<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1997
REGISTRATION NO. 333-23221
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WASHINGTON MUTUAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WASHINGTON 6035 91-1653725
(IRS EMPLOYER IDENTIFICATION
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
1201 THIRD AVENUE
SEATTLE, WASHINGTON 98101
(206) 461-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARC R. KITTNER
SENIOR VICE PRESIDENT AND CORPORATE COUNSEL
WASHINGTON MUTUAL, INC.
1201 THIRD AVENUE
SEATTLE, WASHINGTON 98101
(206) 461-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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FAY L. CHAPMAN CHARLES I. COGUT PETER ALLAN ATKINS
DAVID R. WILSON LEE MEYERSON FRED B. WHITE, III
FOSTER PEPPER & SHEFELMAN PLLC SIMPSON THACHER & BARTLETT SKADDEN, ARPS, SLATE, MEAGHER &
1111 THIRD AVENUE 425 LEXINGTON AVENUE FLOM LLP
SEATTLE, WASHINGTON 98101 NEW YORK, NEW YORK 10017 919 THIRD AVENUE
(206) 447-4400 (212) 455-2000 NEW YORK, NEW YORK 10022
(212) 735-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
and the satisfaction or waiver of all other conditions to the Merger described
in the Joint Proxy Statement/Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
[WASHINGTON MUTUAL LOGO]
1201 Third Avenue, Suite 1500
Seattle, Washington 98101
May 13, 1997
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Washington Mutual, Inc. ("Washington Mutual"), which will be held at the
Washington State Convention and Trade Center, 800 Convention Place, Seattle,
Washington, at 2:00 p.m., Friday, June 13, 1997. I look forward to greeting as
many of our shareholders as possible.
At the special meeting, shareholders of Washington Mutual will be asked to
consider and vote upon a proposal to approve the issuance of shares of
Washington Mutual common stock in connection with a proposed merger (the
"Merger") pursuant to which Great Western Financial Corporation ("Great
Western") will merge with and into New American Capital, Inc., a wholly owned
subsidiary of Washington Mutual. In the Merger, each outstanding share of Great
Western common stock will be converted into the right to receive 0.9 shares of
Washington Mutual common stock, with cash being paid in lieu of fractional
shares, and each outstanding share of Great Western preferred stock will be
converted into the right to receive one share of a new series of Washington
Mutual preferred stock, to be designated as Washington Mutual 8.30% Cumulative
Preferred Stock, Series F.
In addition, at the special meeting, holders of Washington Mutual common
stock and holders of each outstanding series of Washington Mutual preferred
stock will be asked to vote on a proposal to approve an amendment to Washington
Mutual's Restated Articles of Incorporation (the "Articles") to increase the
number of authorized shares of common stock from 350,000,000 shares to
800,000,000 shares. Approval of the amendment to the Articles is not necessary
to consummate the Merger.
More complete information about the Merger and the amendment to the
Articles is included in the accompanying Notice of Special Meeting of
Shareholders and the Joint Proxy Statement/Prospectus. YOUR BOARD OF DIRECTORS
BELIEVES THE PROPOSALS ARE IN THE BEST INTERESTS OF WASHINGTON MUTUAL AND ITS
SHAREHOLDERS AND, ACCORDINGLY, RECOMMENDS THAT YOU VOTE "FOR" EACH OF THEM.
Whether or not you attend the special meeting, it is important that your
shares be represented and voted at the special meeting. Therefore, I urge you to
sign, date and promptly return the enclosed proxy in the enclosed postage-paid
envelope. If you decide to attend the special meeting and vote in person, you
will, of course, have that opportunity. If you are planning to attend the
special meeting, we would greatly appreciate it if you would let us know by so
indicating in the appropriate place on your proxy.
Sincerely,
/s/ KERRY K. KILLINGER
-----------------------------
Kerry K. Killinger
Chairman, President and Chief
Executive Officer
<PAGE> 3
[WASHINGTON MUTUAL LOGO]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
JUNE 13, 1997
The Special Meeting of Shareholders of Washington Mutual, Inc. ("Washington
Mutual"), will be held at the Washington State Convention and Trade Center, 800
Convention Place, Seattle, Washington, on Friday, June 13, 1997, at 2:00 p.m.
for the following purposes:
1. To approve the issuance of shares of common stock pursuant to the
Agreement and Plan for Merger, dated as of March 5, 1997, by and among
Washington Mutual, Great Western Financial Corporation ("Great Western")
and New American Capital, Inc., a wholly owned subsidiary of Washington
Mutual; and
2. To approve an amendment to Washington Mutual's Restated Articles of
Incorporation (the "Articles") to increase the number of authorized shares
of common stock from 350,000,000 shares to 800,000,000 shares.
Both of these proposals are more fully described in the Joint Proxy
Statement/Prospectus, which follows. Only holders of shares of Washington Mutual
common stock and holders of shares of each outstanding series of Washington
Mutual preferred stock of record at the close of business on May 9, 1997 are
entitled to notice of, and to vote at, this special meeting, and any and all
adjournments thereof.
Holders of Washington Mutual common stock will be asked to vote on both
proposals. Holders of each outstanding series of Washington Mutual preferred
stock will be asked to vote with the holders of Washington Mutual common stock
only on the proposal to amend the Articles to increase the number of authorized
shares of common stock.
By Order of the Board of Directors,
William L. Lynch
Secretary
Seattle, Washington
May 13, 1997
IMPORTANT
Whether or not you expect to attend in person, we urge you to vote on the
proposals by signing, dating, and returning the enclosed proxy at your earliest
convenience. This will ensure the presence of a quorum at the Special Meeting.
PROMPTLY VOTING, SIGNING, DATING, AND RETURNING THE PROXY WILL SAVE WASHINGTON
MUTUAL THE EXPENSE AND EXTRA WORK OF ADDITIONAL SOLICITATION. An addressed
envelope for which no postage is required if mailed in the United States is
enclosed for that purpose. Sending in your proxy will not prevent you from
voting your stock at the Special Meeting if you desire to do so, as your proxy
is revocable at your option in the manner described in the Joint Proxy
Statement/Prospectus.
<PAGE> 4
[GREAT WESTERN LOGO]
Dear Great Western Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Great Western Financial Corporation ("Great Western") to be held on Friday, June
13, 1997 at Great Western's Employee Center at 19809 Prairie Street, Chatsworth,
California 91311, at 10:00 a.m., local time (the "Great Western Special
Meeting").
At the Great Western Special Meeting, holders of common stock, par value
$1.00 per share (the "Great Western Common Stock"), of Great Western will be
asked to consider and vote upon the adoption of the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of March 5, 1997, by and among Washington
Mutual, Inc., a Washington corporation ("Washington Mutual"), New American
Capital, Inc., a Delaware corporation and a wholly owned subsidiary of
Washington Mutual ("NACI"), and Great Western, providing for the merger (the
"Great Western/Washington Mutual Merger") of Great Western with and into NACI,
and to approve the transactions contemplated thereby. In the Great
Western/Washington Mutual Merger, each outstanding share of Great Western Common
Stock will be converted into the right to receive 0.9 shares of Washington
Mutual 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 Washington Mutual with terms substantially identical to those of the
series of Great Western preferred stock being converted.
THE GREAT WESTERN BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
TERMS OF THE GREAT WESTERN/WASHINGTON MUTUAL MERGER ARE FAIR AND IN THE BEST
INTERESTS OF GREAT WESTERN AND ITS STOCKHOLDERS AND, ACCORDINGLY, RECOMMENDS
THAT YOU VOTE "FOR" THE GREAT WESTERN/WASHINGTON MUTUAL MERGER. A discussion of
the factors considered by the Great Western Board in reaching its decision to
approve and adopt the Merger Agreement is set forth in the attached Joint Proxy
Statement/Prospectus under the heading "The Washington Mutual/Great Western
Merger -- Reasons for the Washington Mutual/Great Western Merger;
Recommendations of the Boards of Directors."
H.F. Ahmanson & Company ("Ahmanson") has announced an unsolicited proposal
to merge with Great Western 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. The Great Western Board of Directors has determined that
the Ahmanson merger proposal is not in the best interests of Great Western or
its stockholders. Consequently, stockholders are not being asked to consider and
vote upon the Ahmanson merger 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 merger proposal.
Based on the closing market prices of Washington Mutual common stock and
Ahmanson common stock on March 17, 1997, the day that Ahmanson revised its
unsolicited merger proposal to the terms described above, the nominal implied
value per share of Great Western Common Stock under the Great Western/Washington
Mutual Merger was $46.01 and under the Ahmanson merger proposal was $47.70.
Based on the closing market prices of Washington Mutual common stock and
Ahmanson common stock on May 12, 1997, the nominal implied value per share of
Great Western Common Stock under the Great Western/Washington Mutual Merger was
$47.42 and under the Ahmanson merger proposal was $48.00.
Consummation of the Great Western/Washington Mutual Merger is subject to
certain conditions, including, but not limited to, obtaining the requisite vote
of the stockholders of both Great Western and Washington Mutual and the approval
of the Great Western/Washington Mutual Merger by various regulatory agencies. If
the Great Western/Washington Mutual Merger is not approved, there can be no
assurances that any alternative business combination would be consummated or as
to the timing or terms of any such alternative business combination.
<PAGE> 5
The enclosed Notice of Special Meeting and Joint Proxy Statement/Prospectus
provide specific information regarding the Great Western/Washington Mutual
Merger and the Great Western Special Meeting. Please read these materials
carefully.
It is very important that your shares are represented at the Great Western
Special Meeting, whether or not you plan to attend in person. The affirmative
vote of the holders of a majority of the shares of Great Western Common Stock
entitled to vote at the Great Western Special Meeting is required for approval
of the Great Western/Washington Mutual Merger. A failure to vote for the Great
Western/Washington Mutual Merger will have the same effect as a vote against
such merger. Therefore, we urge you to sign, date and return the enclosed green
proxy card in the enclosed postage-paid envelope as soon as possible to assure
that your shares will be voted at the Great Western Special Meeting. YOU SHOULD
NOT SEND IN CERTIFICATES FOR YOUR GREAT WESTERN SHARES AT THIS TIME.
On behalf of the Board of Directors, we thank you for your support, and
again urge you to vote FOR approval of the Great Western/Washington Mutual
Merger.
Very truly yours,
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/s/ JOHN F. MAHER /s/ JAMES F. MONTGOMERY
------------------------------------- -----------------------
John F. Maher James F. Montgomery
President and Chief Executive Officer Chairman of the Board
</TABLE>
If you have any questions, please call our proxy solicitor:
[GEORGESON & COMPANY INC. LOGO]
CALL TOLL FREE: 800-223-2064
Banks and Brokers call collect: 212-440-9800
<PAGE> 6
[GREAT WESTERN LOGO]
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, California 91311
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 13, 1997
NOTICE IS HEREBY GIVEN that a special meeting (including any adjournments,
postponements or reschedulings thereof, the "Great Western Special Meeting") of
stockholders of Great Western, a Delaware corporation ("Great Western"), will be
held on Friday, June 13, 1997, at Great Western's Employee Center at 19809
Prairie Street, Chatsworth, California 91311, at 10:00 a.m., local time. A Proxy
Card and Joint Proxy Statement/Prospectus for the Great Western Special Meeting
are enclosed. The Great Western Special Meeting is for the purpose of
considering and voting upon a proposal to:
Adopt the Agreement and Plan of Merger (the "Merger Agreement"), dated
as of March 5, 1997, by and among Washington Mutual, Inc., a Washington
corporation ("Washington Mutual"), New American Capital, Inc., a Delaware
corporation and a wholly owned subsidiary of Washington Mutual ("NACI"),
and Great Western, providing for the merger (the "Great Western/Washington
Mutual Merger") of Great Western with and into NACI, and approve the
transactions contemplated thereby, including the Great Western/Washington
Mutual Merger. A copy of the Merger Agreement is attached as Appendix A to
the accompanying Joint Proxy Statement/Prospectus.
No other business is expected to be transacted at the Great Western Special
Meeting.
The Great Western Board of Directors has fixed the close of business on May
9, 1997, as the record date for determination of the holders of common stock,
par value $1.00 per share, of Great Western (the "Great Western Common Stock")
entitled to notice of and to vote at the Great Western Special Meeting. A list
of stockholders of record on such record date will be available for examination
by any stockholder for purposes germane to the Great Western Special Meeting at
Great Western's headquarters located at 9200 Oakdale Avenue, Chatsworth,
California during ordinary business hours for a period of at least 10 days prior
to the Great Western Special Meeting and at the Great Western Special Meeting.
THE GREAT WESTERN BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
TERMS OF THE GREAT WESTERN/WASHINGTON MUTUAL MERGER ARE FAIR AND IN THE BEST
INTERESTS OF GREAT WESTERN AND ITS STOCKHOLDERS AND, ACCORDINGLY, RECOMMENDS
THAT YOU VOTE "FOR" THE GREAT WESTERN/
WASHINGTON MUTUAL MERGER.
Your vote is important regardless of the number of shares you own. Even if
you now plan to attend the Great Western Special Meeting, you are requested to
sign, date and return without delay the enclosed Green Proxy Card in the
enclosed postage-paid envelope. You may revoke your proxy at any time prior to
its exercise. If you attend the Great Western Special Meeting you may revoke
your proxy and vote personally on each matter brought before the Great Western
Special Meeting.
<PAGE> 7
Copies of the Joint Proxy Statement/Prospectus are being furnished to
holders of Great Western preferred stock and Great Western depositary shares for
informational purposes only and such holders are not entitled to and are not
being requested to vote at the Great Western Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
J. Lance Erikson
Secretary
Chatsworth, California
May 13, 1997
If you have any questions about voting your shares or require assistance,
please call Georgeson & Company Inc., the firm assisting Great Western in the
solicitation of proxies for the Great Western Special Meeting, at the phone
numbers shown below:
GEORGESON & COMPANY INC.
WALL STREET PLAZA
NEW YORK, NEW YORK 10005
CALL TOLL FREE: (800) 223-2064
BANKS AND BROKERS CALL COLLECT: (212) 440-9800
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN, DATE AND PROMPTLY RETURN THE
ACCOMPANYING GREEN PROXY CARD USING THE ENCLOSED, SELF-ADDRESSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF FOR ANY REASON YOU SHOULD
DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS VOTED AT THE
MEETING.
<PAGE> 8
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JOINT PROXY STATEMENT OF PROSPECTUS OF
WASHINGTON MUTUAL, INC. AND WASHINGTON MUTUAL, INC.
GREAT WESTERN FINANCIAL CORPORATION
</TABLE>
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") is being furnished to shareholders of Washington Mutual,
Inc., a Washington corporation ("Washington Mutual"), and to stockholders
("Great Western Stockholders") of Great Western Financial Corporation, a
Delaware corporation ("Great Western"), in connection with the solicitation of
proxies by the respective Boards of Directors of such corporations for use at
the special meeting of shareholders of Washington Mutual (including any
adjournments, postponements or reschedulings thereof, the "Washington Mutual
Meeting") and the special meeting of stockholders of Great Western (including
any adjournments, postponements or reschedulings thereof, the "Great Western
Meeting," and, together with the Washington Mutual Meeting, the "Special
Meetings") to be held on June 13, 1997. At the Great Western Meeting, holders of
Great Western common stock, par value $1.00 per share ("Great Western Common
Stock"), will be asked to consider and vote upon a proposal (the "Washington
Mutual/Great Western Merger Proposal") to adopt the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of March 5, 1997, by and among Washington
Mutual, New American Capital, Inc., a Delaware corporation and a wholly owned
subsidiary of Washington Mutual ("NACI"), and Great Western, providing for the
merger of Great Western with and into NACI (the "Washington Mutual/Great Western
Merger"). At the Washington Mutual Meeting, holders of Washington Mutual common
stock ("Washington Mutual Common Stock") will be asked to consider and vote upon
a proposal to approve the issuance of shares of Washington Mutual Common Stock
in the Washington Mutual/Great Western Merger to the stockholders of Great
Western pursuant to the Merger Agreement. A copy of the Merger Agreement is
attached hereto as Appendix A and is incorporated herein by reference. In
addition, at the Washington Mutual Meeting, holders of Washington Mutual Common
Stock and holders of each outstanding series of Washington Mutual preferred
stock will be asked to vote on a proposal to amend Washington Mutual's Restated
Articles of Incorporation (the "Washington Mutual Articles") to increase the
number of authorized shares of Washington Mutual Common Stock from 350,000,000
shares to 800,000,000 shares. Approval of the amendment to the Washington Mutual
Articles is not a condition to the consummation of the Washington Mutual/Great
Western Merger.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Washington Mutual with respect to up to 132,690,700 shares of Washington Mutual
Common Stock issuable upon consummation of the Washington Mutual/ Great Western
Merger to holders of Great Western Common Stock. This Joint Proxy
Statement/Prospectus is also being furnished to the holders of the Great Western
Preferred Stock and Great Western Depositary Shares (each as defined herein) for
informational purposes, but proxies are not being solicited from such holders
and such holders are not entitled to, and are not being asked to, vote at the
Great Western Meeting.
At the effective time of the Washington Mutual/Great Western Merger (the
"Effective Time"), (i) each outstanding share of Great Western Common Stock will
be converted into the right to receive 0.9 shares of Washington Mutual Common
Stock (the "Exchange Ratio"), with cash being paid in lieu of fractional shares,
and (ii) each outstanding share of Great Western 8.30% Cumulative Preferred
Stock (the "Great Western Preferred Stock") will be converted into one share of
Washington Mutual 8.30% Cumulative Preferred Stock, Series F (the "Series F
Preferred Stock"). The terms, preferences, limitations, privileges and rights of
the Series F Preferred Stock will be substantially identical to those of the
Great Western Preferred Stock. As in the case of the Great Western Preferred
Stock, each share of Series F Preferred Stock will be represented by depositary
shares (the "New Washington Mutual Depositary Shares"), each representing a
one-tenth interest in a share of the Series F Preferred Stock.
Based on the closing sales price of the Washington Mutual Common Stock on
the National Market tier of the NASDAQ Stock Market ("NASDAQ") on May 12, 1997,
if the Washington Mutual/Great Western Merger had occurred at such time, the
Exchange Ratio would have resulted in an indicated per share value for the Great
Western Common Stock of $47.42. See "Summary -- Comparative Market Prices."
Because the Exchange Ratio is fixed, a change in the market price of the
Washington Mutual Common Stock before the Effective Time would affect the
implied market value of the consideration to be received by Great Western
Stockholders in the Washington Mutual/Great Western Merger in exchange for the
Great Western Common Stock. THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE PER
SHARE OF THE WASHINGTON MUTUAL COMMON STOCK AT ANY TIME PRIOR TO, AT OR AFTER
THE EFFECTIVE TIME OF THE MERGER. Stockholders are urged to obtain current
market quotations. The Washington Mutual Common Stock is designated for
quotation on NASDAQ under the symbol "WAMU." The Great Western Common Stock is
listed on the New York Stock Exchange (the "NYSE") and the Pacific Stock
Exchange (the "PSE") under the symbol "GWF."
This Joint Proxy Statement/Prospectus and forms of proxies are first being
mailed to the shareholders of Washington Mutual and the Great Western
Stockholders on or about May 13, 1997.
------------------------
THE SECURITIES OFFERED HEREBY 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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Joint Proxy Statement/Prospectus is May 13, 1997.
