided by a party other than the Company or the Trust, such
obligation shall be subject to the provision of such information.
(c) In the event that the Company and the Trust would be required, pursuant
to Section 3(b)(vi)(F) above, to notify the selling holders of Registrable
Securities, the placement or sales agent, if any, therefor and the managing
underwriters, if any, thereof, the Company and the Trust shall promptly prepare
and furnish to each such holder, to each placement or sales agent, if any, and
to each such underwriter, if any, a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers of
Registrable Securities, such prospectus shall conform in all material respects
to the applicable requirements of the Securities Act and the Trust Indenture Act
and the rules and regulations of the Commission thereunder and shall not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing. Each holder of Registrable
Securities agrees that upon receipt of any notice from the Company or the Trust,
pursuant to Section 3(b)(vi)(F) hereof, such holder shall forthwith discontinue
the disposition of Registrable Securities pursuant to the registration statement
applicable to such Registrable Securities until such holder (i) shall have
received copies of such amended or
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<PAGE>
supplemented prospectus and, if so directed by the Company or the Trust, such
holder shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies, then in such holder's possession of the prospectus
covering such Registrable Securities at the time of receipt of such notice or
(ii) shall have received notice from the Company or the Trust that the
disposition of Registrable Securities pursuant to the Shelf Registration may
continue.
(d) The Company and the Trust may require each holder of Registrable
Securities as to which any registration pursuant to Section 2(b) is being
effected to furnish to the Company such information regarding such holder and
such holder's intended method of distribution of such Registrable Securities as
the Company and the Trust may from time to time reasonably request in writing,
but only to the extent that such information is required in order to comply with
the Securities Act. Each such holder agrees to notify the Company and the Trust
as promptly as practicable of any inaccuracy or change in information previously
furnished by such holder to the Company and the Trust or of the occurrence of
any event in either case as a result of which any prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding such holder or such holder's intended method of disposition of such
Registrable Securities or omits to state any material fact regarding such holder
or such holder's intended method of disposition of such Registrable Securities
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and promptly to furnish
to the Company and the Trust any additional information required to correct and
update any previously furnished information or required so that such prospectus
shall not contain, with respect to such holder or the disposition of such
Registrable Securities, an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(e) Until the expiration of three years after the Closing Date, the Company
and the Trust will not, and will not permit any of their "affiliates" (as
defined in Rule 144) to, resell any of the Capital Securities or Debentures that
have been reacquired by any of them except pursuant to an effective registration
statement under the Securities Act.
(f) In connection with the Company's and the Trust's obligations with
respect to the registration of Exchange Securities as contemplated by Section
2(a) (the "Exchange Registration"), if applicable, the Company and the Trust
shall, as soon as reasonably practicable (or as otherwise specified):
(i) prepare and file with the Commission such amendments and
supplements to the Exchange Offer Registration Statement and the prospectus
included therein as may be necessary to effect and maintain the
effectiveness thereof for the periods and purposes contemplated in Section
2(a) hereof and as may be required by the applicable rules and regulations
of the Commission and the instructions applicable to the form of the
Exchange Offer Registration Statement, and promptly provide each
broker-dealer holding Exchange Securities with such number of copies of the
prospectus included therein (as then amended or supplemented), in
conformity in all material respects with the requirements of the Securities
Act and the Trust Indenture Act and the rules and regulations of the
Commission thereunder, as such broker-dealer reasonably may request prior
to the expiration of the Resale Period, for use in connection with resales
of Exchange Securities;
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<PAGE>
(ii) promptly notify each broker-dealer that has requested or received
copies of the prospectus included in the Exchange Offer Registration
Statement, and confirm such advice in writing, (A) when the Exchange Offer
Registration Statement or the prospectus included therein or any prospectus
amendment or supplement or post-effective amendment has been filed, and,
with respect to the Exchange Offer Registration Statement or any
post-effective amendment, when the same has become effective, (B) of any
comments by the Commission and by the Blue Sky or securities commissioner
or regulator of any state with respect thereto or any request by the
Commission for amendments or supplements to the Exchange Offer Registration
Statement or prospectus or for additional information, (C) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Exchange Offer Registration Statement or the initiation or threatening of
any proceedings for that purpose, (D) if at any time the representations
and warranties of the Company and/or the Trust contemplated by Section 5
cease to be true and correct in all material respects, (E) of the receipt
by the Company or the Trust of any notification with respect to the
suspension of the qualification of the Exchange Securities for sale in any
United States jurisdiction or the initiation or threatening of any
proceeding for such purpose or (F) at any time during the Resale Period
when a prospectus is required to be delivered under the Securities Act,
that the Exchange Offer Registration Statement, prospectus, prospectus
amendment or supplement or post-effective amendment does not conform in all
material respects to the applicable requirements of the Securities Act and
the Trust Indenture Act and the rules and regulations of the Commission
thereunder or contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing;
(iii) in the event that the Company and the Trust would be required,
pursuant to Section 3(f)(ii)(F) above, to notify any broker-dealers holding
Exchange Securities, promptly prepare and furnish to each such holder a
reasonable number of copies of a prospectus supplemented or amended so
that, as thereafter delivered to purchasers of such Exchange Securities
during the Resale Period, such prospectus shall conform in all material
respects to the applicable requirements of the Securities Act and the Trust
Indenture Act and the rules and regulations of the Commission thereunder
and shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing or notify such broker-dealers that the date of Exchange Securities
pursuant to the Exchange Offer Registration Statement may continue;
(iv) use their reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of the Exchange Offer Registration
Statement or any post-effective amendment thereto at the earliest
practicable date;
(v) use their reasonable best efforts to (A) register or qualify the
Exchange Securities under the securities laws or Blue Sky laws of such
jurisdictions as are contemplated by Section 2(a) no later than the
commencement of the Exchange Offer, (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions
until the expiration of the Resale Period and (C) take any and all other
actions as may be reasonably necessary or advisable to enable each
broker-dealer holding Exchange Securities to consummate the disposition
thereof in such jurisdictions; provided, however, that neither the Company
-------- -------
nor the Trust shall be required for any such
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<PAGE>
purpose to (1) qualify as a foreign corporation in any jurisdiction wherein
it would not otherwise be required to qualify but for the requirements of
this Section 3(f)(v), (2) consent to general service of process in any such
jurisdiction or (3) make any changes to its certificate of incorporation or
by-laws or any agreement between it and its stockholders;
(vi) use their reasonable best efforts to obtain the consent or
approval of each United States governmental agency or authority, whether
Federal, state or local, which may be required to be obtained by the
Company or the Trust to effect the Exchange Registration, the Exchange
Offer and the offering and sale of Exchange Securities by broker-dealers
during the Resale Period;
(vii) provide a CUSIP number for all applicable Exchange Securities and
Private Exchange Securities, not later than the applicable Effective Time;
(viii) make generally available to the Company's security holders as
soon as practicable but no later than eighteen months after the effective
date of such registration statement, an earning statement of the Company
and its subsidiaries complying with Section 11(a) of the Securities Act
(including, at the option of the Company, Rule 158 thereunder).
In case any of the foregoing obligations is dependent upon information provided
or to be provided by a party other than the Company or the Trust, such
obligation shall be subject to the provision of such information.
4. Registration Expenses.
-------------------------
The Company agrees to bear and to pay or cause to be paid promptly upon
request being made therefor all expenses incident to the Company's and the
Trust's performance of or compliance with this Registration Rights Agreement,
including (a) all Commission and any NASD registration and filing fees and
expenses, (b) all fees and expenses in connection with the qualification of the
Securities or Exchange Securities for offering and sale under the state
securities and Blue Sky laws referred to in Section 3(b)(x) and Section 3(f)(v)
hereof, including (other than in connection with a Shelf Registration effected
pursuant to Section 2(b)(iv) hereof) reasonable fees and disbursements of one
counsel for the placement or sales agent or underwriters in connection with such
qualifications, (c) all expenses relating to the preparation, printing,
distribution and reproduction of each registration statement required to be
filed hereunder, each prospectus included therein or prepared for distribution
pursuant hereto, each amendment or supplement to the foregoing, the certificates
representing the Securities and all other documents relating hereto, (d)
messenger and delivery expenses incurred by the Company or the Trust, (e) fees
and expenses of the Trustee under the Indenture, the Property Trustee and
Debenture Trustee under the Trust Agreement and the Guarantee Trustee under the
Guarantee and of any escrow agent or custodian, (f) internal expenses (including
all salaries and expenses of the Company's or its subsidiaries' officers and
employees performing legal or accounting duties), (g) fees, disbursements and
expenses of counsel and independent certified public accountants of the Company
and/or the Trust (including the expenses of any opinions or "cold comfort"
letters required by or incident to such performance and compliance), (h) except
in connection with a Shelf Registration effected pursuant to Section 2(b)(iv)
hereof, reasonable fees, disbursements and expenses of one counsel for the
holders of Registrable Securities retained in connection with a Shelf
Registration, as selected by the holders of at least a majority in aggregate
liquidation amount or principal amount, as the case may be, of the Registrable
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<PAGE>
Securities being registered, and (i) fees, expenses and disbursements of any
other persons, including special experts, retained by the Company in connection
with such registration (collectively, the "Registration Expenses"). To the
extent that any Registration Expenses are incurred, assumed or paid by any
holder of Registrable Securities or any placement or sales agent therefor or
underwriter thereof, the Company shall reimburse such person for the full amount
of the Registration Expenses so incurred, assumed or paid promptly after receipt
of a request therefor. Notwithstanding the foregoing, the holders of the
Registrable Securities being registered shall pay all agency fees and
commissions and underwriting discounts and commissions attributable to the sale
of such Registrable Securities and the fees and disbursements of any counsel or
other advisors or experts retained by such holders (severally or jointly), other
than the counsel and experts specifically referred to above.
5. Representations and Warranties.
- -----------------------------------
Each of the Company and the Trust represents and warrants to, and agrees
with, the Initial Purchaser and each of the holders from time to time of
Registrable Securities that:
(a) Each registration statement covering Registrable Securities and
each prospectus (including any preliminary or summary prospectus)
contained therein or furnished pursuant to Section 3(c) or Section 3(f)
hereof and any further amendments or supplements to any such registration
statement or prospectus, when it becomes effective or is filed with the
Commission, as the case may be, and, in the case of an underwritten
offering of Registrable Securities, at the time of the closing under the
underwriting agreement relating thereto, will conform in all material
respects to the applicable requirements of the Securities Act and the Trust
Indenture Act and the rules and regulations of the Commission thereunder
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; and at all times subsequent to the
Effective Time when a prospectus would be required to be delivered under
the Securities Act, other than from (i) such time as a notice has been
given to holders of Registrable Securities pursuant to Section 3(b)(vi)(F)
or Section 3(f)(ii)(F) hereof until (ii) such time as the Company furnishes
an amended or supplemented prospectus pursuant to Section 3(c) or Section
3(f)(iii) hereof, each such registration statement, and each prospectus
(including any summary prospectus) contained therein or furnished pursuant
to Section 3(b) or Section 3(f) hereof, as then amended or supple mented,
will conform in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and regulations of
the Commission thereunder and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; provided, however, that this
-----------------
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company and the Trust by a holder of Registrable Securities
expressly for use therein.
(b) Any documents incorporated by reference in any prospectus referred
to in Section 5(a) hereof, when they become or became effective or are or
were filed with the Commission, as the case may be, will conform or
conformed in all material respects to the requirements of the Securities
Act or the Exchange Act, as applicable, and none of such documents will
contain or contained an untrue statement of a material fact or will omit or
omitted to state a material fact
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<PAGE>
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that this representation and warranty
-----------------
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company and the
Trust by a holder of Registrable Securities expressly for use therein.
(c) The compliance by the Company and the Trust with all of the
provisions of this Registration Rights Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
other agreement or instrument to which the Trust, the Company or any
subsidiary of the Company is a party, or by which the Trust, the Company or
any of its subsidiaries is bound, or to which any of the property or assets
of the Trust, the Company or any subsidiary of the Company is subject, nor
will such action result in a violation of the provisions of the Certificate
of Incorporation or the By-Laws of the Company or any of its subsidiaries
or the Trust Agreement of the Trust or any statute or any order, rule or
regulation of any court or insurance regulatory authority or other
governmental agency or authority having jurisdiction over the Company or
the Trust or any property of the Company or the Trust, in each case other
than such breaches, conflicts, violations or defaults which, individually
or in the aggregate, (x) would not have a material adverse effect on the
Company and its subsidiaries considered as a whole and (y) would not affect
the validity, performance or consummation of the transactions contemplated
by this Agreement; and no authorization, approval, order, consent, license,
certificate, permit, registration or qualification of or with, any such
court or insurance regulatory authority or other governmental agency or
authority is required for the consummation by the Company or the Trust, as
applicable, of the transactions contemplated by this Registration Rights
Agreement, except (v) those which have been obtained, (w) the registration
under the Securities Act contemplated hereby, (x) qualification of the
Indenture, the Guarantee and the Trust Agreement under the Trust Indenture
Act, (y) such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky laws
and (z) such authorizations, approvals, orders, consents, licenses,
certificates, permits, registrations or qualifications which (individually
or in the aggregate) the failure to make, obtain or comply with (a) would
not have a material adverse effect on the Company and its subsidiaries
considered as a whole and (b) would not affect the validity, performance or
consummation of the transactions contemplated by this Registration Rights
Agreement.
(d) This Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and the Trust.
6. Indemnification.
-------------------
(a) Indemnification by the Company and the Trust. Upon the registration of
--------------------------------------------
the Registrable Securities pursuant to Section 2(a) or 2(b) hereof, and in
consideration of the agreements of the Initial Purchaser contained herein, and
as an inducement to the Initial Purchaser to purchase the Capital Securities,
each of the Company and the Trust shall, and they hereby agree jointly and
severally to, indemnify and hold harmless each of the holders of Registrable
Securities to be included in such registration, and each person who participates
as a placement or sales agent or as an underwriter in any offering or sale of
such Registrable Securities and each person who controls any such person against
any losses, claims, damages or liabilities, joint or several, to which such
-18-
<PAGE>
holder, agent or underwriter may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration statement
under which such Registrable Securities were registered under the Securities
Act, or any preliminary, final or summary prospectus contained therein or
furnished by the Company or the Trust to any such holder, agent or underwriter,
or any amendment or supplement (when considered together with the document to
which such supplement relates) thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
each of the Company and the Trust shall, and they hereby agree jointly and
severally to, reimburse each such holder, such agent and such underwriter for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company and the Trust shall not be liable to any
- -----------------
such person in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
or preliminary, final or summary prospectus, or amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to the
Company and the Trust by such person or by holders of Registrable Securities
expressly for use therein; and provided further, that the Company shall not be
----------------
liable to any such person for any settlement of any action effected without its
written consent.
(b) Indemnification by the Holders and any Agents and Underwriters. The
--------------------------------------------------------------
Company and the Trust may require, as a condition to including any Registrable
Securities in any registration statement filed pursuant to Section 2(b) hereof
and to entering into any underwriting agreement with respect thereto, that the
Company and the Trust shall have received an undertaking reasonably satisfactory
to it from the holder of such Registrable Securities and from each underwriter
named in any such underwriting agreement, severally and not jointly, to
indemnify and hold harmless the Company and the Trust, each of the Company's
directors and each person who controls the Company or the Trust within the
meaning of either the Securities Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company and the Trust, but only with reference
to written information furnished to the Company and the Trust by or on behalf of
such person specifically for use in any registration statement, or any
preliminary or final or summary prospectus contained therein or any amendment or
supplement thereto.
(c) Promptly after receipt by an indemnified party under Section 6(a)
or (b) of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party under
such subsection, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any indemnified
party otherwise than under Section 6(a) or (b). In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent that it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party, and who may act
in respect of actions involving more than one indemnified party), and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense of such
-19-
<PAGE>
action, unless the indemnified party shall have reasonably objected to the
selected counsel, the indemnifying party will not be liable to such indemnified
party under Section 6(a) or (b) for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. Notwithstanding anything to the contrary in this Section 6, an
indemnifying party shall only be liable for the legal fees and expenses of one
national counsel and appropriate local counsel for all of the indemnified
parties with respect to any proceeding or related proceedings.
(d) Contribution. Each party hereto agrees that, if for any reason the
------------
indemnification provisions contemplated by Section 6(a) or Section 6(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and the
indemnified party in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions pursuant to this
Section 6(d) were determined by pro rata allocation (even if the holders or any
agents or underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 6(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(d), no holder shall
be required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds received by such holder from the sale of any Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) exceeds the amount of any damages which such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and no underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The holders' and any underwriters' obligations in this
Section 6(d) to contribute shall be several in proportion to the principal
amount of Registrable Securities registered or underwritten, as the case may be,
by them and not joint.
(e) The obligations of the Company and the Trust under this Section 6 shall
be in addition to any liability which the Company and the Trust may otherwise
have and shall extend, upon the same terms and conditions, to each officer,
director and partner of each holder, agent and underwriter and
-20-
<PAGE>
each person, if any, who controls any holder, agent or underwriter within the
meaning of the Securities Act; and the obligations of the holders and any agents
or underwriters contemplated by this Section 6 shall be in addition to any
liability which the respective holder, agent or underwriter may otherwise have
and shall extend, upon the same terms and conditions, to each officer and
director of the Company (including any person who, with his consent, is named in
any registration statement as about to become a director of the Company), to
each Trustee and Administrative Trustee under the Trust Agreement and to each
person, if any, who controls the Company and the Trust within the meaning of the
Securities Act.
7. Underwritten Offerings.
-------------------------
(a) Selection of Underwriters. If any of the Registrable Securities covered
-------------------------
by the Shelf Registration are to be sold pursuant to an underwritten offering,
the managing underwriter or underwriters thereof shall be designated by the
holders of at least a majority in aggregate liquidation amount of Capital
Securities, in the case of an underwritten offering of Capital Securities, or
principal amount of the Debentures, in the case of an underwritten offering of
Debentures, to be included in such offering, provided that such designated
managing underwriter or underwriters is or are reasonably acceptable to the
Company. Notwithstanding any other provision of this Registration Rights
Agreement, the Company shall not be required to permit an underwritten offering
in connection with a Shelf Registration effected pursuant to Section 2(b)(iv)
hereof.
(b) Participation by Holders. Each holder of Registrable Securities hereby
------------------------
agrees with each other such holder that no such holder may participate in any
underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
------------
The Company covenants to the holders of Registrable Securities that the
Company shall use its reasonable efforts to timely file the reports required to
be filed by it under the Exchange Act or the Securities Act (including the
reports under Section 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities
Act) and the rules and regulations adopted by the Commission thereunder, and
shall take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitations of the exemption provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities in connection with that holder's
sale pursuant to Rule 144, the Company shall deliver to such holder a written
statement as to whether it has complied with such requirements.
-21-
<PAGE>
9. Miscellaneous.
-----------------
(a) No Inconsistent Agreements. Each of the Company and the Trust
--------------------------
represents, warrants, covenants and agrees that it has not granted, and shall
not grant, registration rights with respect to Registrable Securities which
would be inconsistent with the terms contained in this Registration Rights
Agreement.
(b) Notices. All notices, requests, claims, demands, waivers and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: If to the Company, to it
at The PMI Group, Inc., 601 Montgomery Street, San Francisco, California 94111,
Attention: General Counsel; if to the Trust, to it at The Bank of New York
(Delaware), White Clay Center, Route 273, Newark, Delaware 19711, Attention:
Corporate Trust Department; and if to a holder, to the address of such holder
set forth in the security register or other records of the Trust or the Company,
as the case may be, or to such other address as the Company, the Trust or any
such holder may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
(c) Parties in Interest. All the terms and provisions of this Registration
-------------------
Rights Agreement shall be binding upon, shall inure to the benefit of and shall
be enforceable by the respective successors and assigns of the parties hereto.
In the event that any transferee of any holder of Registrable Securities shall
acquire Registrable Securities, in any manner, whether by gift, bequest,
purchase, operation of law or otherwise, such transferee shall, without any
further writing or action of any kind, be deemed a party hereto for all purposes
and such Registrable Securities shall be held subject to all of the terms of
this Registration Rights Agreement, and by taking and holding such Registrable
Securities such transferee shall be entitled to receive the benefits of, and be
conclusively deemed to have agreed to be bound by and to perform, all of the
applicable terms and provisions of this Registration Rights Agreement.
(d) Survival. The respective indemnities, agreements, representations,
--------
warranties and each other provision set forth in this Registration Rights
Agreement or made pursuant hereto shall remain in full force and effect
regardless of any investigation (or statement as to the results thereof) made by
or on behalf of any holder of Registrable Securities, any director, officer or
partner of such holder, any agent or underwriter or any director, officer or
partner thereof, or any controlling person of any of the foregoing, and shall
survive delivery of and payment for the Registrable Securities pursuant to the
Purchase Agreement and the transfer and registration of Registrable Securities
by such holder and the consummation of an Exchange Offer.
(f) LAW GOVERNING. THIS REGISTRATION RIGHTS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK.
(g) Headings. The descriptive headings of the several Sections and
--------
paragraphs of this Registration Rights Agreement are inserted for convenience
only, do not constitute a part of this Registration Rights Agreement and shall
not affect in any way the meaning or interpretation of this Registration Rights
Agreement.
-22-
<PAGE>
(h) Entire Agreement; Amendments. This Registration Rights Agreement and
----------------------------
the other writings referred to herein (including the Trust Agreement, the
Guarantee and the Indenture) or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. This Registration Rights Agreement supersedes all prior
agreements and under standings between the parties with respect to its subject
matter. This Registration Rights Agreement may be amended and the observance of
any term of this Registration Rights Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only by a
written instrument duly executed by the Company, the Trust and the holders of at
least a majority in aggregate liquidation amount or principal amount, as the
case may be, of the Registrable Securities at the time outstanding. Each holder
of any Registrable Securities at the time or thereafter outstanding shall be
bound by any amendment or waiver effected pursuant to this Section 9(h), whether
or not any notice, writing or marking indicating such amendment or waiver
appears on such Registrable Securities or is delivered to such holder.
(i) Inspection. For so long as this Registration Rights Agreement shall be
----------
in effect, this Registration Rights Agreement and a complete list of the names
and addresses of all the holders of Registrable Securities shall be made
available for inspection and copying on any business day by any holder of
Registrable Securities for proper purposes only (which shall include any purpose
related to the rights of the holders of Registrable Securities under the
Securities, the Indenture and this Registration Rights Agreement) at the offices
of the Company at the address thereof set forth in Section 9(c) above, at the
office of the Property Trustee or at the office of the Trustee under the
Indenture.
(j) Counterparts. This agreement may be executed by the parties in
------------
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
-23-
<PAGE>
Agreed to and accepted as of the date referred to above.
PMI CAPITAL I
By:_____________________________
Administrative Trustee
THE PMI GROUP, INC.
By:_____________________________
Name:
Title:
GOLDMAN, SACHS & CO.
By:_____________________________
(Goldman, Sachs, & Co.)
-24-
<PAGE>
EXHIBIT 10.29
- --------------------------------------------------------------------------------
GUARANTEE AGREEMENT
BETWEEN
THE PMI GROUP, INC.
(AS GUARANTOR)
AND
THE BANK OF NEW YORK
(AS TRUSTEE)
DATED AS OF
FEBRUARY 4, 1997
- --------------------------------------------------------------------------------
<PAGE>
PMI CAPITAL I
Certain Sections of this Guarantee Agreement relating to Sections 310
through 318 of the Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Act
Section Guarantee Agreement Section
- ------------------- ---------------------------
<S> <C> <C>
310 (a)....................................... 4.1(a)
(b)....................................... 4.1(c), 2.8
(c)....................................... Inapplicable
311 (a)....................................... 2.2(b)
(b)....................................... 2.2(b)
(c)....................................... Inapplicable
312 (a)....................................... 2.2(a)
(b)....................................... 2.2(b)
313 2.3
314 (a)....................................... 2.4
(b)....................................... Inapplicable
(c)....................................... 2.5
(d)....................................... Inapplicable
(e)....................................... 1.1, 2.5, 3.2
(f)....................................... 2.1, 3.2
315 (a)....................................... 3.1(d)
(b)....................................... 2.7
(c)....................................... 3.1
(d)....................................... 3.1(d)
(e)....................................... Inapplicable
316 (a)....................................... 1.1, 2.6, 5.4
(b)....................................... 5.3
(c)....................................... Inapplicable
317 (a)....................................... Inapplicable
(b)....................................... Inapplicable
318 (a)....................................... 2.1(b)
(b)....................................... 2.1
(c)....................................... 2.1(a)
</TABLE>
- ------------
Note: This reconciliation and tie sheet shall not, for any purpose, be deemed
to be a part of the Guarantee.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS.................................................. 1
Section 1.1. Definitions.................................................. 1
ARTICLE II. TRUST INDENTURE ACT.......................................... 3
Section 2.1. Trust Indenture Act; Application............................. 3
Section 2.2. List of Holders.............................................. 3
Section 2.3. Reports by the Guarantee Trustee............................. 4
Section 2.4. Periodic Reports to the Guarantee Trustee.................... 4
Section 2.5. Evidence of Compliance with Conditions Precedent............. 4
Section 2.6. Events of Default; Waiver.................................... 4
Section 2.7. Event of Default; Notice..................................... 4
Section 2.8. Conflicting Interests........................................ 4
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE........... 5
Section 3.1. Powers and Duties of the Guarantee Trustee................... 5
Section 3.2. Certain Rights of Guarantee Trustee.......................... 6
Section 3.3. Compensation; Indemnity; Fees................................ 7
ARTICLE IV. GUARANTEE TRUSTEE............................................ 7
Section 4.1. Guarantee Trustee: Eligibility............................... 7
Section 4.2. Appointment, Removal and Resignation of the Guarantee Trustee 8
ARTICLE V. GUARANTEE.................................................... 8
Section 5.1. Guarantee.................................................... 8
Section 5.2. Waiver of Notice and Demand.................................. 8
Section 5.3. Obligations Not Affected..................................... 9
Section 5.4. Rights of Holders............................................ 9
Section 5.5. Guarantee of Payment......................................... 9
Section 5.6. Subrogation.................................................. 10
Section 5.7. Independent Obligations...................................... 10
ARTICLE VI. COVENANTS AND SUBORDINATION.................................. 10
Section 6.1. Subordination................................................ 10
Section 6.2. Pari Passu Guarantees........................................ 10
ARTICLE VII. TERMINATION.................................................. 10
Section 7.1. Termination.................................................. 10
ARTICLE VIII. MISCELLANEOUS................................................ 11
Section 8.1. Successors and Assigns....................................... 11
Section 8.2. Amendments................................................... 11
Section 8.3. Notices...................................................... 11
Section 8.4. Benefit...................................................... 12
Section 8.5. Interpretation............................................... 12
Section 8.6. Governing Law................................................ 12
</TABLE>
<PAGE>
THE RECEIPT AND ACCEPTANCE OF THIS GUARANTEE OR ANY INTEREST HEREIN BY OR
ON BEHALF OF THE HOLDER HEREOF OR ANY BENEFICIAL OWNER SHALL CONSTITUTE THE
ACCEPTANCE BY THE HOLDER HEREOF AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
THIS GUARANTEE OF ALL OF THE TERMS AND PROVISIONS OF THE REGISTRATION RIGHTS
AGREEMENT REFERRED TO HEREIN.
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of February 4, 1997, is executed and
delivered by THE PMI GROUP, INC., a Delaware corporation (the "Guarantor")
having its principal office at 601 Montgomery Street, San Francisco, California
94111, and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the
"Guarantee Trustee"), for the benefit of the Holders (as defined herein) from
time to time of the Capital Securities (as defined herein) of PMI Capital I, a
Delaware statutory business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of
February 4, 1997 (the "Trust Agreement"), among the Guarantor, as Depositor, the
Property Trustee and the Delaware Trustee named therein and the Holders from
time to time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing $100,000,000 aggregate Liquidation Amount (as defined in the
Trust Agreement) of its 8.309% Capital Securities, Series A (Liquidation Amount
$1,000 per capital security) (the "Capital Securities") representing preferred
undivided beneficial interests in the assets of the Issuer and having the terms
set forth in the Trust Agreement;
WHEREAS, the Capital Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the Issuer's
Common Securities (as defined below), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which will be deposited
with The Bank of New York, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Capital Securities the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders of the Capital Securities the Guarantee
Payments (as defined herein) and to make certain other payments on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of Capital
Securities, which purchase the Guarantor hereby agrees shall benefit the
Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Capital Securities.
ARTICLE I. DEFINITIONS
Section 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings. Capitalized
or otherwise defined terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Trust Agreement as in effect on the date
hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE>
"Board of Directors" means either the board of directors of the Guarantor
or any committee of that board duly authorized to act hereunder.
"Capital Securities" has the meaning specified in the recitals to this
Guarantee Agreement.
"Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Issuer.
"Debentures" means the 8.309% Junior Subordinated Deferrable Interest
Debentures, Series A of the Guarantor issued pursuant to the Indenture.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee Agreement; provided, however, that,
except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 60 days after receipt of such notice.
"Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Capital Securities, to the extent not paid or
made by or on behalf of the Issuer: (i) any accrued and unpaid Distributions (as
defined in the Trust Agreement) required to be paid on the Capital Securities,
to the extent the Issuer shall have funds on hand available therefor at such
time; (ii) the redemption price (as specified in the Trust Agreement), including
all accumulated and unpaid Distributions to the date of redemption (the
"Redemption Price"), with respect to any Capital Securities called for
redemption by the Issuer, to the extent the Issuer shall have funds on hand
available therefor at such time; and (iii) upon a voluntary or involuntary
termination, winding-up or liquidation of the Issuer, unless Debentures are
distributed to the Holders, the lesser of (a) the sum of the Liquidation Amount
of $1,000 per Capital Security plus accumulated and unpaid Distributions on the
Capital Securities to the date of payment plus any accrued but unpaid premium
and (b) the amount of assets of the Issuer remaining available for distribution
to Holders on liquidation of the Issuer (in either case, the "Liquidation
Distribution").
"Guarantee Trustee" means The Bank of New York, until a Successor Guarantee
Trustee has been appointed and has accepted such appointment pursuant to the
terms of this Guarantee Agreement, and thereafter means each such Successor
Guarantee Trustee.
"Holder" means any holder, as registered on the books and records of the
Issuer, of any Capital Securities; provided, however, that in determining
whether the holders of the requisite percentage of Capital Securities have given
any request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the
Guarantee Trustee.
"Indenture" means the Junior Subordinated Indenture dated as of February 4,
1997, as supplemented and amended, between the Guarantor and The Bank of New
York, as trustee.
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount of the Capital Securities" means, except as
provided by the Trust Indenture Act, a vote by the Holder(s), voting separately
as a class, of more than 50% of the Liquidation Amount of all then Outstanding
(as defined in the Trust Agreement) Capital Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman of the Board, a Vice Chairman of the Board, the Chief
Executive Officer, the President or a Vice President of such Person, and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of
such Person, and delivered to the Guarantee Trustee. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
2
<PAGE>
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof or any other entity of whatever nature.
"Responsible Officer" means, when used with respect to the Guarantee
Trustee, any officer assigned to the Corporate Trust Office, including any
managing director, vice president, assistant vice president, assistant
treasurer, assistant secretary or any other officer of the Guarantee Trustee
customarily performing functions similar to those performed by any of the above
designated officers, and also, with respect to a particular matter, any other
officer, to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Trust Agreement" has the meaning specified in the recitals to this
Guarantee Agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II. TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application.
(a) The Trust Indenture Act shall apply as a matter of contract to this
Trust Agreement for purposes of interpretation, construction and defining the
rights and obligations hereunder.
(b) If and to the extent that any provision of this Guarantee Agreement
limits, qualifies or conflicts with the duties imposed by any of Sections 310 to
317, inclusive, of the Trust Indenture Act, such imposed duties shall control.
Section 2.2. List of Holders.
(a) The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee (a) semiannually, on or before February 1 and August 1 of each year, a
list, in such form as the Guarantee Trustee may reasonably require, of the names
and addresses of the Holders ("List of Holders") as of a date not more than 15
days prior to the delivery thereof, and (b) at such other times as the Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished, in each case to the extent such
information is in the possession or control of the Guarantor and is not
identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such. The Guarantee Trustee
may destroy any List of Holders previously given to it on receipt of a new List
of Holders.
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<PAGE>
(b) The Guarantee Trustee shall comply with its obligations under Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3. Reports by the Guarantee Trustee.
Not later than 60 days after December 31 of each year, commencing 60 days
after December 31, 1997, the Guarantee Trustee shall provide to the Holders such
reports as are required by Section 313 of the Trust Indenture Act, if any, in
the form and in the manner provided by Section 313 of the Trust Indenture Act.
The Guarantee Trustee shall also comply with the requirements of Section 313(d)
of the Trust Indenture Act.
Section 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the Securities and
Exchange Commission and the Holders such documents, reports and information, if
any, as required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act, in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
Section 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of a Majority in Liquidation Amount of the Capital Securities
may, by vote, on behalf of the Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Guarantee Agreement, but no such waiver shall extend
to any subsequent or other default or Event of Default or impair any right
consequent therefrom.
Section 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default, transmit by mail, first class postage prepaid, to the Holders,
notices of all Events of Default known to the Guarantee Trustee, unless such
Events of Default have been cured before the giving of such notice, provided,
that, except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless a Responsible Officer charged with the administration of
this Guarantee Agreement shall have obtained written notice, of such Event of
Default.
Section 2.8. Conflicting Interests.
The Trust Agreement and the Indenture shall be deemed to be specifically
described in this Guarantee Agreement for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
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<PAGE>
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
Section 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee for the
benefit of the Holders, and the Guarantee Trustee shall not transfer this
Guarantee Agreement to any Person except a Holder exercising his or her rights
pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on acceptance by
such Successor Guarantee Trustee of its appointment to act as Successor
Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder, and such vesting and
cessation of title shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of such Successor
Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee Agreement for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Guarantee Agreement, and no implied covenants shall be read into this Guarantee
Agreement against the Guarantee Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6), the
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement shall be construed to relieve
the Guarantee Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee
Agreement, and the Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Guarantee Agreement; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Guarantee
Agreement; but in the case of any such certificates or opinions that
by any provision hereof or of the Trust Indenture Act are specifically
required to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was negligent
in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in Liquidation
Amount of the Capital Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee under this Guarantee Agreement; and
5
<PAGE>
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Guarantee Trustee shall
have reasonable grounds for believing that the repayment of such funds or
liability is not assured to it under the terms of this Guarantee Agreement
or indemnity satisfactory to it against such risk or liability is not
assured to it.
Section 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document reasonably believed by it to be
genuine and to have been signed, sent or presented by the proper party or
parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee Agreement, the
Guarantee Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and conclusively rely upon an Officers' Certificate.
(iv) The Guarantee Trustee may consult with legal counsel, and the
advice or opinion of such legal counsel with respect to legal matters shall
be full and complete authorization and protection in respect of any action
taken, suffered or omitted to be taken by it hereunder in good faith and in
accordance with such advice or opinion. Such legal counsel may be legal
counsel to the Guarantor or any of its Affiliates and may be one of its
employees. The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee Agreement from
any court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Guarantee Agreement at the
request or direction of any Holder, unless such Holder shall have provided
to the Guarantee Trustee such security and indemnity satisfactory to it,
against the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee; provided that, nothing contained in this Section
3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the rights
and powers vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, and the Guarantee Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee Agreement the
Guarantee Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request and shall be entitled to
receive instructions from
6
<PAGE>
the Holders, (B) may refrain from enforcing such remedy or right or taking
such other action until such instructions are received, and (C) shall be
fully protected in acting in accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to impose any
duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.
Section 3.3. Compensation; Indemnity; Fees.
The Guarantor agrees:
(a) to pay to the Guarantee Trustee from time to time reasonable
compensation for all services rendered by it hereunder as may be agreed by the
Guarantor and the Guarantee Trustee from time to time (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Guarantee Trustee upon request for all reasonable expenses, disbursements and
advances incurred or made by the Guarantee Trustee in accordance with any
provision of this Guarantee Agreement (including the reasonable compensation and
the expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify the Guarantee Trustee and its directors, officers, agents
and employees for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on the part of the Guarantee
Trustee, arising out of or in connection with the acceptance or administration
of this Guarantee Agreement, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Guarantee Trustee will
not claim or exact any lien or charge on any Guarantee Payments as a result of
any amount due to it under this Guarantee Agreement.
The provisions of this Section 3.3 shall survive the termination of this
Guarantee Agreement or the earlier resignation or removal of the Guarantee
Trustee.
ARTICLE IV. GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee: Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting the requirements of Section
310(a) of the Trust Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this Section
and to the extent permitted by the Trust Indenture Act, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).
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<PAGE>
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
Section 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the action of (i) if an Issuer Trust
Default has not occurred or has occurred and is not continuing, the holders of a
majority (based on Liquidation Amounts) of the outstanding Common Securities or
(ii) if an Issuer Trust Default has occurred and is continuing, or for cause,
the Holders of a Majority in Liquidation Amount of the Capital Securities.
