<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1997
REGISTRATION NOS. 333-27047
333-27047-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STERLING FINANCIAL CORPORATION
STERLING CAPITAL TRUST I
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
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WASHINGTON 91-1572822
DELAWARE 91-1811184
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
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111 NORTH WALL STREET
SPOKANE, WASHINGTON 99201
(509) 358-6160
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
NED M. BARNES, SECRETARY
STERLING FINANCIAL CORPORATION
111 NORTH WALL STREET
SPOKANE, WASHINGTON 99201
(509) 358-6160
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
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DONALD J. LUKES, ESQ. STEVEN KAPLAN, ESQ.
WITHERSPOON, KELLEY, DAVENPORT & TOOLE, P.S. ARNOLD & PORTER
422 WEST RIVERSIDE AVENUE 555 12TH STREET, N.W.
SPOKANE, WASHINGTON 99201 WASHINGTON, D.C. 20044
(509) 624-5265 (202) 942-5998
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
The prospectus contained in this Registration Statement will be used in
connection with the offering of the following securities: (1) % Cumulative
Capital Securities of Sterling Capital Trust I; (2) % Junior Subordinated
Debentures of Sterling Financial Corporation; and (3) a Guarantee of Sterling
Financial Corporation of certain obligations under the Cumulative Capital
Securities.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 23, 1997
1,600,000 CAPITAL SECURITIES
STERLING CAPITAL TRUST I
% CUMULATIVE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $25 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
STERLING
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FINANCIAL CORPORATION
The % Cumulative Capital Securities (the "Capital Securities") offered
hereby represent preferred undivided beneficial interests in the assets of
Sterling Capital Trust I, a statutory business trust created under the laws of
the State of Delaware ("Sterling Capital"). Sterling Financial Corporation (the
"Company") will be the owner of all of the beneficial interests represented by
common securities of Sterling Capital (the "Common Securities" and, together
with the Capital Securities, the "Trust Securities"). Sterling Capital exists
for the sole purpose of issuing the Trust Securities and investing the proceeds
thereof in % Junior Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures," and together with the Trust Securities, the
"Securities") to be issued by the Company. The Junior Subordinated Debentures
will mature on , 2027, which date may be shortened (such date, as it
may be shortened, the "Stated Maturity") to a date not earlier than ,
2002 if certain conditions are met (including the Company having received prior
approval of the Board of Governors of the Federal Reserve System (the "Federal
Reserve") to do so if then required under applicable capital guidelines or
policies of the Federal Reserve). See
(Continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, BY ANY OTHER GOVERNMENTAL AGENCY, OR
OTHERWISE.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING STERLING
PUBLIC COMMISSION(1) CAPITAL(2)(3)
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Per Capital Security............... $25.00 (3) $25.00
- -----------------------------------------------------------------------------------------------------
Total.............................. $40,000,000 (3) $40,000,000
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(1) The Company and Sterling Capital have each agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deduction of expenses payable by the Company estimated at $260,000.
(3) In view of the fact that the proceeds of the sale of the Capital Securities
will be used to purchase the Junior Subordinated Debentures, the Company has
agreed to pay to the Underwriters, as compensation for their arranging the
investment therein of such proceeds, $ per Capital Security, or
$ in the aggregate. See "Underwriting."
------------------------
The Capital Securities are being offered by the Underwriters named herein
subject to prior sale and when, as and if delivered to and accepted by the
Underwriters. It is expected that the Capital Securities will be ready for
delivery in
book-entry form only through the facilities of The Depository Trust Company in
New York, New York, on or about , 1997 against payment therefor in
immediately available funds.
DAIN BOSWORTH PIPER JAFFRAY INC.
Incorporated
The date of this Prospectus is , 1997
<PAGE> 4
(cover page continued)
"Description of Junior Subordinated Debentures -- General." Although the
Company, as a savings and loan holding company, is not subject to the Federal
Reserve capital requirements for bank holding companies, it is possible that in
the future it could become subject to such requirements as a result of the
acquisition of a bank, a change in applicable regulations or the Company
otherwise becoming subject to Federal Reserve capital requirements. The Capital
Securities will have a preference under certain circumstances over the Common
Securities with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise. See "Description of Capital
Securities -- Subordination of Common Securities."
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accumulating from the date of original issuance
and payable quarterly in arrears on September 30, December 31, March 31 and June
30 of each year, commencing September 30, 1997, at the annual rate of % of
the Liquidation Amount of $25 per Capital Security ("Distributions"). The amount
of each Distribution due with respect to the Capital Securities will include
amounts accrued through the date the distribution payment is due. The Company
has the right to defer payment of interest on the Junior Subordinated Debentures
at any time or from time to time for a period not exceeding 20 consecutive
quarterly periods with respect to each deferral period (each, an "Extension
Period"), provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. No interest shall be due and
payable during any Extension Period, except at the end thereof. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Capital Securities will also be
deferred and the Company will not be permitted, subject to certain exceptions
described herein, to declare or pay any cash distributions with respect to the
Company's capital stock or with respect to debt securities of the Company that
rank pari passu in all respects with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Capital Securities are entitled will accumulate) at the rate
of % per annum, compounded quarterly, and holders of Capital Securities will
be required to accrue income for United States federal income tax purposes. See
"Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences -- US
Holders -- Interest Income and Original Issue Discount."
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture (each as defined
herein), taken together, fully, irrevocably and unconditionally guaranteed all
Sterling Capital's obligations under the Capital Securities as described below.
See "Relationship Among the Capital Securities, the Junior Subordinated
Debentures and the Guarantee -- Full and Unconditional Guarantee." Under the
Guarantee, the Company guarantees the payment of Distributions and payments on
liquidation or redemption of the Capital Securities, but only in each case to
the extent of funds held by Sterling Capital, as described herein. See
"Description of Guarantee." If the Company does not make payments on the Junior
Subordinated Debentures held by Sterling Capital, Sterling Capital may have
insufficient funds to pay Distributions on the Capital Securities. The Guarantee
does not cover payment of Distributions when Sterling Capital does not have
sufficient funds to pay such Distributions. In such event, a holder of Capital
Securities may institute a legal proceeding directly against the Company to
enforce payment of such Distributions to such holder. See "Description of Junior
Subordinated Debentures -- Enforcement of Certain Rights by Holders of Capital
Securities." The obligations of the Company under the Guarantee and the Capital
Securities are subordinate and junior in right of payment to all Senior
Indebtedness (as defined in "Description of Junior Subordinated
Debentures -- Subordination") of the Company.
The Capital Securities are subject to mandatory redemption (i) in whole,
but not in part, upon repayment of the Junior Subordinated Debentures at Stated
Maturity or their earlier optional redemption in whole upon the occurrence of a
Tax Event, an Investment Company Event or a Capital Treatment Event (each as
defined herein) and (ii) in whole or in part at any time on or after
, 2002 contemporaneously with the optional redemption by the Company of the
Junior Subordinated Debentures in whole or in part. The Junior
(continued on next page)
2
<PAGE> 5
(cover page continued)
Subordinated Debentures are redeemable prior to maturity at the option of the
Company (i) on or after , 2002, in whole at any time or in part from
time to time, or (ii) in whole, but not in part, at any time within 90 days
following the occurrence and continuation of a Tax Event, Investment Company
Event or Capital Treatment Event, provided that none of the Company's 8.75%
Subordinated Notes Due January 31, 2000 remain outstanding at the time of any
redemption pursuant to clause (ii), in each case at a redemption price equal to
the accrued and unpaid interest on the Junior Subordinated Debentures so
redeemed to but excluding the date fixed for redemption plus 100% of the
principal amount thereof. See "Description of Junior Subordinated
Debentures -- Redemption."
The holders of the outstanding Common Securities will have the right at any
time to dissolve Sterling Capital and, after satisfaction of liabilities to
creditors of Sterling Capital as provided by applicable law, to cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of Sterling Capital. The ability
of the Company to dissolve Sterling Capital may be subject to prior regulatory
approval of the Federal Reserve. See "Description of Capital Securities --
Liquidation Distribution Upon Dissolution."
In the event of the dissolution of Sterling Capital, after satisfaction of
liabilities to creditors of Sterling Capital as provided by applicable law, the
holders of the Capital Securities will be entitled to receive a Liquidation
Amount of $25 per Capital Security plus accumulated and unpaid Distributions
thereon to the date of payment, subject to certain exceptions, which may be in
the form of a distribution of such amount in Junior Subordinated Debentures. See
"Description of Capital Securities -- Liquidation Distribution Upon
Dissolution."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Indebtedness of the Company. As of March 31, 1997, the Company had
approximately $32.2 million of Senior Indebtedness outstanding. See "Description
of Junior Subordinated Debentures -- Subordination."
An application has been made to include the Capital Securities for listing
on the Nasdaq National Market. Although each of the Underwriters has indicated
an intention to make a market in the Capital Securities, the Underwriters are
not obligated to do so, and any market making may be discontinued at any time at
the sole discretion of such Underwriters. There can be no assurance that a
market will develop for the Capital Securities. See "Risk Factors -- Absence of
Existing Public Market; Market Prices" and "Underwriting."
The Capital Securities will be represented by one or more global
certificates registered in the name of The Depository Trust Company ("DTC") or
its nominee. Beneficial interests in the Capital Securities will be shown on,
and transfers thereof will be effected only through, records maintained by
participants in DTC. Except as described herein, the Capital Securities in
certificate form will not be issued in exchange for global certificates. See
"Description of Capital Securities -- Book-Entry, Delivery and Form."
Prospective purchasers must carefully consider the information set forth in
"Certain ERISA Considerations."
THE JUNIOR SUBORDINATED DEBENTURES ARE DIRECT AND UNSECURED OBLIGATIONS OF
THE COMPANY, DO NOT EVIDENCE DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER INSURER OR GOVERNMENTAL AGENCY.
As used herein, (i) the "Junior Subordinated Indenture" means the Junior
Subordinated Indenture, as amended and supplemented from time to time, between
the Company and Bankers Trust Company, as trustee (the "Debenture Trustee"),
pursuant to which the Junior Subordinated Debentures are issued, (ii) the "Trust
Agreement" means the Amended and Restated Trust Agreement relating to Sterling
Capital, as amended and supplemented from time to time, among the Company, as
Depositor, Bankers Trust Company, as Property Trustee (the "Property Trustee")
and Bankers Trust (Delaware), as Delaware Trustee (the "Delaware Trustee")
(collectively, the "Sterling Capital Trustees") and (iii) the "Guarantee" means
the Guarantee Agreement relating to the Capital Securities, as amended and
supplemented from time to time, between the Company and Bankers Trust Company,
as Guarantee Trustee.
3
<PAGE> 6
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material also may be accessed electronically
by means of the Commission's home page on the Internet at http://www.sec.gov.
This Prospectus does not contain all the information set forth in the
Registration Statement and exhibits thereto, which the Company has filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act") and to which reference is hereby made. In addition, such reports, proxy
statements and other information may be inspected at the offices of The Nasdaq
Stock Market, 1735 K Street, N.W., Washington D.C. 20006.
No separate financial statements of Sterling Capital have been included or
incorporated by reference herein. The Company and Sterling Capital do not
consider that such financial statements would be material to holders of the
Capital Securities because Sterling Capital is a newly formed special purpose
entity, has no operating history or independent operations and is not engaged in
and does not propose to engage in any activity other than holding as trust
assets the Junior Subordinated Debentures and issuing the Trust Securities. See
"Prospectus Summary -- Sterling Capital Trust I," "Description of Capital
Securities," "Description of Junior Subordinated Debentures" and "Description of
Guarantee." In addition, the Company does not expect that Sterling Capital will
be filing separate reports under the Exchange Act with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference in this Prospectus the
Company's Annual Report on Form 10-K for the six months ended December 31, 1996,
amendments thereof on Form 10-K/A and the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997, previously filed by the Company with
the Commission pursuant to Section 13 of the Exchange Act.
In addition, all reports and definitive proxy or information statements
filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of any
offering of securities made by this Prospectus shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of filing
of such documents. Any statement contained herein, or in any document all or a
portion of which is incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement or this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than certain exhibits to such
documents). Written requests should be directed to the Chief Financial Officer,
Sterling Financial Corporation, 111 North Wall Street, Spokane, Washington
99201. Telephone requests may be directed to (509) 358-6160.
------------------------
The Company furnishes its security holders with an Annual Report containing
Consolidated Financial Statements audited by its independent certified public
accountants.
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4
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES OFFERED HEREBY, INCLUDING OVER-ALLOTTING SHARES OF THE CAPITAL
SECURITIES AND BIDDING FOR AND PURCHASING SUCH SHARES AT A LEVEL ABOVE THAT
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING." SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
5
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus or in the documents incorporated into this Prospectus by
reference. Unless the context clearly suggests otherwise, references to the
Company include the Company and its subsidiaries.
STERLING FINANCIAL CORPORATION
The Company is a unitary savings and loan holding company, the significant
operating subsidiary of which is Sterling Savings Association ("Sterling
Savings"). The principal operating subsidiaries of Sterling Savings are Action
Mortgage Company ("Action Mortgage"), INTERVEST-Mortgage Investment Company
("INTERVEST") and Harbor Financial Services, Inc. ("Harbor Financial"). Sterling
Savings commenced operations in 1983 as a State of Washington-chartered,
federally-insured stock savings and loan association headquartered in Spokane,
Washington. Since 1983, the Company has made a number of acquisitions to expand
its retail branch delivery system, to add deposits and earning assets and to
geographically diversify its loan portfolio. Sterling Savings attracts Federal
Deposit Insurance Corporation ("FDIC") insured deposits through 41 retail
branches located primarily in rural and suburban communities in Washington and
Oregon. The Company originates loans through its branch offices as well as 10
Action Mortgage residential loan production offices in the Spokane and Seattle,
Washington; Portland, Oregon and Boise, Idaho metropolitan areas and three
INTERVEST commercial real estate lending offices located in the metropolitan
areas of Seattle, Spokane and Portland. The Company also markets tax-deferred
annuities, mutual funds and other financial products through Harbor Financial.
Sterling Savings' revenues are derived primarily from interest earned on
loans and mortgage-backed securities, from fees and service charges and from
mortgage banking operations. The Company provides personalized, quality
financial services to its customers as exemplified by its "Hometown Helpful"
philosophy. The Company believes this dedication to personalized service has
enabled it to maintain a stable and relatively low-cost retail deposit base in
rural areas, while generating a substantial volume of lending activity primarily
in the metropolitan areas of the Pacific Northwest. In recent years, Sterling
Savings has focused its efforts on becoming more like a community retail bank by
increasing its construction, business banking and consumer lending while placing
an increased emphasis on attracting greater volumes of retail deposits. The
Company maintains its principal executive offices at 111 North Wall Street,
Spokane, Washington 99201, telephone number (509) 358-6160.
STERLING CAPITAL TRUST I
Sterling Capital is a statutory business trust created under Delaware law
pursuant to the filing of a certificate of trust with the Delaware Secretary of
State on May 5, 1997. Sterling Capital will be governed by an Amended and
Restated Trust Agreement among the Company, as Depositor, Bankers Trust
(Delaware), as Delaware Trustee, and Bankers Trust Company, as Property Trustee.
Two individuals will be selected by the holders of the Common Securities to act
as administrators with respect to Sterling Capital (the "Administrators"). The
Company, while holder of the Common Securities, intends to select two
individuals who are employees or officers of or affiliated with the Company to
serve as the Administrators. See "Description of Capital
Securities -- Miscellaneous." Sterling Capital exists for the exclusive purposes
of (i) issuing and selling the Trust Securities, (ii) using the proceeds from
the sale of the Trust Securities to acquire the Junior Subordinated Debentures
and (iii) engaging in only those other activities necessary, convenient or
incidental thereto (such as registering the transfer of the Trust Securities).
Accordingly, the Junior Subordinated Debentures will be the sole assets of
Sterling Capital, and payments under the Junior Subordinated Debentures will be
the sole source of revenue of Sterling Capital.
All the Common Securities will initially be owned by the Company. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Capital Securities, except that upon the occurrence and during
the continuation of a Debenture Event of Default arising as a result of any
failure by
6
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the Company to pay any amounts in respect of the Junior Subordinated Debentures
when due, the rights of the holders of the Common Securities to payment in
respect of Distributions and payments upon liquidation, redemption or otherwise
will be subordinated to the rights of the holders of the Capital Securities. See
"Description of Capital Securities -- Subordination of Common Securities." The
Company will acquire Common Securities in an aggregate liquidation amount equal
to 3% of the total capital of Sterling Capital. Sterling Capital has a term of
31 years, but may terminate earlier as provided in the Trust Agreement. The
address of Sterling Capital is 111 North Wall Street, Spokane, Washington 99201,
telephone number (509) 358-6160.
THE OFFERING
Capital Securities Issuer.... Sterling Capital.
Securities Offered........... 1,600,000 Capital Securities. The Capital
Securities represent undivided beneficial
interests in Sterling Capital's assets, which
will consist solely of Junior Subordinated
Debentures and payments thereunder.
Distributions................ The Distributions payable on each Capital
Security will be fixed at a rate per annum
of % of the Liquidation Amount of $25 per
Capital Security, will be cumulative, will accrue
from the date of issuance of the Capital
Securities, and will be payable quarterly in
arrears on the last day of September, December,
March and June of each year, commencing on
September 30, 1997 (subject to possible deferral
as described below). The amount of each
distribution due with respect to the Capital
Securities will include amounts accrued through
the date the distribution payment is due. See
"Description of Capital
Securities -- Distributions."
Extension Periods............ So long as no Debenture Event of Default (as
defined herein) has occurred and is continuing,
the Company will have the right, at any time, to
defer payments of interest on the Junior
Subordinated Debentures by extending the interest
payment period thereon for a period not exceeding
20 consecutive quarters with respect to each
deferral period (each an "Extension Period"),
provided that no Extension Period may extend
beyond the Stated Maturity of the Junior
Subordinated Debentures. If interest payments are
so deferred, Distributions on the Capital
Securities will also be deferred and the Company
will not be permitted, subject to certain
exceptions described herein, to declare or pay
any cash distributions with respect to the
Company's capital stock or debt securities that
rank pari passu with or junior to the Junior
Subordinated Debentures. During an Extension
Period, Distributions will continue to accrue
with income thereon compounded quarterly. Because
interest will continue to accrue and compound on
the Junior Subordinated Debentures, to the extent
permitted by applicable law, holders of the
Capital Securities will be required to accrue
income for United States federal income tax
purposes. See "Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment
Period" and "Certain Federal Income Tax
Consequences -- US Holders -- Interest Income and
Original Issue Discount."
Maturity..................... The Junior Subordinated Debentures will mature on
, 2027, which date may be shortened
(such date, as it may be shortened, the "Stated
Maturity") to a date not earlier than
7
<PAGE> 10
, 2002 if certain conditions are
met (including the Company having received prior
approval of the Federal Reserve to do so if then
required under applicable capital guidelines or
policies of the Federal Reserve).
Redemption................... The Capital Securities are subject to mandatory
redemption upon repayment of the Junior
Subordinated Debentures at maturity or their
earlier redemption in an amount equal to the
amount of Junior Subordinated Debentures maturing
or being redeemed at a redemption price equal to
the aggregate Liquidation Amount of the Capital
Securities, plus accumulated and unpaid
Distributions thereon to the date of redemption.
Subject to Federal Reserve approval, if then
required under applicable capital guidelines or
policies of the Federal Reserve, the Junior
Subordinated Debentures are redeemable prior to
maturity at the option of the Company (i) on or
after , 2002, in whole at any time or
in part from time to time, or (ii) at any time,
in whole (but not in part), upon the occurrence
and during the continuance of a Tax Event, an
Investment Company Event or a Capital Treatment
Event, provided that none of the Company's 8.75%
Subordinated Notes Due January 31, 2000 remain
outstanding at the time of any redemption
pursuant to clause (ii), in each case at a
redemption price equal to 100% of the principal
amount of the Junior Subordinated Debentures so
redeemed, together with any accrued but unpaid
interest to the date fixed for redemption. See
"Description of Capital Securities -- Redemption"
and "Description of Junior Subordinated
Debentures -- Redemption."
Distribution of Junior
Subordinated Debentures.... The Company has the right at any time to dissolve
Sterling Capital and cause the Junior
Subordinated Debentures to be distributed to
holders of Capital Securities in liquidation of
Sterling Capital, subject to the Company having
received prior approval of the Federal Reserve to
do so if then required under applicable capital
guidelines or policies of the Federal Reserve.
See "Description of the Capital Securities --
Liquidation Distribution upon Dissolution."
Guarantee.................... Taken together, the Company's obligations under
various documents described herein, including the
Guarantee, provide a full guarantee on a
subordinated basis of payments by Sterling
Capital of Distributions and other amounts due on
the Capital Securities. Under the Guarantee, the
Company guarantees the payment of Distributions
by Sterling Capital and payments on liquidation
of or redemption of the Capital Securities
(subordinate to the right to payment of Senior
Indebtedness of the Company, as defined herein)
to the extent of funds held by Sterling Capital.
If Sterling Capital has insufficient funds to pay
Distributions on the Capital Securities (i.e., if
the Company has failed to make required payments
under the Junior Subordinated Debentures), a
holder of the Capital Securities would have the
right to institute a legal proceeding directly
against the Company to enforce payment of such
Distributions to such holder. See "Description of
Junior Subordinated Debentures -- Debenture
Events of Default," "Description of Junior
Subordinated Debentures -- Enforcement of Certain
Rights by Holders of Capital Securities" and
"Description of Guarantee."
8
<PAGE> 11
Ranking...................... The Capital Securities will rank pari passu, and
payments thereon will be made pro rata, with the
Common Securities of Sterling Capital held by the
Company, except as described under "Description
of the Capital Securities -- Subordination of
Common Securities." The obligations of the
Company under the Guarantee, the Junior
Subordinated Debentures and other documents
described herein are unsecured and rank
subordinate and junior in right of payment to all
current and future Senior Indebtedness, the
amount of which is unlimited. At March 31, 1997
the aggregate outstanding Senior Indebtedness of
the Company was approximately $32.2 million. In
addition, because the Company is a savings and
loan holding company, all obligations of the
Company relating to the securities described
herein will be effectively subordinated to all
existing and future liabilities of the Company's
subsidiaries, including Sterling Savings. The
Company may cause additional capital securities
to be issued by trusts similar to Sterling
Capital in the future, and there is no limit on
the amount of such securities that may be issued.
In this event, the Company's obligations under
the junior subordinated debentures to be issued
to such other trusts and the Company's guarantees
of the payments by such trusts will rank pari
passu with the Company's obligations under the
Junior Subordinated Debentures and the Guarantee,
respectively.
Voting Rights................ The holders of the Capital Securities will
generally have limited voting rights relating
only to the modification of the Capital
Securities, the dissolution, winding-up or
termination of Sterling Capital and certain other
matters described herein. See "Description of
Capital Securities -- Voting Rights; Amendment of
Trust Agreement."
ERISA Considerations......... Prospective purchasers must carefully consider
the information set forth under "Certain ERISA
Considerations."
Proposed Nasdaq National
Market Symbol................ STSAO
Use of Proceeds.............. The proceeds to Sterling Capital from the sale of
the Capital Securities will be invested by
Sterling Capital in the Junior Subordinated
Debentures. The Company intends to contribute
approximately $25.0 million of the net proceeds
of this offering to Sterling Savings to enhance
Sterling Savings' regulatory capital ratios. The
remaining net proceeds to be received by the
Company from the sale of the Junior Subordinated
Debentures will be used for general corporate
purposes, which may include the repayment of
indebtedness of the Company, investments in or
extensions of credit to its subsidiaries, the
possible redemption of the Company's Cumulative
Convertible Preferred Stock and the financing of
possible acquisitions. See "Use of Proceeds."
For additional information regarding the Capital Securities, see
"Description of Capital Securities," "Description of Junior Subordinated
Debentures," "Description of Guarantee," "Relationship Among the Capital
Securities, the Junior Subordinated Debentures and the Guarantee" and "Certain
Federal Income Tax Consequences."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors," beginning on page 13.
9
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL DATA
Presented below is summary consolidated financial data for the Company for
the periods specified. The Company changed its fiscal year end from June 30 to
December 31, effective December 31, 1996. The following summary consolidated
financial data of the Company for each of the periods have been derived from the
Company's Consolidated Financial Statements. Such Consolidated Financial
Statements for the six months ended December 31, 1996 and for each of the four
fiscal years in the period ended June 30, 1996 have been audited by Coopers &
Lybrand L.L.P. The Consolidated Financial Statements for the three months ended
March 31, 1997 and 1996, and for the six months ended December 31, 1995 are
unaudited and reflect the adjustments, all of which are of a normal and
recurring nature, which in the opinion of management, are considered necessary
for a fair presentation of the financial position and results of operations for
such periods. The consolidated financial information is not necessarily
indicative of the results for any future period and is qualified in its entirety
by the detailed information incorporated herein by reference in the Company's
reports as described under "Available Information."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SIX MONTHS ENDED
MARCH 31, DECEMBER 31, FISCAL YEARS ENDED JUNE 30,
------------------- ------------------- -----------------------------------------
1997 1996 1996(1) 1995 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income....................... $ 29,648 $ 27,980 $ 57,614 $ 57,518 $113,081 $107,256 $ 76,599 $ 57,793
Interest expense...................... (18,596) (18,783) (37,411) (40,486) (77,611) (71,864) (44,610) (32,292)
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income................... 11,052 9,197 20,203 17,032 35,470 35,392 31,989 25,501
Provision for loan losses............. (550) (400) (1,100) (800) (1,600) (1,600) (1,600) (1,500)
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses..................... 10,502 8,797 19,103 16,232 33,870 33,792 30,389 24,001
Other income.......................... 2,054 2,274 4,648 4,334 8,670 11,387 8,485 9,446
Operating expenses.................... (8,888) (8,124) (24,742) (15,515) (31,684) (31,272) (25,788) (21,146)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item.................. 3,668 2,947 (991) 5,051 10,856 13,907 13,086 12,301
Income tax provision.................. (1,394) (1,076) (112) (1,845) (4,064) (4,619) (4,560) (4,638)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
item................................ 2,274 1,871 (1,103) 3,206 6,792 9,288 8,526 7,663
Extraordinary item (2)................ -- -- -- -- -- -- -- (425)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)..................... 2,274 1,871 (1,103) 3,206 6,792 9,288 8,526 7,238
Preferred stock dividends declared.... (471) (471) (942) (942) (1,885) (1,885) (272) --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to common
shares.............................. $ 1,803 $ 1,400 $ (2,045) $ 2,264 $ 4,907 $ 7,403 $ 8,254 $ 7,238
======== ======== ======== ======== ======== ======== ======== ========
Income (loss) per common share
assuming full dilution.............. $ 0.30 $ 0.25 $ (0.37) $ 0.42 $ 0.90 $ 1.27 $ 1.60 $ 1.49
======== ======== ======== ======== ======== ======== ======== ========
RATIOS:
Return on average assets
(annualized)........................ 0.60% 0.50% (0.14)% 0.41% 0.45% 0.48% 0.72% 0.92%
Return on average common shareholders'
equity (annualized)................. 11.14 8.24 (6.57) 6.80 7.43 13.09 16.11 17.36
Shareholders' equity to assets at end
of period........................... 5.58 5.83 5.81 6.10 5.80 5.84 5.57 4.65
Net interest margin (annualized)...... 3.05 2.60 2.80 2.31 2.46 2.44 2.90 3.43
Nonperforming assets to total assets
at end of period.................... 0.43 0.63 0.42 0.59 0.57 0.58 0.71 1.19
Nonperforming loans to total loans at
end of period....................... 0.25 0.47 0.25 0.45 0.36 0.31 0.27 0.87
Loan loss allowance to total loans at
end of period....................... 0.74 0.77 0.74 0.82 0.76 0.64 0.64 0.72
Ratio of earnings to combined fixed
charges and preferred stock
dividends (3):
Excluding interest on deposits...... 1.41x 1.34x (4) 1.26x 1.30x 1.39x 1.62x 2.27x
Including interest on deposits...... 1.19 1.15 (4) 1.12 1.13 1.19 1.29 1.38
</TABLE>
10
<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
JUNE 30,
MARCH 31, DECEMBER 31, -------------------------------------------------------
1997 1996 1996 1995 1994 1993
---------- ------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION DATA:
Total assets....................... $1,557,216 $ 1,536,344 $1,477,698 $1,540,784 $1,374,118 $1,038,962
Loans receivable................... 966,948 934,340 886,667 1,055,111 844,520 593,669
Mortgage-backed securities......... 352,231 376,940 399,893 280,776 360,789 325,969
Investments........................ 119,655 104,721 72,047 76,576 77,565 43,531
Deposits........................... 935,590 902,278 898,394 890,041 810,970 579,785
FHLB advances...................... 279,736 259,626 259,410 352,073 364,985 295,996
Securities sold subject to
repurchase agreements and federal
funds purchased.................. 195,884 229,797 195,785 159,880 81,849 80,162
Other long-term debt............... 32,240 32,240 17,240 17,240 17,250 17,250
Shareholders' equity............... 86,835 89,220 85,745 89,907 76,529 48,272
</TABLE>
- ---------------
(1) During the six months ended December 31, 1996, the Company recorded a
pre-tax charge to earnings of $5.8 million as a result of a non-recurring
assessment to fund the Savings Association Insurance Fund ("SAIF").