<PAGE> 9
TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 1
SUMMARY............................................................................... 3
The Special Meetings................................................................ 3
The Parties to the Washington Mutual/Great Western Merger........................... 5
The Washington Mutual/Great Western Merger.......................................... 6
Management and Operations of Washington Mutual Following the Washington Mutual/Great
Western Merger................................................................... 12
Description of Washington Mutual Capital Stock...................................... 13
SUMMARY FINANCIAL DATA OF WASHINGTON MUTUAL........................................... 14
First Quarter Results............................................................... 15
SUMMARY FINANCIAL DATA OF GREAT WESTERN............................................... 17
First Quarter Results............................................................... 18
SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA.............................. 20
COMPARATIVE PER SHARE DATA............................................................ 22
COMPARATIVE MARKET PRICES............................................................. 23
RISK FACTORS.......................................................................... 24
THE SPECIAL MEETINGS.................................................................. 27
General............................................................................. 27
Matters to be Considered at the Special Meetings.................................... 27
Record Date and Voting.............................................................. 27
Proxies and Voting Instructions..................................................... 28
Quorum; Votes Required.............................................................. 29
Solicitation of Proxies............................................................. 30
THE WASHINGTON MUTUAL/GREAT WESTERN MERGER............................................ 32
General............................................................................. 32
Background of the Washington Mutual/Great Western Merger............................ 32
Reasons for the Washington Mutual/Great Western Merger; Recommendations of the
Boards of Directors.............................................................. 36
Opinions of Financial Advisors...................................................... 43
Conversion of Great Western Capital Stock........................................... 62
Effective Time...................................................................... 63
Representations and Warranties...................................................... 63
Conduct of Business Pending the Washington Mutual/Great Western Merger and Other
Agreements....................................................................... 63
Conditions to the Consummation of the Washington Mutual/Great Western Merger........ 66
Regulatory Approvals Required....................................................... 67
Termination of the Merger Agreement................................................. 68
Termination Fees.................................................................... 69
Extension, Waiver and Amendment of the Merger Agreement............................. 69
Interests of Certain Persons in the Washington Mutual/Great Western Merger.......... 70
Employee Matters.................................................................... 73
Accounting Treatment................................................................ 75
No Appraisal or Dissenters' Rights.................................................. 75
Exchange of Certificates and Depositary Receipts; Fractional Shares................. 75
Certain Federal Income Tax Consequences............................................. 77
Dividend Policy..................................................................... 78
Resale of Washington Mutual Capital Stock Received by Great Western Common
Stockholders..................................................................... 79
WASHINGTON MUTUAL..................................................................... 80
General............................................................................. 80
Principal Holders of Washington Mutual Common Stock................................. 80
Principal Holders of Washington Mutual Preferred Stock.............................. 82
Security Ownership of Washington Mutual by Directors and Executive Officers......... 82
</TABLE>
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<PAGE> 10
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GREAT WESTERN......................................................................... 84
General............................................................................. 84
Principal Holders of Great Western Common Stock..................................... 84
MANAGEMENT AND OPERATIONS OF WASHINGTON MUTUAL FOLLOWING THE WASHINGTON MUTUAL/GREAT
WESTERN MERGER...................................................................... 86
General............................................................................. 86
Board of Directors.................................................................. 86
Operations After the Washington Mutual/Great Western Merger......................... 86
PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED).................................. 91
LITIGATION............................................................................ 100
COMPARISON OF RIGHTS OF WASHINGTON MUTUAL SHAREHOLDERS AND GREAT WESTERN
STOCKHOLDERS........................................................................ 103
Capital Stock....................................................................... 104
Board of Directors.................................................................. 104
Monetary Liability of Directors..................................................... 104
Voting Rights....................................................................... 104
Interested Shareholders............................................................. 105
Removal of Directors and Filling Vacancies on the Board of Directors................ 105
Washington Mutual Rights Plan....................................................... 105
Great Western Rights Plan........................................................... 106
CERTAIN DIFFERENCES BETWEEN WASHINGTON AND DELAWARE CORPORATE LAWS.................... 106
Amendment of Articles/Certificates of Incorporation................................. 106
Right to Call Special Meeting of Shareholders....................................... 107
Indemnification of Officers, Directors and Employees................................ 107
Provisions Affecting Control Share Acquisitions and Business Combinations........... 107
Mergers, Sales of Assets and Other Transactions..................................... 109
Action Without a Meeting............................................................ 109
Class Voting........................................................................ 109
Transactions with Officers and Directors............................................ 110
Dissenters' Rights.................................................................. 110
Dividends........................................................................... 111
DESCRIPTION OF WASHINGTON MUTUAL CAPITAL STOCK........................................ 111
Washington Mutual Common Stock...................................................... 111
Washington Mutual Preferred Stock................................................... 112
Washington Mutual 8.30% Cumulative Preferred Stock, Series F........................ 113
New Washington Mutual Depositary Shares............................................. 114
DESCRIPTION OF GREAT WESTERN COMMON STOCK............................................. 117
PROPOSED AMENDMENT TO WASHINGTON MUTUAL ARTICLES OF INCORPORATION -- INCREASE IN
AUTHORIZED SHARES................................................................... 118
Current Capitalization.............................................................. 118
Certain Effects of the Proposed Amendment........................................... 119
LEGAL MATTERS......................................................................... 119
EXPERTS............................................................................... 120
STOCKHOLDER PROPOSALS................................................................. 120
APPENDICES
Appendix A Agreement and Plan of Merger
Appendix B Opinion of Lehman Brothers Inc.
Appendix C Opinion of Goldman, Sachs & Co. dated March 5, 1997
Appendix D Opinion of Goldman, Sachs & Co. dated March 25, 1997
Appendix E Opinion of Merrill Lynch & Co. dated March 5, 1997
Appendix F Opinion of Merrill Lynch & Co. dated March 25, 1997
</TABLE>
(ii)
<PAGE> 11
AVAILABLE INFORMATION
Washington Mutual and Great Western are both subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information filed by Washington Mutual and
Great Western with the Commission may be inspected and copied at the
Commission's public reference room located at 450 Fifth Street, N.W., Room 1024,
Washington D.C. 20549, and at the public reference facilities in the
Commission's regional offices located at: 7 World Trade Center, 13th Floor, New
York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661. Copies of such material may be obtained at prescribed rates
by writing to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. 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. The periodic reports, proxy
statements and other information filed by Great Western with the Commission may
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005 and at the offices of the PSE, 301 Pine Street, San Francisco, California
94104.
This Joint Proxy Statement/Prospectus is included as part of a registration
statement on Form S-4 (together with all amendments and exhibits thereto,
including documents and information incorporated by reference, the "Registration
Statement") filed with the Commission by Washington Mutual, relating to the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of up to 132,690,700 shares of Washington Mutual Common Stock. This Joint
Proxy Statement/Prospectus does not contain all of the information set forth in
the Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the Commission, to which Registration Statement
reference is hereby made for further information with respect to Washington
Mutual and Great Western and the Washington Mutual Common Stock offered hereby.
Statements contained herein concerning any documents are not necessarily
complete and, in each instance, reference is made to the copies of such
documents filed as exhibits to the Registration Statement. Each such statement
is qualified in its entirety by such reference.
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, including the Form 10-K/A filed
April 25, 1997 (the "1996 Washington Mutual 10-K"); (b) 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 2, 1997, April 3, 1997, April 10, 1997, April 15,
1997, April 28, 1997, April 30, 1997, as amended on May 6, 1997, May 2, 1997,
May 5, 1997, May 6, 1997, and May 8, 1997; (c) Solicitation Materials filed
pursuant to Rule 14a-12, dated March 17, 1997, March 18, 1997, March 19, 1997,
March 24, 1997, March 26, 1997, March 27, 1997, March 28, 1997, April 1, 1997,
April 2, 1997, April 3, 1997, April 10, 1997, April 15, 1997, April 28, 1997,
April 30, 1997, May 2, 1997, May 5, 1997, May 6, 1997 and May 8, 1997; and (d)
the description of Washington Mutual capital stock contained in Item 5 of
Current Report on Form 8-K dated November 29, 1994.
The following documents filed with the Commission by Great Western (File
No. 1-4075) are incorporated herein by reference: (a) Annual Report on Form 10-K
for the year ended December 31, 1996 including the Form 10-K/A filed April 30,
1997 and the Form 10-K/A filed May 9, 1997 (the "1996 Great Western 10-K"); (b)
the description of the Great Western Rights (as defined herein) contained in
Item 1 of the Great Western Registration Statement on Form 8-A dated June 30,
1995, as amended by the Form 8-A/A dated January 31, 1997; (c) the Great Western
Revocation of Consent Statement on Schedule 14A dated March 4, 1997, as
supplemented on March 6, 1997, March 19, 1997, and March 27, 1997 (the "Consent
Revocation Statement"); (d) Current Reports on Form 8-K, dated January 22, 1997,
January 27, 1997, February 20, 1997; March 24, 1997, March 26, 1997, April 3,
1997, April 10, 1997, April 28,
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<PAGE> 12
1997, April 30, 1997 and May 5, 1997; and (e) Solicitation Materials filed
pursuant to Rules 14a-11 and 14a-12, dated February 25, 1997, February 26, 1997,
February 28, 1997, March 4, 1997, March 5, 1997, March 6, 1997, March 7, 1997,
March 13, 1997, March 14, 1997, March 18, 1997, March 19, 1997, March 20, 1997,
March 24, 1997, March 26, 1997, March 27, 1997, March 28, 1997, March 31, 1997,
April 2, 1997, April 3, 1997, April 4, 1997, April 7, 1997, April 9, 1997, April
10, 1997, April 11, 1997, April 14, 1997, April 16, 1997, April 17, 1997, April
18, 1997, April 21, 1997, April 25, 1997, April 28, 1997, April 29, 1997, April
30, 1997, May 1, 1997, May 2, 1997, May 5, 1997, May 6, 1997, May 8, 1997 and
May 12, 1997.
All documents filed by either Washington Mutual or Great Western pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the date of the Special Meetings shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of such
filing. Any statement contained herein or in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
THIS JOINT PROXY STATEMENT/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 OR BY CALLING D.F. KING & CO. (800)
755-7250, AND SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED THEREIN BY REFERENCE) RELATING TO GREAT
WESTERN ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO: GREAT WESTERN FINANCIAL
CORPORATION, 9200 OAKDALE AVENUE, CHATSWORTH, CALIFORNIA 91311, ATTENTION:
INVESTOR RELATIONS OR BY CALLING GEORGESON & COMPANY INC. (800) 223-2064; BANKS
AND BROKERS CALL COLLECT (212) 440-9800. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, REQUESTS SHOULD BE MADE BY JUNE 6, 1997.
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<PAGE> 13
SUMMARY
The information below is qualified in its entirety by the more detailed
information appearing elsewhere in this Joint Proxy Statement/Prospectus,
including the documents incorporated by reference in this Joint Proxy
Statement/Prospectus. As used in this Joint Proxy Statement/Prospectus, the term
"Washington Mutual" refers to Washington Mutual and, unless the context
otherwise requires, its subsidiaries, and the term "Great Western" refers to
Great Western and, unless the context otherwise requires, its subsidiaries. The
term "Combined Company" is sometimes used herein to refer to Washington Mutual
following consummation of the Merger. All references to the Great Western Common
Stock in this Joint Proxy Statement/Prospectus include the associated Great
Western Rights issued pursuant to the Great Western Rights Plan (as defined
herein) and all references to the Washington Mutual Common Stock include the
associated Washington Mutual Rights issued pursuant to the Washington Mutual
Rights Plan (as defined herein).
Forward-looking statements are contained in this Joint Proxy
Statement/Prospectus and in documents incorporated by reference herein regarding
Washington Mutual, Great Western and the Combined Company. Actual results may
vary materially from the forward-looking statements contained in such documents
for reasons which include the factors set forth herein under "Risk Factors" and
in Washington Mutual's Current Report on Form 8-K dated March 6, 1997, which is
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
THE SPECIAL MEETINGS
THE WASHINGTON MUTUAL MEETING
Time, Date and Place. The Washington Mutual Meeting will be held at 2:00
p.m., local time, on Friday, June 13, 1997, at Washington State Convention and
Trade Center, 800 Convention Place, Seattle, Washington. See "The Special
Meetings -- General."
Matters to be Considered. Shareholders of Washington Mutual will be asked
to consider and vote upon proposals to (i) approve the issuance of shares of
Washington Mutual Common Stock to Great Western Stockholders pursuant to the
Merger Agreement (the "Share Issuance/Merger Proposal"), and (ii) to amend the
Washington Mutual Articles to increase the number of authorized shares of
Washington Mutual Common Stock from 350,000,000 shares to 800,000,000 shares
(the "Articles Amendment Proposal"). The approval of the Articles Amendment
Proposal is not a condition to the consummation of the Washington Mutual/Great
Western Merger. See "The Special Meetings -- Matters to be Considered at the
Special Meetings."
Record Date; Shares Entitled to Vote; Quorum. The Board of Directors of
Washington Mutual (the "Washington Mutual Board") has fixed the close of
business on May 9, 1997 as the record date (the "Washington Mutual Record Date")
for the determination of the holders of Washington Mutual Common Stock and
holders of Washington Mutual Preferred Stock (as defined below) entitled to
receive notice of and to vote at the Washington Mutual Meeting.
As of the Washington Mutual Record Date, there were 126,291,687 shares of
Washington Mutual Common Stock entitled to vote at the Washington Mutual
Meeting, 2,252,500 shares of 9.12% Noncumulative Perpetual Preferred Stock,
Series C ("Series C Preferred") entitled to vote at the Washington Mutual
Meeting and 1,970,000 shares of 7.60% Noncumulative Perpetual Preferred Stock,
Series E entitled to vote at the Washington Mutual Meeting ("Series E Preferred"
and together with the Series C Preferred, the "Washington Mutual Preferred
Stock"). Each share of Washington Mutual Common Stock is entitled to one vote on
each of the matters properly presented at the Washington Mutual Meeting. Each
share of Washington Mutual Preferred Stock is entitled to one vote only on the
Articles Amendment Proposal. For the vote on the Share Issuance/Merger Proposal,
the presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Washington Mutual Common Stock will constitute a quorum.
For the vote on the Articles Amendment Proposal, the presence, in person or by
proxy, of the holders of a majority of (i) the outstanding shares of Washington
Mutual Common Stock (for the separate vote of holders of Washington Mutual
Common Stock as a class) and (ii) the aggregate of the outstanding shares of
Washington Mutual Common Stock and Washington Mutual Preferred Stock (for the
vote of holders of Washington Mutual
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<PAGE> 14
Common Stock and Washington Mutual Preferred Stock as a single class) will
constitute a quorum, respectively. See "The Special Meetings -- Record Date and
Voting" and " -- Quorum; Votes Required."
Votes Required. Under NASDAQ rules, the Share Issuance/Merger Proposal will
require the affirmative vote of a majority of the shares of Washington Mutual
Common Stock voting on such proposal. Approval of the Articles Amendment
Proposal will require the affirmative votes of the holders of (i) two-thirds of
the shares of Washington Mutual Common Stock and Washington Mutual Preferred
Stock entitled to vote at the Washington Mutual Meeting voting together as a
single class and (ii) two-thirds of the shares of Washington Mutual Common Stock
entitled to vote at the Washington Mutual Meeting voting as a single class.
Accordingly, assuming a quorum is present, a failure to submit a proxy (or to
vote in person at the Washington Mutual Meeting), an abstention by a Washington
Mutual shareholder or a broker non-vote, which is an indication by a broker that
it does not have discretionary authority to vote on a particular matter, will
have no effect on the Share Issuance/Merger Proposal, but will have the same
effect as a "NO" vote with respect to the vote on the Articles Amendment
Proposal. For shares of Washington Mutual Common Stock or Washington Mutual
Preferred Stock held in street name by a broker, the failure of a Washington
Mutual shareholder to give such broker voting instructions with regard to any
proposal on which such shareholder is entitled to vote will result in a broker
non-vote and will have the effects described in the preceding sentence. See "The
Special Meetings -- Record Date and Voting" and " -- Quorum; Votes Required."
THE WASHINGTON MUTUAL BOARD HAS DETERMINED, BY A UNANIMOUS VOTE OF ALL
DIRECTORS PRESENT (WITH THREE DIRECTORS ABSENT), THAT THE TERMS OF THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER ARE FAIR AND IN THE BEST INTERESTS OF
WASHINGTON MUTUAL AND ITS SHAREHOLDERS AND, ACCORDINGLY, RECOMMENDS THAT YOU
VOTE "FOR" THE SHARE ISSUANCE/MERGER PROPOSAL. IN ADDITION, THE WASHINGTON
MUTUAL BOARD HAS APPROVED, BY A UNANIMOUS VOTE OF ALL DIRECTORS PRESENT (WITH
THREE DIRECTORS ABSENT), THE ARTICLES AMENDMENT PROPOSAL AND, ACCORDINGLY,
RECOMMENDS THAT YOU VOTE "FOR" THE ARTICLES AMENDMENT PROPOSAL. EACH OF THE
DIRECTORS NOT PRESENT AT THE MEETING HAS SUBSEQUENTLY EXPRESSED THEIR APPROVAL
OF EACH OF THE PROPOSALS.
For a discussion of the factors considered by the Washington Mutual Board
in reaching its decision to approve and adopt the Merger Agreement and approve
the Share Issuance/Merger Proposal, see "The Washington Mutual/Great Western
Merger -- Background of the Washington Mutual/Great Western Merger" and
"-- Reasons for the Washington Mutual/Great Western Merger; Recommendations of
the Boards of Directors."
Security Ownership of Management and Others. As of the Washington Mutual
Record Date, directors and executive officers of Washington Mutual and their
affiliates (excluding any shares owned by or through Acadia Partners, L.P. and
affiliates thereof) beneficially owned and were entitled to vote 3,636,798
shares of Washington Mutual Common Stock and 500 shares of Washington Mutual
Preferred Stock, which represented approximately 2.88% of the shares of
Washington Mutual Common Stock and less than 1% of Washington Mutual Preferred
Stock, respectively, outstanding on such date. In addition, as of the Washington
Mutual Record Date, Mr. Robert M. Bass and Acadia Partners, L.P. beneficially
owned and were entitled to vote 11,546,451 shares and 6,215,004 shares,
respectively, of Washington Mutual Common Stock, which represented approximately
9.14 and 4.92%, respectively, of the shares of Washington Mutual Common Stock
outstanding on such date. Mr. Bass, Acadia Partners, L.P. and each Washington
Mutual director and executive officer has indicated a present intention to vote,
or cause to be voted, the Washington Mutual Common Stock and Washington Mutual
Preferred Stock so owned for approval of the Share Issuance/Merger Proposal and
the Articles Amendment Proposal. See "The Special Meetings -- Quorum; Votes
Required."
THE GREAT WESTERN MEETING
Time, Date and Place. The Great Western Meeting will be held at 10:00 a.m.,
local time, on Friday, June 13, 1997, at Great Western's Employee Center at
19809 Prairie Street, Chatsworth, California 91311. See "The Special
Meetings -- General."
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<PAGE> 15
Matters to be Considered. Great Western Stockholders will be asked to
consider and vote upon a proposal to approve the Washington Mutual/Great Western
Merger Agreement. See "The Special Meetings -- Matters to be Considered at the
Special Meetings."
Record Date; Shares Entitled to Vote; Quorum. The Board of Directors of
Great Western (the "Great Western Board") has fixed the close of business on May
9, 1997 as the record date (the "Great Western Record Date") for the
determination of the Great Western Stockholders entitled to receive notice of
and to vote at the Great Western Meeting. Holders of record of Great Western
Preferred Stock as of the Great Western Record Date are entitled to notice of
but are not entitled to vote at the Great Western Meeting.
As of the Great Western Record Date, there were 137,922,037 issued and
outstanding shares of Great Western Common Stock. Each share of Great Western
Common Stock is entitled to one vote on each of the matters properly presented
at the Great Western Meeting. The presence, in person or by proxy, of the
holders of a majority of the issued and outstanding shares of Great Western
Common Stock will constitute a quorum. See "The Special Meetings -- Record Date
and Voting" and " -- Quorum; Votes Required."
Votes Required. Pursuant to Delaware law, the affirmative vote of the
holders of a majority of the shares of Great Western Common Stock entitled to
vote at the Great Western Meeting is required to approve the Washington
Mutual/Great Western Merger Proposal. Accordingly, a failure to submit a proxy
(or to vote in person at the Great Western Meeting), an abstention by a Great
Western Stockholder or a broker non-vote, which is an indication by a broker
that it does not have discretionary authority to vote on a particular matter,
will have the same effect as a "NO" vote with respect to the vote on the
Washington Mutual/Great Western Merger Proposal. For shares of Great Western
Common Stock held in street name by a broker, the failure of a Great Western
Stockholder to give such broker voting instructions with regard to the
Washington Mutual/ Great Western Merger Proposal will result in a broker
non-vote and will have the same effect as a "NO" vote with respect to such
proposal. Holders of Great Western Preferred Stock are not entitled to and are
not being asked to vote on approval and adoption of the Washington Mutual/Great
Western Merger Proposal or any other matters that may be considered at the Great
Western Meeting. See "The Special Meetings -- Record Date and Voting" and
" -- Quorum; Votes Required."
THE GREAT WESTERN BOARD HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER ARE FAIR AND IN THE BEST INTERESTS OF
GREAT WESTERN AND ITS STOCKHOLDERS AND, ACCORDINGLY, RECOMMENDS THAT YOU VOTE
"FOR" THE WASHINGTON MUTUAL/GREAT WESTERN MERGER.
Security Ownership of Management and Others. As of the Great Western
Record Date, directors and executive officers of Great Western and their
affiliates beneficially owned and were entitled to vote 617,897 shares of Great
Western Common Stock, which represented less than 1% of the shares of Great
Western Common Stock outstanding on such date. Each Great Western director and
executive officer has indicated his or her present intention to vote, or cause
to be voted, the Great Western Common Stock so owned by him or her for approval
of the Washington Mutual/Great Western Merger Proposal. As of the Great Western
Record Date, various subsidiaries of Great Western, as fiduciaries, custodians
or agents, did not have sole or shared voting power with respect to any shares
of Great Western Common Stock. See "The Special Meetings -- Quorum; Votes
Required."
THE PARTIES TO THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
WASHINGTON MUTUAL
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 ("WMBfsb"), 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
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<PAGE> 16
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 ("Enterprise") in 1995 and Western Bank of Coos
Bay, Oregon ("Western") in 1996.
- INSURANCE ACTIVITIES. Through WM Life Insurance Company ("WM Life") and
ASB Insurance Services Inc. ("ASB Insurance"), 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. ("ASB
Financial"), Murphey Favre, Inc. ("Murphey Favre") and Composite
Research & Management Co. ("Composite Research"), 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 December 31, 1996, Washington Mutual
had consolidated assets of $44.6 billion, deposits of $24.1 billion and
stockholders' equity of $2.4 billion. Based on deposits, Washington Mutual was
at that date the second largest banking organization in Washington and the 28th
largest in the United States.
Washington Mutual has its principal executive offices at 1201 Third Avenue,
Seattle, Washington 98101, telephone number (206) 461-2000.