(b) The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Guarantee Trustee and delivered to the
Guarantor. The Successor Guarantee Trustee shall be appointed by the same
action which removed the Guarantee Trustee.
(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed by the
holders of a majority (based on Liquidation Amounts) of the outstanding Common
Securities (or if an Issuer Trust Default has occurred and is continuing, the
Holders of a Majority in Liquidation Amount of the Capital Securities) and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
Section 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees, subject to Section
6.1, to pay in full to the Holders the Guarantee Payments (without duplication
of amounts theretofore paid by or on behalf of the Issuer), as and when due,
regardless of any defense, right of set-off or counterclaim which the Issuer may
have or assert other than the defense of payment. The Guarantor's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders. The Guarantor shall notify the Guarantee Trustee of any
such payment.
Section 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of this Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
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<PAGE>
Section 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee Agreement shall in no way be affected or impaired by reason of
the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Capital Securities
or the extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Capital Securities;
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Capital Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.
Section 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee Agreement
will be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of not less than a
Majority in Liquidation Amount of the Capital Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of this Guarantee Agreement or
exercising any trust or power conferred upon the Guarantee Trustee under this
Guarantee Agreement; and (iv) any Holder may institute a legal proceeding
directly against the Guarantor to enforce its rights under this Guarantee
Agreement, without first instituting a legal proceeding against the Issuer or
any other Person.
Section 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by payment of
the Guarantee Payments in full (without duplication of amounts theretofore paid
by the Issuer) or upon distribution of Debentures to Holders as provided in the
Trust Agreement.
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Section 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Issuer in respect of any amounts paid to the Holders by the
Guarantor under this Guarantee Agreement and shall have the right to waive
payment by the Issuer pursuant to Section 5.1; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Guarantee Agreement, if, at the time of any
such payment, any amounts are due and unpaid under this Guarantee Agreement. If
any amount shall be paid to the Guarantor in violation of the preceding
sentence, the Guarantor agrees to hold such amount in trust for the Holders and
to pay over such amount to the Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Issuer with respect to the Capital Securities and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Guarantee Agreement
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
Section 6.1. Subordination.
The obligations of the Guarantor under this Guarantee Agreement will
constitute unsecured obligations of the Guarantor and will rank subordinate and
junior in right of payment to all Senior Indebtedness (as defined in the
Indenture) to the extent and in the manner set forth in the Indenture. The
obligations of the Guarantor under this Guarantee Agreement do not constitute
Senior Indebtedness (as defined in the Indenture).
Section 6.2. Pari Passu Guarantees.
The obligations of the Guarantor under this Guarantee Agreement shall rank
pari passu with the obligations of the Guarantor under (i) any similar guarantee
agreements issued by the Guarantor on behalf of the holders of preferred or
capital securities issued by any PMI Trust (as defined in the Indenture), (ii)
the Indenture and the Securities (as defined therein) issued thereunder, and
(iii) any other security, guarantee or other agreement or obligation that is
expressly stated to rank pari passu with the obligations of the Guarantor under
this Guarantee Agreement or with any obligation that ranks pari passu with the
obligations of the Guarantor under this Guarantee Agreement.
ARTICLE VII. TERMINATION
Section 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force and
effect upon (i) full payment of the Redemption Price of all Capital Securities,
(ii) the distribution of Debentures to the Holders in exchange for all of the
Capital Securities or (iii) full payment of the amounts payable in accordance
with the Trust Agreement upon liquidation of the Issuer. Notwithstanding the
foregoing, this Guarantee Agreement will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must repay any sums
paid with respect to Capital Securities or this Guarantee Agreement.
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ARTICLE VIII. MISCELLANEOUS
Section 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Guarantor and shall inure to the benefit of the Holders of the Capital
Securities then outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under Article VIII of the
Indenture and pursuant to which the successor or assignee agrees in writing to
perform the Guarantor's obligations hereunder, the Guarantor shall not assign
its obligations hereunder.
Section 8.2. Amendments.
Except with respect to any changes which do not adversely affect the rights
of the Holders in any material respect (in which case no consent of the Holders
will be required), this Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in Liquidation Amount of the
Capital Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of such approval.
Section 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied (confirmed by delivery of the original) or
mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth below or such other
address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:
The PMI Group, Inc.
601 Montgomery Street
San Francisco, California 94111
Facsimile No.: 415 291-6175
Attention: Victor J. Bacigalupi
(b) if given to the Guarantee Trustee or the Issuer, in care of the
Guarantee Trustee, at the Issuer's (and the Guarantee Trustee's) address set
forth below or such other address as the Guarantee Trustee on behalf of the
Issuer may give notice to the Holders:
PMI Capital I
c/o The PMI Group, Inc.
601 Montgomery Street
San Francisco, California 94111
Facsimile No.: 415 291-6175
Attention: Victor J. Bacigalupi
and:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile No.: 212 815-5915
Attention: Vivian Georges
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Guarantee Trustee
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile No.: 212 815-5915
Attention: Vivian Georges
(c) if given to any Holder, at the address set forth on the books and
records of the Issuer.
All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
Section 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and is
not separately transferable from the Capital Securities.
Section 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not defined in
the preamble hereto have the respective meanings assigned to them in Section
1.1;
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or amended
from time to time;
(d) all references in this Guarantee Agreement to Articles and Sections are
to Articles and Sections of this Guarantee Agreement unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa; and
(g) the masculine, feminine or neuter genders used herein shall include the
masculine, feminine and neuter genders.
Section 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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THIS GUARANTEE AGREEMENT is executed as of the day and year first above
written.
THE PMI GROUP, INC.
By: /s/ John Lorenzen
--------------------------
Name: John M. Lorenzen
Title: Executive Vice President
THE BANK OF NEW YORK
as Guarantee Trustee
By:
--------------------------
Name:
Title:
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<PAGE>
EXHIBIT 10.30
================================================================================
AMENDED AND RESTATED
TRUST AGREEMENT
among
THE PMI GROUP, INC.,
as Depositor,
THE BANK OF NEW YORK,
as Property Trustee,
and
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee,
Dated as of February 4, 1997
PMI CAPITAL I
================================================================================
<PAGE>
PMI CAPITAL I
Certain Sections of this Trust Agreement, which by agreement relate to
Sections 310 through 318 of the Trust Indenture Act of 1939:
<TABLE>
<CAPTION>
Trust Indenture Trust Agreement
Act Section Section
- ---------------------- -------------------
<S> <C> <C>
310 (a)(1)............................ 8.7
(a)(2)............................ 8.7
(a)(3)............................ 8.9
(a)(4)............................ 2.7(a)(ii)(E)
(b)............................... 8.8
311 (a)............................... Not Applicable
(b)............................... Not Applicable
312 (a)............................... Not Applicable
(b)............................... Not Applicable
(c)............................... 5.8
313 (a)............................... 8.14(a), (b)
(a)(4)............................ 8.14(b)
(b)............................... Not Applicable
(c)............................... 10.8
(d)............................... 8.14(c)
314 (a)............................... 8.15
(b)............................... Not Applicable
(c)(1)............................ 8.16
(c)(2)............................ 8.16
(c)(3)............................ Not Applicable
(d)............................... Not Applicable
(e)............................... 1.1, 8.16
315 (a)............................... 8.1(a), 8.3(a)
(b)............................... 8.2, 10.8
(c)............................... 8.1(a)
(d)............................... 8.1, 8.3
(e)............................... Not Applicable
316 (a)(1)(A)......................... Not Applicable
(a)(1)(B)......................... 5.13
(a)(2)............................ Not Applicable
(b)............................... 5.13
(c)............................... 6.7
317 (a)(1)............................ Not Applicable
(a)(2)............................ 8.13
(b)............................... 5.10
318 (a)............................... 10.10
</TABLE>
- ----------
Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to
be part of the Trust Agreement.
<PAGE>
TABLE OF CONTENTS
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ARTICLE I
Defined Terms
Section 1.1. Definitions....................................................... 1
ARTICLE II
Continuation of the Trust
Section 2.1. Name.............................................................. 12
Section 2.2. Office of the Delaware Trustee; Principal Place of Business....... 12
Section 2.3. Initial Contribution of Trust Property; Organizational Expenses... 12
Section 2.4. Issuance of the Capital Securities................................ 13
Section 2.5. Issuance of the Common Securities; Subscription and Purchase
of Debentures..................................................... 13
Section 2.6. Declaration of Trust.............................................. 14
Section 2.7. Authorization to Enter into Certain Transactions.................. 14
Section 2.8. Assets of Trust................................................... 18
Section 2.9. Title to Trust Property........................................... 18
ARTICLE III
Payment Account
Section 3.1. Payment Account................................................... 18
ARTICLE IV
Distributions; Redemption
Section 4.1. Distributions.................................................... 19
Section 4.2. Redemption........................................................ 20
Section 4.3. Subordination of Common Securities................................ 23
Section 4.4. Payment Procedures................................................ 23
Section 4.5. Tax Returns and Reports........................................... 24
Section 4.6. Payment of Taxes, Duties, Etc. of the Trust....................... 24
Section 4.7. Payments under Indenture or Pursuant to Direct Actions............ 24
ARTICLE V
Trust Securities Certificates
Section 5.1. Initial Ownership................................................. 25
</TABLE>
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Section 5.2. The Trust Securities
Certificates...................................................... 25
Section 5.3. Execution and Delivery of
Trust Securities Certificates..................................... 26
Section 5.4. Book-Entry Capital Securities..................................... 26
Section 5.5. Registration of Transfer and Exchange of Capital Securities
Certificates; Restricted Capital Securities Legends............... 28
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates 32
Section 5.7. Persons Deemed Securityholders.................................... 33
Section 5.8. Access to List of Securityholders' Names and Addresses........... 33
Section 5.9. Maintenance of Office or Agency................................... 33
Section 5.10. Appointment of Paying Agent...................................... 33
Section 5.11. Ownership of Common Securities by Depositor..................... 34
Section 5.12. Notices to Clearing Agency....................................... 34
Section 5.13. Rights of Securityholders........................................ 34
ARTICLE VI
Acts of Securityholders; Meetings; Voting
Section 6.1. Limitations on Voting Rights...................................... 36
Section 6.2. Notice of Meetings................................................ 37
Section 6.3. Meetings of Capital Securityholders............................... 38
Section 6.4. Voting Rights..................................................... 38
Section 6.5. Proxies, etc...................................................... 38
Section 6.6. Securityholder Action by Written Consent.......................... 39
Section 6.7. Record Date for Voting and Other Purposes......................... 39
Section 6.8. Acts of Securityholders........................................... 39
Section 6.9. Inspection of Records............................................. 40
ARTICLE VII
Representations and Warranties
Section 7.1. Representations and Warranties of the Property Trustee and the
Delaware Trustee.................................................. 40
Section 7.2. Representations and Warranties of Depositor....................... 42
ARTICLE VIII
The Trustees; the Administrative Trustees
Section 8.1. Certain Duties and Responsibilities............................... 42
Section 8.2. Certain Notices................................................... 44
Section 8.3. Certain Rights of Property Trustee................................ 44
Section 8.4. Not Responsible for Recitals or
Issuance of Securities........................................................ 46
Section 8.5. May Hold Securities............................................... 46
</TABLE>
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Section 8.6. Compensation; Indemnity; Fees..................................... 47
Section 8.7. Corporate Property Trustee Required; Eligibility of Trustees and
Administrative Trustees........................................... 48
Section 8.8. Conflicting Interests............................................. 48
Section 8.9. Co-Trustees and Separate Trustee.................................. 49
Section 8.10. Resignation and Removal; Appointment
of Successor...................................................... 50
Section 8.11. Acceptance of Appointment by Successor............................ 51
Section 8.12. Merger, Conversion, Consolidation or
Succession to Business............................................ 52
Section 8.13. Preferential Collection of Claims
Against Depositor or Trust........................................ 52
Section 8.14. Reports by Property Trustee....................................... 53
Section 8.15. Reports to the Property Trustee................................... 54
Section 8.16. Evidence of Compliance with Conditions
Precedent......................................................... 54
Section 8.17. Number of Trustees................................................ 54
Section 8.18. Delegation of Power............................................... 54
Section 8.19. Appointment of Administrative Trustees............................ 55
ARTICLE IX
Termination, Liquidation and Merger
Section 9.1. Termination Upon Expiration Date.................................. 55
Section 9.2. Early Termination................................................. 55
Section 9.3. Termination....................................................... 56
Section 9.4. Liquidation....................................................... 56
Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the Trust 58
ARTICLE X
Miscellaneous Provisions
Section 10.1. Limitation of Rights of Securityholders........................... 59
Section 10.2. Amendment......................................................... 59
Section 10.3. Separability...................................................... 60
Section 10.4. Governing Law..................................................... 60
Section 10.5. Payments Due on Non-Business Day.................................. 61
Section 10.6. Successors........................................................ 61
Section 10.7. Headings.......................................................... 61
Section 10.8. Reports, Notices and Demands...................................... 61
Section 10.9. Agreement Not to Petition......................................... 62
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act........... 62
Section 10.11. Delivery of Certain Information.................................. 63
Section 10.12. Acceptance of Terms of Trust Agreement, Guarantee and Indenture.. 63
</TABLE>
iii
<PAGE>
EXHIBIT A - Certificate of Trust
EXHIBIT B - Certificate Depository Agreement
EXHIBIT C - Common Securities Certificate
EXHIBIT D - Agreement as to Expenses and Liabilities
EXHIBIT E-1 - Capital Securities Certificate (Book-Entry)
EXHIBIT E-2 - Capital Securities Certificate
EXHIBIT F - Restricted Securities Certificate
EXHIBIT G - Unrestricted Securities Certificate
iv
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT, dated as of February 4, 1997, among
(i) The PMI Group, Inc., a Delaware corporation (including any successors or
assigns, the "Depositor"), (ii) The Bank of New York, a New York banking
corporation, as property trustee (in such capacity, the "Property Trustee" and,
in its separate corporate capacity and not in its capacity as Property Trustee,
the "Bank"), (iii) The Bank of New York (Delaware), a Delaware banking
corporation organized under the laws of the State of Delaware, as Delaware
trustee (the "Delaware Trustee") (the Property Trustee and the Delaware Trustee
referred to collectively as the "Trustees"), and (iv) the several Holders, as
hereinafter defined.
Witnesseth
Whereas, the Depositor and the Delaware Trustee have heretofore duly
declared and created a business trust pursuant to the Delaware Business Trust
Act by entering into that certain Trust Agreement, dated as of January 24, 1997
(the "Original Trust Agreement"), and by the execution and filing by the
Delaware Trustee with the Secretary of State of the State of Delaware of the
Certificate of Trust, filed on January 24, 1997, attached as Exhibit A; and
Whereas, the Depositor and the Trustees desire to amend and restate the
Original Trust Agreement in its entirety as set forth herein to provide for,
among other things, (i) the issuance of the Common Securities by the Trust to
the Depositor, (ii) the issuance and sale of the Capital Securities by the Trust
pursuant to the Purchase Agreement, (iii) the acquisition by the Trust from the
Depositor of all of the right, title and interest in the Debentures and (iv) the
appointment of the Administrative Trustees;
Now Therefore, in consideration of the agreements and obligations set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, each party, for the benefit of the
other parties and for the benefit of the Securityholders, hereby amends and
restates the Original Trust Agreement in its entirety and agrees as follows:
ARTICLE I
Defined Terms
Section 1.1. Definitions.
For all purposes of this Trust Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;
<PAGE>
(b) all other terms used herein that are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) unless the context otherwise requires, any reference to an "Article" or
a "Section" refers to an Article or a Section, as the case may be, of this Trust
Agreement; and
(d) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Trust Agreement as a whole and not to any particular
Article, Section or other subdivision.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust Securities of a given
Liquidation Amount and/or a given period, the amount of Additional Interest (as
defined in the Indenture) paid by the Depositor on Debentures having an
aggregate principal amount equal to such given Liquidation Amount for such
period.
"Additional Sums" has the meaning specified in Section 10.6 of the
Indenture.
"Administrative Trustees" means each of Bradley M. Shuster, John M.
Lorenzen and William A. Seymore solely in such Person's capacity as
Administrative Trustee of the Trust created and continued hereunder and not in
such Person's individual capacity, or such Administrative Trustee's successor in
interest in such capacity, or any successor appointed as herein provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Book-Entry Capital Security, the rules and procedures of the
Clearing Agency for such Book-Entry Capital Security, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Bank" has the meaning specified in the preamble to this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having jurisdiction in the
premises judging such Person a bankrupt or insolvent, or approving as properly
filed a petition seeking
2
<PAGE>
reorganization, arrangement, adjudication or composition of or in respect of
such Person under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or appointing a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of such Person or of
any substantial part of its property or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(b) the institution by such Person of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or the
consent by it to the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or similar official) of
such Person or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due and its willingness
to be adjudicated a bankrupt, or the taking of corporate action by such Person
in furtherance of any such action.
"Bankruptcy Laws" has the meaning specified in Section 10.9.
"Book-Entry Capital Securities Certificate" means a Capital Securities
Certificate evidencing ownership of Book-Entry Capital Securities.
"Book-Entry Capital Security" means a Capital Security, the ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 5.4.
"Business Day" means 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.
"Capital Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein. The Capital Securities shall
consist of the Original Capital Securities and, if issued, the New Capital
Securities.
"Capital Securities Certificate" means a certificate evidencing ownership
of Capital Securities, substantially in the form attached as Exhibit E-1 or E-2.
"Capital Securityholder" means a Holder of Capital Securities.
3
<PAGE>
"Certificate Depository Agreement" means the agreement among the Trust, the
Depositor and DTC, as the initial Clearing Agency, dated as of the Closing Date,
relating to the Trust Securities Certificates, substantially in the form
attached as Exhibit B, as the same may be amended and supplemented from time to
time.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC
will be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means the Time of Delivery, which date is also the date of
execution and delivery of this Trust Agreement.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as amended,
or, if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Security" means an undivided beneficial interest in the assets of
the Trust, having a Liquidation Amount of $1,000 and having the rights provided
therefor in this Trust Agreement, including the right to receive Distributions
and a Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate evidencing ownership of
Common Securities, substantially in the form attached as Exhibit C.
"Common Securityholder" means a Holder of Common Securities.
"Corporate Trust Office" means (i) when used with respect to the Property
Trustee, the principal office of the Property Trustee located in New York, New
York which on the date of this Trust Agreement is 101 Barclay Street, New York,
New York 10286 and (ii) when used with respect to the Debenture Trustee, its
Corporate Trust Office as defined in the Indenture.
"Debenture Event of Default" means an "Event of Default" as defined in the
Indenture.
"Debenture Redemption Date" means, with respect to any Debentures to be
redeemed under the Indenture, the date fixed for redemption under the Indenture.
4
<PAGE>
"Debenture Trustee" means The Bank of New York, a New York banking
corporation, in its capacity as Trustee under the Indenture, and any successor
thereto.
"Debentures" means the aggregate principal amount of the Depositor's 8.309%
Junior Subordinated Deferrable Interest Debentures, Series A, issued pursuant to
the Indenture.
"Definitive Capital Securities Certificates" means either or both (as the
context requires) of (a) Capital Securities Certificates issued as Book-Entry
Capital Securities Certificates as provided in Section 5.2 or 5.4 substantially
in the form set forth in Exhibit E-1 and (b) Capital Securities Certificates
issued in certificated, fully registered form as provided in Section 5.2, 5.4 or
5.5, substantially in the form set forth in Exhibit E-2.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. (S) 3801, et seq., as it may be amended from time to time.
"Delaware Trustee" means the Person identified as the "Delaware Trustee" in
the preamble to this Trust Agreement solely in its capacity as Delaware Trustee
of the Trust created and continued hereunder and not in its individual capacity,
or its successor in interest in such capacity, or any successor trustee
appointed as herein provided.
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.1(a).
"Distributions" means amounts payable in respect of the Trust Securities as
provided in Section 4.1.
"DTC" means The Depository Trust Company.
"Early Termination Event" has the meaning specified in Section 9.2.
"Event of Default" means any one of the following events (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):
(a) the occurrence of a Debenture Event of Default; or
(b) default by the 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
(c) default by the Trust in the payment of any Redemption Price of any
Trust Security when it becomes due and payable; or
5
<PAGE>
(d) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Trustees in this Trust Agreement (other than a
covenant or warranty a default in the performance or breach of which is dealt
with in clause (b) or (c) 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 defaulting Trustee or 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" hereunder; or
(e) the occurrence of a Bankruptcy Event with respect to the Property
Trustee and a successor Property Trustee not being appointed within 90 days
thereof.
"Exchange Act" means the Securities Exchange Act of 1934, and any successor
statue thereto, in each case as amended from time to time.
"Expense Agreement" means the Agreement as to Expenses and Liabilities
between the Depositor and the Trust, substantially in the form attached as
Exhibit D, as amended from time to time.
"Expiration Date" has the meaning specified in Section 9.1.
"Guarantee" means the Guarantee Agreement executed and delivered by the
Depositor and The Bank of New York, as trustee, contemporaneously with the
execution and delivery of this Trust Agreement, for the benefit of the holders
of the Capital Securities, as amended from time to time.
"Indenture" means the Junior Subordinated Indenture, dated as of February
4, 1997, between the Depositor and the Debenture Trustee, as trustee, as amended
or supplemented from time to time.
"Initial Purchaser" means Goldman, Sachs & Co.
"Institutional Accredited Investor" means an institution that is an
accredited investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act.
"Issuer Trust Default" means an Event of Default described in clause (a),
(b) or (c) of the definition thereof or an event which with notice and/or lapse
of time would constitute such an Event of Default.
"Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of
trust, adverse ownership interest, hypothecation, assignment, security interest
or preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
6
<PAGE>
"Like Amount" means (a) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount equal to that portion of the
principal amount of 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 such Trust
Securities, and (b) with respect to a distribution of Debentures to Holders of
Trust Securities in connection with a dissolution or liquidation of the Trust,
Debentures having a principal amount equal to the Liquidation Amount of the
Trust Securities of the Holders to whom such Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Trust Security.
"Liquidation Date" means the date on which Debentures or the Liquidation
Distribution are to be distributed to Holders in connection with the dissolution
and liquidation of the Trust pursuant to Section 9.4(a).
"Liquidation Distribution" has the meaning specified in Section 9.4(d).
"New Capital Securities" has the meaning specified in Section 2.4
"1940 Act" means the Investment Company Act of 1940, as amended.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the Chief Executive Officer, the President
or a Vice President, and by the Treasurer, an Associate Treasurer, an Assistant
Treasurer, the Controller, the Secretary or an Assistant Secretary, of the
Depositor, and delivered to the appropriate Trustee. One of the officers signing
an Officers' Certificate given pursuant to Section 8.16 shall be the principal
executive, financial or accounting officer of the Depositor. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of each such officer, such
condition or covenant has been complied with.
7
<PAGE>
"Opinion of Counsel" means a written opinion of nationally recognized
counsel to the Depositor.
"Original Capital Securities" has the meaning specified in Section 2.4.
"Original Trust Agreement" has the meaning specified in the recitals to
this Trust Agreement.
"Other Capital Securities" means the Capital Securities sold by the Initial
Purchaser in the initial offering contemplated by the Purchase Agreement to
Institutional Accredited Investors in reliance on an exemption from the
registration requirements of the Securities Act other than Rule 144A.
"Outstanding," when used with respect to Trust Securities, means, as of the
date of determination, all Trust Securities theretofore executed and delivered
under this Trust Agreement, except:
(a) Trust Securities theretofore cancelled by the Property Trustee or
delivered to the Property Trustee for cancellation;
(b) Trust Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Property Trustee or any Paying
Agent for the Holders of such Trust Securities; provided that, if such Trust
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to this Trust Agreement; and
(c) Trust Securities which have been paid or in exchange for or in lieu of
which other Trust Securities have been executed and delivered pursuant to
Sections 5.4, 5.5 and 5.6;
provided, however, that in determining whether the Holders of the requisite
Liquidation Amount of the Outstanding Capital Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder, Capital
Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor
or any Trustee shall be disregarded and deemed not to be Outstanding, except
that (a) in determining whether any Trustee shall be protected in relying upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Capital Securities that a Responsible Officer of such Trustee actually
knows to be so owned shall be so disregarded and (b) the foregoing shall not
apply at any time when all of the outstanding Capital Securities are owned by
the Depositor, one or more of the Trustees and/or any such Affiliate. Capital
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Administrative
Trustees the pledgee's right so to act with respect to such Capital Securities
and that the pledgee is not the Depositor or any Affiliate of the Depositor.
8
<PAGE>
"Owner" means each Person who is the beneficial owner of Book-Entry Capital
Securities as reflected in the records of the Clearing Agency or, if a Clearing
Agency Participant is not the Owner, then as reflected in the records of a
Person maintaining an account with such Clearing Agency (directly or indirectly,
in accordance with the rules of such Clearing Agency).
"Paying Agent" means any paying agent or co-paying agent appointed pursuant
to Section 5.10 and shall initially be the Bank.
"Payment Account" means a segregated non-interest-bearing corporate trust
account maintained by the Property Trustee with the Bank in its trust department
for the benefit of the Securityholders in which all amounts paid in respect of
the Debentures will be held and from which the Property Trustee, through the
Paying Agent, shall make payments to the Securityholders in accordance with
Sections 4.1 and 4.2.
"Person" means any individual, corporation, partnership, joint venture,
trust, limited liability company or corporation, unincorporated organization or
government or any agency or political subdivision thereof.
"Property Trustee" means the Person identified as the "Property Trustee" in
the preamble to this Trust Agreement solely in its capacity as Property Trustee
of the Trust heretofore created and continued hereunder and not in its
individual capacity, or its successor in interest in such capacity, or any
successor property trustee appointed as herein provided.
"Purchase Agreement" means the Purchase Agreement, dated January 30, 1997,
among the Trust, the Depositor and the Initial Purchaser as such agreement may
be amended from time to time.
"Redemption Date" means, with respect to any Trust Security to be redeemed,
the date fixed for such redemption by or pursuant to this Trust Agreement;
provided that each Debenture Redemption Date and the stated maturity of the
Debentures shall be a Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium, if
any, paid by the Depositor upon the concurrent redemption of a Like Amount of
Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among
the Trust Securities.
"Registration Default" means (i) either the Depositor or the Trust fails to
comply with the terms of the Registration Rights Agreement or (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement (each as
defined in the Registration Rights Agreement) fails to become effective within
the time period described in the Registration Rights Agreement.
9
<PAGE>
"Registration Default Distributions" has the meaning specified in Section
2(c) of the Registration Rights Agreement.
"Registration Default Interest" has the meaning specified in Section 2(c)
of the Registration Rights Agreement.
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement dated the date hereof among the Depositor, the Trust and the Initial
Purchaser for the benefit of itself and the Holders, as the same may be amended
from time to time in accordance with the terms thereof.
"Regulation D" means Regulation D under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Relevant Trustee" shall have the meaning specified in Section 8.10.
"Responsible Officer" means, when used with respect to the Property
Trustee, any officer assigned to the Corporate Trust Office, including any vice
president, assistant vice president, assistant treasurer or any other officer of
the Property Trustee customarily performing functions similar to those performed
by any of the above designated officers, and also, with respect to a particular
matter, any other officer, to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject and with
respect to the Delaware Trustee, any officer of the Delaware Trustee customarily
performing functions similar to those performed by any of the above designated
officers, and also, with respect to a particular matter, any other officer, to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.
"Restricted Capital Securities" means all Capital Securities the Capital
Securities Certificate for which is required pursuant to Section 5.5(c) to bear
a Restricted Capital Securities Legend. Such term includes the Book-Entry
Capital Securities Certificate.
"Restricted Capital Securities Certificate" means a certificate
substantially in the form set forth in Exhibit F.
"Restricted Capital Securities Legend" means a legend substantially in the
form of the legend required in the form of Capital Securities Certificate set
forth in Exhibit E-2 to be placed upon a Restricted Capital Security.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
10
<PAGE>
"Rule 144A Capital Securities" means the Capital Securities purchased by
the Initial Purchaser from the Trust pursuant to the Purchase Agreement, other
than the Other Capital Securities.
"Rule 144A Information" has the meaning specified in Section 10.11.
"Securities Act" means the Securities Act of 1933, and any successor
statute thereto, in each case as amended from time to time.
"Securities Register" and "Securities Registrar" have the respective
meanings specified in Section 5.5.
"Securityholder" or "Holder" means a Person in whose name a Trust Security
or Trust Securities is or are registered in the Securities Register; any such
Person shall be a beneficial owner within the meaning of the Delaware Business
Trust Act.
"Successor Capital Securities Certificate" of any particular Capital
Securities Certificate means every Capital Securities Certificate issued after,
and evidencing all or a portion of the same beneficial interest in the Trust as
that evidenced by, such particular Capital Securities Certificate; and, for the
purposes of this definition, any Capital Securities Certificate executed and
delivered under Section 5.6 in exchange for or in lieu of a mutilated,
destroyed, lost or stolen Capital Securities Certificate shall be deemed to
evidence the same beneficial interest as the mutilated, destroyed, lost or
stolen Capital Securities Certificate.
"Successor Securities" has the meaning specified in Section 9.5.
"Time of Delivery" has the meaning specified in the Purchase Agreement.
"Trust" means the Delaware business trust created and continued hereby and
identified on the cover page to this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust Agreement, as the
same may be modified, amended or supplemented in accordance with the applicable
provisions hereof, including (i) all exhibits hereto and (ii) for all purposes
of this Trust Agreement and any such modification, amendment or supplement, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this Trust Agreement and any such modification, amendment or supplement,
respectively.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; provided, however, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
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"Trust Property" means (a) the Debentures, (b) the rights of the Property
Trustee under the Guarantee, (c) any cash on deposit in, or owing to, the
Payment Account and (d) all proceeds and rights in respect of the foregoing and
any other property and assets for the time being held or deemed to be held by
the Property Trustee pursuant to the trusts of this Trust Agreement.
"Trust Security" means any one of the Common Securities or the Capital
Securities.
"Trust Securities Certificate" means any one of the Common Securities
Certificates or the Capital Securities Certificates.
"Trustees" means, collectively, the Property Trustee and the Delaware
Trustee.
"Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Annex G.
ARTICLE II
Continuation of the Trust
Section 2.1. Name.
The Trust continued hereby shall be known as "PMI Capital I," as such name
may be modified from time to time by the Administrative Trustees following
written notice to the Holders of Trust Securities and the Trustees, in which
name the Trustees may conduct the business of the Trust, make and execute
contracts and other instruments on behalf of the Trust and sue and be sued.
Section 2.2. Office of the Delaware Trustee; Principal Place of Business.
The address of the Delaware Trustee in the State of Delaware is White Clay
Center, Route 273, Newark, Delaware 19711, or such other address in the State of
Delaware as the Delaware Trustee may designate by written notice to the
Securityholders and the Depositor. The principal executive office of the Trust
is c/o The PMI Group, Inc., 601 Montgomery Street, San Francisco, California
94111.
Section 2.3. Initial Contribution of Trust Property; Organizational
Expenses.
The Property Trustee acknowledges receipt in trust from the Depositor in
connection with the Original Trust Agreement of the sum of $10, which
constituted the initial Trust Property. The Depositor shall pay organizational
expenses of the Trust as they arise or shall, upon request
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of any Trustee, promptly reimburse such Trustee for any such expenses paid by
such Trustee. The Depositor shall make no claim upon the Trust Property for the
payment of such expenses.
Section 2.4. Issuance of the Capital Securities; Authentication.
On January 30, 1997 the Depositor, on behalf of the Trust and pursuant to
the Original Trust Agreement, executed and delivered the Purchase Agreement.
Contemporaneously with the execution and delivery of this Trust Agreement, an
Administrative Trustee, on behalf of the Trust, shall manually execute in
accordance with Section 5.3 and deliver to the Initial Purchaser, or, in the
alternative, execute by facsimile and deliver to the Property Trustee for
authentication and delivery in accordance with Section 5.3, Capital Securities
Certificates, registered in the name of the nominee of the initial Clearing
Agency (except to the extent otherwise provided pursuant to the Purchase
Agreement), in an aggregate amount of 100,000 Capital Securities having an
aggregate Liquidation Amount of $100,000,000, against receipt of the aggregate
purchase price for such Capital Securities of $100,000,000 by the Property
Trustee less the amount payable by the Depositor as compensation to the Initial
Purchaser (the "Original Capital Securities").
In addition, an Administrative Trustee, on behalf of the Trust, may execute
Capital Securities Certificates in accordance with Section 5.2 representing an
additional class or classes of Capital Securities to be issued only in exchange
for all or part of the Original Capital Securities pursuant to the exchange
offer contemplated by the Registration Rights Agreement ("New Capital
Securities"); provided, that the aggregate number of issued and outstanding
Capital Securities shall not at any time exceed 100,000, less the number of
Capital Securities redeemed pursuant to Section 4.2.
Section 2.5. Issuance of the Common Securities; Subscription and Purchase
of Debentures.
Contemporaneously with the execution and delivery of this Trust Agreement,
an Administrative Trustee, on behalf of the Trust, shall execute in accordance
with Section 5.3 and deliver to the Depositor Common Securities Certificates,
registered in the name of the Depositor, in an aggregate amount of 3,093 Common
Securities having an aggregate Liquidation Amount of $3,093,000 against payment
by the Depositor of $3,093,000 to the Property Trustee. Contemporaneously
therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to
and purchase from the Depositor Debentures, registered in the name of the Trust
and having an aggregate principal amount equal to $103,093,000, and, in
satisfaction of the purchase price for such Debentures, the Property Trustee, on
behalf of the Trust, shall deliver to the Depositor the sum of $103,093,000 less
the amount payable by the Depositor as compensation to the Initial Purchaser
(being the sum of the amounts delivered to the Property Trustee pursuant to (i)
Section 2.4 and (ii) this Section 2.5).
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Section 2.6. Declaration of Trust.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Trust Securities and use the proceeds from such sale to acquire the Debentures,
and (b) to engage in those activities necessary or incidental thereto. The
Depositor hereby appoints the Trustees as trustees of the Trust, to have all the
rights, powers and duties to the extent set forth herein, and the Trustees
hereby accept such appointment. The Property Trustee hereby declares that it
will hold the Trust Property in trust upon and subject to the conditions set
forth herein for the benefit of the Trust and the Securityholders. The
Administrative Trustees shall have only those ministerial duties set forth
herein with respect to accomplishing the purposes of the Trust and shall not be
trustees or fiduciaries with respect to the Trust or the Securityholders. The
Property Trustee shall have the right, but shall not be obligated except as
provided in Section 2.7(a)(ii)(J), to perform those duties assigned to the
Administrative Trustees. The Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities, of the Property Trustee or the Administrative Trustees set
forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Delaware Business Trust Act.
Section 2.7. Authorization to Enter into Certain Transactions.
(a) The Trustees and the Administrative Trustees shall conduct the affairs
of the Trust in accordance with the terms of this Trust Agreement. Subject to
the limitations set forth in paragraph (b) of this Section, and in accordance
with the following provisions (i) and (ii), the Trustees and the Administrative
Trustees shall have the authority to enter into all transactions and agreements
determined by the Trustees and Administrative Trustees to be appropriate in
exercising the authority, express or implied, otherwise granted to the Trustees
or the Administrative Trustees, as the case may be, under this Trust Agreement,
and to perform all acts in furtherance thereof, including without limitation,
the following:
(i) Each Administrative Trustee shall have the power and authority to
act on behalf of the Trust with respect to the following matters:
(A) the issuance and sale of the Trust Securities;
(B) to cause the Trust to enter into, and to execute and
deliver on behalf of the Trust, the Expense Agreement, the
Registration Rights Agreement and the Certificate Depository Agreement
and such other agreements as may be necessary or desirable in
connection with the purposes and function of the Trust;
(C) assisting in the compliance with the Registration Rights
Agreement, including filings under the Securities Act, applicable
state securities or blue sky laws, and the Trust Indenture Act;
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(D) registration of the Capital Securities under the
Exchange Act, if required, and the preparation and filing of all
periodic and other reports and other documents pursuant to the
foregoing;
(E) the sending of notices (other than notices of default)
and other information regarding the Trust Securities and the
Debentures to the Securityholders in accordance with this Trust
Agreement;
(F) the consent to the appointment of a Paying Agent and
Securities Registrar in accordance with this Trust Agreement which
consent shall not be unreasonably withheld;
(G) execution of the Trust Securities in accordance with
this Trust Agreement;
(H) execution and delivery of closing certificates, pursuant
to the Purchase Agreement and the application for a taxpayer
identification number;
(I) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware;
(J) unless otherwise determined by the Property Trustee or
the Holders of a majority (based on Liquidation Amounts) of the
Outstanding Capital Securities or Common Securities or as otherwise
required by the Delaware Business Trust Act or the Trust Indenture
Act, to execute on behalf of the Trust (either acting alone or
together with any or all of the Administrative Trustees) any documents
that the Administrative Trustees have the power to execute pursuant to
this Trust Agreement; and
(K) the taking of any action incidental to the foregoing as
the Trustees may from time to time determine is necessary or advisable
to give effect to the terms of this Trust Agreement for the benefit of
the Securityholders (without consideration of the effect of any such
action on any particular Securityholder).
