<PAGE>
PROSPECTUS Filed pursuant to Rule 424(B)(1)
Reg. No.: 333-27427
$400,000,000
WASHINGTON MUTUAL CAPITAL I
SKISSM
8 3/8% SUBORDINATED CAPITAL INCOME SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
[LOGO]
---------------------
The 8 3/8% Subordinated Capital Income Securities (the "Capital Securities")
offered hereby represent undivided beneficial ownership interests in the assets
of Washington Mutual Capital I, a Delaware statutory business trust (the
"Trust"). Washington Mutual, Inc., a Washington corporation ("Washington Mutual"
or the "Company"), will be the owner of all of the beneficial ownership
interests represented by common securities of the Trust (the "Common
Securities"; together with the Capital Securities, the "Trust Securities"). The
Trust exists for the sole purpose of issuing the Capital Securities and the
Common Securities and investing the proceeds thereof in 8 3/8% Junior
Subordinated Debentures (the "Junior Subordinated Debentures") to be issued by
the Company.
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE CAPITAL SECURITIES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
Initial Public Underwriting Proceeds to
Offering Price (1) Commissions (2) Trust (3)(4)
<S> <C> <C> <C>
Per Capital Security..................................... $1,000 (3) $1,000
Total.................................................... $400,000,000 (3) $400,000,000
</TABLE>
(1) Plus accrued distributions, if any, from June 4, 1997.
(2) The Trust and the Company have each agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(3) In view of the fact that the proceeds of the sale of the Capital Securities
will be invested in the Junior Subordinated Debentures, the Company has
agreed to pay to the Underwriters, as compensation for their arranging the
investment therein of such proceeds, $10 per Capital Security (or $4,000,000
in the aggregate). See "Underwriting."
(4) Before deducting expenses payable by the Company, estimated at $235,304.
---------------------
The Capital Securities are offered, subject to prior sale, when, as and if
issued to and accepted by the several Underwriters and subject to certain
conditions. It is expected that delivery of the Capital Securities will be made
in book-entry form through the facilities of The Depository Trust Company on or
about June 4, 1997 at the offices of Lehman Brothers Inc., New York, New York
against payment therefor in immediately available funds.
---------------------
LEHMAN BROTHERS
CHASE SECURITIES INC.
SALOMON BROTHERS INC
UBS SECURITIES
May 30, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF CAPITAL SECURITIES
FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE
CAPITAL SECURITIES OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE CAPITAL
SECURITIES. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
(CONTINUED FROM PREVIOUS PAGE)
The Junior Subordinated Debentures will mature on June 1, 2027 (the "Stated
Maturity"). The Capital Securities will have a preference under certain
circumstances with respect to cash distributions and amounts payable on
liquidation, redemption or otherwise over the Common Securities. See
"Description of Capital Securities--Subordination of Common Securities."
Holders of the Capital Securities will be entitled to receive cumulative
cash distributions accruing from the date of original issuance and payable
semi-annually in arrears on June 1 and December 1 of each year, commencing
December 1, 1997, at the annual rate of 8.375% of the liquidation preference of
$1000 per Capital Security ("Distributions"). The distribution rate and the
distribution payment dates and other payment dates for the Capital Securities
will correspond to the payments and payment dates on the Junior Subordinated
Debentures, which will be the sole assets of the Trust. The Company will
guarantee the payment of Distributions and payments on liquidation of the Trust
or redemption of the Capital Securities, but only in each case to the extent of
funds held by the Trust, as described herein (the "Guarantee"). See "Description
of Guarantee" herein. If the Company does not make interest payments on the
Junior Subordinated Debentures held by the Trust, the Trust will have
insufficient funds to pay Distributions on the Capital Securities. The Guarantee
does not cover payment of Distributions when the Trust has insufficient funds to
pay such Distributions. In such event, a holder of the Capital Securities may
institute a legal proceeding directly against the Company pursuant to the terms
of the Indenture to enforce payment to that holder of amounts equal to the
Distributions to that holder. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities." The
Company's obligations under the Guarantee, taken together with its obligations
under the Junior Subordinated Debentures and the Indenture (as defined herein),
including its obligation to pay all costs, expenses and liabilities of the Trust
(other than with respect to the Capital Securities), constitute a full and
unconditional guarantee of all of the Trust's obligations under the Capital
Securities.
The obligations of the Company under the Guarantee and the Junior
Subordinated Debentures are subordinate and junior in right of payment to all
Indebtedness (as defined in "Description of Junior Subordinated
Debentures--Subordination" herein) of the Company and will be structurally
subordinated to all liabilities and obligations of the Company's subsidiaries.
As of March 31, 1997, approximately $467.0 million aggregate principal amount of
Indebtedness was outstanding, and the Company's consolidated subsidiaries had
approximately $43.2 billion of indebtedness and other liabilities. The terms of
the Junior Subordinated Debentures place no limitation on the amount of
Indebtedness that may be incurred by the Company or on the amount of liabilities
and obligations of the Company's subsidiaries. See "Description of Junior
Subordinated Debentures--Subordination."
The Company has the right to defer payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding 10 consecutive semi-annual periods with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts then
due on any Interest Payment Date (as defined herein), the Company may elect to
begin a new Extension Period subject to the requirements set forth herein.
Accordingly, there could be multiple Extension Periods of varying lengths
throughout the term of the Junior Subordinated Debentures. If interest payments
on the Junior Subordinated Debentures are so deferred, distributions on the
Capital Securities will also be deferred and the Company may not, and may not
permit any subsidiary of the Company to, subject to certain exceptions set forth
herein, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, the Company's
capital stock or (ii) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities of the Company that
rank PARI PASSU with or junior in interest to the Junior Subordinated Debentures
or make any guarantee payments with respect to any guarantee by the Company of
the debt securities of any subsidiary of the Company if such guarantee ranks
PARI PASSU with or junior in interest to the
2
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Junior Subordinated Debentures (other than (a) dividends or distributions in
common stock of the Company, (b) payments under the Guarantee, (c) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, and
(d) purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans). During an Extension Period, interest
on the Junior Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Capital Securities are entitled will
accumulate) at the rate of 8.375% per annum, compounded semi-annually, and
holders of the Capital Securities will be required to accrue interest income for
United States federal income tax purposes prior to receipt of cash related to
such interest income. See "Description of Junior Subordinated Debentures--Option
to Extend Interest Payment Period" and "Certain United States Federal Income Tax
Consequences--Interest Income and Original Issue Discount."
The Junior Subordinated Debentures are not redeemable prior to June 1, 2007
unless a Special Event (as defined herein) has occurred. The Junior Subordinated
Debentures are redeemable prior to maturity at the option of the Company,
subject to the receipt of any necessary prior regulatory approval (i) on or
after June 1, 2007, in whole or in part, at a redemption price equal to
104.0955% of the principal amount thereof on June 1, 2007, declining ratably on
each December 1 thereafter to 100% on or after June 1, 2017, plus accrued and
unpaid interest thereon, or (ii) at any time, in whole (but not in part), upon
the occurrence and continuation of a Special Event, at a redemption price equal
to the greater of (a) 100% of the principal amount thereof or (b) as determined
by a Quotation Agent (as defined herein), the sum of the present values of the
principal amount and premium payable with respect to an optional redemption of
such Junior Subordinated Debentures on June 1, 2007, together with scheduled
payments of interest from the prepayment date to June 1, 2007, discounted to the
prepayment date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined herein) plus, in
either case, accrued interest thereon to the date of prepayment, in each case
subject to the further conditions described under "Description of Junior
Subordinated Debentures--Redemption." The Capital Securities are subject to
mandatory redemption, in whole or in part, upon repayment of the Junior
Subordinated Debentures at maturity or their earlier redemption, in an amount
equal to the amount of related Junior Subordinated Debentures maturing or being
redeemed and at a redemption price equal to the redemption price of such Junior
Subordinated Debentures, in each case plus accumulated and unpaid Distributions
thereon to the date of redemption.
Upon the occurrence and continuation of a Special Event, the Company will
have the right, subject to the receipt of any necessary prior regulatory
approval, to dissolve the Trust and cause the Junior Subordinated Debentures to
be distributed to the holders of the Capital Securities and the Common
Securities in liquidation of the Trust. See "Description of Capital
Securities--Redemption--Special Event Redemption or Distribution of Junior
Subordinated Debentures."
In the event of the liquidation of the Trust, after satisfaction of the
claims of creditors of the Trust, if any, as provided by applicable law, the
holders of the Capital Securities will be entitled to receive a liquidation
preference of $1000 per Capital Security plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
distribution of such amount in Junior Subordinated Debentures as described
above. If such Liquidation Distribution (as defined herein) can be paid only in
part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Capital Securities shall be paid on a pro rata basis. The holder 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
an Indenture Event of Default (as defined herein) has occurred and is
continuing, the Capital Securities shall have a priority over the Common
Securities. See "Description of Capital Securities--Liquidation Distribution
Upon Dissolution."
The Capital Securities will be represented by global Capital Securities in
fully registered form, deposited with a custodian for and registered in the name
of a nominee of The Depository Trust Company ("DTC"). Beneficial interests in
the Capital Securities will be shown on and transfers thereof will be effected
through records maintained by DTC and its participants. Beneficial interests in
the Capital Securities will trade in DTC's Same-Day Funds Settlement System and
secondary market trading activity in such interests will therefore settle in
immediately available funds.
3
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS APPEARING ELSEWHERE, OR INCORPORATED BY REFERENCE, IN THIS
PROSPECTUS. PROSPECTIVE INVESTORS ARE URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY.
THE TRUST
Washington Mutual Capital I (the "Trust") is a statutory business trust
created under the Delaware Business Trust Act, as amended (the "Trust Act"),
pursuant to a declaration of trust (as amended and restated, the "Declaration")
and the filing of a certificate of trust with the Secretary of State of the
State of Delaware. The Company will acquire Common Securities in an aggregate
liquidation preference equal to at least 3% of the total capital of the Trust.
All of the Common Securities will be owned directly by the Company. The Trust
will use all of the proceeds derived from the issuance of the Capital Securities
and the Common Securities to purchase the Junior Subordinated Debentures and,
accordingly, the assets of the Trust will consist solely of the Junior
Subordinated Debentures and payments made thereunder will be the sole revenue of
the Trust. The Trust exists for the exclusive purpose of (i) issuing the Trust
Securities representing undivided beneficial ownership interests in the assets
of the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Junior Subordinated Debentures, and (iii) engaging in only those other
activities necessary or incidental thereto.
THE COMPANY
Washington Mutual is a regional financial services company committed to
serving consumers and small to mid-sized businesses throughout the Western
United States. Through its subsidiaries, Washington Mutual engages in the
following activities:
- MORTGAGE LENDING AND CONSUMER BANKING ACTIVITIES. Through its principal
subsidiaries, Washington Mutual Bank ("WMB"), American Savings Bank, F.A.
("ASB"), and Washington Mutual Bank fsb, at December 31, 1996, Washington
Mutual operated 413 consumer financial centers and 96 loan centers
offering a full complement of mortgage lending and consumer banking
products and services. In 1996, WMB was the leading originator of
first-lien, single-family residential loans in Washington and Oregon, and
ASB was the second largest such originator in California.
- COMMERCIAL BANKING ACTIVITIES. Through the commercial banking division of
WMB, at December 31, 1996, Washington Mutual operated 48 full-service
business branches offering a range of commercial banking products and
services to small and mid-sized businesses. WMB commenced its commercial
banking activities through the acquisition of Enterprise Bank of Bellevue,
Washington in 1995 and Western Bank of Coos Bay, Oregon in 1996.
- INSURANCE ACTIVITIES. Through WM Life Insurance Company and ASB Insurance
Services Inc., Washington Mutual underwrites and sells annuities and sells
a range of life insurance contracts, and selected property and casualty
insurance policies.
- SECURITIES ACTIVITIES. Through ASB Financial Services, Inc., Murphey
Favre, Inc. and Composite Research and Management Co., Washington Mutual
offers full service securities brokerage and acts as the investment
advisor to and the distributor of mutual funds.
Washington Mutual operates in Washington, California, Oregon, Utah, Idaho,
Montana, Arizona, Colorado and Nevada. At March 31, 1997, Washington Mutual had
consolidated assets of $46.1 billion, deposits of $24.3 billion and
stockholders' equity of $2.4 billion.
Washington Mutual has its principal executive offices at 1201 Third Avenue,
Seattle, Washington 98101, telephone number (206) 461-2000.
4
<PAGE>
PROPOSED MERGER WITH GREAT WESTERN FINANCIAL CORPORATION
The Company has entered into an Agreement and Plan of Merger (the "Merger
Agreement"), dated as of March 5, 1997, by and among the Company, New American
Capital, Inc., a Delaware corporation and wholly owned subsidiary of the Company
("NACI"), and Great Western Financial Corporation ("Great Western"), providing
for the merger of Great Western with and into NACI (the "Merger"). In the
Merger, each outstanding share of Great Western common stock will be converted
into the right to receive 0.9 shares of the Company's common stock, with cash
paid in lieu of fractional shares, and each outstanding share of preferred stock
of Great Western will be converted into the right to receive one newly-issued
share of a corresponding series of preferred stock of the Company with terms
substantially identical to those of the series of Great Western preferred stock
being converted. Consummation of the Merger is subject to certain conditions,
including, but not limited to, obtaining the requisite vote of the stockholders
of both Great Western and the Company and the approval of the Merger by various
regulatory agencies.
On February 18, 1997, H.F. Ahmanson & Company ("Ahmanson") publicly
announced its unsolicited proposal for a merger of Great Western and Ahmanson
pursuant to which each share of Great Western common stock would be converted
into 1.05 shares of Ahmanson common stock. On March 17, 1997, Ahmanson announced
a revised merger proposal pursuant to which each share of Great Western common
stock would be converted into not less than 1.10 nor more than 1.20 shares of
Ahmanson common stock (as so revised, the "Ahmanson Proposal"). The Great
Western board of directors, after consulting with its legal and financial
advisors, determined not to authorize negotiations or discussions with Ahmanson
concerning the Ahmanson Proposal. On May 12, 1997, Ahmanson publicly announced
that it intended to commence an exchange offer for all of the outstanding shares
of Great Western common stock on the same financial terms as the Ahmanson
Proposal. Ahmanson and various other persons have commenced litigation in the
Court of Chancery in the State of Delaware seeking various forms of relief,
including a request for injunctive relief seeking to force Great Western to move
the date of its special meeting of stockholders to vote on the Merger from its
presently scheduled date of June 13, 1997. For further information on the
Ahmanson Proposal and the litigation involving the Merger, investors should
review the Joint Proxy Statement/Prospectus included in Washington Mutual's
Registration Statement on Form S-4, Registration No. 333-23221, and the
additional proxy soliciting material filed by Great Western and Washington
Mutual in connection therewith.
Great Western is a savings and loan holding company organized in 1955 under
the laws of the state of Delaware. The principal assets of Great Western are the
capital stock of Great Western Bank, a Federal Savings Bank ("GW Bank"), and
Aristar, Inc. ("Aristar"). GW Bank is a federally chartered stock savings bank
which has 416 branches in California and Florida. Real estate lending operations
are conducted directly by GW Bank and by direct subsidiaries through more than
200 offices in 27 states with concentrations in California, Florida, Texas and
Washington. Aristar conducts consumer finance operations through 502 offices in
23 states, most of which operate principally under the names of Blazer Financial
Services or City Finance Company, provides direct installment loans and related
credit insurance services, and purchases retail installment contracts. Great
Western and its subsidiaries also engage in related service businesses,
including investment company advisory and administrative activities, insurance
operations and real estate development.
At March 31, 1997, Great Western had total assets of $42.9 billion, deposits
of $28.2 billion and stockholders' equity of $2.6 billion. Based on deposits,
Great Western was at that date the fourth largest banking organization in
California and the 24th largest in the United States.
As a result of the Merger, Washington Mutual would rank as the third largest
banking organization in the western United States and the twelfth largest in the
United States, with over 1,500 retail and business banking, consumer lending and
mortgage lending offices located in 36 states and serving an estimated 4.1
million households. Following the Merger, Washington Mutual will have a strong
deposit market share
5
<PAGE>
in Washington, Oregon, Utah and the key consumer banking market of California,
as well as a strong market presence on the east coast of Florida. In addition,
Washington Mutual will rank as one of the largest originators and servicers of
residential mortgage loans in the United States, giving it the economies of
scale and efficiencies to compete effectively in the rapidly consolidating
financial services industry.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........... 8 3/8% Subordinated Capital Income Securities ("SKIS-SM-")
evidencing undivided beneficial interests in the assets of
the Trust. The Capital Securities will have a preference
under certain circumstances with respect to cash
distributions and amounts payable on liquidation, redemption
or otherwise over the Common Securities. Income received
with respect to the Capital Securities will generally be
interest income for federal income tax purposes.