GREAT WESTERN
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 December 31, 1996, Great Western had total assets of $42.9 billion,
deposits of $28.6 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.
Great Western has its principal executive offices at 9200 Oakdale Avenue,
Chatsworth, California 91311, telephone number (818) 775-3411.
THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
EXCHANGE RATIO
At the Effective Time, (i) each outstanding share of Great Western Common
Stock will be converted into the right to receive 0.9 shares of Washington
Mutual Common Stock, with cash being paid in lieu of fractional shares, and (ii)
each outstanding share of Great Western Preferred Stock will be converted into
the right to receive one share of Series F Preferred Stock. The terms,
preferences, limitations, privileges and rights of the Series F Preferred Stock
will be substantially identical to those of the Great Western Preferred Stock.
On May 12, 1997, the closing sales price of Washington Mutual Common Stock on
NASDAQ was $52.69 per share. If the Washington Mutual/Great Western Merger had
occurred at such time, the Exchange Ratio would have resulted in an indicated
per share value for the Great Western Common Stock of $47.42. Because
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<PAGE> 17
the Exchange Ratio is fixed, a change in the market price of Washington Mutual
Common Stock before the Effective Time would affect the implied market value of
the consideration to be received by Great Western Stockholders in the Washington
Mutual/Great Western Merger. There can be no assurance as to the market price of
Washington Mutual Common Stock at any time before, at or after the Effective
Time. Stockholders are urged to obtain current market quotations. See "The
Washington Mutual/Great Western Merger -- Conversion of Great Western Capital
Stock."
At the Effective Time, each option to purchase shares of Great Western
Common Stock (each a "Great Western Common Stock Option") issued by Great
Western pursuant to any of its employee or director stock option programs (each
a "Great Western Common Stock Plan") that is outstanding and unexercised
immediately prior to the Effective Time will be converted automatically into an
option to purchase shares of Washington Mutual Common Stock (each a "Washington
Mutual Stock Option"). The number of shares of Washington Mutual Common Stock
subject to a Washington Mutual Stock Option will be equal to the product of the
number of shares of Great Western Common Stock underlying the Great Western
Common Stock Option multiplied by the Exchange Ratio and rounded down to the
nearest share, and the exercise price per share of Washington Mutual Common
Stock subject to a Washington Mutual Stock Option will be equal to the exercise
price per share of Great Western Common Stock underlying the Great Western
Common Stock Option divided by the Exchange Ratio and rounded up to the nearest
cent. See "The Washington Mutual/Great Western Merger -- Conversion of Great
Western Capital Stock."
REASONS FOR THE WASHINGTON MUTUAL/GREAT WESTERN MERGER; RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS
The Boards of Directors of Washington Mutual and Great Western believe that
the Washington Mutual/Great Western Merger represents a unique opportunity to
create one of the premier consumer banking franchises on the West Coast. As a
result of the Washington Mutual/Great Western Merger, the Combined Company 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. The Combined Company would have a
strong deposit market share in Washington, Oregon, Utah and the key consumer
banking state of California, as well as a strong market presence in parts of
Florida. The Combined Company also would 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.
In addition, management of Washington Mutual has identified potential cost
savings, estimated at $340 million annually (pre-tax) by 1999, and opportunities
for possible significant revenue enhancements from the Washington Mutual/Great
Western Merger. See "Management and Operations of Washington Mutual Following
the Washington Mutual/Great Western Merger -- Operations After the Washington
Mutual/Great Western Merger."
EACH OF THE WASHINGTON MUTUAL BOARD AND THE GREAT WESTERN BOARD BELIEVES
THAT THE TERMS OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER ARE FAIR TO, AND IN
THE BEST INTERESTS OF, THEIR RESPECTIVE SHAREHOLDERS. THE WASHINGTON MUTUAL
BOARD AND THE GREAT WESTERN BOARD HAVE EACH, BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT, APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
AND RECOMMEND THAT THEIR RESPECTIVE SHAREHOLDERS APPROVE AND ADOPT THE SHARE
ISSUANCE/MERGER PROPOSAL (IN THE CASE OF WASHINGTON MUTUAL SHAREHOLDERS) AND THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER PROPOSAL (IN THE CASE OF GREAT WESTERN
STOCKHOLDERS).
IN ADDITION, THE WASHINGTON MUTUAL BOARD HAS, BY UNANIMOUS VOTE OF ALL
DIRECTORS PRESENT, APPROVED THE ARTICLES AMENDMENT PROPOSAL AND RECOMMENDS THAT
THE WASHINGTON MUTUAL SHAREHOLDERS AND THE HOLDERS OF WASHINGTON MUTUAL
PREFERRED STOCK VOTE TO APPROVE THE ARTICLES AMENDMENT PROPOSAL.
For a discussion of the factors considered by each of the Washington Mutual
Board and the Great Western Board in reaching its decision to approve and adopt
the Merger Agreement, see "The Washington Mutual/Great Western
Merger -- Background of the Washington Mutual/Great Western Merger" and
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<PAGE> 18
"-- Reasons for the Washington Mutual/Great Western Merger; Recommendations of
the Boards of Directors."
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 (the "Original Ahmanson Proposal"). 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, after consulting with its legal
and financial advisors, has determined not to authorize negotiations or
discussions with Ahmanson concerning the Ahmanson Proposal. See "The Washington
Mutual/Great Western Merger -- Background of the Washington Mutual/Great Western
Merger." No presentations have been made by Ahmanson to the Great Western Board
concerning the Ahmanson Proposal. The Great Western Board has determined that
Washington Mutual represents a superior merger partner and its proposal
represents a superior value opportunity. Consequently, Great Western
Stockholders are not being asked to consider and vote upon the Ahmanson
Proposal. For a discussion of the factors considered by the Great Western Board
in connection with its consideration of the Ahmanson Proposal, see "The
Washington Mutual/Great Western Merger -- Reasons for the Washington
Mutual/Great Western Merger; Recommendations of the Boards of Directors." 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.
Based on the closing market prices of Washington Mutual Common Stock and
Ahmanson common stock on March 17, 1997, the day that Ahmanson announced the
Ahmanson Proposal, the nominal implied value per share of Great Western Common
Stock under the Great Western/Washington Mutual Merger Proposal was $46.01 and
under the Ahmanson Proposal was $47.70. Based on the closing market prices of
Washington Mutual Common Stock and Ahmanson common stock on May 12, 1997, the
indicated value per share of Great Western Common Stock under the Great
Western/Washington Mutual Merger was $47.42 and under the Ahmanson Proposal was
$48.00.
If the Washington Mutual/Great Western Merger is not approved, there can be
no assurances that any alternative business combination would be consummated or
as to the timing or terms of any such alternative business combination.
OPINIONS OF FINANCIAL ADVISORS
Lehman Brothers Inc. ("Lehman Brothers"), which is serving as financial
advisor to the Washington Mutual Board, has delivered its written opinion, dated
March 5, 1997 (the "Lehman Brothers Opinion"), to the Washington Mutual Board,
that the Exchange Ratio is fair, from a financial point of view, to Washington
Mutual. See "The Washington Mutual/Great Western Merger -- Opinions of Financial
Advisors." THE FULL TEXT OF THE LEHMAN BROTHERS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON ITS REVIEW, IS ATTACHED
HERETO AS APPENDIX B AND IS INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS.
Washington Mutual has agreed to pay fees to Lehman Brothers for its
services in connection with the Washington Mutual/Great Western Merger, which
fees were payable, in part, at the time of signing of the Merger Agreement and a
substantial portion of which is contingent upon consummation of the Washington
Mutual/Great Western Merger.
Goldman, Sachs & Co. ("Goldman Sachs") and Merrill Lynch & Co. ("Merrill
Lynch"), which are serving as financial advisors to Great Western, have
delivered their written opinions, each dated as of March 5, 1997 and March 25,
1997, to the Great Western Board to the effect that, as of such dates, and based
upon and subject to various qualifications and assumptions described therein,
the Exchange Ratio (i) in the case of Goldman Sachs, is fair to Great Western
Stockholders and (ii) in the case of Merrill Lynch, is fair to Great Western
Stockholders from a financial point of view. See "The Washington Mutual/Great
Western Merger -- Opinions of Financial Advisors." THE FULL TEXTS OF THE GOLDMAN
SACHS OPINIONS AND THE MERRILL LYNCH OPINIONS, EACH DATED AS OF MARCH 5, 1997
AND MARCH 25, 1997 AND EACH OF WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON ITS REVIEW, ARE ATTACHED HERETO AS APPENDICES C THROUGH
8
<PAGE> 19
F, AND ARE INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
GREAT WESTERN STOCKHOLDERS ARE URGED TO READ SUCH OPINIONS IN THEIR ENTIRETY.
SEE "THE WASHINGTON MUTUAL/GREAT WESTERN MERGER -- OPINIONS OF FINANCIAL
ADVISORS."
Great Western has agreed to pay fees to Goldman Sachs and Merrill Lynch for
their services in connection with the Washington Mutual/Great Western Merger,
which fees were payable, in part, upon execution of the Merger Agreement and a
substantial portion of which is contingent upon consummation of the Washington
Mutual/Great Western Merger. See "The Washington Mutual/Great Western Merger --
Opinions of Financial Advisors."
CONDITIONS TO THE WASHINGTON MUTUAL/GREAT WESTERN MERGER; REGULATORY APPROVALS
The obligations of Washington Mutual and Great Western to consummate the
Washington Mutual/ Great Western Merger are subject to various conditions,
including, among others, obtaining the requisite stockholder approvals;
obtaining requisite regulatory approvals, as described below; the effectiveness
of the Registration Statement of which this Joint Proxy Statement/Prospectus is
a part; approval for listing on NASDAQ of the shares of Washington Mutual Common
Stock and Series F Preferred Stock to be issued in the Washington Mutual/Great
Western Merger, subject to official notice of issuance; receipt of opinions of
counsel at the closing of the Washington Mutual/Great Western Merger in respect
of certain federal income tax consequences of the Washington Mutual/Great
Western Merger; and receipt of accountants' letters to the effect that the
Washington Mutual/Great Western Merger qualifies for "pooling-of-interests"
accounting treatment.
The Washington Mutual/Great Western Merger is conditioned on obtaining all
required regulatory approvals (the "Requisite Regulatory Approvals"). The
principal Requisite Regulatory Approval is approval of the Office of Thrift
Supervision (the "OTS") under the Home Owners' Loan Act and the Federal Deposit
Insurance Act. As described under "The Washington Mutual/Great Western
Merger -- Regulatory Approvals," Washington Mutual has filed an application
seeking this OTS approval. Based on the advice of its legal advisors and its own
prior acquisition experience, Washington Mutual expects that it will be able to
obtain the OTS approval on a timely basis and without the imposition of any
condition that would have a material adverse effect on the Combined Company. See
"The Washington Mutual/Great Western Merger -- Conditions to the Consummation of
the Washington Mutual/Great Western Merger" and "-- Regulatory Approvals
Required."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated by mutual consent of the Washington
Mutual Board and the Great Western Board. The Merger Agreement may also be
terminated by either the Washington Mutual Board or the Great Western Board (i)
if a governmental authority issues a final denial of an application with respect
to any of the Requisite Regulatory Approvals or issues a final order prohibiting
the consummation of the Washington Mutual/Great Western Merger, (ii) if the
Washington Mutual/Great Western Merger does not occur on or before March 31,
1998, (iii) in certain events involving a material breach by the other party of
any of its representations, warranties, covenants or agreements in the Merger
Agreement, (iv) if the requisite approval of either the Washington Mutual
shareholders or the Great Western Stockholders is not obtained at their
respective Special Meetings, or (v) if the board of directors of the other party
withdraws, modifies or changes its approval or recommendation of the Merger
Agreement. The Merger Agreement may also be terminated (i) by the Washington
Mutual Board if a tender offer or exchange offer for 25% or more of the
outstanding shares of Great Western Common Stock is commenced (other than by
Washington Mutual), and the Great Western Board recommends that the Great
Western Stockholders tender their shares in such tender or exchange offer or
otherwise fails to recommend that Great Western Stockholders reject such tender
offer or exchange offer within ten business days after the commencement thereof,
or (ii) by the Great Western Board if a tender offer or exchange offer for 25%
or more of the outstanding shares of Washington Mutual Common Stock is
commenced, and the Washington Mutual Board recommends that the Washington Mutual
shareholders tender their shares in such tender or exchange offer or otherwise
fails to recommend that Washington Mutual shareholders reject such tender offer
or exchange offer within ten business days after the
9
<PAGE> 20
commencement thereof. See "The Washington Mutual/Great Western
Merger -- Termination of the Merger Agreement."
Pursuant to the Merger Agreement, Great Western has agreed to pay a $75
million fee (plus reimbursement for documented reasonable out-of-pocket expenses
up to $20 million) to Washington Mutual if (a) Washington Mutual terminates the
Merger Agreement because the Great Western Board withdraws, modifies or changes
in a manner adverse to Washington Mutual its approval or recommendation of the
Washington Mutual/Great Western Merger, (b) Washington Mutual terminates the
Merger Agreement because the Great Western Board either recommends a third party
tender or exchange offer for 25% or more of the outstanding shares of Common
Stock or fails to recommend that Great Western Stockholders reject such tender
or exchange offer, (c) either Washington Mutual or Great Western terminates the
Merger Agreement because the Great Western Stockholders fail to approve the
Merger Agreement, but only if at the time of such failure, an alternative
proposal to acquire Great Western has been publicly disclosed (or any person
shall have publicly disclosed an intention (whether or not conditional) to make
such an alternative proposal), or (d) Washington Mutual terminates the Merger
Agreement as a result of the willful breach by Great Western of any material
representation, warranty, covenant or other agreement in the Merger Agreement,
but only if at or prior to the time of termination, an alternative proposal to
acquire Great Western has been made known to Great Western or has been publicly
disclosed, whether or not such alternative proposal is rejected by Great Western
or withdrawn prior to the time of termination. An additional $100 million fee is
payable by Great Western to Washington Mutual if, within 18 months after
termination of the Merger Agreement under any of the circumstances described
above, Great Western enters into a definitive agreement with respect to or
consummates an alternative proposal for an acquisition of Great Western by a
third party.
The Ahmanson Proposal, if not unconditionally withdrawn prior to the
mailing to Great Western Stockholders of this Joint Proxy Statement/Prospectus,
would constitute an alternative proposal for purposes of clause (c) of the
preceding paragraph. For purposes of clause (d) above, the Ahmanson Proposal
constitutes such an alternative proposal. See "The Washington Mutual/Great
Western Merger -- Background of the Washington Mutual/Great Western Merger."
The termination fees described above, which Washington Mutual and Great
Western believe are customary and typical for transactions such as the
Washington Mutual/Great Western Merger, are intended, among other things, to
increase the likelihood that the Washington Mutual/Great Western Merger will be
consummated on the terms set forth in the Merger Agreement and, if the
Washington Mutual/Great Western Merger is not consummated under certain
circumstances involving an acquisition or potential acquisition of Great Western
by a third party, to compensate Washington Mutual for its efforts undertaken,
expenses incurred and business opportunities lost in connection with the
proposed Washington Mutual/Great Western Merger. These agreements may have the
effect of discouraging offers by third parties to acquire Great Western prior to
the Washington Mutual/Great Western Merger, even if such persons were prepared
to offer to pay consideration to Great Western Stockholders that has a higher
current market price than the shares of Washington Mutual Common Stock to be
received by the Great Western Stockholders pursuant to the Merger Agreement. See
"The Washington Mutual/Great Western Merger -- Background of the Washington
Mutual/Great Western Merger."
Ahmanson has filed suit in the Court of Chancery of the State of Delaware
to enjoin all steps necessary for consummation of the Washington Mutual/Great
Western Merger and is challenging the termination fee described above. See
"Litigation."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Washington Mutual/Great Western Merger is intended to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code). Accordingly, no gain or loss will be recognized
by Great Western Stockholders or the holders of the Great Western Preferred
Stock, respectively, upon the receipt of Washington Mutual Common Stock or
Series F Preferred Stock, respectively, in exchange for Great Western Common
Stock or Great Western Preferred Stock, respectively,
10
<PAGE> 21
except with respect to any cash received in lieu of a fractional share interest
in Washington Mutual Common Stock.
There will be no federal income tax consequences to the shareholders of
Washington Mutual as a result of either voting on the proposals described herein
or consummation of the Washington Mutual/Great Western Merger.
All shareholders should carefully read the discussion of the material
federal income tax consequences of the Washington Mutual/Great Western Merger
under "The Washington Mutual/Great Western Merger -- Certain Federal Income Tax
Consequences" and are urged to consult with their own tax advisors as to the
federal, state, local and foreign tax consequences of the Washington
Mutual/Great Western Merger in their particular circumstances.
ACCOUNTING TREATMENT
The Washington Mutual/Great Western Merger is expected to be treated as a
pooling-of-interests for accounting and financial reporting purposes.
Accordingly, under generally accepted accounting principles, the assets and
liabilities of Great Western will be recorded on the books of Washington Mutual
at their values on the books of Great Western at the Effective Time. If
completed as proposed, no goodwill will be created as a result of the Washington
Mutual/Great Western Merger. See "The Washington Mutual/Great Western
Merger -- Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
Certain members of Great Western's management and the Great Western Board
have interests in the Washington Mutual/Great Western Merger in addition to
their interests as stockholders of Great Western generally. These include, among
other things, provisions in the Merger Agreement relating to indemnification,
the appointment of four members to the Washington Mutual Board following the
Washington Mutual/Great Western Merger and the acceleration of benefits under
certain employee benefit plans.
The seven executive officers of Great Western would become entitled to
receive benefits pursuant to the terms of certain agreements and benefit plans
in connection with a change in control of Great Western as follows: (i) if
employment is terminated under certain circumstances on or about the currently
anticipated effective date of the Washington Mutual/Great Western Merger,
severance under his or her employment agreement; (ii) within 5 days following a
change in control of Great Western, a pro-rata bonus under Great Western's
annual bonus plan; (iii) payment of amounts previously deferred under Great
Western's deferred compensation plans, with interest thereon credited at an
enhanced rate; and (iv) an annual benefit under Great Western's Supplemental
Executive Retirement Plan. The approximate amounts such executive officers would
be entitled to receive in respect of such benefits is as follows: Mr.
Maher -- $4,386,000, $351,000, $4,758,000 and $950,000, respectively; Mr.
Pappas -- $2,160,000, $158,000, $132,000 and $357,870, respectively; Mr.
Schenck -- $2,160,000, $146,000, $89,000 and $324,029, respectively; Mr.
Geuther -- $1,920,000, $140,000, $794,000 and $310,848, respectively; Mr.
Sims -- $1,632,000, $119,000, $0 and $39,596, respectively; Mr.
Erikson -- $1,512,000, $110,000, $29,000 and $238,252, respectively; and Ms.
Studenmund -- $1,680,000, $123,000, $106,000 and $121,864, respectively. In
addition, upon the consummation of the Washington Mutual/Great Western Merger,
all then unvested Great Western Stock Options held by such executive officers
will become immediately vested and exercisable and restricted shares of Great
Western Common Stock held by such officers will become immediately vested and
free of restrictions. See "Interests of Certain Persons in the Washington
Mutual/Great Western Merger" for a more detailed discussion of such agreements
and plans and the benefits payable thereunder.
The Great Western Board was aware of these interests and considered them,
among other matters, in unanimously approving the Merger Agreement and
transactions contemplated thereby. For additional information, including amounts
payable under such employee benefit plans in certain circumstances, see "The
Washington Mutual/Great Western Merger -- Interests of Certain Persons in the
Washington Mutual/Great Western Merger."
11
<PAGE> 22
NO APPRAISAL OR DISSENTERS' RIGHTS
Under Delaware law, holders of Great Western Common Stock and Great Western
Preferred Stock (including the holders of Great Western Depositary Shares) will
have no appraisal rights in connection with the Washington Mutual/Great Western
Merger. Under Washington law, holders of Washington Mutual Common Stock and
Washington Mutual Preferred Stock will have no dissenters' rights with respect
to the Share Issuance/Merger Proposal or the Articles Amendment Proposal. See
"The Washington Mutual/Great Western Merger -- No Appraisal or Dissenters'
Rights."
MANAGEMENT AND OPERATIONS OF WASHINGTON MUTUAL FOLLOWING THE WASHINGTON
MUTUAL/GREAT WESTERN MERGER
At the Effective Time, Great Western will merge with and into NACI (which,
as of the Effective Time, will be a direct, wholly owned subsidiary of
Washington Mutual), with NACI as the surviving corporation. NACI will be, at the
Effective Time, the direct parent company of ASB. It is intended that, as soon
as practicable after consummation of the Washington Mutual/Great Western Merger,
GW Bank and ASB will merge (the "Bank Merger") and that the name of the
surviving corporation will be Great Western Bank.
At the Effective Time, four representatives mutually agreeable to
Washington Mutual and Great Western will be added to the existing Washington
Mutual Board to form the Board of Directors of the Combined Company. While there
are no agreements, arrangements or contracts to appoint any specific person to
the Washington Mutual Board, it is expected that John F. Maher, the President
and Chief Executive Officer of Great Western, will be one of the four
representatives of Great Western chosen to serve on the Board of Directors of
the Combined Company.