(ii) As among the Trustees and the Administrative Trustees, the
Property Trustee shall have the power, duty and authority to act on behalf
of the Trust with respect to the following matters:
(A) the establishment of the Payment Account;
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(B) the receipt of the Debentures;
(C) the collection of interest, principal and any other
payments made in respect of the Debentures in the Payment Account;
(D) the distribution through the Paying Agent of amounts
owed to the Securityholders in respect of the Trust Securities;
(E) the exercise of all of the rights, powers and privileges
of a holder of the Debentures;
(F) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with this Trust Agreement;
(G) the distribution of the Trust Property in accordance
with the terms of this Trust Agreement;
(H) to the extent provided in this Trust Agreement, the
winding up of the affairs of and liquidation of the Trust and the
preparation, execution and filing of the certificate of cancellation
with the Secretary of State of the State of Delaware;
(I) after an Event of Default (other than under paragraph
(b), (c), (d) or (e) of the definition of such term if such Event of
Default is by or with respect to the Property Trustee) the taking of
any action incidental to the foregoing as the Property Trustee may
from time to time determine is necessary or advisable to give effect
to the terms of this Trust Agreement and protect and conserve the
Trust Property for the benefit of the Securityholders (without
consideration of the effect of any such action on any particular
Securityholder); and
(J) any of the duties, liabilities, powers or the authority
of the Administrative Trustees set forth in Section 2.7(a)(i)(E) and
(I) herein; and in the event of a conflict between the action of the
Administrative Trustees and the action of the Property Trustee, the
action of the Property Trustee shall prevail.
(b) So long as this Trust Agreement remains in effect, the Trust (or the
Trustees or Administrative Trustees acting on behalf of the Trust) shall not
undertake any business, activities or transaction except as expressly provided
herein or contemplated hereby. In particular, neither the Trustees nor the
Administrative Trustees shall (i) acquire any investments or engage in any
activities not authorized by this Trust Agreement, (ii) sell, assign, transfer,
exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust
Property or interests therein, including
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to Securityholders, except as expressly provided herein, (iii) take any action
that would reasonably be expected to cause the Trust to fail or cease to qualify
as a grantor trust for United States federal income tax purposes, (iv) incur any
indebtedness for borrowed money or issue any other debt or (v) take or consent
to any action that would result in the placement of a Lien on any of the Trust
Property. The Property Trustee shall at the sole cost and expense of the Trust
defend all claims and demands of all Persons at any time claiming any Lien on
any of the Trust Property adverse to the interest of the Trust or the
Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the Capital Securities, the
Depositor shall have the right and responsibility to assist the Trust with
respect to, or effect on behalf of the Trust, the following (and any actions
taken by the Depositor in furtherance of the following prior to the date of this
Trust Agreement are hereby ratified and confirmed in all respects):
(i) the preparation by the Trust of an Offering Circular in relation
to the Original Capital Securities, including any amendments thereto and
the taking of any action necessary to obtain an exemption from the
Securities Act;
(ii) the compliance by the Trust with the Registration Rights
Agreement, including the preparation and filing by the Trust with the
Commission and the execution on behalf of the Trust of a registration
statement or statements on the appropriate form in relation to the Capital
Securities, including any amendments thereto pursuant to the Registration
Rights Agreement;
(iii) the determination of the States in which to take appropriate
action to qualify or register for sale all or part of the Capital
Securities and the determination of any and all such acts, other than
actions which must be taken by or on behalf of the Trust, and the advice to
the Trustees of actions they must take on behalf of the Trust, and the
preparation for execution and filing of any documents to be executed and
filed by the Trust or on behalf of the Trust, as the Depositor deems
necessary or advisable in order to comply with the applicable laws of any
such States in connection with the sale of the Capital Securities;
(iv) the negotiation of the terms of, and the execution and delivery
of, the Purchase Agreement providing for the sale of the Capital
Securities; and
(v) the taking of any other actions necessary or desirable to carry
out any of the foregoing activities.
(d) Notwithstanding anything herein to the contrary, the Administrative
Trustees and the Property Trustee are authorized and directed to conduct the
affairs of the Trust and to operate the Trust so that the Trust will not be
deemed to be an "investment company" required to be registered under the 1940
Act, or classified as an association taxable as a corporation for United
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States federal income tax purposes and so that the Debentures will be treated as
indebtedness of the Depositor 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 or this Trust Agreement, that the Property Trustee and the
Holders of a majority (based on Liquidation Amounts) of the Outstanding Common
Securities determine in their discretion to be necessary or desirable for such
purposes, as long as such action does not adversely affect in any material
respect the interests of the Holders of the Capital Securities.
Section 2.8. Assets of Trust.
The assets of the Trust shall consist of the Trust Property.
Section 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at all times in the Trust
and shall be held and administered by the Property Trustee for the benefit of
the Trust and the Securityholders in accordance with this Trust Agreement.
ARTICLE III
Payment Account
Section 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property Trustee shall establish
the Payment Account. The Property Trustee and any agent of the Property Trustee
shall have exclusive control and sole right of withdrawal with respect to the
Payment Account for the purpose of making deposits in and withdrawals from the
Payment Account in accordance with this Trust Agreement. All monies and other
property deposited or held from time to time in the Payment Account shall be
held by the Property Trustee in the Payment Account for the exclusive benefit of
the Securityholders and for distribution as herein provided, including (and
subject to) any priority of payments provided for herein.
(b) The Property Trustee shall deposit in the Payment Account, promptly
upon receipt, all payments of principal of or interest on, and any other
payments or proceeds with respect to, the Debentures. Amounts held in the
Payment Account shall not be invested by the Property Trustee pending
distribution thereof.
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ARTICLE IV
Distributions; Redemption
Section 4.1. Distributions.
(a) The Trust Securities represent undivided beneficial interests in the
Trust Property, and Distributions (including Additional Amounts) will be made on
the Trust Securities at the rate and on the dates that payments of interest
(including Additional Interest, as defined in the Indenture) are made on the
Debentures. Accordingly:
(i) Distributions on the Trust Securities shall be cumulative, and
will accumulate whether or not there are funds of the Trust available for
the payment of Distributions. Distributions shall accrue from February 4,
1997, and, except in the event (and to the extent) that the Depositor
exercises its right to defer the payment of interest on the Debentures
pursuant to the Indenture, shall be payable semi-annually in arrears on
February 1 and August 1 of each year, commencing on August 1, 1997. If any
date on which a Distribution is otherwise payable on the Trust Securities
is not a Business Day, then the payment of such Distribution shall 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) (each date on which
distributions are payable in accordance with this Section 4.1(a), a
"Distribution Date").
(ii) Assuming payments of interest on the Debentures are made when due
(and before giving effect to Additional Amounts, if applicable),
Distributions on the Trust Securities shall be payable at a rate of 8.309%
per annum of the Liquidation Amount of the Trust Securities.
Notwithstanding the foregoing, in the event of a Registration Default which
shall be promptly notified to the Trustees by the Depositor in an Officers'
Certificate, Registration Default Distributions shall be payable on the
Trust Securities in the amount and on the terms provided in the
Registration Rights Agreement, assuming that payments of Registration
Default Interest on the Debentures are made when due. The amount of
Distributions payable for any period less than a full period shall 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. The amount of Distributions payable for
any period shall include the Additional Amounts, if any.
(iii) Distributions on the Trust Securities shall be made by the
Property Trustee from the Payment Account and shall be payable on each
Distribution Date only to the extent that the Trust has funds then on hand
and available in the Payment Account for the payment of such Distributions.
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(b) Distributions on the Trust Securities with respect to a Distribution
Date shall be payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities at the close of business on the relevant
record date, which shall be the January 15 or July 15 next preceding the
relevant Distribution Date.
(c) Whenever in this Trust Agreement there is mentioned, in any context,
the payment of Distributions on or Liquidation Distributions on, or in respect
of, any Capital Security that is issued in connection with, and subject to the
benefits of, any registration rights agreement, such mention shall be deemed to
include mention of the payment of registration default distributions or any
other liquidated damages specified in such registration rights agreement to the
extent that, in such context, such registration default distributions or other
liquidated damages is, was or would be payable in respect thereof pursuant to
the provisions of such registration rights agreement and express mention of the
payment of registration default distributions or other liquidated damages (if
applicable) in any provision hereof shall not be construed as excluding
registration default distributions or other liquidated damages in those
provisions hereof where such express mention is not made.
Section 4.2. Redemption.
(a) On each Debenture Redemption Date and on the stated maturity of the
Debentures, the Trust will be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the Property Trustee by first-
class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior
to the Redemption Date to each Holder of Trust Securities to be redeemed, at
such Holder's address appearing in the Security Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price or if the Redemption Price cannot be
calculated prior to the time the notice is required to be sent, the
estimate of the Redemption Price provided pursuant to the Indenture
together with a statement that it is an estimate and that the actual
Redemption Price will be calculated on the third Business Day prior to the
Redemption Date (and if an estimate is provided, a further notice shall be
sent of the actual Redemption Price on the date that notice of such actual
Redemption Price is received pursuant to the Indenture);
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust Securities are to be
redeemed, the identification and the total Liquidation Amount of the
particular Trust Securities to be redeemed;
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(v) that on the Redemption Date the Redemption Price will become due
and payable upon each such Trust Security to be redeemed and that
Distributions thereon will cease to accumulate on and after said date,
except as provided in Section 4.2(d) below; and
(vi) the place or places where the Trust Securities are to be
surrendered for the payment of the Redemption Price.
The Trust in issuing the Trust Securities may use "CUSIP" or "private
placement" numbers (if then generally in use), and, if so, the Property Trustee
shall indicate the "CUSIP" or "private placement" numbers of the Trust
Securities in notices of redemption and related materials as a convenience to
Securityholders; provided that any such notice may state that no representation
--------
is made as to the correctness of such numbers either as printed on the Trust
Securities or as contained in any notice of redemption and related materials.
(c) The Trust Securities redeemed on each Redemption Date shall be redeemed
at the Redemption Price with the proceeds from the contemporaneous redemption of
Debentures. Redemptions of the Trust Securities shall be made and the Redemption
Price shall be payable on each Redemption Date only to the extent that the Trust
has funds then on hand and available in the Payment Account for the payment of
such Redemption Price.
(d) If the Property Trustee gives a notice of redemption in respect of any
Capital Securities, then, by 12:00 noon, New York City time, on the Redemption
Date, subject to Section 4.2(c), the Property Trustee will, with respect to
Book-Entry Capital Securities, irrevocably deposit with the Clearing Agency for
such Book-Entry Capital Securities funds sufficient to pay the applicable
Redemption Price and will give such Clearing Agency irrevocable instructions and
authority to pay the Redemption Price to the Holders thereof. With respect to
Capital Securities that are not Book-Entry Capital Securities, the Property
Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying
Agent funds sufficient to pay the applicable Redemption Price and will give the
Paying Agent irrevocable instructions and authority to pay the Redemption Price
to the Holders thereof upon surrender of their Capital Securities Certificates
(with, if the Property Trustee, the Paying Agent or any Administrative Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Property Trustee, the Paying Agent or any Administrative
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing). Notwithstanding the foregoing, Distributions payable on or prior to
the Redemption Date for any Trust Securities called for redemption shall be
payable to the Holders of such Trust Securities as they appear on the Securities
Register for the Trust 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
Securityholders holding Trust Securities so called for redemption will cease,
except the right of such Securityholders to receive the Redemption Price
including any unpaid Distribution payable on or prior to the Redemption Date,
but without interest, and such Securities will cease to be outstanding. In the
event that any
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date on which any Redemption Price is payable is not a Business Day, then
payment of the Redemption Price 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 falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day, in each case, with the same force and effect as if made on such
date. In the event that payment of the Redemption Price in respect of any Trust
Securities called for redemption is improperly withheld or refused and not paid
either by the Trust or by the Depositor pursuant to the Guarantee, Distributions
on such Trust Securities will continue to accrue, at the then applicable rate,
from the Redemption Date originally established by the Trust for such Trust
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.
(e) Subject to Section 4.3(a), if less than all the Outstanding Trust
Securities are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of Trust Securities to be redeemed shall be allocated on a
pro rata basis (based on Liquidation Amounts) among the Common Securities and
the Capital Securities. The particular Capital Securities to be redeemed shall
be selected on a pro rata basis (based on Liquidation Amounts) 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 which may provide for the
selection for redemption of portions of Capital Securities, or with respect to
Book-Entry Capital Securities, in accordance with the Clearing Agency's
customary procedures, provided in either case that the Holder of such Capital
Securities has at least 100 Capital Securities remaining after the redemption.
Such determination shall be conclusive and binding upon the Holders and the
Property Trustee shall have no liability in connection therewith. The Property
Trustee shall promptly notify the Security 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.
In the event that less than all of the Capital Securities (other than Book-Entry
Capital Securities) represented by a Capital Securities Certificate are to be
redeemed, upon surrender of such Capital Securities Certificate the
Administrative Trustees, or any one of them, shall execute and deliver to the
Paying Agent, for further delivery to the Holder of such Capital Securities
without service charge, a new Capital Securities Certificate representing the
unredeemed Capital Securities evidenced by the Capital Securities Certificate so
surrendered. For all purposes of this 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 Liquidation Amount of Capital
Securities that has been or is to be redeemed.
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Section 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional Amounts, if applicable)
on, and the Redemption Price of, the Trust Securities, as applicable, shall be
made, subject to Section 4.2(e), pro rata among the Common Securities and the
Capital Securities based on the Liquidation Amount of such Common Securities and
Capital Securities; provided, however, that if on any Distribution Date or
Redemption Date any Event of Default resulting from a Debenture Event of Default
shall have occurred and be continuing, no payment of any Distribution (including
Additional Amounts, if applicable) on, or Redemption Price of, any Common
Security, and no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless payment in full in
cash of all accumulated and unpaid Distributions (including Additional Amounts,
if applicable) on all 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 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 (including Additional Amounts,
if applicable) on, or the Redemption Price of, Capital Securities then due and
payable.
(b) In the case of the occurrence and during the continuation of any Event
of Default resulting from any Debenture Event of Default, the Holder of Common
Securities will be deemed to have waived any right to act with respect to any
such Event of Default under this Trust Agreement until the effect of all such
Events of Default with respect to the Capital Securities have been cured, waived
or otherwise eliminated. Until any such Event of Default under this Trust
Agreement with respect to the Capital Securities has been so cured, waived or
otherwise eliminated, the Property Trustee shall act solely on behalf of the
Holders of the Capital Securities and not the Holder of the Common Securities,
and only the Holders of the Capital Securities will have the right to direct the
Property Trustee to act on their behalf.
Section 4.4. Payment Procedures.
Payments of Distributions (including Additional Amounts, if applicable) in
respect of the Capital Securities shall be made by check mailed to the address
of the Person entitled thereto as such address shall appear on the Securities
Register or, at the option of the Administrative Trustees, by wire transfer, or
if the Capital Securities are held by a Clearing Agency, such Distributions
shall be made to the Clearing Agency in immediately available funds, which shall
credit the relevant Persons' accounts at such Clearing Agency on the applicable
Distribution Dates. Payments in respect of the Common Securities shall be made
in such manner as shall be mutually agreed between the Property Trustee and the
Holder of the Common Securities.
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Section 4.5. Tax Returns and Reports.
The Administrative Trustees shall prepare (or cause to be prepared), at the
Depositor's expense, and file all United States federal, state and local tax and
information returns and reports required to be filed by or in respect of the
Trust. In this regard, the Administrative Trustees shall (a) prepare and file
(or cause to be prepared and filed) the appropriate Internal Revenue Service
form required to be filed in respect of the Trust in each taxable year of the
Trust and (b) prepare and furnish (or cause to be prepared and furnished) to
each Securityholder the appropriate Internal Revenue Service form required to be
provided. The Administrative Trustees shall provide the Depositor and the
Property Trustee with a copy of all such returns and reports promptly after such
filing or furnishing. The Property Trustee shall comply with United States
federal withholding and backup withholding tax laws and information reporting
requirements with respect to any payments to Securityholders under the Trust
Securities.
On or before December 15 of each year during which any Capital Securities
are outstanding, the Administrative Trustees shall furnish to the Property
Trustee such information as may be reasonably requested by the Property Trustee
in order that the Property Trustee may prepare the information which it is
required to report for such year on Internal Revenue Service Forms 1096 and 1099
pursuant to Section 6049 of the Internal Revenue Code of 1986, as amended. Such
information shall include the amount of original issue discount includable in
income for each outstanding Capital Security during such year.
Section 4.6. Payment of Taxes, Duties, Etc. of the Trust.
Upon receipt under the Debentures of Additional Sums, the Property Trustee
shall promptly pay any taxes, duties or governmental charges of whatsoever
nature (other than withholding taxes) imposed on the Trust by the United States
or any other taxing authority.
Section 4.7. Payments under Indenture or Pursuant to Direct Actions.
Any amount payable hereunder to any Holder of Capital Securities shall be
reduced by the amount of any corresponding payment such Holder (or an Owner with
respect to the Holder's Capital Securities) has directly received pursuant to
Section 5.8 of the Indenture or Section 5.13 of this Trust Agreement.
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ARTICLE V
Trust Securities Certificates
Section 5.1. Initial Ownership.
Upon the creation of the Trust and the contribution by the Depositor
pursuant to Section 2.3 and until the issuance of the Trust Securities, and at
any time during which no Trust Securities are outstanding, the Depositor shall
be the sole beneficial owner of the Trust.
Section 5.2. The Trust Securities Certificates.
(a) The Capital Securities Certificates shall be issued in minimum
denominations of $100,000 Liquidation Amount (and in blocks of at least 100
Capital Securities) and integral multiples of $1,000 in excess thereof, and the
Common Securities Certificates shall be issued in denominations of $1,000
Liquidation Amount and integral multiples thereof. The Trust Securities
Certificates shall be executed on behalf of the Trust by manual signature of at
least one Administrative Trustee. Trust Securities Certificates bearing the
manual signatures of individuals who were, at the time when such signatures
shall have been affixed, authorized to sign on behalf of the Trust, shall be
validly issued and entitled to the benefits of this Trust Agreement,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the delivery of such Trust Securities Certificates or did
not hold such offices at the date of delivery of such Trust Securities
Certificates. A transferee of a Trust Securities Certificate shall become a
Securityholder, and shall be entitled to the rights and subject to the
obligations of a Securityholder hereunder, upon due registration of such Trust
Securities Certificate in such transferee's name pursuant to Section 5.5.
(b) Upon their original issuance, Capital Securities Certificates
representing Rule 144A Capital Securities shall be issued in the form of one or
more Book-Entry Capital Securities Certificates registered in the name of DTC,
as Clearing Agency, or its nominee and deposited with DTC for credit by DTC to
the respective accounts of the Owners thereof (or such other accounts as they
may direct).
(c) Upon their original issuance, Capital Securities Certificates
representing Other Capital Securities shall be issued in minimum denominations
of $100,000 and integral multiples of $1,000 in excess thereof and shall not be
issued in the form of a Book-Entry Capital Securities Certificate or in any
other form intended to facilitate book-entry trading in beneficial interests in
such Capital Securities.
(d) A single Common Securities Certificate representing the Common
Securities shall be issued to the Depositor in the form of a definitive Common
Securities Certificate.
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Section 5.3. Execution and Delivery of Trust Securities Certificates.
At the Time of Delivery, the Administrative Trustees shall cause Common
Securities Certificates, in an aggregate Liquidation Amount as provided in
Section 2.5, to be executed on behalf of the Trust and delivered, and the
Administrative Trustees, or any of them, shall cause Original Capital Securities
Certificates, in an aggregate Liquidation Amount as provided in Section 2.4, to
be executed by facsimile and delivered to the Property Trustee and upon such
delivery the Property Trustee shall authenticate such Capital Securities
Certificates, and deliver such Capital Securities Certificates in each case to
or upon the written order of the Depositor, signed by its chairman of the board,
its president, any executive vice president or any vice president, treasurer or
assistant treasurer or controller without further corporate action by the
Depositor, in authorized denominations.
Section 5.4. Book-Entry Capital Securities.
(a) Each Book-Entry Capital Securities Certificate issued under this Trust
Agreement shall be registered in the name of the Clearing Agency designated by
the Depositor for the related Book-Entry Capital Securities or a nominee thereof
and delivered to such Clearing Agency or a nominee thereof or custodian
therefor.
(b) Notwithstanding any other provision in this Trust Agreement, no Book-
Entry Capital Securities Certificate may be exchanged in whole or in part for
Capital Securities Certificates registered, and no transfer of a Book-Entry
Capital Securities Certificate in whole or in part may be registered, in the
name of any Person other than the Clearing Agency for such Book-Entry Capital
Securities Certificates or a nominee thereof unless (a) the Clearing Agency
advises the Property Trustee in writing that the Clearing Agency is no longer
willing or able to properly discharge its responsibilities with respect to the
Book-Entry Capital Securities Certificates, and the Property Trustee is unable
to locate a qualified successor, (b) the Trust at its option advises the
Clearing Agency in writing that it elects to terminate the book-entry system
through the Clearing Agency or (c) after the occurrence of a Debenture Event of
Default. Upon the occurrence of any event specified in clause (a), (b) or (c)
above, the Administrative Trustees shall notify the Clearing Agency and the
Clearing Agency shall notify all Owners of Book-Entry Capital Securities, the
Delaware Trustee and the Administrative Trustees of the occurrence of such event
and of the availability of the Definitive Capital Securities Certificates to
Owners requesting the same; provided, however, that no Definitive Capital
Securities Certificate shall be issued in an amount representing less than 100
Capital Securities.
(c) If any Book-Entry Capital Securities Certificate is to be exchanged for
other Capital Securities Certificates or cancelled in part, or if another
Capital Securities Certificate is to be exchanged in whole or in part for Book-
Entry Capital Securities represented by a Book-Entry Capital Securities
Certificate, then either (i) such Book-Entry Capital Securities Certificate
shall be so surrendered for exchange or cancellation as provided in this Article
V or (ii) the aggregate Liquidation Amount represented by such Book-Entry
Capital Securities Certificate shall be
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reduced, subject to Section 5.2, or increased by an amount equal to the
Liquidation Amount represented by that portion of the Book-Entry Capital
Securities Certificate to be so exchanged or cancelled, or equal to the
Liquidation Amount represented by such other Capital Securities Certificates to
be so exchanged for Book-Entry Capital Securities represented thereby, as the
case may be, by means of an appropriate adjustment made on the records of the
Security Registrar, whereupon the Property Trustee, in accordance with the
Applicable Procedures, shall instruct the Clearing Agency or its authorized
representative to make a corresponding adjustment to its records. Upon
surrender to the Administrative Trustees or the Securities Registrar of the
Book-Entry Capital Securities Certificate or Certificates by the Clearing
Agency, accompanied by registration instructions, the Administrative Trustees,
or any one of them, shall execute Definitive Capital Securities Certificates in
accordance with the instructions of the Clearing Agency; provided, however, that
no Definitive Capital Securities Certificate shall be issued in an amount
representing less than 100 Capital Securities. None of the Securities Registrar,
the Trustees or the Administrative Trustees shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Capital Securities Certificates, the Trustees and Administrative Trustees shall
recognize the Holders of the Definitive Capital Securities Certificates as
Securityholders. The Definitive Capital Securities Certificates shall be
printed, lithographed or engraved or may be produced in any other manner as is
reasonably acceptable to the Administrative Trustees, as evidenced by the
execution thereof by the Administrative Trustees or any one of them.
(d) Every Capital Securities Certificate executed and delivered upon
registration of transfer of, or in exchange for or in lieu of, a Book-Entry
Capital Securities Certificate or any portion thereof, whether pursuant to this
Article V or Article IV or otherwise, shall be executed and delivered in the
form of, and shall be, a Book-Entry Capital Securities Certificate, unless such
Capital Securities Certificate is registered in the name of a Person other than
the Clearing Agency for such Book-Entry Capital Securities Certificate or a
nominee thereof.
(e) The Clearing Agency or its nominee, as registered owner of a Book-Entry
Capital Securities Certificate, shall be the Holder of such Book-Entry Capital
Securities Certificate for all purposes under this Agreement and the Book-Entry
Capital Securities Certificate, and Owners with respect to a Book-Entry Capital
Securities Certificate shall hold such interests pursuant to the Applicable
Procedures. The Securities Registrar and the Trustees shall be entitled to deal
with the Clearing Agency for all purposes of this Trust Agreement relating to
the Book-Entry Capital Securities Certificates (including the payment of the
Liquidation Amount of and Distributions on the Book-Entry Capital Securities
represented thereby and the giving of instructions or directions to Owners of
Book-Entry Capital Securities represented thereby) as the sole Holder of the
Book-Entry Capital Securities represented thereby and shall have no obligations
to the Owners thereof. Neither the Trustee nor the Securities Registrar shall
have any liability in respect of any transfers effected by the Clearing Agency.
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The rights of the Owners of the Book-Entry Capital Securities shall be
exercised only through the Clearing Agency and shall be limited to those
established by law, the Applicable Procedures and agreements between such Owners
and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the
Certificate Depository Agreement, unless and until Definitive Capital Securities
Certificates are issued pursuant to Section 5.4(b), the initial Clearing Agency
will make book-entry transfers among the Clearing Agency Participants and
receive and transmit payments on the Capital Securities to such Clearing Agency
Participants.
Section 5.5. Registration of Transfer and Exchange of Capital Securities
Certificates; Restricted Capital Securities Legends.
(a) The Property Trustee shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 5.9, a register or registers for the
purpose of registering Trust Securities Certificates and transfers and exchanges
of Capital Securities Certificates (the "Securities Register") in which the
registrar designated by the Property Trustee (the "Securities Registrar"), with
the reasonable consent of the Administrative Trustees, subject to such
reasonable regulations as it may prescribe, shall provide for the registration
of Capital Securities Certificates and Common Securities Certificates and
(subject to Section 5.11 in the case of the Common Securities Certificates)
registration of transfers and exchanges of Capital Securities Certificates as
herein provided. The Bank shall be the initial Securities Registrar.
Upon surrender for registration of transfer of any Capital Securities
Certificate at the office or agency maintained pursuant to Section 5.9, the
Administrative Trustees or any one of them shall execute and deliver to the
Property Trustee for further delivery, in the name of the designated transferee
or transferees, one or more new Capital Securities Certificates in authorized
denominations of the same class and of a like aggregate Liquidation Amount dated
the date of execution by such Administrative Trustee.
The Securities Registrar shall not be required to register the transfer of
any Capital Securities that have been called for redemption. At the option of a
Holder, Capital Securities Certificates may be exchanged for other Capital
Securities Certificates in authorized denominations of the same class and of a
like aggregate Liquidation Amount upon surrender of the Capital Securities
Certificates to be exchanged at the office or agency maintained pursuant to
Section 5.9.
Every Capital Securities Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Securities Registrar duly
executed by the Holder or his attorney duly authorized in writing. Each Capital
Securities Certificate surrendered for registration of transfer or exchange
shall be cancelled and subsequently disposed of by the Property Trustee in
accordance with its customary practice.
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No service charge shall be made for any registration of transfer or
exchange of Capital Securities Certificates, but the Securities Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Capital Securities
Certificates.
The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Bank
also in its role as Securities Registrar, for so long as the Bank shall act as
Securities Registrar.
Whenever this document makes reference to the execution of Trust Securities
Certificates, such reference to execution shall mean manual execution or, in the
alternative, execution by facsimile signature by an Administrative Trustee and
authentication by the Property Trustee.
Capital Securities Certificates bearing the manual or facsimile signatures
of individuals who were at any time the proper Administrative Trustees of the
Trust shall bind the Trust, notwithstanding that such individuals or any of them
have ceased to hold such office prior to the authentication and delivery of such
Capital Securities Certificates or did not hold such offices at the date of such
Capital Securities Certificates.
Each Capital Securities Certificate that is executed by facsimile and
authenticated by the Property Trustee shall be dated the date of its
authentication.
No Capital Securities Certificate that is executed by facsimile and
authenticated by the Property Trustee shall be entitled to any benefit under
this Trust Agreement or be valid or obligatory for any purpose, unless there
appears on such Capital Securities Certificate a certificate of authentication
substantially in the form provided for in the form attached as Exhibit E-2
executed by the Property Trustee by the manual signature of one of its
authorized officers, and such certificate upon any Capital Securities
Certificate shall be conclusive evidence, and the only evidence, that such
Capital Securities Certificate has been duly authenticated and delivered
hereunder.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision
-------------------------------
of this Trust Agreement, transfers and exchanges of Original Capital Securities
Certificates and beneficial interests in a Book-Entry Capital Security of the
kinds specified in this Section 5.5(b) shall be made only in accordance with
this Section 5.5(b).
(i) Non-Book-Entry Capital Securities Certificate to Book-Entry
-----------------------------------------------------------
Capital Securities Certificate. If the Holder of an Original Capital
------------------------------
Securities Certificate (other than a Book-Entry Capital Securities
Certificate) wishes at any time to transfer all or any portion of the
Capital Securities represented thereby to a Person who wishes to take
delivery thereof in the form of Book-Entry Capital Securities represented
by a Book-Entry Capital Securities Certificate, such transfer may be
effected only in accordance with the provisions of this Clause (b)(i) and
subject to the Applicable Procedures. Upon receipt by the Securities
Registrar of (A) such Capital Securities
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Certificate as provided in Section 5.5(a) and instructions satisfactory to
the Securities Registrar directing that a specified number of Capital
Securities to be represented by the Book-Entry Capital Securities
Certificate not greater than the number of Capital Securities represented
by such Capital Securities Certificate be credited to a specified Clearing
Agency Participant's account and (B) a Restricted Capital Securities
Certificate duly executed by such Holder or his attorney duly authorized in
writing, then the Securities Registrar shall cancel such Capital Securities
Certificate (and issue a new Capital Securities Certificate in respect of
any untransferred portion thereof) as provided in Section 5.5(a) and
increase the aggregate Liquidation Amount of the Book-Entry Capital
Securities Certificate by the Liquidation Amount represented by such
Capital Securities so transferred as provided in Section 5.4(c).
(ii) Non-Book-Entry Capital Securities Certificate to Non-Book-
---------------------------------------------------------
Entry Capital Securities Certificate. An Original Capital Securities
------------------------------------
Certificate that is not a Book-Entry Capital Securities Certificate may be
transferred, in whole or in part, to a Person who takes delivery in the
form of another Capital Securities Certificate that is not a Book-Entry
Capital Securities Certificate as provided in Section 5.5(a); provided that
--------
if the Capital Securities Certificate represents Restricted Capital
Securities, then the Securities Registrar shall have received a Restricted
Capital Securities Certificate duly executed by the transferor Holder or
his attorney duly authorized in writing.
(iii) Exchanges between Book-Entry Capital Securities
-----------------------------------------------
Certificate and Non-Book-Entry Capital Securities Certificate. A Book-
-------------------------------------------------------------
Entry Capital Security represented by a Book-Entry Capital Securities
Certificate may be exchanged for a Capital Securities Certificate that is
not a Book-Entry Capital Securities Certificate as provided in Section 5.4.
(iv) Certain Initial Transfers of Non-Book-Entry Capital
---------------------------------------------------
Securities Certificates. In the case of Capital Securities Certificates
-----------------------
initially issued other than in global form, an initial transfer or exchange
of such Capital Securities Certificates that does not involve any change in
beneficial ownership may be made to an Institutional Accredited Investor or
Investors as if such transfer or exchange were not an initial transfer or
exchange; provided that a written certification is provided certifying that
such exchange or transfer does not involve a change in beneficial
ownership.
(v) Limitations Relating to Size of Blocks. Notwithstanding any
--------------------------------------
other provision of this Trust Agreement, Capital Securities may only be
transferred or exchanged in blocks having a Liquidation Amount of not less
than $100,000. Any transfer, exchange or other disposition of Capital
Securities in contravention of this Section 5.5(b)(v) shall be deemed to be
void and of no legal effect whatsoever, any such transferee shall be deemed
not to be the Holder or Owner of such Capital Security for any purpose,
including but not limited to the receipt of Distributions on such Capital
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Securities, and such transferee shall be deemed to have no interest
whatsoever in such Capital Securities.
(c) Restricted Capital Securities Legend. All Capital Securities issued
------------------------------------
hereunder shall bear a Restricted Capital Securities Legend, subject to the
following:
(i) New Capital Securities other than Private Exchange
Securities (as such term is defined in the Registration Rights Agreement)
shall not bear a Restricted Capital Securities Legend;
(ii) subject to the following Clauses of this Section 5.5(c), a
Capital Securities Certificate or any portion thereof which is exchanged,
upon transfer or otherwise, for a Book-Entry Capital Securities Certificate
or any portion thereof shall bear a Restricted Capital Securities Legend;
(iii) subject to the following Clauses of this Section 5.5(c), a
new Capital Securities Certificate which is not a Book-Entry Capital
Securities Certificate and is issued in exchange for another Capital
Securities Certificate (including a Book-Entry Capital Securities
Certificate) or any portion thereof, upon transfer or otherwise, shall bear
a Restricted Capital Securities Legend;
(iv) any Original Capital Securities or Private Exchange
Securities which are sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act (including the Shelf
Registration Statement contemplated by the Registration Rights Agreement),
together with their Successor Capital Securities shall not bear a
Restricted Capital Securities Legend; provided the Property Trustee has
received an Unrestricted Securities Certificate, in the form of Exhibit G
hereto, duly executed by the Holder or Owner of such Restricted Capital
Security or his attorney duly authorized in writing, and the Depositor or
an Administrative Trustee shall inform the Property Trustee in writing of
the effective date of any such registration statement registering the
Original Capital Securities under the Securities Act and shall notify the
Property Trustee at any time when prospectuses may not be delivered with
respect to Original Capital Securities to be sold pursuant to such
registration statement. The Property Trustee shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with
the aforementioned registration statement;
(v) after February 4, 2000, a new Capital Securities Certificate
(other than a Book-Entry Capital Securities Certificate) which does not
bear a Restricted Capital Securities Legend shall (unless an Administrative
Trustee provides an Opinion of Counsel to the contrary) be issued in
exchange for or in lieu of a Capital Securities Certificate representing
Restricted Capital Securities or any portion thereof if the Property
Trustee has received an Unrestricted Securities Certificate, in the form of
Exhibit G hereto, duly executed by the Holder or the Owner of such
Restricted Capital Securities or his attorney
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duly authorized in writing, and after such date and receipt of such
certificate, the Administrative Trustees shall execute and deliver such a
new Capital Securities Certificate in exchange for or in lieu of such other
certificate representing Restricted Capital Securities as provided in this
Article V;
(vi) a new Capital Securities Certificate (other than a Book-
Entry Capital Securities Certificate) which does not bear a Restricted
Capital Securities Legend may be issued in exchange for or in lieu of a
Capital Securities Certificate representing Restricted Capital Securities
or any portion thereof based on an Opinion of Counsel, stating that placing
such a legend upon such new Capital Securities Certificate is not necessary
to ensure compliance with the registration requirements of the Securities
Act, and the Administrative Trustees shall execute and deliver such a new
Capital Securities Certificate as provided in this Article V; and
(vii) notwithstanding the foregoing provisions of this Section
5.5(c), a Successor Capital Securities Certificate of a Capital Securities
Certificate that does not bear a Restricted Capital Securities Legend shall
not bear such form of legend unless a Responsible Officer of the Property
Trustee has actual knowledge (without conducting any independent inquiry)
that such Successor Capital Securities Certificate is a "restricted
security" within the meaning of Rule 144 under the Securities Act, in which
case the Administrative Trustees shall authenticate and deliver a new
Capital Securities Certificate bearing a Restricted Capital Securities
Legend in exchange for such Successor Capital Securities Certificate as
provided in this Article V.
Section 5.6. Mutilated, Destroyed, Lost or Stolen Trust Securities
Certificates.
If (a) any mutilated Trust Securities Certificate shall be surrendered to
the Securities Registrar, or if the Securities Registrar shall receive evidence
to its satisfaction of the destruction, loss or theft of any Trust Securities
Certificate and (b) there shall be delivered to the Securities Registrar and the
Administrative Trustees such security or indemnity as may be required by them to
save each of them harmless, then in the absence of notice that such Trust
Securities Certificate shall have been acquired by a bona fide purchaser, the
Administrative Trustees, or any one of them, on behalf of the Trust shall
execute and make available for delivery, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust
Securities Certificate of like class, tenor and denomination. In connection with
the issuance of any new Trust Securities Certificate under this Section, the
Administrative Trustees or the Securities Registrar may require the payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith. Any duplicate Trust Securities Certificate issued
pursuant to this Section shall constitute conclusive evidence of an undivided
beneficial interest in the assets of the Trust, as if originally issued, whether
or not the lost, stolen or destroyed Trust Securities Certificate shall be found
at any time.
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Section 5.7. Persons Deemed Securityholders.