Accordingly, corporate holders of Capital Securities will
not be entitled to a dividends received deduction with
respect to such income.
Distributions................ Holders of the Capital Securities will be entitled to
receive cumulative cash Distributions at an annual rate of
8.375% of the liquidation preference of $1000 per Capital
Security, accruing from the date of original issuance and
payable semi-annually in arrears on June 1 and December 1 of
each year commencing on December 1, 1997. The distribution
rate and the distribution and other payment dates for the
Capital Securities will correspond to the interest rate and
interest and other payment dates on the Junior Subordinated
Debentures. See "Description of Capital Securities."
Junior Subordinated The Trust will invest the proceeds from the issuance of the
Debentures................. Capital Securities and Common Securities in an equivalent
amount of 8 3/8% Junior Subordinated Debentures of the
Company. The Junior Subordinated Debentures will mature on
June 1, 2027. The Junior Subordinated Debentures will rank
subordinate and junior in right of payment to all
Indebtedness of the Company. In addition, the Company's
obligations under the Junior Subordinated Debentures will be
structurally subordinated to all existing and future
liabilities and obligations of its subsidiaries. See "Risk
Factors--Ranking of Subordinated Obligations Under the
Guarantee and the Junior Subordinated Debentures," "Risk
Factors--Status of Company as Holding Company" and
"Description of Junior Subordinated
Debentures--Subordination."
Guarantee.................... Payment of distributions out of moneys held by the Trust,
and payments on liquidation of the Trust or the redemption
of Capital Securities, are guaranteed by the Company to the
extent the Trust has funds available therefor. If the
Company does not make principal or interest payments on the
Junior Subordinated Debentures, the Trust will not have
sufficient funds to make distributions on the Capital
Securities, in which event the Guarantee shall not apply to
such distributions until the Trust has sufficient funds
available therefor. The Company's obligations under the
Guarantee, taken together with its obligations under the
Junior Subordinated Debentures and the Indenture, including
its obligation to pay all costs, expenses and
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
liabilities of the Trust (other than with respect to the
Capital Securities), constitute a full and unconditional
guarantee of all of the Trust's obligations under the
Capital Securities. See "Description of Guarantee" and
"Relationship Among the Capital Securities, the Junior
Subordinated Debentures and the Guarantee." The obligations
of the Company under the Guarantee are subordinate and
junior in right of payment to all Indebtedness of the
Company. See "Risk Factors--Ranking of Subordinated
Obligations Under the Guarantee and the Junior Subordinated
Debentures" and "Description of Guarantee."
Right to Defer Interest...... The Company has the right to defer payment of interest on
the Junior Subordinated Debentures by extending the interest
payment period on the Junior Subordinated Debentures, from
time to time, for up to 10 consecutive semi-annual periods.
There could be multiple Extension Periods of varying lengths
throughout the term of the Junior Subordinated Debentures.
If interest payments on the Junior Subordinated Debentures
are so deferred, Distributions on the Capital Securities
will also be deferred for an equivalent period and the
Company may not, and may not permit any subsidiary of the
Company to, subject to certain exceptions set forth herein,
(i) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment
with respect to, the Company's capital stock or (ii) make
any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities that rank
PARI PASSU with or junior to the Junior Subordinated
Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks PARI PASSU
with or junior to the Junior Subordinated Debentures (other
than (a) dividends or distributions in common stock of the
Company, (b) payments under the Guarantee, (c) any
declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the
redemption or repurchase of any such rights pursuant
thereto, and (d) purchases of common stock related to the
issuance of common stock or rights under any of the
Company's benefit plans). During an Extension Period,
interest on the Junior Subordinated Debentures will continue
to accrue (and the amount of Distributions to which holders
of the Capital Securities are entitled will accumulate) at
the rate of 8.375% per annum, compounded semi-annually.
During an Extension Period, holders of Capital Securities
will be required to include deferred interest income
allocated to their Capital Securities in their gross income
for United States federal income tax purposes as original
issue discount ("OID") even though the cash payments
attributable thereto have not been made. See "Description of
Junior Subordinated Debentures--Option to Extend Interest
Payments Period" and "Certain United States Federal Income
Tax Consequences--Interest Income and Original Issue
Discount."
Redemption................... The Capital Securities are subject to mandatory redemption,
in whole or in part, upon repayment of the Junior
Subordinated Debentures at
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
maturity or their earlier redemption in an amount equal to
the amount of related Junior Subordinated Debentures
maturing or being redeemed at a redemption price equal to
the aggregate liquidation preference of such Capital
Securities plus accumulated and unpaid Distributions thereon
to the date of redemption. The Junior Subordinated
Debentures are redeemable prior to maturity at the option of
the Company in whole at any time or in part from time to
time on or after June 1, 2007, or at any time in whole upon
the occurrence of a Special Event, in either case subject to
any necessary prior regulatory approval. See "Description of
Capital Securities-- Redemption--Mandatory Redemption,"
"--Special Event Redemption or Distribution of Junior
Subordinated Debentures" and "Description of Junior
Subordinated Debentures--Redemption."
Special Event................ Upon the occurrence and continuation of a Special Event, the
Company will have the right, subject to any necessary prior
regulatory approval, to dissolve the Trust and cause the
Junior Subordinated Debentures to be distributed to the
holders of the Capital Securities and the Common Securities
in liquidation of the Trust. See "Description of Capital
Securities--Redemption--Special Event Redemption or
Distribution of Junior Subordinated Debentures."
A "Special Event" means a Tax Event, Regulatory Capital
Event or an Investment Company Event. A "Tax Event" means
the receipt by the Trust of an opinion of counsel, rendered
by a law firm having an established tax practice, to the
effect that, as a result of any amendment to, change in or
announced prospective change in the laws (or any regulations
thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a
result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or
regulations, which amendment or change is adopted or which
proposed change, pronouncement or decision is announced on
or after the date of original issuance of the Capital
Securities, there is more than an insubstantial risk that
(i) the Trust is, or will be within 90 days of the date of
such opinion, subject to United States federal income tax
with respect to income received or accrued on the Junior
Subordinated Debentures, (ii) interest payable by the
Company on such Junior Subordinated Debentures is not, or
within 90 days of the date of such opinion, will not be,
deductible by the Company, in whole or in part, for United
States federal income tax purposes, or (iii) the Trust is,
or will be within 90 days of the date of such opinion,
subject to more than a DE MINIMIS amount of other taxes,
duties or other governmental charges. A "Regulatory Capital
Event" means that the Company shall have received an opinion
of independent bank regulatory counsel experienced in such
matters to the effect that, as a result of (a) any amendment
to or change (including any announced prospective change) in
the laws (or any regulations thereunder) of the United
States or any rules, guidelines or policies of the
appropriate regulatory authorities or (b) any official
administrative pronouncement or judicial decision for
interpreting or applying such laws or regulations which
amendment or change is effective or such pronouncement or
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
decision is announced on or after the date of original
issuance of the Capital Securities, the Capital Securities
do not constitute, or within 90 days of the date thereof,
will not constitute Tier 1 capital or its then equivalent,
applied as if the Company or its successor were a bank
holding company (as that concept is used in the guidelines
or regulations issued by the Board of Governors of the
Federal Reserve System); provided, however, that the
distribution of the Junior Subordinated Debentures in
connection with the liquidation of the Trust by the Company
shall not in and of itself constitute a Regulatory Capital
Event unless such liquidation shall have occurred in
connection with a Tax Event or an Investment Company Event.
"Investment Company Event" means the receipt by the Trust of
an opinion of counsel, rendered by a law firm having a
recognized securities practice, to the effect that, as a
result of the occurrence of a change in law or regulation or
a change in interpretation or application of law or
regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"),
the Trust is or will be considered an "investment company"
that is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), which
Change in 1940 Act Law becomes effective on or after the
date of original issuance of the Capital Securities.
Liquidation of the Trust..... In the event of the liquidation of the Trust, after
satisfaction of the claims of creditors of the Trust, if
any, as provided by applicable law, the holders of the
Capital Securities will be entitled to receive a liquidation
preference of $1000 per Capital Security plus accumulated
and unpaid Distributions thereon to the date of payment,
which may be in the form of a distribution of such amount in
Junior Subordinated Debentures as described above. If such
Liquidation Distribution can be paid only in part because
the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts
payable directly by the Trust on the Capital Securities
shall be paid on a pro rata basis. The holder 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 an Indenture Event of
Default has occurred and is continuing, the Capital
Securities shall have a priority over the Common Securities.
See "Description of Capital Securities-- Liquidation
Distribution Upon Dissolution."
Use of Proceeds.............. The proceeds from the sale of the Capital Securities will be
used to purchase the Junior Subordinated Debentures. The
Company expects to use the proceeds from the sale of the
Junior Subordinated Debentures for general corporate
purposes, which may include the repayment of indebtedness,
investments in or extension of credit to its subsidiaries
and the financing of possible acquisitions. See "Use of
Proceeds."
ERISA Considerations......... Prospective purchasers must carefully consider the
restrictions on purchase set forth under "Certain ERISA
Considerations" herein.
</TABLE>
9
<PAGE>
SUMMARY FINANCIAL DATA OF WASHINGTON MUTUAL
The following table sets forth selected historical consolidated financial
information of the Company as of and for the periods indicated below. The
summary consolidated financial data as of and for the years ended December 31,
1994, 1995, and 1996 were derived from the audited consolidated financial
statements of the Company incorporated herein by reference. The following
information should be read in conjunction with the consolidated financial
statements of the Company, together with the related notes thereto incorporated
herein by reference. The financial information presented herein has been
restated for the mergers with Keystone Holdings, Inc. ("Keystone Holdings") and
Western Bank in 1996 and with Pioneer Savings Bank in 1993 as if the respective
companies had been combined for all prior periods presented. The information as
of March 31, 1997 and for the three-month periods ended March 31, 1997 and 1996
is not necessarily indicative of the operating results for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income...................... $ 826,733 $ 764,622 $3,149,236 $2,916,086 $2,295,413 $2,198,578 $2,170,969
Interest expense..................... 509,780 477,620 1,958,229 1,923,436 1,335,358 1,211,896 1,302,489
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.................. 316,953 287,002 1,191,007 992,650 960,055 986,682 868,480
Provision for loan losses............ 15,526 20,889 201,512 74,987 122,009 158,728 158,537
Other income......................... 75,389 57,010 259,264 208,339 220,794 246,576 174,365
Other expense........................ 192,632 181,094 1,025,304 700,514 695,517 687,519 561,688
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes,
extraordinary items and cumulative
effect of change in tax accounting
method............................. 184,184 142,029 223,455 425,488 363,323 387,011 322,620
Income taxes......................... 65,803 31,155 70,420 111,906 109,880 96,034 42,462
Provision for payments in lieu of
taxes.............................. 4,309 18,540 25,187 7,887 (824) 14,075 53,980
Extraordinary items, net of federal
income tax effect(1)............... -- -- -- -- -- (8,953) (4,638)
Cumulative effect of change in tax
accounting method.................. -- -- -- -- -- 13,365 60,045
Minority interest in earnings of
consolidated subsidiaries.......... -- 3,527 13,570 15,793 13,992 13,991 14,030
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income(2)........................ $ 114,072 $ 88,807 $ 114,278 $ 289,902 $ 240,275 $ 267,323 $ 267,555
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Assets.......................................... $46,051,150 $44,551,925 $42,026,622 $37,481,296 $33,614,912 $27,678,923
Loans........................................... 32,230,963 30,330,776 24,192,840 25,472,092 21,063,698 16,666,525
Trading, investment and mortgage-backed
securities.................................... 11,752,240 11,973,268 15,352,683 8,738,763 7,416,638 4,640,399
Deposits........................................ 24,298,493 24,080,141 24,462,960 23,344,006 23,516,317 20,729,204
Borrowings (includes annuities)................. 18,814,270 17,683,988 14,579,635 11,946,567 7,366,624 5,134,480
Stockholders' equity............................ 2,427,997 2,397,888 2,541,704 1,854,836 1,765,560 1,467,835
Stockholders' equity as a percentage of total
assets:
Total stockholders' equity.................... 5.27% 5.38% 6.05% 4.95% 5.25% 5.30%
Common stockholders' equity................... 5.02 5.12 5.77 4.63 4.90 5.05
Tangible stockholders' equity................. 5.00 5.10 5.69 4.46 4.64 5.09
Tangible common stockholders' equity.......... 4.75 4.83 5.40 4.14 4.28 4.84
Nonperforming assets as a percentage of total
assets........................................ 0.73 0.74 0.81 1.12 1.55 2.03
Reserve for loan losses as a percentage of:
Nonperforming assets, less real estate
owned....................................... 152.90 160.52 110.04 87.22 72.74 54.58
Nonperforming assets.......................... 109.76 110.29 69.42 58.52 46.91 31.98
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
1997 1996 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
Net interest margin........................................... 2.88% 2.90% 2.89% 2.62% 2.90% 3.31%
Operating efficiency ratio(2)(3).............................. 49.10 52.64 70.70 58.33 58.90 55.75
Return on average assets(2)................................... 1.01 0.85 0.27 0.73 0.69 0.84
Return on stockholders' equity(2)............................. 18.88 13.97 4.59 13.44 12.66 15.95
Dividend payout ratio(4)...................................... 27.54 25.40 29.01 25.74 24.50 15.98
<CAPTION>
1992
---------
<S> <C>
OTHER FINANCIAL DATA
Net interest margin........................................... 3.36%
Operating efficiency ratio(2)(3).............................. 53.86
Return on average assets(2)................................... 1.29
Return on stockholders' equity(2)............................. 21.05
Dividend payout ratio(4)...................................... 15.43
</TABLE>
- ------------------------
(1) Extraordinary items include the call of subordinated capital notes,
resulting in pretax losses of $2.2 million and $3.1 million during 1993 and
1992, and penalties for prepayment of Federal Home Loan Bank of San
Francisco advances, resulting in pretax losses of $10.8 million and $3.6
million during 1993 and 1992.
(2) Earnings for 1996 were reduced $294.6 million by an after-tax charge of
$209.8 million for transaction-related expense resulting from Washington
Mutual's merger with Keystone Holdings and acquisition of American Savings
Bank, and by an after-tax charge of $84.8 million representing Washington
Mutual's portion of the one-time assessment paid by savings institutions and
banks nationally to recapitalize the Savings Association Insurance Fund
("SAIF"). The following table presents selected financial data for 1996 as
reported and without the above mentioned charges:
<TABLE>
<CAPTION>
WITHOUT SAIF
ASSESSMENT AND
TRANSACTION-RELATED
AS REPORTED EXPENSES
----------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net income....................................................... $ 114,278 $ 408,845
Operating efficiency ratio....................................... 70.70% 51.20%
Return on average assets......................................... 0.27 0.95
Return on stockholders' equity................................... 4.59 16.41
</TABLE>
(3) The operating efficiency ratio measures other expense as a percentage of
operating income (net interest income plus other income). No adjustments
have been made to the calculation for any nonrecurring or one-time charges
or assessments.
(4) Dividend payout ratio for each period is based on Washington Mutual's net
income prior to business combinations occurring subsequent to such period.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth certain selected historical financial data
for Washington Mutual and Great Western and selected pro forma combined
financial data. The pro forma amounts included in the table below give effect to
the Merger as if it had been consummated on January 1, 1994 for income statement
information and March 31, 1997 for balance sheet information. Pro forma
adjustments made to arrive at the pro forma combined amounts are based on the
pooling-of-interests method of accounting.
This information should be read in conjunction with and is qualified in its
entirety by reference to the Consolidated Financial Statements and notes thereto
from Washington Mutual's Annual Report on Form 10-K for the year ended December
31, 1996, Washington Mutual's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997, Great Western's Annual Report on Form 10-K/A for the year
ended December 31, 1996, Great Western's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and the pro forma combined financial statements and
accompanying discussion and notes thereto included in Washington Mutual's
Current Report on Form 8-K dated May 20, 1997 included in the documents
described under "Incorporation of Certain Documents by Reference." The pro forma
amounts in the tables below are presented for informational purposes and are not
necessarily indicative of the financial position or the results of operations of
Washington Mutual following the Merger that actually would have occurred had the
Merger been consummated as of the dates or for the periods presented. The pro
forma amounts are also not necessarily indicative of the future financial
position or future results of operations of Washington Mutual following the
Merger.