(2) The extraordinary item is the loss associated with the early extinguishment
of Federal Home Loan Bank advances, net of income taxes.
(3) The consolidated ratio of earnings to combined fixed charges and preferred
stock dividends has been computed by dividing income before income taxes and
fixed charges by fixed charges and preferred stock dividends. Fixed charges
represent all interest expense (ratios are presented both excluding and
including interest on deposits), amortization of notes and debenture expense
and the portion of net rental expense which is deemed to be equivalent to
interest on debt. Preferred stock dividends associated with outstanding
preferred stock are increased to an amount representing the pre-tax earnings
which would be required to cover such dividend requirements. Interest
expense (other than on deposits) includes interest on notes and debentures,
federal funds purchased and securities sold under agreements to repurchase,
mortgages, commercial paper and other funds borrowed.
(4) Earnings were insufficient to cover combined fixed charges and preferred
stock dividend requirements by $991,000. This was due to a net loss recorded
during the period, which was primarily due to the non-recurring SAIF
assessment of $5.8 million.
11
<PAGE> 14
STERLING
------------------------------------
FINANCIAL CORPORATION
[STERLING MAP PAGE]
12
<PAGE> 15
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Capital Securities offered by this Prospectus. Certain statements in this
Prospectus and documents incorporated herein by reference are forward-looking
and are identified by the use of forward-looking words or phrases such as,
without limitation, "intended," "will be positioned," "expects," is or are
"expected," "anticipates," and "anticipated." These forward-looking statements
are based on the Company's current expectations. To the extent any of the
information contained or incorporated by reference in this Prospectus
constitutes a "forward-looking statement" as defined in Section 27A(i)(1) of the
Securities Act, the risk factors set forth below are cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statement.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE JUNIOR
SUBORDINATED DEBENTURES
The obligations of the Company under the Guarantee issued by the Company
for the benefit of the holders of Capital Securities and under the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Senior Indebtedness. At March 31, 1997, the Senior Indebtedness of the Company
aggregated approximately $32.2 million. None of the Junior Subordinated
Indenture, the Guarantee or the Trust Agreement places any limitation on the
amount of secured or unsecured debt, including Senior Indebtedness, that may be
incurred by the Company. See "Description of Junior Subordinated Debentures --
Subordination" and "Description of Guarantee -- Status of the Guarantee."
Further, there is no limitation of the Company's ability to issue additional
junior subordinated debentures in connection with any future offerings of
capital securities, and any such additional debentures would rank pari passu
with the Junior Subordinated Debentures.
The ability of Sterling Capital to pay amounts due on the Capital
Securities is solely dependent upon the Company's making payments on the Junior
Subordinated Debentures as and when required.
DIVIDEND PAYMENT SOURCES AND RESTRICTIONS
The principal source of funds for payments by the Company (and
consequently, interest on the Junior Subordinated Debentures, Sterling Capital's
ability to pay Distributions on the Capital Securities and the Company's ability
to pay its obligations under the Guarantee) will be dividends from the Company's
principal subsidiary, Sterling Savings. Applicable rules and regulations of the
Office of Thrift Supervision (the "OTS") impose limitations on capital
distributions by savings institutions. Savings institutions, such as Sterling
Savings, which have capital in excess of all capital requirements before and
after the proposed capital distribution are permitted, after giving prior notice
to the OTS, to make capital distributions during a calendar year up to the
greater of (i) 100% of net income to date during the calendar year, plus the
amount that would reduce by one-half its "surplus capital" (its excess capital
over its regulatory capital requirements) at the beginning of the calendar year
or (ii) 75% of its net income over the most recent four quarter period. However,
such capital distribution may not reduce surplus capital below the regulatory
capital requirement at the date of the capital distribution. Institutions with
less capital are more restricted in payment of dividends and no institution can
pay dividends if such would cause the institution to no longer satisfy its
capital requirements.
STATUS OF THE COMPANY AS A SAVINGS AND LOAN HOLDING COMPANY
The Company, as a savings and loan holding company, and Sterling Savings,
as a state-chartered savings and loan association with deposits insured by the
FDIC, are subject to significant supervision and regulation by the OTS, the FDIC
and the State of Washington Department of Financial Institutions (the
"Washington Supervisor"). This supervision and regulation is intended to protect
depositors, rather than holders of the Company's securities. The OTS and the
FDIC have adopted and proposed numerous regulations and undertaken other
regulatory initiatives in an effort to increase the safety and soundness of the
savings and loan industry. In addition, legislation has been enacted that
provides for regulatory seizure of insured institutions in the event of certain
declines in capital levels, requires risk-based deposit insurance premiums and
imposes
13
<PAGE> 16
liability on holding companies for regulatory capital deficiencies of insured
institution subsidiaries under certain circumstances, among other significant
effects.
The Company is a legal entity separate and distinct from Sterling Savings,
although the principal source of the Company's cash is dividends from Sterling
Savings. The right of the Company to participate in the assets of any subsidiary
upon the latter's liquidation, reorganization or otherwise (and thus the ability
of the holders of Capital Securities to benefit indirectly from any such
distribution) will be subject to the claims of the subsidiaries' creditors,
which will take priority except to the extent that the Company may itself be a
creditor with a recognized claim.
Sterling Savings is also subject to restrictions under federal law which
limit the transfer of funds to the Company or to other affiliates, whether in
the form of loans, extensions of credit, investments, asset purchases or
otherwise. Such transfers by Sterling Savings to the Company or any other
affiliate are limited in amount to 10% of Sterling Savings' capital and surplus
and, with respect to the Company and all such other affiliates, to an aggregate
of 20% of Sterling Savings' capital and surplus. Furthermore, such loans and
extensions of credit are required to be collateralized.
CERTAIN REGULATORY MATTERS
Sterling Savings is a State of Washington-chartered institution and is
subject to regulation by the Washington Supervisor, which conducts regular
examinations to ensure that Sterling Savings' operations and policies conform
with sound industry practice. Sterling Savings is currently subject to a
supervisory directive from the Washington Supervisor. The directive requires
Sterling Savings to provide monthly reports, maintain its current "well
capitalized" status, obtain prior approval for significant transactions and take
certain other corrective actions. The Company is in the process of completing
such corrective actions. Sterling Savings operates three branches within the
State of Oregon and is therefore also subject to the supervision of the Oregon
Department of Consumer and Business Services.
The Company, as a savings and loan holding company, is not subject to
consolidated capital requirements. However, if certain legislation pending in
Congress is enacted, Sterling Savings may be required to convert its charter to
either a national bank charter, a state depository institution charter, or a
newly designed charter, in which case the Company may be required to register as
a bank holding company and become regulated at the holding company level by the
Federal Reserve rather than by the OTS. Regulation by the Federal Reserve could
subject the Company to capital requirements that are not currently applicable to
the Company as a savings and loan holding company under OTS regulation and may
result in statutory limitations on the type of business activities in which the
Company may engage at the holding company level, which business activities
currently are not restricted. At this time, the Company is unable to predict
whether a charter change will be required and, if it is, whether the charter
change will significantly impact Sterling Savings' operations.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Event of Default (as defined in the Junior Subordinated
Indenture) has occurred and is continuing with respect to the Junior
Subordinated Debentures (a "Debenture Event of Default"), the Company has the
right under the Junior Subordinated Indenture to defer the payment of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. See "Description of Junior
Subordinated Debentures -- Debenture Events of Default." As a consequence of any
such deferral, quarterly Distributions on the Capital Securities by Sterling
Capital will be deferred during any such Extension Period. Distributions to
which holders of the Capital Securities are entitled will accumulate additional
Distributions thereon during any Extension Period at the rate of % per
annum, compounded quarterly from the relevant payment date for such
Distributions, 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. Additional
Distributions payable for each full Distribution period will be computed by
dividing the rate per annum by four. The term "Distribution" as used herein
shall include
14
<PAGE> 17
any such additional Distributions. During any such Extension Period, the Company
may not (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal 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 respects with or junior in interest to the
Junior Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed 20 consecutive quarterly periods or extend beyond
the Stated Maturity of the Junior Subordinated Debentures. Upon the termination
of any Extension Period and the payment of all interest then accrued and unpaid
(together with interest thereon at the annual rate of %, compounded
quarterly, to the extent permitted by applicable law), the Company may elect to
begin a new Extension Period subject to the above conditions. No interest shall
be due and payable during an Extension Period, except at the end thereof. The
Company must give the Sterling Capital Trustees notice of its election to begin
an Extension Period at least one Business Day prior to the earlier of (i) the
date the Distributions on the Capital Securities would have been payable but for
the election to begin such Extension Period and (ii) the date the Property
Trustee is required to give notice to holders of the Capital Securities of the
record date or the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. The Property Trustee will
give notice of the Company's election to begin a new Extension Period to the
holders of the Capital Securities. Subject to the foregoing, there is no
limitation on the number of times that the Company may elect to begin an
Extension Period. See "Description of Capital Securities -- Distributions" and
"Description of Junior Subordinated Debentures -- Option to Extend Interest
Payment Period."
Should an Extension Period occur, a holder of Capital Securities will
continue to accrue income (in the form of original issue discount) in respect of
its pro rata share of the Junior Subordinated Debentures held by Sterling
Capital for United States federal income tax purposes. As a result, a holder of
Capital Securities will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from Sterling Capital if the holder
disposes of the Capital Securities prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences -- US
Holders -- Interest Income and Original Issue Discount" and "Certain Federal
Income Tax Consequences -- US Holders -- Sales of Capital Securities."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures. However, should the Company elect to exercise such
right in the future, the market price of the Capital Securities is likely to be
affected. A holder that disposes of the Capital Securities during an Extension
Period, therefore, might not receive the same return on the investment as a
holder that continues to hold its Capital Securities. In addition, as a result
of the existence of the Company's right to defer interest payments, the market
price of the Capital Securities (which represent preferred undivided beneficial
interests in the assets of Sterling Capital) may be more volatile than the
market prices of other securities on which original issue discount or interest
accrues that are not subject to such deferrals.
15
<PAGE> 18
TAX EVENT, INVESTMENT COMPANY EVENT OR CAPITAL TREATMENT EVENT REDEMPTION
Upon the occurrence and during the continuation of a Tax Event, Investment
Company Event or Capital Treatment Event, the Company has the right to redeem
the Junior Subordinated Debentures in whole, but not in part, at any time within
90 days following the occurrence of such Tax Event, Investment Company Event or
Capital Treatment Event, provided that none of the Company's 8.75% Subordinated
Notes Due January 31, 2000 remain outstanding at the time of any such
redemption, and thereby cause a mandatory redemption of the Capital Securities.
Any such redemption shall be at a price equal to the liquidation amount of the
Capital Securities, together with accumulated Distributions to but excluding the
date fixed for redemption. The ability of the Company to exercise its rights to
redeem the Junior Subordinated Debentures prior to the Stated Maturity may be
subject to prior regulatory approval by the Federal Reserve, if then required
under applicable Federal Reserve capital guidelines or policies. See
"Description of Capital Securities -- Liquidation Distribution Upon Dissolution"
and "Description of Junior Subordinated Debentures -- Redemption."
A "Tax Event" means the receipt by Sterling Capital of an opinion of
counsel to the Company experienced in such matters to the effect that, as a
result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official or administrative pronouncement or action 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, there is more than an insubstantial risk
that (i) Sterling Capital is, or will be within 90 days of the delivery of such
opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion will not be, deductible by the Company, in whole
or in part, for United States federal income tax purposes or (iii) Sterling
Capital is, or will be within 90 days of the delivery of the opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
See "Certain Federal Income Tax Consequences -- US Holders -- Proposed Tax
Law Changes" for a discussion of certain legislative proposals that, if adopted,
could give rise to a Tax Event, which may permit the Company to cause a
redemption of the Capital Securities prior to , 2002.
"Investment Company Event" means the receipt by Sterling Capital of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
Sterling Capital is or will be considered an "investment company" that is
required to be registered under the Investment Company Act of 1940, as amended
(the "Investment Company Act"), which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date of
the issuance of the Capital Securities.
A "Capital Treatment Event" means the reasonable determination by the
Company that, as a result of the occurrence of any amendment to, or change
(including any announced prospective change) in, the laws (or any rules or
regulations thereunder) of the United States or any political subdivision
thereof or therein, or as a result of any official or administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or such pronouncement,
action or decision is announced on or after the date of issuance of the Capital
Securities, there is more than an insubstantial risk that the Company will not
be entitled to treat an amount equal to the Liquidation Amount of the Capital
Securities as Tier 1 Capital (or the then equivalent thereof) for purposes of
the risk-based capital adequacy guidelines of the Federal Reserve, as then in
effect, provided, however, that it shall not be deemed to be a Capital Treatment
Event if the Company is not entitled to treat the aggregate amount of the
Liquidation Amount of such Capital Securities as Tier 1 Capital due to the
restriction imposed by the Federal Reserve that no more than 25% of Tier 1
Capital can consist of perpetual preferred stock.
16
<PAGE> 19
POSSIBLE TAX LAW CHANGES AFFECTING THE CAPITAL SECURITIES
On February 6, 1997, President Clinton released his budget proposals for
fiscal year 1998. One of the tax proposals therein (the "Tax Proposal") would
generally deny corporate issuers a deduction for interest on certain debt
obligations that have a maximum term in excess of 15 years and are not shown as
indebtedness on the separate balance sheet of the issuer or, where the
instrument is issued to a related party (other than a corporation), where the
holder or some other related party issues a related instrument that is not shown
as indebtedness on the issuer's consolidated balance sheet. As currently
drafted, the Tax Proposal would be effective generally for instruments issued on
or after the date of first Congressional committee action. Although it is not
clear from the President's proposals as to what constitutes Congressional
"committee action" with respect to the Tax Proposal, it appears that, as
drafted, the Tax Proposal would not apply retroactively to the Junior
Subordinated Debentures. However, if the Tax Proposal (or similar legislation)
is enacted with retroactive effect with respect to the Junior Subordinated
Debentures, the Company may not be entitled to an interest deduction with
respect to the Junior Subordinated Debentures. There can be no assurances that
the Tax Proposal, if enacted, will not apply retroactively to the Junior
Subordinated Debentures or that other legislation enacted after the date hereof
will not otherwise adversely affect the ability of the Company to deduct the
interest payable on the Junior Subordinated Debentures. Accordingly, there can
be no assurance that a Tax Event will not occur. See "Description of Capital
Securities -- Redemption" and "Description of Junior Subordinated
Debentures -- Redemption." See also "Certain Federal Income Tax
Consequences -- US Holders -- Proposed Tax Law Changes."
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES IN EXCHANGE FOR CAPITAL
SECURITIES
The holders of all the outstanding Common Securities will have the right at
any time to dissolve Sterling Capital and, after satisfaction of liabilities to
creditors of Sterling Capital as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of Sterling Capital. The ability
of the Company to dissolve Sterling Capital may be subject to prior regulatory
approval of the Federal Reserve, if then required under applicable Federal
Reserve capital guidelines or policies. See "Description of Capital
Securities -- Liquidation Distribution Upon Dissolution."
Under current United States federal income tax law and interpretations and
assuming, as expected, that Sterling Capital will not be taxable as a
corporation, a distribution of the Junior Subordinated Debentures upon a
liquidation of Sterling Capital will not be a taxable event to holders of the
Capital Securities. However, if a Tax Event were to occur that would cause
Sterling Capital to be subject to United States federal income tax with respect
to income received or accrued on the Junior Subordinated Debentures, a
distribution of the Junior Subordinated Debentures by Sterling Capital would be
a taxable event to Sterling Capital and the holders of the Capital Securities.
See "Certain Federal Income Tax Consequences -- US Holders -- Receipt of Junior
Subordinated Debentures or Cash upon Liquidation of Sterling Capital."
RIGHTS UNDER THE GUARANTEE
Bankers Trust Company will act as the trustee under the Guarantee and will
hold the Guarantee for the benefit of the holders of the Capital Securities.
Bankers Trust Company will also act as Debenture Trustee for the Junior
Subordinated Debentures and as Property Trustee under the Trust Agreement.
Bankers Trust (Delaware) will act as Delaware Trustee under the Trust Agreement.
Under the Guarantee, the Company guarantees the holders of the Capital
Securities the following payments, to the extent not paid by or on behalf of
Sterling Capital: (i) any accumulated and unpaid Distributions required to be
paid on the Capital Securities, to the extent that Sterling Capital has funds on
hand available therefor at the payment date, (ii) the Redemption Price with
respect to any Capital Securities called for redemption, to the extent that
Sterling Capital has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding up or liquidation of
Sterling Capital (unless the Junior Subordinated Debentures are distributed to
holders of the Capital Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment, to the extent that Sterling Capital has funds on hand available
therefor at such time, and (b) the amount of assets of Sterling Capital
remaining
17
<PAGE> 20
available for distribution to holders of the Capital Securities on liquidation
of Sterling Capital. The Guarantee is subordinated as described under
"-- Ranking of Subordinated Obligations Under the Guarantee and the Junior
Subordinated Debentures" and "Description of Guarantee -- Status of the
Guarantee." The holders of not less than a majority in aggregate Liquidation
Amount of the outstanding Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust power conferred upon the Guarantee Trustee under the Guarantee. Any holder
of the Capital Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against Sterling Capital, the Guarantee Trustee or any other
person or entity.
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, Sterling Capital would lack funds for
the payment of Distributions or amounts payable on redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, if a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Capital Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of any amounts payable in respect of such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Capital Securities of such holder (a "Direct Action").
In connection with such Direct Action, the Company will have a right of set-off
under the Junior Subordinated Indenture to the extent of any payment made by the
Company to such holder of Capital Securities in the Direct Action. Except as
described herein, holders of Capital Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures or assert directly any other rights in respect of the Junior
Subordinated Debentures. See "Description of Junior Subordinated
Debentures -- Debenture Events of Default," "Description of Junior Subordinated
Debentures -- Enforcement of Certain Rights by Holders of Capital Securities"
and "Description of Guarantee." The Trust Agreement provides that each holder of
Capital Securities by acceptance thereof agrees to the provisions of the
Guarantee and the Junior Subordinated Indenture.
LIMITED VOTING RIGHTS
Holders of Capital Securities will have limited voting rights relating
generally to the modification of the Capital Securities and the Guarantee and
the exercise of Sterling Capital's rights as holder of Junior Subordinated
Debentures. Holders of Capital Securities will not be entitled to appoint,
remove or replace the Property Trustee or the Delaware Trustee except upon the
occurrence of certain events specified in the Trust Agreement. The Property
Trustee and the holders of all the Common Securities may, subject to certain
conditions, amend the Trust Agreement without the consent of holders of Capital
Securities to cure any ambiguity or make other provisions not inconsistent with
the Trust Agreement or to ensure that Sterling Capital (i) will not be taxable
as a corporation for United States federal income tax purposes, or (ii) will not
be required to register as an "investment company" under the Investment Company
Act. See "Description of Capital Securities -- Removal of Sterling Capital
Trustees; Appointment of Successors" and "Description of Capital
Securities -- Voting Rights; Amendment of Trust Agreement."
ABSENCE OF EXISTING PUBLIC MARKET; MARKET PRICES
There is no existing market for the Capital Securities. An application has
been made to include the Capital Securities for listing on the Nasdaq National
Market. There can be no assurance that an active and liquid trading market for
the Capital Securities will develop or that a listing of the Capital Securities
will be available on the Nasdaq National Market. Although each Underwriter has
informed Sterling Capital and the Company that such Underwriter intends to make
a market in the Capital Securities offered hereby, the Underwriters are not
obligated to do so and any such market making activity may be terminated at any
time without notice to the holders of the Capital Securities. Future trading
prices of the Capital Securities will depend on many factors including, among
other things, prevailing interest rates, the operating results and financial
condition of the Company, and the market for similar securities. There can be no
assurance as to the
18
<PAGE> 21
market prices for the Capital Securities or the Junior Subordinated Debentures
that may be distributed in exchange for the Capital Securities if the holders of
all the Common Securities exercise their right to dissolve Sterling Capital.
Accordingly, the Capital Securities that an investor may purchase, or the Junior
Subordinated Debentures that a holder of the Capital Securities may receive in
liquidation of Sterling Capital, may decline in value from the price that the
investor paid to purchase the Capital Securities offered hereby.
FOCUS ON COMMUNITY BANKING
In recent years, the Company has focused its efforts on becoming more like
a community retail bank. The Company is increasing its business banking,
consumer and construction lending while placing an increased emphasis on
attracting greater volumes of retail deposits. Business banking, consumer and
construction loans generally produce higher yields than residential mortgage
loans. Such loans, however, generally involve a higher degree of risk than the
financing of residential real estate, primarily because the collateral may be
difficult to obtain or liquidate in the event of default. Construction lending
is subject to risks such as construction delays, cost overruns, insufficient
collateral and the inability to obtain permanent financing in a timely manner.
Business banking and construction loans are more expensive to originate than
residential mortgage loans. As a result, the Company's operating expenses are
likely to increase as the Company increases its lending in these areas.
Additionally, the Company is likely to experience higher levels of loan losses
than it would on residential mortgage loans. There can be no assurance that the
Company's emphasis on community banking will be successful or that any increase
in the yields on business banking, consumer and construction loans will offset
higher levels of expense and losses on such loans.
LOAN PORTFOLIO CONCENTRATION IN CONSTRUCTION LOANS
At March 31, 1997, approximately 16% of Sterling Savings' total loan
portfolio consisted of one- to four-family residential construction loans,
approximately 72% of which were for properties that were not custom built or
pre-sold. Further, approximately 80% of Sterling Savings' one- to four-family
residential construction loan portfolio was concentrated in the Portland, Oregon
market which is served by one loan production office. A reduction in the demand
for residential housing could have a negative impact on Sterling Savings and
therefore on the Company. In addition, at March 31, 1997, another 9% of Sterling
Savings' loan portfolio consisted of multifamily residential construction and
commercial property construction loans.
ALLOWANCE FOR LOAN LOSSES
Inability of borrowers to repay loans can erode earnings and capital of
financial institutions. Like all financial institutions, Sterling Savings
maintains an allowance for loan losses to provide for loan defaults and
nonperformance. The allowance is based on prior experience with loan losses, as
well as an evaluation of the risks in the current portfolio, and is maintained
at a level considered adequate by management to absorb anticipated losses. The
amount of future losses is susceptible to changes in economic, operating and
other conditions, including changes in interest rates, that may be beyond
management's control, and such losses may exceed current estimates. At March 31,
1997, Sterling Savings had nonperforming loans of $2.7 million and an allowance
for loan losses of $8.0 million or 0.74% of total loans and 297% of
nonperforming loans. There can be no assurance that Sterling Savings' allowance
for loan losses will be adequate to cover actual losses. Future provisions for
loan losses could materially and adversely affect results of operations of the
Company.
ECONOMIC CONDITIONS AND IMPACT OF INTEREST RATES
Results of operations for financial institutions, including the Company,
may be materially and adversely affected by changes in prevailing economic
conditions, including declines in real estate values, rapid changes in interest
rates and the monetary and fiscal policies of the federal government. The
profitability of the Company is in part a function of the spread between the
interest rates earned on assets and the interest rates paid on deposits and
other interest-bearing liabilities, including advances from the Federal Home
Loan Bank of Seattle ("FHLB"). A decrease in interest rate spreads would have a
negative effect on the net interest income and profitability of the Company, and
there can be no assurance that this spread will not decrease. Although economic
conditions in the market area of the Company have been generally stronger than
those in many other regions of the country, there can be no assurance that such
conditions will continue to prevail.
19
<PAGE> 22
Moreover, substantially all of the loans of the Company are to individuals and
businesses in the Pacific Northwest, and any decline in the economy of this
market area could have an adverse impact on the Company.
Currently, the Company's interest-bearing liabilities, consisting primarily
of savings deposits, FHLB advances and other borrowings, mature or reprice more
rapidly, or on different terms, than do its interest-earning assets. The fact
that liabilities mature or reprice more frequently on average than assets may be
beneficial in times of declining interest rates; however, such an
asset/liability structure may result in declining net interest income during
periods of rising interest rates. Additionally, the extent to which borrowers
prepay loans is affected by prevailing interest rates. When interest rates
increase, borrowers are less likely to prepay loans; whereas when interest rates
decrease, borrowers are more likely to prepay loans. Prepayments may affect the
levels of loans retained in an institution's portfolio, as well as its net
interest income.
GROWTH AND ACQUISITION STRATEGIES
The Company has pursued and intends to continue to pursue an internal
growth strategy, the success of which will depend primarily on generating an
increasing level of loans and deposits at acceptable risk levels and terms
without proportionate increases in non-interest expenses. There can be no
assurance that the Company will be successful in implementing its internal
growth strategy. In addition, the Company has grown and may seek to grow by
acquiring other financial institutions. Any acquisitions will be subject to
regulatory approval, and there can be no assurance that the Company will be able
to obtain such approvals. The Company may not be successful in identifying
further acquisition candidates, integrating acquired institutions or preventing
deposit erosion or loan quality deterioration at acquired institutions.
Competition for acquisitions in the Company's market area is highly competitive,
and the Company may not be able to acquire other institutions on attractive
terms. Furthermore, the success of the growth strategy of the Company will
depend on maintaining sufficient regulatory capital levels and on continued
favorable economic conditions in the Pacific Northwest.
NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as to create additional efficiencies in
Sterling Savings' operations. Many of Sterling Savings' competitors have
substantially greater resources to invest in technological improvements. There
can be no assurance that the Company will be able to effectively implement new
technology-driven products and services or be successful in marketing such
products and services to its customers.
COMPETITIVE BANKING ENVIRONMENT
The banking business in the Pacific Northwest is highly competitive. The
Company competes for loans and deposits with local, regional and national
commercial banks, savings banks, savings and loan associations, finance
companies, money market funds, brokerage houses, credit unions and nonfinancial
institutions, many of which have substantially greater financial resources than
the Company. Interstate banking is permitted in Washington. After a phase-in
period ending July 1, 1997, full state-wide branch banking will be permitted. As
a result, management believes that the Company may experience greater
competition in its market area.
20
<PAGE> 23
USE OF PROCEEDS
All the proceeds to Sterling Capital from the sale of the Capital
Securities will be invested by Sterling Capital in the Junior Subordinated
Debentures. The net proceeds to the Company from the sale of Junior Subordinated
Debentures are estimated to be $ million. The Company initially intends to
contribute approximately $25.0 million of the net proceeds of the offering to
Sterling Savings to enhance Sterling Savings' regulatory capital ratios. The
remaining net proceeds to be received by the Company from the sale of the Junior
Subordinated Debentures will be used for general corporate purposes, which may
include the repayment of indebtedness of the Company, investments in or
extensions of credit to subsidiaries, the possible redemption of the Company's
outstanding $1.8125 Series A Cumulative Convertible Preferred Stock and the
financing of possible acquisitions. The decision to call such Cumulative
Convertible Preferred Stock for redemption will depend on several factors
including the market price of the Company's Common Stock and the likelihood that
holders of the Cumulative Convertible Preferred Stock will exercise their option
to convert their interest into shares of the Company's Common Stock rather than
accept cash redemption. Pending such uses, the net proceeds may be temporarily
invested in short- and intermediate-term investment-grade obligations or
deposited in interest-bearing accounts with Sterling Savings or other
institutions. The precise amounts and timing of the application of proceeds will
depend upon the funding requirements of the Company and its subsidiaries and the
availability of other funds.