Washington Mutual intends to consolidate the branch systems and loan
offices of ASB and GW Bank in California and the loan offices of WMB and GW Bank
in Washington. It is anticipated that approximately 100 branches (in addition to
the seven branches already scheduled for closure by Great Western) and 100 loan
offices (including 38 loan offices already scheduled for closure by Great
Western) will be closed. Washington Mutual also intends to consolidate certain
administrative functions. Initial branch and loan office consolidations will
occur in 1998. It is anticipated that further branch and loan office
consolidations, back office consolidations and efficiencies will be achieved in
1999. These consolidations, together with cost reductions which result from the
introduction of Washington Mutual's loan origination system and an integrated
data/communications system throughout the GW Bank branches and other steps, are
expected to achieve annual operating cost savings of approximately $208 million
and $340 million (pre-tax) in 1998 and 1999, respectively.
In addition, Washington Mutual believes that the Washington Mutual/Great
Western Merger should provide opportunities for significant revenue enhancements
for the Combined Company. Washington Mutual anticipates increased asset growth
through additional production and retention of residential mortgage and consumer
loans as portfolio loans (based on leveraging of the additional capital made
available as a result of the Washington Mutual/Great Western Merger and the
introduction of new loan products and systems at GW Bank). It is estimated that
this strategy will increase pre-tax net interest income in 1999 by approximately
$246 million, although this strategy will cause a decrease of $5.0 million in
gain on sale of loans in 1999. In addition, Washington Mutual estimates
additional pre-tax fee income in 1999 of approximately $88 million may be
obtainable primarily as a result of implementing Washington Mutual's pricing
policies and products throughout the GW Bank branch network. The projected
revenue enhancements are in addition to the revenue levels projected in current
First Call estimates of future earnings of Great Western on a stand alone basis
and do not include any potential increases over First Call estimates for
Washington Mutual on a stand alone basis.
Merger-related expenses of approximately $343 million (pre-tax) are
expected to be recorded by Washington Mutual at the Effective Time. This charge
includes the creation of reserves of $145 million for severance and management
payments (which includes all payments anticipated to be payable under all Great
Western severance plans, including the broad-based severance plan adopted in the
first quarter of 1997), $106 million for facilities and system conversion
related expenses and $92 million for other transaction costs.
Washington Mutual also intends to provide an additional $100 million in
loan loss provisions as a charge to earnings at the Effective Time. This
additional loan loss provision is being provided because Washington
12
<PAGE> 23
Mutual's plan for managing certain of the loans in Great Western's portfolio
which were originated between 1989 and 1993 differs from Great Western's and
therefore requires a different level of reserves. See "Management and Operations
of Washington Mutual Following the Washington Mutual/Great Western Merger."
The estimates of cost savings, revenue enhancements and merger-related and
other expenses described above are forward-looking statements that, while
prepared on the basis of Washington Mutual's best judgments and currently
available information regarding Great Western's business and the future
operating performance of the two companies, are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the control of either company, and upon assumptions
with respect to future business decisions that are subject to change.
Accordingly, there can be no assurance that such cost-savings and revenue
enhancements will be realized in the amounts or within the time periods
currently estimated or that such charges for merger-related expenses will be
sufficient. See "Risk Factors."
See "Management and Operations of Washington Mutual Following the
Washington Mutual/Great Western Merger."
DESCRIPTION OF WASHINGTON MUTUAL CAPITAL STOCK
Upon consummation of the Washington Mutual/Great Western Merger, holders of
Great Western Common Stock will become holders of Washington Mutual Common
Stock. Holders of shares of Washington Mutual Common Stock are entitled to one
vote per share for each share held. Subject to the rights of holders of shares
of the outstanding Washington Mutual Preferred Stock, holders of shares of
Washington Mutual Common Stock have equal rights to participate in dividends
when declared and, in the event of liquidation, in the net assets of Washington
Mutual available for distribution to shareholders. Washington Mutual may not
declare any dividends on the Washington Mutual Common Stock unless full
preferential amounts to which holders of the Washington Mutual Preferred Stock
are entitled have been paid or declared and set apart for payment. Washington
Mutual is also subject to certain regulatory restrictions on the payment of
dividends.
Each share of Washington Mutual Common Stock currently has attached thereto
a stock purchase right (a "Washington Mutual Right") issued under the Washington
Mutual Rights Plan.
Upon consummation of the Merger, holders of Great Western Preferred Stock
will become holders of the Series F Preferred Stock, which has substantially
identical terms, limitations, privileges and rights as the Great Western
Preferred Stock.
For additional information concerning the capital stock of Washington
Mutual and certain differences between Washington and Delaware corporate laws,
see "Description of Washington Mutual Capital Stock" and "Certain Differences
Between Washington and Delaware Corporate Laws."
13
<PAGE> 24
SUMMARY FINANCIAL DATA OF WASHINGTON MUTUAL
The following table presents summary financial data for Washington Mutual
and is derived from and should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, which are incorporated herein by
reference from the 1996 Washington Mutual 10-K. The financial information
presented herein has been restated for the mergers with Keystone Holdings, Inc.
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Interest income................................ $ 3,149,236 $ 2,916,086 $ 2,295,413 $ 2,198,578 $ 2,170,969
Interest expense............................... 1,958,229 1,923,436 1,335,358 1,211,896 1,302,489
------------ ------------ ------------ ------------ ------------
Net interest income............................ 1,191,007 992,650 960,055 986,682 868,480
Provision for loan losses...................... 201,512 74,987 122,009 158,728 158,537
Other income................................... 259,264 208,339 220,794 246,576 174,365
Other expense.................................. 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............................ 223,455 425,488 363,323 387,011 322,620
Income taxes................................... 70,420 111,906 109,880 96,034 42,462
Provision for payments in lieu of taxes........ 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................................. 13,570 15,793 13,992 13,991 14,030
------------ ------------ ------------ ------------ ------------
Net income (2)................................. $ 114,278 $ 289,902 $ 240,275 $ 267,323 $ 267,555
============ ============ ============ ============ ============
Net income attributable to common stock........ $ 95,859 $ 271,318 $ 221,691 $ 253,765 $ 262,680
============ ============ ============ ============ ============
Net income per common share (2)(3):
Primary...................................... $ 0.85 $ 2.47 $ 2.09 $ 2.42 $ 2.82
Fully diluted................................ 0.85 2.42 2.06 2.36 2.71
Average number of shares used to calculate net
income per common share (4):
Primary...................................... 112,858,781 109,944,477 106,245,127 104,691,406 97,706,842
Fully diluted................................ 113,138,724 115,363,724 111,664,374 110,753,774 103,496,289
Cash dividends declared:
Common....................................... $ 124,968 $ 57,997 $ 67,835 $ 48,936 $ 118,531
Preferred.................................... 18,418 18,584 18,584 13,559 4,875
Cash dividends declared per common share
(3)(5)....................................... 0.90 0.77 0.70 0.50 0.33
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets......................................... $ 44,551,925 $ 42,026,622 $ 37,481,296 $ 33,614,912 $ 27,678,923
Loans.......................................... 30,330,776 24,192,840 25,472,092 21,063,698 16,666,525
Trading, investment and mortgage-backed
securities................................... 11,973,268 15,352,683 8,738,763 7,416,638 4,640,399
Deposits....................................... 24,080,141 24,462,960 23,344,006 23,516,317 20,729,204
Borrowings (includes annuities)................ 17,683,988 14,579,635 11,946,567 7,366,624 5,134,480
Stockholders' equity........................... 2,397,888 2,541,704 1,854,836 1,765,560 1,467,835
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
OTHER FINANCIAL DATA: 1996 1995 1994 1993 1992
- ----------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net interest margin............................ 2.89% 2.62% 2.90% 3.31% 3.36%
Operating efficiency ratio (2)(6).............. 70.70 58.33 58.90 55.75 53.86
Return on average assets (2)................... 0.27 0.73 0.69 0.84 1.29
Return on stockholders' equity (2)............. 4.59 13.44 12.66 15.95 21.05
Dividend payout ratio (7)...................... 29.01 25.74 24.50 15.98 15.43
Ratios of combined earnings to fixed charges:
Including interest on deposits............... 1.11x 1.22x 1.27x 1.32x 1.25x
Excluding interest on deposits............... 1.25x 1.54x 1.75x 2.13x 2.02x
</TABLE>
14
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Stockholders' equity as a percentage of total
assets:
Total stockholders' equity................... 5.38% 6.05% 4.95% 5.25% 5.30%
Common stockholders' equity.................. 5.12 5.77 4.63 4.90 5.05
Tangible stockholders' equity................ 5.10 5.69 4.46 4.64 5.09
Tangible common stockholders' equity......... 4.83 5.40 4.14 4.28 4.84
Nonperforming assets as a percentage of total
assets....................................... 0.74 0.81 1.12 1.55 2.03
Reserve for loan losses as a percentage of:
Nonperforming loans.......................... 160.52 110.04 87.22 72.74 54.58
Nonperforming assets......................... 110.29 69.42 58.52 46.91 31.98
</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 FHLB 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, Inc. ("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 EXCEPT
FOR PER SHARE AMOUNTS)
<S> <C> <C>
Net income....................................................................... $ 114,278 $ 408,845
Net income per fully diluted common share........................................ 0.85 3.37
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) Net income per common share, cash dividends paid per common share and number
of common shares outstanding for 1992 have been adjusted for the third
quarter 1993 50% stock dividend.
(4) As part of the business combination with Keystone Holdings, 8,000,000 shares
of Washington Mutual Common Stock, with an assigned value of $42.75 per
share, were issued to an escrow for the benefit of the shareholders of
Keystone Holdings and the FSLIC Resolution Fund (the "FRF") and their
transferees. The Combined Company will use the treasury stock method to
determine the effect of the shares upon the Combined Company's financial
statements. At December 31, 1996, the dilutive effect of the 8,000,000
shares of Washington Mutual Common Stock on primary and fully diluted
earnings per share was minimal.
(5) Does not include dividends paid by companies acquired by Washington Mutual
prior to such acquisitions.
(6) 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.
(7) Dividend payout ratio for each period is based on Washington Mutual's net
income prior to business combinations occurring subsequent to such period.
FIRST QUARTER RESULTS
First quarter 1997 net income for Washington Mutual was $114.1 million, an
increase of 28% over first quarter 1996 net income of $88.8 million. Fully
diluted earnings per common share for the first quarter of 1997 were $.93, up
from $.74 in the first quarter of 1996.
Net interest income increased 10% to $317.0 million in the first quarter of
1997 from $287.0 million a year earlier, primarily as a result of growth in
Washington Mutual's loan portfolio. The spread during the first quarter of 1997
was 2.77% compared with 2.75% a year earlier.
Total other income for the first quarter of 1997 was $75.4 million, an
increase of 32% from $57.0 million a year earlier, primarily as a result of
higher depositor and loan servicing fees. Depositor fees increased 27% to $28.6
million during first quarter 1997 compared to $22.5 million a year earlier. The
increase in loan servicing fees was primarily the result of a larger number of
loans serviced for others as well as a reclassification of $3.3 million of
income that would have been accounted for as net interest income by ASB, but
that Washington Mutual classifies as loan servicing income.
15
<PAGE> 26
Loan originations for first quarter 1997 were $3.5 billion, up 16% from
$3.0 billion in first quarter 1996. Loan originations other than single family
residential loans increased to 31% of total originations from 24% of total
originations in first quarter 1996.
Washington Mutual's operating efficiency ratio (other expense as a
percentage of net interest income and other income) improved to 49.1% for the
first quarter of 1997 compared to 52.6% a year earlier. Total other expense for
first quarter 1997 was $192.6 million, or 1.71% of average assets, compared with
$181.1 million, or 1.74% of average assets, in first quarter 1996.
Total nonperforming assets were $334.6 million at March 31, 1997, compared
with $329.5 million at December 31, 1996. Nonperforming assets as a percentage
of total assets were 0.73%, compared with 0.74% at December 31, 1996.
The quarterly provision for loan losses was $15.5 million. At March 31,
1997, loan loss reserves totaled $367.2 million. Reserves as a percentage of
nonperforming assets were 109.8%, and as a percentage of nonperforming assets,
less REO, were 152.9%.
Consolidated assets at March 31, 1997 were $46.1 billion, up from $44.6
billion at December 31, 1996, while total deposits were $24.3 billion, up from
$24.1 billion at the end of fourth quarter 1996. Stockholders' equity at March
31, 1997 was $2.4 billion, or 5.27% of assets, and the capital ratios of
Washington Mutual's banking subsidiaries continued to exceed the FDIC's
requirements for classification as "well-capitalized," the highest regulatory
standard.
Washington Mutual raised its dividend on the Washington Mutual Common Stock
to $.26 per share, payable May 15, 1997 to shareholders of record on April 30,
1997, from the previous quarter's $.25 per share dividend.
16
<PAGE> 27
SUMMARY FINANCIAL DATA OF GREAT WESTERN
The following table presents summary financial data for Great Western and
is derived from and should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, which are incorporated herein by
reference from the 1996 Great Western 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Interest income................................... $ 3,233,931 $ 3,238,711 $ 2,629,718 $ 2,680,784 $ 3,091,093
Interest expense.................................. 1,855,914 1,936,582 1,307,448 1,297,930 1,668,731
------------ ------------ ------------ ------------ ------------
Net interest income............................... 1,378,017 1,302,129 1,322,270 1,382,854 1,422,362
Provision for loan losses......................... 196,158 177,050 206,379 462,080 420,000
Other income...................................... 319,012 317,018 367,076 326,935 282,131
Other expense..................................... 1,314,249 1,019,975 1,076,433 1,155,662 1,188,981
------------ ------------ ------------ ------------ ------------
Income before income taxes and cumulative effect
of change in tax accounting method.............. 186,622 422,122 406,534 92,047 95,512
Income taxes...................................... 70,800 161,100 155,300 30,000 41,600
Cumulative effect of change in tax accounting
method.......................................... -- -- -- -- 61,000
Cumulative effect of change in postretirement
benefits cost accounting method................. -- -- -- -- (29,906)
------------ ------------ ------------ ------------ ------------
Net income(1)..................................... $ 115,822 $ 261,022 $ 251,234 $ 62,047 $ 85,006
============ ============ ============ ============ ============
Net income attributable to common stock........... $ 95,527 $ 236,007 $ 226,219 $ 37,032 $ 69,463
============ ============ ============ ============ ============
Net income per common share(1):
Primary......................................... $ 0.69 $ 1.72 $ 1.69 $ 0.28 $ 0.53
Fully diluted................................... 0.69 1.71 1.69 0.28 0.53
Average number of shares used to calculate net
income per common share:
Primary......................................... 138,505,046 137,111,074 133,769,724 132,007,559 130,735,867
Fully diluted................................... 139,250,206 137,951,442 133,769,724 138,853,346 137,282,125
Cash dividends paid:
Common.......................................... $ 133,045 $ 124,673 $ 122,524 $ 120,877 $ 118,720
Preferred....................................... 20,295 25,015 25,015 25,015 15,543
Cash dividends paid per common share.............. 0.98 0.92 0.92 0.92 0.91
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets............................................ $ 42,874,572 $ 44,586,764 $ 42,218,257 $ 38,348,360 $ 38,439,186
Loans............................................. 30,823,192 29,887,349 28,378,368 30,661,403 30,584,604
Trading, investment and mortgage-backed
securities...................................... 9,067,834 10,895,900 10,186,702 4,060,470 3,791,963
Deposits.......................................... 28,586,773 29,234,928 28,700,947 31,531,563 30,908,665
Borrowings........................................ 10,501,813 11,345,634 10,120,660 3,479,341 4,151,052
Great Western-obligated mandatorily redeemable
preferred securities of Great Western's
subsidiary trust, holding solely $103,092,800
aggregate principal amount of 8.25% subordinated
deferrable interest notes, due 2025, of Great
Western......................................... 100,000 100,000 -- -- --
Stockholders' equity.............................. 2,595,200 2,822,476 2,483,786 2,423,401 2,449,734
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
OTHER FINANCIAL DATA: 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net interest margin............................... 3.33% 3.13% 3.60% 3.89% 3.97%
Operating efficiency ratio(1)(2).................. 77.44 62.99 63.72 67.59 69.76
Return on average assets(1)....................... 0.27 0.59 0.65 0.16 0.22
Return on stockholders' equity(1)................. 4.23 10.03 10.35 2.53 3.50
Dividend payout ratio............................. 142.03 53.80 54.44 328.57 171.70
Ratios of combined earnings to fixed charges:
Including interest on deposits.................. 1.10x 1.21x 1.30x 1.07x 1.05x
Excluding interest on deposits.................. 1.26x 1.56x 2.05x 1.23x 1.26x
</TABLE>
17
<PAGE> 28
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Stockholders' equity as a percentage of total
assets:
Total stockholders' equity...................... 6.05% 6.33% 5.88% 6.32% 6.37%
Common stockholders' equity..................... 5.67 5.96 5.49 5.89 5.94
Tangible stockholders' equity................... 5.42 5.65 5.06 5.25 5.58
Tangible common stockholders' equity............ 5.03 5.27 4.67 4.82 5.15
Nonperforming assets as a percentage of total
assets.......................................... 1.10 1.48 1.71 2.40 4.81
Reserve for loan losses as a percentage of:.......
Nonperforming loans............................. 89.12 74.58 77.51 80.19 50.57
Nonperforming assets............................ 66.49 54.98 60.76 54.67 24.05
</TABLE>
- ---------------
(1) Earnings for 1996 were reduced $194.8 million by an after-tax charge of
$79.6 million for nonrecurring charges, including a $68.3 million pretax
restructuring charge primarily to reengineer Great Western's loan
origination operations and consolidate Great Western's corporate
headquarters and a $50.0 million pretax provision for losses on the bulk
sale of nonperforming loans and real estate, and by an after-tax charge of
$115.2 million representing Great Western's portion of the one-time
assessment paid by savings institutions and banks nationally to recapitalize
the 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, EXCEPT
FOR PER SHARE AMOUNTS)
<S> <C> <C>
Net income.................................................................. $ 115,822 $ 310,651
Net income per fully diluted common share................................... 0.69 2.09
Operating efficiency ratio.................................................. 77.44% 62.32%
Return on average assets.................................................... 0.27 0.71
Return on average equity.................................................... 4.23 11.16
</TABLE>
(2) 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 calculations for any nonrecurring or one-time charges
or assessments.
FIRST QUARTER RESULTS
First quarter 1997 net income for Great Western was $65.7 million, or $0.44
per share -- and first quarter 1997 operating income of $89.1 million, or $0.61
per share -- compared with net income of $71.3 million, or $.47 per share, for
the first quarter of 1996. While operating income grew 25% over the first
quarter of 1996, net income for the first quarter of 1997 was reduced as a
result of $33.7 million in merger-related costs.
Net interest income totaled $338.2 million in the 1997 first quarter,
compared with $352.3 million in the same quarter of 1996. The interest spread,
the difference between the yield on interest earning assets and Great Western's
interest bearing liabilities, was 3.13% for the first quarter of 1997, compared
with 3.05% during the fourth quarter of 1996. For the first quarter of 1996, the
interest spread was 3.23%. The decrease in the interest spread from the first
quarter of 1996 was primarily due to a reduction in the yield on loans,
particularly on real estate loans affected by a decline in the 11th District
Cost of Funds Index to which the majority of Great Western's real estate loan
portfolio is tied, and consumer loans at Great Western's Consumer Finance Group.
Noninterest income was $95.3 million in the 1997 first quarter, compared
with $69.8 million in the 1996 first quarter. The growth in noninterest income
from the first quarter of 1996 was due to an increase in retail banking fees and
a $6.9 million gain on the sale of premises and equipment. Retail banking fees
in the 1997 first quarter totaled $54 million, compared with $41.7 million in
the first quarter of 1996. Retail banking fee income improved due to expanded
use of fee-based products and more active management of fee collection.
Noninterest expense for the first quarter of 1997 included a charge of
$33.7 million for transaction costs primarily related to the Merger Agreement.
Excluding the impact of the merger-related charge, noninterest expense in the
first quarter of 1997 totaled $244.7 million, compared with $260 million
(excluding the impact of several non-recurring charges) in the fourth quarter of
1996. Noninterest expense for the first quarter of 1996 was $267.1 million.
Noninterest expenses fell more than 8% in the first quarter of 1997 compared
with the first quarter of 1996.
The decline in first quarter 1997 noninterest expense (excluding the impact
of the merger-related charge) from the first quarter 1996 resulted from reduced
salaries and benefits of $11.1 million, as the benefits of the comprehensive
18
<PAGE> 29
program to reengineer Great Western's mortgage origination business and other
efficiency initiatives were realized, and a lower FDIC insurance premium of
$11.6 million due to the signing of the Deposit Insurance Funds Act of 1996.
Merger-related transaction costs of $33.7 million included investment
banking, legal, consulting fees and additional severance costs related to 1996
fourth quarter restructuring charges resulting from the adoption of a
broad-based, change-in-control severance plan for Great Western employees.
New real estate loan volume increased to $1.7 billion in the first quarter
of 1997, compared with $1.2 billion in the first quarter of 1996. The 34% growth
in new real estate loan volume was primarily due to increased wholesale lending
production. Approximately 67% of new loan originations in the first quarter of
1997 were adjustable rate mortgages, compared with approximately 64% in the same
period of 1996. New real estate loans originated outside California increased to
63% of originations during the first quarter of 1997, compared with 61% of
originations for all of 1996.