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------
WASHINGTON MUTUAL 1997 1996 1996 1995 1994
- --------------------------------------------- ----------- ----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net interest income.......................... $ 316,953 $ 287,002 $ 1,191,007 $ 992,650 $ 960,055
Provision for loan losses.................... 15,526 20,889 201,512 74,987 122,009
Other income (expense), net.................. (117,243) (124,084) (766,040) (492,175) (474,723)
Income taxes................................. 70,112 49,695 95,607 119,793 109,056
Minority interest in income of consolidated
subsidiaries............................... -- 3,527 13,570 15,793 13,992
----------- ----------- ------------ ------------ ------------
Net income(1)................................ $ 114,072 $ 88,807 $ 114,278 $ 289,902 $ 240,275
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------
GREAT WESTERN 1997 1996 1996 1995 1994
- --------------------------------------------- ----------- ----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net interest income.......................... $ 338,164 $ 352,286 $ 1,378,017 $ 1,302,129 $ 1,322,270
Provision for loan losses.................... 40,390 36,021 196,158 177,050 206,379
Other income (expense), net.................. (183,071) (197,471) (995,237) (702,957) (709,357)
Income taxes................................. 49,000 47,500 70,800 161,100 155,300
----------- ----------- ------------ ------------ ------------
Net income(1)................................ $ 65,703 $ 71,294 $ 115,822 $ 261,022 $ 251,234
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
FOOTNOTES ON FOLLOWING PAGE
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------
PRO FORMA INCLUDING GREAT WESTERN(2) 1997 1996 1996 1995 1994
- ----------------------------------------------------- ----------- ----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net interest income.................................. $ 655,117 $ 639,288 $ 2,569,024 $ 2,294,779 $ 2,282,325
Provision for loan losses............................ 55,916 56,910 397,670 252,037 328,388
Other income (expense), net(3)....................... (300,314) (321,555) (1,761,277) (1,195,132) (1,184,080)
Income taxes......................................... 119,112 97,195 166,407 280,893 264,356
Minority interest in income of consolidated
subsidiaries....................................... -- 3,527 13,570 15,793 13,992
----------- ----------- ------------ ------------ ------------
Net income(1)........................................ $ 179,775 $ 160,101 $ 230,100 $ 550,924 $ 491,509
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
</TABLE>
- --------------------------
(1) "Net income from continuing operations" and "net income" are equal for all
periods presented.
(2) Merger-related expenses and addition to loan loss reserve anticipated to be
recorded are not included in the Pro Forma Including Great Western summary
statements of income for all periods presented.
(3) Includes pretax charge of $312.6 million representing Washington Mutual's
and Great Western portion of the one-time assessment paid by savings
institutions and banks nationally to recapitalize the SAIF.
BALANCE SHEET DATA
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------------
PRO FORMA
WASHINGTON INCLUDING GREAT
MUTUAL GREAT WESTERN WESTERN(1)
------------- ------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Assets............................................................ $ 46,051,150 $ 42,877,903 $ 88,486,053
Loans............................................................. 32,230,963 31,210,853 63,341,816
Deposits.......................................................... 24,298,493 28,158,331 52,456,824
Borrowings (including annuities).................................. 18,814,270 10,661,159 29,475,429
Stockholders' equity.............................................. 2,427,997 2,585,070 4,695,067
Loans serviced for others......................................... $ 26,649,521 $ 11,484,037 $ 38,133,558
Loans originated during the quarter............................... 3,461,882 2,220,312 5,682,194
Loans sold during the quarter..................................... 567,878 419,715 987,593
Nonperforming assets.............................................. 334,571 500,703 835,274
Reserve for loan losses........................................... 367,215 320,800 788,015
Stockholders equity as a percentage of total assets:
Total stockholders' equity...................................... 5.27% 6.03% 5.31%
Common stockholders' equity..................................... 5.02 5.64 4.99
Tangible stockholders' equity................................... 5.00 5.42 4.87
Tangible common stockholders' equity............................ 4.75 5.03 4.55
Nonperforming assets as a percentage of total assets.............. 0.73 1.17 0.94
Reserve for loan losses as a percentage of:
Nonperforming assets, less real estate owned.................... 152.90% 75.73% 118.72%
Nonperforming assets............................................ 109.76 64.07 94.34
</TABLE>
- --------------------------
(1) Merger-related expenses and addition to loan loss reserve anticipated to be
recorded are included in the Pro Forma Including Great Western financial
data. Merger-related expenses and addition to loan loss reserve expected to
be recorded by Washington Mutual are summarized in the following table
(dollars in thousands):
<TABLE>
<S> <C>
Addition loan loss reserves.............................................. $ 100,000
Severance and management payments........................................ 145,000
Facilities and equipment................................................. 106,000
Other expenses........................................................... 92,000
---------
Total expenses......................................................... 443,000
Tax benefit.............................................................. (125,000)
---------
Net expenses........................................................... $ 318,000
---------
---------
</TABLE>
13
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE CAPITAL SECURITIES SHOULD CAREFULLY REVIEW THE
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND SHOULD PARTICULARLY
CONSIDER THE FOLLOWING MATTERS. IN ADDITION, BECAUSE HOLDERS OF THE CAPITAL
SECURITIES MAY RECEIVE JUNIOR SUBORDINATED DEBENTURES IN EXCHANGE THEREFOR UPON
LIQUIDATION OF THE TRUST, PROSPECTIVE PURCHASERS OF CAPITAL SECURITIES ARE ALSO
MAKING AN INVESTMENT DECISION WITH REGARD TO THE JUNIOR SUBORDINATED DEBENTURES
AND SHOULD CAREFULLY REVIEW ALL THE INFORMATION REGARDING THE JUNIOR
SUBORDINATED DEBENTURES CONTAINED HEREIN. 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)(L) 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 unsecured and rank subordinate and junior in right
of payment to all Indebtedness of the Company. At March 31, 1997, the
Indebtedness of the Company aggregated approximately $467.0 million. Neither the
Indenture, the Guarantee nor the Declaration (as defined herein) place any
limitation on the amount of secured or unsecured Indebtedness that may be
incurred by the Company. See "Description of Guarantee--Status of the Guarantee"
and "Description of Junior Subordinated Debentures--Subordination."
STATUS OF COMPANY AS HOLDING COMPANY
As a holding company, the ability of the Company to make payments of
interest and principal on the Junior Subordinated Debentures will be dependent
primarily upon the receipt of dividends and other distributions from the
Company's subsidiaries. The Company's principal subsidiaries are Washington
Mutual Bank and American Savings Bank (the "Banks"). There are various
regulatory restrictions on the ability of the Company's banking subsidiaries to
pay dividends or make other payments to the Company. At March 31, 1997, the
Company's banking subsidiaries could pay an aggregate of $468.6 million in
dividends to the Company without prior regulatory approval. In addition, the
right of the Company to participate in any distribution of assets of any
subsidiary, including the Banks, upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Capital
Securities to benefit indirectly from such distribution), will be subject to the
prior claims of creditors of that subsidiary, except to the extent that any
claims of the Company as a creditor of such subsidiary may be recognized as
such. Accordingly, the Capital Securities will effectively be subordinated to
all existing and future liabilities of the Company's subsidiaries, and holders
of the Capital Securities should look only to the assets of the Company for
payments on the Capital Securities. As of March 31, 1997, the Company's
consolidated subsidiaries had indebtedness and other liabilities of
approximately $43.2 billion.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If a Trust Enforcement Event (as defined herein) occurs and is continuing,
then the holders of Capital Securities would rely on the enforcement by the
Property Trustee (as defined herein) of its rights as a holder of the Junior
Subordinated Debentures against the Company. The holders of a majority in
liquidation preference of the Capital Securities will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Property Trustee or to direct the exercise of any trust or power
conferred upon the Property Trustee under the Declaration, including the right
to direct the Property Trustee to exercise the remedies available to it as a
holder of the Junior Subordinated Debentures. If the Property Trustee fails to
enforce its rights with respect to the Junior Subordinated Debentures held by
the Trust, any record holder of Capital Securities may institute legal
proceedings directly against the Company to enforce the Property Trustee's
rights under such Junior Subordinated Debentures without first instituting any
legal proceedings against such Property Trustee or any other person or entity.
14
<PAGE>
If the Company were to default on its obligation to pay amounts payable
under the Junior Subordinated Debentures, the Trust would lack funds for the
payment of Distributions or amounts payable on redemption of the Capital
Securities or otherwise, and, in such event, holders of the Capital Securities
would not be able to rely upon the Guarantee for payment of such amounts.
However, in the event the Company failed to pay interest on or principal of the
Junior Subordinated Debentures on the payment date on which such payment is due
and payable, then a holder of Capital Securities may directly institute a
proceeding against the Company for enforcement of payment to such holder of the
interest on or principal of such Junior Subordinated Debentures having a
principal amount equal to the aggregate liquidation preference of the Capital
Securities of such holder (a "Direct Action"). In connection with such Direct
Action, the Company will be subrogated to the rights of such holder of Capital
Securities under the Declaration to the extent of any payment made by the
Company to such holder of Capital Securities in such Direct Action. Except as
set forth herein, holders of Capital Securities will not be able to exercise
directly any other remedy available to the holders of Junior Subordinated
Debentures or assert directly any other rights in respect of the Junior
Subordinated Debentures. See "Description of Capital Securities-- Enforcement of
Certain Rights by Holders of Capital Securities," "Description of Guarantee" and
"Description of Junior Subordinated Debentures--Debenture Events of Default."
The Declaration provides that each holder of Capital Securities by acceptance
thereof agrees to the provisions of the Guarantee and the Indenture.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE
CONSEQUENCES
The Company has the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 10 consecutive semi-annual periods, provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. As a consequence of any such deferral, semi-annual
Distributions on the Capital Securities by the Trust would be deferred but would
continue to accumulate at the rate of % per annum, compounded semi-annually
during any such Extension Period. During any such Extension Period, the Company
may not, and may not permit any subsidiary of the Company to, (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank PARI PASSU
with or junior to the Junior Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any subsidiary of the Company if such guarantee ranks PARI PASSU with or junior
to the Junior Subordinated Debentures (other than (a) dividends or distributions
in common stock of the Company, (b) payments under the Guarantee, (c) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, and
(d) purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans). Prior to the termination of any such
Extension Period, the Company may further extend the Extension Period, provided
that no Extension Period may exceed 10 consecutive semi-annual periods or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due on
any Interest Payment Date, the Company may elect to begin a new Extension Period
subject to the above requirements. See "Description of Capital
Securities--Distributions" and "Description of Junior Subordinated
Debentures--Option to Extend Interest Payment Period."
Should the Company defer payment of interest on the Junior Subordinated
Debentures, a holder of Capital Securities will be required to accrue income (in
the form of OID) in respect of its pro rata share of the Junior Subordinated
Debentures held by the Trust for United States federal income tax purposes. As a
result, a holder of Capital Securities will include such income in gross income
for United States federal income tax purposes in advance of the receipt of cash
attributable to such interest income, and will not receive the cash related to
such income from the Trust if the holder disposes of the Capital Securities
prior
15
<PAGE>
to the record date for the payment of Distributions with respect to such
extension period. See "Certain United States Federal Income Tax
Consequences--Interest Income and Original Issue Discount" and "-- 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
adversely affected. A holder that disposes of its Capital Securities during an
Extension Period, therefore, might not receive the same return on its investment
as a holder that continues to hold its Capital Securities. In addition, as a
result of the existence of the Company's right to defer interest payments, the
market price of the Capital Securities (which represent undivided beneficial
interests in the Junior Subordinated Debentures) may be more volatile than the
market prices of other similar securities where the issuer does not have such
right to defer interest payments.
SPECIAL EVENT REDEMPTION; PROPOSED TAX LEGISLATION
Upon the occurrence and continuation of a Special Event, the Company has the
right, subject to any necessary regulatory approval, to redeem the Junior
Subordinated Debentures in whole (but not in part) at the redemption price
described herein within 90 days following the occurrence of such Special Event
and thereby cause a mandatory redemption of the Capital Securities and Common
Securities.
A "Special Event" means a Tax Event, Regulatory Capital Event or an
Investment Company Event. A "Tax Event" means the receipt by the Trust of an
opinion of counsel, rendered by a law firm having an established tax practice,
to the effect that, as a result of any amendment to, change in or announced
prospective change in the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
adopted or which proposed change, pronouncement or decision is announced on or
after the date of original issuance of the Capital Securities, there is more
than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on such Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion, will not be, deductible by
the Company, in whole or in part, for United States federal income tax purposes,
or (iii) the Trust is, or will be within 90 days of the date of such opinion,
subject to more than a DE MINIMIS amount of other taxes, duties or other
governmental charges. A "Regulatory Capital Event" means that the Company shall
have received an opinion of independent bank regulatory counsel experienced in
such matters to the effect that, as a result of (a) any amendment to or change
(including any announced prospective change) in the laws (or any regulations
thereunder) of the United States or any rules, guidelines or policies of the
appropriate regulatory authorities or (b) any official administrative
pronouncement or judicial decision for interpreting or applying such laws or
regulations which amendment or change is effective or such pronouncement or
decision is announced on or after the date of original issuance of the Capital
Securities, the Capital Securities do not constitute, or within 90 days of the
date thereof, will not constitute Tier 1 capital or its then equivalent, applied
as if the Company or its successor were a bank holding company (as that concept
is used in the guidelines or regulations issued by the Board of Governors of the
Federal Reserve System); provided, however, that the distribution of the Junior
Subordinated Debentures in connection with the liquidation of the Trust by the
Company shall not in and of itself constitute a Regulatory Capital Event unless
such liquidation shall have occurred in connection with a Tax Event or an
Investment Company Event. "Investment Company Event" means the receipt by the
Trust of an opinion of counsel, rendered by a law firm having a recognized
securities practice, to the effect that, as a result of the occurrence of a
Change in 1940 Act Law, the Trust is or will be considered an "investment
company" that is required to be registered under the 1940 Act, which Change in
1940 Act Law becomes effective on or after the date of original issuance of the
Capital Securities.
16
<PAGE>
Legislation was proposed by the United States Department of the Treasury as
part of President Clinton's Fiscal 1998 Budget Proposal (the "Proposed
Legislation") that contains a provision which generally would deny an interest
deduction for interest paid or accrued on an instrument issued by a corporation
that (i) has a maximum term of more than 15 years and (ii) is 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. This provision was
proposed to be effective generally for instruments issued on or after the date
of the first Congressional committee action taken on the Proposed Legislation.
If this provision were to apply to the Junior Subordinated Debentures, the
Company would not be able to deduct the interest on the Junior Subordinated
Debentures. As of the date of this Prospectus, no Congressional committee action
had been taken on the Proposed Legislation. There can be no assurance, however,
that the Proposed Legislation or future legislative proposals or final
legislation will not adversely affect the ability of the Company to deduct
interest on the Junior Subordinated Debentures or otherwise affect the tax
treatment of the transactions described herein. Moreover, such legislation could
give rise to a Special Event, which would permit the Company to cause a
redemption of the Capital Securities, as described more fully herein under the
caption "Description of Capital Securities--Redemption."
EXCHANGE OF PREFERRED SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
Upon the occurrence and continuation of a Special Event the Company will
have the right, subject to any necessary prior regulatory approval, to dissolve
the Trust and cause the Junior Subordinated Debentures to be distributed to the
holders of the Capital Securities and the Common Securities in liquidation of
the Trust. In addition, upon liquidation of the Trust and certain other events,
the Junior Subordinated Debentures may be distributed to such holders. Under
current United States federal income tax law and interpretations thereof and
assuming, as expected, the Trust is treated as a grantor trust for United States
federal income tax purposes, a distribution by the Trust of the Junior
Subordinated Debentures pursuant to a liquidation of the Trust will not be a
taxable event to the Trust or to holders of the Capital Securities and will
result in a holder of the Capital Securities receiving directly such holder's
pro rata share of the Junior Subordinated Debentures (previously held indirectly
through the Trust). If, however, the liquidation of the Trust were to occur
because the Trust is subject to United States federal income tax with respect to
income accrued or received on the Junior Subordinated Debentures as a result of
the occurrence of a Tax Event or otherwise, the distribution of Junior
Subordinated Debentures to holders of the Capital Securities by the Trust would
be a taxable event to the Trust and each holder, and holders of the Capital
Securities would recognize gain or loss as if they had exchanged their Capital
Securities for the Junior Subordinated Debentures they received upon the
liquidation of the Trust. See "Certain United States Federal Income Tax
Consequences--Distribution of Junior Subordinated Debentures or Cash Upon
Liquidation of the Trust."