Although the Company, as a savings and loan holding company, is not subject
to the Federal Reserve capital requirements for bank holding companies, it is
possible that in the future it could become subject to such requirements as a
result of the acquisition of a bank, a change in applicable regulations or the
Company otherwise becoming subject to Federal Reserve capital requirements. On
October 21, 1996, the Federal Reserve announced that certain qualifying amounts
of cumulative preferred securities having the characteristics of the Capital
Securities could be included as Tier 1 capital for bank holding companies. Such
Tier 1 capital treatment, together with the Company's ability to deduct, for
income tax purposes, interest payable on the Junior Subordinated Debentures
provides the Company with a more cost-effective means of obtaining capital for
regulatory purposes than if the Company were to issue preferred stock.
ACCOUNTING TREATMENT
For financial reporting purposes, Sterling Capital will be treated as a
subsidiary of the Company and, accordingly, the accounts of Sterling Capital
will be included in the consolidated financial statements of the Company. The
Capital Securities will be included in the consolidated balance sheets of the
Company under the caption "Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely Junior Subordinated Debentures"
and appropriate disclosures about the Capital Securities, the Guarantee and the
Junior Subordinated Debentures will be included in the Notes to the Consolidated
Financial Statements of the Company. For financial reporting purposes,
Distributions on the Capital Securities will be recorded as interest expense in
the consolidated statements of income of the Company.
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<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization (including deposits) of
the Company at March 31, 1997 and as adjusted to give effect to the issuance of
the Capital Securities by Sterling Capital in this offering and the application
of the net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deposits.............................................................. $935,590 $ 935,590
======== ========
Borrowings:
Advances from FHLB.................................................. $279,736 $ 279,736
Securities sold subject to repurchase agreements and Federal Funds
purchased........................................................ 195,884 195,884
Notes payable....................................................... 15,000 15,000
Subordinated notes payable.......................................... 17,240 17,240
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely Junior Subordinated
Debentures(1).................................................... -- 40,000
-------- --------
Total borrowings............................................ $507,860 $ 547,860
======== ========
Shareholders' equity:
Preferred Stock, $1 par value; 10,000,000 shares authorized;
1,040,000 shares issued and outstanding.......................... $ 1,040 $ 1,040
Common Stock, $1 par value; 20,000,000 shares authorized; 5,543,007
shares issued and outstanding.................................... 5,543 5,543
Additional paid-in capital.......................................... 70,474 70,474
Unrealized loss on investments and mortgage-backed securities
available-for-sale (net of deferred income tax benefits)......... (10,224) (10,224)
Retained earnings................................................... 20,002 20,002
-------- --------
Total shareholders' equity.................................. $ 86,835 $ 86,835
======== ========
Regulatory capital ratios of Sterling Savings(2):
Tangible capital.................................................... 6.71% 8.19%
Core capital........................................................ 6.71 8.19
Risk-based capital.................................................. 11.59 13.84
</TABLE>
- ---------------
(1) The subsidiary trust is Sterling Capital, a wholly owned subsidiary of the
Company that will hold approximately $41.2 million principal amount of
Junior Subordinated Debentures issued by the Company to Sterling Capital as
its sole asset. The Capital Securities are issued by Sterling Capital. See
"Description of Junior Subordinated Debentures." The Company owns all of the
Common Securities of Sterling Capital.
(2) Although the Company, as a savings and loan holding company, is not subject
to the Federal Reserve capital requirements for bank holding companies, the
Capital Securities have been structured to qualify as Tier 1 capital,
subject to certain limitations if the Company were to become regulated as a
bank holding company. At March 31, 1997, approximately $29.0 million of the
Capital Securities would have qualified as Tier 1 Capital, if the Company's
outstanding Cumulative Convertible Preferred Stock had been converted into
Common Stock of the Company at that date. There can be no assurance that the
Company's Cumulative Convertible Preferred Stock will be converted into
Common Stock and, if it is not so converted, the amount of the Capital
Securities that would qualify as Tier 1 Capital would be significantly less
than $29 million. The "as adjusted" ratios are based upon initial
contribution by the Company of approximately $25.0 million of the net
proceeds of this offering to Sterling Savings and assume the investment of
such amount of net proceeds in assets with 100% risk weighting under the
risk-based capital rules of the OTS. See "Use of Proceeds."
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<PAGE> 25
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------- --- -------------------------------------------------
<S> <C> <C>
Harold B. Gilkey 57 Chairman of the Board, Chief Executive Officer
and Director
William W. Zuppe 55 President, Chief Operating Officer and Director
Ned. M. Barnes 60 Secretary and Director
Rodney W. Barnett 53 Director
James P. Fugate 63 Director
Robert D. Larrabee 61 Director
Robert E. Meyers 71 Director
David O. Wallace 59 Director
David P. Bobbitt 49 Senior Vice President-Community Banking of
Sterling Savings
Daniel G. Byrne 43 Senior Vice President-Finance and Chief Financial
Officer
Stephen L. Page 48 Senior Vice President-Credit Management of
Sterling Savings
Heidi B. Stanley 40 Senior Vice President-Corporate Administration of
Sterling Savings
John M. Harlow 54 Vice President of Sterling Savings
Stanton C. Parrish 46 Vice President of Sterling Savings
Thomas F. Sackmann 45 Vice President of Sterling Savings
</TABLE>
Harold B. Gilkey, 57, has served as Chairman of the Board and Chief
Executive Officer of the Company since its inception and as Chairman of the
Board and Chief Executive Officer of Sterling Savings since 1981. Mr. Gilkey
co-founded Sterling Savings in 1981. Additionally, he is Chairman of the Board
of INTERVEST, Action Mortgage and Harbor Financial, subsidiaries of Sterling
Savings. Mr. Gilkey brought to the Company over 19 years of commercial and
mortgage banking experience. He served as President of Bancshares Mortgage
Company of Spokane, Washington, an institution servicing $500 million in
mortgage loans, and as Senior Vice President of Old National Bank of Spokane,
Washington, a $1.6 billion commercial bank. Prior to this, Mr. Gilkey was
employed by Bank of America for twelve years, holding various management
positions with responsibilities for equipment finance and leasing, personnel and
training, and branch operations. Mr. Gilkey is a past Director of the Washington
Savings League and a member of the Savings Association Insurance Fund Industry
Advisory Committee, an advisory committee of the FDIC. Mr. Gilkey received his
degree in Business Administration from the University of Montana in 1962 and his
Master of Business Administration degree from the University of Southern
California in 1970. His term expires in 1999.
William W. Zuppe, 55, has served as Director, President and Chief Operating
Officer of the Company since its inception and as Director, President and Chief
Operating Officer of Sterling Savings since 1981. Mr. Zuppe co-founded Sterling
Savings in 1981. Mr. Zuppe is also Vice President and serves as a Director of
INTERVEST, Action Mortgage and Harbor Financial. Mr. Zuppe brought to the
Company 18 years of mortgage banking experience as Vice President of Bancshares
Mortgage Company and Manager of Loan Administration of Sherwood & Roberts, Inc.
of Walla Walla, Washington, a mortgage-banking company which serviced in excess
of $500 million in mortgage loans. Mr. Zuppe is a member of the Washington
Savings League Board of Directors and its Legislative/Regulatory Committee. His
term expires in the year 2000.
Ned M. Barnes, 60, has served as Secretary and a Director of the Company
since its inception and as Secretary of Sterling Savings since 1981 and a
Director since 1983. Mr. Barnes is also Secretary and serves as a Director of
INTERVEST and Action Mortgage and serves as a Director of Harbor Financial. Mr.
Barnes is
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<PAGE> 26
a Principal in the law firm of Witherspoon, Kelley, Davenport & Toole, P.S. of
Spokane, Washington, which he joined in 1965. Mr. Barnes' law practice
emphasizes the areas of real estate and corporate law. Mr. Barnes graduated from
the University of Minnesota in 1958, earning a degree in Business
Administration. He received his Juris Doctorate degree from the University of
Washington in 1961. His term expires in 1998.
Rodney W. Barnett, 53, has served as a Director of the Company since its
inception and as a Director of Sterling Savings since 1981. He is a Principal
and General Manager of Carr Sales Company, an electrical supply firm in Spokane,
Washington. Mr. Barnett is also a past Director of the National Association of
Electrical Distributors and is a past Chairman of the Inland Empire Chapter of
that Association. His term expires in the year 2000.
James P. Fugate, 63, has served as a Director of the Company since its
inception and as a Director of Sterling Savings since 1989. He is the
Superintendent of Auburn School District No. 408 and a member of the Auburn
Economic Development Council. Mr. Fugate is a former Director of Central
Evergreen Savings & Loan Association. His term expires in 1998.
Robert D. Larrabee, 61, has served as a Director of the Company since its
inception and as a Director of the Company since 1983. Mr. Larrabee is the
former owner of Merchant Funeral Home in Clarkston, Washington. He is also a
former Director of Laurentian Capital Corporation, a former Director of Lewis
and Clark Savings & Loan Association and a past President of the Board of
Regents of the University of Washington. His term expires in 1998.
Robert E. Meyers, 71, has served as a Director of the Company since its
inception and as a Director of Sterling Savings since 1983. He is a retired
dentist from Clarkston, Washington. Dr. Meyers is a former Director of Lewis and
Clark Savings & Loan Association. His term expires in 1999.
David O. Wallace, 59, has served as a Director of the Company since its
inception and as a Director of Sterling Savings since 1981. He is the owner of
Startup Business Planning. Mr. Wallace is a Past Chairman of the Citizens
Advisory Council for School District No. 81 in Spokane, Washington. His term
expires in the year 2000.
David P. Bobbitt, 49, serves as Senior Vice President-Community Banking of
Sterling Savings. He joined Sterling Savings in March of 1996. Before joining
Sterling Savings, Mr. Bobbitt was with West One Bank for 26 years and held
various management positions. Most recently, he was in charge of retail banking
for West One Bank's Idaho Division. He is Past President of the Idaho Bankers
Association, and serves as a Director of the Pacific Coast Banking School and of
the Idaho Association of Commerce and Industry. He is an Advisory Director of
the College of Business & Economics at the University of Idaho. He is a member
of the Idaho Bankers Association Executive Council and the American Bankers
Association Government Relations Council. Mr. Bobbitt is a graduate of North
Idaho College, the Pacific Coast Banking School and Harvard University's
Advanced Management Program.
Daniel G. Byrne, 43, has served as Senior Vice President-Finance, Chief
Financial Officer, Treasurer and Assistant Secretary of the Company since its
inception and joined Sterling Savings in 1983. Mr. Byrne is also the Assistant
Secretary and Treasurer of INTERVEST and Action Mortgage and the Secretary and
Treasurer of Harbor Financial. Before joining the Company, Mr. Byrne was on the
staff of the accounting firm of Coopers & Lybrand in Spokane, Washington. Mr.
Byrne is a certified public accountant and graduated from Gonzaga University in
1977.
Stephen L. Page, 48, serves as Senior Vice President-Credit Management of
Sterling Savings. He joined Sterling Savings in 1983. Prior to 1983, Mr. Page
was employed by Kiemle and Hagood Company of Spokane, Washington as a Property
Management Leasing Officer. Mr. Page graduated from the University of Utah in
1970 and received a Master of Business Administration degree from the University
of New Mexico in 1973.
Heidi B. Stanley, 40, serves as Senior Vice President-Corporate
Administration of Sterling Savings. She joined Sterling Savings in 1985. Ms.
Stanley was formerly employed as a national college recruiter by IBM in San
Francisco, California, and Tucson, Arizona. Ms. Stanley graduated from
Washington State University in 1979 with a degree in Business Administration.
24
<PAGE> 27
John M. Harlow, 54, serves as Vice President of Sterling Savings and
President and Director of INTERVEST. He joined Sterling Savings in 1987. Mr.
Harlow was formerly the President of the Mortgage Banking Division of Moore
Financial Services of Portland, Oregon, a mortgage-banking subsidiary of West
One Bancorp, and Senior Vice President of Income Property Lending for Bancshares
Mortgage Company of Spokane, Washington. Mr. Harlow was also a Vice
President/Regional Manager for I.D.S. Mortgage Company in Northern California.
He graduated from the University of Illinois in 1965 and is a Certified Mortgage
Banker.
Stanton C. Parrish, 46, serves as Vice President of Sterling Savings and
President and Director of Harbor Financial. He joined Sterling Savings in 1983.
Prior to 1983, Mr. Parrish was employed by Western Savings Association of
Portland, Oregon. Mr. Parrish is a 1972 graduate of Washington State University.
Thomas F. Sackmann, 45, serves as Vice President of Sterling Savings and
President and Director of Action Mortgage. He joined Sterling Savings in 1988.
Mr. Sackmann was formerly Executive Vice President and Chief Operating Officer
of Moore Financial Services of Boise, Idaho, a mortgage-banking subsidiary of
West One Bancorp, and was responsible for residential lending. Mr. Sackmann is a
1973 graduate of Linfield College and a 1976 graduate of the University of
Washington School of Law.
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Trust Agreement for Sterling Capital, the
Sterling Capital Trustees on behalf of Sterling Capital will issue the Capital
Securities and the Common Securities. The Capital Securities will represent
preferred undivided beneficial interests in the assets of Sterling Capital and
the holders thereof will be entitled to a preference in certain circumstances
with respect to Distributions and amounts payable on redemption or liquidation
over the Common Securities, as well as other benefits as described in the Trust
Agreement. This summary of certain provisions of the Capital Securities and the
Trust Agreement does not purport to be complete and is subject to, and qualified
in its entirety by reference to, all the provisions of the Trust Agreement,
including the definitions therein of certain terms. Wherever particular defined
terms of the Trust Agreement are referred to herein, such defined terms are
incorporated herein by reference. A copy of the form of the Trust Agreement is
available upon request from the Sterling Capital Trustees.
GENERAL
The Capital Securities will be limited to $40,000,000 aggregate Liquidation
Amount outstanding. The Capital Securities will rank pari passu, and payments
will be made thereon pro rata, with the Common Securities except as described
under "-- Subordination of Common Securities." The Junior Subordinated
Debentures will be registered in the name of Sterling Capital and held by the
Property Trustee in trust for the benefit of the holders of the Capital
Securities and Common Securities. The Guarantee will be a guarantee on a
subordinated basis with respect to the Capital Securities but will not guarantee
payment of Distributions or amounts payable on redemption or liquidation of such
Capital Securities when Sterling Capital does not have funds on hand available
to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Payment of Distributions. The Capital Securities represent preferred
undivided beneficial interests in the assets of Sterling Capital, and
Distributions on each Capital Security will be payable at the annual rate
of % of the stated Liquidation Amount of $25, payable quarterly in arrears
on September 30, December 31, March 31 and June 30 of each year (each a
"Distribution Date"), to the holders of the Capital Securities at the close of
business on September 15, December 15, March 15 and June 15 (whether or not a
Business Day (as defined below)) next preceding the relevant Distribution Date.
The amount of each Distribution due with respect to the Capital Securities will
include amounts accrued through the date the Distribution is due. Distributions
on the Capital Securities will be cumulative. Distributions will accumulate from
the date of original issuance. The first Distribution Date for the Capital
Securities will be September 30, 1997. The amount of Distributions payable for
any period less than a full Distribution period will be computed on the basis of
a 360-day year of twelve 30-day months and the actual days elapsed in a partial
month in such
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period. Distributions payable for each full Distribution period will be computed
by dividing the rate per annum by four. If any date on which Distributions are
payable on the Capital Securities is not a Business Day, then payment of the
Distributions payable on such date will be made on the next succeeding day that
is a Business Day (without any additional Distributions or other payment in
respect of any such delay), with the same force and effect as if made on the
date such payment was originally payable.
The funds of Sterling Capital available for distribution to holders of the
Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which Sterling Capital will invest the proceeds from the issuance
and sale of the Capital Securities. See "Description of Junior Subordinated
Debentures." If the Company does not make payments on the Junior Subordinated
Debentures, Sterling Capital may not have funds available to pay Distributions
or other amounts payable on the Capital Securities. The payment of Distributions
and other amounts payable on the Capital Securities (if and to the extent
Sterling Capital has funds legally available for and cash sufficient to make
such payments) is guaranteed by the Company on a limited basis as set forth
herein under "Description of Guarantee."
Extension Period. So long as no Debenture Event of Default has occurred and
is continuing, the Company has the right under the Junior Subordinated Indenture
to defer the payment of interest on the Junior Subordinated Debentures at any
time or from time to time for a period not exceeding 20 consecutive quarterly
periods with respect to each Extension Period, provided that no Extension Period
may extend beyond the Stated Maturity of the Junior Subordinated Debentures. As
a consequence of any such deferral, quarterly Distributions on the Capital
Securities by Sterling Capital will be deferred during any such Extension
Period. Distributions to which holders of the Capital Securities are entitled
will accumulate additional Distributions thereon at the rate of % per annum,
compounded quarterly from the relevant payment date for such Distributions,
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. Additional Distributions payable
for each full Distribution period will be computed by dividing the rate per
annum by four. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may not
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock or (ii) make any payment of principal 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 respects with or junior in interest to the Junior
Subordinated Debentures (other than (a) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or in
connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
(b) as a result of an exchange or conversion of any class or series of the
Company's capital stock (or any capital stock of a subsidiary of the Company)
for any class or series of the Company's capital stock or of any class or series
of the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (d) any declaration of a
dividend in connection with any stockholder's rights plan, or the issuance of
rights, stock or other property under any stockholder's rights plan, or the
redemption or repurchase of rights pursuant thereto, or (e) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Debenture Event of Default has occurred and is continuing and provided further
that no Extension Period may exceed 20 consecutive quarterly periods or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then due
on any Interest Payment Date, the Company may elect to begin a new Extension
Period. No interest shall be due and payable during an Extension Period, except
at the end thereof. The Company must give the Sterling Capital Trustees notice
of its election of such Extension Period at least one Business Day prior to the
earlier of (i) the date the Distributions on the Capital Securities would have
been payable but for the election to begin such Extension
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Period and (ii) the date the Property Trustee is required to give notice to
holders of the Capital Securities of the record date or the date such
Distributions are payable, but in any event not less than one Business Day prior
to such record date. The Property Trustee will give notice of the Company's
election to begin a new Extension Period to the holders of the Capital
Securities. Subject to the foregoing, there is no limitation on the number of
times that the Company may elect to begin an Extension Period. See "Description
of Junior Subordinated Debentures -- Option To Extend Interest Payment Period"
and "Certain Federal Income Tax Consequences -- US Holders -- Interest Income
and Original Issue Discount."
The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Junior
Subordinated Debentures.
REDEMPTION
Mandatory Redemption of Capital Securities. Upon the repayment or
redemption, in whole or in part, of the Junior Subordinated Debentures, whether
at maturity or upon earlier redemption as provided in the Junior Subordinated
Indenture, the proceeds from such repayment or redemption shall be applied by
the Property Trustee to redeem a Like Amount (as defined below) of the Capital
Securities, upon not less than 30 nor more than 60 days notice, at a redemption
price (the "Redemption Price") equal to the aggregate Liquidation Amount of such
Capital Securities plus accumulated but unpaid Distributions thereon to but
excluding the date of redemption (the "Redemption Date"). See "Description of
Junior Subordinated Debentures -- Redemption." If less than all the Junior
Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then
the proceeds from such repayment or redemption shall be allocated to the
redemption pro rata of the Capital Securities and the Common Securities.
Optional Redemption of Junior Subordinated Debentures. The Company has the
right to redeem the Junior Subordinated Debentures (i) on or after ,
2002, in whole at any time or in part from time to time, or (ii) in whole, but
not in part, at any time within 90 days following the occurrence and during the
continuation of a Tax Event, Investment Company Event or Capital Treatment Event
(each as defined below), provided that none of the Company's 8.75% Subordinated
Notes Due January 31, 2000 remain outstanding at the time of any redemption
pursuant to clause (ii), in each case subject to possible regulatory approval.
See "-- Liquidation Distribution Upon Dissolution." A redemption of the Junior
Subordinated Debentures would cause a mandatory redemption of a Like Amount of
the Capital Securities and Common Securities at the Redemption Price.
Payment of Additional Sums. If a Tax Event described in clause (i) or (iii)
of the definition of Tax Event above has occurred and is continuing and Sterling
Capital is the holder of all the Junior Subordinated Debentures, the Company
will pay Additional Sums (as defined below), if any, on the Junior Subordinated
Debentures.
DEFINITIONS
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by Sterling Capital on the
outstanding Capital Securities and Common Securities of Sterling Capital will
not be reduced as a result of any additional taxes, duties and other
governmental charges to which Sterling Capital has become subject as a result of
a Tax Event.
"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 or the City of Spokane 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 Treatment Event" means the reasonable determination by the Company
that, as a result of the occurrence of any amendment to, or change (including
any announced prospective change) in, the laws (or any rules or regulations
thereunder) of the United States or any political subdivision thereof or
therein, or as a result of any official or administrative pronouncement or
action or judicial decision interpreting or applying such laws or regulations,
which amendment or change is effective or such pronouncement, action or decision
is announced on or after the date of issuance of the Capital Securities, there
is more than an insubstantial risk that the Company will not be entitled to
treat an amount equal to the Liquidation Amount of the Capital
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Securities as Tier 1 Capital (or the then equivalent thereof) for purposes of
the risk-based capital adequacy guidelines of the Board of Governors of the
Federal Reserve System, as then in effect, provided, however, that it shall not
be deemed to be a Capital Treatment Event if the Company is not entitled to
treat the aggregate amount of the Liquidation Amount of such Capital Securities
as Tier 1 Capital due to the restriction imposed by the Federal Reserve that no
more than 25% of Tier 1 Capital can consist of perpetual preferred stock.
"Investment Company Event" means the receipt by Sterling Capital of an
opinion of counsel to the Company experienced in such matters to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
Sterling Capital is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change or
prospective change becomes effective or would become effective, as the case may
be, on or after the date of the issuance of the Capital Securities.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Junior Subordinated Indenture,
allocated to the Common Securities and to the Capital Securities based upon the
relative Liquidation Amounts of such classes, the proceeds of which will be used
to pay the Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities in
connection with a dissolution or liquidation of Sterling Capital, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by Sterling Capital of an opinion of counsel
to the Company experienced in such matters to the effect that, as a result of
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official or administrative pronouncement or action 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, there is more than an insubstantial risk
that (i) Sterling Capital is, or will be within 90 days of the delivery of such
opinion, subject to United States federal income tax with respect to income
received or accrued on the Junior Subordinated Debentures, (ii) interest payable
by the Company on the Junior Subordinated Debentures is not, or within 90 days
of the delivery of such opinion, will not be, deductible by the Company, in
whole or in part, for United States federal income tax purposes or (iii)
Sterling Capital is, or will be within 90 days of the delivery of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Junior Subordinated Debentures. Redemptions of the Capital
Securities shall be made and the Redemption Price shall be payable on each
Redemption Date only to the extent that Sterling Capital has funds on hand
available for the payment of such Redemption Price. See also "-- Subordination
of Common Securities."
If Sterling Capital gives a notice of redemption in respect of the Capital
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, in the case of Capital Securities held in
book-entry form, the Property Trustee will deposit irrevocably with DTC funds
sufficient to pay the applicable Redemption Price and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Capital Securities. With respect to Capital Securities not held in book-entry
form, the Property Trustee, to the extent funds are available, will irrevocably
deposit with the paying agent for the Capital Securities funds sufficient to pay
the applicable Redemption Price and will give such
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paying agent irrevocable instructions and authority to pay the Redemption Price
to the holders thereof upon surrender of their certificates evidencing the
Capital Securities. Notwithstanding the foregoing, Distributions payable on or
prior to the Redemption Date for any Capital Securities called for redemption
shall be payable to the holders of the Capital Securities on the relevant record
dates for the related Distribution Dates. If notice of redemption shall have
been given and funds deposited as required, then upon the date of such deposit
all rights of the holders of such Capital Securities so called for redemption
will cease, except the right of the holders of such Capital Securities to
receive the Redemption Price, but without interest on such Redemption Price, and
such Capital Securities will cease to be outstanding. If any date fixed for
redemption of Capital Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
Sterling Capital or by the Company pursuant to the Guarantee as described under
"Description of Guarantee," Distributions on such Capital Securities will
continue to accumulate at the then applicable rate, from the Redemption Date
originally established by Sterling Capital for such Capital Securities to the
date such Redemption Price is actually paid, in which case the actual payment
date will be the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its affiliates may at any time and from
time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement, and may resell such securities.
If less than all the Capital Securities and Common Securities are to be
redeemed on a Redemption Date, then the aggregate Liquidation Amount of such
Capital Securities and Common Securities to be redeemed shall be allocated pro
rata to the Capital Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Capital Securities to be
redeemed shall be selected on a pro rata basis not more than 60 days prior to
the Redemption Date by the Property Trustee from the outstanding Capital
Securities not previously called for redemption, or if the Capital Securities
are then held in the form of a Global Preferred Security (as defined below), in
accordance with DTC's customary procedures. The Property Trustee shall promptly
notify the securities registrar for the Trust Securities in writing of the
Capital Securities selected for redemption and, in the case of any Capital
Securities selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of the Trust Agreement, unless the context otherwise
requires, all provisions relating to the redemption of Capital Securities shall
relate, in the case of any Capital Securities redeemed or to be redeemed only in
part, to the portion of the aggregate Liquidation Amount of Capital Securities
which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each registered holder of Capital
Securities to be redeemed at its address appearing on the securities register
for the Trust Securities. Unless the Company defaults in payment of the
Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on the Junior Subordinated
Debentures or portions thereof (and, unless payment of the Redemption Price in
respect of the Capital Securities is withheld or refused and not paid either by
Sterling Capital or the Company pursuant to the Guarantee, Distributions will
cease to accumulate on the Capital Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, and the
Liquidation Distribution in respect of, the Capital Securities and Common
Securities, as applicable, shall be made pro rata based on the Liquidation
Amount of such Capital Securities and Common Securities. However, if on any
Distribution Date or Redemption Date a Debenture Event of Default has occurred
and is continuing as a result of any failure by the Company to pay any amounts
in respect of the Junior Subordinated Debentures when due, no payment of any
Distribution on, or Redemption Price of, or Liquidation Distribution in respect
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of such
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Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all the outstanding Capital Securities
for all Distribution periods terminating on or prior thereto, or in the case of
payment of the Redemption Price the full amount of such Redemption Price on all
the outstanding Capital Securities then called for redemption, shall have been
made or provided for, and all funds available to the Property Trustee shall
first be applied to the payment in full in cash of all Distributions on, or
Redemption Price of, the Capital Securities then due and payable.
In the case of any Event of Default (as defined below) resulting from a
Debenture Event of Default, the holders of the Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default under
the Trust Agreement until the effects of all such Events of Default with respect
to such Capital Securities have been cured, waived or otherwise eliminated. See
"-- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Debenture Events of Default." Until all such Events of Default
under the Trust Agreement with respect to the Capital Securities have been so
cured, waived or otherwise eliminated, the Property Trustee will act solely on
behalf of the holders of the Capital Securities and not on behalf of the holders
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.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The amount payable on the Capital Securities in the event of any
liquidation of Sterling Capital is $25 per Capital Security plus accumulated and
unpaid Distributions, subject to certain exceptions, which may be in the form of
a distribution of such amount in Junior Subordinated Debentures.
The holders of all the outstanding Common Securities will have the right at
any time to dissolve Sterling Capital and, after satisfaction of liabilities to
creditors of Sterling Capital as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of the Capital
Securities and Common Securities in liquidation of Sterling Capital.