The Trustees, the Administrative Trustees or the Securities Registrar shall
treat the Person in whose name any Trust Securities Certificate shall be
registered in the Securities Register as the owner of such Trust Securities
Certificate for the purpose of receiving Distributions and for all other
purposes whatsoever, and neither the Trustees, the Administrative Trustees nor
the Securities Registrar shall be bound by any notice to the contrary.
Section 5.8. Access to List of Securityholders' Names and Addresses.
Each Holder and each Owner shall be deemed to have agreed not to hold the
Depositor, the Property Trustee, the Delaware Trustee or the Administrative
Trustees accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
Section 5.9. Maintenance of Office or Agency.
The Property Trustee shall designate, with the consent of the
Administrative Trustees, which consent shall not be unreasonably withheld, an
office or offices or agency or agencies where Capital Securities Certificates
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Trustees in respect of the Trust Securities
Certificates may be served. The Corporate Trust Office of the Property Trustee
is initially designated the office for such purpose. The Administrative
Trustees or the Property Trustee shall give prompt written notice to the
Depositor and to the Securityholders of any change in the location of the
Securities Register or any such office or agency.
Section 5.10. Appointment of Paying Agent.
The Paying Agent shall make Distributions to Securityholders from the
Payment Account and shall report the amounts of such Distributions to the
Property Trustee and the Administrative Trustees. Any Paying Agent shall have
the revocable power to withdraw funds from the Payment Account for the purpose
of making the Distributions referred to above. The Property Trustee may revoke
such power and remove the Paying Agent in its sole discretion. The Paying Agent
shall initially be the Bank, and any co-paying agent chosen by the Bank, and
reasonably acceptable to the Administrative Trustees. Any Person acting as
Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Administrative Trustees and the Property Trustee. In the event
that the Bank shall no longer be the Paying Agent or a successor Paying Agent
shall resign or its authority to act be revoked, the Administrative Trustees, or
if an Issuer Trust Default shall have occurred and be continuing, the Property
Trustee, shall appoint a successor that is reasonably acceptable to the
Administrative Trustees to act as Paying Agent (which shall be a bank or trust
company). Such successor Paying Agent or any additional Paying Agent shall
execute and deliver to the Trustees an instrument in which such successor Paying
Agent or additional Paying Agent shall agree with the Trustees that as Paying
Agent,
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such successor Paying Agent or additional Paying Agent will hold all sums, if
any, held by it for payment to the Securityholders in trust for the benefit of
the Securityholders entitled thereto until such sums shall be paid to such
Securityholders. The Paying Agent shall return all unclaimed funds to the
Property Trustee and upon removal of a Paying Agent such Paying Agent shall also
return all funds in its possession to the Property Trustee. The provisions of
Sections 8.1, 8.3 and 8.6 herein shall apply to the Bank also in its role as
Paying Agent, for so long as the Bank shall act as Paying Agent and, to the
extent applicable, to any other paying agent appointed hereunder. Any reference
in this Agreement to the Paying Agent shall include any co-paying agent unless
the context requires otherwise.
Section 5.11. Ownership of Common Securities by Depositor.
At the Time of Delivery, the Depositor shall acquire and retain beneficial
and record ownership of the Common Securities. To the fullest extent permitted
by law, other than a transfer in connection with a consolidation or merger of
the Depositor into another Person, or any conveyance, transfer or lease by the
Depositor of its properties and assets substantially as an entirety to any
Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the
Common Securities shall be void. The Administrative Trustees shall cause each
Common Securities Certificate issued to the Depositor to contain a legend
stating "THIS CERTIFICATE IS NOT TRANSFERABLE."
Section 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to the Owners is
required under this Trust Agreement, unless and until Definitive Capital
Securities Certificates shall have been issued to all Owners pursuant to Section
5.4(b), the Trustees shall give all such notices and communications specified
herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners.
Section 5.13. Rights of Securityholders.
(a) The legal title to the Trust Property is vested exclusively in the
Property Trustee (in its capacity as such) in accordance with Section 2.9, and
the Securityholders shall not have any right or title therein other than the
undivided beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any partition or
division of property, profits or rights of the Trust except as described below.
The Trust Securities shall be personal property giving only the rights
specifically set forth therein and in this Trust Agreement. The Trust Securities
shall have no preemptive or similar rights and when issued and delivered to
Securityholders against payment of the purchase price therefor will be fully
paid and nonassessable by the Trust. The Holders of the Trust Securities, in
their capacities as such, shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
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(b) For so long as any Capital Securities remain Outstanding, if, upon a
Debenture Event of Default, the Debenture Trustee fails or the holders of not
less than 25% in principal amount of the outstanding Debentures fail to declare
the principal of all of the Debentures to be immediately due and payable, the
Holders of at least 25% in Liquidation Amount of the Capital Securities then
Outstanding shall have such right by a notice in writing to the Depositor and
the Debenture Trustee with a copy to the Property Trustee; and upon any such
declaration such principal amount of and the accrued interest on all of the
Debentures shall become immediately due and payable, provided that the payment
of principal and interest on such Debentures shall remain subordinated to the
extent provided in the Indenture.
At any time after such a declaration of acceleration with respect to the
Debentures has been made and before a judgment or decree for payment of the
money due has been obtained by the Debenture Trustee as in the Indenture
provided, the Holders of a majority (based on Liquidation Amounts) of the
Outstanding Capital Securities, by written notice to the Property Trustee, the
Depositor and the Debenture Trustee, may rescind and annul such declaration and
its consequences if:
(i) the Depositor has paid or deposited with the Debenture Trustee a
sum sufficient to pay
(A) all overdue installments of interest (including any
Additional Interest (as defined in the Indenture)) on all of the
Debentures,
(B) the principal of (and premium, if any, on) any
Debentures which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Debentures,
and
(C) all sums paid or advanced by the Debenture Trustee under
the Indenture and the reasonable compensation, expenses, disbursements
and advances of the Debenture Trustee and the Property Trustee, their
agents and counsel; and
(ii) all Events of Default with respect to the Debentures, other than
the non-payment of the principal of the Debentures which has become due
solely by such acceleration, have been cured or waived as provided in
Section 5.13 of the Indenture.
The Holders of a majority (based on Liquidation Amounts) of the Outstanding
Capital Securities may, on behalf of the Holders of all the Capital Securities,
waive any past default under the Indenture, 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 Debenture. No
such rescission shall affect any subsequent default or impair any right
consequent thereon.
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Upon receipt by the Property Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, by Holders of the Capital
Securities all or part of which is represented by Book-Entry Capital Securities
Certificates, a record date shall be established for determining Holders of
Outstanding Capital Securities entitled to join in such notice, which record
date shall be at the close of business on the day the Property Trustee receives
such notice. The Holders on such record date, or their duly designated proxies,
and only such Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided, that, unless such
declaration of acceleration, or rescission and annulment, as the case may be,
shall have become effective by virtue of the requisite percentage having joined
in such notice prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and annulment, as the case
may be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day period, a new
written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice which has
been canceled pursuant to the proviso to the preceding sentence, in which event
a new record date shall be established pursuant to the provisions of this
Section 5.13(b).
(c) For so long as any Capital Securities remain Outstanding, to the
fullest extent permitted by law and subject to the terms of this Trust Agreement
and the Indenture, upon a Debenture Event of Default specified in Section 5.1(1)
or 5.1(2) of the Indenture, any Holder of Capital Securities shall have the
right to institute a proceeding directly against the Depositor, pursuant to
Section 5.8 of the Indenture, for enforcement of payment to such Holder of the
principal amount of or interest on Debentures having a principal amount equal to
the Liquidation Amount of the Capital Securities of such Holder (a "Direct
Action"). Except as set forth in Section 5.13(b) and this Section 5.13(c), the
Holders of Capital Securities shall have no right to exercise directly any right
or remedy available to the holders of, or in respect of, the Debentures.
ARTICLE VI
Acts of Securityholders; Meetings; Voting
Section 6.1. Limitations on Voting Rights.
(a) Except as provided in this Section, in Sections 5.13, 8.10 and 10.2 and
in the Indenture and as otherwise required by law, no Holder of Capital
Securities shall have any right to vote or in any manner otherwise control the
administration, operation and management of the Trust or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Trust Securities Certificates, be construed so as to constitute the
Securityholders from time to time as partners or members of an association.
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(b) So long as any Debentures are held by the Property Trustee, the
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 such
Debentures, (ii) waive any past default which 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 Debentures shall be due and payable or (iv) consent to
any amendment, modification or termination of the Indenture or the Debentures,
where such consent shall be required, without, in each case, obtaining the prior
approval of the Holders of at least a majority in Liquidation Amount of all
Outstanding Capital Securities; provided, however, that where a consent under
the Indenture would require the consent of each holder of Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior written consent of each Holder of Capital Securities. The Trustees shall
not revoke any action previously authorized or approved by a vote of the Holders
of Capital Securities, except by a subsequent vote of the Holders of Capital
Securities. The Property Trustee shall notify all Holders of the Capital
Securities of any notice of default received from the Debenture Trustee with
respect to the Debentures. In addition to obtaining the foregoing approvals of
the Holders of the Capital Securities, prior to taking any of the foregoing
actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion
of Counsel experienced in such matters to the effect that such action shall not
cause the Trust to be classified as an association taxable as a corporation for
United States federal income tax purposes.
(c) If any proposed amendment to the Trust Agreement provides for, or the
Trustees otherwise propose to effect, (i) any action that would adversely affect
in any material respect the powers, preferences or special rights of the Capital
Securities, whether by way of amendment to the Trust Agreement or otherwise, or
(ii) the dissolution, winding-up or termination of the Trust, other than
pursuant to the terms of this Trust Agreement, then the Holders of Outstanding
Capital Securities as a class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of the Holders of at least a majority in Liquidation Amount of the
Outstanding Capital Securities. Notwithstanding any other provision of this
Trust Agreement, no amendment to this Trust Agreement may be made if, as a
result of such amendment, it would cause the Trust to fail to be classified as a
grantor trust for United States federal income tax purposes.
Section 6.2. Notice of Meetings.
Notice of all meetings of the Capital Securityholders, stating the time,
place and purpose of the meeting, shall be given by the Property Trustee
pursuant to Section 10.8 to each Capital Securityholder of record, at its
registered address, at least 15 days and not more than 90 days before the
meeting. At any such meeting, any business properly before the meeting may be
so considered whether or not stated in the notice of the meeting. Any adjourned
meeting may be held as adjourned without further notice.
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Section 6.3. Meetings of Capital Securityholders.
No annual meeting of Securityholders is required to be held. The Property
Trustee, however, shall call a meeting of Capital Securityholders to vote on any
matter upon the written request of the Capital Securityholders of record
representing 25% of the Outstanding Capital Securities (based upon their
Liquidation Amount) and the Administrative Trustees or the Property Trustee may,
at any time in their discretion, call a meeting of Capital Securityholders to
vote on any matters as to which Capital Securityholders are entitled to vote.
Capital Securityholders of record of 50% of the Outstanding Capital
Securities (based upon their Liquidation Amount), present in person or by proxy,
shall constitute a quorum at any meeting of Capital Securityholders.
If a quorum is present at a meeting, an affirmative vote by the Capital
Securityholders of record present, in person or by proxy, holding more than a
majority of the Outstanding Capital Securities (based upon their Liquidation
Amount) held by the Capital Securityholders of record present, either in person
or by proxy, at such meeting shall constitute the action of the Capital
Securityholders, unless this Trust Agreement requires a greater number of
affirmative votes.
Section 6.4. Voting Rights.
Securityholders shall be entitled to one vote for each $1,000 of
Liquidation Amount represented by their Trust Securities in respect of any
matter as to which such Securityholders are entitled to vote.
Section 6.5. Proxies, etc.
At any meeting of Securityholders, any Securityholder entitled to vote
thereat may vote by proxy, provided that no proxy shall be voted at any meeting
unless it shall have been placed on file with the Property Trustee, or with such
other officer or agent of the Trust as the Property Trustee may direct, for
verification prior to the time at which such vote shall be taken. If authorized
by the Property Trustee, proxies may be solicited in the name of the Property
Trustee or one or more officers of the Property Trustee. Only Securityholders of
record shall be entitled to vote. When Trust Securities are held jointly by
several Persons, any one of them may vote at any meeting in person or by proxy
in respect of such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint owners or their
proxies so present disagree as to any vote to be cast, such vote shall not be
received in respect of such Trust Securities. A proxy purporting to be executed
by or on behalf of a Securityholder shall be deemed valid unless challenged at
or prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. No proxy shall be valid more than three years after its date of
execution.
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Section 6.6. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a meeting may be taken
without a meeting if Securityholders holding more than a majority of all
Outstanding Trust Securities (based upon their Liquidation Amount) entitled to
vote in respect of such action (or such larger proportion thereof as shall be
required by any express provision of this Trust Agreement) shall consent to the
action in writing.
Section 6.7. Record Date for Voting and Other Purposes.
For the purposes of determining the Securityholders who are entitled to
notice of and to vote at any meeting or by written consent, or to participate in
any distribution on the Trust Securities in respect of which a record date is
not otherwise provided for in this Trust Agreement, or for the purpose of any
other action, the Administrative Trustees or Property Trustee may from time to
time fix a date, not more than 90 days prior to the date of any meeting of
Securityholders or the payment of a distribution or other action, as the case
may be, as a record date for the determination of the identity of the
Securityholders of record for such purposes.
Section 6.8. Acts of Securityholders.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Trust Agreement to be given, made or
taken by Securityholders or Owners may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Securityholders
or Owners in person or by an agent duly appointed in writing; and, except as
otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to the Property Trustee. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Securityholders or
Owners signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor
of the Trustees, if made in the manner provided in this Section.
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which any Trustee receiving the same deems sufficient.
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The ownership of Capital Securities shall be proved by the Securities
Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Securityholder of any Trust Security shall bind every future
Securityholder of the same Trust Security and the Securityholder of every Trust
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustees or the Trust in reliance thereon, whether or not
notation of such action is made upon such Trust Security.
Without limiting the foregoing, a Securityholder entitled hereunder to take
any action hereunder with regard to any particular Trust Security may do so with
regard to all or any part of the Liquidation Amount of such Trust Security or by
one or more duly appointed agents each of which may do so pursuant to such
appointment with regard to all or any part of such Liquidation Amount.
If any dispute shall arise between the Securityholders and the
Administrative Trustees or among such Securityholders or Trustees with respect
to the authenticity, validity or binding nature of any request, demand,
authorization, direction, consent, waiver or other Act of such Securityholder or
Trustee under this Article VI, then the determination of such matter by the
Property Trustee shall be conclusive with respect to such matter.
Section 6.9. Inspection of Records.
Upon reasonable notice to the Administrative Trustees and the Property
Trustee, the records of the Trust shall be open to inspection by Securityholders
during normal business hours for any purpose reasonably related to such
Securityholder's interest as a Securityholder.
ARTICLE VII
Representations and Warranties
Section 7.1. Representations and Warranties of the Property Trustee and the
Delaware Trustee.
The Property Trustee and the Delaware Trustee, each severally on behalf of
and as to itself, hereby represents and warrants for the benefit of the
Depositor and the Securityholders that:
(a) the Property Trustee is a New York banking corporation duly organized,
validly existing and in good standing under the laws of the State of New York;
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(b) the Property Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) the Delaware Trustee is a Delaware corporation duly organized, validly
existing and in good standing in the State of Delaware;
(d) the Delaware Trustee has full corporate power, authority and legal
right to execute, deliver and perform its obligations under this Trust Agreement
and has taken all necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(e) this Trust Agreement has been duly authorized, executed and delivered
by the Property Trustee and the Delaware Trustee and constitutes the valid and
legally binding agreement of each of the Property Trustee and the Delaware
Trustee enforceable against each of them in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(f) the execution, delivery and performance of this Trust Agreement has
been duly authorized by all necessary corporate or other action on the part of
the Property Trustee and the Delaware Trustee and does not require any approval
of stockholders of the Property Trustee and the Delaware Trustee and such
execution, delivery and performance will not (i) violate the Charter or By-laws
of the Property Trustee or the Delaware Trustee, (ii) result in the creation or
imposition of, any Lien on any properties included in the Trust Property
pursuant to the provisions of, any indenture, mortgage, credit agreement,
license or other agreement or instrument to which the Property Trustee or the
Delaware Trustee is a party or by which it is bound, or (iii) violate any law,
governmental rule or regulation of the United States or the State of Delaware,
as the case may be, governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee (as appropriate in context) or any
order, judgment or decree applicable to the Property Trustee or the Delaware
Trustee;
(g) neither the authorization, execution or delivery by the Property
Trustee or the Delaware Trustee of this Trust Agreement nor the consummation of
any of the transactions by the Property Trustee or the Delaware Trustee (as
appropriate in context) contemplated herein or therein requires the consent or
approval of, the giving of notice to, the registration with or the taking of any
other action with respect to any governmental authority or agency under any
existing federal law governing the banking, trust or general powers of the
Property Trustee or the Delaware Trustee, as the case may be, under the laws of
the United States or the State of Delaware; and
(h) there are no proceedings pending or, to the best of each of the
Property Trustee's and the Delaware Trustee's knowledge, threatened against or
affecting the Property Trustee or the Delaware Trustee in any court or before
any governmental authority, agency or arbitration board
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or tribunal which, in the good faith judgment of the Property Trustee or the
Delaware Trustee, as the case may be, individually or in the aggregate, would
materially and adversely affect the Trust or the right, power and authority of
the Property Trustee or the Delaware Trustee, as the case may be, to enter into
or perform its obligations as one of the Trustees under this Trust Agreement.
Section 7.2. Representations and Warranties of Depositor.
The Depositor hereby represents and warrants for the benefit of the
Securityholders that:
(a) the Trust Securities Certificates issued at each Time of Delivery on
behalf of the Trust have been duly authorized and will have been, duly and
validly executed, issued and delivered by the Trustees pursuant to the terms and
provisions of, and in accordance with the requirements of, this Trust Agreement
and the Securityholders will be, as of each such date, entitled to the benefits
of this Trust Agreement; and
(b) there are no taxes, fees or other governmental charges payable by the
Trust (or the Trustees on behalf of the Trust) under the laws of the State of
Delaware or any political subdivision thereof in connection with the execution,
delivery and performance by the Property Trustee or the Delaware Trustee, as the
case may be, of this Trust Agreement.
ARTICLE VIII
The Trustees; the Administrative Trustees
Section 8.1. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustees and Administrative
Trustees shall be as provided by this Trust Agreement and, in the case of the
Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no
provision of this Trust Agreement shall require the Trustees or Administrative
Trustees to expend or risk their own funds or otherwise incur any financial
liability in the performance of any of their duties hereunder, or in the
exercise of any of their rights or powers, if they shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity satisfactory to
it against such risk or liability is not reasonably assured to it. Whether or
not therein expressly so provided, every provision of this Trust Agreement
relating to the conduct or affecting the liability of or affording protection to
the Trustees or Administrative Trustees shall be subject to the provisions of
this Article. Nothing in this Trust Agreement shall be construed to release an
Administrative Trustee from liability for its own gross negligent action, its
own gross negligent failure to act or its own willful misconduct. To the extent
that, at law or in equity, an Administrative Trustee has duties and liabilities
relating thereto to the Trust or to the Securityholders, such Administrative
Trustee shall not be liable to the Trust or to any Securityholder for such
Administrative Trustee's good
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faith reliance on the provisions of this Trust Agreement. The provisions of this
Trust Agreement, to the extent that they restrict the duties and liabilities of
the Administrative Trustees otherwise existing at law or in equity, are agreed
by the Depositor and the Securityholders to replace such other duties and
liabilities of the Administrative Trustees.
(b) All payments made by the Property Trustee or a Paying Agent in respect
of the Trust Securities shall be made only from the revenue and proceeds from
the Trust Property and only to the extent that there shall be sufficient revenue
or proceeds from the Trust Property to enable the Property Trustee or a Paying
Agent to make payments in accordance with the terms hereof. Each Securityholder,
by its acceptance of a Trust Security, agrees that it will look solely to the
revenue and proceeds from the Trust Property to the extent legally available for
distribution to it as herein provided and that the Trustees are not personally
liable to it for any amount distributable in respect of any Trust Security or
for any other liability in respect of any Trust Security. This Section 8.1(b)
does not limit the liability of the Trustees expressly set forth elsewhere in
this Trust Agreement or, in the case of the Property Trustee, in the Trust
Indenture Act.
(c) No provision of this Trust Agreement shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) the Property Trustee shall not be liable for any error of judgment
made in good faith by an authorized officer of the Property Trustee, unless
it shall be proved that the Property Trustee was negligent in ascertaining
the pertinent facts;
(ii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a majority in Liquidation
Amount of the Trust Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee,
or exercising any trust or power conferred upon the Property Trustee under
this Trust Agreement;
(iii) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Debentures and the Payment
Account shall be to deal with such property in a similar manner as the
Property Trustee deals with similar property for its own account, subject
to the protections and limitations on liability afforded to the Property
Trustee under this Trust Agreement and the Trust Indenture Act;
(iv) the Property Trustee shall not be liable for any interest on any
money received by it except as it may otherwise agree with the Depositor;
and money held by the Property Trustee need not be segregated from other
funds held by it except in relation to the Payment Account maintained by
the Property Trustee pursuant to Section 3.1 and except to the extent
otherwise required by law; and
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(v) the Property Trustee shall not be responsible for monitoring the
compliance by the Administrative Trustees or the Depositor with their
respective duties under this Trust Agreement, nor shall the Property
Trustee be liable for the default or misconduct of the Administrative
Trustees or the Depositor.
Section 8.2. Certain Notices.
Within ten Business Days after the occurrence of any Event of Default
actually known to a Responsible Officer of the Property Trustee, the Property
Trustee shall transmit, in the manner and to the extent provided in Section
10.8, notice of such Event of Default to the Securityholders, the Administrative
Trustees and the Depositor, unless such Event of Default shall have been cured
or waived.
Within ten Business Days after the receipt of notice of the Depositor's
exercise of its right to defer the payment of interest on the Debentures
pursuant to the Indenture, the Property Trustee shall transmit, in the manner
and to the extent provided in Section 10.8, notice of such exercise to the
Securityholders, unless such exercise shall have been revoked.
Section 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may conclusively rely and shall fully be protected
in acting or refraining from acting in good faith upon any resolution, Opinion
of Counsel, certificate, written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond, debenture,
note, other evidence of indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) if (i) in performing its duties under this Trust Agreement the Property
Trustee is required to decide between alternative courses of action or (ii) in
construing any of the provisions of this Trust Agreement the Property Trustee
finds the same ambiguous or inconsistent with any other provisions contained
herein or (iii) the Property Trustee is unsure of the application of any
provision of this Trust Agreement, then, except as to any matter as to which the
Capital Securityholders are entitled to vote under the terms of this Trust
Agreement, the Property Trustee shall deliver a notice to the Depositor
requesting the Depositor's opinion as to the course of action to be taken and
the Property Trustee (regardless of whether or not the Property Trustee has
received an opinion from the Depositor) shall take such action, or refrain from
taking such action, as the Property Trustee shall deem advisable and in the best
interests of the Securityholders, in which event the Property Trustee shall have
no liability except for its own bad faith, negligence or willful misconduct;
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(c) any direction or act of the Depositor or the Administrative Trustees
contemplated by this Trust Agreement shall be sufficiently evidenced by an
Officers' Certificate;
(d) whenever in the administration of this Trust Agreement, the Property
Trustee shall deem it desirable that a matter be established before undertaking,
suffering or omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of bad faith on
its part, request and rely upon an Officers' Certificate as to factual matters
(other than the interpretation of this Agreement) which, upon receipt of such
request, shall be promptly delivered by the Depositor or the Administrative
Trustees;
(e) the Property Trustee shall have no duty to see to any recording, filing
or registration of any instrument (including any financing or continuation
statement or any filing under tax or securities laws) or any rerecording,
refiling or reregistration thereof;
(f) the Property Trustee may consult with counsel of its choice (which
counsel may be counsel to the Depositor or any of its Affiliates, and may
include any of its employees) and the advice of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in reliance thereon and in
accordance with such advice; the Property Trustee shall have the right at any
time to seek instructions concerning the administration of this Trust Agreement
from any court of competent jurisdiction;
(g) the Property Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Trust Agreement at the request or
direction of any of the Securityholders pursuant to this Trust Agreement, unless
such Securityholders shall have offered to the Property Trustee security or
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction;
(h) the Property Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond,
debenture, note or other evidence of indebtedness or other paper or document,
unless requested in writing to do so by one or more Securityholders, but the
Property Trustee may make such further inquiry or investigation into such facts
or matters as it may see fit;
(i) the Property Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through its agents or
attorneys and the Property Trustee shall not be responsible for any misconduct
or negligence on the part of, or for the supervision of, any such agent or
attorney appointed with due care by it hereunder;
(j) whenever in the administration of this Trust Agreement the Property
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking
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any other action hereunder the Property Trustee (i) may request instructions
from the Holders of the Trust Securities which instructions may only be given by
the Holders of the same proportion in Liquidation Amount of the Trust Securities
as would be entitled to direct the Property Trustee under the terms of the Trust
Securities in respect of such remedy, right or action, (ii) may refrain from
enforcing such remedy or right or taking such other action until such
instructions are received and (iii) shall be fully protected in acting in
accordance with such instructions;
(k) except as otherwise expressly provided by this Trust Agreement, the
Property Trustee shall not be under any obligation to take any action that is
discretionary under the provisions of this Trust Agreement;
(l) when the Property Trustee incurs expenses or renders services in
connection with a Bankruptcy Event, such expenses (including the fees and
expenses of its counsel) and the compensation for such services are intended to
constitute expenses of administration under any bankruptcy law or law relating
to creditors rights generally; and
(m) the Property Trustee shall not be charged with knowledge of an Event of
Default unless a Responsible Officer of the Property Trustee obtains actual
knowledge of such event or the Property Trustee receives written notice of such
event from Securityholders holding more than a majority of Capital Securities
(based on Liquidation Amounts).
No provision of this Trust Agreement shall be deemed to impose any duty or
obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
Section 8.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Trust Securities Certificates
shall be taken as the statements of the Trust, and the Trustees do not assume
any responsibility for their correctness. The Trustees shall not be accountable
for the use or application by the Depositor of the proceeds of the Debentures.
Section 8.5. May Hold Securities.
Any Trustee or any other agent of any Trustee or the Trust, in its
individual or any other capacity, may become the owner or pledgee of Trust
Securities and, subject to Sections 8.8 and 8.13 and except as provided in the
definition of the term "Outstanding" in Article I, may otherwise deal with the
Trust with the same rights it would have if it were not a Trustee or such other
agent.
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Section 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time reasonable compensation for
all services rendered by them hereunder in such amounts as the Depositor and
such Trustees shall agree upon from time to time (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustees upon request for all reasonable expenses, disbursements and advances
incurred or made by the Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(c) to the fullest extent permitted by applicable law, to indemnify and
hold harmless (i) each Trustee, (ii) any Affiliate of any Trustee, (iii) any
officer, director, shareholder, employee, representative or agent of any
Trustee, (iv) each Administrative Trustee and (v) any employee or agent of the
Trust or its Affiliates (referred to herein as an "Indemnified Person") from and
against any loss, damage, liability, tax, penalty, expense or claim of any kind
or nature whatsoever incurred by such Indemnified Person by reason of the
creation, operation or termination of the Trust or any act or omission performed
or omitted by such Indemnified Person in good faith on behalf of the Trust and
in a manner such Indemnified Person reasonably believed to be within the scope
of authority conferred on such Indemnified Person by this Trust Agreement,
except that no Indemnified Person shall be entitled to be indemnified in respect
of any loss, damage or claim incurred by such Indemnified Person by reason of
negligence or willful misconduct with respect to such acts or omissions.
The provisions of this Section 8.6 shall survive the termination of this
Trust Agreement or the earlier resignation or removal of any Trustee.
No Trustee may claim any lien or charge on any Trust Property as a result
of any amount due pursuant to this Section 8.6.
The Depositor and any Trustee (in the case of the Property Trustee, subject
to Section 8.8 hereof) may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of Trust
Securities shall have no rights by virtue of this Trust Agreement in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. Neither the Depositor, nor any Trustee,
shall be obligated to present any particular investment or other opportunity to
the Trust even if such opportunity is of a character that, if presented to the
Trust, could be taken by the Trust, and the Depositor or
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any Trustee shall have the right to take for its own account (individually or as
a partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Trustee may engage or be interested in any financial
or other transaction with the Depositor or any Affiliate of the Depositor, or
may act as depository for, trustee or agent for, or act on any committee or body
of holders of, securities or other obligations of the Depositor or its
Affiliates.
Section 8.7. Corporate Property Trustee Required; Eligibility of Trustees
and Administrative Trustees.
(a) There shall at all times be a Property Trustee hereunder with respect
to the Trust Securities. The Property Trustee shall be a Person that is a
national or state chartered bank and eligible pursuant to the Trust Indenture
Act to act as such, shall have a combined capital and surplus of at least
$50,000,000. If any such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of its supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Property Trustee with respect to the Trust Securities shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
(b) There shall at all times be one or more Administrative Trustees
hereunder with respect to the Trust Securities. Each Administrative Trustee
shall be either a natural person who is at least 21 years of age or a legal
entity that shall act through one or more persons authorized to bind that
entity.
(c) There shall at all times be a Delaware Trustee with respect to the
Trust Securities. The Delaware Trustee shall either be (i) a natural person who
is at least 21 years of age and a resident of the State of Delaware or (ii) a
legal entity with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law that shall act
through one or more persons authorized to bind such entity.
Section 8.8. Conflicting Interests.
(a) If the Property Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Property Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Trust
Agreement.
(b) The Guarantee Agreement and the Indenture shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i) of
the first provision contained in Section 310(b) of the Trust Indenture Act.
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Section 8.9. Co-Trustees and Separate Trustee.
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of any
jurisdiction in which any part of the Trust Property may at the time be located,
the Property Trustee shall have power to appoint, and upon the written request
of the Property Trustee, the Holder of the Common Securities and the
Administrative Trustees shall for such purpose join in the execution, delivery,
and performance of all instruments and agreements necessary or proper to
appoint, one or more Persons approved by the Property Trustee either to act as
co-trustee, jointly with the Property Trustee, of all or any part of such Trust
Property, or to the extent required by law to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section. Any co-trustee or separate
trustee appointed pursuant to this Section shall either be (i) a natural person
who is at least 21 years of age and a resident of the United States or (ii) a
legal entity with its principal place of business in the United States that
shall act through one or more persons authorized to bind such entity.
Should any written instrument from the Holder of the Common Securities be
required by any co-trustee or separate trustee so appointed for more fully
confirming to such co-trustee or separate trustee such property, title, right,
or power, any and all such instruments shall, on request, be executed,
acknowledged and delivered by the Holder of the Common Securities.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms, namely:
(a) The Trust Securities shall be executed and delivered and all rights,
powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustees specified hereunder shall be exercised
solely by such Trustees and not by such co-trustee or separate trustee.
(b) The rights, powers, duties, and obligations hereby conferred or imposed
upon the Property Trustee in respect of any property covered by such appointment
shall be conferred or imposed upon and exercised or performed by the Property
Trustee or by the Property Trustee and such co-trustee or separate trustee
jointly, as shall be provided in the instrument appointing such co-trustee or
separate trustee, except to the extent that under any law of any jurisdiction in
which any particular act is to be performed, the Property Trustee shall be
incompetent or unqualified to perform such act, in which event such rights,
powers, duties and obligations shall be exercised and performed by such co-
trustee or separate trustee.
(c) The Property Trustee at any time, by an instrument in writing executed
by it, with the written concurrence of the Holder of the Common Securities, may
accept the resignation of or remove any co-trustee or separate trustee appointed
under this Section, and, in case a
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Debenture Event of Default has occurred and is continuing, the Property Trustee
shall have power to accept the resignation of, or remove, any such co-trustee or
separate trustee without the concurrence of the Depositor. Upon the written
request of the Property Trustee, the Holder of the Common Securities shall join
with the Property Trustee in the execution, delivery and performance of all
instruments and agreements necessary or proper to effectuate such resignation or
removal. A successor to any co-trustee or separate trustee so resigned or
removed may be appointed in the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall be personally liable
by reason of any act or omission of the Property Trustee or any other trustee
hereunder.
(e) The Property Trustee shall not be liable by reason of any act of a co-
trustee or separate trustee.
(f) Any Act of Holders delivered to the Property Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
Section 8.10. Resignation and Removal; Appointment of Successor.
No resignation or removal of any Trustee (the "Relevant Trustee") and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, a Relevant Trustee may
resign at any time by giving written notice thereof to the Securityholders and
by appointing a successor Relevant Trustee. If the instrument of acceptance by
the successor Trustee required by Section 8.11 shall not have been delivered to
the Relevant Trustee within 60 days after the giving of such notice of
resignation, the Relevant Trustee may petition, at the expense of the Trust, any
court of competent jurisdiction for the appointment of a successor Relevant
Trustee. The Property Trustee shall have no liability for the selection of such
successor pursuant to this Section 8.10.
The Property Trustee or the Delaware Trustee, or both of them, may be
removed by Act of the Holders of a majority (based on Liquidation Amounts) of
the Outstanding Capital Securities, delivered to the Relevant Trustee (in its
individual capacity and on behalf of the Trust) (i) at any time for cause or
(ii) if an Event of Default shall have occurred and be continuing with or
without cause. In addition, unless an Issuer Trust Default shall have occurred
and be continuing, the Property Trustee or the Delaware Trustee, or both of
them, may be removed at any time by the Holder of the Common Securities.
If any Trustee shall resign, be removed by the Holder of Common Securities
or the Holders of a majority (based on Liquidation Amounts) of the Outstanding
Capital Securities or
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become incapable of acting as trustee, or if a vacancy shall occur in the office
of any Trustee for any cause, (i) unless an Issuer Trust Default has occurred
and is continuing, the Common Securityholder, by Act of the Common
Securityholder, delivered to the retiring Relevant Trustee, or (ii) if an Issuer
Trust Default has occurred and is continuing, the Relevant Trustee (except if
such Trustee was removed by the Holder of the Common Securities or the Holders
of a majority (based on Liquidation Amounts) of the Outstanding Capital
Securities or if a Debenture Event of Default has occurred and is continuing) or
the Capital Securityholders, by Act of the Securityholders of at least 25% in
Liquidation Amount of the Capital Securities then Outstanding delivered to the
retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee
or Trustees. If the Property Trustee shall appoint a successor, it shall do so
by requesting from at least three Persons meeting the eligibility requirements,
its expenses and charges to serve as the Property Trustee on a form provided by
the Administrative Trustees, and selecting the Person who agrees to the lowest
expense and charges. In any case, such successor Relevant Trustee shall comply
with the applicable requirements of Section 8.11. If no successor Relevant
Trustee shall have been so appointed as provided above and accepted appointment
in the manner required by Section 8.11, any Securityholder may, on behalf of
himself and all others similarly situated, or the Property Trustee, may petition
any court of competent jurisdiction for the appointment of a successor Relevant
Trustee.
The Property Trustee shall give notice of each resignation and each removal
of a Trustee and each appointment of a successor Trustee to all Securityholders
in the manner provided in Section 10.8 and shall give notice to the Holder of
the Common Securities. Each notice shall include the name of the successor
Relevant Trustee and the address of its Corporate Trust Office if it is the
Property Trustee.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event a Delaware Trustee who is a natural person dies or
becomes incompetent or incapacitated, the vacancy created by such death,
incompetence or incapacity may be filled by the Property Trustee following the
procedures in Section 8.10 (with the successor being a Person who satisfies the
eligibility requirement for a Delaware Trustee set forth in Section 8.7).
Section 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor Relevant Trustee, the
retiring Relevant Trustee and each successor Relevant Trustee with respect to
the Trust Securities shall execute and deliver an amendment hereto wherein each
successor Relevant Trustee shall accept such appointment and which (a) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Relevant Trustee all the rights,
powers, trusts and duties of the retiring Relevant Trustee with respect to the
Trust Securities and the Trust and (b) shall add to or change any of the
provisions of this Trust Agreement as shall be necessary to provide for or
facilitate the administration of the Trust by more than one Relevant Trustee, it
being understood that nothing herein or in such amendment shall constitute such
Relevant Trustees co-trustees and upon the execution and delivery of such
amendment the
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resignation or removal of the retiring Relevant Trustee shall become effective
to the extent provided therein and each such successor Relevant Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Relevant Trustee; but, on request of
the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall
duly assign, transfer and deliver to such successor Relevant Trustee all Trust
Property, all proceeds thereof and money held by such retiring Relevant Trustee
hereunder with respect to the Trust Securities and the Trust.
Upon request of any such successor Relevant Trustee, the Trust shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Relevant Trustee all such rights, powers and trusts
referred to in the first or second preceding paragraph, as the case may be.
No successor Relevant Trustee shall accept its appointment unless at the
time of such acceptance such successor Relevant Trustee shall be qualified and
eligible under this Article.