MARKET PRICES
There can be no assurance as to the market prices for Capital Securities or
Junior Subordinated Debentures that may be distributed in exchange for Capital
Securities if a liquidation of the Trust occurs. Accordingly, the Capital
Securities that an investor may purchase, whether pursuant to the offer made
hereby or in the secondary market, or the Junior Subordinated Debentures that a
holder of Capital Securities may receive on liquidation of the Trust, may trade
at a discount to the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures on termination of the Trust, prospective
purchasers of Capital Securities are also making an investment decision with
regard to the Junior Subordinated Debentures and should carefully review all the
information regarding the Junior Subordinated Debentures contained herein. See
"Description of Capital Securities--Redemption--Special Event Redemption or
Distribution of Junior Subordinated Debentures" and "Description of Junior
Subordinated Debentures--General."
17
<PAGE>
LIMITED VOTING RIGHTS
Holders of Capital Securities generally will have limited voting rights
relating only to the modification of the Capital Securities and certain other
matters described herein. Holders of Capital Securities will not be entitled to
vote to appoint, remove or replace any of the Trustees (as defined below), which
voting rights are vested exclusively in the holder of the Common Securities. The
Trustees and the Company may amend the Declaration without the consent of
holders of Capital Securities to ensure that the Trust will be classified as a
grantor trust for United States federal income tax purposes, unless such action
adversely affects in any material respect the interests of such holders. See
"Description of Capital Securities--Voting Rights; Amendment of the Declaration"
and "--Removal of Trustees."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
Prior to this offering there has been no public market for the Capital
Securities, and there can be no assurance that such a market will develop. The
Capital Securities will not be listed on any securities exchange. The
Underwriters have advised the Company that they intend to make a market in the
Capital Securities after the consummation of this offering, as permitted by
applicable laws and regulations; however, the Underwriters are not obligated to
do so, and may discontinue any such market making activities at any time without
notice. Therefore, there can be no assurance that an active market for the
Capital Securities will develop. If a trading market for the Capital Securities
does develop, the Capital Securities may trade at a discount from their initial
offering price depending upon prevailing interest rates, the market for similar
securities, the performance of the Company and other factors.
CONSEQUENCES OF HIGHLY LEVERAGED TRANSACTION
The Indenture does not contain any provisions that afford holders of the
Junior Subordinated Debentures protection in the event of a highly leveraged
transaction, including a change of control, or other similar transactions
involving Washington Mutual that may adversely affect such holders. See
"Description of Junior Subordinated Debentures."
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of March 31, 1997, and as adjusted to give
effect to the consummation of the offering of the Capital Securities. The
following data is qualified by the detailed information and financial statements
appearing in the documents incorporated by reference herein.
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------
ACTUAL AS ADJUSTED
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt(1)..................................................................... $ 246,753 $ 646,753
Shareholders' equity:
Preferred stock..................................................................... 118,063 118,063
Common stock........................................................................ 839,171 839,171
Net unrealized gain on investment securities available for sale..................... (12,935) (12,935)
Retained earnings................................................................... 1,483,698 1,483,698
------------ ------------
Total shareholders' equity........................................................ 2,427,997 2,427,997
------------ ------------
Total capitalization............................................................ $ 2,674,750 $ 3,074,750
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) As adjusted reflects issuance of the Capital Securities. The Trust is a
wholly-owned subsidiary of the Company and will hold the Junior Subordinated
Debentures in the aggregate principal amount of $412,372,000 as its sole
asset.
19
<PAGE>
USE OF PROCEEDS
The Company expects to use the proceeds from the sale of the Junior
Subordinated Debentures ($400,000,000 before expenses of the offering) for
general corporate purposes, which may include the repayment of indebtedness,
redemption of one or more series of preferred stock, investments in or
extensions of credit to its subsidiaries and the financing of possible
acquisitions. Pending such use, the net proceeds may be temporarily invested in
short-term obligations. 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.
RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The Company's consolidated ratios of earnings to fixed charges and
consolidated ratios of earnings to combined fixed charges and preferred stock
dividend requirements for each of the periods indicated are set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings to Fixed Charges:
Excluding Interest on Deposits..................... 1.73x 1.70x 1.25x 1.54x 1.75x 2.13x 2.02x
Including Interest on Deposits..................... 1.36x 1.30x 1.11x 1.22x 1.27x 1.32x 1.25x
Earnings to Combined Fixed Charges and Preferred
Stock Dividend Requirements:
Excluding Interest on Deposits..................... 1.70x 1.64x 1.21x 1.49x 1.66x 2.01x 1.98x
Including Interest on Deposits..................... 1.35x 1.28x 1.10x 1.21x 1.25x 1.30x 1.24x
</TABLE>
For purposes of computing the ratios of both earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividend requirements,
earnings represent income before income taxes, extraordinary items, cumulative
effect of change in tax accounting method, minority interest and fixed charges.
Fixed charges, excluding interest on deposits, represent interest expense
(except interest on deposits). Fixed charges, including interest on deposits,
represent all interest expense. Combined fixed charges and preferred stock
dividend requirements, excluding interest on deposits, represent interest
expense (except interest paid on deposits), and an amount equal to the pre-tax
earnings required to meet applicable preferred stock dividend requirements.
Combined fixed charges and preferred stock dividend requirements, including
interest on deposits, represent all interest expense, and an amount equal to the
pre-tax earnings required to meet applicable preferred stock dividend
requirements.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of the Company and, accordingly, the accounts of the Trust will be included in
the consolidated financial statements of the Company. The sole asset of the
Trust will be $412,372,000 aggregate principal amount of Junior Subordinated
Debentures, issued by the Company to the Trust. The Capital Securities will be
presented in the consolidated balance sheet of the Company in the "Trust
Preferred Securities" line item in the "Liabilities" section and appropriate
disclosures about the Capital Securities, the Guarantee and the Junior
Subordinated Debentures will be included in the notes to the consolidated
financial statements for financial reporting purposes. The Company will record
Distributions payable on the Capital Securities as interest expense in the
consolidated statements of income.
20
<PAGE>
THE TRUST
The Trust is a statutory trust created under the Trust Act pursuant to a
declaration of trust and the filing of a certificate of trust with the Secretary
of State of the State of Delaware. The Company will acquire Common Securities in
an aggregate liquidation preference equal to at least 3% of the total capital of
the Trust. The Trust will use all the proceeds derived from the issuance of the
Capital Securities and the Common Securities to purchase the Junior Subordinated
Debentures and, accordingly, the assets of the Trust will consist solely of the
Junior Subordinated Debentures. The Trust exists for the exclusive purpose of
(i) issuing the Trust Securities representing undivided beneficial ownership
interests in the assets of the Trust, (ii) investing the gross proceeds of the
Trust Securities in the Junior Subordinated Debentures, and (iii) engaging in
only those other activities necessary or incidental thereto.
Pursuant to the Declaration, there will initially be five trustees (the
"Trustees") for the Trust. Three of the Trustees (the "Regular Trustees") will
be individuals who are employees or officers of or who are affiliated with the
Company. The fourth trustee will be a financial institution that is unaffiliated
with the Company (the "Property Trustee"). The fifth trustee will be an entity
that maintains its principal place of business in the State of Delaware (the
"Delaware Trustee"). Initially, The Bank of New York, a New York banking
corporation, will act as Property Trustee, and its affiliate, The Bank of New
York (Delaware), a Delaware corporation, will act as Delaware Trustee until, in
each case, removed or replaced by the Company as holder of the Common
Securities. The Bank of New York will also act as trustee under the Guarantee
(the "Guarantee Trustee").
The Property Trustee will hold title to the Junior Subordinated Debentures
for the benefit of the holders of the Trust Securities, and the Property Trustee
will have the power to exercise all rights, powers and privileges with respect
to the Junior Subordinated Debentures under the Indenture (as defined herein) as
the holder of the Junior Subordinated Debentures. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
bank account (the "Property Account") to hold all payments made in respect of
the Junior Subordinated Debentures for the benefit of the holders of the Trust
Securities. The Guarantee Trustee will hold the Guarantee for the benefit of the
holders of the Capital Securities. The Company, as the holder of all the Common
Securities, will have the right to appoint, remove or replace any of the
Trustees and to increase or decrease the number of Trustees; PROVIDED that the
number of trustees shall be at least three; PROVIDED further that at least one
Trustee shall be a Delaware Trustee, at least one Trustee shall be the Property
Trustee and at least one Trustee shall be a Regular Trustee. The Company will
pay all fees and expenses related to the organization and operations of the
Trust (including any taxes, duties, assessments or governmental charges of
whatever nature (other than withholding taxes) imposed by the United States or
any other domestic taxing authority upon the Trust) and the offering of the
Capital Securities and be responsible for all debts and obligations of the Trust
(other than with respect to the Capital Securities).
For so long as the Capital Securities remain outstanding, the Company will
covenant (i) to maintain directly or indirectly 100% ownership of the Common
Securities, (ii) to cause the Trust to remain a statutory business trust and not
to voluntarily dissolve, wind-up, liquidate or be terminated, except as
permitted by the Declaration, (iii) to use its commercially reasonable efforts
to ensure that the Trust will not be an "investment company" for purposes of the
1940 Act and (iv) to take no action that would be reasonably likely to cause the
Trust to be classified as an association or a publicly traded partnership
taxable as a corporation for United States federal income tax purposes. It is
not expected that the Trust will file reports under Section 13(a) of the
Exchange Act.
The rights of the holders of the Capital Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration and the Trust Indenture Act. See "Description of Capital
Securities." The Declaration and the Guarantee also incorporate by reference the
terms of the Trust Indenture Act.
The location of the principal executive office of the Trust is c/o
Washington Mutual, Inc., 1201 Third Avenue, Seattle, Washington 98101, and its
telephone number is 206-461-2000.
21
<PAGE>
DESCRIPTION OF CAPITAL SECURITIES
Pursuant to the terms of the Declaration, the Regular Trustees on behalf of
the Trust will issue the Capital Securities and the Common Securities. The
Capital Securities will represent undivided beneficial ownership interests in
the assets of the Trust and the holders thereof will be entitled to a preference
in certain circumstances with respect to Distributions and amounts payable on
redemption or liquidation over the Common Securities, as well as other benefits
as described in the Declaration. This summary of certain provisions of the
Capital Securities and the Declaration does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Declaration, including the definitions therein of certain terms, and the
Trust Indenture Act. Wherever particular defined terms of the Declaration (as
supplemented or amended from time to time) are referred to herein, the
definitions of such defined terms are incorporated herein by reference.
GENERAL
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." Legal title to the Junior Subordinated
Debentures will be held by the Property Trustee in trust for the benefit of the
holders of the Capital Securities and the Common Securities. The Guarantee
executed by the Company for the benefit of the holders of the Capital Securities
will be a guarantee on a subordinated basis with respect to the Capital
Securities but will not guarantee payment of Distributions or amounts payable on
redemption or liquidation of the Capital Securities when the Trust does not have
sufficient funds available to make such payments. See "Description of
Guarantee." In such event, the remedy of a holder of Capital Securities is to
vote to direct the Property Trustee to enforce the Property Trustee's rights
under the Junior Subordinated Debentures or to commence a Direct Action. See
"--Voting Rights; Amendment of the Declaration" below. The Company's obligations
under the Guarantee, taken together with its obligations under the Junior
Subordinated Debentures and the Indenture, including its obligation to pay all
costs, expenses and liabilities of the Trust (other than with respect to the
Capital Securities), constitute a full and unconditional guarantee of all of the
Trust's obligations under the Capital Securities.
Holders of the Capital Securities have no preemptive or similar rights.
DISTRIBUTIONS
Distributions on each Capital Security will be payable at the annual rate of
8.375% of the liquidation preference of $1000, payable semi-annually in arrears
on June 1 and December 1 of each year. Distributions will accumulate from June
4, 1997, the date of original issuance, and commence on December 1, 1997. The
amount of Distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months.
Distributions on the Capital Securities must be paid on the dates payable to
the extent that the Trust has funds available for the payment of such
distributions. The revenue of the Trust available for distribution to holders of
its Capital Securities will be limited to payments under the Junior Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Capital Securities and the Common Securities. See "Description of
Junior Subordinated Debentures." If the Company does not make interest payments
on the Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Capital Securities.
The Company will have the right under the Indenture to defer the payment of
interest on the Junior Subordinated Debentures at any time or from time to time
for a period not exceeding 10 consecutive semi-annual periods (each, an
"Extension Period"), provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such extension, semi-annual Distributions on the Capital Securities will be
deferred by the Trust during any such Extension Period. Distributions to which
holders of the Capital Securities are entitled will accumulate and compound
semi-
22
<PAGE>
annually at the rate per annum of 8.375% thereof from the relevant payment date
for such Distributions. The term "Distributions" as used herein shall include
any such compounded amounts unless the context otherwise requires. During any
such Extension Period, the Company may not, and may not permit any subsidiary of
the Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank PARI PASSU with or junior to the Junior Subordinated
Debentures or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks PARI PASSU with or junior in interest to the Junior Subordinated
Debentures (other than (a) dividends or distributions in common stock of the
Company, (b) payments under the Guarantee, (c) any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (d) purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans). Prior to the termination of any such Extension Period,
the Company may further extend the Extension Period, provided that no Extension
Period may exceed 10 consecutive semi-annual periods or extend beyond the Stated
Maturity of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period. See "Description of
the Junior Subordinated Debentures--Option to Extend Interest Payment Period"
and "Certain United States Federal Income Tax Consequences--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 of
the Junior Subordinated Debentures.
In the event that 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 (and
without any additional Distributions or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on the date such payment was
originally payable (each date on which Distributions are payable in accordance
with the foregoing, a "Distribution Date"). A "Business Day" shall mean any day
other than a Saturday or a Sunday, or a day on which banking institutions in The
City of New York are authorized or required by law or executive order to remain
closed or a day on which the corporate trust office of the Property Trustee or
the Indenture Trustee (as defined herein) is closed for business.
Distributions on the Capital Securities (other than distributions on a
Redemption Date) will be payable to the holders thereof as they appear on the
register of the Trust on the relevant record dates, which shall be the 15th day
of the month prior to the relevant Distribution Date. Distributions payable on
any Capital Securities that are not punctually paid on any Distribution Date
will cease to be payable to the person in whose name such Capital Securities are
registered on the relevant record date, and such defaulted distribution will
instead be payable to the person in whose name such Capital Securities are
registered on the special record date or other specified date determined in
accordance with the Declaration.
REDEMPTION
MANDATORY REDEMPTION. Unless a Special Event has occurred, the Capital
Securities will not be redeemable prior to June 1, 2007. Upon the repayment or
redemption of the Junior Subordinated Debentures, whether at Stated Maturity or
upon earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem the
Capital Securities and Common Securities, upon not less than 30 nor more than 60
days notice prior to the date fixed for repayment or redemption. If less than
all of the Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption PRO RATA of the Capital Securities and Common
Securities.
23
<PAGE>
SPECIAL EVENT REDEMPTION OR DISTRIBUTION OF JUNIOR SUBORDINATED
DEBENTURES. If a Special Event shall occur and be continuing, the Company will
have the right, subject to the receipt of any necessary prior regulatory
approval, to either (i) redeem within 90 days following the occurrence of such
Special Event the Junior Subordinated Debentures on the date of redemption (the
"Redemption Date") in whole (but not in part) and thereby cause a mandatory
redemption of the Capital Securities in whole (but not in part) at a redemption
price with respect to the Capital Securities equal to the Special Event
Redemption Price (which is equal to the Special Event Prepayment Price in
respect of the Junior Subordinated Debentures) or (ii) dissolve the Trust within
90 days following the occurrence of such Special Event and, after satisfaction
of the claims of creditors of the Trust as provided by applicable law, cause the
Junior Subordinated Debentures to be distributed to the holders of the Capital
Securities in liquidation of the Trust. Under current United States federal
income tax law and interpretations thereof and assuming, as expected, the Trust
is treated as a grantor trust, a distribution of the Junior Subordinated
Debentures should not be a taxable event to holders of the Capital Securities.
Should there be a change in law, a change in legal interpretation, certain Tax
Events or other circumstances, however, the distribution could be a taxable
event to holders of the Capital Securities. See "Certain United States Federal
Income Tax Consequences--Distribution of Junior Subordinated Debentures or Cash
upon Liquidation of the Trust."
If the Company does not elect either option described above, the Capital
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures, whether at maturity or redemption, and in the event a
Tax Event has occurred and is continuing, the Company will be obligated to pay
any additional taxes, duties, assessments and other governmental charges (other
than withholding taxes) to which the Trust has become subject as a result of a
Tax Event. See "Description of Junior Subordinated Debentures."