The Federal Reserve's risk-based capital guidelines currently provide that
redemptions of permanent equity or other capital instruments before stated
maturity could have a significant impact on a bank holding company's overall
capital structure and that any organization considering such a redemption should
consult with the Federal Reserve before redeeming any equity or capital
instrument prior to maturity if such redemption could have a material effect on
the level or composition of the organization's capital base (unless the equity
or capital instrument were redeemed with the proceeds of, or replaced by, a like
amount of a similar or higher quality capital instrument and the Federal Reserve
considers the organization's capital position to be fully adequate after the
redemption).
In the event the Company, while a holder of Common Securities, dissolves
Sterling Capital prior to the Stated Maturity of the Capital Securities and the
dissolution of Sterling Capital is deemed to constitute the redemption of
capital instruments by the Federal Reserve under its risk-based capital
guidelines or policies, the dissolution of Sterling Capital by the Company may
be subject to the prior approval of the Federal Reserve. Moreover, any changes
in applicable law or changes in the Federal Reserve's risk-based capital
guidelines or policies could impose a requirement on the Company that it obtain
the prior approval of the Federal Reserve to dissolve Sterling Capital.
Pursuant to the Trust Agreement, Sterling Capital will automatically
dissolve upon expiration of its term or, if earlier, will dissolve on the first
to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company or the holder of the Common Securities, (ii) the distribution of a Like
Amount of the Junior Subordinated Debentures to the holders of the Trust
Securities, if the holders of Common Securities have given written direction to
the Property Trustee to dissolve Sterling Capital (which direction, subject to
the foregoing restrictions, is optional and wholly within the discretion of the
holders of Common Securities), (iii) the repayment of all the Capital Securities
in connection with the redemption of all the Trust Securities as described under
"-- Redemption" and (iv) the entry of an order for the dissolution of Sterling
Capital by a court of competent jurisdiction.
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If dissolution of Sterling Capital occurs as described in clause (i), (ii)
or (iv) above, Sterling Capital will 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 Sterling Capital as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Junior Subordinated Debentures, unless such distribution is not practical, in
which event such holders will be entitled to receive out of the assets of
Sterling Capital available for distribution to holders, after satisfaction of
liabilities to creditors of Sterling Capital as provided by applicable law, an
amount equal to, in the case of holders of Capital Securities, the aggregate of
the Liquidation Amount plus accumulated and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because Sterling Capital has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by Sterling Capital on the
Capital Securities shall be paid on a pro rata basis. The holders of the Common
Securities will be entitled to receive distributions upon any such liquidation
pro rata with the holders of the Capital Securities, except that if a Debenture
Event of Default has occurred and is continuing as a result of any failure by
the Company to pay any amounts in respect of the Junior Subordinated Debentures
when due, the Capital Securities shall have a priority over the Common
Securities. See "-- Subordination of Common Securities."
After the liquidation date fixed for any distribution of Junior
Subordinated Debentures (i) the Capital Securities will no longer be deemed to
be outstanding, (ii) DTC or its nominee, as the registered holder of Capital
Securities, will receive a registered global certificate or certificates
representing the Junior Subordinated Debentures to be delivered upon such
distribution with respect to Capital Securities held by DTC or its nominee and
(iii) any certificates representing the Capital Securities not held by DTC or
its nominee will be deemed to represent the Junior Subordinated Debentures
having a principal amount equal to the stated Liquidation Amount of the Capital
Securities and bearing accrued and unpaid interest in an amount equal to the
accumulated and unpaid Distributions on the Capital Securities until such
certificates are presented to the security registrar for the Trust Securities
for transfer or reissuance.
If the Company does not redeem the Junior Subordinated Debentures prior to
maturity and Sterling Capital is not liquidated and the Junior Subordinated
Debentures are not distributed to holders of the Capital Securities, the Capital
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures and the distribution of the Liquidation Distribution to
the holders of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a dissolution and liquidation of Sterling
Capital were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive on
dissolution and liquidation of Sterling Capital, may trade at a discount to the
price that the investor paid to purchase the Capital Securities offered hereby.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it is voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description
of Junior Subordinated Debentures -- Debenture Events of Default"); or
(ii) default by Sterling Capital in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by Sterling Capital in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Sterling Capital Trustees in the Trust
Agreement (other than a covenant or warranty a default in the
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performance of which or the breach of which is dealt with in clause (ii) or
(iii) above), and continuation of such default or breach for a period of 60
days after there has been given, by registered or certified mail, to the
Sterling Capital Trustees and the Company by the holders of at least 25% in
aggregate Liquidation Amount of the outstanding Capital Securities, a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" under the
Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee or all or substantially all of its property
if a successor Property Trustee has not been appointed within 90 days
thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee will transmit
notice of such Event of Default to the holders of Trust Securities and the
Administrators, unless such Event of Default has been cured or waived. The
Company, as Depositor, and the Administrators are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under the Trust
Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by the Company to pay any amounts in respect of the Junior
Subordinated Debentures when due, the Capital Securities will have a preference
over the Common Securities with respect to payments of any amounts in respect of
the Capital Securities as described above. See "-- Subordination of Common
Securities," "-- Liquidation Distribution Upon Dissolution" and "Description of
Junior Subordinated Debentures -- Debenture Events of Default."
REMOVAL OF STERLING CAPITAL TRUSTEES; APPOINTMENT OF SUCCESSORS
The holders of at least a majority in aggregate Liquidation Amount of the
outstanding Capital Securities may remove a Sterling Capital Trustee for cause
or, if a Debenture Event of Default has occurred and is continuing, with or
without cause. If a Sterling Capital Trustee is removed by the holders of the
outstanding Capital Securities, the successor may be appointed by the holders of
at least 25% in Liquidation Amount of Capital Securities. If a Sterling Capital
Trustee resigns, such Trustee will appoint its successor. If a Sterling Capital
Trustee fails to appoint a successor, the holders of at least 25% in Liquidation
Amount of the outstanding Capital Securities may appoint a successor. If a
successor has not been appointed by the holders, any holder of Capital
Securities or Common Securities or the other Sterling Capital Trustee may
petition a court in the State of Delaware to appoint a successor. Any Delaware
Trustee must meet the applicable requirements of Delaware law. Any Property
Trustee must be a national or state-chartered bank, and at the time of
appointment have securities rated in one of the three highest rating categories
by a nationally recognized statistical rating organization and have capital and
surplus of at least $50.0 million. No resignation or removal of a Sterling
Capital Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the Trust Agreement.
MERGER OR CONSOLIDATION OF STERLING CAPITAL TRUSTEES
Any entity into which the Property Trustee or the Delaware Trustee may be
merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which such Sterling
Capital Trustee is a party, or any entity succeeding to all or substantially all
the corporate trust business of such Sterling Capital Trustee, will be the
successor of such Sterling Capital Trustee under the Trust Agreement, provided
such entity is otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF STERLING CAPITAL
Sterling Capital may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any entity, except as described below or as
otherwise set forth in the Trust Agreement. Sterling Capital may, at the request
of the holders of the Common Securities and with the consent of the holders of
at least a majority in aggregate Liquidation Amount of the outstanding Capital
Securities, merge with or into, consolidate, amalgamate, or be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such
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under the laws of any State, so long as (i) such successor entity either (a)
expressly assumes all the obligations of Sterling Capital with respect to the
Capital Securities or (b) substitutes for the Capital Securities other
securities having substantially the same terms as the Capital Securities (the
"Successor Securities") so long as the Successor Securities have the same
priority as the Capital Securities with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) a trustee of such successor
entity, possessing the same powers and duties as the Property Trustee, is
appointed to hold the Junior Subordinated Debentures, (iii) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
cause the Capital Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization, if then
rated, (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 Sterling Capital, (vi) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
Sterling Capital has received an opinion from independent counsel experienced in
such matters to the effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Capital Securities (including
any Successor Securities) in any material respect and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, neither
Sterling Capital nor such successor entity will be required to register as an
investment company under the Investment Company Act, and (vii) the Company or
any permitted successor or assignee owns all 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, Sterling Capital may not, except with the consent
of holders of 100% in aggregate 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 Sterling Capital or the successor
entity to be taxable as a corporation for United States federal income tax
purposes.
VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT
Except as provided below and under "-- Removal of Sterling Capital
Trustees; Appointment of Successors" and "Description of Guarantee -- Amendments
and Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Capital Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the holders of a
majority of the Common Securities and the Property Trustee, without the consent
of the holders of the Capital Securities, (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, provided that any such amendment
does not adversely affect in any material respect the interests of any holder of
Trust Securities, or (ii) to modify, eliminate or add to any provisions of the
Trust Agreement to such extent as may be necessary to ensure that Sterling
Capital will not be taxable as a corporation for United States federal income
tax purposes at any time that any Trust Securities are outstanding or to ensure
that Sterling Capital will not be required to register as an "investment
company" under the Investment Company Act, and any amendments of the Trust
Agreement will become effective when notice of such amendment is given to the
holders of Trust Securities. The Trust Agreement may be amended by the holders
of a majority of the Common Securities and the Property Trustee with (i) the
consent of holders representing not less than a majority in aggregate
Liquidation Amount of the outstanding Capital Securities and (ii) receipt by the
Sterling Capital Trustees of an opinion of counsel to the effect that such
amendment or the exercise of any power granted to the Sterling Capital Trustees
in accordance with such amendment will not affect Sterling Capital's not being
taxable as a corporation for United States federal income tax purposes or
Sterling Capital's exemption from status as an "investment company" under the
Investment Company Act, except that, without the consent of each holder of Trust
Securities affected thereby, the Trust Agreement may not be amended to (i)
change the amount or timing of any Distribution on the Trust Securities or
otherwise adversely affect the amount of any Distribution required to be made in
respect of the Trust Securities as of a
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specified date or (ii) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by Sterling Capital,
the Property Trustee will not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee, or
execute any trust or power conferred on the Property Trustee with respect to the
Junior Subordinated Debentures, (ii) waive any past default that is waivable
under Section 5.13 of the Junior Subordinated Indenture, (iii) exercise any
right to rescind or annul a declaration that the Junior Subordinated Debentures
shall be due and payable or (iv) consent to any amendment, modification or
termination of the Junior Subordinated Indenture or the Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of at least a majority in aggregate
Liquidation Amount of the outstanding Capital Securities, except that, if a
consent under the Junior Subordinated Indenture would require the consent of
each holder of Junior Subordinated Debentures affected thereby, no such consent
will be given by the Property Trustee without the prior consent of each holder
of the Capital Securities. The Property Trustee may not revoke any action
previously authorized or approved by a vote of the holders of the Capital
Securities except by subsequent vote of the holders of the Capital Securities.
The Property Trustee will notify each holder of Capital Securities of any notice
of default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of the holders of the Capital Securities,
before taking any of the foregoing actions, the Property Trustee will obtain an
opinion of counsel experienced in such matters to the effect that Sterling
Capital will not be taxable as a corporation for United States federal income
tax purposes on account of such action.
Any required approval of holders of Capital Securities may be given at a
meeting of holders of Capital Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each registered holder of Capital Securities in the manner set forth in the
Trust Agreement.
No vote or consent of the holders of Capital Securities will be required to
redeem and cancel Capital Securities in accordance with the Trust Agreement.
Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, any of the Capital
Securities that are owned by the Company, the Sterling Capital Trustees or any
affiliate of the Company or any Sterling Capital Trustees, will, for purposes of
such vote or consent, be treated as if they were not outstanding.
EXPENSES AND TAXES
In the Junior Subordinated Indenture, the Company, as borrower, has agreed
to pay all debts and other obligations (other than with respect to the Capital
Securities) and all costs and expenses of Sterling Capital (including costs and
expenses relating to the organization of Sterling Capital, the fees and expenses
of the Trustees and the costs and expenses relating to the operation of Sterling
Capital) and to pay any and all taxes and all costs and expenses with respect
thereto (other than United States withholding taxes) to which Sterling Capital
might become subject. The foregoing obligations of the Company under the Junior
Subordinated Indenture are for the benefit of, and shall be enforceable by, any
person to whom any such debts, obligations, costs, expenses and taxes are owed
(a "Creditor") whether or not such Creditor has received notice thereof. Any
such Creditor may enforce such obligations of the Company directly against the
Company, and the Company has irrevocably waived any right or remedy to require
that any such Creditor take any action against Sterling Capital or any other
person before proceeding against the Company. The Company has also agreed in the
Junior Subordinated Indenture to execute such additional agreements as may be
necessary or desirable to give full effect to the foregoing.
BOOK ENTRY, DELIVERY AND FORM
The Capital Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, DTC
and registered in the name of DTC's nominee. Unless and until it
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is exchangeable in whole or in part for the Capital Securities in definitive
form, a global security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of such Depository or a nominee of such
successor.
Ownership of beneficial interests in a global security will be limited to
persons that have accounts with DTC or its nominee ("Participants") or persons
that may hold interests through Participants. The Company expects that, upon the
issuance of a global security, DTC will credit, on its book-entry registration
and transfer system, the Participants' accounts with their respective principal
amounts of the Capital Securities represented by such global security. Ownership
of beneficial interests in such global security will be shown on, and the
transfer of such ownership interests will be effected only through, records
maintained by DTC (with respect to interests of Participants) and on the records
of Participants (with respect to interests of persons held through
Participants). Beneficial owners will not receive written confirmation from DTC
of their purchase, but are expected to receive written confirmations from the
Participants through which the beneficial owner entered into the transaction.
Transfers of ownership interests will be accomplished by entries on the books of
Participants acting on behalf of the beneficial owners.
So long as DTC, or its nominee, is the registered owner of a global
security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Capital Securities represented by such global security
for all purposes under the Junior Subordinated Indenture. Except as provided
below, owners of beneficial interests in a global security will not be entitled
to receive physical delivery of the Capital Securities in definitive form and
will not be considered the owners or holders thereof under the Junior
Subordinated Indenture. Accordingly, each person owning a beneficial interest in
such a global security must rely on the procedures of DTC and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder of Capital
Securities under the Junior Subordinated Indenture. The Company understands
that, under DTC's existing practices, in the event that the Company requests any
action of holders, or an owner of a beneficial interest in such a global
security desires to take any action which a holder is entitled to take under the
Junior Subordinated Indenture, DTC would authorize the Participants holding the
relevant beneficial interests to take such action, and such Participants would
authorize beneficial owners owning through such Participants to take such action
or would otherwise act upon the instructions of beneficial owners owning through
them. Redemption notices will also be sent to DTC. If less than all of the
Capital Securities are being redeemed, the Company understands that it is DTC's
existing practice to determine by lot the amount of the respective holdings of
each Participant to be redeemed.
Distributions on the Capital Securities registered in the name of DTC or
its nominee will be made to DTC or its nominee, as the case may be, as the
registered owner of the global security representing such Capital Securities.
None of the Company, the Trustees, the Administrators, any Paying Agent or any
other agent of the Company or the Trustees will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the global security for such Capital
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Disbursements of Distributions to
Participants shall be the responsibility of DTC. DTC's practice is to credit
Participants' accounts on a 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 the 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, the Company, the Trustees, the Paying Agent or any other agent
of the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time.
DTC may discontinue providing its services as securities depository with
respect to the Capital Securities at any time by giving reasonable notice to the
Company or the Trustees. If DTC notifies the Company that it is unwilling to
continue as such, or if it is unable to continue or ceases to be a clearing
agency registered under the Exchange Act and a successor depository is not
appointed by the Company within ninety days after receiving such notice or
becoming aware that DTC is no longer so registered, the Company will issue the
Capital Securities in definitive form upon registration of transfer of, or in
exchange for, such global security. In
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addition, the Company may at any time and in its sole discretion determine not
to have the Capital Securities represented by one or more global securities and,
in such event, will issue Capital Securities in definitive form in exchange for
all of the global securities representing such Capital Securities.
DTC has advised the Company and Sterling Capital as follows: DTC is a
limited purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the need
for physical movement of certificates. Participants include securities brokers
and dealers (such as the Underwriters), banks, trust companies and clearing
corporations and may include certain other organizations. Certain of such
Participants (or their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through, or maintain a custodial
relationship with a Participant, either directly or indirectly.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities will be made to DTC, which
will credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Capital Securities are not held by DTC, such payments will be made by
check mailed to the address of the holder entitled thereto as such address
appears on the securities register for the Trust Securities. The paying agent
(the "Paying Agent") will initially be the Property Trustee and any co-paying
agent chosen by the Property Trustee and acceptable to the Administrators. The
Paying Agent will be permitted to resign as Paying Agent upon 30 days written
notice to the Property Trustee and the Administrators. If the Property Trustee
is no longer the Paying Agent, the Property Trustee will appoint a successor
(which must be a bank or trust company reasonably acceptable to the
Administrators) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities. Registration of transfers of Capital Securities will be
effected without charge by or on behalf of Sterling Capital, but upon payment of
any tax or other governmental charges that may be imposed in connection with any
transfer or exchange. Sterling Capital will not be required to register or cause
to be registered the transfer of the Capital Securities after the Capital
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by the
Trust Agreement at the request of any holder of Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby. For information concerning the relationships between
Bankers Trust Company, the Property Trustee, and the Company, see "Description
of Junior Subordinated Debentures -- Information Concerning the Debenture
Trustee."
MISCELLANEOUS
The Administrators and the Property Trustee are authorized and directed to
conduct the affairs of and to operate Sterling Capital in such a way that
Sterling Capital will not be deemed to be an "investment company" required to be
registered under the Investment Company Act or taxable as a corporation for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Property
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Trustee and the holders of Common Securities are authorized to take any action,
not inconsistent with applicable law, the certificate of trust of Sterling
Capital or the Trust Agreement, that the Property Trustee and the holders of
Common Securities determine in their discretion to be necessary or desirable for
such purposes, as long as such action does not materially adversely affect the
interests of the holders of the Capital Securities. Holders of the Capital
Securities have no preemptive or similar rights.
Sterling Capital may not borrow money, issue debt or mortgage or pledge any
of its assets.
GOVERNING LAW
The Trust Agreement will be governed by and construed in accordance with
the laws of the State of Delaware.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued under the Junior
Subordinated Indenture dated as of , 1997, under which Bankers Trust
Company is acting as Debenture Trustee. This summary of certain terms and
provisions of the Junior Subordinated Debentures and the Junior Subordinated
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Junior Subordinated
Indenture, including the definitions therein of certain terms. Whenever
particular defined terms of the Junior Subordinated Indenture (as amended or
supplemented from time to time) are referred to herein, such defined terms are
incorporated herein by reference. A copy of the form of Junior Subordinated
Indenture is available from the Debenture Trustee upon request.
GENERAL
Concurrently with the issuance of the Capital Securities, Sterling Capital
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in the Junior Subordinated Debentures issued
by the Company. The Junior Subordinated Debentures will bear interest, accruing
from the date of original issuance, at the annual rate of % of the
principal amount thereof, payable quarterly in arrears on September 30, December
31, March 31 and June 30 of each year (each, an "Interest Payment Date"),
commencing September 30, 1997, to the person in whose name each Junior
Subordinated Debenture is registered at the close of business on September 15,
December 15, March 15 and June 15 (whether or not a Business Day) next preceding
such Interest Payment Date. It is anticipated that, until the liquidation, if
any, of Sterling Capital, each Junior Subordinated Debenture will be registered
in the name of Sterling Capital and held by the Property Trustee in trust for
the benefit of the holders of the Trust Securities. The amount of interest
payable for any period less than a full interest period will be computed on the
basis of a 360-day year of twelve 30-day months and the actual days elapsed in a
partial month in such period. The amount of interest payable for any full
interest period will be computed by dividing the rate per annum by four. If any
date on which interest is payable on the Junior Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (without any interest or other
payment in respect of any such delay), with the same force and effect as if made
on the date such payment was originally payable. Accrued interest that is not
paid on the applicable Interest Payment Date will bear additional interest on
the amount thereof (to the extent permitted by law) at the rate per annum of
%, compounded quarterly and 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. The amount of additional interest payable for any full interest period
will be computed by dividing the rate per annum by four. The term "interest" as
used herein includes quarterly interest payments, interest on quarterly interest
payments not paid on the applicable Interest Payment Date and Additional Sums
(as defined below), as applicable.
The Junior Subordinated Debentures will mature on , 2027, which
date may be shortened (such date, as it may be shortened, the "Stated Maturity")
to a date not earlier than , 2002, if certain conditions are met,
including the Company having received prior approval of the Federal Reserve to
do so if then required under applicable capital guidelines or policies of the
Federal Reserve. In the event that the Company elects to shorten the Stated
Maturity of the Junior Subordinated Debentures, it will give notice to
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the registered holders of the Junior Subordinated Debentures, the Property
Trustee and the Indenture Trustee of such shortening no less than 90 days prior
to the effectiveness thereof. The Property Trustee must give notice to the
holders of the Trust Securities of the shortening of the Stated Maturity.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Indebtedness of the
Company. The Junior Subordinated Debentures will not be subject to a sinking
fund. The Junior Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt by the Company, including Senior
Indebtedness, whether under the Junior Subordinated Indenture or any existing or
other indenture that the Company may enter into in the future or otherwise. See
"-- Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
the Company has the right at any time during the term of the Junior Subordinated
Debentures to defer the payment of interest at any time or from time to time for
a period not exceeding 20 consecutive quarterly periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. During any such Extension Period
the Company shall have the right to make partial payments of interest on any
interest payment date. At the end of such Extension Period, the Company must pay
all interest then accrued and unpaid (together with interest thereon at the
annual rate of %, compounded quarterly and 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, to the extent permitted by applicable law). The amount of
additional interest payable for any full interest period will be computed by
dividing the rate per annum by four. During an Extension Period, interest will
continue to accrue and holders of Junior Subordinated Debentures (or holders of
Capital Securities while outstanding) will be required to accrue income for
United States federal income tax purposes. See "Certain Federal Income Tax
Consequences -- US Holders -- Interest Income and Original Issue Discount."
During any such Extension Period, the Company may not (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal 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 respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract, benefit
plan or other similar arrangement with or for the benefit of any one or more
employees, officers, directors or consultants, in connection with a dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of the
Company's indebtedness for any class or series of the Company's capital stock,
(c) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights, stock
or other property under any stockholders rights plan, or the redemption or
repurchase of rights pursuant thereto, or (e) any dividend in the form of stock,
warrants, options or other rights where the dividend stock or the stock issuable
upon exercise of such warrants, options or other rights is the same stock as
that on which the dividend is being paid or ranks pari passu with or junior to
such stock). Prior to the termination of any such Extension Period, the Company
may further defer the payment of interest, provided that no Debenture Event of
Default has occurred and is continuing and provided further that no Extension
Period may exceed 20 consecutive quarterly periods or extend beyond the Stated
Maturity of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period subject to the above
conditions. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Sterling Capital Trustees
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notice of its election of such Extension Period at least one Business Day prior
to the earlier of (i) the date the Distributions on the Capital Securities would
have been payable but for the election to begin such Extension Period and (ii)
the date the Property Trustee is required to give notice to holders of the
Capital Securities of the record date or the date such Distributions are
payable, but in any event not less than one Business Day prior to such record
date. The Property Trustee will give notice of the Company's election to begin a
new Extension Period to the holders of the Capital Securities. There is no
limitation on the number of times that the Company may elect to begin an
Extension Period.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after , 2002, in whole at any time or
in part from time to time, or (ii) in whole, but not in part, at any time within
90 days following the occurrence and during the continuation of a Tax Event,
Investment Company Event or Capital Treatment Event (each as defined under
"Description of Capital Securities -- Redemption"), provided that none of the
Company's 8.75% Subordinated Notes Due January 31, 2000 remain outstanding at
the time of any redemption pursuant to clause (ii), in each case at the
Redemption Price. The proceeds of any such redemption will be used by Sterling
Capital to redeem the Capital Securities.
The Federal Reserve's risk-based capital guidelines, which are subject to
change, currently provide that redemptions of permanent equity or other capital
instruments before Stated Maturity could have a significant impact on a bank
holding company's overall capital structure and that any organization
considering such a redemption should consult with the Federal Reserve before
redeeming any equity or capital instrument prior to maturity if such redemption
could have a material effect on the level or composition of the organization's
capital base (unless the equity or capital instrument were redeemed with the
proceeds of, or replaced by, a like amount of a similar or higher quality
capital instrument and the Federal Reserve considers the organization's capital
position to be fully adequate after the redemption).
The redemption of the Junior Subordinated Debentures by the Company prior
to their Stated Maturity would constitute the redemption of capital instruments
under the Federal Reserve's current risk-based capital guidelines and may be
subject to the prior approval of the Federal Reserve. The redemption of the
Junior Subordinated Debentures also could be subject to the additional prior
approval of the Federal Reserve under its current risk-based capital guidelines.
The Redemption Price for Junior Subordinated Debentures is the outstanding
principal amount of the Junior Subordinated Debentures plus accrued interest
(including any Additional Interest or Additional Sums) thereon to but excluding
the date fixed for redemption.
ADDITIONAL SUMS
The Company has covenanted in the Junior Subordinated Indenture that, if
and for so long as (i) Sterling Capital is the holder of all Junior Subordinated
Debentures and (ii) Sterling Capital is required to pay any additional taxes,
duties or other governmental charges as a result of a Tax Event, the Company
will pay as additional sums on the Junior Subordinated Debentures such amounts
as may be required so that the Distributions payable by Sterling Capital will
not be reduced as a result of any such additional taxes, duties or other
governmental charges. See "Description of Capital Securities -- Redemption."
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of Sterling Capital. If the Junior Subordinated Debentures are distributed to
holders of Capital Securities, it is anticipated that the depositary
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Capital Securities. See "Description of
Capital Securities -- Book Entry, Delivery and Form."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
the Company
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within 90 days of receipt of notice from DTC to such effect, the Company will
cause the Junior Subordinated Debentures to be issued in definitive form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to Cede & Co., the nominee for DTC, as the registered holder of the
Junior Subordinated Debentures, as described under "Description of the Capital
Securities -- Book Entry, Delivery and Form." If Junior Subordinated Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Junior Subordinated Debentures will be registrable, and Junior
Subordinated Debentures will be exchangeable for Junior Subordinated Debentures
of other authorized denominations of a like aggregate principal amount, at the
corporate trust office of the Debenture Trustee in New York, New York or at the
offices of any Paying Agent or transfer agent appointed by the Company, provided
that payment of interest may be made at the option of the Company by check
mailed to the address of the persons entitled thereto. However, a holder of $1.0
million or more in aggregate principal amount of Junior Subordinated Debentures
may receive payments of interest (other than interest payable at the Stated
Maturity) by wire transfer of immediately available funds upon written request
to the Debenture Trustee not later than 15 calendar days prior to the date on
which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent designated
by the Company for such purpose without service charge and upon payment of any
taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Debenture Trustee as securities
registrar under the Junior Subordinated Indenture. The Company may at any time
designate additional transfer agents with respect to the Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except,
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or
then held by the Company in trust, for the payment of the principal of or
interest on any Junior Subordinated Debenture and remaining unclaimed for two
years after such principal or interest has become due and payable shall, at the
request of the Company, be repaid to the Company and the holder of such Junior
Subordinated Debenture shall thereafter look, as a general unsecured creditor,
only to the Company for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS; CERTAIN COVENANTS OF THE COMPANY
The Company has covenanted that it will not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal of or interest on or repay, repurchase or redeem
any debt securities of the Company that rank pari passu in all respects with or
junior in interest to the Junior Subordinated Debentures (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of the
Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into prior
to the applicable Extension Period or other event referred to below, (b) as a
result of an exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any
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class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior to such stock), if at such time (i) there has
occurred any event (a) of which the Company has actual knowledge that with the
giving of notice or the lapse of time, or both, would constitute a Debenture
Event of Default and (b) that the Company has not taken reasonable steps to
cure, (ii) if the Junior Subordinated Debentures are held by Sterling Capital,
the Company is in default with respect to its payment of any obligations under
the Guarantee or (iii) the Company has given notice of its election of an
Extension Period as provided in the Junior Subordinated Indenture and has not
rescinded such notice, or such Extension Period, or any extension thereof, is
continuing.