Nonperforming assets were $547.8 million or 1.28% of total assets at March
31, 1997, compared with $546 million, or 1.27% of total assets at December 31,
1996. Nonperforming assets were $791.3 million, or 1.81% of total assets at
March 31, 1996. Total nonperforming assets remained relatively unchanged
compared with the previous quarter. An increase in nonperforming single family
residential loans was offset by a decrease in real estate owned.
The provision for loan and lease losses was $40.4 million in the 1997 first
quarter, compared with $85.9 million in the fourth quarter of 1996 and $36.0
million for the first quarter of 1996. The decrease was due to reduced credit
costs as a result of the bulk sale of nonperforming assets in the fourth quarter
of 1996. Although the provision decreased, Great Western increased its reserve
from 1.01% of total loans receivable at December 31, 1996 to 1.02% at March 31,
1997.
Great Western's Consumer Finance Group produced net income of $10.7 million
in the first quarter of 1997, compared with $14 million for the first quarter of
1996. The reduction in income from the first quarter of 1996 was due primarily
to a decline in net interest income from $67.2 million in the 1996 first quarter
to $61.8 million in the 1997 first quarter as a result of a shift to a
lower-yielding product mix. New loan volume in the first quarter of 1997 for the
Consumer Finance Group increased to $463.9 million from $404.7 in the first
quarter of 1996.
Great Western's effective tax rate increased during the first quarter of
1997 to 42.7% from 40% in the first quarter of 1996 due to the non-deductibility
of certain merger-related costs.
Consolidated assets at March 31, 1997 were $42.9 billion, essentially the
same as at December 31, 1996. Total deposits were $28.2 billion at March 31,
1996 and $28.6 billion at December 31, 1996. Stockholders' equity at March 31,
1997 was $2.6 billion or 6.03% of assets and $2.6 billion or 6.05% of assets at
December 31, 1996. The capital ratios of GW Bank continued to exceed the FDIC's
requirements for classification as "well-capitalized."
Great Western paid a common stock dividend of $0.25 per share, the same
amount as paid during the prior quarter.
19
<PAGE> 30
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 Washington Mutual/Great Western Merger as if it had been consummated on
January 1, 1994 for income statement information and December 31, 1996 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 the 1996 Washington Mutual 10-K and the 1996 Great Western 10-K included in
the documents described under "Incorporation of Certain Documents by Reference,"
and the pro forma combined financial statements and accompanying discussion and
notes set forth under "Pro Forma Combined Financial Information." The pro forma
amounts in the table below are presented for informational purposes and are not
necessarily indicative of the financial position or the results of operations of
the Combined Company that actually would have occurred had the Washington
Mutual/Great Western 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 the Combined
Company. See "Management and Operations of Washington Mutual Following the
Washington Mutual/Great Western Merger -- Operations After the Washington
Mutual/Great Western Merger."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
WASHINGTON MUTUAL 1996 1995 1994
- ----------------------------------------------------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income.................................. $ 1,191,007 $ 992,650 $ 960,055
Provision for loan losses............................ 201,512 74,987 122,009
Other income (expense), net.......................... (766,040) (492,175) (474,723)
Income taxes......................................... 95,607 119,793 109,056
Minority interest in income of consolidated
subsidiaries....................................... 13,570 15,793 13,992
---------- ---------- ----------
Net income(1)........................................ $ 114,278 $ 289,902 $ 240,275
========== ========== ==========
Net income attributable to common stock.............. $ 95,859 $ 271,318 $ 221,691
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
GREAT WESTERN 1996 1995 1994
- ----------------------------------------------------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income.................................. $ 1,378,017 $ 1,302,129 $1,322,270
Provision for loan losses............................ 196,158 177,050 206,379
Other income (expense), net.......................... (995,237) (702,957) (709,357)
Income taxes......................................... 70,800 161,100 155,300
---------- ---------- ----------
Net income(1)........................................ $ 115,822 $ 261,022 $ 251,234
========== ========== ==========
Net income attributable to common stock.............. $ 95,527 $ 236,007 $ 226,219
========== ========== ==========
</TABLE>
20
<PAGE> 31
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
PRO FORMA INCLUDING GREAT WESTERN(2) 1996 1995 1994
- -------------------------------------------------------------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income........................................... $ 2,569,024 $ 2,294,779 $ 2,282,325
Provision for loan losses..................................... 397,670 252,037 328,388
Other income (expense), net(3)................................ (1,761,277) (1,195,132) (1,184,080)
Income taxes.................................................. 166,407 280,893 264,356
Minority interest in income of consolidated subsidiaries...... 13,570 15,793 13,992
---------- ---------- ----------
Net income(1)................................................. $ 230,100 $ 550,924 $ 491,509
========== ========== ==========
Net income attributable to common stock....................... $ 191,386 $ 507,325 $ 447,910
========== ========== ==========
Net income per common share:
Primary..................................................... $ 0.81 $ 2.17 $ 1.98
Fully diluted............................................... 0.80 2.15 1.97
Average number of shares used to calculate net income per
common share:
Primary..................................................... 237,513,322 233,344,444 226,637,879
Fully diluted............................................... 238,463,909 239,520,022 232,057,126
</TABLE>
- ---------------
(1) "Net income from continuing operations" and "net income" are equal for the
three years ended December 31, 1996.
(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 the three years ended December 31, 1996.
(3) Includes pretax charge of $312.6 million representing Washington Mutual's
and Great Western's portion of the one-time assessment paid by savings
institutions and banks nationally to recapitalize the SAIF.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
PRO FORMA
WASHINGTON GREAT INCLUDING
MUTUAL WESTERN GREAT WESTERN(1)
----------- ----------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Assets.................................................... $44,551,925 $42,874,572 $ 86,983,497
Loans..................................................... 30,330,776 30,823,192 61,053,968
Deposits.................................................. 24,080,141 28,586,773 52,666,914
Borrowings (including annuities).......................... 17,683,988 10,501,813 28,185,801
Stockholders' equity...................................... 2,397,888 2,595,200 4,675,088
Loans serviced for others................................. $22,998,667 $18,396,586 $ 41,395,253
Loans originated during 1996.............................. 13,647,456 8,490,240 22,137,696
Loans sold during 1996.................................... 2,057,517 1,478,008 3,535,525
Nonperforming assets...................................... 329,523 471,801 801,324
Reserve for loan losses................................... 363,442 313,699 777,141
Stockholders' equity as a percentage of total assets:
Total stockholders' equity.............................. 5.38% 6.05% 5.37%
Common stockholders' equity............................. 5.12 5.67 5.05
Tangible stockholders' equity........................... 5.10 5.42 4.92
Tangible common stockholders' equity.................... 4.87 5.03 4.59
Nonperforming assets as a percentage of total assets...... 0.74 1.10 0.92
Reserve for loan losses as a percentage of:
Nonperforming loans..................................... 160.52 89.12 134.36
Nonperforming assets.................................... 110.29 66.49 96.98
</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): See "Notes to Pro Forma Combined Consolidated
Statement of Financial Position."
<TABLE>
<S> <C>
Additional 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>
(*)See "Management and Operations of Washington Mutual Following the
Washington Mutual/Great Western Merger -- Operations After the
Merger" for a discussion of the increase in the loan loss provision
and the merger-related expenses.
21
<PAGE> 32
COMPARATIVE PER SHARE DATA
The following table shows certain per share data of Washington Mutual
Common Stock and Great Western Common Stock on an historical basis and a pro
forma and pro forma equivalent basis reflecting the Washington Mutual/Great
Western Merger. The table should be read in conjunction with the financial
information appearing in this Joint Proxy Statement/Prospectus and the documents
incorporated by reference herein. The per share pro forma and pro forma
equivalent data in the following table are presented for comparative purposes
only and are not necessarily indicative of the combined financial position or
results of operations in the future or what the combined financial position or
results of operations would have been had the Washington Mutual/Great Western
Merger been consummated during the period or as of the date for which this pro
forma table is presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
WASHINGTON MUTUAL COMMON STOCK
Net income per fully diluted share(1):
Historical..................................... $ 0.85 $ 2.42 $ 2.06
Pro forma combined............................. 0.80 2.15 1.97
Cash dividends paid per share:
Historical..................................... $ 0.90 $ 0.77 $ 0.70
Pro forma combined(2).......................... 0.90 0.77 0.70
Book value per share at period end(3):
Historical..................................... $19.30 $20.70 $15.33
Pro forma combined............................. 18.13 20.58 16.77
GREAT WESTERN COMMON STOCK
Net income per fully diluted share:
Historical..................................... $ 0.69 $ 1.71 $ 1.69
Pro forma equivalent(4)........................ 0.72 1.94 1.77
Cash dividends paid per share:
Historical..................................... $ 0.98 $ 0.92 $ 0.92
Pro forma equivalent(4)........................ 0.81 0.69 0.63
Book value per share at period-end:
Historical..................................... $17.63 $18.42 $16.30
Pro forma equivalent(4)........................ 16.32 18.52 15.09
</TABLE>
- ---------------
(1) As part of the business combination with Keystone Holdings, 8,000,000 shares
of Washington Mutual Common Stock, with an assigned value of $42.75 per
share, were issued to an escrow for the benefit of the shareholders of
Keystone Holdings and the FRF and their transferees. The Combined Company
will use the treasury stock method to determine the effect of the shares
upon the Combined Company's financial statements. At December 31, 1996, the
dilutive effect of the 8,000,000 shares of Washington Mutual Common Stock on
primary and fully diluted earnings per share was minimal.
(2) Pro forma cash dividends per common share represent historical cash
dividends per share paid by Washington Mutual.
(3) Does not include 8,000,0000 shares of common stock issued to an escrow for
the benefit of the shareholders of Keystone Holdings and the FRF and their
transferees.
(4) The Great Western pro forma equivalent per share amounts are calculated by
multiplying the Washington Mutual pro forma combined per share amounts by
the Exchange Ratio of 0.9.
22
<PAGE> 33
COMPARATIVE MARKET PRICES
The table below sets forth, for the periods indicated, historical high and
low closing sales price information for Washington Mutual Common Stock and Great
Western Common Stock. Washington Mutual Common Stock is designated for quotation
on the NASDAQ National Market under the symbol "WAMU." Great Western Common
Stock trades on the NYSE and PSE under the symbol "GWF."
<TABLE>
<CAPTION>
WASHINGTON
MUTUAL GREAT WESTERN
COMMON STOCK COMMON STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1995
----------------------------------------------
First Quarter................................. $20.56 $16.88 $18.88 $16.00
Second Quarter................................ 24.25 20.25 22.50 18.88
Third Quarter................................. 26.50 22.75 23.75 20.25
Fourth Quarter................................ 29.13 25.00 27.13 22.63
1996
----------------------------------------------
First Quarter................................. $32.00 $27.75 $26.13 $22.50
Second Quarter................................ 30.13 26.50 24.50 21.75
Third Quarter................................. 38.13 28.75 26.75 21.13
Fourth Quarter................................ 45.50 37.00 31.13 27.00
1997
----------------------------------------------
First Quarter................................. $59.13 $42.25 $48.63 $28.13
Second Quarter (through May 12 1997).......... 52.69 45.38 44.75 39.00
</TABLE>
The following table sets forth the closing sale price per share of
Washington Mutual Common Stock on NASDAQ, the closing sale price per share of
Great Western Common Stock as reported on the NYSE Composite Tape, and the
equivalent per share price for the Great Western Common Stock (which is the
closing sale price of Washington Mutual Common Stock multiplied by the Exchange
Ratio) as of (i) February 14, 1997 (the last full trading day before the public
announcement of the Original Ahmanson Proposal), (ii) March 5, 1997 (the last
full trading day before the public announcement of the execution and delivery of
the Merger Agreement) and (iii) May 12, 1997 (the last full trading day for
which it was practicable to obtain such information prior to the mailing of this
Joint Proxy Statement/Prospectus):
<TABLE>
<CAPTION>
WASHINGTON EQUIVALENT
MUTUAL GREAT WESTERN PER SHARE
COMMON STOCK COMMON STOCK PRICE
---------------- ------------- ----------
<S> <C> <C> <C>
February 14................................ $55.19 $ 34.25 $49.67
March 5.................................... 53.25 45.00 47.93
May 12..................................... 52.69 44.63 47.42
</TABLE>
Stockholders are urged to obtain current market quotations for Washington
Mutual Common Stock and Great Western Common Stock. Because the Exchange Ratio
is fixed, a change in the market price of Washington Mutual Common Stock before
the Washington Mutual/Great Western Merger would affect the market value of the
consideration to be received by Great Western Stockholders in the Washington
Mutual/Great Western Merger. There can be no assurance as to the market price of
the Washington Mutual Common Stock at any time before the Effective Time or at
any time thereafter. See "The Washington Mutual/Great Western
Merger -- Conversion of Great Western Capital Stock."
23
<PAGE> 34
RISK FACTORS
This Joint Proxy Statement/Prospectus contains forward-looking statements
and information regarding the operation of the Combined Company following the
Washington Mutual/Great Western Merger. Such forward-looking information
includes statements concerning the operational benefits and opportunities for
increased revenues, cost savings and merger-related expenses and restructuring
charges, among others. The paragraphs below discuss factors that may cause such
forward-looking statements to differ from actual results and that may cause the
operating results of the Combined Company to differ materially from the past
results of Washington Mutual and Great Western as individual companies. In
addition to the other information set forth in this Joint Proxy
Statement/Prospectus, Washington Mutual shareholders, holders of Washington
Mutual Preferred Stock and Great Western Stockholders should consider the
following before voting on the proposals herein.
Forward-Looking Statements May Not Prove Accurate. When used or
incorporated by reference in this Joint Proxy Statement/Prospectus, the words
"anticipate," "estimate," "expect," "project" and similar expressions are
intended to identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions including those set forth below.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, expected or projected. Several key factors that
have a direct bearing on Washington Mutual's ability to attain its goals are
discussed below.
Expected Benefits of Combined Business May Not Be Achieved. Whether the
anticipated benefits of the Washington Mutual/Great Western Merger that are
described in this Joint Proxy Statement/Prospectus under "The Washington
Mutual/Great Western Merger -- Reasons for the Washington Mutual/Great Western
Merger; Recommendations of the Boards of Directors" and "Management and
Operations of Washington Mutual Following the Washington Mutual/Great Western
Merger" are ultimately achieved will depend on a number of factors, including
the ability of the Combined Company to achieve operational and administrative
cost savings at projected levels within projected time frames, generate
economies of scale and, generally, the ability of the Combined Company to
capitalize on its combined asset base and strategic position. There can be no
assurance that the expected benefits of the Washington Mutual/Great Western
Merger relative to the combined business will be achieved or that such benefits
will be achieved within the time periods expected.
Integration Risks; New Areas of Operations. In December 1996, through a
merger with Keystone Holdings, Washington Mutual acquired ASB, which at that
time was an institution of comparable size to Washington Mutual. As a result of
the acquisition of ASB, Washington Mutual acquired substantial operations in
California, where it had not operated prior to the acquisition of ASB, and
became one of the largest banking organizations and mortgage originators in
California. Upon consummation of the Washington Mutual/Great Western Merger, it
is anticipated that GW Bank will be merged into ASB. If the integration of Great
Western, ASB and Washington Mutual does not proceed as anticipated, the results
of operations of the Combined Company could be adversely affected. In addition,
the merger with Great Western will bring 120 branch locations in Florida with
$7.1 billion in deposits, and 160 retail mortgage offices and 42 wholesale
offices in 27 states, including areas where Washington Mutual has no operating
experience.
Increased Origination of Loans May Not Be Achieved. Washington Mutual's
business plan for the Combined Company assumes that the Combined Company will be
able to increase net interest income by originating and retaining a greater
volume of loans than either Washington Mutual or Great Western would on a
stand-alone basis. To the extent that the Combined Company is not able to
generate a sufficient volume of new loans or retain such loans in its portfolio
at the levels or of the types assumed in the business plan and forward-looking
statements, the estimates of future net income contained therein and described
in this Joint Proxy Statement/Prospectus may differ materially from actual
results.
Cost Savings May Not Be Realized. No assurance can be given that the cost
savings which are anticipated through the consolidation of retail branch and
loan offices of ASB and GW Bank and of administrative functions of the Combined
Company will be achieved or will occur in the time periods anticipated. In
addition, when retail branches are consolidated or closed, financial
institutions often lose
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customers and deposits as a result. To the extent that the Combined Company
loses customers or deposits significantly in excess of that anticipated, the
operations of the Combined Company could be materially adversely affected,
particularly in the short term. The forward-looking statements assume, based on
Washington Mutual's historical experience following acquisitions, that the
deposit base of both Washington Mutual and GW Bank will remain substantially
intact during the period presented in the forward-looking statements. To the
extent that the change in ownership of Great Western, the consolidation of
branches of GW Bank and ASB or other factors result in a significant temporary
or long-term loss of deposits, actual results of operations may vary materially
from the forward-looking information presented.
Consumer Banking Expansion Risks. The forward-looking statements assume an
increase in fee income from the Combined Company's consumer banking operations.
The sources of these fee increases include introduction of a debit card, a new
pricing policy for checking account services in California, revised policies for
checking account services in accordance with Washington Mutual's current
programs, implementation of free checking throughout the Great Western system
and improved revenues in financial services subsidiaries. Washington Mutual has
relatively limited experience with the introduction of these business
initiatives in California, where the greatest expansion of consumer banking
activities is expected to occur. Accordingly, there can be no assurance that the
Combined Company's emphasis on consumer banking activities will be successful in
the California market or that any increase in fee income anticipated by the
forward-looking statements will be achieved.
Risk of Loss of Key Personnel. The ability of the Combined Company to
operate efficiently, at least in the short term, will depend in part on the
ability to retain key management and operating personnel. If the Combined
Company is not able to retain a substantial number of such personnel of Great
Western, the consolidation of the two companies may be more time-consuming,
difficult and expensive, and may negatively affect the predicted cost savings.
A major asset of Great Western is its consumer finance company subsidiary,
Aristar. Although Washington Mutual has long offered a full line of consumer
loan products, it has not previously owned a consumer finance company. The
ability of the Combined Company to operate efficiently in this area, at least in
the short term, will be enhanced by its ability to retain existing management
personnel of Aristar. The President of Aristar, however, announced in January
1997 that he would be retiring. If Washington Mutual is not able to retain other
key management personnel of Aristar in future periods, results of operations of
Aristar could be materially adversely affected, which could materially affect
the earnings of the Combined Company. See "Management and Operations of
Washington Mutual Following the Washington Mutual/Great Western Merger."
Concentration of Operations in California. At December 31, 1996, 56% of
Washington Mutual's real estate loan portfolio and 63% of Great Western's real
estate loan portfolio was secured by real estate in California. Following the
Merger, approximately 59% of the Combined Company's real estate loan portfolio
will consist of loans secured by California real estate. In addition, at
December 31, 1996, approximately 66% of the Combined Company's retail deposits
were on deposit at branches in California. As a result, the financial condition
and results of operations of the Combined Company will be subject to general
economic conditions, and particularly the conditions in the single-family and
multi-family residential markets, in California and, to a lesser extent,
Washington, Oregon, Utah and Florida. If economic conditions generally, or in
California in particular, worsen or if the market for residential real estate
declines, the Combined Company may suffer decreased net income or losses
associated with higher default rates and decreased collateral values on its
existing portfolio, and may not be able to originate the volume or type of loans
or achieve the level of deposits and mutual fund assets currently anticipated.
The forward-looking statements regarding the Combined Company's results of
operations assume that the California economy and real estate market will
stabilize or improve. A worsening of current economic conditions or a
significant decline in real estate values in California could cause actual
results to vary materially from the forward-looking statements.
Interest Rate Risk. Each of Washington Mutual and Great Western realizes
its income principally from the differential between the interest earned on
loans, investments and other interest-earning assets, and the interest paid on
deposits, borrowings and other interest-bearing liabilities. Net interest
spreads are affected by
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the difference between the repricing characteristics of interest-earning assets
and deposits and other liabilities. Loan volumes and yields, as well as the
volume of, and rates on, investments, deposits and borrowings, are affected by
market interest rates. Significant fluctuations in interest rates and spreads
may adversely affect net income.
Competition. Washington Mutual and Great Western both face significant
competition both in attracting and retaining deposits and in making loans in all
of their respective markets. The most direct competition has historically come
from other thrift institutions, credit unions and commercial banks doing
business in their primary market areas of California, Washington, Oregon and
Florida. As with all banking organizations, however, both Washington Mutual and
Great Western have experienced increasing competition from nonbanking sources,
including mutual funds, corporate and government debt securities and other
investment alternatives. Competition for loans comes principally from other
thrift institutions, commercial banks, mortgage banking companies, consumer
finance companies, credit unions, insurance companies and other institutional
lenders. Some of these competitors have significantly greater financial
resources, larger market share and greater name recognition than either
Washington Mutual or Great Western. There can be no assurance that competition
from such sources will not increase in the future and adversely affect the
Combined Company's ability to achieve its financial goals following the
Washington Mutual/Great Western Merger.