A "Special Event" means a Tax Event, a Regulatory Capital Event or an
Investment Company Event. A "Tax Event" means the receipt by the Trust of an
opinion of counsel, rendered by a law firm having an established tax practice,
to the effect that, as a result of any amendment to, change in or announced
prospective change in the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
adopted or which proposed change, pronouncement or decision is announced on or
after the date of original issuance of the Capital Securities, there is more
than an insubstantial risk that (i) the Trust is, or will be within 90 days of
the date of such opinion, subject to United States federal income tax with
respect to income received or accrued on the Junior Subordinated Debentures,
(ii) interest payable by the Company on such Junior Subordinated Debentures is
not, or within 90 days of the date of such opinion, will not be, deductible by
the Company, in whole or in part, for United States federal income tax purposes,
or (iii) the Trust is, or will be within 90 days of the date of such opinion,
subject to more than a DE MINIMIS amount of other taxes, duties or other
governmental charges. A "Regulatory Capital Event" means that the Company shall
have received an opinion of independent bank regulatory counsel experienced in
such matters to the effect that, as a result of (a) any amendment to or change
(including any announced prospective change) in the laws (or any regulations
thereunder) of the United States or any rules, guidelines or policies of the
appropriate regulatory authorities or (b) any official administrative
pronouncement or judicial decision for interpreting or applying such laws or
regulations which amendment or change is effective or such pronouncement or
decision is announced on or after the date of original issuance of the Capital
Securities, the Capital Securities do not constitute, or within 90 days of the
date thereof, will not constitute Tier 1 capital or its then equivalent, applied
as if the Company or its successor were a bank holding company (as that concept
is used in the guidelines or regulations issued by the Board of Governors of the
Federal Reserve System); provided, however, that the distribution of the Junior
Subordinated Debentures in connection with the liquidation of the Trust by the
Company shall not in and of itself constitute a Regulatory Capital Event unless
such liquidation shall have occurred in connection with a Tax Event or an
Investment Company Event. "Investment Company Event" means the receipt by the
Trust of an opinion of counsel, rendered by a law firm having a recognized
national securities practice,
24
<PAGE>
to the effect that, as a result of the occurrence of Change in 1940 Act Law, the
Trust is or will be considered an "investment company" that is required to be
registered under the 1940 Act, which Change in 1940 Act Law becomes effective on
or after the date of original issuance of the Capital Securities.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at the
Redemption Price with the applicable proceeds from the contemporaneous
redemption or payment at Stated Maturity of the Junior Subordinated Debentures.
Redemptions of the Capital Securities shall be made and the Redemption Price
shall be payable on each Redemption Date only to the extent that the Trust has
sufficient funds available for the payment of such Redemption Price. See also
"--Subordination of Common Securities."
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Capital Securities to be
redeemed at its registered address. If the Trust gives a notice of redemption in
respect of the Capital Securities, then, by 12:00 noon, New York City time, on
the Redemption Date, to the extent funds are available, the Property Trustee
will deposit irrevocably with DTC funds sufficient to pay the applicable
Redemption Price for all securities held in DTC and will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Capital Securities. See "--Book-Entry Issuance." Notwithstanding the foregoing,
Distributions payable on or prior to the Redemption Date for any Capital
Security called for redemption shall be payable to the holders of such Capital
Security 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. In the event that any date fixed for redemption of Capital
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on the date such payment was originally payable. In the
event that payment of the Redemption Price in respect of Capital Securities
called for redemption is improperly withheld or refused and not paid either by
the Trust or by the Company pursuant to the Guarantee as described under
"Description of Guarantee," Distributions on such Capital Securities will
continue to accrue at the then applicable rate, from the Redemption Date
originally established by the Trust for the Capital Securities to the date such
Redemption Price is actually paid, in which case the actual payment date will be
the date fixed for redemption for purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the open
market or by private agreement.
The Trust may not redeem fewer than all of the outstanding Capital
Securities unless all accrued and unpaid distributions have been paid on all
Capital Securities for all semi-annual distribution periods terminating on or
prior to the date of redemption. If less than all of the Capital Securities and
Common Securities issued by the Trust are to be redeemed on a Redemption Date,
then the aggregate amount of such Capital Securities and Common Securities to be
redeemed shall be allocated pro rata among the Capital Securities and the Common
Securities. The particular Capital Securities to be redeemed shall be selected
on a PRO RATA basis not more than 60 days prior to the Redemption Date by the
Property Trustee from the outstanding Capital Securities not previously called
for redemption, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $1000 or integral multiples of $1000 in excess thereof) of the
liquidation preference of Capital Securities of denominations larger than $1000.
The Property Trustee shall promptly notify the trust registrar in writing of the
Capital Securities selected for redemption and, in the case of any Capital
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Security selected for partial redemption, the liquidation preference thereof to
be redeemed. For all purposes of the Declaration, unless the context otherwise
requires, all provisions relating to the redemption of Capital Securities shall
relate, in the case of any Capital Security redeemed or to be redeemed only in
part, to the portion of the aggregate liquidation preference of Capital
Securities which has been or is to be redeemed.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and the Common Securities, as applicable, shall be made PRO RATA
based on the liquidation preference of such Capital Securities and Common
Securities; PROVIDED, HOWEVER, that if on any Distribution Date or Redemption
Date an Indenture Event of Default shall have occurred and be continuing, no
payment of any Distribution on, or Redemption Price of, any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of such Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full amount
of such Redemption Price on all of the outstanding Capital Securities then
called for redemption, shall have been made or provided for, and all funds
available to the Property Trustee shall first be applied to the payment in full
in cash of all Distributions on, or Redemption Price of, the Capital Securities
then due and payable.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Declaration, the Trust shall automatically dissolve on the
first to occur of: (i) certain events of bankruptcy, dissolution or liquidation
of the Company or the Trust; (ii) upon receipt by the Property Trustee of
written notice from the Company, as Sponsor, directing the Property Trustee to
dissolve the Trust; (iii) the redemption of all of the Capital Securities in
connection with the maturity or redemption of all of the Junior Subordinated
Debentures; and (iv) the entry by a court of competent jurisdiction of an order
for the dissolution of the Trust.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, the Trust shall be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, to the
holders of the Capital Securities and Common Securities their PRO RATA interest
in the Junior Subordinated Debentures, unless such distribution is determined by
the Property Trustee not to be practical, in which event such holders will be
entitled to receive out of the assets of the Trust available for distribution to
holders, after satisfaction of liabilities to creditors of the Trust as provided
by applicable law, an amount equal to, in the case of holders of Capital
Securities, the aggregate of the liquidation amount plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Capital Securities shall be paid on a PRO RATA basis. The holder 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 an Indenture
Event of Default has occurred and is continuing, the Capital Securities shall
have a priority over the Common Securities.
After the liquidation date is fixed for any distribution of Junior
Subordinated Debentures to holders of the Capital Securities (i) the Capital
Securities will no longer be deemed to be outstanding, and (ii) DTC or its
nominee, as a record holder of Capital Securities, will receive a registered
global certificate or certificates representing the Junior Subordinated
Debentures to be delivered upon such distribution.
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TRUST ENFORCEMENT EVENTS
An Indenture Event of Default constitutes a Trust Enforcement Event under
the Declaration with respect to the Trust Securities, provided that pursuant to
the Declaration, the holder of the Common Securities will be deemed to have
waived any Trust Enforcement Event with respect to the Common Securities until
all Trust Enforcement Events with respect to the Capital Securities have been
cured, waived or otherwise eliminated. Until such Trust Enforcement Event with
respect to the Capital Securities has been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Capital Securities and only the holders of the Capital
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture.
Upon the occurrence of a Trust Enforcement Event, the Indenture Trustee (as
defined herein) or the Property Trustee as the holder of the Junior Subordinated
Debentures will have the right under the Indenture to declare the principal of
and interest on the Junior Subordinated Debentures to be immediately due and
payable. Each of the Company and the Trust is required to file annually with the
Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Declaration.
If the Property Trustee fails to enforce its rights with respect to the
Junior Subordinated Debentures held by the Trust, any record holder of Capital
Securities may institute legal proceedings directly against the Company to
enforce the Property Trustee's rights under such Junior Subordinated Debentures
without first instituting any legal proceedings against such Property Trustee or
any other person or entity. In addition, if a Trust Enforcement Event has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest, principal or other required payments on the Junior
Subordinated Debentures issued to the Trust on the date such interest, principal
or other payment is otherwise payable, then a record holder of Capital
Securities may, on or after the respective due dates specified in the Junior
Subordinated Debentures, institute a proceeding directly against the Company for
enforcement of payment on Junior Subordinated Debentures having a principal
amount equal to the aggregate liquidation preference of the Capital Securities
held by such holder. In connection with such Direct Action, the Company will be
subrogated to the rights of such record holder of Capital Securities to the
extent of any payment made by the Company to such record holder of Capital
Securities.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Declaration, the holders of
the Capital Securities will have no voting rights.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee or
executing any trust or power conferred on the Property Trustee with respect to
such Junior Subordinated Debentures, (ii) waive any past default that is
waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or termination
of the Indenture or such Junior Subordinated Debentures, where such consent
shall be required, without, in each case, obtaining the prior approval of the
holders of a majority in aggregate liquidation preference of all outstanding
Capital Securities; PROVIDED, HOWEVER, that where a consent under the Indenture
would require the consent of each holder of Junior Subordinated Debentures
affected thereby, no such consent shall be given by the Property Trustee without
the prior consent of each holder of Capital Securities. The Trustees shall not
revoke any action previously authorized or approved by a vote of the holders of
the Capital Securities except pursuant to a subsequent vote of the holders of
the Capital Securities. The Property Trustee shall notify each holder of record
of the Capital Securities of any notice of default which it receives with
respect to the Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Capital Securities, prior to taking
any of the foregoing actions, the Trustees shall receive
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an opinion of counsel experienced in such matters to the effect that the Trust
will not be classified as other than a grantor trust for United States federal
income tax purposes on account of such action.
The Declaration may be amended from time to time by the Company and a
majority of the Regular Trustees (and in certain circumstances the Property
Trustee and the Delaware Trustee), without the consent of the holders of the
Capital Securities, (i) to cure any ambiguity, correct or supplement any
provisions in the Declaration that may be inconsistent with any other provision,
or to make any other provisions with respect to matters or questions arising
under the Declaration that shall not be inconsistent with the other provisions
of the Declaration, or (ii) to modify, eliminate or add to any provisions of the
Declaration to such extent as shall be necessary to ensure that the Trust will
be classified for United States federal income tax purposes as a grantor trust
at all times that any Capital Securities and Common Securities are outstanding
or to ensure that the Trust will not be required to register as an "investment
company" under the 1940 Act; provided, however, that such action shall not
adversely affect in any material respect the interests of any holder of Capital
Securities or Common Securities, and any amendments of the Declaration shall
become effective when notice thereof is given to the holders of Capital
Securities and Common Securities. The Declaration may be amended by the Company
and a majority of the Regular Trustees with (i) the consent of holders
representing not less than a majority (based upon liquidation preferences) of
the outstanding Capital Securities and Common Securities and (ii) receipt by the
Regular Trustees of an opinion of counsel to the effect that such amendment or
the exercise of any power granted to the Regular Trustees in accordance with
such amendment will not affect the Trust's status as a grantor trust for United
States federal income tax purposes or the Trust's exemption from status of an
"investment company" under the 1940 Act; provided, further that without the
consent of each holder of Capital Securities and Common Securities affected
thereby, the Declaration may not be amended to (i) change the amount or timing
of any Distribution on the Capital Securities and Common Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Capital Securities and Common Securities as of a specified date or (ii)
restrict the right of a holder of Capital Securities or Common Securities to
institute suit for the enforcement of any such payment on or after such date.
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 Regular Trustees will cause a notice of any meeting at
which holders of Capital Securities are entitled to vote, or of any matter upon
which action by written consent of such holders is to be taken, to be given to
each holder of record of Capital Securities in the manner set forth in the
Declaration.
No vote or consent of the holders of Capital Securities will be required for
the Trust to redeem and cancel its Capital Securities in accordance with the
Declaration.
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 Trustees or any affiliate of the
Company or any Trustees, shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
EXPENSES AND TAXES
In the 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 the Trust (including costs and expenses relating to the
organization of the Trust, the fees and expenses of the Trustees and the costs
and expenses relating to the operation of the Trust) and to pay any and all
taxes and all costs and expenses with respect thereto (other than United States
withholding taxes) to which the Trust might become subject. The Company has also
agreed in the Indenture to execute such additional agreements as may be
necessary or desirable to give full effect to the foregoing.
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REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Trust, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Trust will not be required (i) to register or cause to be
registered the transfer or exchange of the Capital Securities during a period
beginning at the opening of business 15 days before the day of the mailing of
the relevant notice of redemption and ending at the close of business on the day
of mailing of such notice of redemption or (ii) to register or cause to be
registered the transfer or exchange of any Capital Securities so selected for
redemption, except in the case of any Capital Securities being redeemed in part,
any portion thereof not to be redeemed.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of a
Trust Enforcement Event, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after such Trust Enforcement
Event, 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 Declaration at the request of any holder of Capital
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby. If no Trust Enforcement Event
has occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the
Declaration or is unsure of the application of any provision of the Declaration,
and the matter is not one on which holders of Capital Securities are entitled
under the Declaration to vote, then the Property Trustee may, but shall be under
no duty to, take such action as is directed by the Company and, if not so
directed, shall take such action as it deems advisable and in the best interests
of the holders of the Capital Securities and the Common Securities and will have
no liability except for its own bad faith, negligence or willful misconduct. The
Property Trustee also serves as the Guarantee Trustee under the Guarantee and
the Indenture Trustee under the Indenture.
PAYMENT AND PAYING AGENCY
Payments in respect of the Global Certificates shall be made to DTC, which
shall credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Capital Securities are held in definitive form, such payments shall
be made by check mailed to the address of the holder entitled thereto as such
address shall appear on the Register. The paying agent (the "Paying Agent")
shall initially be the Property Trustee and any co-paying agent chosen by the
Property Trustee and acceptable to the Regular Trustees and the Company. The
Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written
notice to the Property Trustee and the Company. In the event that the Property
Trustee shall no longer be the Paying Agent, the Regular Trustees shall appoint
a successor (which shall be a bank or trust company acceptable to the Regular
Trustees and the Company) to act as Paying Agent.
BOOK-ENTRY ISSUANCE
The Capital Securities initially will be represented by one or more Capital
Securities in registered, global form (collectively, the "Global Capital
Securities"). The Global Capital Securities will be deposited upon issuance with
the Property Trustee as custodian for The Depository Trust Company ("DTC"), in
New York, New York, and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect participant in DTC as
described below.
Except as set forth below, the Global Capital Securities may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee. Beneficial interests in the Global Capital Securities may
not be exchanged for Capital Securities in certificated form except in the
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limited circumstances described below. See "--Exchange of Book-Entry Capital
Securities for Certificated Capital Securities."
Transfer of beneficial interests in the Global Capital Securities will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants, which may change from time to time.
DEPOSITARY PROCEDURES
DTC has advised the Trust and the Company that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Trust and the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Capital Securities, DTC will
credit the accounts of Participants designated by the Underwriters with portions
of the principal amount of the Global Capital Securities and (ii) ownership of
such interests in the Global Capital Securities will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Global Capital Securities).
Except as described below, owners of interests in the Global Capital
Securities will not have Capital Securities registered in their name, will not
receive physical delivery of Capital Securities in certificated form and will
not be considered the registered owners or holders thereof for any purpose.
Payments in respect of the Global Capital Security registered in the name of
DTC or its nominee will be payable by the Property Trustee to DTC in its
capacity as the registered holder. The Property Trustee will treat the persons
in whose names the Capital Securities, including the Global Capital Securities,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Property Trustee nor any agent thereof has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Capital Securities, or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Capital Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Trust and the Company that its current practice, upon receipt of any
payment in respect of securities such as the Capital Securities, is to credit
the accounts of the relevant Participants with the payment on the payment date
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Capital Securities will be governed by standing
instructions and customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the responsibility of
DTC, the Property Trustee or the Trust. Neither the Trust nor the Property
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Capital Securities, and the Trust and
the Property Trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee for all purposes.
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Interests in the Global Capital Securities will trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such interests
will therefore settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Trust and the Company that it will take any action
permitted to be taken by a holder of Capital Securities only at the direction of
one or more Participants to whose account with DTC interests in the Global
Capital Securities are credited. However, if there is an Event of Default, DTC
reserves the right to exchange the Global Capital Securities for legended
Capital Securities in certificated form and to distribute such Capital
Securities to its Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
EXCHANGE OF BOOK-ENTRY CAPITAL SECURITIES FOR CERTIFICATED CAPITAL SECURITIES
A Global Capital Security is exchangeable for Capital Securities in
registered certificated form if (i) DTC (x) notifies the Trust that it is
unwilling or unable to continue as Depositary for the Global Capital Security or
(y) has ceased to be a clearing agency registered under the Exchange Act, and,
in either case, the Trust thereupon fails to appoint a Successor Depositary, or
(ii) the Company in its sole discretion elects to cause the issuance of the
Capital Securities in certificated form. In all cases, certificated Capital
Securities delivered in exchange for any Global Capital Security or beneficial
interests therein will be registered in the names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures).