The Company has covenanted in the Junior Subordinated Indenture (i) to
continue to hold, directly or indirectly, 100% of the Common Securities,
provided that certain successors that are permitted pursuant to the Junior
Subordinated Indenture may succeed to the Company's ownership of the Common
Securities, (ii) as holder of the Common Securities, not to voluntarily
terminate, windup or liquidate Sterling Capital, other than (a) in connection
with a distribution of Junior Subordinated Debentures to the holders of the
Capital Securities in liquidation of Sterling Capital or (b) in connection with
certain mergers, consolidations or amalgamations permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms and
provisions of the Trust Agreement, to cause Sterling Capital to continue not to
be taxable as a corporation for United States federal income tax purposes.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time, the Company and the Debenture Trustee may, without the
consent of any of the holders of the outstanding Junior Subordinated Debentures,
amend, waive or supplement the provisions of the Junior Subordinated Indenture
to: (1) evidence succession of another corporation or association to the Company
and the assumption by such person of the obligations of the Company under the
Junior Subordinated Debentures, (2) add further covenants, restrictions or
conditions for the protection of holders of the Junior Subordinated Debentures,
(3) cure ambiguities or correct the Junior Subordinated Debentures in the case
of defects or inconsistencies in the provisions thereof, so long as any such
cure or correction does not adversely affect the interest of the holders of the
Junior Subordinated Debentures in any material respect, (4) change the terms of
the Junior Subordinated Debentures to facilitate the issuance of the Junior
Subordinated Debentures in certificated or other definitive form, (5) evidence
or provide for the appointment of a successor Debenture Trustee, or (6) qualify,
or maintain the qualification of, the Junior Subordinated Indentures under the
Trust Indenture Act. The Junior Subordinated Indenture contains provisions
permitting the Company and the Debenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the Junior
Subordinated Debentures, to modify the Junior Subordinated Indenture in a manner
affecting the rights of the holders of the Junior Subordinated Debentures,
except that no such modification may, without the consent of the holder of each
outstanding Junior Subordinated Debenture so affected, (i) change the Stated
Maturity of the Junior Subordinated Debentures (except as described under
"-- General"), or reduce the principal amount thereof, the rate of interest
thereon, or change the place of payment where, or the currency in which, any
such amount is payable or impair the right to institute suit for the enforcement
of any Junior Subordinated Debenture or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Junior Subordinated Indenture.
Furthermore, so long as any of the Capital Securities remain outstanding, no
such modification may be made that adversely affects the holders of such Capital
Securities in any material respect, and no termination of the Junior
Subordinated Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Junior Subordinated Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate Liquidation Amount of the
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outstanding Capital Securities unless and until the principal of the Junior
Subordinated Debentures and all accrued and unpaid interest thereon have been
paid in full and certain other conditions are satisfied.
DEBENTURE EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to the Junior Subordinated Debentures
that has occurred and is continuing constitutes an "Event of Default" with
respect to the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in the case of
an Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated
Debentures when due whether at maturity, upon redemption, by declaration of
acceleration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Junior Subordinated Indenture for 90 days
after written notice to the Company from the Debenture Trustee or the
holders of at least 25% in aggregate outstanding principal amount of the
outstanding Junior Subordinated Debentures; or
(iv) the Company consents to the appointment of a receiver or other
similar official in any liquidation, insolvency or similar proceeding with
respect to the Company or all or substantially all its property.
For purposes of the Trust Agreement and this Prospectus, each such Event of
Default under the Junior Subordinated Debenture is referred to as a "Debenture
Event of Default." As described in "Description of Capital Securities -- Events
of Default; Notice," the occurrence of a Debenture Event of Default will also
constitute an Event of Default in respect of the Trust Securities.
The holders of at least a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Junior Subordinated Debentures may
declare the principal due and payable immediately upon a Debenture Event of
Default, and, should the Debenture Trustee or such holders of Junior
Subordinated Debentures fail to make such declaration, the holders of at least
25% in aggregate Liquidation Amount of the outstanding Capital Securities shall
have such right. The holders of a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures may annul such declaration and waive
the default if all defaults (other than the non-payment of the principal of
Junior Subordinated Debentures which has become due solely by such acceleration)
have been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee. Should the holders of Junior Subordinated Debentures fail to
annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the outstanding Capital Securities shall have
such right.
The holders of at least a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures affected thereby may, on behalf of
the holders of all the Junior Subordinated Debentures, waive any past default,
except a default in the payment of principal or interest (unless such default
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Junior Subordinated Indenture cannot be modified or amended without
the consent of the holder of each outstanding Junior Subordinated Debenture
affected thereby. See "-- Modification of Junior Subordinated Indenture." The
Company is required to file annually with the Debenture Trustee a certificate as
to whether or not the Company is in compliance with all the conditions and
covenants applicable to it under the Junior Subordinated Indenture.
If a Debenture Event of Default occurs and is continuing, the Property
Trustee will have the right to declare the principal of and the interest on the
Junior Subordinated Debentures, and any other amounts
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payable under the Junior Subordinated Indenture, to be forthwith due and payable
and to enforce its other rights as a creditor with respect to the Junior
Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay any amounts payable
in respect of the Junior Subordinated Debentures on the date such amounts are
otherwise payable, a registered holder of Capital Securities may institute a
Direct Action against the Company for enforcement of payment to such holder of
an amount equal to the amount payable in respect of Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Capital Securities held by such holder. The Company may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all the Capital
Securities. The Company will have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Capital Securities by
the Company in connection with a Direct Action.
The holders of the Capital Securities are not able to exercise directly any
remedies available to the holders of the Junior Subordinated Debentures except
under the circumstances described in the preceding paragraph. See "Description
of Capital Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company may 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
may consolidate with or merge into the Company or convey, transfer or lease its
properties and assets substantially as an entirety to the Company, unless (i) if
the Company consolidates with or merges into another person or conveys or
transfers its properties and assets substantially as an entirety to any person,
the successor person is organized under the laws of the United States or any
state or the District of Columbia, and such successor person expressly assumes
the Company's obligations in respect of the Junior Subordinated Debentures; (ii)
immediately after giving effect thereto, no Debenture Event of Default, and no
event which, after notice or lapse of time or both, would constitute a Debenture
Event of Default, has occurred and is continuing; and (iii) certain other
conditions as prescribed in the Junior Subordinated Indenture are satisfied.
The provisions of the Junior Subordinated Indenture do not afford holders
of the Junior Subordinated Debentures protection in the event of a highly
leveraged or other transaction involving the Company that may adversely affect
holders of the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debentures not previously delivered to the Debenture
Trustee for cancellation (i) have become due and payable, (ii) will become due
and payable at the Stated Maturity within one year, or (iii) are to be called
for redemption within one year under arrangements satisfactory to the Debenture
Trustee for the giving of notice of redemption, and, in each case, the Company
deposits or causes to be deposited with the Debenture Trustee funds, in trust,
for the purpose and in an amount sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal and interest to the
date of the deposit or to the Stated Maturity, as the case may be, then the
Junior Subordinated Indenture will cease to be of further effect (except as to
the Company's obligations to pay all other sums due pursuant to the Junior
Subordinated Indenture and to provide the officers' certificates and opinions of
counsel described therein), and the Company will be deemed to have satisfied and
discharged the Junior Subordinated Indenture.
SUBORDINATION
The Junior Subordinated Debentures will be subordinate and junior in right
of payment, to the extent set forth in the Junior Subordinated Indenture, to all
Senior Indebtedness (as defined below) of the Company. If
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the Company defaults in the payment of any principal, or interest, if any, or
any other amount payable on any Senior Indebtedness when the same becomes due
and payable, whether at maturity or at a date fixed for redemption or by
declaration of acceleration or otherwise, then, unless and until such default
has been cured or waived or has ceased to exist or all Senior Indebtedness has
been paid, no direct or indirect payment (in cash, property, securities, by
setoff or otherwise) may be made or agreed to be made on the Junior Subordinated
Debentures, or in respect of any redemption, repayment, retirement, purchase or
other acquisition of any of the Junior Subordinated Debentures.
As used herein, "Senior Indebtedness" means, 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) every
obligation of the Company for claims (as defined in Section 101(4) of the United
States Bankruptcy Code of 1978, as amended) in respect of derivative products
such as interest and foreign exchange rate contracts, commodity contracts 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,
including, without limitation, the Company's 8.75% Subordinated Notes Due
January 31, 2000 in the aggregate principal amount of $17.2 million and a $15.0
million Term Note Due September 30, 2002; provided that "Senior Indebtedness"
shall not include (i) any obligations which, by their terms, are expressly
stated to rank pari passu in right of payment with, or to not be superior in
right of payment to, the Junior Subordinated Debentures, (ii) any Senior
Indebtedness 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, (iii) any Indebtedness of the
Company to any of its subsidiaries, (iv) Indebtedness to any executive officer
or director of the Company, or (v) any indebtedness in respect of debt
securities issued to any trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is a financing entity of the Company in
connection with the issuance of such financing entity of securities that are
similar to the Capital Securities.
In the event of (i) certain events of bankruptcy, dissolution or
liquidation of the Company or the holder of the Common Securities, (ii) any
proceeding for the liquidation, dissolution or other winding up of the Company,
voluntary or involuntary, whether or not involving insolvency or bankruptcy
proceedings, (iii) any assignment by the Company for the benefit of creditors or
(iv) any other marshalling of the assets of the Company, all Senior Indebtedness
(including any interest thereon accruing after the commencement of any such
proceedings) shall first be paid in full before any payment or distribution,
whether in cash, securities or other property, shall be made on account of the
Junior Subordinated Debentures. In such event, any payment or distribution on
account of the Junior Subordinated Debentures, whether in cash, securities or
other property, that would otherwise (but for the subordination provisions) be
payable or deliverable in respect of the Junior Subordinated Debentures will be
paid or delivered directly to the holders of Senior Indebtedness in accordance
with the priorities then existing among such holders until all Senior
Indebtedness (including any interest thereon accruing after the commencement of
any such proceedings) has been paid in full.
In the event of any such proceeding, after payment in full of all sums
owing with respect to Senior Indebtedness, the holders of Junior Subordinated
Debentures, together with the holders of any obligations of the Company ranking
on a parity with the Junior Subordinated Debentures, will be entitled to be paid
from the remaining assets of the Company the amounts at the time due and owing
on the Junior Subordinated Debentures and such other obligations before any
payment or other distribution, whether in cash, property or otherwise, will be
made on account of any capital stock or obligations of the Company ranking
junior to the Junior Subordinated Debentures and such other obligations. If any
payment or distribution on account of the Junior Subordinated Debentures of any
character or any security, whether in cash, securities or other property
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is received by any holder of any Junior Subordinated Debentures in contravention
of any of the terms hereof and before all the Senior Indebtedness has been paid
in full, such payment or distribution or security will be received in trust for
the benefit of, and must be paid over or delivered and transferred to, the
holders of the Senior Indebtedness at the time outstanding in accordance with
the priorities then existing among such holders for application to the payment
of all Senior Indebtedness remaining unpaid to the extent necessary to pay all
such Senior Indebtedness in full. By reason of such subordination, in the event
of the insolvency of the Company, holders of Senior Indebtedness may receive
more, ratably, and holders of the Junior Subordinated Debentures may receive
less, ratably, than the other creditors of the Company. Such subordination will
not prevent the occurrence of any Event of Default in respect of the Junior
Subordinated Debentures.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Indebtedness that may be incurred by the Company. The Company
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of
a default by the Company in performance of its obligations under the Junior
Subordinated Debenture, is under no obligation to exercise any of the powers
vested in it by the Junior Subordinated Indenture at the request of any holder
of Junior Subordinated Debentures, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities that might be incurred
thereby. The Debenture Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Debenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
Bankers Trust Company, the Debenture Trustee, may serve from time to time
as trustee under other indentures or trust agreements with the Company or its
subsidiaries relating to other issues of their securities. In addition, the
Company and certain of its affiliates may have other banking relationships with
Bankers Trust Company and its affiliates.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by and construed in accordance with the laws of the State of
New York.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance of Capital Securities by Sterling Capital for the benefit of
the holders from time to time of the Capital Securities. Bankers Trust Company
will act as Guarantee Trustee under the Guarantee. This summary of certain
provisions of the Guarantee does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
Guarantee, including the definitions therein of certain terms. A copy of the
form of Guarantee is available upon request from the Guarantee Trustee. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Capital Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Capital Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that Sterling Capital may have or assert other
than the defense of payment. The following payments with respect to the Capital
Securities, to the extent not paid by or on behalf of Sterling Capital (the
"Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated and
unpaid Distributions required to be paid on such Capital Securities, to the
extent that Sterling Capital has funds on hand available therefor at such time,
(ii) the Redemption Price with respect to any Capital Securities called for
redemption, to the extent that Sterling Capital has funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary dissolution, of
Sterling Capital (unless the
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Junior Subordinated Debentures are distributed to holders of the Capital
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment, to the extent that
Sterling Capital has funds on hand available therefor at such time, and (b) the
amount of assets of Sterling Capital remaining available for distribution to
holders of the Capital Securities on liquidation of Sterling Capital. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of the Capital
Securities or by causing Sterling Capital to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
Sterling Capital's obligations under the Capital Securities, but will apply only
to the extent that Sterling Capital has funds sufficient to make such payments,
and is not a guarantee of collection.
If the Company does not make payments on the Junior Subordinated Debentures
held by Sterling Capital, Sterling Capital will not be able to pay any amounts
payable in respect of the Capital Securities and will not have funds legally
available therefor. The Guarantee will rank subordinate and junior in right of
payment to all Senior Indebtedness of the Company. See "-- Status of the
Guarantee." The Guarantee does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Indebtedness, whether
under the Junior Subordinated Indenture, any other indenture that the Company
may enter into in the future or otherwise.
The Company has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures and the Junior Subordinated Indenture, taken together,
fully, irrevocably and unconditionally guaranteed all Sterling Capital's
obligations under the Capital Securities on a subordinated basis. No single
document standing alone or operating in conjunction with fewer than all the
other documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of Sterling Capital's obligations in respect of the
Capital Securities. See "Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Indebtedness
of the Company in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held by the Guarantee Trustee for the benefit of the holders
of the Capital Securities. The Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by Sterling
Capital or distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Capital Securities. The manner of obtaining any such approval will
be as set forth under "Description of Capital Securities -- Voting Rights;
Amendment of Trust Agreement." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder, or to
perform any non-payment obligation if such non-payment default remains
unremedied for 30 days. The holders of not less than a majority in aggregate
Liquidation
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Amount of the outstanding Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee.
Any registered holder of Capital Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against Sterling Capital,
the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in the Guarantee and, after the
occurrence of an event of default with respect to the Guarantee, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by the
Guarantee at the request of any holder of the Capital Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
For information concerning the relationship between Bankers Trust Company,
the Guarantee Trustee, and the Company, see "Description of Junior Subordinated
Debentures -- Information Concerning the Debenture Trustee."
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Capital Securities, upon full
payment of the amounts payable with respect to the Capital Securities upon
liquidation of Sterling Capital or upon distribution of Junior Subordinated
Debentures to the holders of the Capital Securities. The Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of the Capital Securities must restore payment of any sums paid under the
Capital Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Capital Securities
(to the extent Sterling Capital has funds available for such payment) are
irrevocably guaranteed, on a subordinated basis, by the Company as and to the
extent set forth under "Description of Guarantee." Taken together, the Company's
obligations under the Junior Subordinated Debentures, the Junior Subordinated
Indenture, the Trust Agreement and the Guarantee provide, in the aggregate, a
full, irrevocable and unconditional guarantee of payments of Distributions and
other amounts due on the Capital Securities. No single document standing alone
or operating in conjunction with fewer than all the other documents constitutes
such guarantee. It is only the combined operation of these documents that has
the effect of providing a full, irrevocable and unconditional guarantee of
Sterling Capital's obligations in respect of the Capital Securities. If and to
the extent that the Company does not make payments on the Junior Subordinated
Debentures, Sterling Capital will not have sufficient funds to pay Distributions
or other amounts due on the Capital Securities. The Guarantee does not cover
payment of amounts payable with respect to the Capital Securities when Sterling
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Capital does not have sufficient funds to pay such amounts. In such event, the
remedy of a holder of the Capital Securities is to institute a legal proceeding
directly against the Company for enforcement of payment of the Company's
obligations under Junior Subordinated Debentures having a principal amount equal
to the Liquidation Amount of the Capital Securities held by such holder.
The obligations of the Company under the Junior Subordinated Debentures and
the Guarantee are subordinate and junior in right of payment to all Senior
Indebtedness.
SUFFICIENCY OF PAYMENTS
As long as payments are made when due on the Junior Subordinated
Debentures, such payments will be sufficient to cover Distributions and other
payments distributable on the Capital Securities, primarily because (i) the
aggregate principal amount of the Junior Subordinated Debentures will be equal
to the sum of the aggregate stated Liquidation Amount of the Capital Securities
and Common Securities; (ii) the interest rate and interest and other payment
dates on the Junior Subordinated Debentures will match the Distribution rate,
Distribution Dates and other payment dates for the Capital Securities; (iii) the
Company will pay for any and all costs, expenses and liabilities of Sterling
Capital except Sterling Capital's obligations to holders of the Trust
Securities; and (iv) the Trust Agreement further provides that Sterling Capital
will not engage in any activity that is not consistent with the limited purposes
of Sterling Capital.
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder against and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, Sterling Capital
or any other person or entity. See "Description of Guarantee."
A default or event of default under any Senior Indebtedness of the Company
would not constitute a default or Event of Default in respect of the Capital
Securities. However, in the event of payment defaults under, or acceleration of,
Senior Indebtedness of the Company, the subordination provisions of the Junior
Subordinated Indenture provide that no payments may be made in respect of the
Junior Subordinated Debentures until such Senior Indebtedness has been paid in
full or any payment default thereunder has been cured or waived. See
"Description of Junior Subordinated Debentures -- Subordination."
LIMITED PURPOSE OF STERLING CAPITAL
The Capital Securities represent preferred undivided beneficial interests
in the assets of Sterling Capital, and Sterling Capital exists for the sole
purpose of issuing its Capital Securities and Common Securities and investing
the proceeds thereof in Junior Subordinated Debentures. A principal difference
between the rights of a holder of a Capital Security and a holder of a Junior
Subordinated Debenture is that a holder of a Junior Subordinated Debenture is
entitled to receive from the Company payments on Junior Subordinated Debentures
held, while a holder of Capital Securities is entitled to receive Distributions
or other amounts distributable with respect to the Capital Securities from
Sterling Capital (or from the Company under the Guarantee) only if and to the
extent Sterling Capital has funds available for the payment of such
Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution of Sterling Capital, other
than any such dissolution involving the distribution of the Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of Sterling Capital
as required by applicable law, the holders of the Capital Securities will be
entitled to receive, out of assets held by Sterling Capital, the Liquidation
Distribution in cash. See "Description of Capital
48
<PAGE> 51
Securities -- Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, Sterling Capital, as
registered holder of the Junior Subordinated Debentures, would be a subordinated
creditor of the Company, subordinated and junior in right of payment to all
Senior Indebtedness as set forth in the Junior Subordinated Indenture, but
entitled to receive payment in full of all amounts payable with respect to the
Junior Subordinated Debentures before any stockholders of the Company receive
payments or distributions. Since the Company is the guarantor under the
Guarantee and has agreed under the Junior Subordinated Indenture to pay for all
costs, expenses and liabilities of Sterling Capital (other than Sterling
Capital's obligations to the holders of the Trust Securities), the positions of
a holder of the Capital Securities and a holder of such Junior Subordinated
Debentures relative to other creditors and to stockholders of the Company in the
event of liquidation or bankruptcy of the Company are expected to be
substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Witherspoon, Kelley, Davenport & Toole, P.S., counsel to the Company ("Tax
Counsel"), has advised the Company that the following summary accurately
describes the material United States federal income tax consequences that may be
relevant to the purchase, ownership and disposition of the Capital Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations thereunder, and administrative and judicial
interpretations thereof, each as of the date of hereof, all of which are subject
to change, possibly on a retroactive basis. The authorities on which this
summary is based are subject to various interpretations, and the opinions of Tax
Counsel are not binding on the Internal Revenue Service (the "IRS") or the
courts; either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the IRS with respect to the transactions
described herein. Accordingly, there can be no assurance that the IRS will not
challenge the opinions expressed herein or that a court would not sustain such a
challenge.
Except as otherwise stated, this summary deals only with the Capital
Securities held as a capital asset by a holder who or which (i) purchased the
Capital Securities upon original issuance (an "Initial Holder") at their
original offering price and (ii) is a US Holder (as defined below). This summary
does not address all the tax consequences that may be relevant to a US Holder,
nor does it address the tax consequences, except as stated below, to holders
that are not US Holders ("Non-US Holders") or to holders that may be subject to
special tax treatment (such as banks, savings and loan institutions, real estate
investments trusts, regulated investment companies, insurance companies, brokers
and dealers in securities or currencies, other financial institutions,
tax-exempt organizations, persons holding the Capital Securities as a position
in a "straddle," as part of a "synthetic security," "hedging," "conversion" or
other integrated investment, persons having a functional currency other than the
U.S. Dollar and certain United States expatriates). Further, this summary does
not address (a) the income tax consequences to shareholders in, or partners or
beneficiaries of, a holder of the Capital Securities, (b) the United States
federal alternative minimum tax consequences of the purchase, ownership or
disposition of the Capital Securities, or (c) any state, local or foreign tax
consequences of the purchase, ownership and disposition of Capital Securities.
A "US Holder" is a holder of the Capital Securities who or which is (i) a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for income tax purposes, (ii) a corporation or
partnership created or organized (or treated as created or organized for income
tax purposes) in or under the laws of the United States or any political
subdivision thereof, (iii) an estate the income of which is includible in its
gross income for United States federal income tax purposes without regard to its
source, or (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the administration of the trust and (b) one or
more United States trustees have the authority to control all substantial
decisions of the trust.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE CAPITAL
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
49
<PAGE> 52
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS.
US HOLDERS
Characterization of Sterling Capital. In connection with the issuance of
the Capital Securities, Tax Counsel will render its opinion generally to the
effect that, under then current law and based on the representations, facts and
assumptions set forth in this Prospectus, and assuming full compliance with the
terms of the Trust Agreement (and other relevant documents), and based on
certain assumptions and qualifications referenced in the opinion, Sterling
Capital will be characterized for United States federal income tax purposes as a
grantor trust and will not be characterized as an association taxable as a
corporation. Accordingly, for United States federal income tax purposes, each
holder of the Capital Securities generally will be considered the owner of an
undivided interest in the Junior Subordinated Debentures owned by Sterling
Capital, and each US Holder will be required to include all income or gain
recognized for United States federal income tax purposes with respect to its
allocable share of the Junior Subordinated Debentures on its own income tax
return.
Characterization of the Junior Subordinated Debentures. The Company and
Sterling Capital will agree to treat the Junior Subordinated Debentures as
indebtedness for all United States federal income tax purposes. In connection
with the issuance of the Junior Subordinated Debentures, Tax Counsel will render
its opinion generally to the effect that, under then current law and based on
the representations, facts and assumptions set forth in this Prospectus, and
assuming full compliance with the terms of the Junior Subordinated Indenture
(and other relevant documents), and based on certain assumptions and
qualifications referenced in the opinion, the Junior Subordinated Debentures
will be characterized for United States federal income tax purposes as debt of
the Company.
Interest Income and Original Issue Discount. Under the terms of the Junior
Subordinated Debentures, the Company has the ability to defer payments of
interest from time to time by extending the interest payment period not
exceeding 20 consecutive quarterly periods, but not beyond the maturity of the
Junior Subordinated Debentures. Recently issued Treasury regulations under
Section 1273 of the Code provide that debt instruments like the Junior
Subordinated Debentures will not be considered issued with original issue
discount ("OID") by reason of the Company's ability to defer payments of
interest if the likelihood of such deferral is "remote."
The Company has concluded, and this discussion assumes, that, as of the
date of this Prospectus, the likelihood of deferring payments of interest under
the terms of the Junior Subordinated Debentures is "remote" within the meaning
of the applicable Treasury regulations, in part because exercising that option
would prevent the Company from declaring dividends on its capital stock and
would prevent the Company from making any payments with respect to debt
securities that rank pari passu with or junior to the Junior Subordinated
Debentures. Therefore, the Junior Subordinated Debentures should not be treated
as issued with OID by reason of the Company's deferral option. Rather, stated
interest on the Junior Subordinated Debentures will generally be taxable to a US
Holder as ordinary income when paid or accrued in accordance with that holder's
method of accounting for income tax purposes. It should be noted, however, that
these Treasury regulations may in the future be analyzed and interpreted by the
IRS in rulings or published documents. Accordingly, it is possible that the IRS
could take a position contrary to the interpretation described herein.
In the event the Company exercises its option to defer payments of
interest, the Junior Subordinated Debentures would be treated as redeemed and
reissued for OID purposes and the sum of the remaining interest payments (and
any de minimis OID) on the Junior Subordinated Debentures would thereafter be
treated as OID, which would accrue, and be includible in a US Holder's taxable
income, on an economic accrual basis (regardless of the US Holder's method of
accounting for income tax purposes) over the remaining term of the Junior
Subordinated Debentures (including any period of interest deferral), without
regard to the timing of payments under the Junior Subordinated Debentures.
(Subsequent distributions of interest on the Junior Subordinated Debentures
generally would not be taxable.) The amount of OID that
50
<PAGE> 53
would accrue in any period would generally equal the amount of interest that
accrued on the Junior Subordinated Debentures in that period at the stated
interest rate. Consequently, during any period of interest deferral, US Holders
will include OID in gross income in advance of the receipt of cash, and a US
Holder which disposes of a Capital Security prior to the record date for payment
of distributions on the Junior Subordinated Debentures following that period
will be subject to income tax on OID accrued through the date of disposition
(and not previously included in income), but will not receive cash from Sterling
Capital with respect to such OID.
If the possibility of the Company's exercise of its option to defer payment
of interest is not treated as remote, the Junior Subordinated Debentures would
be treated as initially issued with OID in an amount equal to the aggregate
stated interest (plus any de minimis OID) over the term of the Junior
Subordinated Debentures. That OID would generally be includible in a US Holder's
taxable income, over the term of the Junior Subordinated Debentures, on an
economic accrual basis.
Characterization of Income. Because the income underlying the Capital
Securities will not be characterized as dividends for income tax purposes,
corporate holders of the Capital Securities will not be entitled to a dividends
received deduction for any income recognized with respect to the Capital
Securities.
Market Discount and Bond Premium. Holders of the Capital Securities other
than Initial Holders may be considered to have acquired their undivided
interests in the Junior Subordinated Debentures with market discount or
acquisition premium (as each phrase is defined for United States federal income
tax purposes).
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of
Sterling Capital. Under certain circumstances described herein (See "Description
of Capital Securities -- Liquidation Distribution Upon Dissolution"), Sterling
Capital may distribute the Junior Subordinated Debentures to holders in exchange
for the Capital Securities and in liquidation of Sterling Capital. Except as
discussed below, such a distribution would not be a taxable event for United
States federal income tax purposes, and each US Holder would have an aggregate
adjusted basis in its Junior Subordinated Debentures for United States federal
income tax purposes equal to such holder's aggregate adjusted basis in its
Capital Securities. For United States federal income tax purposes, a US Holder's
holding period in the Junior Subordinated Debentures received in such a
liquidation of Sterling Capital would include the period during which Capital
Securities were held by the holder. If, however, the relevant event is a Tax
Event which results in Sterling Capital being treated as an association taxable
as a corporation, the distribution would likely constitute a taxable event to US
Holders of the Capital Securities for United States federal income tax purposes.
Under certain circumstances described herein (see "Description of Capital
Securities"), the Junior Subordinated Debentures may be redeemed for cash and
the proceeds of such redemption distributed to holders in redemption of their
Capital Securities. Such a redemption would be taxable for United States federal
income tax purposes, and a US Holder generally would recognize gain or loss as
if it had sold the Capital Securities for cash. See "-- Sales of Capital
Securities" below.