Section 8.12. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any Person
resulting from any merger, conversion or consolidation to which such Relevant
Trustee shall be a party, or any Person succeeding to all or substantially all
the corporate trust business of such Relevant Trustee, shall be the successor of
such Relevant Trustee hereunder, provided such Person shall be otherwise
eligible under this Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
Section 8.13. Preferential Collection of Claims Against Depositor or Trust.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Trust Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Trust Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee shall
have made any demand on the Trust for the payment of any past due Distributions)
shall be entitled and empowered, to the fullest extent permitted by law, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Trust Securities and to file such other
papers or documents as may be necessary or advisable in order to have the claims
of the Property Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Property Trustee, its agents and
counsel) and of the Holders allowed in such judicial proceeding, and
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(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement adjustment or compensation affecting the Trust
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 8.14. Reports by Property Trustee.
(a) Not later than 60 days after December 31 of each year commencing with
December 31, 1997, the Property Trustee shall transmit to all Securityholders in
accordance with Section 10.8, and to the Depositor, a brief report dated as of
the immediately preceding December 31 with respect to:
(i) its eligibility under Section 8.7 or, in lieu thereof, if to the
best of its knowledge it has continued to be eligible under said Section, a
written statement to such effect; and
(ii) any change in the property and funds in its possession as
Property Trustee since the date of its last report and any action taken by
the Property Trustee in the performance of its duties hereunder which it
has not previously reported and which in its opinion materially affects the
Trust Securities.
(b) In addition, the Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions under this Trust
Agreement as may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Property Trustee with the Depositor and after
qualification of this Trust Agreement under the Trust Indenture Act, with the
Commission.
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Section 8.15. Reports to the Property Trustee.
The Depositor and the Administrative Trustees on behalf of the Trust shall
provide to the Property Trustee such documents, reports and information as
required by Section 314 of the Trust Indenture Act (if any) and the compliance
certificate required by Section 314(a) of the Trust Indenture Act in the form,
in the manner and at the times required by Section 314 of the Trust Indenture
Act.
Section 8.16. Evidence of Compliance with Conditions Precedent.
Each of the Depositor and the Administrative Trustees on behalf of the
Trust shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Trust Agreement that relate
to any of the matters set forth in Section 314 (c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer pursuant to
Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an
Officers' Certificate.
Section 8.17. Number of Trustees.
(a) The number of Trustees shall be two. The Property Trustee and the
Delaware Trustee may be the same Person.
(b) If a Trustee ceases to hold office or for any reason a vacancy shall
occur, the vacancy shall be filled with a Trustee appointed in accordance with
Section 8.10.
(c) The death, resignation, retirement, removal, bankruptcy, incompetence
or incapacity to perform the duties of a Trustee or an Administrative Trustee
shall not operate to annul, dissolve or terminate the Trust.
Section 8.18. Delegation of Power.
(a) Any Administrative Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
2.7(a), including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing; and
(b) The Administrative Trustees shall have power to delegate from time to
time to such of their number the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Administrative
Trustees or otherwise as the Administrative Trustees may deem expedient, to the
extent such delegation is not prohibited by applicable law or contrary to the
provisions of this Trust Agreement, as set forth herein.
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Section 8.19. Appointment of Administrative Trustees.
(a) The Administrative Trustees shall be appointed by the Common
Securityholder and may be removed by the Common Securityholder at any time.
Each Administrative Trustee shall sign an agreement agreeing to comply with the
terms of this Trust Agreement. If at any time there is no Administrative
Trustee, the Property Trustee or any Securityholder who has been a
Securityholder of Trust Securities for at least six months may petition any
court of competent jurisdiction for the appointment of one or more
Administrative Trustees.
(b) Whenever a vacancy in the number of Administrative Trustees shall
occur, until such vacancy is filled by the appointment of an Administrative
Trustee in accordance with this Section 8.19, the Administrative Trustees in
office, regardless of their number (and notwithstanding any other provision of
this Agreement), shall have all the powers granted to the Administrative
Trustees and shall discharge all the duties imposed upon the Administrative
Trustees by this Trust Agreement.
Notwithstanding the foregoing or any other provision of this Trust
Agreement, in the event any Administrative Trustee who is a natural person dies
or becomes, in the opinion of the Common Securityholder, incompetent or
incapacitated, the vacancy created by such death, incompetence or incapacity may
be filled by the unanimous act of the remaining Administrative Trustees if there
were at least two of them prior to such vacancy (with the successor in each case
being a Person who satisfies the eligibility requirement for Administrative
Trustees set forth in Section 8.7).
ARTICLE IX
Termination, Liquidation and Merger
Section 9.1. Termination Upon Expiration Date.
Unless earlier terminated, the Trust shall automatically terminate on
February 1, 2028 (the "Expiration Date"), following the distribution of the
Trust Property in accordance with Section 9.4.
Section 9.2. Early Termination.
The first to occur of any of the following events is an "Early Termination
Event":
(a) the occurrence of a Bankruptcy Event in respect of, or the dissolution
or liquidation of, the Holder of the Common Securities;
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(b) the written direction to the Property Trustee from the Holder of the
Common Securities at any time to terminate the Trust and, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, distribute
Debentures to Securityholders in exchange for the Capital Securities; provided,
however, that the Property Trustee shall have first received an Opinion of
Counsel to the effect that such distribution will not be a taxable event to the
Holders;
(c) the redemption of all of the Trust Securities in connection with the
redemption of all the Debentures; and
(d) the entry of an order for dissolution of the Trust by a court of
competent jurisdiction.
Section 9.3. Termination.
The respective obligations and responsibilities of the Trustees and the
Trust created and continued hereby shall terminate upon the latest to occur of
the following: (a) the distribution by the Property Trustee to Securityholders
upon the liquidation of the Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section 4.2, of all
amounts required to be distributed hereunder upon the final payment of the Trust
Securities; (b) the payment of any expenses owed by the Trust; and (c) the
discharge of all administrative duties of the Administrative Trustees, including
the performance of any tax reporting obligations with respect to the Trust or
the Securityholders.
Section 9.4. Liquidation.
(a) If an Early Termination Event specified in clause (a), (b) or (d) of
Section 9.2 occurs or upon the Expiration Date, the 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
Trust as provided by applicable law, to each Securityholder a Like Amount of
Debentures, subject to Section 9.4(d). Notice of liquidation shall be given by
the Property Trustee by first-class mail, postage prepaid mailed not later than
30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust
Securities at such Holder's address appearing in the Securities Register. All
notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date, the Trust
Securities will no longer be deemed to be Outstanding and any Trust
Securities Certificates not surrendered for exchange will be deemed to
represent a Like Amount of Debentures or the right to receive a Liquidation
Distribution, as applicable; and
(iii) provide such information with respect to the mechanics by which
Holders may exchange Trust Securities Certificates for Debentures, or if
Section 9.4(d) applies
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receive a Liquidation Distribution, as the Property Trustee (after
consultation with the Administrative Trustees) shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in order to effect the
liquidation of the Trust and distribution of the Debentures to Securityholders,
the Property Trustee, either itself acting as exchange agent or through the
appointment of a separate exchange agent, shall establish such procedures as it
shall deem appropriate to effect the distribution of Debentures in exchange for
the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies, after the Liquidation
Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii)
certificates representing a Like Amount of Debentures will be issued to Holders
of Trust Securities Certificates, upon surrender of such certificates to the
exchange agent for exchange, (iii) any Trust Securities Certificates not so
surrendered for exchange will be deemed to represent a Like Amount of
Debentures, accruing interest at the rate provided for in the Debentures from
the last Distribution Date on which a Distribution was made on such Trust
Securities Certificates until such certificates are so surrendered (and until
such certificates are so surrendered, no payments of interest or principal will
be made to Holders of Trust Securities Certificates with respect to such
Debentures) and (iv) all rights of Securityholders holding Trust Securities will
cease, except the right of such Securityholders to receive Debentures upon
surrender of Trust Securities Certificates.
(d) In the event that, notwithstanding the other provisions of this Section
9.4, whether because of an order for dissolution entered by a court of competent
jurisdiction or otherwise, distribution of the Debentures in the manner provided
herein is determined by the Property Trustee not to be practical, the Trust
Property shall be liquidated, and the Trust shall be dissolved, wound-up or
terminated, by the Property Trustee in such manner as the Property Trustee
determines. In such event, on the date of the dissolution, winding-up or other
termination of the Trust, Securityholders will be entitled to receive out of the
assets of the Trust available for distribution to Securityholders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to the Liquidation Amount per Trust Security plus
accumulated and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If, upon any such dissolution, winding up
or termination, the Liquidation Distribution can be paid only in part because
the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then, subject to the next succeeding sentence, the
amounts payable by the Trust on the Trust Securities shall be paid on a pro rata
basis (based on Liquidation Amounts). The holder of the Common Securities will
be entitled to receive Liquidation Distributions upon any such dissolution,
winding-up or termination pro rata (determined as aforesaid) with Holders of
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. Any such determination and liquidation by the Property Trustee
shall be conclusive upon the Securityholders and the Property Trustee shall have
no liability in connection therewith.
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Section 9.5. Mergers, Consolidations, Amalgamations or Replacements of the
Trust.
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other entity, except
pursuant to this Section 9.5. At the request of the Holders of the Common
Securities, with the consent of the Holders of a majority (based on Liquidation
Amounts) of the Outstanding Capital Securities, the Trust may 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 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) the Holders of a majority
(based on Liquidation Amounts) of the Outstanding Capital Securities appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the 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 Trust, (vi) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the Trust has received
an opinion of independent counsel to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Capital Securities (including any Successor Securities) in any material respect
and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the 1940 Act and (vii)
the Depositor or any permitted successor or assignee owns all of the Common
Securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except
with the consent of holders of 100% in Liquidation Amount of the Capital
Securities, 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 Trust or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
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ARTICLE X
Miscellaneous Provisions
Section 10.1. Limitation of Rights of Securityholders.
The death or incapacity of any person having an interest, beneficial or
otherwise, in Trust Securities shall not operate to terminate this Trust
Agreement, nor entitle the legal representatives or heirs of such person or any
Securityholder for such person, to claim an accounting, take any action or bring
any proceeding in any court for a partition or winding up of the arrangements
contemplated hereby, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.
Section 10.2. Amendment.
(a) This Trust Agreement may be amended from time to time by the Property
Trustee and the Holders of a majority (based on Liquidation Amounts) of the
Outstanding Common Securities without the consent of the Depositor or any
Capital Securityholders, (i) to cure any ambiguity, correct or supplement any
provision herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising under
this Trust Agreement, which shall not be inconsistent with the other provisions
of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions
of this Trust Agreement to such extent as shall be necessary to ensure that the
Trust will be classified for United States federal income tax purposes as a
grantor trust at all times that any Trust Securities are Outstanding or to
ensure that the Trust will not be required to register as an investment company
under the 1940 Act; provided, however, that such action shall not adversely
affect in any material respect the interests of any Securityholder, and any
amendments of this Trust Agreement shall become effective when notice thereof is
given to the Securityholders.
(b) Except as provided in Section 10.2(c) hereof, any provision of this
Trust Agreement may be amended by the Property Trustee and the Holders of a
majority (based on Liquidation Amounts) of the Outstanding Common Securities
(without execution of any amendment by the Depositor) and with (i) the consent
of Capital Securityholders representing not less than a majority (based on
Liquidation Amounts) of the Capital Securities then Outstanding and (ii) receipt
by the Trustees of an Opinion of Counsel to the effect that such amendment or
the exercise of any power granted to the Trustees or the Administrative Trustees
in accordance with such amendment will not affect the Trust's status as a
grantor trust for United States federal income tax purposes or the Trust's
exemption from status of an investment company under the 1940 Act.
(c) In addition to and notwithstanding any other provision in this Trust
Agreement, without the consent of each affected Securityholder (such consent
being obtained in accordance with Section 6.3 or 6.6 hereof), this Trust
Agreement may not be amended to (i) change the
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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
Securityholder to institute suit for the enforcement of any such payment on or
after such date; notwithstanding any other provision herein, without the
unanimous consent of the Securityholders (such consent being obtained in
accordance with Section 6.3 or 6.6 hereof), this paragraph (c) of this Section
10.2 may not be amended.
(d) Notwithstanding any other provisions of this Trust Agreement, no
Trustee shall enter into or consent to any amendment to this Trust Agreement
which would cause the Trust to fail or cease to qualify for the exemption from
status of an investment company under the 1940 Act or fail or cease to be
classified as a grantor trust for United States Federal income tax purposes.
(e) Notwithstanding anything in this Trust Agreement to the contrary,
without the consent of the Depositor, this Trust Agreement may not be amended in
a manner which imposes any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust Agreement is made, the
Administrative Trustees or the Property Trustee shall promptly provide to the
Depositor a copy of such amendment.
(g) Neither the Property Trustee nor the Delaware Trustee shall be required
to enter into any amendment to this Trust Agreement which affects its own
rights, duties or immunities under this Trust Agreement or would otherwise
expose the Property Trustee to any liability or be contrary to applicable law.
The Property Trustee shall be entitled to receive an Opinion of Counsel and an
Officers' Certificate stating that any amendment to this Trust Agreement is in
compliance with this Trust Agreement.
Section 10.3. Separability.
In case any provision in this Trust Agreement or in the Trust Securities
Certificates shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.4. Governing Law.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE
SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT
AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE. THE PROVISIONS OF SECTION 3540 AND 3561 OF
TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THIS TRUST.
60
<PAGE>
Section 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security shall be a day that
is not a Business Day, then such payment need not be made on such date but may
be made on the next succeeding day that is a Business Day (except as otherwise
provided in Section 4.2(d)), with the same force and effect as though made on
the date fixed for such payment, and no Distributions shall accumulate thereon
for the period after such date.
Section 10.6. Successors.
This Trust Agreement shall be binding upon and shall inure to the benefit
of any successor to the Depositor, the Trust or the Relevant Trustee, including
any successor by operation of law. Except in connection with a consolidation,
merger or sale involving the Depositor that is permitted under Article VIII of
the Indenture and pursuant to which the assignee agrees in writing to perform
the Depositor's obligations hereunder, the Depositor shall not assign its
obligations hereunder.
Section 10.7. Headings.
The Article and Section headings are for convenience only and shall not
affect the construction of this Trust Agreement.
Section 10.8. Reports, Notices and Demands.
Any report, notice, demand or other communication which by any provision of
this Trust Agreement is required or permitted to be given or served to or upon
any Securityholder or the Depositor may be given or served in writing by deposit
thereof, first-class postage prepaid, in the United States mail, hand delivery
or facsimile transmission, in each case, addressed, (a) in the case of a Capital
Securityholder, to such Capital Securityholder as such Securityholder's name and
address may appear on the Securities Register; and (b) in the case of the Common
Securityholder or the Depositor, to The PMI Group, Inc., 601 Montgomery Street,
San Francisco, California 94111, Attention: Victor J. Bacigalupi, facsimile no.:
(415) 291-6175. Any notice to Capital Securityholders may also be given to such
Owners as have, within two years preceding the giving of such notice, filed
their names and addresses with the Property Trustee for that purpose. Such
notice, demand or other communication to or upon a Securityholder shall be
deemed to have been sufficiently given or made, for all purposes, upon hand
delivery, mailing or transmission.
Any notice, demand or other communication which by any provision of this
Trust Agreement is required or permitted to be given or served to or upon the
Trust, the Property Trustee, the Delaware Trustee or the Administrative Trustees
shall be given in writing by deposit thereof, first class postage prepaid, in
the United States mail, hand delivery or overnight courier or by facsimile
transmission (confirmed by delivery of the original), in each case,
61
<PAGE>
addressed (until another address is published by the Trust) as follows: (a)
with respect to the Trust, to the Delaware Trustee, the Property Trustee, and
the Administrative Trustees at their respective addresses set forth below; (b)
with respect to the Property Trustee, to The Bank of New York, 101 Barclay
Street, New York, New York 10286, Attention: Vivian Georges; (c) with respect
to the Delaware Trustee, to The Bank of New York (Delaware), White Clay Center,
Route 273, Newark, Delaware 19711 - Attention: Corporate Trust Department; and
(d) with respect to the Administrative Trustees, to them at the address above
for notices to the Depositor, marked "Attention Administrative Trustees of PMI
Capital I." Such notice, demand or other communication to or upon the Trust or
the Property Trustee shall be deemed to have been sufficiently given or made
only upon actual receipt of the writing by the Trust or the Property Trustee.
Section 10.9. Agreement Not to Petition.
Each of the Trustees and the Depositor agree for the benefit of the
Securityholders that, until at least one year and one day after the Trust has
been terminated in accordance with Article IX, they shall not file, or join in
the filing of, a petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without limitation, the United
States Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in
the commencement of any proceeding against the Trust under any Bankruptcy Law.
In the event the Depositor takes action in violation of this Section 10.9, the
Property Trustee agrees, for the benefit of Securityholders, that at the expense
of the Depositor, it shall file an answer with the bankruptcy court or otherwise
properly contest the filing of such petition by the Depositor against the Trust
or the commencement of such action and raise the defense that the Depositor has
agreed in writing not to take such action and should be stopped and precluded
therefrom and such other defenses, if any, as counsel for the Trustees or the
Trust may assert. The provisions of this Section 10.9 shall survive the
termination of this Trust Agreement.
Section 10.10. Trust Indenture Act; Conflict with Trust Indenture Act.
(a) The Trust Indenture Act shall apply as a matter of contract to this
Trust Agreement for purposes of interpretation, construction and defining the
rights and obligations hereunder.
(b) The Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Trust Agreement by any
of the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Trust Agreement modifies or excludes any
provision of the Trust Indenture Act which may be so modified or excluded, the
latter provision shall be deemed to apply to this Trust Agreement as so modified
or excluded, as the case may be.
62
<PAGE>
(d) The application of the Trust Indenture Act to this Trust Agreement
shall not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
Section 10.11. Delivery of Certain Information.
At any time when the Depositor is not subject to Section 13 or 15(d) of the
Exchange Act, upon the request of a Holder of a Capital Security, the Depositor
will promptly furnish or cause to be furnished Rule 144A Information (as defined
below) to such Holder, or to a prospective purchaser of any such Capital
Security designated by any such Holder to the extent required to permit
compliance by such Holder with Rule 144A under the Securities Act (or any
successor provision thereto) in connection with the resale of any such Capital
Security; provided, however, that the Depositor shall not be required to furnish
such information in connection with any request made on or after the date which
is three years from the later of (i) the date such a Capital Security (or any
such predecessor Capital Security) was last acquired from the Trust or (ii) the
date such Security (or any such predecessor Security) was last acquired from an
"affiliate" of the Depositor or the Trust within the meaning of Rule 144 under
the Securities Act (or any successor provision thereto). "Rule 144A
Information" shall be such information as is specified pursuant to Rule
144A(d)(4) under the Securities Act (or any successor provision thereto).
Section 10.12. Acceptance of Terms of Trust Agreement, Guarantee and
Indenture.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY
OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE
OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL
ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND
AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND
THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH
SECURITYHOLDER AND SUCH OTHERS THAT
[Signature Page Next]
63
<PAGE>
THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND
EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
The PMI Group, Inc.
By:
--------------------------------
Name: W. Roger Haughton
Title: President and Chief Executive Officer
By: /s/ John M. Lorenzen
--------------------------------
Name: John M. Lorenzen
Title: Executive Vice President
The Bank Of New York,
as Property Trustee
By: /s/ Vivian Georges
--------------------------------
Name: Vivian Georges
Title: Assistant Vice President
The Bank Of New York (Delaware),
as Delaware Trustee
By: /s/ Mary Jane Morrissey
--------------------------------
Name: Mary Jane Morrissey
Title: Authorized Signatory
64
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST
OF
PMI CAPITAL I
[See Attached]
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF BUSINESS
TRUST REGISTRATION OF "PMI CAPITAL I", FILED IN THIS OFFICE ON THE TWENTY-FOURTH
DAY OF JANUARY, A.D. 1997, AT 4:30 O'CLOCK P.M.
[GREAT SEAL OF THE STATE OF DELAWARE
LIBERTY AND INDEPENDENCE
*1793*1847*1907*]
[LOGO
SECRETARY'S OFFICE
STATE OF DELAWARE 1793]
/s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8310219
DATE: 01-30-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATION
FILED 04:30 PM 01/24/1997
971025521 - 2710479
CERTIFICATE OF TRUST OF
PMI CAPITAL I
This Certificate of Trust of PMI Capital I (the "Trust") dated January
24, 1997, is being duly executed and filed by The Bank of New York (Delaware), a
Delaware banking corporation, as trustee, to form a business trust under the
Delaware Business Trust Act (12 Del. C. (S) 3801 et seq.).
------- -- ----
1. Name. The name of the business trust formed hereby is PMI
----
Capital I.
2. Delaware Trustee. The name and business address of the trustee
----------------
of the Trust in the State of Delaware is the The Bank of New York (Delaware),
White Clay Center, Newark, Delaware 19711.
3. Effective Date. This Certificate of Trust shall be effective
--------------
upon filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
THE BANK OF NEW YORK (DELAWARE)
as trustee
By: /s/ Joseph G. Ernst
----------------------------
Name: JOSEPH G. ERNST
Title: Assistant Vice President
<PAGE>
EXHIBIT B
CERTIFICATE DEPOSITORY AGREEMENT
[See Attached]
<PAGE>
[LOGO OF THE DEPOSITORY TRUST COMPANY]
BOOK-ENTRY-ONLY CORPORATE DEBT ISSUES
LETTER OF REPRESENTATIONS
[To be Completed by Issuer and Agent]
PMI CAPITAL I
------------------------------------------
[Name of Issuer]
THE BANK OF NEW YORK, AS TRUSTEE
------------------------------------------
[Name of Agent]
FEBRUARY 3, 1997
----------------
[Date]
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street; 49th Floor
New York, NY 10041-0099
Re: 8.309% Capital Securities, Series A
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
[Issue Description]
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced issue (the "Securities"). Agent will act as
trustee, paying agent, fiscal agent, or other agent of Issuer with respect to
the Securities. The Securities will be issued pursuant to a trust indenture,
resolution, or other such document authorizing the issuance of the Securities
dated February 4, 1997 (the "Document"). Goldman, Sachs & Co. is distributing
---------- - -------------------
["Underwriter"]
the Securities through the Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC, and
to act in accordance with its Rules with respect to the Securities, Issuer and
Agent make the following representations to DTC:
1. Prior to closing on the Securities on February 4, 1997, there shall be
---------- -
deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co., for each stated maturity of the Securities in the face
amounts set forth on Schedule A hereto, the total of
<PAGE>
which represents 100% of the principal amount of such Securities. If, however,
the aggregate principal amount of any maturity exceeds $200 million, one
certificate will be issued with respect to each $200 million of principal amount
and an additional certificate will be issued with respect to any remaining
principal amount. Each Security certificate shall bear the following legend:
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
2. In the event of any solicitation of consents from or voting by holders of
the Securities, Issuer or Agent shall establish a record date for such purposes
(with no provision for revocation of consents or votes by subsequent holders)
and shall send notice of such record date to DTC not less than 15 calendar days
in advance of such record date. Notices to DTC pursuant to this Paragraph by
telecopy shall be sent to DTC's Reorganization Department at (212) 709-6896 or
(212) 709-6897, and receipt of such notices shall be confirmed by telephoning
(212) 709-6870. Notices to DTC pursuant to this Paragraph by mail or by any
other means shall be sent to DTC's Reorganization Department as indicated in
Paragraph 4.
3. In the event of a full or partial redemption, Issuer or Agent shall send a
notice to DTC specifying: (a) the amount of the redemption or refunding; (b) in
the case of a refunding, the maturity date(s) established under the refunding;
and (c) the date such notice is to be mailed to Security holders or published
(the "Publication Date"). Such notice shall be sent to DTC by a secure means
(e.g., legible telecopy, registered or certified mail, overnight delivery) in a
timely manner designed to assure that such notice is in DTC's possession no
later than the close of business on the business day before or, if possible, two
business days before the Publication Date. Issuer or Agent shall forward such
notice either in a separate secure transmission for each CUSIP number or in a
secure transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice). The Publication Date shall be not less
than 30 days nor more than 60 days prior to the redemption date or, in the case
of an advance refunding, the date that the proceeds are deposited in escrow.
Notices to DTC pursuant to this Paragraph by telecopy shall be sent to DTC's
Call Notification Department at (516) 227-4039 or (516) 227-4190. If the party
sending the notice does not receive a telecopy receipt from DTC confirming that
the notice has been received, such party shall telephone (516) 227-4070. Notices
to DTC pursuant to this Paragraph by mail or by any other means shall be sent
to:
Manager; Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities (including mandatory
tenders, exchanges, and capital changes), notice by Issuer or Agent to Security
holders specifying the terms of the tender and the Publication Date of such
notice shall be sent to DTC by a secure means in the manner set forth in the
preceding Paragraph. Notices to DTC pursuant to this Paragraph and notices of
other corporate actions by telecopy shall be sent to DTC's Reorganization
Department
-2-
<PAGE>
at (212) 709-1093 or (212) 709-1094, and receipt of such notices shall be
confirmed by telephoning (212) 709-6884. Notices to DTC pursuant to the above
by mail or by any other means shall be sent to:
Manager; Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004-2695
5. All notices and payment advices sent to DTC shall contain the CUSIP number
of the Securities.
6. In the event of a change in the interest rate, Agent shall send notice of
such change to Standard & Poor's Corporation. Such notice, which shall also
include Agent contact's name and telephone number, shall also be sent to DTC's
Dividend Department either by telecopy to (212) 709-1723, or if by mail or by
any other means to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
7. Agent must provide DTC, no later than noon (Eastern Time) on the payment
date, CUSIP numbers for each issue for which payment is being sent, as well as
the dollar amount of the payment for each issue. Notification of payment
details should be sent using automated communications.
8. Interest payments and principal payments that are part of periodic
principal-and-interest payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds, no later than 2:30 p.m.
(Eastern Time) on each payment date (in accordance with existing arrangements
between Issuer or Agent and DTC). Absent any other arrangements between Issuer
or Agent and DTC, such funds shall be wired as follows:
The Chase Manhattan Bank
ABA 021000021
For credit to A/C The Depository Trust Company
Dividend Deposit Account 066-026776
Issuer or Agent shall provide interest payment information to a standard
announcement service subscribed to by DTC. In the unlikely event that no such
service exists, issuer agrees that it or Agent shall provide this information
directly to DTC in advance of the interest record date as soon as the
information is available. This information should be conveyed directly to DTC
electronically. If electronic transmission is not available, absent any other
arrangements between Agent and DTC, such information should be sent by telecopy
to DTC's Dividend Department at (212) 709-1723 or (212) 709-1686, and receipt of
such notices shall be confirmed by telephoning (212) 709-1270. Notice to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
-3-
<PAGE>
9. DTC shall receive maturity and redemption payments allocated with respect
to each CUSIP number on the payable date in same-day funds by 2:30 p.m. (Eastern
Time). Absent any other arrangements between Agent and DTC, such payments shall
be wired as follows:
The Chase Manhattan Bank
ABA 021000021
For credit A/C The Depository Trust Company
Redemption Account 066-027306
in accordance with existing SDFS payment procedures in the manner set forth in
DTC's SDFS Paying Agent Operating Procedures, a copy of which has previously
been furnished to Agent.
10. DTC shall receive all reorganization payments and CUSIP-level detail
resulting from corporate actions (such as tender offers, remarketings, or
mergers) on the first payable date in same-day funds by 2:30 p.m. (Eastern
Time). Absent any other arrangements between Agent and DTC, such payments shall
be wired as follows:
The Chase Manhattan Bank
ABA 021000021
For credit to A/C The Depository Trust Company
Reorganization Account 066-027608
11. DTC may direct Issuer or Agent to use any other number or address as the
number or address to which notices or payments of interest or principal may be
sent.
12. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Agent's
invitation) necessitating a reduction in the aggregate principal amount of
Securities outstanding or an advance refunding of part of the Securities
outstanding, DTC, in its discretion: (a) may request Issuer or Agent to issue
and authenticate a new Security certificate; or (b) may make an appropriate
notation on the Security certificate indicating the date and amount of such
reduction in principal except in the case of final maturity, in which case the
certificate will be presented to Issuer or Agent prior to payment, if required.
13. In the event that Issuer determines that beneficial owners of Securities
shall be able to obtain certificated Securities, Issuer or Agent shall notify
DTC of the availability of certificates. In such event, Issuer or Agent shall
issue, transfer, and exchange certificates in appropriate amounts, as required
by DTC and others.
14. DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to Issuer or
Agent (at which time DTC will confirm with Issuer or Agent the aggregate
principal amount of Securities outstanding). Under such circumstances, at DTC's
request Issuer and Agent shall cooperate fully with DTC by taking appropriate
action to make available one or more separate certificates evidencing
Securities to any DTC Participant having Securities credited to its DTC
accounts.
15. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificate(s) by virtue of submission of such certificate(s) to DTC.
16. Nothing herein shall be deemed to require Agent to advance funds on
behalf of Issuer.
<PAGE>
Notes:
- -----
A. If there is an Agent (as defined in
this Letter of Representations), Agent, as
well as Issuer, must sign this Letter. If
there is no Agent, in signing this Letter
Issuer itself undertakes to perform all of
the obligations set forth herein.
B. Schedule B contains statements that
DTC believes accurately describe DTC, the
method of effecting book-entry transfers
of securities distributed through DTC, and
certain related matters.
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: /s/Richard B. Nesson
-----------------------------------
Very truly yours,
PMI Capital I
----------------------------------
(Issuer)
By: /s/William A. Seymore
-------------------------------
(Authorized Officer's Signature)
The Bank of New York, as Trustee
----------------------------------
(Agent)
By: /s/Vivian Georges
----------------------------------
(Authorized Officer's Signature)
CC: Underwriter
Underwriter's Counsel
<PAGE>
SCHEDULE A
----------
8.309% Capital Securities, Series A
___________________________________
___________________________________
(Describe Issue)
CUSIP Number Principal Amount Maturity Date Interest Rate
- ------------ ---------------- ------------- -------------
69344VAA9 $100,000,000 FEBRUARY 1, 2027 8.309%
<PAGE>
SCHEDULE B
----------
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
-----------------------------------
(Prepared by DTC--bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities
will be issued as fully-registered securities registered in the name of Cede &
Co. (DTC's partnership nominee). One fully-registered Security certificate will
be issued for [each issue of] the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $200 million, one certificate
will be issued with respect to each $200 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Assess to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Securities are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
Securities, except in the event that use of the book-entry-system for the
Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Securities; DTC's records
reflect only the identity of the Direct Participants to whose accounts such
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
[6. Redemption notices shall be sent to Cede & Co. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
-i-
<PAGE>
7. Neither DTC nor Cede & Co. will consent or vote with respect to Securities.
Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Principal and interest payments on the Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, Agent, or Issuer, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of Issuer or
Agent, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to [Tender/Remarketing] Agent,
and shall effect delivery of such Securities by causing the Direct Participant
to transfer the Participant's interest in the Securities, on DTC's records, to
[Tender/Remarketing] Agent. The requirement for physical delivery of Securities
in connection with an optional tender or a mandatory purchase will be deemed
satisfied when the ownership rights in the Securities are transferred by Direct
Participants on DTC's records and followed by a book-entry credit of tendered
Securities to [Tender/DTC Remarketing] Agent's account.]
10. DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to Issuer or
Agent. Under such circumstances, in the event that a successor securities
depository is not obtained, Security certificates are required to be printed and
delivered.
11. Issuer may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, Security
certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that Issuer believes to be reliable, but
Issuer takes no responsibility for the accuracy thereof.
-ii-
<PAGE>
[LOGO OF THE DEPOSITORY TRUST COMPANY]
REPRESENTATIONS FOR RULE 144A SECURITIES-
to be included in DTC Letter of Representations
1. Issuer represents that at the time of initial registration in the name of
DTC's nominee, Cede & Co., the Securities were Legally or Contractually
Restricted Securities,/1/ eligible for transfer under Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act"), and identified by a
CUSIP or CINS identification number that was different from any CUSIP or CINS
number assigned to any securities of the same class that were not Legally or
Contractually obtained for all unrestricted securities of the same class that is
different from any CUSIP or CINS identification number assigned to a Legally or
Contractually Restricted Security of such class, and shall notify DTC promptly
in the event that it is unable to do so. Issuer represents that it has agreed
to comply with all applicable information requirements of Rule 144A.
2. Issuer represents that the Securities are [Note: Issuer must represent one
of the following, and may cross out the other]
[an issue of nonconvertible debt securities or nonconvertible preferred stock
which is rated in one of the top four categories by a nationally recognized
statistical rating organization ("Investment-Grade Securities").]
[*]
3. If the Securities are not Investment-Grade Securities, Issuer and Agent
acknowledge that if such Securities cease to be included in an SRO Rule 144A
System during any period in which such Securities are Legally or Contractually
Restricted Securities, such Securities shall no longer be eligible for DTC's
services. Furthermore, DTC may discontinue providing its services as securities
depository with respect to the Securities at any time by giving reasonable
notice to Issuer or Agent. Under any of the aforementioned circumstances, at
DTC's request, Issuer and Agent shall cooperate fully with DTC by taking
appropriate action to make available one or more separate certificates
evidencing Securities to any Participant having Securities credited to its DTC
accounts.
- -------------------
/1/A "Legally Restricted Security" is a security that is a restricted
security, as defined in Rule 144(a)(3). A "Contractually Restricted Security" is
a security that upon issuance and continually thereafter can only be sold
pursuant to Regulation S under the Securities Act, Rule 144A, Rule 144, or in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4 of the Securities Act and not involving any public
offering; provided, however, that once the security is sold pursuant to the
provisions of Rule 144, including Rule 144(k), it will thereby cease to be a
"Contractually Restricted Security." For purposes of this definition, in order
for a depositary receipt to be considered a "Legally or Contractually Restricted
Security," the underlying security must also be a "Legally or Contractually
Restricted Security."
[1/94]
[* Last paragraph of this section omitted]
<PAGE>
4. Issuer and Agent acknowledge that so long as Cede & Co. is a record owner
of the Securities, Cede & Co. shall be entitled to all applicable voting rights
and to receive the full amount of all distributions payable with respect
thereto. Issuer and Agent acknowledge that DTC shall treat any DTC Participant
("Participant") having Securities credited to its DTC amounts as entitled to the
full benefits of ownership of such Securities. Without limiting the generality
of the preceding sentence, Issuer and Agent acknowledge that DTC shall treat any
Participant having Securities credited to its DTC accounts as entitled to
receive distributions (and voting rights, if any) in respect of Securities, and
to receive from DTC certificates evidencing Securities. Issuer and Agent
recognize that DTC does not in any way undertake to, and shall not have any
responsibility to, monitor or ascertain the compliance of any transactions in
the Securities with any of the provisions: (a) of Rule 144A; (b) of other
exemptions from registration under the Securities Act or of any other state or
federal securities laws; or (c) of the offering documents.
-2-
<PAGE>
REPRESENTATIONS FOR PRO RATA REDUCTION OF PRINCIPAL
To be included in Letter of Representations
-------------------------------------------
In the event of a pro rata reduction of principal, Trustee/Agent shall send
--------
DTC written notice with respect to the dollar amount per $1,000 original face
value (or other minimum authorized denomination if less than $1,000 face value)
payable on each payment date allocated as to the interest and principal portions
thereof preferably 5, but not less than 2, business days prior to such payment
date. Such notices, which shall clearly indicate that they relate to a pro rata
--------
reduction of principal and which shall also contain the current pool factor or
ratio and Trustee/Agent contact's name and telephone number, shall be sent by
telecopy to DTC's Dividend Department at (212) 709-1723, or if by mail or by any
other means to:
Manager; Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
<PAGE>
[LOGO OF DTC]
REPRESENTATIONS FOR ERISA-RESTRICTED SECURITIES --
to be included in DTC Letter of Representations
-----------------------------------------------
Issuer and Agent recognize that DTC does not in any way undertake to, and
shall not have any responsibility to, monitor or ascertain whether a transfer of
Securities could give rise to a transaction prohibited or not otherwise
permissible under the Employee Retirement Income Security Act of 1974 or under
Section 4975 of the Internal Revenue Code of 1986. Issuer and Agent acknowledge
that: a) so long as Cede & Co. is the sole record owner of the Securities, it
shall be entitled to all voting rights in respect thereof and to receive the
full amount of all principal, premium, if any, and interest payable with respect
thereto; and b) DTC shall treat any DTC Participant having Securities credited
to its DTC accounts as entitled to the full benefits of ownership of such
Securities even if the crediting of such Securities to the DTC accounts of such
Participant results from transfers or failures to transfer in violation of such
laws. (The treatment by DTC of the effects of the crediting by it of Securities
to the accounts of DTC Participants shall not affect the rights of Issuer or
purchasers, sellers, or holders of Securities against any DTC Participant.)
<PAGE>
[LOGO OF DTC]
REPRESENTATIONS FOR DEPOSIT/WITHDRAWAL AT CUSTODIAN ("DWAC") --
to be included in DTC Letter of Representations
-----------------------------------------------
The Security certificate(s) shall remain in Agent's custody as a "Balance
Certificate" subject to the provisions of the Balance Certificate Agreement
between Agent and DTC currently in effect.