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. The Trust may, at the request of the Company, with the consent
of the Regular Trustees and without the consent of the holders of the Capital
Securities, merge with or into, consolidate, amalgamate, be replaced by or
convey, transfer or lease its properties and assets substantially as an entirety
to a trust organized as such under the laws of any State; provided that (i) such
successor entity either (a) expressly assumes all of the obligations of the
Trust with respect to the Capital Securities or (b) substitutes for the Capital
Securities other securities having substantially the same terms as the Capital
Securities (the "Successor Securities") so long as the Successor Securities rank
the same as the Capital Securities rank in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly appoints a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Junior
Subordinated Debentures, (iii) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the Capital Securities
(including any Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Capital
Securities (including any Successor Securities) in any material respect, (v)
such successor entity has a purpose identical to that of the Trust, (vi) prior
to such merger, consolidation, amalgamation, replacement, conveyance, transfer,
or lease, the Company has received an opinion from independent counsel to the
Trust 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, (1) neither the Trust nor such successor entity
will be required to register as an investment company under the Investment
Company Act and (2) the Trust or the successor entity will continue to be
classified as a grantor trust for United States federal income tax purposes,
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(vii) the Company or any permitted successor or assignee owns all of the Common
Securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantee, (viii) such successor entity expressly assumes all of the
obligations of the Trust with respect to the Trustees and (ix) the Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Capital Securities are then listed. Notwithstanding
the foregoing, the Trust shall not, except with the consent of holders of 100%
in aggregate liquidation preference of the Capital Securities, consolidate,
amalgamate, merge with or into, be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to any other entity or permit
any other entity to consolidate, amalgamate, merge with or into, or replace it
if such consolidation, amalgamation, merger, replacement, conveyance, transfer
or lease would cause the Trust or the successor entity to be classified as other
than a grantor trust for United States federal income tax purposes.
MERGER OR CONSOLIDATION OF TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or any
Regular Trustee that is not a natural person may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of such Trustee, shall be the successor of such Trustee under the Declaration,
provided such corporation shall be otherwise qualified and eligible.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the Investment Company
Act or classified as other than a grantor trust 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 Company and the Regular Trustees are authorized to take any
action, not inconsistent with applicable law, the Certificate of Trust or the
Declaration, that the Company and the Regular Trustees 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.
The Trust may not borrow money nor issue debt nor mortgage or pledge any of
its assets.
GOVERNING LAW
The Declaration and the Capital Securities 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 a Junior
Subordinated Indenture (the "Indenture"), between the Company and The Bank of
New York, a New York banking corporation, as trustee (the "Indenture Trustee").
This summary of certain terms and provisions of the Junior Subordinated
Debentures and the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Indenture.
GENERAL
Concurrently with the issuance of the Capital Securities, the Trust will
invest the proceeds thereof and the consideration paid by the Company for the
Common Securities in the Junior Subordinated Debentures issued by the Company.
The Junior Subordinated Debentures will be in the principal amount equal to the
aggregate liquidation preference of the Capital Securities plus the Company's
concurrent investment in the
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Common Securities. The Junior Subordinated Debentures will bear interest at the
annual rate of 8.375% of the principal amount thereof, payable semi-annually in
arrears on June 1 and December 1 of each year (each, an "Interest Payment
Date"), commencing December 1, 1997, to the person in whose name each Junior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the 15th day of the month prior to the relevant Interest
Payment Date. It is anticipated that, until the liquidation, if any, of the
Trust, each Junior Subordinated Debenture will be held in the name of the
Property Trustee in trust for the benefit of the holders of the Capital
Securities and the Common Securities. The amount of interest payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months.
In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable Interest
Payment Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of 8.375% thereof, compounded
semi-annually. The term "interest" as used herein shall include semi-annual
interest payments and interest on semi-annual interest payments not paid on the
applicable Interest Payment Date, as applicable.
The Junior Subordinated Debentures will mature on June 1, 2027.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Indebtedness (as defined below) of
the Company. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, whether under the Indenture or any
existing or other indenture that the Company may enter into in the future or
otherwise. See "-- Subordination."
The federal banking agencies possess broad powers to take corrective action
as deemed appropriate for an insured depositary institution, including without
limitation, under certain circumstances, the ability to prohibit the payment of
principal or interest on subordinated debt.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving the Company that may adversely affect holders of the
Junior Subordinated Debentures.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Indenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture to defer the payment of interest at
any time or from time to time for a period not exceeding 10 consecutive
semi-annual periods with respect to each Extension Period, provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. At the end of such Extension Period, the Company must
pay all interest then accrued and unpaid (together with interest thereon at the
annual rate of 8.375%, compounded semi-annually, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Junior Subordinated Debentures (or holders of Capital Securities
while the Capital Securities are outstanding) will be required to accrue
interest income for United States federal income tax purposes. See "Certain
United States Federal Income Tax Consequences--Interest Income and Original
Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of the Company that rank PARI PASSU with or junior in interest
to the Junior Subordinated Debentures or make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any subsidiary
of the Company if such guarantee ranks PARI PASSU or junior in interest to the
Junior
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Subordinated Debentures (other than (a) dividends or distributions in common
stock of the Company, (b) payments under the Guarantee, (c) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, and (d) purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans). Prior to the termination of any such Extension Period,
the Company may further extend the Extension Period, provided that no Extension
Period may exceed 10 consecutive semi-annual periods or extend beyond the Stated
Maturity of the Junior Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, the Company may elect to begin a new Extension Period subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Property Trustee, the
Regular Trustees and the Indenture Trustee notice of its election of such
Extension Period not less than one Business Day prior to such record date. The
Property Trustee shall give notice of the Company's election to begin a new
Extension Period to the holders of the Capital Securities.
REDEMPTION
The Junior Subordinated Debentures are not redeemable prior to June 1, 2007
unless a Special Event has occurred. The Junior Subordinated Debentures are
redeemable prior to maturity at the option of the Company, subject to the
receipt of any necessary prior regulatory approval, on or after June 1, 2007, in
whole or in part at any time at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest, if any,
to the date of redemption, if redeemed during the twelve-month period beginning
on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ -----------
<S> <C>
2007.................................................................... 104.0955%
2008.................................................................... 103.6860%
2009.................................................................... 103.2764%
2010.................................................................... 102.8669%
2011.................................................................... 102.4573%
2012.................................................................... 102.0478%
2013.................................................................... 101.6382%
2014.................................................................... 101.2287%
2015.................................................................... 100.8191%
2016.................................................................... 100.4096%
</TABLE>
On or after June 1, 2017, the redemption price will be 100%, plus accrued
and unpaid interest, if any, to the date of redemption.
The Junior Subordinated Debentures are also redeemable at any time in whole
(but not in part), within 90 days of the occurrence of a Special Event, at a
redemption price (the "Special Event Prepayment Price") equal to the greater of
(i) 100% of the principal amount of such Junior Subordinated Debentures or (ii)
as determined by a Quotation Agent (as defined below), the sum of the present
values of the principal amount and premium payable with respect to an optional
redemption on such Junior Subordinated Debentures on June 1, 2007, together with
scheduled payments of interest from the prepayment date to June 1, 2007 (the
"Remaining Life") discounted to the prepayment date on a semi-annual basis
(assuming a 360-day year consisting of 30-day months) at the Adjusted Treasury
Rate, plus, in each case, accrued interest thereon to the date of prepayment.
"Adjusted Treasury Rate" means, with respect to any prepayment date, the
Treasury Rate plus (i) 1.25% if such prepayment date occurs on or before June 1,
1998 or (ii) 0.50% if such prepayment date occurs after June 1, 1998.
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"Treasury Rate" means (i) the yield, under the heading which represents the
average for the immediately prior week, appearing in the most recently published
statistical release designated "H.15(519)" or any successor publication which is
published weekly by the Federal Reserve and which establishes yields on actively
traded United States Treasury securities adjusted to constant maturity under the
caption "Treasury Constant Maturities", for the maturity corresponding to the
Remaining Life (if no maturity is within three months before or after the
Remaining Life, yields for the two published maturities most closely
corresponding to the Remaining Life shall be determined and the Treasury Rate
shall be interpolated or extrapolated from such yields on a straight-line basis,
rounding to the nearest month) or (ii) if such release (or any successor
release) is not published during the week preceding the calculation date or does
not contain such yields, the rate per annum equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, calculated using a price for
the Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for such prepayment date. The
Treasury Rate shall be calculated on the third business day preceding the
prepayment date.
"Comparable Treasury Issue" means with respect to any prepayment date the
United States Treasury security selected by the Quotation Agent as having a
maturity comparable to the Remaining Life that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining
Life. If no United States treasury security has a maturity which is within a
period from three months before to three months after June 1, 2007, the two most
closely corresponding United States Treasury securities shall be used as the
Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.
"Quotation Agent" means (i) Lehman Brothers Inc. and its respective
successors; provided, however, that if the foregoing shall cease to be a primary
U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer;
and (ii) any other Primary Treasury Dealer selected by the Indenture Trustee
after consultation with the Company.
"Comparable Treasury Price" means (A) the average of five Reference Treasury
Dealer Quotations for such prepayment date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (B) if the Indenture
Trustee obtains fewer than three such Reference Treasury Dealer Quotations, the
average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any prepayment date, the average, as determined by the
Indenture Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Indenture Trustee by such Reference Treasury Dealer at 5:00 p.m.
New York City time, on the third business day preceding such prepayment date.
If the Junior Subordinated Debentures are redeemed, the Trust must redeem
the Capital Securities having an aggregate liquidation preference equal to the
aggregate principal amount of Junior Subordinated Debentures so redeemed. See
"Description of Capital Securities--Mandatory Redemption."
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless the Company defaults
in payment of the redemption price, on and after the redemption date interest
ceases to accrue on such Junior Subordinated Debentures or portions thereof
called for redemption.
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<PAGE>
CERTAIN COVENANTS OF THE COMPANY
The Company will covenant in the Indenture that if and so long as the Trust
is the holder of all Junior Subordinated Debentures, the Company, as borrower,
will pay to the Trust all fees and expenses related to the Trust and the
offering of the Capital Securities and will pay, directly or indirectly, all
ongoing costs, expenses and liabilities of the Trust (including any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any domestic taxing authority
upon the Trust but excluding obligations under the Capital Securities).
The Company will also covenant that it will not, and will not permit any
subsidiary of the Company to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal,
interest or premium, if any, on or repay or repurchase or redeem any debt
securities of the Company that rank PARI PASSU with or junior in interest to the
Junior Subordinated Debentures or make any guarantee payments with respect to
any guarantee by the Company of the debt securities of any subsidiary of the
Company if such guarantee ranks PARI PASSU with or junior in interest to the
Junior Subordinated Debentures (other than (a) dividends or distributions in
common stock of the Company, (b) payments under the Guarantee, (c) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto, and
(d) purchases of common stock related to the issuance of common stock or rights
under any of the Company's benefit plans) if at such time (x) there shall have
occurred any event of which the Company has actual knowledge that (I) with the
giving of notice or the lapse of time, or both, would constitute an Indenture
Event of Default with respect to Junior Subordinated Debentures and (II) in
respect of which the Company shall not have taken reasonable steps to cure, (y)
the Company shall be in default with respect to its payment of any obligations
under the Guarantee or (z) the Company shall have given notice of its election
of an Extension Period as provided in the Indenture and shall not have rescinded
such notice, or such Extension Period, or any extension thereof, shall be
continuing.
SUBORDINATION
In the Indenture, the Company has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinated and junior in
right of payment to all Indebtedness to the extent provided in the Indenture.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of the Company, the holders of Indebtedness will first be
entitled to receive payment in full of principal of and premium, if any, and
interest, if any, on such Indebtedness before the holders of Junior Subordinated
Debentures or the Property Trustee on behalf of the holders of Capital
Securities will be entitled to receive or retain any payment in respect of the
principal of and premium, if any, or interest, if any, on the Junior
Subordinated Debentures; PROVIDED, HOWEVER, that holders of Indebtedness shall
not be entitled to receive payment of any such amounts to the extent that such
holders would be required by the subordination provisions of such Indebtedness
to pay such amounts over to the obligees on trade accounts payable or other
liabilities arising in the ordinary course of the Company's business.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Indebtedness outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
then due thereon (including any amounts due upon acceleration) before the
holders of Junior Subordinated Debentures will be entitled to receive or retain
any payment in respect of the principal of or premium, if any, or interest, if
any, on the Junior Subordinated Debentures; PROVIDED, HOWEVER, that holders of
Indebtedness shall not be entitled to receive payment of any such amounts to the
extent that such holders would be required by the subordination provisions of
such Indebtedness to pay such amounts over to the obligees on trade accounts
payable or other liabilities arising in the ordinary course of the Company's
business.
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<PAGE>
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Junior Subordinated Debentures may be made if there shall
have occurred and be continuing a default in any payment with respect to
Indebtedness, or an event of default with respect to any Indebtedness resulting
in the acceleration of the maturity thereof, or if any judicial proceeding shall
be pending with respect to any such default.
"Indebtedness" means with respect to any person, whether recourse is to all
or a portion of the assets of such person and whether or not contingent, (i)
every obligation of such person for money borrowed; (ii) every obligation of
such person 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 such person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such person; (iv) every obligation of such person 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 such person; (vi) every
obligation of such person 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, such person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor or otherwise;
provided that "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 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
employee 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 by such financing entity of securities that are
similar to the Capital Securities.
The Indenture places no limitation on the amount of additional Indebtedness
that may be incurred by the Company or any indebtedness or other liabilities
that may be incurred by the Company's subsidiaries. As of March 31, 1997,
Indebtedness of the Company aggregated approximately $467.0 million, and the
Company's consolidated subsidiaries had indebtedness and other liabilities of
approximately $43.2 billion to which the Junior Subordinated Debentures would be
effectively subordinated.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes an "Indenture 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 or otherwise;
or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to the
Company from the Indenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of outstanding Junior Subordinated
Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
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<PAGE>
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of Junior Subordinated Debentures may declare the
principal due and payable immediately upon an Indenture Event of Default, and,
should the Indenture Trustee or such holders of such Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate liquidation preference of the Capital Securities shall have such
right. The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures may annul such declaration and waive the default
if the default (other than the non-payment of the principal of Junior
Subordinated Debentures which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Indenture Trustee, and should the holders of such Junior Subordinated Debentures
fail to annul such declaration and waive such default, the holders of a majority
in aggregate liquidation preference of the Capital Securities shall have such
right.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders of
all the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal or interest (unless such default has been cured and
a sum sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee) or
a default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture, and should the holders of such Junior
Subordinated Debentures fail to waive such default, the holders of a majority in
aggregate liquidation preference of the Capital Securities shall have such
right. The Company is required to file annually with the Indenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
In case an Indenture Event of Default shall occur and be continuing, the
Property Trustee will have the right to declare the principal of and the
interest on such Junior Subordinated Debentures and any other amounts payable
under the Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to such Junior Subordinated Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If an Indenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or principal
on the Junior Subordinated Debentures on the date such interest or principal is
otherwise payable, a holder of Capital Securities may institute a Direct Action
for payment. The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of the holders
of all of the Capital Securities. Notwithstanding any payment made to such
holder of Capital Securities by the Company in connection with a Direct Action,
the Company shall remain obligated to pay the principal of or interest on the
Junior Subordinated Debentures held by the Trust or the Property Trustee and the
Company shall be subrogated to the rights of the holder of such Capital
Securities with respect to payments on the Capital Securities to the extent of
any payments made by the Company to such holder in any Direct Action. The
holders of Capital Securities will not be able to exercise directly any other
remedy available to the holders of the Junior Subordinated Debentures.
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, unless (i) in case the Company
consolidates with or merges into another Person or conveys, transfers or leases
its properties and assets substantially as an entirety to any Person, the
successor Person is organized under the laws of the United States or any state
or the District of Columbia, and such successor Person expressly
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<PAGE>
assumes the Company's obligations on the Junior Subordinated Debentures issued
under the Indenture; (ii) immediately after giving effect thereto, no Indenture
Event of Default, and no event which, after notice or lapse of time or both,
would become an Indenture Event of Default, shall have happened and be
continuing; (iii) if at the time any Capital Securities are outstanding, such
transaction is permitted under the Declaration and Guarantee and does not give
rise to any breach or violation of the Declaration or Guarantee; (iv) any such
lease shall provide that it will remain in effect so long as any Junior
Subordinated Debentures are outstanding; and (v) certain other conditions as
prescribed in the Indenture are met.