Sales of Capital Securities. A US Holder that sells Capital Securities will
recognize gain or loss equal to the difference between its adjusted basis in the
Capital Securities and the amount realized on the sale of such Capital
Securities. A US Holder's adjusted basis in the Capital Securities generally
will be its initial purchase price, increased by OID previously included (or
currently includible) in such holder's gross income to the date of disposition,
and decreased by payments received on the Capital Securities (other than any
interest received with respect to the period prior to the effective date of the
Company's first exercise of its option to defer payment of interest). Any such
gain or loss generally will be capital gain or loss, and generally will be a
long-term capital gain or loss if the Capital Securities have been held for more
than one year prior to the date of disposition.
A holder who disposes of his Capital Securities between record dates for
payments of distributions thereon will be required to include accrued but unpaid
interest (or OID) on the Junior Subordinated Debentures through the date of
disposition in its taxable income for United States federal income tax purposes
(notwithstanding that the holder may receive a separate payment from the
purchaser with respect to accrued interest), and to deduct that amount from the
sale proceeds received (including the separate payment, if any, with respect to
accrued interest) for the Capital Securities (or as to OID only, to add such
amount to such holder's adjusted tax basis in its Capital Securities). To the
extent the selling price is less than the holder's
51
<PAGE> 54
adjusted tax basis (which will include accrued but unpaid OID, if any), a holder
will recognize a capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
Proposed Tax Law Changes. On February 6, 1997, President Clinton released
his budget proposals for fiscal year 1998. One of the tax proposals therein (the
"Tax Proposal") would generally deny corporate issuers a deduction for interest
on certain debt obligations that have a maximum term in excess of 15 years and
are not shown as indebtedness on the separate balance sheet of the issuer or,
where the instrument is issued to a related party (other than a corporation),
where the holder or some other related party issues a related instrument that is
not shown as indebtedness on the issuer's consolidated balance sheet. As
currently drafted, the Tax Proposal would be effective generally for instruments
issued on or after the date of first Congressional committee action. Although it
is not clear from the President's proposals as to what constitutes Congressional
"committee action" with respect to the Tax Proposal, it appears that, as
drafted, the Tax Proposal would not apply retroactively to the Junior
Subordinated Debentures. However, if the Tax Proposal (or similar legislation)
is enacted with retroactive effect with respect to the Junior Subordinated
Debentures, the Company may not be entitled to an interest deduction with
respect to the Junior Subordinated Debentures. There can be no assurances that
the Tax Proposal, if enacted, will not apply retroactively to the Junior
Subordinated Debentures or that other legislation enacted after the date hereof
will not otherwise adversely affect the ability of the Company to deduct the
interest payable on the Junior Subordinated Debentures. Accordingly, there can
be no assurance that a Tax Event will not occur. See "Description of Capital
Securities -- Redemption."
NON-US HOLDERS
The following discussion applies to a Non-US Holder.
Payments to a holder of a Capital Security which is a Non-US Holder will
generally not be subject to withholding of income tax, provided that (a) the
beneficial owner of the Capital Security does not (directly or indirectly,
actually or constructively) own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote, (b) the beneficial
owner of the Capital Security is not a controlled foreign corporation that is
related to the Company through stock ownership, and (c) either (i) the
beneficial owner of the Capital Securities certifies to Sterling Capital or its
agent, under penalties of perjury, that it is a Non-US Holder and provides its
name and address, or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "Financial Institution"), and holds the Capital
Security in such capacity, certifies to Sterling Capital or its agent, under
penalties of perjury, that such a statement has been received from the
beneficial owner by it or by another Financial Institution between it and the
beneficial owner in the chain of ownership, and furnishes Sterling Capital or
its agent with a copy thereof.
As discussed above, changes in legislation affecting the income tax
consequences of the Junior Subordinated Debentures are possible, and could
adversely affect the ability of the Company to deduct the interest payable on
the Junior Subordinated Debentures. See "-- US Holders -- Proposed Tax Law
Changes." Moreover, any such legislation could adversely affect Non-US Holders
by characterizing income derived from the Junior Subordinated Debentures as
dividends, generally subject to a 30% income tax (on a withholding basis) when
paid to a Non-US Holder, rather than as interest which, as discussed above, is
generally exempt from income tax in the hands of a Non-US Holder.
A Non-US Holder of a Capital Security will generally not be subject to
withholding of income tax on any gain realized upon the sale or other
disposition of a Capital Security.
A Non-US Holder which holds the Capital Securities in connection with the
active conduct of a United States trade or business will be subject to income
tax on all income and gains recognized with respect to its proportionate share
of the Junior Subordinated Debentures.
52
<PAGE> 55
INFORMATION REPORTING
In general, information reporting requirements will apply to payments made
on, and proceeds from the sale of, the Capital Securities held by a
non-corporate US Holder within the United States. In addition, payments made on,
and payments of the proceeds from the sale of, the Capital Securities to or
through the United States office of a broker are subject to information
reporting unless the holder thereof certifies as to its Non-United States status
or otherwise establishes an exemption from information reporting and backup
withholding. See "-- Backup Withholding." Taxable income on the Capital
Securities for a calendar year should be reported to US Holders on the
applicable forms by the following January 31st.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies with
certain identification or exemption requirements. Any amounts so withheld will
be allowed as a credit against the holder's income tax liability, or refunded,
provided the required information is provided to the IRS.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY AND DOES NOT ADDRESS THE
CONSEQUENCES TO A PARTICULAR HOLDER OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE CAPITAL SECURITIES. POTENTIAL HOLDERS OF THE CAPITAL SECURITIES ARE URGED
TO CONTACT THEIR OWN TAX ADVISORS TO DETERMINE THEIR PARTICULAR TAX
CONSEQUENCES.
CERTAIN ERISA CONSIDERATIONS
The Company and certain affiliates of the Company may each be considered a
"party in interest" within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a "disqualified person" within the
meaning of Section 4975 of the Internal Revenue Code of 1986, as amended (the
"Code") with respect to many employee benefit plans ("Plans") that are subject
to ERISA. The purchase of the Capital Securities by a Plan that is subject to
the fiduciary responsibility provisions of ERISA or the prohibited transaction
provisions of Section 4975(e)(1) of the Code and with respect to which the
Company, or any affiliate of the Company is a service provider (or otherwise is
a party in interest or a disqualified person) may constitute or result in a
prohibited transaction under ERISA or Section 4975 of the Code, unless the
Capital Securities are acquired pursuant to and in accordance with an applicable
exemption. Any pension or other employee benefit plan proposing to acquire any
Capital Securities should consult with its counsel.
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<PAGE> 56
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below have severally agreed to purchase from Sterling Capital
an aggregate of the 1,600,000 Capital Securities in the amounts set forth below
opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER CAPITAL SECURITIES
------------------------------------------------------------- ------------------
<S> <C>
Dain Bosworth Incorporated...................................
Piper Jaffray Inc. ..........................................
---------
Total.............................................. 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to conditions precedent and that the Underwriters are committed to
purchase all of the Capital Securities offered hereby if the Underwriters
purchase any Capital Securities.
The Underwriters have advised the Company and Sterling Capital that they
propose to offer the Capital Securities to the public at the Price to Public set
forth on the cover page of this Prospectus and to selected dealers at such price
less a concession not in excess of $ per Capital Security. The Underwriters
may allow and such dealers may reallow a discount not in excess of $ per
Capital Security to certain other brokers and dealers. After the offering, the
Price to Public, concession, discount, and other selling terms may be changed by
the Underwriters.
In view of the fact that all of the proceeds from the sale of the Capital
Securities will be used to purchase the Junior Subordinated Debentures, the
Underwriting Agreement provides that the Company will pay the Underwriters as
compensation for arranging the investment therein of such proceeds, $ per
Capital Security.
In connection with the offering of the Capital Securities, the Underwriters
and any selling group members and their respective affiliates may engage in
transactions effected in accordance with Rule 104 of the Commission's Regulation
M that are intended to stabilize, maintain or otherwise affect the market price
of the Capital Securities. Such transactions may include over-allotment
transactions in which the Underwriters create a short position for their own
account by selling more Capital Securities than they are committed to purchase
from Sterling Capital. In such a case, to cover all or part of the short
position, the Underwriters may purchase Capital Securities in the open market
following completion of the initial offering of the Capital Securities. The
Underwriters also may engage in stabilizing transactions in which they bid for,
and purchase, shares of the Capital Securities at a level above that which might
otherwise prevail in the open market for the purpose of preventing or retarding
a decline in the market price of the Capital Securities. Any of the foregoing
transactions may result in the maintenance of a price for the Capital Securities
at a level above that which might otherwise prevail in the open market. Neither
the Company nor any of the Underwriters makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the Capital Securities. The Underwriters are not
required to engage in any of the foregoing transactions and, if commenced, such
transactions may be discontinued at any time without notice.
Each of the Company and Sterling Capital has agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
The Underwriters have advised Sterling Capital that they do not intend to
confirm any sales of Capital Securities to any discretionary accounts. In
connection with the offer and sale of the Capital Securities, the Underwriters
will comply with Rule 2810 under the NASD Conduct Rules.
From time to time, the Underwriters have provided, and expect to provide in
the future, investment banking services to the Company for which the
Underwriters have received, and will receive, customary fees and commissions.
54
<PAGE> 57
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Trust Agreement and the creation of
Sterling Capital will be passed upon by Richards, Layton & Finger, special
Delaware counsel to the Company and Sterling Capital. The validity of the
Guarantee and the Junior Subordinated Debentures will be passed upon for the
Company by Witherspoon, Kelley, Davenport & Toole, P.S., Spokane, Washington,
counsel to the Company, and for the Underwriters by Arnold & Porter, Washington,
D.C. and New York, New York. Ned M. Barnes, the Secretary and a Director of the
Company, is a principal in the firm of Witherspoon, Kelley, Davenport & Toole,
P.S. Principals in the firm of Witherspoon, Kelley, Davenport & Toole, P.S. and
members of their immediate families own in the aggregate approximately 33,137
shares of the Company's Common Stock.
EXPERTS
The consolidated balance sheets of the Company and subsidiaries as of
December 31, 1996 and June 30, 1996 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the six months
ended December 31, 1996 and the fiscal years ended June 30, 1996 and 1995
incorporated by reference in this Prospectus, have been incorporated herein in
reliance upon the report, which includes an explanatory paragraph describing
changes in the Company's methods of accounting for mortgage servicing rights and
impairment of long-lived assets as of July 1, 1996 and impaired loans as of July
1, 1995, of Coopers & Lybrand L.L.P., given upon the authority of that firm as
experts in auditing and accounting.
55
<PAGE> 58
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN OR INCORPORATED BY
REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Incorporation of Certain Documents by
Reference........................... 4
Prospectus Summary.................... 6
Summary Consolidated Financial Data... 10
Risk Factors.......................... 13
Use of Proceeds....................... 21
Accounting Treatment.................. 21
Capitalization........................ 22
Management............................ 23
Description of Capital Securities..... 25
Description of Junior Subordinated
Debentures.......................... 37
Description of Guarantee.............. 45
Relationship Among the Capital
Securities, the Junior Subordinated
Debentures and the Guarantee........ 47
Certain Federal Income Tax
Consequences........................ 49
Certain ERISA Considerations.......... 53
Underwriting.......................... 54
Validity of Securities................ 55
Experts............................... 55
</TABLE>
======================================================
======================================================
1,600,000 CAPITAL SECURITIES
STERLING CAPITAL TRUST I
% CUMULATIVE CAPITAL SECURITIES
(LIQUIDATION AMOUNT $25 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
STERLING
------------------------------------
FINANCIAL CORPORATION
------------------------
PROSPECTUS
------------------------
DAIN BOSWORTH
Incorporated
PIPER JAFFRAY INC.
, 1997
======================================================
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Except for the registration fee, the following are estimates of the
expenses which will be incurred in connection with the issuance and distribution
of the Securities being registered, other than underwriting discounts and
commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission................................ $12,122
Nasdaq National Market Application fees........................... 8,600
Legal fees and expenses........................................... 90,000
Printing and engraving............................................ 55,000
Accounting fees and expenses...................................... 50,000
Trustee fees and expenses......................................... 20,000
Blue Sky fees and expenses........................................ 12,000
Miscellaneous..................................................... 12,278
---------
Total................................................... $260,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Washington law permits and the Restated Articles of Incorporation and the
Bylaws of the Registrant provide that to the fullest extent allowed by
applicable laws existing from time to time, any person may, and directors and
officers shall, be indemnified or reimbursed by the Registrant for reasonable
expenses (including attorneys' fees) actually incurred in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative to which he or she shall be made a
party or threatened to be made a party by reason of his or her being or having
been a director, officer, employee or agent of the Registrant or of any firm,
corporation, employee benefit plan or other organization which he or she served
in any such capacity at the request of the Registrant; provided, however, that
no person shall be so indemnified or reimbursed (1) in relation to any matter in
such action, suit or proceeding as to which he or she shall finally be adjudged
to have been guilty or liable for gross negligence, willful misconduct or
criminal acts in the performance of his or her duties to the Registrant; or (2)
in relation to any matter in such action, suit or proceeding which has been made
the subject of a compromise settlement except with the approval of (a) a court
of competent jurisdiction, (b) the holders of record of a majority of the
outstanding shares of the Registrant or (c) the Board of Directors, acting by
vote of a majority of directors not parties to the same or substantially the
same action, suit or proceeding, whether or not such majority constitutes a
quorum. The foregoing right of indemnification or reimbursement shall not be
exclusive of other rights to which such person, his or her heirs, executors or
administrators may be entitled as a matter of law. Those persons indemnified
hereunder shall be deemed to include the heirs, legal representatives, executors
and administrators of such person.
Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the Registrant in advance
of the final disposition of such action, suit or proceeding. The director,
officer, employee or agent must repay such amount, however, if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
Registrant.
The Registrant's Restated Articles of Incorporation also provide that a
director of the Registrant shall not be personally liable to the Registrant or
its shareholders for monetary damages for conduct as a director, except for
liability of the director for (i) acts or omissions that involve intentional
misconduct or a knowing violation of law by the director, (ii) conduct which
violates RCW 23B.08.310 of the Washington Business Corporation Act pertaining to
unpermitted distributions to shareholders or loans to directors or (iii) any
transaction from which the director will personally receive a benefit in money,
property or services to which
II-1
<PAGE> 60
the director is not legally entitled. If the Washington Business Corporation Act
is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Registrant shall be eliminated or limited to the fullest extent permitted by the
Washington Business Corporation Act, as so amended. Any repeal or modification
of the foregoing paragraph by the shareholders of the Registrant shall not
adversely affect any right or protection of a director of the Registrant
existing at the time of such repeal or modification.
ITEM 16. EXHIBITS
The exhibits listed on the Exhibit Index on page II-5 of this Registration
Statement are filed herewith, incorporated by reference or will be filed by
amendment.
ITEM 17. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes:
(a) The undersigned Registrant hereby undertakes that, for the
purposes of determining any liability under the Securities Act of 1933,
each filing of the Registrant's annual report pursuant to section 13 (a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the issuer in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each posteffective amendment that contains a
form of prospectus shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-2
<PAGE> 61
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Spokane, State of
Washington, on this 22nd day of May, 1997.
STERLING FINANCIAL CORPORATION
By: /s/ WILLIAM W. ZUPPE*
------------------------------------
William W. Zuppe, President,
Chief Operating Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------ -------------
<S> <C> <C>
/s/ HAROLD B. GILKEY* Chairman of the Board and May 22, 1997
- ----------------------------------------------- Chief Executive Officer
Harold B. Gilkey
/s/ WILLIAM W. ZUPPE* President, Chief Operating May 22, 1997
- ----------------------------------------------- Officer and Director
William W. Zuppe
/s/ DANIEL G. BYRNE* Chief Financial Officer and May 22, 1997
- ----------------------------------------------- Principal Accounting Manager
Daniel G. Byrne
/s/ NED M. BARNES* Secretary and Director May 22, 1997
- -----------------------------------------------
Ned M. Barnes
/s/ RODNEY W. BARNETT* Director May 22, 1997
- -----------------------------------------------
Rodney W. Barnett
/s/ JAMES P. FUGATE* Director May 22, 1997
- -----------------------------------------------
James P. Fugate
/s/ ROBERT D. LARRABEE* Director May 22, 1997
- -----------------------------------------------
Robert D. Larrabee
/s/ ROBERT E. MEYERS* Director May 22, 1997
- -----------------------------------------------
Robert E. Meyers
/s/ DAVID O. WALLACE* Director May 22, 1997
- -----------------------------------------------
David O. Wallace
*By: /s/ DANIEL G. BYRNE
- -----------------------------------------------
Daniel G. Byrne
Attorney-in-Fact
</TABLE>
II-3
<PAGE> 62
Pursuant to the requirements of the Securities Act of 1933, the Trust has
duly caused this Pre-Effective Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Spokane, State of Washington on May 22, 1997.
STERLING CAPITAL TRUST I
By STERLING FINANCIAL CORPORATION
as Depositor
By: /s/ DANIEL G. BYRNE
------------------------------------
Daniel G. Byrne
Senior Vice President-Finance
II-4
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement, filed herewith.
4.1 Form of Junior Subordinated Indenture, previously filed.
4.2 Form of Trust Agreement, previously filed.
4.3 Form of Amended and Restated Trust Agreement, previously filed.
4.4 Form of Guarantee Agreement, previously filed.
5.1 Opinion of Richards, Layton & Finger, filed herewith.
5.2 Opinion of Witherspoon, Kelley, Davenport & Toole, P.S., filed herewith.
8.1 Tax opinion of Witherspoon, Kelley, Davenport & Toole, P.S., filed herewith.
12.1 Statement regarding computation of ratios, previously filed.
23.1 Consent of Coopers & Lybrand L.L.P., previously filed.
23.2 Consent of Richards, Layton & Finger, included in Exhibit 5.1 filed herewith.
23.3 Consent of Witherspoon, Kelley, Davenport & Toole, P.S., included in Exhibit
5.2 filed herewith.
24.1 Power of Attorney of certain directors and officers of Registrant, previously
filed.
24.2 Certified Resolution of Registrant's Board of Directors authorizing execution
by Power of attorney, previously filed.
25.1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of
Bankers Trust Company as trustee under the Junior Subordinated Indenture, the
Trust Agreement and the Guarantee Agreement relating to Sterling Capital Trust
1, previously filed.
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1.1
1,600,000 Capital Securities
STERLING CAPITAL TRUST I
____% Cumulative Capital Securities
(Liquidation Preference of $25 per Capital Security)
UNDERWRITING AGREEMENT
May __, 1997
Dain Bosworth Incorporated
Piper Jaffray Inc.
c/o Dain Bosworth Incorporated
Dain Bosworth Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402-4422
Ladies and Gentlemen:
Sterling Financial Corporation, a Washington corporation (the
"Company"), and its subsidiary, Sterling Capital Trust I, a statutory business
trust organized under the Delaware Business Trust Act (the "Delaware Act") (the
"Trust" and, together with the Company, the "Offerors"), propose, subject to the
terms and conditions stated herein, to issue and sell to you (the
"Underwriters"), an aggregate of 1,600,000 of the Trust's ____% Cumulative
Capital Securities, with a liquidation preference of $25.00 per capital security
(the "Capital Securities"). The Offerors propose that the Trust issue the
Capital Securities pursuant to a Trust Agreement, as amended and restated, among
Bankers Trust Company as Property Trustee and Bankers Trust (Delaware) as
Delaware Trustee and the Company (the "Trust Agreement"). The Capital Securities
will be guaranteed by the Company (the "Guarantee") as set forth in a Guarantee
Agreement (the "Guarantee Agreement"), to be dated May __, 1997, between the
Company and Bankers Trust Company, as trustee (the "Guarantee Trustee"), and
entitled to the benefits of certain backup undertakings described in the
Prospectus (as defined herein) with respect to the Company's agreement to pay
all expenses relating to administration of the Trust.
The proceeds of the sale of the Capital Securities will be used to
purchase junior subordinated deferrable interest debentures (the "Junior
Subordinated Debentures") issued by the Company pursuant to an Indenture, to be
dated May __, 1997, between the Company and Bankers Trust Company as trustee
(the "Indenture").
The Offerors have filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (File Nos. 333-_____
333-_____-01) and a related preliminary prospectus for the registration of the
Capital Securities, the Guarantee and the Junior Subordinated Debentures, under
the Securities Act of 1933, as amended (the "Act") and the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act") and the rules and regulations
thereunder. The registration statement, as amended, at the time it was declared
<PAGE> 2
effective, including the information (if any) deemed to be part thereof pursuant
to Rule 430A under the Act, is herein referred to as the "Registration
Statement." The form of prospectus first filed by the Offerors with the
Commission pursuant to Rules 424(b) and 430A under the Act is referred to herein
as the "Prospectus." Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective or filed with the Commission
pursuant to Rule 424(a) under the Act is referred to herein as a "Preliminary
Prospectus." References to the Registration Statement, the Prospectus and the
Preliminary Prospectus include all information incorporated therein by
reference. Copies of the Registration Statement, including all exhibits and
schedules thereto, any amendments thereto and all Preliminary Prospectuses have
been delivered to the Underwriters.
The Offerors hereby confirm their agreement with respect to the purchase
of the Capital Securities by the Underwriters as follows:
1. Representations and Warranties of the Offerors.
(a) The Offerors jointly and severally represent and warrant to,
and agree with, each of the Underwriters that:
(i) The Registration Statement has been declared effective
under the Act, and no post-effective amendment to the Registration Statement has
been filed with the Commission as of the date of this Agreement. No stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or threatened by the
Commission.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material respects to
the requirements of the Act and the Trust Indenture Act and the rules and
regulations of the Commission promulgated thereunder, and did 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, in light of the
circumstances under which they were made, not misleading; provided, however,
that the Offerors make no representation or warranty as to information contained
in or omitted in reliance upon, and in conformity with, written information
furnished to the Offerors by or on behalf of any Underwriter, expressly for use
in the preparation thereof.
(iii) The Registration Statement conforms, and the Prospectus
and any amendments or supplements thereto will conform, in all material respects
to the requirements of the Act and the Trust Indenture Act and the rules and
regulations thereunder. Neither the Registration Statement nor any amendment
thereto, and neither the Prospectus nor any supplement thereto, contains or will
contain, as the case may be, any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the Offerors make no
representation or warranty as to (i) information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
- 2 -
<PAGE> 3
furnished to the Offerors by or on behalf of any Underwriter, expressly for use
in the preparation thereof or (ii) information in those parts of the
Registration Statement which constitute Statements of Eligibility and
Qualification ("Form T-1") under the Trust Indenture Act.
(iv) The documents of the Company incorporated by reference
in the Registration Statement and the Prospectus, when they were filed with the
Commission, conformed in all material respects to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and any further documents so filed and incorporated by reference
in the Registration Statement and the Prospectus or any further amendment or
supplement thereto, when such documents are filed with the Commission will
conform in all material respects to the requirements of the Exchange 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.
(v) The Trust has been duly created and is validly existing
in good standing as a business trust under the Delaware Act with full trust
power and authority to own property and to conduct its business as described in
the Registration Statement and Prospectus and is authorized to do business in
each jurisdiction in which such qualification is required, except where the
failure to so qualify would not have a material adverse effect on the Trust's
condition (financial or otherwise), earnings, business, prospects, assets,
results of operations or properties taken as a whole; the Trust has conducted
and will conduct no business other than the transactions contemplated by the
Trust Agreement and described in the Prospectus; the Trust is not a party to or
otherwise bound by any agreement other than those described in the Prospectus;
the Trust is and will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation;
and the Trust is and will be treated as a consolidated subsidiary of the Company
pursuant to generally accepted accounting principles.
(vi) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Washington, is duly registered as a savings and loan holding company under the
Home Owners' Loan Act, and is in good standing with the Office of Thrift
Supervision ("OTS"). The significant operating subsidiary of the Company is
Sterling Savings Association ("Sterling Savings"). The principal operating
subsidiaries of Sterling Savings are Action Mortgage Company ("Action
Mortgage"), INTERVEST-Mortgage Investment Company ("INTERVEST") and Harbor
Financial Services, Inc. ("Harbor Financial") (Sterling Savings and such other
entities being collectively referred to herein as the "Subsidiaries"). Sterling
Savings is a savings and loan association chartered by the State of Washington
Department of Financial Institutions to conduct the business of savings and loan
associations. Sterling Savings is in good standing under the laws of the State
of Washington and currently meets the Qualified Thrift Lender Test of the Home
Owners' Loan Act. Each Subsidiary has been duly incorporated, is validly
- 3 -
<PAGE> 4
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation; is, to the Company's knowledge, in compliance with all
applicable federal and state regulatory rules and guidelines; has the corporate
power and authority to own or lease its properties and conduct its business as
described in the Prospectus; and is duly qualified to transact business in all
jurisdictions in which the conduct of its business or its ownership or leasing
of property requires such qualification and the failure so to qualify would have
a material adverse effect on the business or condition, financial or otherwise,
of the Company and the Subsidiaries, taken as a whole. All outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and non-assessable, and are owned, directly or
indirectly, by the Company free and clear of all liens, encumbrances and
security interests, except as disclosed in the Registration Statement and
Prospectus. No options, warrants or other rights to purchase, agreements or
other obligations to issue, or other rights to convert any obligations into,
shares of capital stock or ownership interests in any of the Subsidiaries are
outstanding.
(vii) All of the issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable, were offered and sold in compliance with all federal and state
securities laws, and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
Except as otherwise stated in the Registration Statement and Prospectus, there
are no preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, the Junior Subordinated Debentures,
the common securities of the Trust held by the Company (the "Common Securities")
or the Capital Securities. Neither the filing of the Registration Statement nor
the registration of the Capital Securities, the Guarantee or the Junior
Subordinated Debentures gives rise to any rights for or relating to the
registration of any capital stock or other securities of the Company or the
Trust. The Company has an authorized and outstanding capitalization as set forth
in the Registration Statement and the Prospectus.
(viii) Each of this Agreement, the Indenture, the Trust
Agreement, and the Guarantee Agreement has been duly authorized, executed and
delivered by the Company and/or the Trust, as the case may be, and constitutes a
valid, legal and binding obligation of the Company and/or the Trust, as the case
may be, enforceable in accordance with its terms, except as rights to indemnity
hereunder may be limited by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity. The execution, delivery and performance of this Agreement,
the Indenture, the Trust Agreement, and the Guarantee Agreement and the
consummation of the transactions herein or therein contemplated will not result
in a breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any indenture, mortgage, deed of trust, loan
agreement, lease, franchise, license or other agreement or instrument to which
the Trust, the Company or any of the Subsidiaries is a party or by which the
Trust, the Company or any of the Subsidiaries is bound or to which any property
or assets of the Trust, the Company or any of the Subsidiaries is subject, the
Company's or any Subsidiary's charter or bylaws, the Trust Agreement or the
- 4 -
<PAGE> 5
Trust's certificate of trust filed with the State of Delaware on May __, 1997
(the "Certificate of Trust") or any order, rule, regulation or decree of any
court or governmental agency or body having jurisdiction over the Company, any
Subsidiary or the Trust or any of the properties of the Company, any Subsidiary
or the Trust. No consent, approval, authorization or order of, or filing with,
any court or governmental agency or body is required for the execution, delivery
and performance of this Agreement, the Indenture, the Trust Agreement, and the
Guarantee Agreement or for the consummation of the transactions contemplated
hereby or thereby, including the issuance or sale of the Junior Subordinated
Debentures by the Company and the Common Securities and the Capital Securities
by the Trust, except such as may be required under the Act, all of which have
been obtained or made, and under state securities or blue sky laws. Each of the
Company and the Trust has full power and authority to enter into this Agreement,
the Indenture, the Trust Agreement, and the Guarantee Agreement, as the case may
be, and to authorize, issue and sell the Junior Subordinated Debentures or the
Common Securities and the Capital Securities, as the case may be, as
contemplated by this Agreement; and each of the Indenture, the Trust Agreement
and the Guarantee Agreement has been duly qualified under the Trust Indenture
Act and will conform in all material respects to the statements relating thereto
in the Registration Statement and the Prospectus.