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<PAGE> 37
THE SPECIAL MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Washington Mutual Common Stock and Washington Mutual Preferred Stock in
connection with the solicitation of proxies by the Washington Mutual Board for
use at the Washington Mutual Meeting to be held at 2:00 p.m., local time on June
13, 1997, at the Washington State Convention and Trade Center, 800 Convention
Place, Seattle, Washington for the purposes set forth herein. This Joint Proxy
Statement/Prospectus is also being furnished to Great Western Stockholders in
connection with the solicitation of proxies by the Great Western Board for use
at the Great Western Meeting to be held at 10:00 a.m., local time on June 13,
1997, at Great Western's Employee Center at 19809 Prairie Street, Chatsworth,
California 91311, for the purposes set forth herein.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETINGS
At the Washington Mutual Meeting, Washington Mutual shareholders will be
asked to consider and vote upon (i) the Share Issuance/Merger Proposal and (ii)
the Articles Amendment Proposal. The approval of the Articles Amendment Proposal
is not a condition to the consummation of the Washington Mutual/Great Western
Merger. See "The Washington Mutual/Great Western Merger" and "Proposed Amendment
to Washington Mutual Articles of Incorporation -- Increase in Authorized
Shares."
THE WASHINGTON MUTUAL BOARD HAS, BY UNANIMOUS VOTE OF ALL DIRECTORS PRESENT
(WITH MESSRS. BEIGHLE, BRIDGE AND REED ABSENT), APPROVED EACH OF THE PROPOSALS
AND HAS DETERMINED THAT THEY ARE IN THE BEST INTERESTS OF WASHINGTON MUTUAL AND
ITS SHAREHOLDERS AND, ACCORDINGLY, RECOMMENDS THAT YOU VOTE "FOR" EACH OF THEM.
EACH OF MR. BEIGHLE, MR. BRIDGE AND MR. REED HAS SUBSEQUENTLY EXPRESSED HIS
APPROVAL OF EACH OF THE PROPOSALS.
At the Great Western Meeting, Great Western Stockholders will be asked to
consider and vote upon the Washington Mutual/Great Western Merger Proposal,
pursuant to which Great Western will be merged with and into NACI with NACI as
the surviving corporation. Upon consummation of the Washington Mutual/
Great Western Merger, (i) each outstanding share of Great Western Common Stock
will be converted into the right to receive 0.9 shares of Washington Mutual
Common Stock, with cash being paid in lieu of fractional shares, and (ii) each
outstanding share of Great Western Preferred Stock will be converted into one
share of Series F Preferred Stock. The terms, preferences, limitations,
privileges and rights of the Series F Preferred Stock will be substantially
identical to those of the Great Western Preferred Stock. As in the case of the
Great Western Preferred Stock, each share of Series F Preferred Stock will be
represented by New Washington Mutual Depositary Shares, each representing a
one-tenth interest in a share of the Series F Preferred Stock. Great Western
Stockholders are not being asked to vote on the Ahmanson Proposal at the Great
Western Meeting. For additional information concerning the Great Western Board's
consideration of the Ahmanson Proposal, see "The Washington Mutual/Great Western
Merger -- Background of the Washington Mutual/Great Western Merger."
THE GREAT WESTERN BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
DETERMINED THAT THE TERMS OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER ARE FAIR
AND IN THE BEST INTERESTS OF GREAT WESTERN AND ITS STOCKHOLDERS AND,
ACCORDINGLY, RECOMMENDS THAT YOU VOTE "FOR" THE WASHINGTON MUTUAL/GREAT WESTERN
MERGER PROPOSAL.
RECORD DATE AND VOTING
At the close of business on the Washington Mutual Record Date, there were
approximately 16,031 holders of record of the 126,291,687 shares of Washington
Mutual Common Stock entitled to notice of and to vote at the Washington Mutual
Meeting. Each share of Washington Mutual Common Stock is entitled to one vote on
each of the matters properly presented at the Washington Mutual Meeting. At the
close of business on the Washington Mutual Record Date there were approximately
464 holders of record of the 2,752,500 shares of
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Series C Preferred outstanding and approximately 377 holders of record of the
1,970,000 shares of Series E Preferred outstanding. Each outstanding share of
Washington Mutual Preferred Stock is entitled to one vote on the Articles
Amendment Proposal. Only shareholders of record at the close of business on the
Washington Mutual Record Date will be entitled to notice of and to vote at the
Washington Mutual Meeting.
At the close of business on the Great Western Record Date, there were
approximately 8,641 holders of record of the 137,922,037 shares of Great Western
Common Stock outstanding. Each share of Great Western Common Stock is entitled
to one vote on the Washington Mutual/Great Western Merger Proposal and on any
other matters properly presented at the Great Western Meeting. Only Great
Western Stockholders of record at the close of business on the Great Western
Record Date will be entitled to vote at the Great Western Meeting.
PROXIES AND VOTING INSTRUCTIONS
WASHINGTON MUTUAL. All shares of Washington Mutual Common Stock and
Washington Mutual Preferred Stock represented by proxies that are properly
completed, dated and executed will be voted at the Washington Mutual Meeting in
accordance with the instructions given thereon by the Washington Mutual
shareholders. If a properly executed proxy is received without voting
instructions, the shares of Washington Mutual Common Stock and Washington Mutual
Preferred Stock represented by such proxy will be voted "FOR" approval of all
matters on which such shares are entitled to vote at the Washington Mutual
Meeting. However, brokers do not have discretionary authority to vote shares
held in street name on either of the two proposals. Therefore, the failure of
beneficial owners of such shares to give voting instructions to such broker will
result in a broker non-vote which will have the same effect as a "NO" vote on
the Articles Amendment Proposal, but broker non-votes will be disregarded and
will have no effect on the outcome of the vote on the Share Issuance/Merger
Proposal.
As of the date of this Joint Proxy Statement/Prospectus, the Washington
Mutual Board is not aware of any business to be acted upon at the Washington
Mutual Meeting other than as described herein. If, however, any other matters
properly come before the Washington Mutual Meeting, the proxy also confers
discretionary authority on the persons named as proxies to vote upon such
matters. A Washington Mutual shareholder giving a proxy has the power to revoke
it at any time before it is voted. The proxy may be revoked by written notice to
the Secretary of Washington Mutual received at Washington Mutual's offices at
1201 Third Avenue, Suite 1500, Seattle, Washington 98101, before June 13, 1997,
by submitting a duly executed proxy bearing a later date, by written notice
delivered at the Washington Mutual Meeting to the Secretary of Washington Mutual
prior to the commencement of the Washington Mutual Meeting or by appearing at
the Washington Mutual Meeting and voting in person at such meeting. Attendance
at the Washington Mutual Meeting will not, in and of itself, constitute
revocation of a previously granted proxy.
GREAT WESTERN. All shares of Great Western Common Stock represented by
proxies that are properly completed, dated and executed will be voted at the
Great Western Meeting in accordance with the instructions given thereon by the
Great Western Stockholder. If a properly executed proxy is received without
voting instructions, the shares of Great Western Common Stock represented by
such proxy will be voted "FOR" approval of all matters on which such shares are
entitled to vote at the Great Western Meeting. However, brokers do not have
discretionary authority to vote shares held in street name on the Washington
Mutual/Great Western Merger Proposal. Therefore, the failure of beneficial
owners of such shares to give voting instructions to such broker will result in
a broker non-vote, and will have the same effect as a "NO" vote on the
Washington Mutual/Great Western Merger Proposal.
As of the date of this Joint Proxy Statement/Prospectus, the Great Western
Board is not aware of any business to be acted upon at the Great Western Meeting
other than as described herein. If, however, any other matters properly come
before the Great Western Meeting, the proxy also confers discretionary authority
on the persons named as proxies to vote upon such matters. A Great Western
Stockholder giving a proxy has the power to revoke it at any time before it is
voted. The proxy may be revoked by written notice to the Secretary of Great
Western received at Great Western's offices at 9200 Oakdale Avenue, Chatsworth,
California 91311, before June 13, 1997, by submitting a duly executed proxy
bearing a later date, by written notice delivered in
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<PAGE> 39
person at the Great Western Meeting to the Secretary of Great Western prior to
the commencement of the Great Western Meeting or by appearing at the Great
Western Meeting and voting in person at such meeting. Attendance at the Great
Western Meeting will not, in and of itself, constitute revocation of a
previously granted proxy.
QUORUM; VOTES REQUIRED
WASHINGTON MUTUAL. For the vote on the Share Issuance/Merger Proposal, the
presence, in person or represented by proxy, of the holders of a majority of the
shares of Washington Mutual Common Stock issued and outstanding and entitled to
vote at the Washington Mutual Meeting will constitute a quorum. For the votes on
the Articles Amendment Proposal, the presence, in person or represented by
proxy, of the holders of a majority of (i) the shares of Washington Mutual
Common Stock issued and outstanding and entitled to vote at the Washington
Mutual Meeting (for the separate class vote of the holders of Washington Mutual
Common Stock) and (ii) the aggregate shares of Washington Mutual Common Stock
and Washington Mutual Preferred Stock issued and outstanding and entitled to
vote at the Washington Mutual Meeting (for the vote of the holders of Washington
Mutual Common Stock and Washington Mutual Preferred Stock as a class) will
constitute a quorum, respectively. For these purposes, shares of Washington
Mutual Common Stock and Washington Mutual Preferred Stock that are present in
person or represented by proxy will be counted for quorum purposes regardless of
whether the holder of such shares fails to or abstains from voting on such
proposals or whether a broker with discretionary authority is unable to exercise
such discretionary authority to vote on such proposals.
Under the NASDAQ rules, assuming a quorum is present, the approval of the
Share Issuance/Merger Proposal will require the affirmative vote of the holders
of a majority of the shares of Washington Mutual Common Stock voting thereon. As
described in "The Washington Mutual/Great Western Merger -- Conditions to the
Consummation of the Washington Mutual/Great Western Merger," such shareholder
approval is a condition to consummation of the Washington Mutual/Great Western
Merger.
Approval of the Articles Amendment Proposal requires the affirmative vote
of the holders of at least (i) two-thirds of the combined shares of Washington
Mutual Common Stock and Washington Mutual Preferred Stock entitled to vote at
the Washington Mutual Meeting voting together as a class and (ii) two-thirds of
the shares of Washington Mutual Common Stock entitled to vote at the Washington
Mutual Meeting voting as a class. Approval of the Articles Amendment Proposal is
not a condition to consummation of the Washington Mutual/Great Western Merger.
As of the Washington Mutual Record Date, directors and executive officers
of Washington Mutual and their affiliates (excluding any shares owned by or
through Acadia Partners, L.P. and affiliates thereof) beneficially owned and
were entitled to vote 3,636,798 shares of Washington Mutual Common Stock and 500
shares of Washington Mutual Preferred Stock, which represented approximately
2.88% of the shares of Washington Mutual Common Stock and less than 1% of the
shares of Washington Mutual Preferred Stock, respectively, outstanding on such
date. In addition, as of the Washington Mutual Record Date, Robert M. Bass and
Acadia Partners, L.P. beneficially owned and were entitled to vote 11,546,451
shares and 6,215,004 shares, respectively, of Washington Mutual Common Stock,
which represented approximately 9.14% and 4.92%, respectively, of the shares of
Washington Mutual Common Stock outstanding on such date. Mr. Bass, Acadia
Partners L.P. and each Washington Mutual director and executive officer has
indicated a present intention to vote, or cause to be voted, the Washington
Mutual Common Stock so owned "FOR" approval of the Share Issuance/Merger
Proposal and the Articles Amendment Proposal. As of the Washington Mutual Record
Date, neither Washington Mutual nor any of its directors and executive officers
beneficially owned any shares of Great Western Common Stock.
GREAT WESTERN. For the vote on the Washington Mutual/Great Western Merger
Proposal, the presence, in person or represented by proxy, of the holders of a
majority of the shares of Great Western Common Stock issued and outstanding and
entitled to vote at the Great Western Meeting will constitute a quorum.
Under Delaware law and the Great Western Restated Certificate of
Incorporation (the "Great Western Certificate") and the Bylaws of Great Western
(the "Great Western Bylaws"), approval of the Washington
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Mutual/Great Western Merger Proposal requires the affirmative vote of the
holders of a majority of the shares of Great Western Common Stock entitled to
vote at the Great Western Meeting.
As of the Great Western Record Date, directors and executive officers of
Great Western and their affiliates beneficially owned and were entitled to vote
617,897 shares of Great Western Common Stock, which represented less than 1% of
the shares of Great Western Common Stock outstanding on such date. Each Great
Western director and executive officer has indicated a present intention to
vote, or cause to be voted, the Great Western Common Stock so owned "FOR"
approval of the Washington Mutual/Great Western Merger Proposal. As of the Great
Western Record Date, Great Western did not own any shares of Washington Mutual
Common Stock or Washington Mutual Preferred Stock and its directors and
executive officers did not beneficially own, individually or in the aggregate,
in excess of 1% of the shares of Washington Mutual Common Stock or in excess of
1% of the shares of Washington Mutual Preferred Stock.
SOLICITATION OF PROXIES
Each of Washington Mutual and Great Western will bear the cost of the
solicitation of proxies from its own stockholders, except that Washington Mutual
and Great Western will share equally the cost of printing this Joint Proxy
Statement/Prospectus. In addition to solicitation by mail, the directors,
officers and employees of Washington Mutual and Great Western and their
subsidiaries may, without being additionally compensated, solicit proxies from
stockholders of their respective companies by telephone, telegram, facsimile or
in person. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and Washington
Mutual and Great Western will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection therewith.
Washington Mutual has retained D.F. King & Co. ("D.F. King") to assist
Washington Mutual in connection with its communications with its shareholders
with respect to, and to provide other services to Washington Mutual in
connection with, the Washington Mutual Meeting. D.F. King will receive $10,000
for its services and reimbursement of out-of-pocket expenses in connection
therewith. Washington Mutual has agreed to indemnify D.F. King against certain
liabilities arising out of or in connection with its engagement.
In addition, in connection with Lehman Brothers' engagement as financial
advisor to Washington Mutual, Washington Mutual anticipates that certain
employees of Lehman Brothers may communicate in person, by telephone or
otherwise with a limited number of institutions, brokers or other persons who
are Washington Mutual shareholders or Great Western Stockholders for the purpose
of assisting in the solicitation of proxies in favor of the Share
Issuance/Merger Proposal and the Articles Amendment Proposal (in the case of the
Washington Mutual shareholders) and the Washington Mutual/Great Western Merger
Proposal (in the case of the Great Western Stockholders). Lehman Brothers will
not receive any fee for or in connection with such solicitation activities by
its employees apart from the fee it is otherwise entitled to receive as
described below. See "The Washington Mutual/Great Western Merger -- Opinions of
Financial Advisors -- Opinion of Lehman Brothers Inc."
Great Western has retained Georgeson & Company Inc. ("Georgeson") and Alan
M. Miller to assist Great Western in connection with its communications with its
stockholders with respect to, and to provide other services to Great Western in
connection with, the Washington Mutual/Great Western Merger and the Ahmanson
Proposal. Georgeson and Mr. Miller will receive $100,000 and up to $125,000,
respectively, for their services and in each case reimbursement of out-of-pocket
expenses in connection therewith. Great Western has agreed to indemnify each of
Georgeson and Mr. Miller against certain liabilities arising out of or in
connection with their engagement.
In addition, in connection with the engagement of Goldman Sachs and Merrill
Lynch as financial advisors to Great Western, Great Western anticipates that
certain employees of each of Goldman Sachs and Merrill Lynch may communicate in
person, by telephone or otherwise with a limited number of institutions, brokers
or other persons who are Great Western Stockholders for the purpose of assisting
in the solicitation of
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proxies in favor of the Washington Mutual/Great Western Merger Proposal. Goldman
Sachs and Merrill Lynch will not receive any fee for or in connection with such
solicitation activities by their respective employees apart from the fees each
of them is otherwise entitled to receive as described below. See "The Washington
Mutual/Great Western Merger -- Opinions of Financial Advisors -- Opinions of
Great Western Financial Advisors."
STOCKHOLDERS ARE REQUESTED TO SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY CARD (A GREEN PROXY CARD IN THE CASE OF GREAT WESTERN STOCKHOLDERS)
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. IF
THE WASHINGTON MUTUAL/ GREAT WESTERN MERGER IS CONSUMMATED, GREAT WESTERN
STOCKHOLDERS WILL RECEIVE INSTRUCTIONS REGARDING THE PROPER PROCEDURES FOR THE
EXCHANGE OF THEIR STOCK CERTIFICATES. SEE "THE WASHINGTON MUTUAL/GREAT WESTERN
MERGER -- CONVERSION OF GREAT WESTERN CAPITAL STOCK."
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THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
GENERAL
The Boards of Directors of Washington Mutual and Great Western, by
unanimous vote of all directors present, have approved the Merger Agreement,
which provides for the merger, at the Effective Time, of Great Western with and
into NACI, with NACI as the surviving corporation. This section of the Joint
Proxy Statement/Prospectus describes certain aspects of the proposed Washington
Mutual/Great Western Merger, including the principal terms of the Merger
Agreement. A copy of the Merger Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix A and is incorporated herein by reference in
its entirety. The description set forth below of the terms of the Merger
Agreement is qualified in its entirety by reference thereto. All stockholders of
Washington Mutual and Great Western are urged to read the Merger Agreement in
its entirety.
At the Effective Time, (i) each outstanding share of Great Western Common
Stock will be converted into the right to receive 0.9 shares of Washington
Mutual Common Stock, with cash being paid in lieu of fractional shares, and (ii)
each outstanding share of Great Western Preferred Stock will be converted into
one share of Series F Preferred Stock. The terms, preferences, limitations,
privileges and rights of the Series F Preferred Stock will be substantially
identical to those of the Great Western Preferred Stock. At the Effective Time,
the separate corporate existence of Great Western will terminate and the
surviving corporation of the merger will become a wholly owned subsidiary of
Washington Mutual.
BACKGROUND OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
On the evening of February 17, 1997, Charles R. Rinehart, Chairman of the
Board and Chief Executive Officer of Ahmanson, telephoned John F. Maher,
President and Chief Executive Officer of Great Western, with a request to meet
that evening to discuss a merger of Ahmanson and Great Western. Mr. Maher
declined to meet and informed Mr. Rinehart that such a meeting could take place
only after Mr. Maher discussed the matter with the Great Western Board and Great
Western's management and legal and financial advisors. The conversation between
Mr. Maher and Mr. Rinehart was the first regarding a potential merger of the two
companies since October 1995, when Mr. Maher informed Mr. Rinehart that a Great
Western and Ahmanson combination did not advance the strategic objectives of
Great Western or the interests of its stockholders and that, therefore, Great
Western was not interested in pursuing a business combination with Ahmanson.
Following his February 17, 1997 telephone call, Mr. Rinehart delivered a letter
to Mr. Maher outlining a proposed transaction (the "Original Ahmanson Proposal")
whereby Great Western would be merged with and into Ahmanson in a tax-free
transaction to be accounted for as a purchase. Under the terms of the Original
Ahmanson Proposal, each share of Great Western Common Stock would have been
exchanged for 1.05 shares of Ahmanson common stock. Prior to the receipt of the
Original Ahmanson Proposal, Great Western had not been considering a business
combination, strategic or otherwise, with any third parties.
On the morning of February 18, Ahmanson issued a press release describing
the Original Ahmanson Proposal and held an analyst conference call to discuss
its views as to the merits of such proposal. Also that morning, Ahmanson filed
with the Commission preliminary solicitation materials relating to a consent
solicitation by Ahmanson in favor of an amendment to Great Western's By-Laws and
a non-binding stockholder resolution and to a proposed proxy solicitation by
Ahmanson in connection with Great Western's annual meeting of stockholders
seeking the adoption of additional by-law amendments and the election of three
Ahmanson-nominated directors to the Great Western Board.
On the same day, Kerry K. Killinger, Chairman, President and Chief
Executive Officer of Washington Mutual, called Mr. Maher and indicated that he
was following developments at Great Western and would be open to discussions
with Mr. Maher if the Great Western Board determined that discussions were
appropriate. Later that day, the Washington Mutual Board met for its regularly
scheduled meeting. At that meeting, Mr. Killinger discussed the Original
Ahmanson Proposal with the directors. After the Washington Mutual Board meeting,
Mr. Killinger had additional discussions with certain members of the Washington
Mutual Board. The chief executive officer of a large super-regional bank (the
"Other Interested Party") also called Mr. Maher that day to express similar
interest. Mr. Maher informed both parties that the management of
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Great Western would need time to consult with the Great Western Board and its
advisors in order to assess the situation.
On the evening of February 18, the Great Western Board held a telephonic
board meeting during which Mr. Maher discussed the receipt of the Original
Ahmanson Proposal as well as the other actions taken by Ahmanson. Mr. Maher
informed the Great Western Board of the two indications of interest that he had
received that day. Representatives of Goldman Sachs and Merrill Lynch, Great
Western's financial advisors, and of Skadden, Arps, Slate, Meagher & Flom LLP,
Great Western's special counsel, participated in the call. At such meeting, no
action was taken by the Great Western Board with respect to the Original
Ahmanson Proposal or with respect to the other two indications of interest.