MODIFICATION OF INDENTURE
From time to time the Company and the Indenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interest of the holders of Junior
Subordinated Debentures) and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Company and the Indenture Trustee, with the consent of the
holders of not less than a majority in principal amount of outstanding Junior
Subordinated Debentures affected, to modify the Indenture in a manner affecting
the rights of the holders of such Junior Subordinated Debentures; provided that
no such modification may, without the consent of the holder of each outstanding
Junior Subordinated Debenture so affected, (i) change the stated maturity of
Junior Subordinated Debentures, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon (except such
extension as is contemplated hereby) or (ii) reduce the percentage of principal
amount of Junior Subordinated Debentures, the holders of which are required to
consent to any such modification of the Indenture, provided that, so long as any
Capital Securities remain outstanding, no such modification may be made that
adversely affects the holders of such Capital Securities in any material
respect, and no termination of the Indenture may occur, and no waiver of any
Indenture Event of Default or compliance with any covenant under the Indenture
may be effective, without the prior consent of the holders of at least a
majority of the aggregate liquidation preference of the 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.
DEFEASANCE AND DISCHARGE
The Indenture provides that the Company, at the Company's option: (a) will
be discharged from any and all obligations in respect of the Junior Subordinated
Debentures (except for certain obligations to register the transfer or exchange
of Junior Subordinated Debentures, replace stolen, lost or mutilated Junior
Subordinated Debentures, maintain paying agencies and hold moneys for payment in
trust) or (b) need not comply with certain restrictive covenants of the
Indenture (including that described in the second paragraph under "Certain
Covenants of the Company"), in each case if the Company deposits, in trust with
the Indenture Trustee or a defeasance agent, money or U.S. Government
Obligations which through the payment of interest thereon and principal thereof
in accordance with their terms will provide money in an amount sufficient to pay
all the principal of, and interest and premium, if any, on the Junior
Subordinated Debentures on the dates such payments are due in accordance with
the terms of such Junior Subordinated Debentures. To exercise any such option,
the Company is required to deliver to the Indenture Trustee or a defeasance
agent, if any, an opinion of counsel to the effect that the deposit and related
defeasance would not cause the holders of the Junior Subordinated Debentures to
recognize income, gain or loss for United States federal income tax purposes
and, in the case of a discharge pursuant to clause (a), such opinion shall be
accompanied by a private letter ruling to such effect received by the Company
from the United States Internal Revenue Service or revenue ruling pertaining to
a comparable form of transaction to the effect published by the United States
Internal Revenue Service.
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<PAGE>
DISTRIBUTIONS OF JUNIOR SUBORDINATED DEBENTURES; BOOK-ENTRY ISSUANCE
Under certain circumstances involving the liquidation of the Trust, Junior
Subordinated Debentures may be distributed to the holders of the Capital
Securities in liquidation of the Trust after satisfaction of liabilities to
creditors of the Trust as provided by applicable law. If distributed to holders
of Capital Securities in liquidation, the Junior Subordinated Debentures will
initially be issued in the form of one or more global securities and DTC, or any
successor depositary for the Capital Securities, will act as depositary for the
Junior Subordinated Debentures. It is anticipated that the depositary
arrangements for the Junior Subordinated Debentures would be substantially
identical to those in effect for the Capital Securities. There can be no
assurance as to the market price of any Junior Subordinated Debentures that may
be distributed to the holders of Capital Securities. For a description of DTC
and the terms of the depositary matters, see "Description of Capital
Securities--Book-Entry Issuance."
Under current United States federal income tax law and interpretations
thereof and assuming, as expected, the Trust is treated as a grantor trust for
United States federal income tax purposes, a distribution by the Trust of the
Junior Subordinated Debentures pursuant to a liquidation of the Trust will not
be a taxable event to the Trust or to holders of the Capital Securities and will
result in a holder of the Capital Securities receiving directly such holder's
pro rata share of the Junior Subordinated Debentures (previously held indirectly
through the Trust). If, however, the liquidation of the Trust were to occur
because the Trust is subject to United States federal income tax with respect to
income accrued or received on the Junior Subordinated Debentures as a result of
the occurrence of a Tax Event or otherwise, the distribution of Junior
Subordinated Debentures to holders of the Capital Securities by the Trust could
be a taxable event to the Trust and each holder, and holders of the Capital
Securities may be required to recognize gain or loss as if they had exchanged
their Capital Securities for the Junior Subordinated Debentures they received
upon the liquidation of the Trust. See "Certain United States Federal Income Tax
Consequences--Distribution of Junior Subordinated Debentures or Cash upon
Liquidation of the Trust."
PAYMENT AND PAYING AGENTS
The Company initially will act as Paying Agent with respect to the Junior
Subordinated Debentures except that, if the Junior Subordinated Debentures are
distributed to the holders of the Capital Securities in liquidation of such
holders' interests in the Trust, the Indenture Trustee will act as the Paying
Agent. The Company at any time may designate additional Paying Agents or rescind
the designation of any Paying Agent or approve a change in the office through
which any Paying Agent acts, except that the Company will be required to
maintain a Paying Agent at the place of payment.
Any moneys deposited with the Indenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of and premium,
if any, or interest on any Junior Subordinated Debentures and remaining
unclaimed for two years after such principal and premium, if any, or interest
has become due and payable shall, at the request of the Company, be repaid to
the Company and the holder of such Junior Subordinated Debentures shall
thereafter look, as a general unsecured creditor, only to the Company for
payment thereof.
TRUST COSTS AND EXPENSES
In the 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 the Trust (including costs and expenses relating to the
organization of the Trust, the fees and expenses of the Trustees and the costs
and expenses relating to the operation of the Trust) and to pay any and all
taxes and all costs and expenses with respect thereto (other than United States
withholding taxes) to which the Trust might become subject.
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<PAGE>
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture 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 Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Trust of the Capital Securities for the benefit of the
holders from time to time of such Capital Securities. The Bank of New York, a
New York banking corporation, will act as indenture trustee ("Guarantee
Trustee"). 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 of the provisions of the Guarantee, including the definitions therein of
certain terms. The Guarantee Trustee will hold the Guarantee for the benefit of
the holders of the Capital Securities.
GENERAL
The Company will irrevocably and unconditionally 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 the Trust may
have or assert other than the defense of payment. The following payments with
respect to the Capital Securities, to the extent not paid by or on behalf of the
Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on the Capital
Securities, to the extent that the Trust has funds on hand available therefor at
the time, (ii) the redemption price with respect to any Capital Securities
called for redemption, to the extent that the Trust has funds on hand available
therefor at such time, or (iii) upon a voluntary or involuntary dissolution,
winding up or liquidation of the Trust (unless the Junior Subordinated
Debentures are distributed to holders of the Capital Securities), the lesser of
(a) the aggregate of the liquidation amount and all accrued and unpaid
Distributions to the date of payment and (b) the amount of assets of the Trust
remaining available for distribution to holders of Capital Securities. 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 applicable
Capital Securities or by causing the Trust to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust's obligations under the Capital Securities, but will apply only to the
extent that the Trust has funds on hand available to make such payments, and is
not a guarantee of collection.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Trust, the Trust will not be able to pay Distributions on
the Capital Securities and will not have funds legally available therefor. The
Guarantee will rank subordinate and junior in right of payment to all general
liabilities 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, whether under the Indenture or any existing or other indenture that the
Company may enter into in the future or otherwise.
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The Company has, through the Guarantee, the Junior Subordinated Debentures
and the Indenture, taken together, fully and unconditionally guaranteed all of
the Trust's obligations under the Capital Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full and unconditional guarantee of
the Trust's obligations under the Capital Securities. See "Relationship Among
the Capital Securities, the Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to Indebtedness of the
Company. The Guarantee does not place a limitation on the amount of additional
Indebtedness that may be incurred by the Company.
The Guarantee will constitute a guarantee of payment and not of collection
(I.E., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Capital Securities.
The Guarantee will not be discharged except by payment of the Guarantee Payments
in full to the extent not paid by the Trust or upon distribution of the Junior
Subordinated Debentures to the holders of the Capital Securities in exchange for
all of the Capital Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that 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 preference 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 the Declaration." All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Capital Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate liquidation preference of the
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by the Company in performance of the Guarantee, undertakes to perform
only such duties as are specifically set forth in each Guarantee and, after
default with respect to the Guarantee, must exercise the same degree of
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care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of any Capital Security unless it is offered reasonable
indemnity against the costs, expenses and liabilities that might be incurred
thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the redemption price of the Capital Securities, upon full payment of
the amounts payable upon liquidation of the Trust or upon distribution of Junior
Subordinated Debentures to the holders of the Capital Securities in exchange for
all 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
Payments of Distributions and other amounts due on the Capital Securities
(to the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of Guarantee." A holder of Capital Securities may
institute a legal proceeding directly against the Company to enforce payment of
such Distributions to such holder after the respective due dates. Taken
together, the Company's obligations under the Junior Subordinated Debentures,
the Indenture and the Guarantee provide, in the aggregate, a full and
unconditional guarantee of payments of Distributions and other amounts due on
the Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full and unconditional guarantee of the Trust's
obligations under the Capital Securities. The obligations of the Company under
the Guarantee and the Junior Subordinated Debentures are subordinate and junior
in right of payment to all Indebtedness of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because (i) the aggregate principal amount of the Junior Subordinated Debentures
will be equal to the sum of the aggregate stated liquidation amount of the
Capital Securities and the Common Securities; (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the Distribution rate and Distribution and other payment dates for the
related Capital Securities; (iii) the Company shall pay for all and any costs,
expenses and liabilities of the Trust except the Trust's obligations under the
Capital Securities; and (iv) the Declaration further provides that the Trust
will not engage in any activity that is not consistent with the limited purposes
of the Trust.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
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ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A 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 the Guarantee Trustee, the Trust or any
other person or entity.
A default or event of default under any Indebtedness of the Company will not
constitute a default or Indenture Event of Default. In addition, in the event of
payment defaults under, or acceleration of, Indebtedness of the Company, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures until such Indebtedness has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on the Junior Subordinated Debentures would
constitute an Indenture Event of Default under the Indenture.
LIMITED PURPOSE OF TRUST
The Capital Securities evidence a beneficial interest in the Trust, and the
Trust exists for the sole purpose of issuing the Capital Securities and the
Common Securities and investing the proceeds thereof in Junior Subordinated
Debentures. A principal difference between the rights of a holder of Capital
Securities and a holder of Junior Subordinated Debentures is that a holder of
Junior Subordinated Debentures is entitled to receive from the Company the
principal amount of and interest accrued on Junior Subordinated Debentures held,
while a holder of Capital Securities is entitled to receive Distributions from
the Trust (or from the Company under the Guarantee) if and to the extent the
Trust has funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary dissolution of the Trust involving the
liquidation of the Junior Subordinated Debentures, the holders of the Capital
Securities will be entitled to receive, out of assets held by the Trust, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, the liquidation distribution in cash. See "Description of Capital
Securities--Liquidation Distribution Upon Dissolution." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Junior Subordinated Debentures, would be a subordinated creditor
of the Company, subordinated in right of payment to all Indebtedness, but
entitled to receive payment in full of principal and interest before any
stockholders of the Company receive payments or distributions. Since the Company
is the guarantor under the Guarantee and has agreed to pay for all costs,
expenses and liabilities of the Trust (other than the Trust's obligations to the
holders of the Capital Securities), the positions of a holder of Capital
Securities and a holder of the Junior Subordinated Debentures relative to other
creditors and to stockholders of the Company in the event of liquidation or
bankruptcy of the Company would be substantially the same.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Foster Pepper & Shefelman PLLC, counsel to the Company and
the Trust, the following summary describes the material United States federal
income tax consequences that may be relevant to the purchase, ownership and
disposition of the Capital Securities. Unless otherwise stated, this summary
deals only with Capital Securities held as capital assets by holders who
purchase the Capital Securities upon original issuance. The tax treatment of a
holder may vary depending on his, her or its particular situation. This summary
does not address all the tax consequences that may be relevant to a particular
holder or to holders 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, persons
holding the Capital Securities as a hedge or hedged against currency risks or as
part of a straddle or conversion transaction or persons whose functional
currency is not the United States dollar. In addition, this summary does not
include any description of any alternative
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minimum tax consequences or the tax laws of any state, local or foreign
government that may be applicable to a holder of Capital Securities.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof as of the date hereof, all of which are subject
to change, possibly on a retroactive basis.
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, LOCAL, FOREIGN, AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR
OTHER TAX LAWS.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
Assuming full compliance with the terms of the Indenture and the
Declaration, in the opinion of Foster Pepper & Shefelman PLLC the Junior
Subordinated Debentures will be classified for United States federal income tax
purposes as indebtedness of the Company.
CLASSIFICATION OF THE TRUST
Assuming full compliance with the terms of the Indenture and the
Declaration, in the opinion of Foster Pepper & Shefelman PLLC, the Trust will be
classified for United States federal income tax purposes as a grantor trust.
Accordingly, for United States federal income tax purposes, each holder of
Capital Securities generally will be considered the owner of an undivided
interest in the Junior Subordinated Debentures and each holder will be required
to include in its gross income interest and original issue discount ("OID"), if
any, accrued with respect to its allocable share of the Junior Subordinated
Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
The Company has concluded that the likelihood of its exercising its option
to defer payment of interest is "remote" because the exercise of such option
would prevent the Company from declaring dividends on any class of its stock.
Accordingly, the Company intends to treat the Junior Subordinated Debentures as
having been issued without OID. Therefore, holders of the Capital Securities
will accrue interest income under their particular methods of accounting (I.E.,
cash or accrual) rather than accruing OID on a constant yield basis.
If, however, the Company exercises its right to defer payments of interest,
the Junior Subordinated Debentures would, at that time, become OID instruments
and holders of the Capital Securities would thereafter be required to accrue
interest on a constant yield basis during any Extension Period even though the
Company would not pay the interest in cash until the end of the Extension
Period, and even though a holder may be on the cash method of accounting.
Further, if the Junior Subordinated Debentures become OID instruments because
the Company exercises its right to defer payment of interest, they will be taxed
as OID instruments for as long as they remain outstanding, even after the
expiration of the Extension Period. Any amount of OID included in a holder's
gross income (whether or not during an Extension Period) with respect to a
Capital Security will increase such holder's tax basis in such Capital Security,
the amount of Distributions received by a holder in respect of such accrued OID
will reduce the tax basis of such Capital Security, and actual cash payments of
interest on the Junior Subordinated Debentures would not be reported separately
as taxable income.
The above conclusions are based on recently promulgated Treasury
regulations, which have not been interpreted by any court decisions or addressed
in any rulings or other pronouncements of the Internal Revenue Service ("IRS"),
and it is possible that the IRS could take a position contrary to the
conclusions
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herein. If the IRS were to assert successfully that the stated interest on the
Junior Subordinated Debentures was OID regardless of whether the Company
exercises its option to defer payments of interest on such debentures, all
holders of Capital Securities would be required to include such stated interest
in income as a daily economic accrual basis as described above.
Corporate holders of Capital Securities will not be entitled to a dividends
received deduction with respect to any income recognized by such holders with
respect to the Capital Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
TRUST
As described under the caption "Description of Junior Subordinated
Debentures--Distributions of Junior Subordinated Debentures," Junior
Subordinated Debentures may be distributed to holders in exchange for the
Capital Securities and in liquidation of the Trust. Under current law, such a
distribution would be non-taxable and would result in the holder receiving
directly its PRO RATA share of the Junior Subordinated Debentures, previously
held indirectly through the Trust, with a holding period and aggregate tax basis
equal to the holding period and aggregate tax basis such holder had in its
Capital Securities before such distributions. If, however, the liquidation of
the Trust were to occur because the Trust is subject to United States federal
income tax with respect to income accrued or received on the Junior Subordinated
Debentures, the distribution of the Junior Subordinated Debentures to holders
would be a taxable event to the Trust and to each holder and a holder would
recognize gain or loss as if the holder had exchanged its Capital Securities for
the Junior Subordinated Debentures it received upon liquidation of the Trust.
A holder would accrue interest in respect of the Junior Subordinated
Debentures received from the Trust in the manner described above under "Interest
Income and Original Issue Discount."