(ix) The Junior Subordinated Debentures have been duly
authorized by the Company and at the Closing Date will have been duly executed
by the Company and, when authenticated in the manner provided for in the
Indenture and delivered against payment therefor as described in the Prospectus,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity, will be in the form contemplated by, and entitled to the
benefits of, the Indenture, will conform to the statements relating thereto in
the Prospectus, and will be owned by the Trust free and clear of any security
interest, pledge, lien, encumbrance, claim or equity.
(x) The Common Securities have been duly authorized by the
Trust Agreement and, when issued and delivered by the Trust to the Company
against payment therefor as described in the Prospectus, will be validly issued
and (subject to the terms of the Trust Agreement) fully paid and nonassessable
undivided beneficial interests in the assets of the Trust and will conform to
all statements relating thereto contained in the Prospectus; and at the Closing
Date all of the issued and outstanding Common Securities of the Trust will be
directly owned by the Company free and clear of any security interest, pledge,
lien, encumbrance, claim or equity.
(xi) The Capital Securities have been duly authorized by the
Trust Agreement and, when issued and delivered pursuant to this Agreement
against payment of the consideration set forth herein, will be validly issued
and fully paid and non-assessable undivided beneficial interests in the Trust,
will be entitled to the benefits of the Trust Agreement and will conform to the
statements relating thereto contained in the Prospectus; and holders of Capital
Securities will
- 5 -
<PAGE> 6
be entitled to the same limitation of personal liability under Delaware law as
extended to stockholders of private corporations for profit.
(xii) The Indenture, the Trust Agreement, and the Guarantee
Agreement are in substantially the respective forms filed as exhibits to the
Registration Statement.
(xiii) The Company's obligations under the Guarantee are
subordinated and junior in right of payment to all Senior Indebtedness (as
defined in the Indenture) of the Company.
(xiv) The Junior Subordinated Debentures are subordinate and
junior in right of payment to all Senior Indebtedness of the Company.
(xv) The financial statements, together with the related
notes and schedules, contained or incorporated by reference in the Registration
Statement and Prospectus present fairly the consolidated financial position,
results of operations, shareholders' equity and cash flows of the Company and
its consolidated Subsidiaries on the basis stated therein at the indicated dates
and for the indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, and all adjustments necessary for a fair
presentation of results for such periods have been made, except as otherwise
stated therein. The summary financial data included in the Registration
Statement present fairly the information shown therein on the basis stated in
the Registration Statement and have been compiled on a basis consistent with the
financial statements presented therein.
(xvi) There is no action or proceeding pending or, to the
knowledge of the Trust or the Company, threatened or contemplated against any of
the Trust, the Company or any Subsidiary before any court or administrative or
regulatory agency which, if determined adversely to the Trust, the Company or
such Subsidiary would, individually or in the aggregate, result in a material
adverse change in the business or condition (financial or otherwise), results of
operations, shareholders' equity or prospects of the Trust, the Company or such
Subsidiary, taken as a whole, except as set forth in the Registration Statement.
(xvii) There are no contracts or documents of the Trust or
the Company or any Subsidiary that are required by the Act or by the rules and
regulations thereunder to be filed as exhibits to the Registration Statement or
any document incorporated by reference therein which contracts or documents have
not been so filed.
(xviii) The Company and the Subsidiaries have good and
marketable title to all properties and assets reflected as owned in the
financial statements hereinabove described (or as described as owned in the
Prospectus), in each case free and clear of all liens, encumbrances and defects,
except such as are described in the Prospectus or do not substantially affect
the value of such properties and assets and do not materially interfere with the
use made and proposed to be made of such properties and assets by the Company
and the Subsidiaries; and any real property and buildings held under lease by
the
- 6 -
<PAGE> 7
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and the Subsidiaries.
(xix) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented, (A)
there has not been any material adverse change, or any development involving a
prospective material adverse change, in or affecting the condition, financial or
otherwise, of the Trust, the Company and the Subsidiaries taken as a whole, or
the business affairs, management, financial position, shareholders' equity or
results of operations of the Trust, the Company and the Subsidiaries, taken as a
whole, whether or not occurring in the ordinary course of business, including,
without limitation, any material increase in the amount or number of classified
assets of Sterling Savings, any decrease in net interest margin for any month to
a level below 2.5%, or any material decrease in the volume of loan originations,
the amount of deposits or the amount of loans, (B) there has not been any
transaction not in the ordinary course of business entered into by the Trust,
the Company or any of the Subsidiaries which is material to the Trust, the
Company and the Subsidiaries, taken as a whole, other than transactions
described or contemplated in the Registration Statement, (C) the Trust, the
Company and the Subsidiaries have not incurred any material liabilities or
obligations, which are not in the ordinary course of business or which could
result in a material reduction in the future earnings of the Trust, the Company
and the Subsidiaries, (D) the Trust, the Company and the Subsidiaries have not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance, (E) there has not been any change in the capital stock
of the Company or the Subsidiaries (other than upon the exercise of options and
warrants described in the Registration Statement), or any material increase in
the short-term or long-term debt (including capitalized lease obligations) of
the Company, and (F) there has not been any declaration or payment of any
dividends or any distributions of any kind with respect to the capital stock of
the Company or the Subsidiaries other than any dividends or distributions
described or contemplated in the Registration Statement.
(xx) Neither the Company nor any of the Subsidiaries is in
violation of its respective charter or Bylaws; the Trust is not in violation of
the Trust Agreement or its Certificate of Trust; and none of the Trust, the
Company, or the Subsidiaries is in violation of or otherwise in default under
any statute, or any rule, regulation, order, judgment, decree or authorization
of any court or governmental or administrative agency or body having
jurisdiction over the Trust, the Company or any of the Subsidiaries or any of
their properties, or any indenture, mortgage, deed of trust, loan agreement,
lease, franchise, license or other agreement or instrument to which the Trust,
the Company or any of the Subsidiaries is a party or by which any of them are
bound or to which any property or assets of the Trust, the Company or any of the
Subsidiaries is subject, which violation or default would have a material
adverse effect on the business, condition (financial or otherwise), results of
operations, shareholders' equity or prospects of the Trust, the Company and the
Subsidiaries, taken as a whole.
- 7 -
<PAGE> 8
(xxi) The Trust, the Company and each of the Subsidiaries
holds and is operating in compliance with all licenses, approvals, certificates
and permits from governmental and regulatory authorities which are necessary to
the conduct of its business as described in the Prospectus. Without limiting the
generality of the foregoing, the Company has all necessary federal and state
approvals necessary to own the stock of the Subsidiaries. None of the Trust, the
Company or any Subsidiary has received notice of or has knowledge of any basis
for any proceeding or action relating specifically to the Trust, the Company or
the Subsidiaries for the revocation or suspension of any such consent,
authorization, approval, order, license, certificate or permit or any other
action or proposed action by any regulatory authority having jurisdiction over
the Trust, the Company or the Subsidiaries that would have a material adverse
effect on the Trust, the Company or any Subsidiary.
(xxii) Coopers & Lybrand L.L.P., which has certified certain
of the financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required by the
Act and the rules and regulations thereunder.
(xxiii) The Offerors have not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Capital Securities.
(xxiv) The Offerors' registration statement pursuant to
Section 12(g) of the Exchange Act with respect to the Capital Securities, has
been declared effective by the Commission; and the Capital Securities have been
approved for designation upon notice of issuance on the Nasdaq National Market
under the symbol "STSAO."
(xxv) The Offerors have not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Capital Securities other than any Preliminary
Prospectus or the Prospectus or other materials permitted by the Act to be
distributed by the Company.
(xxvi) The deposit accounts of Sterling Savings are insured
by the Federal Deposit Insurance Corporation (the "FDIC") to the fullest extent
provided by law. No proceeding for the termination of such insurance is pending
or is threatened. Except for the Supervisory Directive from the Washington
Department of Financial Institutions, dated January 3, 1997, neither the Company
nor any Subsidiary has received or is subject to any directive or order from the
OTS, the FDIC, the Washington Department of Financial Institutions, or any other
regulatory authority to make any material change in the method of conducting
their respective businesses that has not been complied with in all material
respects.
(xxvii) The Trust, the Company and the Subsidiaries have
filed all federal, state, local and foreign tax returns or reports required to
be filed, and have paid in full all taxes indicated by said returns or reports
and all assessments received by it or any of them to the extent that such taxes
have
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<PAGE> 9
become due and payable, except where the Trust, the Company and the Subsidiaries
are contesting in good faith such taxes and assessments. The Company and the
Subsidiaries have also filed all required applications, reports, returns and
other documents and information with all state and federal savings and loan
association authorities and agencies.
(xxviii) The Trust, the Company and each of the Subsidiaries
owns or licenses all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets and other similar rights necessary for the
conduct of their businesses as described in the Prospectus. Neither the Trust
nor the Company has any knowledge of any infringement by them or the
Subsidiaries of any patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets or other similar rights of others, and none
of the Trust, the Company or any of the Subsidiaries has received any notice or
claim of conflict with the asserted rights of others with respect to any of the
foregoing.
(xxix) None of the Trust, the Company or any of the
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, or an "investment adviser" within the meaning of the Investment
Advisers Act of 1940, as amended.
(xxx) The Company and its Subsidiaries maintain, and the
Trust will maintain, a system of internal accounting controls sufficient to
provide reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (C) access to records is permitted only in accordance
with management's general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(xxxi) Other than as contemplated by this Agreement and as
disclosed in the Registration Statement, the Company has not incurred any
liability for any finder's or broker's fee or agent's commission in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(xxxii) No report or application filed by the Company or any
of its Subsidiaries with the OTS, the FDIC or the Washington Department of
Financial Institutions, as of the date it was filed, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading when
made or failed to comply with the applicable requirements of the OTS, the FDIC
or the Washington Department of Financial Institutions, as the case may be.
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<PAGE> 10
(xxxiii) The Offerors meet all of the requirements for the
use of Form S-3 to register the Capital Securities, the Guarantee and the Junior
Subordinated Debentures under the Act.
(xxxiv) Any certificate signed by or on behalf of the Trust
or the Company and delivered to the Underwriters or counsel to the Underwriters
shall be deemed to be a representation and warranty of the Trust or the Company
to each Underwriter as to the matters covered thereby, provided that such
certificate expressly states that it is given as a representation and warranty
pursuant to this Agreement.
2. Purchase, Sale and Delivery of Capital Securities; Advisory Fee. On
the basis of the representations, warranties and agreements herein contained,
but subject to the terms and conditions herein set forth, the Trust agrees to
issue and sell to each Underwriter, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Trust, at a purchase price per
Capital Security of $25.00, the number of Capital Securities set forth opposite
the name of such Underwriter in Schedule A hereto. As compensation to the
Underwriters for their commitments hereunder and in view of the fact that the
proceeds of the sale of the Capital Securities (together with the entire
proceeds from the sale by the Trust to the Company of the Common Securities)
will be used to purchase the Junior Subordinated Debentures, the Company hereby
agrees to pay at the Closing Date to the Underwriters a commission of $____ per
Capital Security sold by the Trust hereunder.
The Capital Securities will be delivered by the Company to the
Underwriters against payment of the purchase price therefor at the offices of
Witherspoon, Kelley, Davenport & Toole, P.S., 422 West Riverside, Spokane,
Washington 99201, or such other location as may be mutually acceptable, at 8:00
a.m. Pacific Daylight Time on May __, 1997, or such other time and date as the
Underwriters and the Company may agree upon in writing, such time and date of
delivery being herein referred to as the "Closing Date." The purchase price
shall be payable by wire transfer of immediately available funds to an account
designated by the Trust at least two business days preceding the Closing Date.
The Underwriters' commission shall be payable by wire transfer of immediately
available funds to an account designated by the Underwriters at least two
business days preceding the Closing Date. Delivery of the Capital Securities may
be made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Underwriters. Certificates representing the
Capital Securities, in definitive form and in such denominations and registered
in such names as the Underwriters may request upon at least two business days'
prior notice to the Company, shall be prepared and will be made available for
checking and packaging, not later than 10:30 a.m., Central time, on the business
day next preceding the Closing Date at the offices of Dain Bosworth
Incorporated, Dain Bosworth Plaza, 60 South Sixth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable.
It is understood that either Underwriter may (but shall not be obligated
to) make payment to the Company on behalf of the other Underwriter for the
Securities to be purchased by such Underwriter. Any such payment shall not
relieve such other Underwriter of any of its obligations hereunder. Nothing
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<PAGE> 11
herein contained shall constitute the Underwriters as an unincorporated
association or partner with either or both Offerors.
3. Offering by Underwriters. It is understood that the Underwriters
propose to make a public offering of the Capital Securities as soon as the
Underwriters deem it advisable to do so. The Capital Securities are to be
initially offered to the public at the initial public offering price set forth
in the Prospectus. The Underwriters may from time to time thereafter change the
public offering price and other selling terms. Because the National Association
of Securities Dealers, Inc. ("NASD") is expected to view the Capital Securities
as interests in a direct participation program, the offering of the Capital
Securities is being made in compliance with the applicable provisions of Rule
2810 of the NASD's Conduct Rules.
4. Covenants of the Offerors. The Offerors jointly and severally
covenant and agree with the several Underwriters that:
(a) The Offerors will prepare and timely file with the Commission
under Rule 424(b) under the Act a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A under the Act, and will not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Underwriters shall not
previously have been advised and furnished with a copy and as to which the
Underwriters shall have reasonably objected in writing promptly after reasonable
notice thereof or which is not in compliance with the Act or the rules and
regulations thereunder.
(b) The Offerors will advise the Underwriters promptly of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus, of the suspension of the
qualification of the Capital Securities for offering or sale in any
jurisdiction, or of the institution or threatening of any proceedings for that
purpose, and the Offerors will use their best efforts to prevent the issuance of
any such stop order preventing or suspending the use of the Prospectus or
suspending such qualification and to obtain as soon as possible the lifting
thereof, if issued.
(c) The Offerors will cooperate with the Underwriters and the
Underwriters' counsel in order to qualify the Capital Securities for sale under
the securities laws of such jurisdictions as the Underwriters may reasonably
have designated in writing and to continue such qualifications in effect for so
long as the Underwriters may reasonably request for distribution of the Capital
Securities (or obtain exemptions from the application of such laws), provided
that neither Offeror shall be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Offerors will, from
time to time, prepare and file such statements, reports and other documents as
may be requested by the Underwriters for that purpose.
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<PAGE> 12
(d) The Offerors will furnish the Underwriters with as many copies
of any Preliminary Prospectus as the Underwriters may reasonably request and,
during the period when delivery of a prospectus is required under the Act, the
Offerors will furnish the Underwriters with as many copies of the Prospectus in
final form, or as thereafter amended or supplemented, as the Underwriters may,
from time to time, reasonably request. The Offerors will deliver to the
Underwriters, at or before the Closing Date, two signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Underwriters such number of conformed copies
of the Registration Statement, without exhibits, and of all amendments thereto,
as the Underwriters may reasonably request.
(e) If, during the period in which a prospectus is required by law
to be delivered by an Underwriter or dealer, any event shall occur as a result
of which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not misleading, or if for
any other reason it shall be necessary at any time to amend or supplement the
Prospectus to comply with any law, the Offerors promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein in
light of the circumstances when it is so delivered, not misleading, or so that
the Prospectus will comply with law.
(f) The Offerors will make generally available to their security
holders, as soon as it is practicable to do so, but in any event not later than
18 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 thereunder and will advise the
Underwriters in writing when such statement has been so made available.
(g) The Company will, for three years from the Closing Date,
deliver to each Underwriter, as soon as they are available, copies of its annual
report and copies of all other documents, reports and information furnished by
the Company to its security holders or filed with any securities exchange
pursuant to the requirements of such exchange or with the Commission pursuant to
the Act or the Exchange Act. The Company will deliver to each Underwriter
similar reports with respect to significant subsidiaries, as that term is
defined in the rules and regulations under the Act, which are not consolidated
in the Company's financial statements.
(h) The Offerors will apply the net proceeds from the sale of the
Junior Subordinated Debentures and the Capital Securities substantially in
accordance with the purposes set forth under "Use of Proceeds" in the
Prospectus.
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<PAGE> 13
(i) The Offerors will use their best efforts to maintain the
designation of the Capital Securities on the Nasdaq National Market.
5. Costs and Expenses.
(a) The Offerors will pay (directly or by reimbursement) all
costs, expenses and fees incident to the performance of the obligations of the
Offerors under this Agreement, including, without limiting the generality of the
foregoing, the following: accounting fees of the Offerors; the fees and
disbursements of counsel for the Offerors; the cost of preparing, printing and
filing of the Registration Statement, Preliminary Prospectuses and the
Prospectus and any amendments and supplements thereto and the printing, mailing
and delivery to the Underwriters and dealers of copies thereof and of this
Agreement, the Selected Dealers Agreement, the Blue Sky Memorandum and any
supplements or amendments thereto (excluding, except as provided below, fees and
expenses of counsel to the Underwriters); the filing fees of the Commission; the
filing fees and expenses (including legal fees and disbursements of counsel for
the Underwriters) incident to securing any required review by the NASD of the
terms of the sale of the Capital Securities; the fees and expenses of the
Indenture Trustee, including the fees and disbursements of counsel for the
Indenture Trustee in connection with the Indenture and Junior Subordinated
Debentures; the fees and expenses of the Property Trustee and the Delaware
Trustee, including the fees and disbursements of counsel for the Property
Trustee and the Delaware Trustee in connection with the Trust Agreement and the
Certificate of Trust; the fees and expenses of the Guarantee Trustee, including
the fees and disbursements of counsel for the Guarantee Trustee in connection
with the Guarantee and Guarantee Agreement; listing fees, if any, transfer taxes
and the expenses, including the fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Capital
Securities under state securities or Blue Sky laws; the fees and expenses
incurred in connection with the designation of the Capital Securities on the
Nasdaq National Market; the costs of preparing certificates representing Junior
Subordinated Debentures or Capital Securities; the costs and fees of any
registrar or transfer agent and all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section 5. The Offerors shall not be required to pay for
any of the Underwriters' expenses, other than those related to qualification of
the Capital Securities under state securities or Blue Sky laws (as to which fees
and expenses shall not exceed $12,000) and those incident to securing any
required review by the NASD of the terms of the sale of the Capital Securities
which shall be paid by the Offerors as provided above, except that, if this
Agreement shall not be consummated because the conditions in Section 6 hereof
are not satisfied, or because this Agreement is terminated by the Underwriters
pursuant to Section 9(b) hereof, or by reason of any failure, refusal or
inability on the part of the Offerors to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on either
of their parts to be performed, unless such failure to satisfy said condition or
to comply with said terms shall be due to the default or omission of any
Underwriter, then the Offerors promptly upon request by the Underwriters shall
reimburse the Underwriters for all actual, accountable out-of-pocket expenses,
including fees and disbursements of counsel reasonably incurred in connection
with investigating, marketing and proposing to market the Capital Securities or
in
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<PAGE> 14
contemplation of performing their obligations hereunder; but the Offerors shall
not in any event be liable to the Underwriters for damages on account of loss of
anticipated profits from the sale by them of the Capital Securities.
(b) Upon successful completion of the offering contemplated by
this Agreement, the Offerors will pay all reasonable and customary costs,
expenses and fees incident to tombstone advertisements of the offering and
incurred with the approval of the Company.
6. Conditions of Obligations of the Underwriters.
The several obligations of the Underwriters to purchase the Capital
Securities on the Closing Date are subject to the condition that all
representations and warranties of the Offerors contained herein are true and
correct, at and as of the Closing Date, and the condition that each Offeror
shall have performed all of its covenants and obligations hereunder and to the
following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with Section
4(a) hereof; no stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, or any part thereof shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to the reasonable
satisfaction of the Underwriters.
(b) The Underwriters shall have received on the Closing Date the
opinion of Witherspoon, Kelley, Davenport & Toole, P.S., counsel for the
Offerors, dated the Closing Date, addressed to the Underwriters, to the effect
that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus. All of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. The holders
of the Company's outstanding securities are not entitled to any preemptive or
other rights to subscribe for the Junior Subordinated Debentures or the Capital
Securities under the Company's Articles of Incorporation or Bylaws and, to the
knowledge of such counsel, no such rights exist under any other agreement or
arrangement. The Company has authorized and outstanding capital stock as
described in the Prospectus.
(ii) Each Subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation and is in compliance with all applicable
federal and state regulatory rules and guidelines, with corporate power and
authority to own or lease its properties and conduct its business as described
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<PAGE> 15
in the Prospectus. The outstanding capital stock of each such Subsidiary has
been duly authorized and validly issued, is fully paid and nonassessable and is
owned, directly or indirectly, by the Company, free and clear of all liens,
encumbrances and security interests, other than security interests specifically
disclosed in the Prospectus. To the knowledge of such counsel, no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into capital stock or ownership
interests in any Subsidiary are outstanding.
(iii) Sterling Savings has been duly chartered to conduct the
business of a savings and loan association in the State of Washington and the
Company has all necessary power and authority to own Sterling Savings. The
Company and Sterling Savings have all necessary consents and approvals under
applicable federal and state laws and regulations relating to savings and loan
associations and savings and loan holding companies ("savings and loan laws") to
own their respective assets and carry on their respective businesses as
currently conducted.
(iv) The statements in the Prospectus under the captions "Risk
Factors -- Dividend Payment Sources and Restrictions, -- Status of the Company
as a Savings and Loan Holding Company and -- Certain Regulatory Matters" and in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996
under the caption "Regulation," insofar as such statements constitute a summary
of savings and loan laws, are accurate summaries and fairly present the
information called for with respect to such matters.
(v) The execution and delivery of this Agreement, the
Indenture, the Trust Agreement, and the Guarantee Agreement and the consummation
of the transactions herein and therein contemplated do not and will not conflict
with or result in a violation of or default under any savings and loan
association laws, or any permit, judgment, decree or order known to such
counsel, or any lease, contract, indenture, mortgage, loan agreement or other
agreement or other instrument or obligation known to such counsel to which the
Company or Sterling Savings is a party or by which the Company or Sterling
Savings or any of their respective properties is bound.
(vi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body under any savings and loan association laws is necessary in
connection with the execution and delivery by the Offerors of this Agreement,
the Indenture, the Trust Agreement, and the Guarantee Agreement and the
consummation of the transactions herein and therein contemplated, except such as
have been obtained or made, specifying the same.
(vii) All of the issued and outstanding Common Securities of
the Trust are owned by the Company free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equitable right.
(viii) The Junior Subordinated Debentures are in the form
contemplated by the Indenture, have been duly authorized, executed and
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<PAGE> 16
delivered by the Company and, when authenticated by the Indenture Trustee in the
manner provided for in the Indenture and delivered against payment therefor,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity.
(ix) The Junior Subordinated Debentures are subordinate and
junior in right of payment to all "Senior Indebtedness" (as defined in the
Indenture) of the Company.
(x) Under current law, the Trust will be classified for United
States federal income tax purposes as a grantor trust and not as an association
taxable as a corporation. Accordingly, for United States federal income tax
purposes, each beneficial owner of Capital Securities will be treated as owning
an undivided beneficial interest in the Junior Subordinated Debentures, and
stated interest on the Junior Subordinated Debentures generally will be included
in income by a holder of Capital Securities at the time such interest income is
paid or accrued in accordance with such holder's regular method of tax
accounting.
(xi) For federal income tax purposes, (a) the Junior
Subordinated Debentures will constitute debt of the Company and (b) the interest
on the Junior Subordinated Debentures will be deductible by the Company on an
economic accrual basis in accordance with Section 163(e) of the Internal Revenue
Code of 1986, as amended, and Treasury Regulation Section 1.163-7.
(xii) To the best of such counsel's knowledge, the Trust is
not required to be authorized to do business in any other jurisdiction and the
Trust is not a party to or otherwise bound by any agreement other than those
described in the Prospectus.
(xiii) To the best of such counsel's knowledge, the Offerors
are not in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or any other instrument of which either of them is a
party or by which either of them may be bound, or to which any of the property
or assets of the Offerors is subject.
(xiv) The Company has full corporate power and authority and
the Trust has full trust power and authority to enter into this Agreement, the
Indenture, the Trust Agreement, and the Guarantee Agreement, as applicable, and
to issue the Junior Subordinated Debentures or the Common Securities and Capital
Securities, as the case may be, and to effect the transactions contemplated by
this Agreement, the Indenture, the Trust Agreement, and the Guarantee Agreement,
as applicable, and each of this Agreement, the Indenture, the Trust Agreement,
and the Guarantee Agreement have been duly authorized, executed and delivered by
the Company and the Trust, as applicable, and constitutes a valid, legal and
binding obligation of the Company and the Trust, as applicable, enforceable in
accordance with its terms
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<PAGE> 17
(except as rights to indemnity hereunder may be limited by federal or state
securities laws and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity). The execution, delivery
and performance of this Agreement, the Indenture, the Trust Agreement, the
Guarantee Agreement, the Capital Securities, the Common Securities, and the
Junior Subordinated Debentures and the consummation of the transactions herein
or therein contemplated will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any statute, rule or
regulation (except that such counsel need express no opinion regarding any Blue
Sky or state securities laws), any lease, contract, indenture, mortgage, loan
agreement or other agreement or instrument known to such counsel to which the
Company, the Trust or any Subsidiary is a party or by which it is bound or to
which any of its property is subject, the Company's or any Subsidiary's charter
or bylaws, or the Trust's Certificate or any permit, judgment, order or decree
known to such counsel of any court or governmental agency or body having
jurisdiction over the Company, the Trust or any Subsidiary or any of their
respective properties, except for any breach, violation or default which would
not have a material adverse effect on the Company or the Trust; and no consent,
approval, authorization, order of, designation, declaration or filing by or
with, any court or any regulatory, administrative or governmental agency or body
is required for the execution, delivery and performance of this Agreement, the
Indenture, the Trust Agreement, the Guarantee Agreement, the Common Securities,
the Capital Securities, or the Junior Subordinated Debentures, or for the
consummation of the transactions contemplated hereby or thereby (other than as
may be required by federal or state laws governing savings and loan associations
or savings and loan association companies or by state securities and blue sky
laws, as to which such counsel need express no opinion), including the issuance
or sale of the Junior Subordinated Debentures by the Company and the Common
Securities and Capital Securities by the Trust, except (a) such as may be
required under the Act, which have been obtained or made, or under state
securities or blue sky laws, (b) such agreements, instruments or obligations
with respect to which valid consents or waivers have been obtained by the Trust,
the Company or any of the Subsidiaries, and (c) the qualification of the Trust
Agreement, the Guarantee Agreement and the Indenture under the Trust Indenture
Act and the regulations thereunder, all of which have been effected. To the best
of such counsel's knowledge, the filing of the Registration Statement and the
registration of the Junior Subordinated Debentures, the Guarantee and the
Capital Securities under the Act does not give rise to any rights for or
relating to the registration of any shares of capital stock or other securities
of the Company.
(xv) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened by the
Commission.
(xvi) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder (except
that such counsel need express no opinion as to the financial statements and
related schedules included therein).
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<PAGE> 18
(xvii) The statements (A) in the Prospectus under the captions
"Risk Factors -- Ranking of the Subordinated Obligations Under the Guarantee and
the Junior Subordinated Debentures, -- Dividend Payment Sources and
Restrictions, -- Status of the Company as a Savings and Loan Holding Company, --
Certain Regulatory Matters, -- Option to Extend Interest Payment Period; Tax
Consequences, and -- Possible Tax Law Changes Affecting the Capital Securities"
and "Certain Federal Income Tax Consequences" and (B) in the Registration
Statement in Item 15, insofar as such statements constitute a summary of matters
of law, are accurate summaries and fairly present the information called for
with respect to such matters.
(xviii) Such counsel does not know of any contracts,
agreements, documents or instruments required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required; and insofar as any
statements in the Registration Statement or the Prospectus constitute summaries
of any contract, agreement, document or instrument to which the Trust, the
Company or any Subsidiary is a party, such statements are accurate summaries and
fairly present the information called for with respect to such matters.