On each day on which Agent is open for business and on which it receives
an instruction originated by a Participant through DTC's Deposit/Withdrawal at
Custodian ("DWAC") system to increase the Participant's account by a specified
number of shares, units, or obligations (a "Deposit Instruction"), Agent shall,
before 6:30 p.m. (Eastern Time) that day, either approve or cancel the Deposit
Instruction through the DWAC system.
On each day on which Agent is open for business and on which it receives
an instruction originated by a Participant through the DWAC system to decrease
the Participant's account by a specified number of shares, units, or obligations
(a "Withdrawal Instruction"), Agent shall, before 6:30 p.m. (Eastern Time) that
day, either approve or cancel the Withdrawal Instruction through the DWAC
system.
Agent agrees that its approval of a Deposit or Withdrawal Instruction
shall be deemed to be the receipt by DTC of a new, reissued or reregistered
certificated security on registration of transfer to the name of Cede & Co. for
the quantity of Securities evidenced by the Balance Certificate after the
Deposit or Withdrawal Instruction is effected.
[5/94]
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE
CERTIFICATE NUMBER
NUMBER OF COMMON SECURITIES
C-1 3,093
CERTIFICATE EVIDENCING COMMON SECURITIES
OF
PMI CAPITAL I
8.309% COMMON SECURITIES
(LIQUIDATION AMOUNT $1,000 PER COMMON SECURITY)
PMI Capital I, a business trust formed under the Business Trust Act of the
State of Delaware (the "Trust"), hereby certifies that The PMI Group, Inc. (the
"Holder") is the registered owner of three thousand ninety-three (3,093) common
securities of the Trust representing undivided beneficial interests in the
assets of the Trust and designated the 8.309% Common Securities (liquidation
amount $1,000 per common security) (the "Common Securities"). In accordance with
Section 5.11 of the Trust Agreement (as defined below) the Common Securities are
not transferable and any attempted transfer hereof shall be void. The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities are set forth in, and this certificate and
the Common Securities represented hereby are issued and shall in all respects be
subject to the terms and provisions of, the Amended and Restated Trust Agreement
of the Trust, dated as of February 4, 1997, as the same may be amended from time
to time (the "Trust Agreement"), including the designation of the terms of the
Common Securities as set forth therein. The Trust will furnish a copy of the
Trust Agreement to the Holder without charge upon written request to the Trust
at its principal place of business or registered office.
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
<PAGE>
In Witness Whereof, one of the Administrative Trustees of the Trust has
executed this certificate this 4th day of February, 1997.
PMI Capital I
By
-----------------------------
Name: William A. Seymore
Title: Administrative Trustee
<PAGE>
EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
Agreement dated as of February 4, 1997, between The PMI Group, Inc., a
Delaware corporation (the "Company"), and PMI Capital I, a business trust formed
under the Business Trust Act of the State of Delaware (the "Trust").
Whereas, the Trust intends to issue its Common Securities (the "Common
Securities") to and receive 8.309% Junior Subordinated Deferrable Interest
Debentures, Series A (the "Debentures") from the Company and to issue and sell
8.309% Capital Securities, Series A (the "Capital Securities") with such powers,
preferences and special rights and restrictions as are set forth in the Amended
and Restated Trust Agreement of the Trust, dated as of February 4, 1997, as the
same may be amended from time to time (the "Trust Agreement");
Whereas, the Company will directly or indirectly own all of the Common
Securities of the Trust and will issue the Debentures;
Now, Therefore, in consideration of the purchase by each holder of the
Capital Securities, which purchase the Company hereby agrees shall benefit the
Company and which purchase the Company acknowledges will be made in reliance
upon the execution and delivery of this Agreement, the Company and the Trust
hereby agree as follows:
ARTICLE I
Section 1.1. Guarantee by the Company.
Subject to the terms and conditions hereof, the Company hereby irrevocably
and unconditionally guarantees to each person or entity to whom the Trust is now
or hereafter becomes indebted or liable (the "Beneficiaries") the full payment,
when and as due, of any and all Obligations (as hereinafter defined) to such
Beneficiaries. As used herein, "Obligations" means any costs, expenses or
liabilities of the Trust (including, without limitation, any tax liability of
the Trust), other than obligations of the Trust to pay to holders of any Capital
Securities or other similar interests in the Trust the amounts due such holders
pursuant to the terms of the Capital Securities or such other similar interests,
as the case may be. This Agreement is intended to be for the benefit of, and to
be enforceable by, all such Beneficiaries, whether or not such Beneficiaries
have received notice hereof.
Section 1.2. Term of Agreement.
This Agreement shall terminate and be of no further force and effect upon
the later of (a) the date on which full payment has been made of all amounts
payable to all holders of all
<PAGE>
the Capital Securities (whether upon redemption, liquidation, exchange or
otherwise) and (b) the date on which there are no Beneficiaries remaining;
provided, however, that this Agreement shall continue to be effective or shall
be reinstated, as the case may be, if at any time any holder of Capital
Securities or any Beneficiary must restore payment of any sums paid under the
Capital Securities, under any Obligation, under the Guarantee Agreement dated
the date hereof by the Company and The Bank of New York, as guarantee trustee or
under this Agreement for any reason whatsoever. This Agreement is continuing,
irrevocable, unconditional and absolute.
Section 1.3. Waiver of Notice.
The Company hereby waives notice of acceptance of this Agreement and of any
Obligation to which it applies or may apply, and the Company hereby waives
presentment, demand for payment, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
Section 1.4. No Impairment.
The obligations, covenants, agreements and duties of the Company under this
Agreement shall in no way be affected or impaired by reason of the happening
from time to time of any of the following:
(a) the extension of time for the payment by the Trust of all or any
portion of the Obligations or for the performance of any other obligation under,
arising out of, or in connection with, the Obligations;
(b) any failure, omission, delay or lack of diligence on the part of the
Beneficiaries to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or extension of any kind; or
(c) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust.
There shall be no obligation of the Beneficiaries to give notice to, or obtain
the consent of, the Company with respect to the happening of any of the
foregoing.
Section 1.5. Enforcement.
A Beneficiary may enforce this Agreement directly against the Company and
the Company waives any right or remedy to require that any action be brought
against the Trust or any other person or entity before proceeding against the
Company.
2
<PAGE>
Section 1.6. Subrogation.
The Company shall be subrogated to all (if any) rights of the Trust in
respect of any amounts paid to the Beneficiaries by the Company under this
Agreement; provided, however, that the Company shall not (except to the extent
required by mandatory provisions of law) be entitled to enforce or exercise any
rights which it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Agreement, if, at the time of any such payment, any amounts are due and unpaid
under this Agreement.
ARTICLE II
Section 2.1. Binding Effect.
All guarantees and agreements contained in this Agreement shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the Beneficiaries.
Section 2.2. Amendment.
So long as there remains any Beneficiary or any Capital Securities of any
series are outstanding, this Agreement shall not be modified or amended in any
manner adverse to such Beneficiary or to the holders of the Capital Securities.
Section 2.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor by facsimile transmission (confirmed by mail), telex or by registered
or certified mail, addressed as follows (and if so given, shall be deemed given
when mailed or upon receipt of a confirmation, if sent by facsimile):
PMI Capital I
c/o The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
Attention: Corporate Trust Department
3
<PAGE>
The PMI Group, Inc.
601 Montgomery Street
San Francisco, California 94111
Facsimile No.: (415) 291-6175
Attention: Victor J. Bacigalupi
[Signature Page Next]
4
<PAGE>
Section 2.4. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This Agreement is executed as of the day and year first above written.
The PMI Group, Inc.
By
--------------------------------
Name: John M. Lorenzen
Title: Executive Vice President
PMI Capital I
By
--------------------------------
Name: William A. Seymore
Title: Administrative Trustee
<PAGE>
EXHIBIT E-1
[FACE OF CERTIFICATE]
THIS SECURITY IS A GLOBAL CAPITAL SECURITY CERTIFICATE WITHIN THE MEANING
OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF
THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") OR A NOMINEE OF THE DEPOSITORY.
THE CAPITAL SECURITIES REPRESENTED HEREBY ARE EXCHANGEABLE IN WHOLE OR IN PART
FOR CAPITAL SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
TRUST AGREEMENT AND NO TRANSFER OF THE CAPITAL SECURITIES REPRESENTED HEREBY
(OTHER THAN A TRANSFER OF SUCH CAPITAL SECURITIES AS A WHOLE BY THE DEPOSITORY
TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE
DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN
SUCH LIMITED CIRCUMSTANCES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUST OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
[If this Capital Security is an Original Capital Security, then insert -
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL
INVESTOR (1) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) ACQUIRING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144
1
<PAGE>
THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (B) BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY
IN BOOK-ENTRY FORM AS SET FORTH IN (A) ABOVE OR TO AN INSTITUTIONAL INVESTOR
THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 OF REGULATION D
UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTIONS OF THE UNITED
STATES. IF THIS SECURITY IS OWNED BY AN INITIAL INVESTOR THAT IS NOT A
QUALIFIED INSTITUTIONAL BUYER, IT MAY NOT BE HELD IN BOOK-ENTRY FORM ANY MAY NOT
BE TRANSFERRED WITHOUT CERTIFICATION THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS AS PROVIDED IN THE TRUST AGREEMENT REFERRED TO BELOW.
THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING
RESTRICTIONS.]
NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE 1 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 EVIDENCED HEREBY
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 EVIDENCED HEREBY 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.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY BE ISSUED AND 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
2
<PAGE>
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.
[If this Capital Security is an Original Capital Security, then insert -
The receipt and acceptance of this Capital Security Certificate or any
interest herein by or on behalf of the holder hereof or any beneficial owner
shall constitute acceptance by the holder hereof and all others having a
beneficial interest in the Capital Securities evidenced by this Capital Security
Certificate of all of the terms and provisions of the Exchange and Registration
Rights Agreement referred to in the Trust Agreement.]
3
<PAGE>
CERTIFICATE NUMBER NUMBER OF CAPITAL SECURITIES
PG- ________ __________________
LIQUIDATION AMOUNT
__________________
CUSIP NO. 69344 VAA 9
CERTIFICATE EVIDENCING CAPITAL SECURITIES OF
PMI CAPITAL I
8.309% CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
PMI Capital I, a business trust created under the laws of the State of
Delaware (the "Trust"), hereby certifies that CEDE & CO. (the "Holder") is the
registered owner of _________________________________ (_____________________)
capital securities of the Trust representing an undivided beneficial interest in
the assets of the Trust and designated the 8.309% Capital Securities, Series A
(liquidation amount $1,000 per Capital Security) (the "Capital Securities"), or
such other amount (which, when taken together with all other outstanding Capital
Securities, shall not exceed 100,000 Capital Securities in the aggregate at any
time) as may be set forth in the records of the Securities Registrar. The
Capital Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer as provided in Section 5.5 of the Trust
Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities are set forth in, and this certificate and the Capital Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of February 4, 1997, as the same may be amended from time to time (the "Trust
Agreement"), including the designation of the terms of Capital Securities as set
forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by The PMI Group, Inc., a Delaware corporation, and The
Bank of New York, as guarantee trustee, dated as of February 4, 1997 (the
"Guarantee"), to the extent provided therein and the Exchange and Registration
Rights Agreement entered into by The PMI Group Inc., the Trust and the Purchaser
specified therein, dated as of February 4, 1997 (the "Registration Rights
Agreement"). The Trust will furnish a copy of the Trust Agreement, the
Guarantee and the Registration Rights Agreement to the Holder without charge
upon written request to the Trust at its principal place of business or
registered office.
4
<PAGE>
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless countersigned by the Securities
Registrar.
WITNESS the [facsimile] signature of a duly authorized Administrative
Trustee of the Trust.
Dated: February 4, 1997 PMI CAPITAL I
By
_________________________________
Name: ___________________________
Title: Administrative Trustee
[This is one of the Capital Securities referred to
in the within mentioned Trust Agreement
THE BANK OF NEW YORK
By ________________________________
Authorized Signatory
[End of Page]]
5
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and
transfers____________________________________
Capital Securities represented by the within Certificate to:
- --------------------------------------------------------------------------------
(Insert assignee's name)
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer said Capital Securities on the books of the Trust. Said agent
may substitute another to act for him or her.
Date: ______________________________________
Signature:
________________________________________________________________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
6
<PAGE>
EXHIBIT E-2
[If this Capital Security is an Original Capital Security, then insert -
THE CAPITAL SECURITIES EVIDENCED HEREBY AND ANY JUNIOR SUBORDINATED
DEBENTURES ISSUABLE IN CONNECTION THEREWITH HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) BY THE INITIAL
INVESTOR (1) TO A PERSON WHO THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) ACQUIRING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH THE PROVISIONS OF RULE 903 OR RULE 904 OF REGULATION
S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (4)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B)
BY SUBSEQUENT INVESTORS HOLDING THIS SECURITY IN BOOK-ENTRY FORM AS SET FORTH IN
(A) ABOVE OR TO AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF THE STATES AND
OTHER JURISDICTIONS OF THE UNITED STATES. IF THIS SECURITY IS OWNED BY AN
INITIAL INVESTOR THAT IS NOT A QUALIFIED INSTITUTIONAL BUYER, IT MAY NOT BE HELD
IN BOOK-ENTRY FORM AND MAY NOT BE TRANSFERRED WITHOUT CERTIFICATION THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS, AS PROVIDED IN THE TRUST
AGREEMENT REFERRED TO HEREIN. THE HOLDER OF THIS SECURITY AGREES THAT IT WILL
COMPLY WITH THE FOREGOING RESTRICTIONS.
NO EMPLOYEE BENEFIT OR OTHER PLAN SUBJECT TO TITLE 1 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 EVIDENCED HEREBY
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 EVIDENCED HEREBY OR ANY INTEREST THEREIN WILL
7
<PAGE>
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.
THE CAPITAL SECURITIES EVIDENCED HEREBY MAY BE ISSUED AND 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.
[If this Capital Security is an Original Capital Security, then insert -
The receipt and acceptance of this Capital Security Certificate or any
interest herein by or on behalf of the holder hereof or any beneficial owner
shall constitute acceptance by the holder hereof and all others having a
beneficial interest in the Capital Securities evidenced by this Capital Security
Certificate of all of the terms and provisions of the Exchange and Registration
Rights Agreement referred to in the Trust Agreement.]
8
<PAGE>
CERTIFICATE NUMBER NUMBER OF CAPITAL SECURITIES
P- ________ __________________
LIQUIDATION AMOUNT
__________________
CUSIP NO. 69344 VAB 7
CERTIFICATE EVIDENCING CAPITAL SECURITIES OF
PMI CAPITAL I
8.309% CAPITAL SECURITIES, SERIES A
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
PMI Capital I, a business trust created under the laws of the State of
Delaware (the "Trust"), hereby certifies that
______________________________________________________ (the "Holder") is the
registered owner of _________________________________ (______________) capital
securities of the Trust representing an undivided beneficial interest in the
assets of the Trust and designated the 8.309% Capital Securities, Series A
(liquidation amount $1,000 per Capital Security) (the "Capital Securities").
The Capital Securities are transferable on the books and records of the Trust,
in person or by a duly authorized attorney, upon surrender of this certificate
duly endorsed and in proper form for transfer as provided in Section 5.5 of the
Trust Agreement (as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Capital
Securities are set forth in, and this certificate and the Capital Securities
represented hereby are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of the Trust dated
as of February 4, 1997, as the same may be amended from time to time (the "Trust
Agreement"), including the designation of the terms of Capital Securities as set
forth therein. The Holder is entitled to the benefits of the Guarantee
Agreement entered into by The PMI Group, Inc., a Delaware corporation, and The
Bank of New York, as guarantee trustee, dated as of February 4, 1997 (the
"Guarantee"), to the extent provided therein and the Exchange and Registration
Rights Agreement entered into by The PMI Group Inc., the Trust and the Purchaser
specified therein, dated as of February 4, 1997 (the "Registration Rights
Agreement"). The Trust will furnish a copy of the Trust Agreement, the
Guarantee and the Registration Rights Agreement to the Holder without charge
upon written request to the Trust at its principal place of business or
registered office.
9
<PAGE>
Upon receipt of this certificate, the Holder is bound by the Trust
Agreement and is entitled to the benefits thereunder.
This Certificate is not valid unless countersigned by the Securities
Registrar.
WITNESS the [facsimile] signature of a duly authorized Administrative
Trustee of the Trust.
Dated: February 4, 1997 PMI CAPITAL I
By
_________________________________
Name: ___________________________
Title: Administrative Trustee
[This is one of the Capital Securities referred to
in the within mentioned Trust Agreement
THE BANK OF NEW YORK
By ________________________________
Authorized Signatory
[End of Page]]
10
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers
________________________________________________________________________________
________________________________________________________________
Capital Securities represented by the within Certificate to:
- --------------------------------------------------------------------------------
(Insert assignee's name)
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer said Capital Securities on the books of the Trust. Said agent
may substitute another to act for him or her.
Date: ______________________________________
Signature:
________________________________________________________________________________
(Sign exactly as your name appears on the other side of this Capital Security
Certificate)
The signature(s) should be guaranteed by an eligible guarantor institution
(banks, stockbrokers, savings and loan associations and credit unions with
membership in an approved signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
11
<PAGE>
EXHIBIT F -- FORM OF RESTRICTED
SECURITIES CERTIFICATE
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to (S) 5.5(b) of the Trust Agreement)
[_________________________],
as Security Registrar
[address]
Re: 8.309% Capital Securities, Series A of PMI Capital I
(the "Trust") (the "Capital Securities")
--------------------------------------------------------------
Reference is made to the Amended and Restated Trust Agreement of the
Trust, dated as of February 4, 1997 (the "Trust Agreement"), among The PMI
Group, Inc., as Depositor, The Bank of New York, as Property Trustee, and The
Bank of New York (Delaware), as Delaware Trustee. Terms used herein and defined
in the Trust Agreement or in Regulation S, Rule 144A or Rule 144 under the U.S.
Securities Act of 1933 (the "Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate Liquidation
Amount of Capital Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: _____ Yes _____ No (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
If the Specified Securities are represented by a Book-Entry Capital Securities
Certificate, they are held through the Clearing Agency or a Clearing Agency
Participant in the name of the Undersigned, as or on behalf of the Owner. If the
Specified Securities are not represented by a Book-Entry Capital Securities
Certificate, they are registered in the name of the Undersigned, as or on behalf
of the Owner.
The Owner has requested that the Specified Securities be transferred
to a person (the "Transferee") who will take delivery in the form of a
Restricted Capital Security. In
1
<PAGE>
connection with such transfer, the Owner hereby certifies that, unless such
transfer is being effected pursuant to an effective registration statement under
the Securities Act, it is being effected in accordance with Rule 144A, Rule 904
or Rule 144 under the Securities Act and all applicable securities laws of the
states of the United States and other jurisdictions. Accordingly, the Owner
hereby further certifies as:
(1) Rule 144A Transfers. If the transfer is being effected in
-------------------
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 904 Transfers. If the transfer is being effected in
------------------
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of the Depositor or the Trust or any such distributor or a
person acting on behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States;
(C) either;
(i) at the time the buy order was originated, the Transferee
was outside the United States or the Owner and any person acting
on its behalf reasonably believed that the Transferee was outside
the United States, or
(ii) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another designated
offshore securities market and neither the Owner nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof; and
2
<PAGE>
(E) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(3) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after a holding period of at least
two years (computed in accordance with paragraph (d) of Rule 144) has
elapsed since the date the Specified Securities were acquired from the
Depositor or the Trust or from an affiliate (as such term is defined
in Rule 144) of the Depositor or the Trust, whichever is later, and is
being effected in accordance with the applicable amount, manner of
sale and notice requirements of paragraphs (e), (f) and (h) of Rule
144; or
(B) the transfer is occurring after a holding period of at least
three years, or such shorter period as may be required under
applicable law, has elapsed since the date the Specified Securities
were acquired from the Depositor or the Trust or from an affiliate (as
such term is defined in Rule 144) of the Depositor or the Trust,
whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Depositor or the Trust.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Depositor, the Trust and the Initial Purchaser.
Dated:
-----------------------------------------------------
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By
------------------------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
3
<PAGE>
EXHIBIT G -- FORM OF UNRESTRICTED
SECURITIES CERTIFICATE
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Capital Securities Legends pursuant to
(S) 5.5(c) of the Trust Agreement)
[_________________________],
as Security Registrar
[address]
Re: 8.309% Capital Securities, Series A of PMI Capital I
(the "Trust") (the "Capital Securities")
---------------------------------------------------------------
Reference is made to the Amended and Restated Trust Agreement of the
Trust, dated as of February 4, 1997 (the "Trust Agreement"), among The PMI
Group, Inc., as Depositor, The Bank of New York, as Property Trustee, and The
Bank of New York (Delaware), as Delaware Trustee. Terms used herein and defined
in the Trust Agreement or in Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to $_____________ aggregate Liquidation
Amount of Capital Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
CURRENTLY IN BOOK-ENTRY FORM: _____ Yes _____ No (check one)
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so. Such
beneficial owner or owners are referred to herein collectively as the "Owner."
If the Specified Securities are represented by a Book-Entry Capital Securities
Certificate, they are held through the Clearing Agency or a Clearing Agency
Participant in the name of the Undersigned, as or on behalf of the Owner. If the
Specified Securities are not represented by a Book-Entry Capital Securities
Certificate, they are registered in the name of the Undersigned, as or on behalf
of the Owner.
<PAGE>
The Owner has requested that the Specified Securities be exchanged for
Capital Securities bearing no Restricted Capital Securities Legend pursuant to
Section 5.5(c) of the Trust Agreement. In connection with such exchange, the
Owner hereby certifies that either (i) a period of at least three years, or such
shorter period as may be required by applicable law, has elapsed since the date
the Specified Securities were acquired from the Depositor or the Trust or from
an affiliate of the Depositor or the Trust and the Owner is not, and during the
preceding three months has not been, an affiliate of the Depositor or the Trust
or (ii) the Specified Securities were sold pursuant to an effective registration
statement under the Securities Act. In connection with (i) above, the Owner also
acknowledges that any future transfers of the Specified Securities must comply
with all applicable securities laws of the states of the United States and other
jurisdictions.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Depositor, the Trust and the Initial Purchaser.
Dated:
----------------------------------------------------
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By
------------------------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of
the Undersigned must be stated.)
2
<PAGE>
EXHIBIT 11.1
------------
THE PMI GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
PRIMARY NET INCOME PER SHARE ($ in thousands, except for per share data)
Adjusted shares outstanding:
Average common shares outstanding 34,952 35,003 35,000
Net shares to be issued upon
exercise of dilutive stock
options after applying
treasury stock method 88 119 --
-------- -------- -------
Average shares outstanding 35,040 35,122 35,000
======== ======== ========
Net income $157,918 $135,231 $106,132
======== ======== ========
Primary net income per share $ 4.51 $ 3.85 $ 3.03
======== ======== ========
FULLY DILUTED NET INCOME PER SHARE
Adjusted shares outstanding:
Average common shares outstanding 34,952 35,003 35,000
Net shares to be issued upon
exercise of dilutive stock
options after applying
treasury stock method 127 123 --
-------- -------- --------
Average shares outstanding 35,079 35,126 35,000
======== ======== ========
Net income $157,918 $135,231 $106,132
======== ======== ========
Fully diluted net income per share $ 4.50 $ 3.85 $ 3.03
======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 13.1
I N D E X T O F I N A N C I A L S
32 Five Year Summary of Financial Data
33 Management's Discussion and Analysis of Financial
Condition and Results of Operations
42 Consolidated Statements of Operations
43 Consolidated Balance Sheets
44 Consolidated Statements of Shareholders' Equity
45 Consolidated Statements of Cash Flows
47 Notes to Consolidated Financial Statements
61 Report of Management
61 Report of Independent Auditors
31
<PAGE>
F I V E Y E A R S U M M A R Y O F F I N A N C I A L D A T A
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED OPERATIONS:
Net premiums written $ 403,020 $ 314,021 $ 277,747 $ 291,089 $ 208,602
=========== =========== =========== =========== ===========
Premiums earned $ 412,738 $ 328,756 $ 296,345 $ 268,554 $ 173,039
Investment income, less
investment expense 67,442 62,041 56,774 45,733 40,847
Realized capital gains
and losses 14,296 11,934 3,064 1,229 686
Other income 6,948 2,309 3,802 -- --
----------- ----------- ----------- ----------- -----------
Total revenues 501,424 405,040 359,985 315,516 214,572
Total losses and expenses 279,318 224,499 221,434 202,543 119,912
----------- ----------- ----------- ----------- -----------
Income from continuing operations
before income taxes 222,106 180,541 138,551 112,973 94,660
Income tax expense
(benefit)* 64,188 45,310 32,419 24,305 (10,911)
----------- ----------- ----------- ----------- -----------
Income from continuing
operations* 157,918 135,231 106,132 88,668 105,571
Income (loss) from discontinued
operations -- -- -- (28,863) 6,726
----------- ----------- ----------- ----------- -----------
Net income $ 157,918 $ 135,231 $ 106,132 $ 59,805 $ 112,297
=========== =========== =========== =========== ===========
MORTGAGE INSURANCE OPERATING RATIOS:
Loss ratio 41.9% 38.5% 40.5% 41.4% 33.2%
Expense ratio 18.4% 24.9% 30.1% 28.2% 27.0%
----- ----- ----- ----- -----
Combined ratio 60.3% 63.4% 70.6% 69.6% 60.2%
===== ===== ===== ===== =====
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 1,509,919 $ 1,304,440 $ 1,097,421 $ 985,129 $ 815,136
Reserve for losses and
loss adjustment expenses $ 199,774 $ 192,087 $ 173,885 $ 135,471 $ 94,002
Long-term obligations $ 99,342 -- -- -- --
Shareholders' equity $ 986,862 $ 870,503 $ 687,178 $ 575,300 $ 513,583
PER SHARE DATA:
Income from continuing
operations $ 4.51 $ 3.85 $ 3.03 $ 2.53 $ 3.02
Income (loss) from
discontinued operations -- -- -- (0.82) 0.19
----------- ----------- ----------- ----------- -----------
Net income $ 4.51 $ 3.85 $ 3.03 $ 1.71 $ 3.21
=========== =========== =========== =========== ===========
Shareholders' equity $ 28.60 $ 24.87 $ 19.63 $ 16.44 $ 14.67
Cash dividends declared $ 0.20 $ 0.15 -- -- --
PMI OPERATING AND STATUTORY DATA:
Number of policies in force 700,084 657,800 612,806 543,924 428,745
Default rate 2.19% 1.98% 1.88% 1.81% 2.03%
Persistency 83.3% 86.4% 83.6% 70.0% 74.6%
Direct primary insurance
in force (in millions) $ 77,312 $ 71,430 $ 65,982 $ 56,991 $ 43,698
Direct primary risk in
force (in millions) $ 17,336 $ 15,130 $ 13,243 $ 11,267 $ 8,676
Statutory capital $ 988,475 $ 824,156 $ 659,402 $ 494,621 $ 456,931
Risk-to-capital ratio 15.9:1 15.8:1 17.7:1 20.8:1 19.0:1
Total PMI employees 586 578 586 632 529
* During 1991, the Company increased its tax liabilities and income tax expenses by $40.9 million in light of an unfavorable
judgment by the U.S. Tax Court. In 1992, the 1991 judgment was overturned, and the Company reevaluated its tax balances and reduced
its tax liabilities and income tax expense by $30.9 million.
</TABLE>
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF CONSOLIDATED OPERATIONS
1996 VERSUS 1995
Consolidated net income in 1996 was $157.9 million, a 16.8% increase over net
income of $135.2 million in 1995. The increase was attributable to increases
primarily in premiums earned and secondarily in investment income (including
capital gains) of 25.5% and 10.5%, respectively, partially offset by increases
primarily in losses and loss adjustment expenses and secondarily in underwriting
and other expenses (including interest expense) of 35.1% and 13.7%,
respectively. Premiums earned increased primarily from the ongoing mortgage
insurance operations, secondarily from a one time impact of a cancellation of a
quota share treaty with its primary reinsurers, and also from the title
insurance operations. Earnings per share were $4.51 in 1996 compared with $3.85
in 1995, a 17.1% increase. Excluding capital gains, earnings per share were
$4.24 in 1996 compared with $3.63 in 1995, a 16.8% increase. Revenues in 1996
were $501.4 million, a 23.8% increase over revenues of $405.0 million in 1995.
PMI Mortgage Insurance Co.'s ("PMI") new insurance written ("NIW") totaled $17.9
billion in 1996 compared with $14.5 billion in 1995, a 23.4% increase. The
increase in NIW resulted primarily from the number of new mortgage insurance
policies issued increasing by 19.5%, to 142,900 policies in 1996 from 119,600
policies in 1995, and secondarily from an increase in the average loan size to
$125,100 from $120,900. NIW net of quota share reinsurance increased by 39.3% to
$17.0 billion in 1996 from $12.2 billion in 1995. This increase was affected by
three factors: first, the increase in gross NIW; second, effective for new
policies written in 1996, PMI reduced its percentage of quota share cessions
from approximately 15% in 1995 to 5% in 1996; third, effective December 31, 1996
PMI terminated and commuted its reinsurance agreement with its primary
reinsurers, Centre Reinsurance Company of New York and Centre Reinsurance
International Company, collectively referred to as "Centre Re". The impact of
the Centre Re commutation is described below.
One of the factors contributing to the increase in new policies issued was
growth in market share in 1996 compared with 1995. PMI's market share of NIW
increased to 14.1% during 1996 from 13.2% in 1995. On a combined basis with CMG
Mortgage Insurance Company ("CMG"), market share increased to 14.7% in 1996
compared with 13.5% in 1995. CMG is a 45% owned affiliate of PMI and is
accounted for on the equity method in the Company's consolidated financial
statements. A second factor was the growth in the total number of insurable loan
originations in the mortgage insurance industry in 1996 compared with 1995,
which was caused by increases in the purchase market and refinancing activity
primarily in the first half of 1996. Refinancing as a percentage of PMI's NIW
increased by 5.4 percentage points, to 16.9% in 1996 from 11.5% in 1995.
Consistent with the industry, PMI experienced a significantly higher level of
refinance business in the first half of 1996 as compared with the second half of
1996.
PMI (excluding CMG) experienced a drop in market share of NIW from the third
quarter of 1996 to the fourth quarter of 1996, from 14.7% to 13.7%. It is
management's conclusion that this drop in market share was due to increases in
product competition, including the availability of a pool insurance product not
offered by PMI. During the first quarter of 1997, competitive pressures
continued to adversely impact market share, and management expects this trend to
continue into the second quarter of 1997. See Cautionary Statement.
PMI's persistency rate (percentage of insurance remaining in force from one year
prior) decreased 3.1 percentage points during 1996, and stands at 83.3% as of
December 31, 1996 compared with 86.4% as of December 31, 1995. The persistency
rate leveled off in the second quarter of 1996 and experienced slight but
consistent
33
<PAGE>
improvements in the third and fourth quarters. This trend is consistent with
PMI's refinancing activity during 1996. Insurance in force grew at a rate of
8.3% during 1996 to a total of $77.3 billion at December 31, 1996 compared with
$71.4 billion at December 31, 1995. The higher level of NIW in 1996 compared
with 1995, coupled with the slight rebound in persistency during the second half
of 1996, slightly improved the 1996 growth rate of insurance in force to 8.3%
over the 1995 rate of 8.2%.
Mortgage insurance net premiums written were $349.8 million in 1996 compared
with $273.7 million 1995, an increase of 27.8%. The increase is attributable
primarily to the increase in NIW over the 1995 level, secondarily to the Centre
Re commutation, and also to higher average premiums resulting from the
increasing shift to deep coverage loans, higher average loan sizes and the
growth of insurance in force. New premiums written decreased by 15.6% to $21.6
million in 1996 from $25.6 million in 1995, while renewal premiums increased by
22.3% to $345.1 million in 1996 from $282.1 million in 1995. The decrease in new
premiums written during 1996 resulted primarily from the continuing shift to the
monthly premium product from an annual premium product. The monthly premium plan
as a percentage of NIW represented 95.1% of NIW in 1996 compared with 85.2% in
1995, and 96.6% in the fourth quarter of 1996 compared with 91.0% in the
corresponding period of 1995.
The increase in average premiums was caused by a continuing shift to mortgages
with loan-to-value ratios greater than 90% and equal to or less than 95% ("95s")
with increased insurance coverage, partially offset by a decrease in the use of
adjustable rate mortgages (ARMs). 95s with 30% coverage increased to 41.8% of
NIW in 1996 compared with 34.7% in 1995. Similarly, mortgages with loan-to-value
ratios greater than 85% and equal to or less than 90% ("90s") with 25% coverage
increased to 41.7% in 1996 compared with 32.9% in 1995. ARMs decreased to 13.4%
of NIW in 1996 compared with 21.3% in 1995.
Refunded premiums increased by 24.0% in 1996 to $15.5 million from $12.5 million
in 1995. This was due primarily to the increase in policy cancellations related
to the growth in mortgage refinancing volume during the first half of 1996.
Mortgage insurance ceded premiums were $1.3 million in 1996 compared with $21.5
million in 1995, while PMI's ceded premiums written as a percentage of net new,
renewal and refunded premiums decreased to 0.2% in 1996 compared with 9.2% in
1995. The reduction of ceding percentages in 1996 was due primarily to the
Centre Re commutation and secondarily to a larger portion of premiums remaining
with the Company through the use of Residential Guaranty Co. ("RGC"), a
subsidiary of The PMI Group, Inc. ("TPG"), as a reinsurer.
Mortgage insurance premiums earned increased 24.6% to $359.5 million in 1996
from $288.5 million in 1995. This increase is due primarily to the increase in
NIW over the 1995 level, secondarily to the Centre Re commutation, and also to
the growth in insurance in force in 1996 over 1995, the impact of higher premium
rates resulting from the shift to increased insurance coverage products and
higher average loan sizes.
The Company's net investment income in 1996 was $67.4 million compared with
$62.0 million in 1995, an increase of 8.7%. The increase was primarily
attributable to the growth in the average amount of invested assets, which
resulted from cash flows generated by operating activities, partially offset by
a decrease in the average investment yield (pretax) to 6.1% in 1996 from 6.5% in
1995. Realized capital gains (net of losses) reported an increase over 1995, up
20.2% to $14.3 million in 1996 from $11.9 million in 1995.
Mortgage insurance losses and loss adjustment expenses increased to $150.6
million in 1996 from $111.0 million in 1995, an increase of 35.7%. This increase
was due primarily to the growth and maturation of insurance in force,
secondarily to the Centre Re commutation, and also to increased claim amounts
associated with the higher coverage percentages, higher loan sizes and an
increase in the default rate.
The majority of claims under PMI policies have historically occurred during the
third through the sixth years after issuance of the policies. Insurance written
by PMI from the period January 1, 1991 through December 31, 1994
34
<PAGE>
represents 55.4% of PMI's insurance in force at December 31, 1996, with the 1993
book of business alone representing 22.5%. This substantial volume of PMI's
business is in its expected peak claim period. Consistent with increasing
coverage percentages and increasing mortgage principal amounts, claim amounts
have risen in recent years. Claims paid in 1996 were $130.1 million compared
with $93.7 million in 1995. Also, PMI has been experiencing an acceleration in
its claim payment process. This acceleration is a result of Fannie Mae's and
Freddie Mac's loss mitigation efforts to make earlier determinations regarding
delinquent loans and to accelerate the loan foreclosure and claim process.
Management believes that this is only an acceleration of the timing of payments,
and will not increase the expected number of claims ultimately paid by PMI.
Policies written in California accounted for approximately 73% and 67% of the
total dollar amount of claims paid in 1996 and 1995, respectively. Although
management expects that during 1997 California will continue to account for the
majority of total claims paid, management also anticipates that California
claims paid as a percentage of total claims paid will begin to decline
consistent with the decline in default rates on PMI's California policies
discussed below. Accordingly, management anticipates the average claim size to
decrease over the long term.
In addition to claim increases, PMI's default rate has increased to 2.19% at
December 31, 1996 from the December 31, 1995 rate of 1.98%. This increase was
primarily caused by a growth in the inventory level of notices of delinquency
due primarily to the maturation of PMI's 1992 and 1993 books of business.
Management expects this trend to continue in 1997. See Cautionary Statement.
Default rates on PMI's California policies decreased to 3.81% at December 31,
1996, from 4.08% at December 31, 1995. Policies written in southern California
in the years 1989 through 1993, which are in the historically highest claim
period, are also generally believed to have been written at the high point of
southern California real estate prices. The California economy continues to
recover more slowly than anticipated when the policies were issued. Accordingly,
California default rates for each of the policy years since 1989 may continue to
experience an average default rate higher than the national average default
rate. However, the default rates for California experienced year over year
improvements in the third and fourth quarters of 1996, and management expects
this trend to continue in 1997. See Cautionary Statement.