Later that week, Mr. Maher separately responded to both Mr. Killinger and
the chief executive officer of the Other Interested Party. Mr. Maher stated
that, as a condition to further discussions with Great Western, each party would
be required to enter reciprocal confidentiality/standstill agreements. Mr. Maher
also asked Washington Mutual and the Other Interested Party to submit
preliminary due diligence request lists. Mr. Maher indicated that he would be
meeting with the Great Western Board on the following Monday and, depending on
the outcome of those discussions, there might be an opportunity for the
interested parties to visit Great Western and conduct due diligence later in
that week. Neither Mr. Maher nor any other members of Great Western management
or Great Western's financial advisors contacted any representatives of Ahmanson.
On February 20, Mr. Killinger discussed developments with certain members
of the Washington Mutual Board. On February 21, Washington Mutual and Great
Western entered into a reciprocal confidentiality/standstill agreement and
thereafter the parties exchanged confidential information regarding the
businesses and operations of the two companies and their respective
subsidiaries. Also on February 21, Great Western and the Other Interested Party
entered into a reciprocal confidentiality/standstill agreement.
Over the course of the week of February 17, Great Western's management and
its financial advisors received inquiries from a few other potentially
interested parties. These parties expressed interest in discussing possible
transactions with Great Western, ranging from business combinations to the
acquisition of only certain of Great Western's business lines or operations.
However, none of the parties received confidential information, none of the
discussions with any of these parties proceeded to a stage where confidentiality
agreements were signed, and no formal indications of interest were ever
received.
On February 24, the Great Western Board met with its advisors to consider
and analyze (i) the Original Ahmanson Proposal, (ii) continuing to operate as a
stand-alone entity and to implement the strategic initiatives that had been
previously undertaken to make Great Western more "bank-like," (iii) seeking a
strategic partnership with either a larger or similar-sized bank or thrift
holding company with a similar strategic focus and (iv) other possible
alternative strategies (none of which the Great Western Board chose to pursue)
for enhancing shareholder value, including the sale or spin-off of certain of
Great Western's business lines and operations. After consideration of each of
these alternatives, the Great Western Board determined that, in light of recent
events and the value that each alternative could potentially yield, the best
possible course for enhancing stockholder value would be to pursue a strategic
business combination. Accordingly, the Great Western Board authorized the
management of Great Western to pursue strategic business combinations and not to
pursue any of the other alternatives considered.
Mr. Maher called Mr. Killinger after the meeting of the Great Western Board
and invited Washington Mutual to undertake a due diligence investigation of
Great Western and to present a proposal for discussion on March 3. On that same
day, Mr. Maher extended the same offer to the chief executive officer of the
Other Interested Party.
During the week of February 24, Great Western's financial advisers made
inquiries, on behalf of Great Western, of other potential strategic partners who
had not previously contacted Great Western, although no formal proposals were
made as a result of such inquiries.
On February 25, the Other Interested Party commenced its due diligence
investigation of Great Western and reviewed both public and non-public
information concerning the business and operations of Great
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Western. This investigation lasted for two days. On March 2 and March 3 the
Other Interested Party conducted further due diligence on Great Western.
On February 26, Mr. Killinger traveled to California, where he met with Mr.
Maher and discussed Great Western's operating progress, operating philosophies
and objectives and the potential strategic benefits of a combination between the
two companies. That same day, Washington Mutual began its on-site due diligence
investigation of Great Western.
From February 26 through March 1, members of Washington Mutual's officers'
executive committee, other members of management, a due diligence team composed
of representatives of different operational areas of Washington Mutual and
Washington Mutual's advisors continued their intensive, on-site due diligence
investigation of Great Western.
On February 27, Great Western's legal advisors delivered a form of merger
agreement to Washington Mutual and to the Other Interested Party and to each of
their respective legal advisors.
On March 3, Mr. Killinger and Mr. Craig E. Tall, Washington Mutual's
Executive Vice President of Corporate Development, as well as certain
representatives from Foster Pepper & Shefelman and Lehman Brothers, Washington
Mutual's respective legal and financial advisors, traveled to Great Western's
executive offices in Chatsworth, California. There they met with Messrs. James
F. Montgomery, Chairman of the Board; John F. Maher; Carl F. Geuther, Vice
Chairman and Chief Financial Officer; A. William Schenck, Vice Chairman; J.
Lance Erikson, Executive Vice President and General Counsel; other members of
the Great Western management team; and representatives from Goldman Sachs and
Merrill Lynch, financial advisors to Great Western. The meeting consisted
primarily of a presentation by Mr. Killinger of the background and current
status of Washington Mutual, a preliminary transaction proposal and exchange
ratio, and a discussion of the possible benefits of a merger of Washington
Mutual and Great Western.
That same day, the Other Interested Party made a similar presentation to
the Great Western directors and executive officers listed above and indicated a
preliminary exchange ratio which had an implied value that was less than the
then current implied value of Washington Mutual's preliminary exchange ratio.
However, the Other Interested Party subsequently informed Great Western that it
would not make a definitive proposal.
Prior to and during the week of March 3, other members of Great Western's
senior management team and representatives of its advisors conducted on-site and
off-site due diligence reviews of Washington Mutual and the Other Interested
Party during which both public and non-public information concerning such
companies was reviewed by Great Western.
On March 3, 1997, Ahmanson commenced its consent solicitation and sought
consents from the Great Western Stockholders to approve five proposals. That
same day, pursuant to Great Western's By-laws, the Great Western Board fixed
March 13, 1997 as the record date for these five proposals.
On March 4, legal advisors of Great Western and Washington Mutual met for
preliminary discussions of issues raised by Washington Mutual's initial response
to the draft Merger Agreement proposed by Great Western, particularly Washington
Mutual's request for a termination fee and a stock option agreement. Later that
day, representatives of Goldman Sachs and Merrill Lynch telephoned Mr. Killinger
and Mr. Tall and advised them that Great Western was interested in Washington
Mutual's preliminary transaction proposal, but that the proposed exchange ratio
was insufficient. Following that call, Mr. Killinger and Mr. Tall discussed the
status of the negotiations with certain members of the Washington Mutual Board
and, with their concurrence, Mr. Killinger proposed, subject to approval by the
Washington Mutual Board and resolution of all outstanding issues, to increase
the exchange ratio to 0.9 shares of Washington Mutual Common Stock for each
share of Great Western Common Stock. Washington Mutual and Great Western's
respective legal advisors met the next day to negotiate the Merger Agreement.
At the meetings of the Great Western Board held on March 4 and March 5, the
Great Western Board reviewed, with the assistance of Great Western's management
and legal and financial advisors, among other things, a summary of management's
due diligence findings concerning Washington Mutual, presentations by management
and Goldman Sachs and Merrill Lynch concerning the Washington Mutual proposal
and the
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<PAGE> 45
Original Ahmanson Proposal, the terms of the definitive Merger Agreement and
both Goldman Sachs' and Merrill Lynch's fairness opinions concerning the
Exchange Ratio. At these meetings, as well as at the above-described meetings,
the Great Western Board specifically considered its obligations under state law
with respect to discussions with Washington Mutual, Ahmanson and others and were
advised by legal counsel. Based upon that review, and after consideration of
other factors, the Great Western Board unanimously approved and authorized the
execution of the Merger Agreement on the evening of March 5. At that meeting,
the Great Western Board rescinded in its entirety Great Western's previously
authorized share repurchase program. See "-- Reasons for the Washington
Mutual/Great Western Merger; Recommendations of the Boards of Directors -- Great
Western."
The Washington Mutual Board met on March 5 in person and telephonically to
consider management's proposal for a merger with Great Western. With the
assistance of Washington Mutual's legal and financial advisors, the Washington
Mutual Board reviewed, among other things, management's due diligence findings
concerning Great Western, presentations by management and Lehman Brothers
concerning the merger proposal, the terms of the Merger Agreement and Lehman
Brothers' fairness opinion concerning the Exchange Ratio. Based upon that
review, the Washington Mutual Board, by unanimous vote of all directors present
(with Messrs. Beighle, Bridge and Reed absent), approved and authorized the
execution of the Merger Agreement on the evening of March 5. The Merger
Agreement was executed and delivered by the parties shortly thereafter. Messrs.
Beighle, Bridge and Reed subsequently expressed their approval of the Merger
Agreement. See "-- Reasons for the Washington Mutual/Great Western Merger;
Recommendations of the Boards of Directors -- Washington Mutual."
On March 6, the proposed Washington Mutual/Great Western Merger was
publicly announced.
On March 17, 1997, Ahmanson announced that the Original Ahmanson Proposal
had been revised to contemplate that each outstanding share of Great Western
Common Stock would be converted into the right to receive not less than 1.10 nor
more than 1.20 shares of Ahmanson common stock based upon a floating exchange
ratio (as so revised, the "Ahmanson Proposal"). Also that day, Ahmanson withdrew
two of the five proposals and commenced a solicitation of consents for two new
proposals (the "New Ahmanson Consent Proposals"). To date, Great Western has not
received a request from Ahmanson to fix a record date with respect to the New
Ahmanson Consent Proposals and, accordingly, no such record date has been so
fixed. See "Litigation."
On March 25, the Great Western Board met with its advisors to consider the
Ahmanson Proposal. On March 26, 1997, Great Western announced that, after
careful consideration of Ahmanson's request that Great Western provide
information to and engage in negotiations or discussions with Ahmanson, the
Great Western Board had unanimously determined not to authorize such actions.
The Great Western Board also stated its belief that a combination of Great
Western and Washington Mutual will provide Great Western Stockholders with a
superior value opportunity and reiterated its strong commitment to the
Washington Mutual/Great Western Merger as being in the best interests of Great
Western Stockholders. See "-- Reasons for the Washington Mutual/Great Western
Merger; Recommendations of the Boards of Directors -- Great Western." 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.
On April 9, 1997, Ahmanson presented to Great Western consents which
Ahmanson claims represent consents from a majority of the outstanding shares of
Great Western Common Stock for adoption of three of the five Ahmanson proposals.
One of the proposals for which Ahmanson presented consents would amend Great
Western's By-laws to require that Great Western's annual meeting of stockholders
be held on the fourth Tuesday in April or within two weeks thereof. This year,
the fourth Tuesday in April was April 22, and the fourteenth day thereafter was
May 6, 1997. On April 11, 1997, Ahmanson presented to Great Western consents
which Ahmanson claimed represent consents from a majority of the outstanding
shares of Great Western Common Stock for adoption of one of the two New Ahmanson
Consent Proposals.
The consents presented by Ahmanson and the revocations of consents received
by Great Western were turned over to independent inspectors of election. After
the independent inspectors reported the results of their preliminary tabulation
with respect to proposals 3, 4 and 5 of the Ahmanson consent solicitation, which
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<PAGE> 46
indicated that those proposals had been adopted, Great Western identified a
voting irregularity involving the double voting of more than five million shares
of Great Western Common Stock held by an institutional stockholder. That
stockholder promptly sent a letter to the independent inspectors stating that
approximately 5.2 million of its shares "represent a duplicate vote" and
requesting that such duplicate vote be disregarded.
Ahmanson insisted that the independent inspectors were not authorized to
take cognizance of the letter from the major institutional stockholder and that
the shares be counted twice. The independent inspectors took the position that
they are not empowered to address the double vote issue. On April 28, 1997, the
independent inspectors certified that Ahmanson had received consents
representing a majority of the outstanding Great Western Common Stock with
respect to proposals 3, 4 and 5 as of April 9, 1997. On that same day Great
Western filed suit in the Court of Chancery of the State of Delaware seeking an
order declaring, among other things, that there was an over-vote entitling the
independent inspectors to consider extrinsic evidence concerning the
double-voted shares. See "Litigation." On May 1, 1997, Great Western and
Ahmanson each requested that the independent inspectors retabulate the vote
without giving effect to the double-counted shares and rectify the results of
the Ahmanson consent solicitation. On May 5, 1997, the independent inspectors
completed a second tabulation regarding certain of Ahmanson's proposals,
certifying that, as of April 9, 1997, Ahmanson had received consents
representing a majority of the outstanding Great Western Common Stock with
respect to proposal 3.
Also, on May 5, 1997, the independent inspectors reported on a preliminary
basis, and are expected to certify shortly, that Ahmanson received unrevoked
consents representing a majority of the outstanding Great Western Common Stock
with respect to proposals 4 and 5 as of April 10, 1997.
In light of the dispute between Great Western and Ahmanson as to whether a
record date exists with respect to the New Ahmanson Consent Proposals, the
independent inspectors have not tabulated the results of the solicitation with
respect to such proposals. Under the Great Western By-laws, a Great Western
Stockholder seeking to have Great Western's stockholders authorize or take
corporate action by written consent must, by written notice to Great Western's
Secretary, request that the Great Western Board fix a record date. The Great
Western Board is then required, within ten days after the date on which such
request is received, to adopt a resolution fixing the record date. Under Section
213 of the DGCL and Section 11 of Great Western's By-laws, the record date must
be within ten days of the date of the resolution fixing the record date.
Ahmanson has never requested the setting of a record date. Pursuant to the Great
Western By-laws, a record date will be fixed by the Great Western Board upon
Ahmanson's written request that such a date be fixed. Additional information
concerning Ahmanson's consent solicitation and Great Western's response thereto
is contained in the Consent Revocation Statement and Solicitation Materials of
Great Western that are incorporated by reference herein. See "Incorporation of
Certain Documents by Reference."
REASONS FOR THE WASHINGTON MUTUAL/GREAT WESTERN MERGER; RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS
WASHINGTON MUTUAL. The Washington Mutual Board believes that the
Washington Mutual/Great Western Merger will create a premier regional financial
services company with the financial and managerial resources to compete
effectively in the rapidly changing market for banking and financial services.
The Combined Company will be the third largest bank on the West Coast, based on
pro forma total assets and total deposits as of December 31, 1996.
The Washington Mutual Board determined that the Washington Mutual/Great
Western Merger represents a unique strategic fit between two financially sound
institutions with similar business strategies and complementary product
capabilities. The Washington Mutual Board believes that the Combined Company
will be a stronger financial services company than either is individually, with
a market leadership position in residential mortgage origination and with a
stronger, more competitive position from which to expand its consumer banking
franchise and commercial banking activities.
In reaching its conclusions, the Washington Mutual Board considered, among
other things: (i) information concerning the financial performance and
condition, business operations, capital levels, asset quality and prospects of
each of Washington Mutual and Great Western and their projected future results
and prospects as separate entities and on a combined basis; (ii) current
industry, economic and market conditions
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and trends, including the likelihood of continuing consolidation and increasing
competition in the banking and financial services industries (and corresponding
decrease in the number of suitable merger partners for Washington Mutual), the
growing importance of financial resources and market position and economies of
scale to a banking institution's ability to compete successfully in this
changing environment; (iii) the structure of the transaction, including the
ability to account for the transaction as a pooling of interests and the ability
to merge ASB and GW Bank; (iv) the possibility of achieving significant cost
savings, operating efficiencies, revenue enhancements and synergies as a result
of the Washington Mutual/Great Western Merger; (v) the terms of the Merger
Agreement, including the mutual covenants and conditions and the circumstances
under which Washington Mutual would receive a termination fee; (vi) the opinion
of its financial advisor described below as to the fairness from a financial
point of view of the Exchange Ratio (which was determined through arm's-length
negotiations between Washington Mutual and Great Western) and the various
analyses performed by its financial advisor in connection with rendering its
opinion, considered as a whole (see "The Washington Mutual/Great Western
Merger -- Opinions of Financial Advisors -- Opinion of Lehman Brothers Inc.");
(vii) the likelihood of obtaining required regulatory approvals; (viii) the
changing regulatory environment for banking and financial services; and (ix) the
effect of the Washington Mutual/Great Western Merger on the depositors,
employees, customers and communities served by Washington Mutual, including the
effect of the proposed branch and loan office consolidations on ASB and the
communities in which it operates and the expected ability of Washington Mutual
to offer a broader range of products and services to its depositors, customers
and communities on a more efficient basis. In reaching its decision to approve
the Merger Agreement and recommend the Share Issuance/Merger Proposal to
shareholders, the Washington Mutual Board did not assign any relative or
specific weights to the various factors considered, and individual directors may
have given differing weights to different factors.
The Washington Mutual Board believes that the Washington Mutual/Great
Western Merger will further key elements of its strategic plan by: (i) further
strengthening Washington Mutual's consumer banking franchise throughout the
West; (ii) diversifying its business mix by deploying capital to higher margin
business lines, such as consumer finance activities; (iii) improving margins of
its core businesses; and (iv) obtaining cost savings and efficiencies through
consolidation of operations and facilities. In particular, the following
benefits were considered by the Washington Mutual Board:
(i) The Washington Mutual/Great Western Merger will significantly
increase Washington Mutual's share of the consumer banking market in
California, thereby building on the base created by its recently completed
acquisition of ASB. ASB already has a state-wide presence in California,
with over 200 branches and loan offices concentrated in the Los Angeles and
San Francisco areas. The merger with Great Western will add over 500
branches and loan offices (before consolidations) and substantially
increase its customer base in California. As a result of the Washington
Mutual/Great Western Merger, Washington Mutual will become the third
largest depository institution in California (based on deposits as of
December 31, 1996);
(ii) The Washington Mutual/Great Western Merger will accelerate
Washington Mutual's diversification of its product line to include higher
margin business lines, such as consumer finance. Great Western has a strong
consumer finance presence, with 502 offices in 23 states; and
(iii) The consolidation of certain head office functions, back office
operations and retail branch and loan offices, together with cost savings
from reduced aggregate marketing expenses and implementation of an
integrated technology platform, is expected to produce annual savings of
operating costs currently estimated by management at $208 million and $340
million (pre-tax) in 1998 and 1999, respectively. In addition, the Combined
Company will be one of the largest originators and servicers of residential
mortgage loans in the United States (ranking second in California and sixth
in the United States in residential loan originations based on combined
1996 volume, and ranking seventh in the United States in residential loan
servicing based on the combined servicing portfolio at year-end 1996). The
Washington Mutual Board believes that the Washington Mutual/Great Western
Merger will significantly enhance Washington Mutual's ability to achieve
the economies of scale and efficiencies that are critical to compete
effectively in these business lines.
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For additional details on anticipated cost savings from the Washington
Mutual/Great Western Merger, see "Management and Operations of Washington Mutual
Following the Washington Mutual/Great Western Merger -- Operations After the
Washington Mutual/Great Western Merger -- Cost Savings."
In addition, although the Washington Mutual/Great Western Merger will
increase slightly the percentage of Washington Mutual's assets located in
California, it will also expand the geographic range of Washington Mutual's
operations to include regions in the United States in which Washington Mutual
did not previously have any presence, including Florida, as well as the
Southeast and the Northeast United States. In future years the geographical
diversification of the Combined Company resulting from the Washington
Mutual/Great Western Merger may reduce the risk of a significant adverse impact
resulting from an economic downturn in any single market area.
The benefits described above are forward-looking statements, and actual
results may vary materially from such statements. See "Risk Factors" for factors
that may cause such variation.