(xix) The reports of the Company incorporated by reference in
the Registration Statement and the Prospectus or any further amendment or
supplement thereto made by the Company (other than the financial statements,
other financial data and related schedules therein, as to which such counsel
need express no opinion), when they were filed with the Commission, complied as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations of the Commission thereunder. Such counsel does not
know of any contracts, agreements, documents or instruments required to be filed
as exhibits to any such reports or described in any such reports which are not
so filed or described as required; and insofar as any statements in any such
report constitute summaries of any contract, agreement, document or instrument
to which the Company or any Subsidiary is a party, such statements are accurate
summaries and fairly present the information called for with respect to such
matters.
(xx) Such counsel knows of no legal or governmental
proceeding, pending or threatened, before any court or administrative body or
regulatory agency, to which the Trust, the Company or any of the Subsidiaries is
a party or to which any of the properties of the Trust, the Company or any of
the Subsidiaries is subject that are required to be described in the
Registration Statement or Prospectus and are not so described, or statutes or
regulations that are required to be described in the Registration Statement or
the Prospectus that are not so described.
(xxi) Neither the Company nor the Trust is, and immediately
upon completion of the sale of Capital Securities contemplated hereby, neither
the Company nor the Trust will be, an "investment company" or a company
"controlled" by an investment company under the Investment Company Act of 1940,
as amended.
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<PAGE> 19
(xxii) To the best of such counsel's knowledge, neither the
Company nor any of the Subsidiaries is in violation of its respective charter or
bylaws.
Such counsel shall also state that on the basis of such counsel's review
and participation in conferences in connection with the preparation of the
Registration Statement and the Prospectus, such counsel has no reason to believe
that, as of its effective date, the Registration Statement or any further
amendment thereto made by the Offerors prior to the Closing Date, including any
document incorporated by reference in the Registration Statement, as the case
may be, (other than the financial statements and related schedules therein, as
to which such counsel need express no statement or opinion) contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that, as of its date, the Prospectus or any further amendment or supplement
thereto made by the Offerors prior to the Closing Date, including any document
incorporated by reference in the Prospectus (other than the financial statements
and related schedules therein, as to which such counsel need express no
statement or opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading or that, as
of the Closing Date, either the Registration Statement or the Prospectus or any
further amendment or supplement thereto made by the Offerors prior to the
Closing Date (other than the financial statements and related schedules therein,
as to which such counsel need express no statement or opinion) contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in light of the circumstances in which they were
made, not misleading; and they do not know of any amendment to the Registration
Statement (or any document incorporated therein by reference) required to be
filed.
In rendering the above opinions, counsel may rely (i) as to matters of
law other than Washington and federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and that such counsel shall state that such opinion or opinions of local counsel
are satisfactory to them and they believe they and the Underwriters are
justified in relying thereon and (ii) as to matters of fact, upon the
representations of the Trust and the Company contained in this Agreement and
upon certificates of trustees or officers of the Trust, the Company and of
public officials.
(c) The Underwriters shall have received on the Closing Date the
opinion of White & Case, counsel to Bankers Trust Company, as Property Trustee
under the Trust Agreement, Indenture Trustee under the Indenture, and Guarantee
Trustee under the Guarantee Agreement, dated the Closing Date, addressed to the
Underwriters, to the effect that:
(i) Bankers Trust Company is duly incorporated and is validly
existing in good standing as a banking corporation under the laws of the State
of Delaware.
- 19 -
<PAGE> 20
(ii) Bankers Trust Company has the power and authority to
execute, deliver and perform its obligations under the Trust Agreement, the
Indenture and the Guarantee Agreement.
(iii) Each of the Trust Agreement, the Indenture and the
Guarantee Agreement has been duly authorized, executed and delivered by Bankers
Trust Company and constitutes a legal, valid and binding obligation of Bankers
Trust Company, enforceable against Bankers Trust Company, in accordance with its
terms.
(iv) The execution, delivery and performance by Bankers Trust
Company of the Trust Agreement, the Indenture and the Guarantee Agreement do not
conflict with or constitute a breach of the charter or by-laws of Bankers Trust
Company.
(v) No consent, approval or authorization of, or registration
with or notice to, any governmental authority or agency of the State of Delaware
or the United States of America governing the banking or trust powers of Bankers
Trust Company is required for the execution, delivery or performance by Bankers
Trust Company of the Trust Agreement, the Indenture and the Guarantee Agreement.
(d) The Underwriters shall have received on the Closing Date the
opinion of Richards, Layton & Finger, as special Delaware counsel for the
Offerors, dated the Closing Date, addressed to the Underwriters, to the effect
that:
(i) The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Act, and all filings
required as of the date hereof under the Delaware Act with respect to the
creation and valid existence of the Trust as a business trust have been made.
(ii) Under the Trust Agreement and the Delaware Act, the Trust
has the trust power and authority to own property and to conduct its business,
all as described in the Prospectus.
(iii) The Trust Agreement constitutes a valid and binding
obligation of the Company and the Property Trustee, and is enforceable against
the Company and the Property Trustee in accordance with its terms.
(iv) Under the Trust Agreement and the Delaware Act, the Trust
has the trust power and authority (i) to execute and deliver, and to perform its
obligations under, this Agreement, and (ii) to issue, and to perform its
obligations under, the Capital Securities and the Common Securities.
(v) Under the Trust Agreement and the Delaware Act, the
execution and delivery by the Trust of this Agreement, and the performance by
the Trust of its obligations under this Agreement, have been duly authorized by
all necessary trust action on the part of the Trust.
- 20 -
<PAGE> 21
(vi) Under the Delaware Act, the certificate attached to the
Trust Agreement as Exhibit E is an appropriate form of certificate to evidence
ownership of the Capital Securities. The Capital Securities have been duly
authorized by the Trust Agreement and are duly and validly issued and, subject
to the qualifications hereinafter expressed in this paragraph (vi), fully paid
and non-assessable undivided beneficial interests in the assets of the Trust and
are entitled to the benefits of the Trust Agreement. The Common Securities have
been duly authorized by the Trust Agreement and are duly and validly issued
undivided beneficial interests in the assets of the Trust and are entitled to
the benefits of the Trust Agreement. The respective holders of the Capital
Securities and the Common Securities, as beneficial owners of the Trust, will 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. Such counsel may note that the respective holders of
the Capital Securities and the Common Securities may be obligated, pursuant to
the Trust Agreement, to make certain payments under the Trust Agreement.
(vii) Under the Trust Agreement and the Delaware Act, the
issuance of the Capital Securities and the Common Securities is not subject to
preemptive or similar rights.
(viii) The issuance and sale by the Trust of the Capital
Securities and the Common Securities, the purchase by the Trust of the Junior
Subordinated Debentures, the execution, delivery and performance by the Trust of
this Agreement and the Guarantee Agreement, the consummation by the Trust of the
transactions contemplated by this Agreement and compliance by the Trust with its
obligations under this Agreement do not violate (a) any of the provisions of the
Certificate of Trust or the Trust Agreement, or (b) any applicable Delaware law
or Delaware administrative regulation.
(e) The Underwriters shall have received from Arnold & Porter,
counsel for the Underwriters, an opinion dated the Closing Date, with respect to
the formation of the Trust, the validity of the Capital Securities, the
Indenture, the Trust Agreement, the Guarantee Agreement, this Agreement, the
Registration Statement, the Prospectus, and other related matters as the
Underwriters may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to pass
upon such matters.
(f) The Underwriters shall have received on each of the date
hereof and the Closing Date a signed letter, dated as of the date hereof or the
Closing Date in form and substance satisfactory to the Underwriters, from
Coopers & Lybrand, L.L.P., to the effect that they are independent public
accountants with respect to the Trust, the Company and the Subsidiaries within
the meaning of the Act and the related rules and regulations and containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus.
- 21 -
<PAGE> 22
(g) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date there shall not have been any change or any
development involving a reasonably foreseeable change, in or affecting the
general affairs, management, financial position, shareholders' equity or results
of operations of the Offerors otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in the Underwriters' reasonable judgment, is
material and adverse to the Offerors and makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Capital Securities
being delivered at the Closing Date on the terms and in the manner contemplated
in the Prospectus.
(h) The Underwriters shall have received on the Closing Date a
certificate or certificates of the chief executive officer and the chief
financial officer of the Company, to the effect that, as of the Closing Date
each of them severally represents as follows:
(i) The Prospectus was filed with the Commission pursuant to
Rule 424(b) within the applicable period prescribed for such filing by the rules
and regulations under the Act and in accordance with Section 4 of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
initiated or are, to his knowledge, threatened by the Commission.
(ii) The representations and warranties of the Company set
forth in Section 1 of this Agreement are true and correct at and as of the
Closing Date and the Company has performed all of its obligations under this
Agreement to be performed at or prior to the Closing Date.
(i) The Underwriters shall have received on the Closing Date a
certificate of the Administrators to the effect that, as of the Closing Date
each of them severally represents as follows:
(i) The Prospectus was filed with the Commission pursuant to
Rule 424(b) within the applicable period prescribed for such filing by the rules
and regulations under the Act and in accordance with Section 4 of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
initiated or are, to his knowledge, threatened by the Commission.
(ii) The representations and warranties of the Trust set forth
in Section 1 of this Agreement are true and correct at and as of the Closing
Date and the Trust has performed all of its obligations under this Agreement to
be performed at or prior to the Closing Date.
(j) The Offerors shall have furnished to the Underwriters such
further certificates and documents as the Underwriters may reasonably have
requested.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
- 22 -
<PAGE> 23
material respects reasonably satisfactory to the Underwriters and to Arnold &
Porter, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Underwriters by notifying the Trust of such termination in writing or by
telegram at or prior to the Closing Date. In such event, the Trust and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 7 hereof).
7. Indemnification.
(a) The Offerors jointly and severally agree to indemnify and hold
harmless each Underwriter, each officer and director thereof, and each person,
if any, who controls any Underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities to which such Underwriter or such persons
may became subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus, including any amendments or supplements thereto,
(ii) 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
in light of the circumstances under which they were made, or (iii) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Capital Securities or the
offering contemplated hereby, and which is included as part of or referred to in
any losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arising out of or based upon matters covered by clause (i) or (ii)
above, and will reimburse each Underwriter and each such controlling person for
any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such action
or claim as such expenses are incurred; provided, however, that the Offerors
shall not be liable (1) 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 the
Registration Statement, any Preliminary Prospectus or the Prospectus, including
any amendments or supplements thereto, in reliance upon and in conformity with
written information furnished to the Offerors by any Underwriter specifically
for use therein or (2) in the case of any matter covered by clause (iii) above
to the extent that it is determined in a final judgment by a court of competent
jurisdiction that such losses, claims, damages or liabilities resulted directly
from any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Offerors and the trustees and directors and officers who have signed the
Registration Statement, and each person, if any, who controls the Offerors
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Offerors or any such person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or
- 23 -
<PAGE> 24
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and will reimburse any legal or
other expenses reasonably incurred by the Offerors or any such person in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that each Underwriter will be liable
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Trust or the Company by or through the Underwriters
specifically for use therein. The obligations of the Underwriters under this
Section 7(b) are several in proportion to their respective underwriting
obligations and not joint.
(c) The Company agrees to indemnify the Trust against all loss,
liability, claim damage and expense whatsoever, which may become due from the
Trust under subsection (a).
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity or contribution may be sought pursuant to this Section 7, such person
(the "indemnified party") shall notify the person against whom such indemnity
may be sought (the "indemnifying party") in writing within fifteen (15) days of
the receipt of notice of such proceeding. No indemnification provided for in
Section 7(a) or (b) or contribution provided for in Section 7(e) shall be
available with respect to a proceeding to any party who shall fail to give
notice of such proceeding as provided in this Section 7(d) if the party to whom
notice was not given was unaware of the proceeding to which such notice would
have related and was prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party or parties
from any liability which it or they may have to the indemnified party otherwise
than on account of the provisions of Section 7(a) or (b). In case any such
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party
and shall pay as incurred the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay promptly as incurred the reasonable
fees and expenses of the counsel retained by the indemnified party in the event
(i) the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and the representation of both parties by the same
counsel would, under applicable rules
- 24 -
<PAGE> 25
of professional conduct, be inappropriate due to actual or potential conflicts
between them. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm at any time
for all such indemnified parties. Such firm shall be designated in writing by
the Underwriters and shall be reasonably satisfactory to the Offerors in the
case of parties indemnified pursuant to Section 7(a) and shall be designated in
writing by the Offerors and shall be reasonably satisfactory to the Underwriters
in the case of parties indemnified pursuant to Section 7(b). The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(e) If the indemnification provided for in this Section 7 is
unavailable (other than by reason of the exception set forth in the second
sentence of Section 7(d) hereof) or insufficient to hold harmless an indemnified
party under Section 7(a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions or proceedings 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 or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Offerors on the
one hand and the Underwriters on the other from the offering of the Capital
Securities. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Offerors on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Offerors on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Offerors bears to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth on the cover page of the Prospectus. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Offerors on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Offerors and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
7(e) were determined by pro rata allocation (even if the Underwriters 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 above in
this Section 7(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereto) referred to above in this Section 7(e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action
- 25 -
<PAGE> 26
or claim. Notwithstanding the provisions of this Section 7(e), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Capital Securities purchased by such
Underwriter; and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 7(e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) The obligations of the Offerors under this Section 7 shall be
in addition to any liability which the Offerors may otherwise have, and the
obligations of the Underwriters under this Section 7 shall be in addition to any
liability which the Underwriters may otherwise have.
8. Notices. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows: if to the Underwriters, to them c/o Dain Bosworth
Incorporated, 60 South Sixth Street, Minneapolis, Minnesota 55402, Attention: J.
David Welch, Managing Director, with a copy to Steven Kaplan, Esq., Arnold &
Porter, 555 12th Street, N.W., Washington, D.C. 20004; if to the Company, to
Sterling Financial Corporation, 111 North Wall Street, Spokane, Washington
99201, Attention: Daniel G. Byrne, Senior Vice President of Finance, with a copy
to Donald J. Lukes, Esq., Witherspoon, Kelley, Davenport & Toole, P.S., 422 West
Riverside Avenue, Spokane, Washington 99201; and if to the Trust, to c/o
Sterling Financial Corporation, 111 North Wall Street, Spokane, Washington
99201, Attention: Daniel G. Byrne, Senior Vice President of Finance. All notices
given by telegram shall be promptly confirmed by letter. Any notice to the Trust
shall also be copied to the Company at the address previously stated, Attention:
Daniel G. Byrne, Senior Vice President-Finance. Any party may change its address
for notice purposes by written notice to the other parties.
9. Termination. (a) This Agreement may be terminated by the
Underwriters by notice to the Offerors or by the Company, by notice to the
Underwriters at any time prior to the earlier of (i) the time the Capital
Securities are released by the Underwriters for sale or (ii) 10:00 A.M., Spokane
time, on the first business day following the later of the date on which the
Registration Statement became effective or the date of this Agreement.
(b) The Underwriters may also terminate this Agreement at any time
prior to the Closing Date if any of the following has occurred: (i) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any material adverse change in or affecting the condition,
financial or otherwise, of the Trust, the Company and the Subsidiaries taken as
a whole or the business affairs, management, financial position, shareholders'
equity or results of operations of the Trust, the Company and the Subsidiaries
taken as a whole, whether or not arising in the ordinary course of business,
(ii) any outbreak or escalation of hostilities or declaration of war or national
emergency after the date hereof or other national or international calamity or
crisis or change in economic or political conditions if the effect of such
outbreak, escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in the Underwriters' judgment,
make the
- 26 -
<PAGE> 27
offering or delivery of the Capital Securities impracticable or inadvisable,
(iii) suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on hours
or numbers of days of trading) for securities on either such Exchange, or a halt
or suspension of trading in securities generally which are quoted on Nasdaq,
(iv) declaration of a banking moratorium by either federal authorities or New
York or Washington state authorities, or the failure of any of the conditions
provided for in Section 6 of this Agreement.
10. Written Information. For all purposes under this Agreement
(including, without limitation, Section 1, Section 3 and Section 7 hereof), the
Offerors understand and agree with each of the Underwriters that the following
constitutes the only written information furnished to the Offerors by the
Underwriters specifically for use in preparation of the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto: (i) the per share "Price to Public" and per share "Underwriting
Discounts and Commissions" set forth on the cover page of the Prospectus, (ii)
the information relating to stabilization set forth on page 4 of the Preliminary
Prospectus and the Prospectus, and (iii) the information set forth in the third
and sixth paragraphs under the caption "Underwriting" in the Preliminary
Prospectus and the Prospectus.
11. Successors. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Trust and the Company
and their respective successors, executors, administrators, heirs and assigns,
and the trustees and controlling persons and the officers and directors of any
such controlling person referred to herein, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Capital Securities merely because of such purchase.
12. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Offerors or controlling persons thereof and (c) delivery of and payment for
the Capital Securities under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Washington.
- 27 -
<PAGE> 28
If the foregoing letter is in accordance with the Underwriters'
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Offerors and the Underwriters in accordance with its terms.
Very truly yours,
STERLING CAPITAL TRUST I,
a Delaware business trust
By:_______________________________
Name:
Title: Administrator
STERLING FINANCIAL CORPORATION
By:_______________________________
Harold B. Gilkey,
Chief Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written.
DAIN BOSWORTH INCORPORATED
PIPER JAFFRAY INC.
By: Dain Bosworth Incorporated
By:
_________________________________
J. David Welch, Managing Director
- 28 -
<PAGE> 29
SCHEDULE A
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of
Capital Securities
Underwriter to be Purchased
- ----------- ---------------
<S> <C>
Dain Bosworth Incorporated............ _________
Piper Jaffray Inc..................... _________
Total 1,600,000
=========
</TABLE>
- 29 -
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
May 21, 1997
Sterling Capital Trust I
c/o Sterling Financial Corporation
111 North Wall Street
Spokane, Washington 99201
Re: Sterling Capital Trust I
------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Sterling Capital Trust I,
a Delaware business trust (the "Trust"), in connection with the matters set
forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of originals or
copies of the following:
(a) The Certificate of Trust of the Trust (the "Certificate"), as
filed in the office of the Secretary of State of the State of Delaware (the
"Secretary of State") on May 5, 1997;
(b) The Trust Agreement of the Trust, dated as of May 5, 1997, between
Sterling Financial Corporation, a Washington corporation (the "Company"), and
the trustee of the Trust named therein;
(c) The Registration Statement (the "Registration Statement") on Form
S-3, including a prospectus (the "Prospectus") relating to the __% Cumulative
Capital Securities of the Trust representing preferred undivided beneficial
interests in the Trust (each, a "Capital Security") and collectively, the
"Capital Securities"), as filed by the Company and the Trust as set forth
therein with the Securities and Exchange Commission on May 13, 1997;
(d) A form of Amended and Restated Trust Agreement of the Trust, to be
entered into among the Company, the trustees of the Trust named therein, and
the holders, from time to time,
<PAGE> 2
Sterling Capital Trust I
May 21, 1997
Page 2
of undivided beneficial interests in the Trust (the "Trust Agreement"),
attached as an exhibit to the Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated May 21,
1997, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed above, and we have assumed that there exists no
provision in any document that we have not reviewed that bears upon or is
inconsistent with the opinions stated herein. We have conducted no independent
factual investigation of our own but rather have relied solely upon the
foregoing documents, the statements and information set forth therein and the
additional matters recited or assumed herein, all of which we have assumed to
be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement constitutes the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the Trust, and that the Trust Agreement and the
Certificate are in full force and effect and have not been amended, (ii) except
to the extent provided in paragraph 1 below, the due creation or due
organization or due formation, as the case may be, and valid existence in good
standing of each party to the documents examined by us under the laws of the
jurisdiction governing its creation, organization or formation, (iii) the legal
capacity of natural persons who are parties to the documents examined by us,
(iv) that each of the parties to the documents examined by us has the power and
authority to execute and deliver, and to perform its obligations under, such
documents, (v) the due authorization, execution and delivery by all parties
thereto of all documents examined by us, (vi) the receipt by each Person to whom
a Capital Security is to be issued by the Trust (collectively, the "Capital
Security Holders") of a Capital Security Certificate for such Capital Security
and the payment for the Capital Security acquired by it, in accordance with the
Trust Agreement and the Prospectus, and (vii) that the Capital Securities are
issued and sold to the Capital Security Holders in accordance with the Trust
Agreement and the Prospectus. We have not participated in the preparation of the
Registration Statement and assume no responsibility for its contents.
<PAGE> 3
Sterling Capital Trust I
May 21, 1997
Page 3
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal
laws and rules and regulations relating thereto. Our opinions are rendered only
with respect to Delaware laws and rules, regulations and orders thereunder
which are currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Business Trust Act, 12 Del. C.
Section 3801, et seq.
2. The Capital Securities will represent valid and, subject to the
qualifications set forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust.
3. The Capital Security Holders, as beneficial owners of the Trust,
will 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. We note that the Capital Security
Holders may be obligated to make payments as set forth in the Trust Agreement.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement. In addition,
we hereby consent to the use of our name under the heading "Validity of
Securities" in the Prospectus. In giving the foregoing consents, we do not
thereby admit that we come within the category of Persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Except as stated above, without our prior written consent, this opinion may not
be furnished or quoted to, or relied upon by, any other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
EAM
<PAGE> 1
EXHIBIT 5.2
[Letterhead of Witherspoon, Kelley, Davenport & Toole, P.S.]
May 22, 1997
Sterling Financial Corporation
111 North Wall Street
Spokane, WA 99201
Ladies and Gentlemen:
We have acted as counsel to Sterling Financial Corporation (the
"Company") in connection with the preparation and filing by the Company and
Sterling Capital Trust I (the "Trust") of a registration statement (the
"Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended (the "Act"), with respect to the offer and sale of certain of the
Trust's Capital Securities (liquidation amount $25 per Preferred Security) (the
"Capital Securities") and certain of the Company's Junior Subordinated
Debentures (the "Debentures") and the related Guarantee Agreement by and between
the Company and Bankers Trust, as trustee (the "Guarantee"). In connection
therewith, you have requested our opinion as to certain matters referred to
below.
In our capacity as such counsel, we have familiarized ourselves with
the actions by the Company in connection with the registration of the Debentures
and the Guarantee. We have examined the originals or certified copies of such
records, agreements, certificates of public officials and others, and such other
documents, including the Registration Statement and the amendment thereto, as we
have deemed relevant and necessary as a basis for the opinions hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures on original documents and the authenticity of all documents submitted
to us as originals, the conformity to original documents of all copies submitted
to us as conformed or photostatic copies, and the authenticity of the originals
of such latter documents. We are attorneys admitted to practice in the State of
Washington and, accordingly, we express no opinion with respect to matters
governed by the laws of any jurisdiction other than the federal laws of the
United States or the laws of the State of Washington.
<PAGE> 2
May 22, 1997
Page 2
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State
of Washington.
2. The Guarantee, when executed and delivered as contemplated by
the Registration Statement, and the Debentures, when issued
and paid for as contemplated by the Registration Statement,
will be validly issued obligations of the Company enforceable
in accordance with their terms except as such enforceability
may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and
subject to general principles of equity.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the Registration
Statement under the caption "Validity of Securities."
Very truly yours,
WITHERSPOON, KELLEY, DAVENPORT
& TOOLE, P.S.
By: /s/ DONALD J. LUKES
----------------------------
DONALD J. LUKES
DJL:kwb
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Witherspoon, Kelley, Davenport & Kelley, P.S.]
May 22, 1997
Sterling Financial Corporation Sterling Capital Trust I
111 North Wall Street c/o Sterling Financial Corporation
Spokane, Washington 99201 111 North Wall Street
Spokane, Washington 99201
RE: OPINION OF COUNSEL RELATED TO THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE PURCHASE AND OWNERSHIP OF CAPITAL SECURITIES
ISSUED BY STERLING CAPITAL TRUST I
Ladies and Gentlemen:
We have acted as counsel to Sterling Financial Corporation (the
"Company") in connection with the preparation and filing with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"), of
a Form S-3 Registration Statement dated May 13, 1997 (the "Registration
Statement"). The Registration Statement relates to the offer for sale of
1,600,000 __% Cumulative Capital Securities (the "Capital Securities") of
Sterling Capital Trust I ("Sterling Capital"), a statutory business trust formed
by the Company under the laws of the State of Delaware and the Junior
Subordinated Debentures to be issued by the Company to Sterling Capital in
connection with the sale of the Capital Securities.
This opinion letter relates to the material federal income tax
consequences of the purchase and ownership of the Capital Securities by
investors. All capitalized terms used in this opinion letter and not otherwise
defined herein are used as described in the Registration Statement. The
consequences described herein are not applicable to investors who may be subject
to special tax treatment, such as banks, real estate investment trusts,
regulated investment companies, insurance companies, dealers in securities or
currencies, tax-exempt investors, Non-US Holders or persons that will hold the
Capital Securities as part of a position in a "straddle" or as part of a
"hedging" or other integrated transaction. In addition, this opinion does not
include any description
<PAGE> 2
May 22, 1997
Page 2
of any alternative minimum tax consequences or the tax laws of any state, local
or foreign government that may be applicable to an investor.
We have examined the Registration Statement and such other documents as
we have deemed necessary to render our opinion expressed below. In our
examination of such material, we have relied upon the current and continued
accuracy of the factual matters we have considered, and we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the presentation of the Junior Subordinated Debentures as debt on
the financial statements of the Company and the conformity to original documents
of all copies of documents submitted to us. In addition, we also have assumed
that the transactions related to the issuance of the Junior Subordinated
Debentures and the Capital Securities will be consummated in accordance with the
terms and forms of the documents. As to any facts material to the opinions
expressed herein which were not independently established or verified, we have
relied upon oral or written statements and representations of officers,
trustees, and other representatives of the Company, Sterling Capital and others.
Should any of the above facts, circumstances, or assumptions be subsequently
determined to be incorrect or inaccurate, our conclusions may vary from those
set forth below and such variance could be material.
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this letter should be read in
conjunction therewith.
Based on the foregoing, and assuming that Sterling Capital was formed
and will be maintained in compliance with the terms of the Trust Agreement, it
is our opinion that:
(1) Sterling Capital will be characterized for United States
Federal income tax purposes as a grantor trust and will not be
characterized as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes,
each holder of the Capital Securities generally will be
considered the owner of an undivided interest in the Junior
Subordinated Debentures owned by Sterling Capital, and each US
Holder will be required to include all income or gain
recognized for United States federal income tax purposes with
respect to its allocable share of the Junior Subordinated
Debentures on its own income tax return.
<PAGE> 3
May 22, 1997
Page 3
(2) The Junior Subordinated Debentures will be characterized for
United States federal income tax purposes as debt of the
Company.
(3) The statements in the Registration Statement under the caption
"Certain Federal Income Tax Consequences," to the extent such
statements constitute a summary of applicable United States
federal tax law, accurately describe the material United
States federal income tax consequences that may be relevant to
the purchase, ownership and disposition of the Capital
Securities.
This opinion is based upon the Internal Revenue Code of 1986, as
amended, the Treasury regulations promulgated thereunder and other relevant
authorities and law, all as in effect on the date hereof. All of the above are
subject to change or modification by subsequent legislative, regulatory,
administrative or judicial decisions which could adversely affect our opinions.
Consequently, future changes in the law, or administrative or judicial
interpretations thereof, may cause the tax treatment of the transactions
referred to herein to be materially different from that described above.
Other than the specific tax opinions set forth in this letter, no other
opinion has been rendered with respect to the tax treatment of the proposed
issuance and sale of the Junior Subordinated Debentures or the Capital
Securities, including, but not limited to, the tax treatment of the proposed
transactions under other provisions of the Code and the regulations, the tax
treatment of any conditions existing at the time of, or effects resulting from,
the proposed transactions that are not specifically covered by the above
opinions, or the tax treatment of the proposed transactions under state, local,
foreign or any other tax laws.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and the use of our name in the Registration Statement
under the caption "Certain Federal Income Tax Consequences." In giving such
consent, we do not concede that this consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
WITHERSPOON, KELLEY, DAVENPORT
& TOOLE, P.S.
By: /s/ Joseph H. Wessman, III
---------------------------
JOSEPH H. WESSMAN, III
JHW:kwb