Mortgage insurance underwriting and other expenses decreased to $64.4 million in
1996 from $68.0 million in 1995, or 5.3%. This decrease, in contrast to the
growth rate in NIW, is primarily the result of management's focus on controlling
expenses and the expense ratio, and secondarily to the Centre Re commutation.
The mortgage insurance loss ratio increased to 41.9% in 1996 compared with 38.5%
in 1995 due to the increase in losses and loss adjustment expenses discussed
above. The expense ratio reported an improvement over 1995, dropping to 18.4% in
1996 from 24.9% in 1995, resulting in a combined ratio of 60.3% in 1996, 3.1
percentage points better than the 1995 ratio of 63.4%. The impact of the Centre
Re commutation was to decrease the stated mortgage insurance expense ratio for
1996 by approximately two percentage points and to increase the loss ratio by a
corresponding amount. The net impact of the Centre Re commutation was immaterial
to the mortgage insurance combined ratio for the year ending December 31, 1996.
Title insurance premiums earned increased 32.0% to $53.2 million in 1996
compared with $40.3 million in 1995. This improvement was due to expansion
efforts of the title business, as well as the overall improvement in the volume
of residential mortgage originations. Underwriting and other expenses increased
31.5% to $48.0 million in 1996 compared to $36.5 million in 1995. This increase
is directly attributable to the increase in premiums earned. The title insurance
combined ratio decreased to 93.5% in 1996 from 95.4% in 1995. The title
insurance industry expense ratios are much higher than those experienced in the
mortgage insurance industry primarily because the commission rates paid to title
agencies and attorneys are substantially higher than those paid to mortgage
insurance sales agents.
35
<PAGE>
Other income, primarily revenues generated by PMI Mortgage Services Co. ("MSC"),
increased to $6.9 million in 1996 from $2.3 million in 1995. This growth is
primarily due to increased mortgage services operations resulting from higher
refinancing activity and expansion of its contract underwriting services.
The Company's effective tax rate was 28.9% in 1996 compared to 25.1% in 1995.
The benefits of tax-preference investment income and other permanent differences
reduced the effective rates below the statutory rate of 35% during both periods.
The increase in the effective rate in 1996 over 1995 was due to a greater
portion of operating income generated from insurance operations rather than
tax-free bond income, the state tax effect of PMI's $25.0 million cash dividend
and transfer of American Pioneer Title Insurance Company ("APTIC") to TPG, and a
shift in the mix of the investment portfolio to a greater portion of taxable
fixed-income bonds.
1995 VERSUS 1994
Net income in 1995 was $135.2 million, a 27.4% increase over 1994 net income of
$106.1 million. The increase was primarily attributable to increases in premiums
earned and investment income (including capital gains) of 10.9% and 23.6%,
respectively, and a decrease in operating expenses of 5.0%, partially offset by
an increase in losses and loss adjustment expenses of 8.6%. Earnings per share
were $3.85 for the year compared with $3.03 in 1994, a 27.1% increase. Excluding
capital gains, earnings per share were $3.63 in 1995 compared with $2.97 in
1994, a 22.2% increase. Revenues in 1995 were $405.0 million, a 12.5% increase
over revenues of $360.0 million in 1994.
New mortgage insurance written totaled $14.5 billion in 1995 compared with $18.4
billion in 1994, a 21.2% decrease. The decrease in NIW resulted from the number
of new mortgage insurance policies written declining by 23.3%, to 119,600
policies in 1995 from 156,000 policies in 1994. One of the factors contributing
to this decrease was the drop in refinancing activity in 1995 versus 1994.
Refinancings showed a significant decrease of 56.4% to 12,300 policies in 1995
from 28,200 policies in 1994. Refinancing as a percentage of NIW decreased by
6.8 points, to 11.5% in 1995 from 18.3% in 1994. The number of policies written
for new purchases also dropped in 1995 from the 1994 level, to 107,300 from
127,800, a 16.0% decline. Management believes that a second contributing factor
to the decline in total NIW was PMI's reluctance to aggressively participate in
a market which displayed a deteriorating trend in borrower credit quality
beginning in late 1994 and continuing into 1995. Consequently, PMI's market
share of NIW in 1995 declined to 13.2% compared to 14.0% in 1994.
PMI's persistency rate increased 2.8 points in 1995 over the 1994 rate, to 86.4%
from 83.6%. This increase is primarily attributable to the decrease in
refinancing activity in 1995. The increased persistency contributed to the
growth of insurance in force to $71.4 billion at December 31, 1995, from $66.0
billion at December 31, 1994. Growth in insurance in force continued during 1995
at a slower pace than the 1994 growth level, 8.2% in 1995 versus 15.8% in 1994,
primarily due to the decrease in NIW.
Mortgage insurance net premiums written in 1995 were $273.7 million, compared
with $232.3 million in 1994, an increase of 17.8%. The increase is primarily
attributable to higher renewal premiums due to improved persistency and to a
decline in ceded and refunded premiums, partially offset by a decline in new
premiums written. The decline in new premiums written in 1995 was due to the
decrease in NIW in 1995 from 1994, and the increasing usage of the monthly
premium plan in 1995. The increase in net premiums written is also attributable
to higher average premiums for NIW during 1995 compared with 1994. The higher
average premiums were caused by an increasing shift to 95s with deeper coverage,
partially offset by a decline in the use of ARMs. 95s with 30% coverage
increased to 34.7% of NIW in 1995 compared with 1.2% in 1994, while ARMs
decreased to 21.3% of NIW in 1995 compared with 29.7% in 1994. The deeper
coverage percentages are primarily a result of changes in Fannie Mae and Freddie
Mac coverage requirements effective in 1995. The new
36
<PAGE>
deeper coverage percentages for 30 year loans include 30 percent coverage on 95s
and 25 percent coverage on 90s.
PMI's monthly premium plan experienced significant growth in popularity during
1995, its first full year in PMI's product line. The monthly plan represented
85.2% of NIW in 1995, up 48.2 points from the 1994 level of 37.0%. This trend
toward the monthly premium product has significantly impacted PMI's premium mix
from new to renewals. The monthly product spreads the receipt of premiums over
12 equal monthly payments (which initially reduces the amount of premiums
written), compared to the annual prepayment method (where the entire annual
premium is recorded as written at the effective date of the policy). For the
monthly premium plan, PMI recognizes only the first month's premium as new
premium written while subsequent monthly premium payments are recognized as
renewal premiums. Management believes that the monthly premium plan does not
significantly impact net premiums earned. The monthly premium products have been
priced to compensate for the different timing of cash flows (as compared to
annual premium products) and the related impact on investment income, and,
accordingly, will have no significant effect on the Company's results of
operations.
Refunded premiums in 1995 decreased by 15.0% to $12.5 million from $14.7 million
in 1994 due primarily to the decrease in refinancing volume during 1995. Ceded
premiums written as a percentage of net new, renewal and refunded premiums
decreased to 9.2% in 1995 compared to 10.4% in 1994.
Mortgage insurance premiums earned increased 15.0% to $288.5 million in 1995
from $250.9 million in 1994. This increase is due primarily to the growth in
insurance in force in 1995 over 1994 and the impact of higher premium rates from
the shift to deeper coverage products.
The Company's net investment income in 1995 was $62.0 million compared with
$56.8 million in 1994, an increase of 9.2%. The increase was primarily
attributable to the growth in the average amount of invested assets, which
resulted from positive cash flows generated by operating activities, partially
offset by a decrease in the effective yield. The average effective yield
(pretax) on the portfolio's invested value during 1995 decreased to 6.5% from
6.9% in 1994, primarily due to an increasing portion of the portfolio being
invested in lower yielding, tax-exempt municipal bonds. Realized capital gains
(net of losses) reported a significant increase over 1994, up $8.8 million to
$11.9 million in 1995 from $3.1 million in 1994. This increase is consistent
with the 1995 stock market performance.
Mortgage insurance losses and loss adjustment expenses increased to $111.0
million in 1995 from $101.6 million in 1994, an increase of 9.3%. This increase
was primarily the result of the growth in insurance in force in recent years and
the increased default rates and claim amounts in certain areas of the country,
particularly California.
Consistent with increasing coverage percentages and increasing mortgage
principal amounts, claim amounts have risen in recent years, while PMI's book of
business continues to mature into the higher-frequency claim period. Insurance
written by PMI in the period from January 1, 1990 through December 31, 1993
represented 51.6% of PMI's insurance in force at December 31, 1995. In addition,
PMI's default rate has increased over the 1994 level by 10 basis points, from
1.88% to 1.98% at December 31, 1995.
Mortgage insurance underwriting and other expenses decreased 2.7% to $68.0
million in 1995 from $69.9 million in 1994. This decrease is primarily the
result of the decrease in NIW in 1995.
The mortgage insurance loss ratio decreased to 38.5% in 1995 compared with 40.5%
in 1994 due, in part, to a $20.7 million decrease in prior year reserves
recorded in 1995. The expense ratio also reported an improvement over 1994,
dropping to 24.9% in 1995 from 30.1% in 1994, resulting in a combined ratio of
63.4% in 1995, 7.2 points better than the 1994 ratio of 70.6%.
37
<PAGE>
Title insurance premiums earned decreased 11.2% to $40.3 million in 1995
compared with $45.4 million in 1994. Underwriting and other expenses decreased
9.9% to $36.5 million in 1995 compared to $40.5 million in 1994. These decreases
are attributable to an overall decline in the volume of residential mortgage
originations. The title insurance combined ratio increased slightly to 95.4% in
1995 from 94.1% in 1994.
Other income, primarily revenues generated by MSC, decreased to $2.3 million in
1995 from $3.8 million in 1994, a 39.5% decline. This decrease is primarily due
to reduced mortgage services operations resulting from lower refinancing
activity.
The Company's effective tax rate was 25.1% in 1995 compared to 23.4% in 1994.
The benefits of tax-preference investment income and other permanent differences
reduced the effective rates below the statutory rate of 35% during both periods.
The increase in the effective rate in 1995 over 1994 was primarily due to a
greater portion of operating income generated from insurance operations rather
than tax-free bond income.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Liquidity and capital resource considerations are different for TPG and PMI, its
principal insurance operating subsidiary, as discussed below.
TPG's principal sources of funds are dividends from its subsidiaries, PMI and
APTIC, cash and investment income thereon and funds that may be raised from time
to time in the capital markets. In February 1996, TPG executed two bank credit
agreements totaling $50.0 million. At December 31, 1996, there were no
outstanding borrowings under the agreements. In November 1996, TPG publicly
issued $100 million of 6.75% 10-year notes. Net proceeds to the Company, after
underwriters' discount, were $99.3 million. In February 1997, TPG privately
issued $100 million 8.309% capital securities. Such securities are redeemable
after February 2007 and in no event beyond February 2027, exclusive of certain
tax events. The net proceeds, totaling $99.0 million, will be used for general
corporate purposes, including common stock repurchases, acquisitions and
additions to the investment portfolio.
TPG's principal uses of funds are common stock repurchases, the payment of
dividends to shareholders, payment of operating expenses, funding of
acquisitions, additions to the investment portfolio and investments in
subsidiaries.
As of December 31, 1996, TPG had available approximately $103.6 million of
unrestricted funds. This amount has increased substantially from the December
31, 1995 amount due to the unused portion of the proceeds of the November debt
offering and receipt of the cash dividend from PMI, less the capital
contribution to RGC and funds used to repurchase common stock.
The principal sources of funds for PMI are premiums received on new and renewal
business, commissions on ceded business and reimbursement of losses from
reinsurers, and amounts earned from the investment of this cash flow. The
principal uses of funds by PMI are the payment of claims and related expenses,
reinsurance premiums, other operating expenses and dividends to TPG.
In the mortgage guaranty insurance industry, liquidity refers to the ability of
an enterprise to generate adequate amounts of cash from its normal operations,
including premiums received and investment income, in order to meet its
financial commitments, which are principally obligations under the insurance
policies it has written. Liquidity requirements are influenced significantly by
the level and severity of claims. PMI's claims-paying ability is currently rated
"AA+" (Very High) by Duff & Phelps Credit Rating Co., "AA+" (Very Strong) by
Fitch Investors Service, Inc., "Aa2" (Excellent) by Moody's Investors Service,
Inc. and "AA+" (Excellent) by Standard
38
<PAGE>
and Poor's Rating Services. These ratings are subject to revisions or withdrawal
at any time by the assigning rating organization. The ratings by the
organizations are based upon factors relevant to PMI's policyholders and are not
applicable to the Company's common stock or outstanding debt. The Company's
operations generally do not require significant amounts of capital expenditures.
PMI generates substantial cash flows from operations as a result of premiums
being received in advance of the time when claim payments are required. Cash
flows generated from PMI's operating activities increased slightly to $96.7
million in 1996 from $93.2 million in 1995. These operating cash flows, along
with that portion of the investment portfolio that is held in cash and
highly-liquid securities, have historically met the liquidity requirements of
PMI, as evidenced by the growth in its investment portfolio. PMI's investment
portfolio, on a cost basis, was $1,054.8 million at December 31, 1996 compared
with $988.3 million at December 31, 1995.
Consolidated reserve for losses and loss adjustment expenses increased from
$192.1 million at December 31, 1995, to $199.8 million at December 31, 1996, an
increase of $7.7 million, or 4.0%. The change in consolidated reserve for losses
and loss adjustment expense consisted of increases resulting primarily from the
Centre Re commutation and secondarily from the maturation of PMI's book of
business, offset by a decrease due to the acceleration of claim payments.
Consolidated shareholders' equity increased from $870.5 million at December 31,
1995, to $986.9 million at December 31, 1996, an increase of $116.4 million, or
13.4%. This increase consisted of $157.9 million of net income and $1.6 million
of employee stock options exercised, offset by common stock repurchases of $30.1
million, dividends declared of $7.0 million and a decrease of $6.0 million in
net unrealized gains on investments available for sale (net of tax).
PMI's risk-to-capital ratio at December 31, 1996 was 15.9:1 compared to 15.8:1
at December 31, 1995. Had the Centre Re commutation not occurred, PMI's
risk-to-capital ratio would have been approximately 14.9:1 at December 31,
1996.
CAUTIONARY STATEMENT
Cautionary Statement for purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995. The statements contained in this
document, including statements which are incorporated by reference, that are not
historical facts, and that relate to future plans, events or performance are
forward-looking statements. The Company's actual results may differ materially
from those expressed in any forward-looking statements made by the Company.
These forward-looking statements involve a number of risks or uncertainties
including, but not limited to, the factors set forth below.
Several factors such as economic recessions, falling housing values, rising
unemployment rates, deteriorating borrower credit, interest rate volatility,
legislation impacting borrowers' rights, or combinations of such factors might
affect the mortgage insurance industry in general and could materially and
adversely affect the Company's financial condition and results of operations.
Such economic events could materially and adversely impact the demand for
mortgage insurance, cause claims on policies issued by PMI to increase, and/or
cause a similar adverse increase in PMI's loss experience.
In addition to nationwide economic conditions, PMI could be particularly
affected by economic downturns in specific regions where a large portion of its
business is concentrated, particularly California where PMI has 22.0% of its
risk in force concentrated and where the default rate on all PMI policies in
force is 3.81% compared to 2.19% nationwide, as of December 31, 1996.
39
<PAGE>
Several factors that may influence the amount of NIW by PMI include mortgage
insurance industry volumes of new business, the impact of competitive
underwriting criteria and products including mortgage pool insurance, the effect
of risk-sharing structured transactions, changes in the performance of the
financial markets, general economic conditions that affect the demand for or
acceptance of the Company's products, changes in government housing policy,
changes in the statutory charters, regulations and coverage requirements of
Government Sponsored Enterprises, banks and savings institutions, customer
consolidation and other risk factors listed from time to time in TPG's
Securities and Exchange Commission filings.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF STOCK
POTENTIAL INCREASE IN CLAIMS
Mortgage insurance coverage generally cannot be canceled by PMI and remains
renewable at the option of the insured for the life of the loan. As a result,
the impact of increased claims from policies originated in a particular year
generally cannot be offset by premium increases on policies in force or
mitigated by nonrenewal of insurance coverage. There can be no assurance,
however, that the premiums charged will be adequate to compensate PMI for the
risks and costs associated with the coverage provided to its customers.
RECENT GROWTH; CHANGES IN COMPOSITION OF INSURANCE WRITTEN
The mortgage insurance industry has experienced a significant increase in NIW,
primarily as a result of historically low interest rates. Policies written by
PMI from January 1, 1991 through December 31, 1994 represent 55.4% of PMI's
insurance in force as of December 31, 1996. The majority of claims under PMI
policies have historically occurred during the third through the sixth years
after issuance of the policies. Thus, this substantial volume of PMI's business
is in its expected peak claims period, and management expects that the default
rate will rise in the future as such business continues through its expected
peak claims period. If actual claim frequency on such business significantly
exceeds expected claim frequency, the Company's financial condition and results
of operations could be materially and adversely affected.
The composition of PMI's NIW has included an increasing percentage of mortgages
with LTVs in excess of 90% and less than or equal to 95% ("95s"). At December
31, 1996, approximately 43.6% of PMI's risk in force consisted of 95s, which, in
PMI's experience, have had a claims frequency approximately twice that of
mortgages with LTVs equal to or less than 90% and over 85% ("90s"). PMI also
offers coverage for mortgages with LTVs in excess of 95% and up to 97% ("97s"),
which have even higher risk characteristics than 95s and greater uncertainty as
to pricing adequacy. PMI's NIW also includes adjustable rate mortgages ("ARMs"),
which, although priced higher, have risk characteristics that exceed the risk
characteristics associated with PMI's book of business as a whole. Although PMI
charges higher premium rates for loans which are ARMs and/or 95s and even higher
rates for 97s, the premiums earned on such products, and the associated
investment income, may ultimately prove to be inadequate to compensate for
future losses from such products.
LOSS RESERVES
PMI establishes loss reserves based upon estimates of the claim rate and average
claim amount, as well as the estimated costs, including legal and other fees, of
settling claims. Such reserves are based on estimates, which are regularly
reviewed and updated. There can be no assurance that PMI's reserves will prove
to be adequate to cover ultimate loss development on incurred defaults. The
Company's financial condition and results of operations could be materially and
adversely affected if PMI's reserve estimates are insufficient to cover the
actual related claims paid and expenses incurred.
40
<PAGE>
COMPETITION; MARKET SHARE
Numerous factors bear on the relative position of the private mortgage insurance
industry versus government and quasi-governmental competition as well as the
competition of lending institutions which choose to remain uninsured or to
reinsure through affiliates. PMI's market share, as measured by NIW declined in
the fourth quarter of 1996, compared to the third quarter of 1996, due primarily
to PMI's decision not to offer mortage pool insurance. Management presently
anticipates that competitive pressures related to the availability of mortgage
pool insurance will continue to negatively impact market share during the first
half of 1997. The Company's financial condition and results of operation could
be materially and adversely affected by a continuing decline in its market
share.
TPG and PMI from time to time introduce new mortgage insurance products or
programs. The Company's financial condition and results of operations could be
materially and adversely affected if PMI or the Company experience delays in
introducing competitive new products and programs. In addition, for any
introduced product, there can be no assurance that such products or programs
will be as profitable as the Company's existing products and programs.
FANNIE MAE AND FREDDIE MAC; STATE AND FEDERAL LEGISLATION
Fannie Mae and Freddie Mac impose requirements on private mortgage insurers for
such insurers to be eligible to insure loans sold to such agencies. Any change
in PMI's existing eligibility status could have a material adverse effect on
the Company's financial condition and results of operations.
Proposals have been advanced which would allow Fannie Mae and Freddie Mac
greater flexibility in utilizing substitutes for private mortgage insurance.
The Company cannot predict whether any such proposals will be adopted or, if
adopted, whether such proposals would materially and adversely affect the
Company's financial condition and results of operations.
PMI must cancel mortgage insurance for a mortgage loan upon the request of the
insured. Fannie Mae and Freddie Mac have recently adopted guidelines which give
borrowers the right to request cancellation of mortgage insurance when specified
conditions are met. In addition, federal legislation has been introduced that
also addresses these issues and various states have enacted or proposed similar
legislation. Proposals concerning borrower notification of their cancellation
rights, cancellation criteria, or the point at which mortgage insurance premiums
may no longer be charged to borrowers, are still being formulated and remain
uncertain. Although it is expected that certain of these proposals will
eventually be enacted, the Company believes it is too early to ascertain their
impact.
RISK-TO-CAPITAL RATIO
Regulators specifically limit the amount of insurance risk that may be written
by PMI to a multiple of 25 times PMI's statutory capital (which includes the
contingency reserve). Other factors affecting PMI's risk-to-capital ratio
include: (i) regulatory review and oversight by the State of Arizona, PMI's
state of domicile for insurance regulatory purposes; (ii) limitations under the
Runoff Support Agreement discussed below, which prohibit PMI from paying any
dividends if, after the payment of any such dividend, PMI's risk-to-capital
ratio would equal or exceed 23 to 1, (iii) TPG's credit agreements, and (iv)
TPG's and PMI's credit or claims-paying ability ratings.
Significant losses could cause a material reduction in statutory capital,
causing an increase in the risk-to-capital ratio and thereby limit PMI's ability
to write new business. The inability to write new business could materially
adversely affect the Company's financial condition and results of operations.
CONTINUING RELATIONSHIPS WITH ALLSTATE AND AFFILIATES
Historically, Allstate provided capital and other business support services to
PMI pursuant to a variety of contractual arrangements with PMI and TPG. Pursuant
to the Runoff Support Agreement with Allstate, if PMI's risk-to-capital ratio
exceeds 23 to 1, Allstate will have certain limited rights and obligations to
pay amounts with respect to claims under PMI policies in effect prior to the
effective date of the Runoff Support Agreement (or to contribute capital to TPG
or to PMI for such purpose). In 1993, PMI entered into a reinsurance agreement
with Forestview, a wholly-owned subsidiary of Allstate, whereby Forestview
agreed to reinsure all liabilities (net of amounts collected from third party
reinsurers) in connection with PMI's mortgage pool insurance business in
exchange for premiums received. In 1994, Forestview also agreed to assume PMI's
mortgage pool insurance business upon receipt of all required regulatory
approvals. Significant claims have been paid on the policies covered by the
reinsurance agreement which, amounts have been reimbursed by Forestview to PMI.
It is anticipated that additional significant claims will be paid in 1997 and
beyond.
Due to the complex nature of numerous arrangements between Allstate and the
Company, Allstate has the ability to influence the policies and affairs of the
Company. The failure of Allstate to maintain its contractual commitments to the
Company could have a material adverse impact on the Company's financial
condition and results of operations.
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<PAGE>
CONSOLIDATED STATEMENTS OF
O P E R A T I O N S
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) 1996 1995 1994
- ---------------------------------------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
REVENUES Premiums earned $ 412,738 $ 328,756 $ 296,345
Investment income, less investment expense 67,442 62,041 56,774
Realized capital gains, net 14,296 11,934 3,064
Other income 6,948 2,309 3,802
-------------- --------------- ---------------
TOTAL REVENUES 501,424 405,040 359,985
-------------- --------------- ---------------
LOSSES AND Losses and loss adjustment expenses 152,409 112,837 103,907
EXPENSES Underwriting and other operating expenses 126,002 111,662 117,527
Interest expense 907 -- --
-------------- --------------- ---------------
TOTAL LOSSES AND EXPENSES 279,318 224,499 221,434
-------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 222,106 180,541 138,551
INCOME TAX EXPENSE 64,188 45,310 32,419
-------------- --------------- ---------------
NET INCOME $ 157,918 $ 135,231 $ 106,132
============== =============== ===============
INCOME PER
SHARE NET INCOME $ 4.51 $ 3.85 $ 3.03
============== =============== ===============
WEIGHTED AVERAGE SHARES OUTSTANDING 35,040 35,122 35,000
============== =============== ===============
</TABLE>
See notes to consolidated financial statements
42
<PAGE>
CONSOLIDATED
B A L A N C E S H E E T S
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
(DOLLARS IN THOUSANDS) 1996 1995
- ------------------------ ------------------------------------------------------------- --------------- ---------------------
<S> <C> <C> <C>
ASSETS Investments
Available for sale, at market
Fixed income securities (amortized
cost $1,042,570 and $867,705) $ 1,085,514 $ 928,773
Equity securities
Common (cost $77,775 and $85,088) 112,583 110,843
Preferred (cost $305 and $438) 388 505
Common stock of affiliate, at underlying book value 11,385 10,541
Short-term investments 81,876 82,310
--------------- ---------------------
Total investments 1,291,746 1,132,972
Cash 6,592 3,654
Accrued investment income 19,439 18,367
Reinsurance recoverable and prepaid premiums 83,379 78,007
Receivable from affiliates 10,525 7,579
Receivable from Allstate 16,822 14,733
Deferred policy acquisition costs 31,633 22,986
Property and equipment, net 22,519 17,574
Other assets 27,264 8,568
--------------- ---------------------
TOTAL ASSETS $ 1,509,919 $ 1,304,440
=============== =====================
LIABILITIES Reserve for losses and loss adjustment expenses $ 199,774 $ 192,087
Unearned premiums 116,951 140,322
Long-term debt 99,342 --
Reinsurance balances payable 13,295 18,741
Deferred income taxes 50,786 52,130
Other liabilities and accrued expenses 42,909 30,657
--------------- ---------------------
TOTAL LIABILITIES 523,057 433,937
--------------- ---------------------
Commitments and contingent liabilities (Note 10) -- --
SHAREHOLDERS' Preferred stock - $.01 par value; 5,000,000 shares -- --
authorized
EQUITY Common stock - $.01 par value; 125,000,000 shares
authorized; 35,047,619 and 35,011,494 shares issued 350 350
Additional paid-in capital 258,059 256,507
Unrealized net gains on investments 50,709 56,761
Retained earnings 707,885 556,969
--------------- ---------------------
1,017,003 870,587
Less cost of treasury shares (537,800 and 2,000 shares
at cost) 30,141 84
--------------- ---------------------
TOTAL SHAREHOLDERS' EQUITY 986,862 870,503
--------------- ---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,509,919 $ 1,304,440
=============== =====================
</TABLE>
See notes to consolidated financial statements
43
<PAGE>
CONSOLIDATED STATEMENTS OF
S H A R E H O L D E R S' E Q U I T Y
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C>
PREFERRED Preferred stock - $.01 par value; 5,000,000 shares
STOCK authorized $ -- $ -- $ --
------------ ------------- -------------
COMMON Common stock - $.01 par value; 125,000,000 shares
STOCK authorized, 35,047,619, 35,011,494 and 35,000,000
shares issued 350 350 350
------------ ------------- -------------
ADDITIONAL Balance, beginning of year 256,507 256,163 198,163
PAID-IN Stock grants and exercise of stock options 1,552 344 --
CAPITAL Capital contributions from Allstate -- -- 58,000
------------ ------------- -------------
Balance, end of year 258,059 256,507 256,163
------------ ------------- -------------
UNREALIZED Balance, beginning of year 56,761 3,676 55,930
NET GAINS ON Change in unrealized net gains on investments (6,052) 53,085 (52,254)
------------ ------------- -------------
INVESTMENTS Balance, end of year 50,709 56,761 3,676
------------ ------------- -------------
RETAINED Balance, beginning of year 556,969 426,989 320,857
EARNINGS Net income 157,918 135,231 106,132
Dividends declared (7,002) (5,251) --
------------ ------------- -------------
Balance, end of year 707,885 556,969 426,989
------------ ------------- ------------
TREASURY Balance, beginning of year (84) -- --
STOCK Purchases of THE PMI Group, Inc. common stock (30,057) (84) --
------------ ------------- ------------
Balance, end or year (30,141) (84) --
------------ ------------- ------------
TOTAL SHAREHOLDERS' EQUITY $ 986,862 $ 870,503 $ 687,178
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
CONSOLIDATED STATEMENTS OF
C A S H F L O W S
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS} 1996 1995 1994
- ------------------------------------------------------------------------------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH Net income $ 157,918 $ 135,231 $ 106,132
FLOWS Reconciliation of net income to net cash provided by operating
FROM activities
OPERATING Realized capital gains, net (14,296) (11,934) (3,064)
ACTIVITIES Equity in (earnings) loss of affiliate (192) 605 448
Depreciation and amortization 3,283 5,155 4,905
Changes in
Reserve for losses and loss adjustment expenses 7,687 18,202 38,414
Unearned premiums (23,371) (16,699) (20,644)
Deferred policy acquisition costs (8,647) 2,616 3,412
Accrued investment income (1,072) (1,265) (1,178)
Reinsurance balances payable (5,446) 6,126 (153)
Reinsurance recoverable and prepaid premiums (5,372) (17,328) (14,240)
Income taxes 1,915 12,549 6,309
Receivable from affiliates (2,946) 12,330 (11,868)
Receivable from/payable to Allstate (2,089) (47,111) 3,988
Other (5,566) 1,554 3,192
------------- ------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 101,806 100,031 115,653
------------- ------------ -------------
CASH Proceeds from sales of equity securities 97,104 56,163 29,844
FLOWS Investment collections of fixed-income securities 32,595 67,697 60,784
FROM Proceeds from sales of fixed-income securities 211,945 -- --
INVESTING Investment purchases
ACTIVITIES Fixed-income securities (415,162) (168,641) (136,036)
Equity securities (77,634) (56,078) (43,042)
Net (increase) decrease in short-term investments 434 4,700 (72,164)
Purchase of common stock of affiliate -- -- (9,299)
Investment in affiliate (1,350) (1,848) --
Purchase of property and equipment (10,213) (6,368) (8,723)
------------- ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES (162,281) (104,375) (178,636)
------------- ------------ -------------
CASH Issuance of long-term debt 99,337 -- --
FLOWS Proceeds from exercise of stock options 1,135 170 --
FROM Dividends paid to shareholders (7,002) (3,500) --
FINANCING Purchases of The PMI Group, Inc. common stock (30,057) (84) --
ACTIVITIES Capital contributions from Allstate -- -- 58,000
------------- ------------ -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 63,413 (3,414) 58,000
------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH 2,938 (7,758) (4,983)
CASH AT BEGINNING OF YEAR 3,654 11,412 16,395
------------- ------------ -------------
CASH AT END OF YEAR $ 6,592 $ 3,654 $ 11,412
============= ============ =============
</TABLE>
See notes to consolidated financial statements
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
NOTE 1. BASIS OF PRESENTATION
BASIS OF PRESENTATION. The accompanying consolidated financial statements
include the accounts of The PMI Group, Inc. ("TPG"), its wholly owned
subsidiaries, PMI Mortgage Insurance Co. ("PMI"), Residential Guaranty Co.
("RGC"; formerly PMI Reinsurance Co.), American Pioneer Title Insurance Company
("APTIC") and PMI Mortgage Guaranty Co. ("PMG"), and PMI's wholly owned
subsidiaries PMI Mortgage Services Co. ("MSC") and PMI Securities Co.,
collectively referred to as the "Company". All material intercompany
transactions and balances have been eliminated in consolidation.
FORMATION OF COMPANY. TPG was incorporated in December 1993. After obtaining the
required regulatory approvals, on November 28, 1994, Allstate Insurance Company
("Allstate") contributed all of the outstanding common stock of PMI to TPG.
Allstate had previously been the direct owner of all of the common stock of PMI.
Allstate is a wholly owned subsidiary of The Allstate Corporation ("Allstate
Corp.").
On April 18, 1995, Allstate, which had been the sole shareholder of the Company,
sold 24.5 million shares of the Company's common stock, representing 70% of the
outstanding shares of common stock, for approximately $784.0 million (net of
related underwriting discount) in an underwritten public offering registered
under the Securities Act of 1933. Concurrent with the stock offering, Allstate
Corp. sold a new issue of 6.76% exchangeable notes due in 1998. The notes are
mandatorily exchangeable at maturity into substantially all of the remaining
outstanding shares of the common stock of the Company owned by Allstate after
completion of the public offering (subject to Allstate Corp.'s right to deliver
cash in lieu of such shares). As a result, Allstate Corp. will continue to own,
directly or indirectly, 30% of the Company's common stock until the notes are
exchanged, at which time Allstate's ownership could be significantly reduced or
eliminated.
In connection with the public offering of the Company's common stock, the
Company increased the number of shares of common stock outstanding to 35 million
through a stock split effected as a stock dividend on February 27, 1995.
Accordingly, earnings per share has been calculated based on 35 million shares
outstanding for 1994.
NOTE 2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS. The Company, through PMI, primarily writes residential mortgage
guaranty insurance ("primary insurance"). In addition, the Company writes title
insurance through APTIC. Primary insurance provides protection to mortgage
lenders against losses in the event of borrower default and assists lenders in
selling mortgage loans in the secondary market. Title insurance protects the
insured party against losses resulting from title defects, liens and
encumbrances existing as of the effective date of the policy.
BASIS OF ACCOUNTING. The financial statements have been prepared on the basis of
generally accepted accounting principles ("GAAP") which vary from statutory
accounting practices prescribed or permitted by insurance regulatory authorities
(see Note 12). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
INVESTMENTS. The Company has designated its entire portfolio of fixed-income and
equity securities as available for sale. Such securities are carried at market
value with unrealized gains and losses, net of deferred income taxes, reported
as a separate component of shareholders' equity.
In September 1994, PMI acquired 45% of the common stock of CMG Mortgage
Insurance Company ("CMG") from CUNA Mutual Investment Corp. ("CMIC"). CMIC
continues to own the remaining 55% of the common stock of CMG. Such affiliated
investment is reported in accordance with the equity method of accounting.
Investment income consists primarily of interest and dividends. Interest is
recognized on an accrual basis and dividends are recorded on the date of
declaration. Realized capital gains and losses are determined on a
specific-identification basis.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
PROPERTY AND EQUIPMENT. Property and equipment (including software) is carried
at cost less accumulated depreciation. The Company provides for depreciation
utilizing the straight-line method over the estimated useful lives of the
assets, generally 3 to 10 years for equipment and 40 years for real property.
Accumulated depreciation on property and equipment was $28.0 million and $23.2
million at December 31, 1996 and 1995, respectively.
INSURANCE ACCOUNTING. Primary insurance policies are contracts that are
non-cancelable by the insurer, are renewable at a fixed price at the insured's
option, and provide for the payment of premiums on a single, annual or monthly
payment basis. Upon renewal by the insured, the Company is not able to re-
underwrite or re-price its policies. Premiums written on a single premium and an
annual premium basis are initially deferred as unearned premiums and earned over
the policy term. Premiums written on policies covering more than one year
(single premium plans) are amortized over the policy life in relation to the
expiration of risk. Premiums written on annual payment policies are earned on a
monthly pro-rata basis. Premiums written on monthly payment policies are earned
in the period to which they relate. Title insurance premiums are recognized as
revenue on the effective date of the title insurance policy. Fee income of the
non-insurance subsidiaries is earned as the services are provided.
Certain costs of acquiring insurance business, including compensation, premium
taxes and other underwriting expenses, are deferred, to the extent recoverable,
and amortized to expense as the related premiums are earned. Policy acquisition
costs amortized to expense in the years ended December 31, 1996, 1995 and 1994
were $48.3 million, $52.9 million and $48.1 million, respectively.
The reserve for losses and loss adjustment expenses is the estimated cost of
settling claims related to notices of default on insured loans that have been
reported to the Company as well as loan defaults that have occurred but have not
been reported. Estimates are based on an evaluation of claim rates, claim
amounts, and salvage recoverable. Reserves for title insurance claims are based
on estimates of the amounts required to settle such claims, including expenses
for defending claims for which notice has been received and an amount estimated
for claims not yet reported.
Management believes that the reserve for losses and loss adjustment expenses at
December 31, 1996 is appropriately established in the aggregate and is adequate
to cover the ultimate net cost of reported and unreported claims arising from
losses which had occurred by that date. The establishment of appropriate
reserves is an inherently uncertain process. Such reserves are necessarily based
on estimates and the ultimate net cost may vary from such estimates. These
estimates are regularly reviewed and updated using the most current information
available. Any resulting adjustments, which may be material, are reflected in
current operations.
INCOME TAXES. The Company accounts for income taxes using the liability method,
whereby deferred tax assets and liabilities are recorded based on the difference
between the financial statement and tax bases of assets and liabilities at the
currently enacted tax rates. The principal assets and liabilities giving rise to
such differences are presented in Note 6.
CONCENTRATION OF RISK. A substantial portion of PMI's business is generated
within the state of California. Of new insurance written for the year ended
December 31, 1996, California accounted for 20.7%. Also, at December 31, 1996,
California's book of business represented 22.0% of total risk in force.
STOCK-BASED COMPENSATION. The Company accounts for stock-based awards to
employees and directors using the intrinsic value method in accordance with
Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued
to Employees (see Note 11).