Under certain circumstances described herein (see "Description of Capital
Securities--Redemption-- Special Event Redemption or Distribution of Junior
Subordinated Debentures"), the Junior Subordinated Debentures may be redeemed
for cash, with the proceeds of such redemption distributed to holders in
redemption of their Capital Securities. Under current law, such a redemption
would constitute a taxable disposition of the redeemed Capital Securities for
United States federal income tax purposes and a holder would recognize gain or
loss as if it sold such redeemed Capital Securities for cash. See "--Sales of
Capital Securities."
SALES OF CAPITAL SECURITIES
A holder that sells Capital Securities will recognize gain or loss equal to
the difference between the amount realized by the holder on the sale or
redemption of the Capital Securities (except to the extent that such amount
realized is characterized as a payment in respect of accrued but unpaid interest
on such holder's allocable share of the Junior Subordinated Debentures) and the
holder's adjusted tax basis in the Capital Securities sold or redeemed. Such
gain or loss generally will be a 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. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax purposes.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any person or
entity that is not (i) a person that is a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized
under the laws of the United States or any political subdivision thereof, (iii)
an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of such
trust and one or more United States fiduciaries have the authority to control
all the substantial decisions of such trust.
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As discussed above, the Capital Securities will be treated as evidence of an
indirect beneficial ownership interest in the Junior Subordinated Debentures.
Thus, under present United States federal income tax law, and subject to the
discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be required
with respect to the payment by the Company or any paying agent of principal
or interest (which for purposes of this discussion includes any OID) on the
Junior Subordinated Debentures to a Non-United States Holder, if (i) the
beneficial owner of the Capital Securities ("Beneficial Owner") does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote (within the
meaning of section 871(h)(3) of the Code), (ii) the Beneficial Owner is not
a controlled foreign corporation that is related to the Company through
stock ownership, (iii) the Beneficial Owner is not a bank whose receipt of
interest on the Junior Subordinated Debentures is described in section
881(c)(3)(A) of the Code and (iv) the Beneficial Owner satisfies the
statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder; and
(b) no withholding of United States federal income tax will be required
with respect to any gain realized by a Non-United States Holder upon the
sale or other disposition of the Capital Securities.
To satisfy the requirement referred to in (a)(iv) above, the Beneficial
Owner, or a financial institution holding the Capital Securities on behalf of
such owner, must provide, in accordance with specified procedures, to the Trust
or its paying agent, a statement to the effect that the Beneficial Owner is a
Non-United States Holder. Pursuant to current temporary Treasury regulations,
these requirements will be met if (1) the Beneficial Owner provides such owner's
name and address, and certifies, under penalties of perjury, that such owner is
not a United States person (which certification may be made on IRS Form W-8 (or
successor form)) or (2) a financial institution holding the Capital Securities
on behalf of the Beneficial Owner certifies, under penalties of perjury, that
such statement has been received by it and furnishes a paying agent with a copy
thereof.
If a Non-United States Holder cannot satisfy the requirements of the
"portfolio interest" exception described in (a) above, payments of premium, if
any, and interest (including any OID) made to such Non-United States Holder will
be subject to a 30% withholding tax unless the Beneficial Owner provides the
Company or its paying agent, as the case may be, with a properly executed (1)
IRS Form 1001 (or successor form) claiming an exemption from, or a reduction of,
such withholding tax under the benefit of a tax treaty or (2) IRS Form 4224 (or
successor form) stating that interest paid on the Junior Subordinated Debentures
is not subject to withholding tax because it is effectively connected with the
Beneficial Owner's conduct of a trade or business in the United States.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on the Junior Subordinated Debentures is effectively
connected with the conduct of such trade or business, then the Non-United States
Holder, although exempt from the withholding tax discussed above, will be
subject to United States federal income tax on such interest on a net income
basis in the same manner as a United States person or entity. In addition, if
such Non-United States Holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, such
interest would be included in such foreign corporation's effectively connected
earnings and profits.
Any gain realized upon the sale or other disposition of the Capital
Securities by a Non-United States Holder generally will not be subject to United
States federal income tax unless (i) such gain is effectively connected with a
trade or business in the United States of the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is an individual, such individual is
present in the United States for 183 days or more in the taxable year of such
sale, exchange or retirement, and certain other conditions are met, or (iii) in
the case of any gain representing accrued interest on the Junior Subordinated
Debentures, the requirements described above are not satisfied.
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INFORMATION REPORTING AND BACKUP WITHHOLDING
Income on the Capital Securities held of record by United States holders
(other than corporations and other exempt holders) will be reported annually to
such holders and to the IRS. The Regular Trustees currently intend to deliver
such reports to holders of record prior to January 31 following each calendar
year. It is anticipated that persons who hold Capital Securities as nominees for
beneficial holders will report the required tax information to beneficial
holders on Form 1099.
"Backup withholding" at a rate of 31% will apply to payments of interest to
non-exempt United States holders unless the holder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions.
No information reporting or backup withholding will be required with respect
to payments made by the Trust or any paying agent to Non-United States Holders
if a statement described in (a)(iv) under "Non-United States Holders" has been
received and the payor does not have actual knowledge that the beneficial owner
is a United States person.
In addition, backup withholding and information reporting will not apply if
payments of the principal, interest, OID or premium on the Junior Subordinated
Debentures are paid or collected by a foreign office of a custodian, nominee or
other foreign agent on behalf of the Beneficial Owner, or if a foreign office of
a broker (as defined in applicable Treasury regulations) pays the proceeds of
the sale of the Capital Securities to the owner thereof. If, however, such
nominee, custodian, agent or broker is, for United States federal income tax
purposes, a United States person, a controlled foreign corporation or a foreign
person that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, then such payments will not
be subject to backup withholding but will be subject to information reporting,
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the Beneficial Owner is not a United States person and certain
other conditions are met or (2) the Beneficial Owner otherwise establishes an
exemption.
Payment of the proceeds from disposition of Capital Securities to or through
a United States office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
Any amounts withheld from a holder of the Capital Securities under the
backup withholding rules will be allowed as a refund or a credit against such
holder's United States federal income tax liability if the required information
is furnished to the IRS.
PROPOSED TAX LEGISLATION
Legislation was proposed by the United States Department of the Treasury as
part of President Clinton's Fiscal 1998 Budget Proposal (the "Proposed
Legislation") that contains a provision which generally would deny an interest
deduction for interest paid or accrued on an instrument issued by a corporation
that (i) has a maximum term of more than 15 years and (ii) is 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. This provision was
proposed to be effective generally for instruments issued on or after the date
of the first Congressional committee action taken on the Proposed Legislation.
If this provision were to apply to the Junior Subordinated Debentures, the
Company would not be able to deduct the interest on the Junior Subordinated
Debentures. As of the date of this Prospectus, no Congressional committee action
had been taken on the Proposed Legislation. There can be no assurance, however,
that the Proposed Legislation or future legislative proposals or final
legislation will not adversely affect the ability of the Company to deduct
interest on the Junior Subordinated Debentures or otherwise affect the tax
treatment of the transactions described herein. Moreover,
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such legislation could give rise to a Special Event, which would permit the
Company to cause a redemption of the Capital Securities, as described more fully
herein under the caption "Description of Capital Securities--Redemption."
CERTAIN ERISA CONSIDERATIONS
Each of the Company (the obligor with respect to the Junior Subordinated
Debentures held by the Trust) and its affiliates may 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 Code) with respect to certain employee benefit plans
("Plans") that are subject to ERISA. Any purchaser proposing to acquire Capital
Securities with assets of any Plan should consult with its counsel. The purchase
and/or holding of Capital Securities by a Plan that is subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
Section 4975 of the Code (including individual retirement arrangements and other
plans described in Section 4975(e)(1) of the Code) and with respect to which the
Company or any affiliate 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 such Capital
Securities are acquired pursuant to and in accordance with an applicable
prohibited transaction exemption published by the U.S. Department of Labor. In
addition, a Plan fiduciary considering the purchase of Capital Securities should
be aware that the assets of the Trust may be considered "plan assets" for ERISA
purposes. In such event, service providers and fiduciaries with respect to the
assets of the Trust may become parties in interest or disqualified persons with
respect to investing Plans, and any discretionary authority exercised with
respect to the Junior Subordinated Debentures by such persons could be deemed to
constitute a prohibited transaction under ERISA or the Code. In order to avoid
such prohibited transactions, each investing Plan, by purchasing the Capital
Securities, will be deemed to have directed the Trust to invest in the Junior
Subordinated Debentures and to have appointed the Property Trustee.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the form of which is filed as on exhibit to the
Registration Statement of which this Prospectus forms a part, the Trust has
agreed to sell to each of the Underwriters named below, for whom Lehman Brothers
Inc. is acting as representative (the "Representative"), and each of the
Underwriters has severally agreed to purchase, the liquidation amount of Capital
Securities set forth opposite its name below. In the Underwriting Agreement, the
several Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase from the Trust all the Capital Securities offered hereby if
any of the Capital Securities are purchased. In the event of default by an
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
the purchase commitments of the non-defaulting Underwriters may be increased or
the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
LIQUIDATION AMOUNT
OF CAPITAL
UNDERWRITERS SECURITIES
- -------------------------------------------------------------------------- ------------------
<S> <C>
Lehman Brothers Inc....................................................... $ 100,000,000
Chase Securities Inc...................................................... 100,000,000
Salomon Brothers Inc...................................................... 100,000,000
UBS Securities............................................................ 100,000,000
------------------
Total................................................................. $ 400,000,000
------------------
------------------
</TABLE>
The Company and the Trust have been advised by the Representative that the
Underwriters propose to offer the Capital Securities, in part, directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and, in part, to certain securities dealers at such price less a
concession
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of $6 per Capital Security. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $3 per Capital Security to certain
brokers and dealers. After the Capital Securities are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Representative.
In view of the fact that the proceeds of the sale of the Capital Securities
will ultimately be used to purchase the Junior Subordinated Debentures of the
Company, the Underwriting Agreement provides that the Company will pay as
compensation ("Underwriters' Compensation") to the Underwriters arranging the
investment therein of such proceeds, an amount in immediately available funds of
$10 per Capital Security (or $4,000,000 in the aggregate) for the accounts of
the several Underwriters.
Because NASD Regulation, Inc. ("NASD") is expected to view the Capital
Securities offered hereby as interests in a direct participation program, the
offering is being made in compliance with Rule 2810 of the NASD's Conduct Rules.
Offers and sales of Capital Securities will be made only to (i) "qualified
institutional buyers," as defined in Rule 144A under the Securities Act of 1933
or (ii) institutional "accredited investors," as defined in Rule 501(a)(1)-(3)
of Regulation D under the Securities Act. The Underwriters may not confirm sales
to any accounts over which they exercise discretionary authority without the
prior written approval of the transaction by the customer.
Prior to this offering there has been no public market for the Capital
Securities. The Representative has advised the Trust that the Underwriters
intend to make a market in the Capital Securities. The Underwriters will have no
obligation to make a market in the Capital Securities, however, and may cease
market-making activities, if commenced, at any time.
Until the distribution of the Capital Securities is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Capital Securities. As
an exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Capital Securities. Such
transactions may consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Capital Securities.
If the Underwriters create a short position in the Capital Securities in
connection with the offering (I.E., if they sell more Capital Securities than
are set forth on the cover page of this Prospectus), they may reduce that short
position by purchasing Capital Securities in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
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. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The Trust and the Company have agreed to indemnify the Underwriters against,
or contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities Act.
The Company has retained Lehman Brothers Inc. to act as its financial
advisor in connection with the Merger. See "Summary--Proposed Merger with Great
Western Financial Corporation."
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Capital
Securities, the enforceability of the Declaration and the formation of the Trust
will be passed upon by Morris, Nichols, Arsht & Tunnell, special Delaware
counsel to the Company and the Trust. The validity of the Junior Subordinated
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Debentures and the Guarantee will be passed upon for the Company and the Trust
by Foster Pepper & Shefelman PLLC, Seattle, Washington and for the Underwriters
by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York. Foster Pepper & Shefelman PLLC and Simpson
Thacher & Bartlett will rely on the opinion of Morris, Nichols, Arsht & Tunnell
as to matters of Delaware law, Simpson Thacher & Bartlett will rely on the
opinion of Foster Pepper & Shefelman PLLC as to matters of Washington law and
Foster Pepper & Shefelman PLLC will rely on the opinion of Simpson Thacher &
Bartlett as to matters of New York law. Certain United States federal income
taxation matters also will be passed upon for the Company and the Trust by
Foster Pepper & Shefelman PLLC. Simpson Thacher & Bartlett is acting as counsel
to the Company in connection with the Merger.
EXPERTS
The consolidated financial statements of Washington Mutual as of December
31, 1996 and 1995, and for each of the years in the three-year period ended
December 31, 1996, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of Deloitte & Touche LLP,
independent auditors. Insofar as the report of Deloitte & Touche LLP relates to
the amounts included for Keystone Holdings, Inc. and Subsidiaries for 1995 and
1994, it is based solely on the report of KPMG Peat Marwick LLP, independent
auditors, incorporated by reference herein, and upon the authority of such firms
as experts in accounting and auditing.
The consolidated financial statements of Great Western Financial Corporation
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1996, have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. Such material filed by the Company with the
Commission may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may also be obtained at the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed fees. Certain of such
reports, proxy statements and other information are also available from the
Commission over the Internet at http://www.sec.gov. The periodic reports, proxy
statements and other information filed by Washington Mutual with the Commission
may also be inspected at the offices of the National Association of Securities
Dealers, Inc., NASDAQ Reports Section, 1735 K Street, Washington, D.C. 20006
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company does not believe such financial
statements would be material to holders of the Capital Securities because (i)
all of the common securities of the Trust will be owned, directly or indirectly,
by the Company, a reporting company under the Exchange Act, (ii) the Trust has
no independent operations but exists for the sole purpose of issuing securities
representing undivided beneficial interests in its assets and investing the
proceeds thereof in Junior Subordinated Debentures issued by the Company, and
(iii) the obligations of the Trust under the Capital Securities are guaranteed
by the Company to the extent described herein.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Washington Mutual (File
No. 0-25188) are incorporated herein by reference: (a) Annual Report on Form
10-K for the year ended December 31, 1996, as amended by Form 10-K/A dated April
25, 1997 (the "1996 Washington Mutual 10-K"); (b) Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997; and (c) Current Reports on Form 8-K dated
March 6, 1997, March 24, 1997, as amended on March 26, 1997; March 28, 1997;
April 1, 1997; April 3, 1997; April 10, 1997; and April 15, 1997; April 28,
1997; April 30, 1997; May 2, 1997; May 5, 1997; May 6, 1997; May 8, 1997; May
15, 1997; and May 20, 1997.
The following documents filed with the Commission by Great Western Financial
Corporation (File No. 1-4075) are incorporated herein by reference: (a) "Item 8.
Financial Statements and Supplementary Data" from the Annual Report on Form 10-K
for the year ended December 31, 1996, as amended by Form 10-K/A filed May 9,
1997 and "Part I--Item 1. Financial Statements" of the Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.
All documents filed by Washington Mutual pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof shall be deemed to
be incorporated herein by reference and to be a part hereof from the date of
such filing.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Such documents (other than exhibits to such
documents unless such exhibits are specifically incorporated therein by
reference) relating to Washington Mutual are available without charge upon
request to: Washington Mutual, Inc., 1201 Third Avenue, Seattle, Washington
98101, attention: Investor Relations.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY WASHINGTON MUTUAL, INC.,
WASHINGTON MUTUAL CAPITAL I OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF WASHINGTON MUTUAL, INC. OR WASHINGTON MUTUAL CAPITAL I SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE 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.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary........................................... 4
Summary Financial Data of Washington Mutual....... 10
Summary Historical and Pro Forma Combined
Financial Data................................... 12
Risk Factors...................................... 14
Capitalization.................................... 19
Use of Proceeds................................... 20
Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred
Stock Dividends.................................. 20
Accounting Treatment.............................. 20
The Trust......................................... 21
Description of Capital Securities................. 22
Description of Junior Subordinated Debentures..... 32
Description of Guarantee.......................... 41
Relationship Among the Capital Securities, the
Junior Subordinated Debentures and the
Guarantee........................................ 43
Certain United States Federal Income Tax
Consequences..................................... 44
Certain ERISA Considerations...................... 49
Underwriting...................................... 49
Legal Matters..................................... 50
Experts........................................... 51
Available Information............................. 51
Incorporation of Certain Documents by Reference... 52
</TABLE>
$400,000,000
WASHINGTON MUTUAL
CAPITAL I
SKISSM
8 3/8% SUBORDINATED CAPITAL
INCOME SECURITIES
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
[LOGO]
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PROSPECTUS
MAY 30, 1997
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LEHMAN BROTHERS
CHASE SECURITIES INC.
SALOMON BROTHERS INC
UBS SECURITIES
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