RECLASSIFICATION. Certain prior year amounts have been reclassified to conform
to current year presentation.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
NOTE 3. INVESTMENTS
<TABLE>
<CAPTION>
MARKET VALUES. The amortized cost and estimated market values for fixed-income securities are shown below (in thousands):
GROSS UNREALIZED
AMORTIZED ---------------- MARKET
COST GAINS (LOSSES) VALUE
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
At December 31, 1996
U. S. government and agencies $ 89,131 $ 588 $ (1,129) $ 88,590
Municipals 831,213 48,021 (4,233) 875,001
Corporate bonds 121,990 424 (749) 121,665
Redeemable preferred stock 236 22 -- 258
------------- ------------- ------------- --------------
Total $ 1,042,570 $ 49,055 $ (6,111) $ 1,085,514
============= ============= ============= ==============
At December 31, 1996
U. S. government and agencies $ 5,302 $ 877 $ -- $ 6,179
Municipals 861,634 61,256 (1,083) 921,807
Redeemable preferred stock 769 18 -- 787
------------- ------------- ------------- --------------
Total $ 867,705 $ 62,151 $ (1,083) $ 928,773
============= ============= ============= ==============
SCHEDULED MATURITIES. The scheduled maturities for fixed-income securities were as follows at December 31, 1996 (in thousands):
AMORTIZED MARKET
COST VALUE
------------- --------------
Due in one year or less $ 37,484 $ 38,017
Due after one year through five years 254,572 265,367
Due after five years through ten years 209,967 217,102
Due after ten years through twenty years 460,269 482,443
Due after twenty years 80,278 82,585
------------- --------------
Total $ 1,042,570 $ 1,085,514
============= ==============
Actual maturities may differ from those scheduled as a result of calls by the issuers prior to maturity.
</TABLE>
INVESTMENT CONCENTRATION AND OTHER ITEMS. The Company maintains a diversified
portfolio of municipal bonds. At December 31, the following states represented
the largest concentrations in the portfolio (expressed as a percentage of the
carrying value of all municipal bond holdings).
Holdings in no other state exceed 5.0% of the portfolio at December 31 for the
respective years.
1996 1995
---- ----
Texas 17.3% 17.4%
Illinois 14.2 15.7
Washington 10.4 9.2
Indiana 10.0 10.0
California 9.4 7.2
Massachusetts 5.3 3.5
Pennsylvania 3.9 5.0
At December 31, 1996, fixed-income securities with a market value of $9.7
million were on deposit with regulatory authorities as required by law.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
UNREALIZED NET GAINS ON INVESTMENTS.
<TABLE>
<CAPTION>
Unrealized net gains on investments included in shareholders' equity at December 31, 1996, are as follows (in thousands):
GROSS UNREALIZED NET
MARKET ------------------------ UNREALIZED
COST VALUE GAINS (LOSSES) GAINS
----------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 1,042,570 $ 1,085,514 $ 49,055 $ (6,111) $ 42,944
Common stocks 77,775 112,583 35,588 (779) 34,809
Preferred stocks 305 388 82 -- 82
Investment in affiliate 11,200 11,385 185 -- 185
----------- ----------- -------- --------- --------
Total $ 1,131,850 $ 1,209,870 $ 84,910 $ (6,890) 78,020
=========== =========== ======== ========= 27,311
Less deferred income taxes --------
Total $ 50,709
========
</TABLE>
The difference between cost and market value of the investment in affiliate
reflects net unrealized gains on the affiliate's investment portfolio. The
stated market value does not necessarily represent the fair value of the
affiliate's common stock held by the Company.
The change in net unrealized gains, net of deferred income taxes, for fixed
income securities and equity securities are as follows (in thousands):
1996 1995 1994
---------- -------- ---------
Fixed income securities $ (11,777) $ 42,065 $ (49,976)
Equity securities 5,895 10,729 (2,278)
Investment in affiliate (170) 291 --
---------- -------- ---------
Total $ (6,052) $ 53,085 $ (52,254)
========== ======== =========
INVESTMENT INCOME. Investment income by investment type is as follows (in
thousands):
1996 1995 1994
-------- -------- --------
Fixed income securities $ 63,715 $ 56,259 $ 52,921
Equity securities 2,136 2,625 2,117
Common stock of affiliate 192 (605) (448)
Short-term 2,119 5,030 3,226
-------- -------- --------
Investment income, before expenses 68,162 63,309 57,816
Less investment expense 720 1,268 1,042
-------- -------- --------
Investment income, less investment expense $ 67,442 $ 62,041 $ 56,774
======== ======== ========
REALIZED CAPITAL GAINS AND LOSSES. Net realized capital gains on investments are
as follows (in thousands):
1996 1995 1994
-------- -------- --------
Fixed income securities $ 2,072 $ 1,381 $ 1,282
Equity securities 12,024 10,555 1,786
Short-term 200 (2) (4)
-------- -------- --------
Realized capital gains -- net, before taxes 14,296 11,934 3,064
Less income taxes 5,004 4,177 1,072
-------- -------- --------
Realized capital gains, net of taxes $ 9,292 $ 7,757 $ 1,992
======== ======== ========
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
Gross realized capital gains and losses on investments are as follows (in
thousands):
1996 1995 1994
---- ---- ----
Gross realized capital gains $ 19,842 $ 13,306 $ 4,793
Gross realized capital losses (5,546) (1,372) (1,729)
-------- -------- -------
Net realized capital gains $ 14,296 $ 11,934 $ 3,064
======== ======== =======
NOTE 4. LOSS RESERVES
<TABLE>
<CAPTION>
The following table is a reconciliation of the beginning and ending reserve for
losses and loss adjustment expenses for each of the last three years (in
thousands):
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, January 1 $ 192,087 $ 173,885 $ 135,471
Less reinsurance recoverable 17,899 17,569 12,649
------------- -------------- -------------
Net balance, January 1 174,188 156,316 122,822
------------- -------------- --------------
Losses and loss adjustment expenses, principally in respect
of defaults occurring in
Current year 161,740 133,536 121,464
Prior years (9,331) (20,699) (17,557)
------------- -------------- -------------
Total losses and loss adjustment expenses 152,409 112,837 103,907
------------- -------------- --------------
Losses and loss adjustment expense payments, principally
in respect of defaults occurring in
Current year 23,353 16,180 13,651
Prior years 108,757 78,785 56,762
------------- -------------- -------------
Total payments 132,110 94,965 70,413
------------- -------------- -------------
Net balance, December 31 194,487 174,188 156,316
Plus reinsurance recoverable 5,287 17,899 17,569
------------- -------------- -------------
Balance, December 31 $ 199,774 $ 192,087 $ 173,885
============= ============== ==============
</TABLE>
As a result of changes in estimates of ultimate losses resulting from insured
events in prior years, the provision for losses and loss adjustment expenses
(net of reinsurance recoverable) decreased by $9.3 million, $20.7 million and
$17.6 million in 1996, 1995 and 1994, respectively, due primarily to
lower-than-anticipated losses in California. Such re-estimates were based on
management's analysis of various economic trends (including the real estate
market and unemployment rates) and their effect on recent claim rate and claim
severity experience.
NOTE 5. REINSURANCE
PMI cedes reinsurance to reduce net risk in force to meet regulatory
risk-to-capital requirements and to comply with the regulatory maximum policy
coverage percentage limitation of 25%. Certain of the Company's reinsurance
arrangements have adjustable features, including experience account refunds,
which depend on the loss experience of the underlying business. While such
estimates are based on the Company's actuarial analysis of the applicable
business, the amounts the Company will ultimately recover could differ
materially from amounts recorded in reinsurance recoverable. Reinsurance ceding
arrangements do not discharge the Company from its obligations as the primary
insurer.
Effective December 31, 1996 PMI terminated and commuted its reinsurance
agreement with Centre Reinsurance Company of New York and Centre Reinsurance
International Company. This commutation did not have a significant impact on the
Company's results of operations.
In December 1993, the Company decided to cease writing new business in its
mortgage pool insurance business segment (except for honoring certain
commitments in existence prior to the discontinuation of this business).
Concurrently, the Company entered into a reinsurance agreement with Forestview
Mortgage Insurance Co. ("Forestview"), a wholly owned subsidiary of Allstate, to
cede all future mortgage pool net premiums and net losses from PMI to
Forestview. As a result of
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
this ceding agreement, the pool business had no significant impact on the
Company's results of operations for the years ended December 31, 1996, 1995 and
1994. The Board of Directors of Allstate has resolved that Allstate will make
capital contributions to Forestview as necessary to maintain Forestview's
risk-to-capital ratio below 20.0 to 1. In accordance with accounting for
discontinued operations, pool insurance assets (unpaid losses recoverable and
paid claims receivable from reinsurers) and liabilities (loss reserves and
premiums payable) have been netted in the accompanying consolidated balance
sheets, resulting in a net receivable from reinsurers of $12.4 million and $4.8
million at December 31, 1996 and 1995, respectively. Gross pool reinsurance
recoverables and receivables from Forestview and other reinsurers are as follows
at December 31 (in thousands):
1996 1995
---- ----
Forestview $140,670 $123,768
Other reinsurers 39,322 53,135
------- -------
Total $179,992 $176,903
======= =======
Reinsurance recoverable on paid primary losses from non-affiliated reinsurers
was $5.3 million and $2.2 million at December 31, 1996 and 1995, respectively.
Prepaid primary reinsurance premiums from non-affiliated reinsurers were $3.8
million and $17.4 million at December 31, 1996 and 1995, respectively.
The effects of reinsurance on the primary premiums written, premiums earned and
losses and loss adjustment expenses of the Company's operations for the year
ending December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Premiums written
Direct $ 404,528 $ 335,632 $ 301,015
Assumed (901) 3,010 3,819
Ceded (607) (24,621) (27,087)
----------- ----------- ------------
Premiums written, net of reinsurance $ 403,020 $ 314,021 $ 277,747
=========== =========== ============
Premiums earned
Direct $ 425,831 $ 352,459 $ 321,477
Assumed 634 3,412 4,001
Ceded (13,727) (27,115) (29,133)
----------- ----------- ------------
Premiums earned, net of reinsurance $ 412,738 $ 328,756 $ 296,345
=========== =========== ============
Losses and loss adjustment expenses
Direct $ 157,203 $ 128,607 $ 117,672
Assumed (267) 499 778
Ceded (4,527) (16,269) (14,543)
----------- ----------- ------------
Losses and loss adjustment expenses, net of reinsurance $ 152,409 $ 112,837 $ 103,907
=========== =========== ============
In the first quarter of 1996 a quota share reinsurance assumption agreement with
Triad Guaranty Insurance Corporation was terminated.
</TABLE>
NOTE 6. INCOME TAXES
<TABLE>
<CAPTION>
The components of income tax expense are as follows (in thousands):
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current $ 9,056 $ 10,513 $ 2,842
Deferred 55,132 34,797 29,577
---------------- --------------- ----------------
Total income tax expense $ 64,188 $ 45,310 $ 32,419
================ =============== ================
</TABLE>
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
A reconciliation of the statutory federal income tax rate to the effective tax
rate reported on income from operations before taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-exempt income (7.1) (9.5) (11.9)
State income tax (net) 0.9 0.4 0.2
Other 0.1 (0.8) 0.1
--- ---- ---
Effective income tax rate 28.9% 25.1% 23.4%
==== ==== ====
</TABLE>
On April 10, 1995 the Company and its subsidiaries separated from Allstate (See
Note 1). Effective April 11, 1995 the Company and its subsidiaries file a
consolidated income tax return. Prior to that date the Company was part of the
consolidated return of Sears, Roebuck and Co. ("Sears"), the former parent
company of Allstate Corp. The Company's share of consolidated federal income tax
liability prior to April 11, 1995 was determined under a tax sharing agreement
as part of the Sears tax group. Under the tax sharing agreement, the Company has
continuing rights and obligations to Allstate and Sears for the tax effect of
any changes in taxable income relating to the periods during which the Company
was part of the Sears tax group. At December 31, 1996 the Company had income
taxes receivable of $16.8 million from Allstate related to the filing of an
amended return for prior years.
Section 832(e) of the Internal Revenue Code permits mortgage guaranty insurers
to deduct, within certain limitations, additions to statutory contingency
reserves (see Note 12). This provision was enacted to enable mortgage guaranty
insurers to increase statutory unassigned surplus through the purchase of
non-interest bearing "tax and loss bonds" from the federal government. The tax
and loss bonds purchased are limited to the tax benefit of the deduction for
additions to the contingency reserves. The Company purchased tax and loss bonds
of $50.4 million, $21.2 million and $19.3 million in 1996, 1995 and 1994,
respectively.
The Company paid income taxes of $8.2 million, $28.4 million and $9.4 million in
1996, 1995 and 1994, respectively. Included in these amounts are federal income
tax payments to Allstate under the tax sharing agreement of $0.7 million, $21.2
million and $8.6 million in 1996, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
The components of the deferred income tax assets and liabilities at December 31
are as follows (in thousands):
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets
Discount on loss reserves $ 3,722 $ 3,831
Unearned premium reserves 8,187 9,823
Alternative minimum tax credit carryforward 10,453 10,026
Pension costs 2,586 1,724
Other assets 4,258 3,217
----------- -----------
Total deferred tax assets 29,206 28,621
----------- -----------
Deferred tax liabilities
Statutory contingency reserves (36,435) (30,405)
Policy acquisition costs (11,072) (8,045)
Unrealized net gains on investments (27,311) (30,577)
Reinsurance -- (7,751)
Other liabilities (5,174) (3,973)
----------- -----------
Total deferred tax liabilities (79,992) (80,751)
----------- -----------
Net deferred tax liability $ (50,786) $ (52,130)
=========== ===========
</TABLE>
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
NOTE 7. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. Carrying value approximates
fair value for all financial assets and liabilities at December 31, 1996 and
1995. A number of the Company's significant assets and liabilities, including
deferred policy acquisition costs, property and equipment, deferred income taxes
and loss reserves, are not considered financial instruments.
NOTE 8. BENEFIT PLANS
PENSION PLANS
As of April 18, 1995 all full-time employees and certain part-time employees of
the Company participate in The PMI Group, Inc. Retirement Plan (the "Plan"), a
noncontributory defined benefit plan. Also, employees earning in excess of
$150,000 per year participate in The PMI Group, Inc. Supplemental Employee
Retirement Plan ("SERP"), a noncontributory defined benefit plan. Prior to April
18, 1995 the Company participated in the Allstate retirement plan ("Allstate
Plan"), which was also a noncontributory defined benefit plan. Benefits under
all three plans are based upon the employee's length of service, average annual
compensation and estimated social security retirement benefits. Pension expense
of $0.6 million and $2.6 million for the years ended December 31, 1995, and
1994, respectively, was allocated to the Company from the Allstate Plan based
upon compensation. Information about the components of net periodic pension
expense and the Allstate Plan's funded status is not available on a separate
company basis.
The components of the net periodic cost of the Company's defined benefit pension
plans for the year ended December 31, 1996 and the period April 18, 1995,
through December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Service cost $3,282 $2,003
Interest on projected benefit obligation 484 175
Actual return on plan assets (219) (4)
Net amortization and deferral 78 10
----------------- ----------------
Net periodic pension cost $3,625 $2,184
================= ================
</TABLE>
<TABLE>
<CAPTION>
The following lists the funded status of the pension plan as of December 31,
1996 and 1995 (in thousands):
1996 1995
- ----------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested $3,399 $1,991
Non-vested 1,370 842
----------------- ----------------
Accumulated benefit obligation $4,769 $2,833
================= ================
Projected benefit obligation $6,658 $3,596
Net assets available for benefits 2,896 1,097
----------------- ----------------
Projected benefit obligation in excess of plan assets 3,762 2,499
Unrecognized net gain (loss) 581 (67)
----------------- ----------------
Net pension liability $4,343 $2,432
================= ================
</TABLE>
The Company has accrued for the $4.3 million pension obligation as of December
31, 1996. The discount rates used in determining the actuarial present value of
the projected benefit obligation and the pension expense were 7.5% and 7.0% for
1996 and 1995, respectively. The expected long-term rate of return on plan
assets and the assumed rate of compensation increase was 8.5% and 5.5%,
respectively, for both 1996 and 1995. Plan assets consist of fixed income and
equity securities.
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
POST-RETIREMENT BENEFITS OTHER THAN PENSION
The Company provides certain health care and life insurance benefits for retired
employees ("OPEB Plan"). Generally, qualified employees may become eligible for
these benefits if they retire in accordance with the Company's established
retirement policy and are continuously insured under the Company's group plans
or other approved plans for 10 or more years prior to retirement. The Company
shares the cost of the retiree medical benefits with retirees based on years of
service with the Company's share being subject to a 5% limit on annual medical
cost inflation after retirement. The Company's post-retirement benefit plans
currently are not funded. The Company has the right to modify or terminate these
plans.
The components of the net periodic post-retirement benefit cost of the Company's
OPEB Plan for the year ended December 31, 1996 and the period April 18, 1995,
through December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Service cost $ 438 $ 226
Interest on projected benefit obligation 235 124
------------ ------------
Net periodic post-retirement benefit cost $ 673 $ 350
============ ============
</TABLE>
<TABLE>
<CAPTION>
The following lists the funded status of the OPEB Plan as of December 31, 1996
and 1995 (in thousands):
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of
benefit obligations
Active employees eligible to retire $ 216 $122
Active employees ineligible to retire 2,566 2,728
------------ -----
Total accumulated post-retirement benefit
obligation 2,782 2,850
Less unrecognized prior service cost 304 333
Unrecognized (gains) losses (535) 180
------------ ------------
Accrued post-retirement benefit obligation $ 3,013 $ 2,337
============ ===============
</TABLE>
The discount rates for the beginning of the period were 7.0% and 7.5% for 1996
and 1995, respectively. The discount rates used at the end of the period were
7.5% and 7.0% in 1996 and 1995, respectively, which reflects the changes in
high-quality investment-grade bond yields over the periods. The assumed health
care trend rate used in measuring the accumulated post-retirement benefit
obligation is 10.5% grading down to 5.0% over nine years. The effect of a one
percentage point increase in the health care trend rate assumption would result
in an increase of 23% in the accumulated post-retirement benefit obligation from
$2.8 million to $3.4 million as of December 31, 1996.
SAVINGS AND PROFIT SHARING PLAN
As of April 18, 1995, employees of the Company were eligible to participate in
The PMI Group, Inc. Savings and Profit Sharing Plan ("PMI Plan") covering both
salaried and hourly employees. Eligible employees who participate in the PMI
Plan receive, within certain limits, matching Company contributions. Costs
relating to the PMI Plan amounted to $1.1 million and $0.8 million for 1996 and
1995, respectively.
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
NOTE 9. DEBT AND CREDIT FACILITIES
LONG-TERM DEBT
On November 15, 1996, the Company issued debt securities in the amount of $100.0
million (the "Notes"). The Notes are unsecured, no sinking fund is provided and
the Notes are not redeemable prior to maturity. The Notes mature and are payable
on November 15, 2006. Interest on the Notes is 6.75% and is payable
semiannually. No interest payments were made during 1996.
LINES OF CREDIT
On February 1 and 13, 1996, the Company executed separate line of credit
agreements (the "Lines"), each in the amount of $25.0 million. The Lines have
final maturities of January 2001 and December 2000 and commitment fees of 8.0
and 6.5 basis points, respectively. Both Lines may be used for general corporate
purposes. There were no amounts outstanding on the Lines as of December 31,
1996. Interest paid on the Lines was $126,000 in the year ended December 31,
1996.
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases certain office facilities and equipment. Minimum rental
commitments under non-cancelable operating leases with a remaining term of more
than one year as of December 31, 1996, are as follows (in thousands):
Year ending December 31:
1997 $ 5,750
1998 4,708
1999 2,936
2000 465
2001 145
-------------
Total $ 14,004
=============
Total rent expense for all leases was $7.4 million, $6.2 million and $4.8
million in 1996, 1995 and 1994, respectively.
LEGAL PROCEEDINGS
Various legal actions and regulatory reviews are currently pending that involve
the Company and specific aspects of its conduct of business. In the opinion of
management, the ultimate liability in one or more of these actions is not
expected to have a material effect on the financial condition or results of
operations of the Company.
NOTE 11. DIVIDENDS AND SHAREHOLDERS' EQUITY
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company, receipt of dividends from PMI and
other relevant factors. PMI's ability to pay dividends to TPG is limited under
Arizona law. The payment of dividends by PMI without the prior approval of the
Arizona state insurance department is limited to formula amounts based on net
income, net investment income, and capital and surplus, including unassigned
surplus, determined in accordance with statutory accounting practices, as well
as the timing and amount of dividends paid in the preceding twelve months.
Limitations on PMI's risk-to-capital ratio also effectively limit PMI's ability
to pay dividends because the payment of dividends reduces statutory capital.
Various state regulatory authorities impose a limitation that the
risk-to-capital ratio may not exceed 25 to 1. In addition, under a certain
support agreement with Allstate, PMI is prohibited
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
from paying any dividend that would cause its risk-to-capital ratio to equal or
exceed 23 to 1 (see Note 14). Under the most restrictive dividend limitations,
the maximum amount of dividends that PMI can distribute to TPG at December 31,
1996, without prior regulatory approval is $30.7 million. PMI's dividend
restrictions have not had, and are not expected to have, an impact on TPG's
ability to meet its cash obligations.
PREFERRED STOCK
The Company's restated certificate of incorporation authorizes the Board of
Directors to issue up to 5,000,000 shares of preferred stock of TPG in classes
or series and to fix the designations, preferences, qualifications, limitations
or restrictions of any class or series with respect to the rate and nature of
dividends, the price and terms and conditions on which shares may be redeemed,
the amount payable in the event of voluntary or involuntary liquidation, the
terms and conditions for conversion or exchange into any other class or series
of the stock, voting rights and other terms. The Company may issue, without the
approval of the holders of common stock, preferred stock which has voting,
dividend or liquidation rights superior to the common stock and which may
adversely affect the rights of holders of common stock.
Pursuant to the Runoff Support Agreement (see Note 14), the Company has agreed
that, in the event that Allstate makes a payment contemplated by the Allstate
Support Agreements or the Runoff Support Agreement, Allstate will have the right
to receive preferred stock of TPG or PMI with a liquidation preference equal to
the amount of such payment. Such preferred stock will rank senior in right of
payment to the issuer's common stock and, so long as such preferred stock is
outstanding, the issuer thereof will be prohibited from paying any dividends or
making any other distributions on its common stock.
EQUITY INCENTIVE PLAN AND DIRECTORS PLAN
During 1996, the Company amended and restated The PMI Group, Inc. Equity
Incentive Plan (the "Equity Incentive Plan") and The PMI Group, Inc. Stock Plan
for Non-Employee Directors (the "Directors Plan"). Pursuant to such plans, an
aggregate of 1,500,000 shares of common stock was reserved for issuance to
Directors, officers and, employees of TPG and its subsidiaries. The Equity
Incentive Plan provides for awards of both non-qualified stock options and
incentive stock options, stock appreciation rights, restricted stock subject to
forfeiture and restrictions on transfer, and performance awards entitling the
recipient to receive cash or common stock in the future following the attainment
of performance goals determined by the Board of Directors. Generally, options
are granted with an exercise price equal to the market value on the date of
grant, expire ten years from the date of grant and have a three year vesting
period. The Directors Plan provides that each director who is not an employee of
the Company or any of its subsidiaries ("Non-Employee Director") will receive an
annual grant of up to 300 shares of common stock and will receive stock options
for 1,500 shares annually, after an initial option of up to 3,000 shares. The
shares will be granted on June 1 of each year or as soon as administratively
practicable after each anniversary of the Director's commencement of service.
The following is a summary of activity in the Equity Incentive Plan and the
Directors Plan during 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------------------------------- ------------------------------------
SHARES WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
UNDER OPTION EXERCISE PRICE UNDER OPTION EXERCISE PRICE
------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Options outstanding at the
beginning of year 487,181 $ 33.96 -- $ --
Options granted 105,100 45.73 520,617 33.96
Options exercised (33,526) 33.85 (5,494) 31.18
Options forfeited (20,151) 33.95 (27,942) 33.97
------- ----- ------- -----
Outstanding at end of year 538,604 $ 36.40 487,181 $ 33.96
======= ====== ======= =====
Weighted average remaining
contractual life (in years) 8.3 $32.14 - $56.37 9.4 $32.14 - $34.00
Exercisable at year end 147,031 33.55 21,859 32.12
Reserved for future grants 916,376 1,001,325
</TABLE>
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
As discussed in Note 2, the Company accounts for stock-based compensation under
APB No. 25 and its related interpretations. Accordingly, no compensation cost
has been recognized for the Equity Incentive Plan and the Directors Plan.
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, requires the disclosure of pro-forma net income and
earnings per share had the Company adopted the fair value method as of the
beginning of fiscal year 1995. Under SFAS No. 123, the fair value of stock based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: dividend yield range of .35% to .44% for
the 1996 options and .42% for the 1995 options; expected volatility range of
21.08% to 23.12% for the 1996 options and 24.38% for the 1995 options; risk free
interest rates of 5.40%, 5.83%, 6.51%, 6.53% and 6.54% for the 1996 options and
6.11% and 6.85% for the 1995 options; and an expected life of four years
following vesting. Forfeitures are recognized as they occur. If the computed
fair values of the 1996 and 1995 awards had been amortized to expense over the
vesting period of the awards, the Company's net income would have been reduced
to the pro forma amounts of $156.7 million and $134.3 million in 1996 and 1995,
respectively, resulting in pro forma earnings per share of $4.47 and $3.82,
respectively.
NOTE 12. STATUTORY ACCOUNTING
The following table reconciles consolidated shareholders' equity at December 31,
1996 and 1995, and net income for each of the three years in the period ended
December 31, 1996 as reported under GAAP to PMI statutory capital and
policyholders' surplus and net income, determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory authorities
(in thousands):
<TABLE>
<CAPTION>
PMI's statutory capital and policyholders' surplus: 1996 1995
---- ----
<S> <C> <C>
Consolidated shareholders' equity as reported under GAAP $ 986,862 $ 870,503
Less non-PMI shareholder's equity 50,529 32,457
---------- ---------
PMI shareholder's equity as reported under GAAP 936,333 838,046
Deferred policy acquisition costs (31,633) (22,986)
Deferred income taxes 37,643 32,052
Net unrealized gains on fixed-income securities, net of tax (30,149) (41,774)
Nonadmitted assets (6,153) (16,172)
Tax and loss bonds 90,976 40,540
Post-retirement benefits 4,552 3,193
Investment in subsidiaries (12,893) (8,703)
Other (201) (40)
--------- ---------
PMI statutory capital 988,475 824,156
Contingency reserve (674,841) (530,874)
--------- ---------
PMI statutory policyholders' surplus $ 313,634 $ 293,282
========= =========
</TABLE>
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
<TABLE>
<CAPTION>
PMI's statutory net income: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Consolidated net income as reported under GAAP $157,918 $135,231 $106,132
Less non-PMI net income 7,557 2,195 1,597
-------- -------- --------
PMI net income as reported under GAAP 150,361 133,036 104,535
Deferred policy acquisition costs (8,647) 2,616 3,412
Deferred income taxes 52,845 34,298 29,963
Investment in subsidiaries 6,499 1,487 675
Other 1,526 1,033 471
-------- -------- --------
PMI statutory net income $202,584 $172,470 $139,056
======== ======== ========
</TABLE>
Under statutory accounting practices, mortgage insurers are required to
establish each year a contingency reserve equal to 50% of premiums earned in
such year. Such amount must be maintained in the contingency reserve for 10
years after which time it is released to unassigned surplus. Prior to 10 years,
the contingency reserve may be reduced with regulatory approval to the extent
that losses in any calendar year exceed 35% of earned premiums for such year.
Under GAAP, the contingency reserve is not required.
Under statutory accounting practices, insurance policy acquisition costs are
charged against operations in the year incurred. Under GAAP, these costs are
deferred and amortized as the related premiums are earned.
Statutory financial statements only include a provision for current income taxes
due, and purchases of tax and loss bonds are accounted for as investments. GAAP
financial statements provide for deferred income taxes, and purchases of tax and
loss bonds are recorded as payments of current income taxes.
Under statutory accounting practices, certain assets, designated as nonadmitted
assets, are charged directly against statutory surplus. Such assets are
reflected on the GAAP financial statements.
Fixed-income investments classified as available for sale are carried at market
value under GAAP and are generally reported at amortized cost for statutory
purposes.
NOTE 13. BUSINESS SEGMENTS
The Company's two business segments are mortgage insurance ("MI"), including
ancillary services, and title insurance ("Title"). Following is segment
information as of and for the years ended December 31, 1996, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
MI Title Total MI Title Total MI Title Total
--------- ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 447,051 $54,373 $501,424 $363,718 $41,322 $405,040 $ 313,704 $46,281 $359,985
Income from operations
before taxes 217,511 4,595 222,106 177,641 2,900 180,541 134,993 3,558 138,551
Net income 154,914 3,004 157,918 133,196 2,035 135,231 103,819 2,313 106,132
Depreciation expense 4,467 801 5,268 5,151 875 6,026 4,784 694 5,478
Capital expenditures 9,710 503 10,213 5,833 535 6,368 7,683 1,040 8,723
Assets 1,476,511 33,408 1,509,919 1,274,386 30,054 1,304,440 1,070,072 27,349 1,097,421
</TABLE>
NOTE 14. CAPITAL SUPPORT AGREEMENTS
PMI's claims-paying ratings from certain national rating agencies have, in the
past, been based in significant part on various capital support commitments from
Allstate and Sears ("Allstate Support Agreements"). On October 27, 1994, the
Allstate Support Agreements were terminated with respect to policies issued
after October 27, 1994, but continue in modified form (as so modified, the
"Runoff Support Agreement") for policies written prior to such termination.
Under the terms of the Runoff Support Agreement, Allstate may, at its option,
either directly pay or cause to be paid, claims relating to policies written
during the terms of the respective Allstate Support Agreements if PMI fails to
pay such claims or, in lieu thereof, make contributions directly to PMI or TPG.
In the event any amounts were so paid or contributed (which possibility
management believes is remote), Allstate would receive subordinated debt or
preferred stock of PMI or TPG in return.
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
The Runoff Support Agreement contains certain covenants, including covenants
that (i) PMI will write no new business after its risk-to-capital ratio equals
or exceeds 23 to 1; (ii) PMI will pay no dividends if, after the payment of any
such dividend, PMI's risk-to-capital ratio would equal or exceed 23 to 1; and
(iii) on the date that any of the following events occur: (A) PMI's
risk-to-capital ratio exceeds 24.5 to 1, (B) Allstate shall have paid any claims
relating to PMI policies (directly to a policyholder or by paying an amount
equal to such claims to PMI, or to TPG for contribution to PMI pursuant to the
Runoff Support Agreement, (C) any regulatory order is issued restricting or
prohibiting PMI from making full or timely payments under policies, PMI will
transfer substantially all of its assets in excess of $50.0 million to a trust
account established for the payment of claims.
On June 6, 1996, a CMG Capital Support Agreement was executed by PMI and CMIC
whereby both parties agreed to contribute funds, subject to certain limitations,
so as to maintain CMG's risk-to-capital ratio at or below 18.0 to 1. In
addition, the agreement specifies that under certain circumstances, PMI and CMIC
will contribute up to an additional $4.0 million and $4.8 million, respectively,
to CMG, over and above obligations, net of prior contributions, of $13.2 million
and $16.1 million, respectively, previously agreed to in a shareholder agreement
dated September 8, 1994. At December 31, 1996 CMG's risk-to-capital ratio was
13.9 to 1.
NOTE 15. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
1996 1995 1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $115,906 $96,588 $119,056 $99,698 $127,450 $103,349 $139,012 $105,405
Net income 36,990 29,855 41,220 36,421 41,280 35,115 38,428 33,840
Earnings per Share 1.05 0.85 1.17 1.04 1.18 1.00 1.10 0.96
</TABLE>
NOTE 16. SUBSEQUENT EVENT
On February 4, 1997, the Company, through a newly formed trust, privately issued
$100.0 million 8.309% capital securities, Series A. Such securities are
redeemable after February 1, 2007 at a premium and upon occurrence of certain
tax events, and mature on February 1, 2027. The net proceeds, totaling $99.0
million, will be used for general corporate purposes, including common stock
repurchases, acquisitions and additions to the investment portfolio. The capital
securities were issued by PMI Capital I (the "Issuer Trust"). TPG owns all of
the common securities of the Issuer Trust. The sole assets of the Issuer Trust
consist of approximately $103.1 million principle amount of junior subordinated
debentures (the "Debentures") issued by TPG to the Issuer Trust. The Debentures
bear interest at the rate of 8.309% per annum and mature on February 1, 2027.
Distributions on the capital securities occur on February 1 and August 1 of each
year, commencing August 1, 1997. The obligations of the Company under the
Debentures and a related guarantee and expense agreement constitute a full and
unconditional guarantee by the Company of the Issuer Trust's obligations under
the capital securities. The capital securities are subject to mandatory
redemption under certain circumstances. 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". The Company will record distributions payable on the
capital securities as interest expense in the consolidated statements of
operations.
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 THROUGH 1996
R E P O R T O F
M A N A G E M E N T
To the Shareholders of The PMI Group, Inc.
The consolidated financial statements of The PMI Group, Inc. and subsidiaries
have been prepared by management and have been audited by the Company's
independent auditors, Deloitte & Touche LLP, whose report appears on this page.
Management is responsible for the consolidated financial statements, which have
been prepared in conformity with generally accepted accounting principles and
include amounts based on management's judgments.
Management is also responsible for maintaining internal control systems designed
to provide reasonable assurance, at appropriate cost, that assets are
safeguarded and that transactions are executed and recorded in accordance with
established policies and procedures. The Company's systems are under continuing
review and are supported by, among other things, business conduct and other
written guidelines, an internal audit function and the selection and training of
qualified personnel.
The Board of Directors, through its Audit Committee, oversees management's
financial reporting responsibilities. The Audit Committee meets regularly with
the independent auditors, representatives of management and the internal
auditors to discuss and make inquiries into their activities. Both the
independent auditors and the internal auditors have free access to the Audit
Committee, with and without management representatives in attendance.
/s/ W. Roger Haughton
W. Roger Haughton
President and Chief Executive Officer
January 22, 1997
/s/ John M. Lorenzen, Jr.
John M. Lorenzen, Jr.
Executive Vice President and Chief Financial Office
January 22, 1997
R E P O R T O F
I N D E P E N D E N T
A U D I T O R S
To the Board Of Directors and Shareholders of The PMI Group, Inc.
We have audited the accompanying consolidated balance sheets of The PMI Group,
Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The PMI Group, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------------
San Francisco, California
January 22, 1997
(February 4, 1997 as to Note 16)
61
<PAGE>
Exhibit 21.1
The PMI Group, Inc. - Subsidiaries
Name Under Which
Subsidiary Does Jurisdiction of
Subsidiary Name Business (If Different) Incorporation
- --------------- ----------------------- -------------
PMI Mortgage Insurance Co. Arizona
Residential Guaranty Co. Arizona
American Pioneer Title Chelsea Title Company Florida
Insurance Company
PMI Mortgage Services Co. California
PMI Capital I Delaware
PMI Mortgage Guaranty Co. Arizona
PMI Securities Co. Delaware
<PAGE>
EXHIBIT 23.1
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
92636 and No. 33-99378 of The PMI Group, Inc. (the "Company") on Form S-8 and
Registration Statement No. 333-15543 of the Company on Form S-3 of our reports
dated January 22, 1997 (February 4, 1997 as to Note 16) appearing in and
incorporated by reference in this Annual Report on Form 10-K of the Company for
the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
- -------------------------
San Francisco, California
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<DEBT-HELD-FOR-SALE> 1,085,514 928,773
<DEBT-CARRYING-VALUE> 0 0
<DEBT-MARKET-VALUE> 0 0
<EQUITIES> 124,356 121,889
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 1,291,746 1,132,972
<CASH> 6,592 3,654
<RECOVER-REINSURE> 83,379 78,007
<DEFERRED-ACQUISITION> 31,633 22,986
<TOTAL-ASSETS> 1,509,919 1,304,440
<POLICY-LOSSES> 199,774 192,087
<UNEARNED-PREMIUMS> 116,951 140,322
<POLICY-OTHER> 0 0
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 99,342 0
0 0
0 0
<COMMON> 350 350
<OTHER-SE> 986,512 870,153
<TOTAL-LIABILITY-AND-EQUITY> 1,509,919 1,304,440
412,738 328,756
<INVESTMENT-INCOME> 67,442 62,041
<INVESTMENT-GAINS> 14,296 11,934
<OTHER-INCOME> 6,948 2,309
<BENEFITS> 152,409 112,837
<UNDERWRITING-AMORTIZATION> 48,302 52,881
<UNDERWRITING-OTHER> 77,700 58,781
<INCOME-PRETAX> 222,106 180,541
<INCOME-TAX> 64,188 45,310
<INCOME-CONTINUING> 157,918 135,231
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 157,918 135,231
<EPS-PRIMARY> 4.51 3.85
<EPS-DILUTED> 4.50 3.85
<RESERVE-OPEN> 174,188 156,316
<PROVISION-CURRENT> 161,740 133,536
<PROVISION-PRIOR> (9,331) (20,699)
<PAYMENTS-CURRENT> 23,353 16,180
<PAYMENTS-PRIOR> 108,757 78,785
<RESERVE-CLOSE> 194,487 174,188
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