GREAT WESTERN. In reaching its determination to approve and adopt the
Merger Agreement, the Great Western Board considered the following factors:
(i) the Great Western Board's familiarity with and review of Great
Western's business, operations, financial condition and earnings on both an
historical and a prospective basis, including Great Western's current
strategic initiatives to, among other things, become more like a retail
consumer bank;
(ii) the Great Western Board's review, based in part on presentations
by its financial advisors and Great Western management (which presentations
took into account Washington Mutual's March 3 presentation (see
"-- Background of the Merger")), of (a) the strategy, business, operations,
earnings and financial condition of Washington Mutual on both an historical
and a prospective basis and (b) the historical stock price performance of
the Washington Mutual Common Stock. In this regard, the Great Western Board
noted that (I) Great Western and Washington Mutual possess compatible and
complementary corporate cultures and, in recent years, have implemented
similar strategies for enhancing profitability through the reduction of
cost of funds and the development of new sources of revenue, (II)
Washington Mutual has significant market presence in California,
Washington, Oregon, Utah and, to a lesser extent, certain other Western
states and that, as a result, the Combined Company not only would be able
to achieve the same market position in California (ranked third in
deposits) that a merger with Ahmanson would bring, but would also have more
geographically diverse assets and operations (pro forma at December 31,
1996, the Combined Company would have approximately 67%, 15%, 13% and 4% of
its total deposits located in California, Washington, Florida and Oregon,
respectively) and be less vulnerable to regional economic fluctuations and
regional real estate market downturns and (III) in contrast to a
combination with Ahmanson, the Combined Company would have (A) a stronger
capital position to take advantage of future growth opportunities (At
December 31, 1996, Ahmanson had a ratio of tangible common equity to total
assets of 3.31% (which is expected to decrease based on Ahmanson's
projected share repurchases) compared to 4.38% for Washington Mutual. See
"-- Opinions of Financial Advisors -- Opinions of Great Western Financial
Advisors" below), and (B) a stronger credit position (At December 31, 1996,
Ahmanson had a ratio of non-performing assets to net loans plus other real-
estate owned of 3.33% compared to 1.46% for Washington Mutual. See
"-- Opinions of Financial Advisors -- Opinions of Great Western Financial
Advisors" below). The Great Western Board also noted that the Great Western
Stockholders, as owners of approximately 50% of the Combined Company, would
have the ability to realize the benefits of this strategic business
combination (under the terms of the Ahmanson Proposal, Great Western
Stockholders would own approximately 60% of a combined Great
Western/Ahmanson (assuming a maximum exchange ratio of 1.2));
(iii) the Great Western Board's review, based in part on presentations
by its financial advisors and Great Western management, of (a) the
strategy, business, operations, earnings and financial condition of
Ahmanson on both a historical and a prospective basis and (b) the
historical stock price performance of the Ahmanson Common Stock. In this
regard, the Great Western Board noted that over the course of the past five
years, Ahmanson has experienced relatively flat growth in earning assets
and that loans and
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deposits have decreased. The Great Western Board also noted that Ahmanson
has pursued different strategies than Great Western, including a strategy
of consolidating its operations in California rather than attempting to
diversify geographic risk. The Great Western Board also noted that a merger
with Ahmanson would hinder many of the initiatives implemented by Great
Western over the past few years in order to become more "bank-like" because
Ahmanson had only recently begun to implement a similar strategic focus and
the Great Western Board believed that Ahmanson's efforts in this respect
lagged behind those of Great Western. In particular, the Great Western
Board noted that Ahmanson (I) has had a business strategy that has
emphasized, and continues to emphasize, stock repurchases and other
financial strategies rather than core business growth as a key means of
increasing earnings per share and stockholder value, (II) has, through a
systematic program of branch acquisitions and divestitures, concentrated
its operations in California, which concentration is inconsistent with
Great Western's desire to achieve greater geographic diversification and
stands in contrast to the strong Western United States franchise that a
merger with Washington Mutual would bring and (III) has a higher risk
profile with a greater exposure to multifamily loans and commercial real
estate. With respect to the Great Western Board's observation described in
(I) concerning Ahmanson's emphasis on stock repurchases, the Great Western
Board noted the presentation of its financial advisors which indicated that
Ahmanson had repurchased approximately 14.5% of its outstanding stock at
December 31, 1994 over the course of 1995 and 1996 and had demonstrated
relatively flat asset growth over the same period and that Ahmanson's
projected repurchases, as set forth in the Original Ahmanson Proposal, did
not appear to allow for additional asset growth. The foregoing review by
the Great Western Board was based on publicly available information
regarding Ahmanson and the Great Western Board and management's knowledge
of Ahmanson's business and operations derived from years of competition
with Ahmanson in California and Florida banking markets, and not on any
direct face-to-face discussions with Ahmanson or its representatives;
(iv) the Great Western Board noted that, based on the closing market
prices of the Washington Mutual Common Stock and Ahmanson common stock on
March 4, 1997, the implied value of the Exchange Ratio was $47.87 as
compared to the implied per share value of the Original Ahmanson Proposal
of $43.44. The Great Western Board also compared the implied per share
value for the two offers on a historical longer-term basis and noted that,
since July, 1996, the implied value of the Exchange Ratio was always
greater than the implied value of the Original Ahmanson Proposal;
(v) the Great Western Board reviewed commonly-used financial
benchmarks that demonstrated that Washington Mutual had a higher level of
asset quality, higher reserve coverage ratio, higher capital ratios, a
better efficiency ratio (excluding amortization of intangibles and
non-recurring items), a higher net interest margin and a greater rate of
growth in earning assets, loans and deposits (see "-- Opinions of Financial
Advisors -- Opinions of Great Western's Financial Advisors"). The Great
Western Board noted that Washington Mutual had increased its dividend over
the past six consecutive quarters and, over a longer term, for every year
since 1990. In contrast, the Great Western Board noted that Ahmanson had
not increased its dividend since 1987. The Great Western Board also
considered that the historical pro forma dividend for Great Western
Stockholders would be higher in a merger with Ahmanson than in a merger
with Washington Mutual;
(vi) the financial presentation of its financial advisors (including
presentations of pro forma financial information with respect to both the
Washington Mutual/Great Western Merger and a merger of Great Western and
Ahmanson and the implied value of the Exchange Ratio and the initial
exchange ratio proposed by Ahmanson in the Original Ahmanson Proposal over
certain historical periods) and (a) the written opinion of Goldman Sachs
rendered on March 5, 1997 that, as of the date of such opinion, the
Exchange Ratio was fair to the stockholders of Great Western and (b) the
written opinion of Merrill Lynch rendered on March 5, 1997 that, as of the
date of such opinion, the Exchange Ratio was fair to the stockholders of
Great Western from a financial point of view. Copies of such opinions,
setting forth the assumptions made, matters considered and review
undertaken are set forth as Appendices C and E, respectively. The full text
of each such opinion is incorporated herein by reference and the foregoing
descriptions thereof are qualified in their entirety by such reference.
Great Western Stockholders are
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urged to read these opinions carefully in their entirety (see "-- Opinions
of Financial Advisors -- Opinions of Great Western Financial Advisors");
(vii) the Great Western Board compared reported earnings per share and
cash earnings per share on a pro forma per share equivalent basis which,
with the exception of cash earnings per share for 1997, indicated that
higher per share values on an equivalent basis could be realized by the
Combined Company compared to a combination of Ahmanson and Great Western
(see "-- Opinions of Financial Advisors -- Opinions of Great Western
Financial Advisors");
(viii) the anticipated cost savings and operating efficiencies
available to Great Western and Washington Mutual as a combined institution
following the Washington Mutual/Great Western Merger, the potential for
revenue enhancements at the combined institution and the likelihood of
achieving these cost savings, operating efficiencies and revenue
enhancements relative to the likelihood that they could be achieved in a
merger with Ahmanson;
(ix) the anticipated cost savings and operating efficiencies available
to Great Western and Ahmanson as a combined institution following a
combination of the two institutions and the potential for revenue
enhancements at the combined institution. In this regard, the Great Western
Board considered that Ahmanson utilizes an information system which is
outdated and is not compatible with Great Western's, which in turn could
increase the difficulty of implementing the technology conversion required
in such a merger on a timely basis and which would require significant
expenditures. In contrast, Washington Mutual shares common information
systems which should greatly facilitate the integration of the two
companies' operations and the achievement of cost savings and operating
efficiencies at a minimal cost and on a timely basis. For a description of
the specific information systems utilized by Washington Mutual and Great
Western, see "Management and Operations of Washington Mutual Following the
Merger -- Operations Following the Merger -- Cost Savings";
(x) the significant experience of the senior management of Washington
Mutual and its proven record of achieving cost savings, operating
efficiencies and revenue enhancements in connection with the integration of
acquired companies. In particular, the Great Western Board noted that
Washington Mutual's current management team has successfully integrated
numerous significant acquisitions since 1990 and that Washington Mutual had
consummated more than 20 acquisitions over a longer period, including both
in-market and out-of-market acquisitions of banks and thrifts of varying
size. In contrast, Ahmanson's current management team, many members of
which have been hired by Ahmanson within the past several years, has
limited its focus to the acquisitions and divestitures of branches;
(xi) the Great Western Board's concern, based upon presentations by
its financial advisors and Great Western management, that, as a result of
substantial share repurchases (during fiscal 1995 and 1996, Ahmanson is
estimated to have repurchased 14.5% of its total outstanding shares as of
December 31, 1994), Ahmanson's tangible common equity as a percentage of
tangible assets, a ratio that Great Western's financial advisors believe is
generally regarded by the investment community and by bank regulatory
authorities as an indication of the relative capital strength of a
financial institution, was among the lowest of any publicly traded thrift
with assets in excess of one billion dollars. The Great Western Board
expressed concern that Ahmanson's capital position, when combined with its
loan loss reserve coverage, its exposure to multifamily loans and
commercial real estate and its concentration of California-based assets,
made Ahmanson particularly vulnerable to economic downturns and attendant
decreases in credit quality. At December 31, 1996, Ahmanson and Washington
Mutual had: (i) ratios of tangible common equity to tangible assets of
3.31% and 4.83%, respectively; and (ii) ratios of total capital (including
capital securities, preferred and common stock) to total assets of 5.18%
and 5.38%, respectively. The OTS applies regulatory capital ratios only to
savings associations and banks that it regulates and not to the holding
companies of such associations or banks. At December 31, 1996, each of the
respective subsidiary federal savings banks of Washington Mutual and
Ahmanson were "well-capitalized" within the meaning of OTS rules and
regulations. Washington Mutual Bank is subject to the capital requirements
of the FDIC and, at December 31, 1996, was "well-capitalized" within the
meaning of FDIC rules and regulations.
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(xii) the Great Western Board's concerns that because the transaction
contemplated by Ahmanson would be accounted for as a purchase rather than
as a pooling of interests, (a) the combined institution would carry on its
books a substantial amount of goodwill (and that the level of the combined
institution's intangible assets (of which goodwill is the major component)
to common equity would be amongst the highest in the financial services
industry), which goodwill would have to be amortized and, as a result,
would reduce reported earnings per share, and lead to a substantial
difference between reported earnings per share and cash earnings per share
and (b) a risk existed that the value of the Ahmanson common stock received
by Great Western's Stockholders in a merger with Ahmanson would decline if
the market did not value Ahmanson with an emphasis on cash earnings rather
than on reported earnings. In contrast, neither of these concerns were
raised by the Washington Mutual/Great Western Merger, which will be
accounted for as a pooling-of-interests;
(xiii) the Great Western Board's belief regarding the impact of the
Washington Mutual/Great Western Merger on Great Western's employees
relative to their response to a transaction with Ahmanson, and the positive
effect such impact could have on the business, financial condition and
results of operations of the Combined Company and, conversely, the possible
negative effect of such impact in a combination of Ahmanson and Great
Western. The Great Western Board expressed concern that the low employee
morale among Great Western employees concerning a merger with Ahmanson,
which the Great Western Board believed was attributable to public
statements by Mr. Rinehart relating to Ahmanson's intentions regarding such
employees, could pose integration risks to a combined Great
Western/Ahmanson;
(xiv) the Great Western Board's belief, based on Washington Mutual's
and Great Western's past history of community service and lending, that the
Washington Mutual/Great Western Merger would have a positive impact on
other non-stockholder constituencies, and the positive effect such impact
could have on the business, financial condition and results of operations
of the Combined Company;
(xv) the Great Western Board's review, based in part on presentations
by its financial advisors, of alternatives to the Washington Mutual/Great
Western Merger and the Original Ahmanson Proposal, the range of possible
values to Great Western's stockholders obtainable through implementation of
such alternatives and the timing and likelihood of actually receiving such
values;
(xvi) the following additional factors which contributed to the Great
Western Board's conclusion that the Washington Mutual/Great Western Merger
is in the best interests of Great Western and its stockholders:
(A) the results of the due diligence investigations regarding
Washington Mutual;
(B) the Great Western Board's assessment, with the assistance of
counsel, concerning the likelihood that Washington Mutual would obtain
all required regulatory approvals for the
Washington Mutual/Great Western Merger;
(C) the expectation that the Washington Mutual/Great Western Merger
will generally be a tax-free transaction to Great Western and its
stockholders;
(D) the terms of the Merger Agreement, and certain other
information regarding the Washington Mutual/Great Western Merger,
including the terms and structure of the Washington Mutual/Great Western
Merger and the proposed arrangements with respect to the board of the
Combined Company following the Washington Mutual/Great Western Merger.
With respect to the termination fee provided for in the Merger
Agreement, the Great Western Board actively directed negotiations with a
view to substantially reducing the fee and expense reimbursement
provisions from those initially proposed by Washington Mutual in
response to Great Western's draft merger agreement (which contained no
termination fee or expense reimbursement). After being advised that
Washington Mutual's final position was a condition to its merger
proposal, the Great Western Board ultimately concluded that such
provisions were necessary in order to secure a transaction that the
Great Western Board believed to be superior to that proposed by
Ahmanson. The Great Western Board also considered that Washington Mutual
had informed Great Western that, in order to pursue a merger with Great
Western, Washington Mutual would be foregoing significant business
opportunities. The Great Western Board also noted that, although
originally included in the proposal by
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Washington Mutual, Washington Mutual had dropped its request for
reciprocal stock option agreements in connection with the Merger
Agreement after negotiations with Great Western.
On March 25, 1997, the Great Western Board convened with its legal and
financial advisors to consider the Ahmanson Proposal, and determined not to
authorize Great Western management to provide information to, or engage in
negotiations or discussions with, Ahmanson. In reaching this determination, the
Board considered the factors listed above (other than the factor set forth in
clause (iv) above) as well as additional factors, including:
(i) the Great Western Board's review, based on a presentation by its
financial advisors, of the terms of the Ahmanson Proposal;
(ii) the Great Western Board's review, based on a presentation by its
financial advisors, of Ahmanson's revised projections with respect to the
amount of its share repurchase plan and the anticipated cost savings and
revenue enhancements available to Great Western and Ahmanson as a combined
institution;
(iii) the Great Western Board's concern that Ahmanson's projected net
income to common stock, contained in public filings by Ahmanson, for the
period of October 1, 1997 through December 31, 1999, would be insufficient
to cover the cost of Ahmanson's projected share repurchases and dividends
for common stock for the same period, and that, as a result, Ahmanson's pro
forma capital position would be further weakened;
(iv) the financial presentation of its financial advisors and (a) the
opinion of Goldman Sachs rendered on March 25, 1997 that, as of the date of
such opinion, the Exchange Ratio was fair to the stockholders of Great
Western and (b) the opinion of Merrill Lynch rendered on March 25, 1997
that, as of the date of such opinion, the Exchange Ratio was fair to the
Great Western Stockholders from a financial point of view. Copies of such
opinions, setting forth the assumptions made, matters considered and review
undertaken, are set forth as Appendices D and F, respectively. The full
text of each such opinion is incorporated herein by reference and the
foregoing descriptions thereof are qualified in their entirety by such
reference. Great Western Stockholders are urged to read these opinions
carefully in their entirety (see "-- Opinions of Financial
Advisors -- Opinions of Great Western Financial Advisors");
(v) the terms of the Merger Agreement that prohibit such negotiations
unless the Great Western Board "after having consulted with and considered
the advice of its financial advisors and outside counsel, has determined in
good faith that the failure to do so would create a reasonable possibility
of a breach of the fiduciary duties of the Great Western Board" and, after
consultation with its financial advisors and outside counsel, the absence
of such a determination by the Great Western Board;
(vi) that the Great Western Board had made a determination to pursue a
strategic business combination with Washington Mutual, rather than a sale
of Great Western, and that no factors or combination of factors (including
the recognition that, during the period of March 17 through March 24, 1997,
the current nominal implied value of the Ahmanson Proposal was between 3
and 4.5% higher than that of the Exchange Ratio, although the average
implied nominal value of the Ahmanson Proposal for the three month period
ended March 24, 1997 (which was based on the average of the daily closing
prices for such period) had been essentially the same as, and for the six
month period ended March 24, 1997 (which was based on the average of the
daily closing prices for such period) had been lower than, the implied
value of the Exchange Ratio for the corresponding periods; see "-- Opinions
of Financial Advisors -- Opinions of Great Western's Financial Advisors")
had come to its attention that altered its conclusion, formulated based on
the factors described herein, that Washington Mutual was a more compelling
strategic merger partner than Ahmanson and that the Washington Mutual
merger presented the Great Western Stockholders with a superior value
opportunity; and
(vii) the Great Western Board recognized its duty, and its continuing
ability, to engage in careful, informed and disinterested decision making
for the purpose of advancing the best interests of the Great Western
Stockholders.
The foregoing discussion of the information and factors considered by the
Great Western Board is not intended to be exhaustive. In reaching its
determination to approve and recommend the Washington
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Mutual/Great Western Merger and during its consideration of the Ahmanson
Proposal on March 25, 1997, the Great Western Board did not assign any relative
or specific weights to the foregoing factors, and individual directors may have
given differing weights to different factors. Throughout its deliberations, the
Great Western Board received the advice of its financial advisors and
representatives of Skadden, Arps, Slate, Meagher & Flom LLP, the firm retained
to serve as special counsel to Great Western, and Latham & Watkins, special
counsel to the outside directors of Great Western.
EACH OF THE WASHINGTON MUTUAL BOARD AND THE GREAT WESTERN BOARD BELIEVES
THAT THE TERMS OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER ARE FAIR TO, AND IN
THE BEST INTERESTS OF, THEIR RESPECTIVE SHAREHOLDERS. THE WASHINGTON MUTUAL
BOARD AND THE GREAT WESTERN BOARD HAVE EACH, BY UNANIMOUS VOTE OF ALL DIRECTORS
PRESENT, APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
AND RECOMMEND THAT THEIR RESPECTIVE SHAREHOLDERS APPROVE AND ADOPT THE SHARE
ISSUANCE/MERGER PROPOSAL, IN THE CASE OF WASHINGTON MUTUAL, AND THE WASHINGTON
MUTUAL/GREAT WESTERN MERGER PROPOSAL, IN THE CASE OF GREAT WESTERN.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF LEHMAN BROTHERS INC. Washington Mutual has retained Lehman
Brothers to act as its financial advisor in connection with the Washington
Mutual/Great Western Merger. Lehman Brothers has rendered its written opinion to
the Washington Mutual Board, dated March 5, 1997, to the effect that, based upon
and subject to the factors and assumptions set forth in such opinion, and as of
the date of such opinion, the Exchange Ratio to be offered by Washington Mutual
to the Great Western Stockholders in the Washington Mutual/Great Western Merger
was fair to Washington Mutual from a financial point of view. The full text of
the Lehman Brothers' opinion, which sets forth assumptions made, procedures
followed, matters considered and limits on the review undertaken by Lehman
Brothers, is attached hereto as Appendix B. The summary set forth in this Joint
Proxy Statement/Prospectus of the opinion of Lehman Brothers is qualified in its
entirety by reference to the full text of the Lehman Brothers' opinion attached
hereto.
No limitations were imposed by Washington Mutual on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion. Lehman Brothers was not requested to and did not make any
recommendation to the Washington Mutual Board as to the form or amount of
consideration to be offered by Washington Mutual to the Great Western
Stockholders in the Washington Mutual/Great Western Merger, which was determined
through arm's-length negotiations between the parties. In arriving at its
opinion, Lehman Brothers did not ascribe a specific range of value to Washington
Mutual or Great Western, but rather made its determination as to the fairness,
from a financial point of view, of the consideration to be offered by Washington
Mutual to the Great Western Stockholders in the Washington Mutual/Great Western
Merger on the basis of the financial and comparative analyses described below.
Lehman Brothers' opinion is for the use and benefit of the Washington Mutual
Board and was rendered to the Washington Mutual Board in connection with its
consideration of the Washington Mutual/Great Western Merger. Lehman Brothers'
opinion is not intended to be and does not constitute a recommendation to any
shareholder of Washington Mutual as to how such shareholder should vote with
respect to the Washington Mutual/Great Western Merger. Lehman Brothers was not
requested to opine as to, and its opinion does not address, Washington Mutual's
underlying business decision to proceed with or effect the Washington
Mutual/Great Western Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) the
Merger Agreement and the specific terms of the Washington Mutual/Great Western
Merger, (2) such publicly available information concerning Washington Mutual and
Great Western that it believed to be relevant to its analysis including, without
limitation, the Forms 10-K for the year ended December 31, 1995 and preliminary
draft copies of Forms 10-K for the year ended December 31, 1996, quarterly
reports on Form 10-Q for the periods ended March 31, June 30 and September 30,
1996 and recent press releases for Washington Mutual and Great Western, (3)
financial and operating information with respect to the businesses, operations
and prospects of Washington Mutual and Great Western furnished to it by
Washington Mutual and Great Western, (4) a trading history of Washington Mutual
Common Stock and Great Western Common Stock and a comparison of that trading
history with those of other companies that it deemed relevant, (5) a comparison
of the
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<PAGE> 54
historical financial results and present financial condition of Washington
Mutual and Great Western with those of other companies that it deemed relevant,
and (6) a comparison of the financial terms of the Washington Mutual/Great
Western Merger with the financial terms of certain other recent transactions
that it deemed relevant. In addition, Lehman Brothers had discussions with the
managements of Washington Mutual and Great Western concerning their respective
businesses, operations, assets, liabilities, financial conditions and prospects,
and the potential cost savings, operating synergies, revenue enhancements and
strategic benefits expected to result from a combination of the businesses of
Washington Mutual and Great Western, and undertook such other studies, analyses
and investigations as it deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of the managements of
Washington Mutual and Great Western that they were not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections of Washington Mutual and Great Western,
upon advice of Washington Mutual, Lehman Brothers assumed that such projections
were reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the respective managements of Washington Mutual and
of Great Western, as to the future financial performance of Washington Mutual
and Great Western including, without limitation, with respect to projected cost
savings, operating synergies and revenue enhancements expected to result from a
combination of the businesses of Washington Mutual and Great Western and that
Washington Mutual and Great Western would perform, and that the Combined Company
will perform, substantially in accordance with such projections. Upon advice of
Washington Mutual and its legal and accounting advisors, Lehman Brothers assumed
that the Washington Mutual/Great Western Merger will qualify for
pooling-of-interests accounting treatment and as a reorganization within the
meaning of Section 368(a) of the Code and therefore as a tax-free transaction.
In arriving at its opinion, Lehman Brothers did not conduct a physical
inspection of the properties and facilities of Washington Mutual or Great
Western and did not make or obtain any evaluations or appraisals of the assets
or liabilities of Washington Mutual or Great Western. In addition, Lehman
Brothers noted that it is not expert in the evaluation of loan portfolios or
allowances for loan and real estate owned losses and, upon advice of Washington
Mutual, it assumed that the allowances for loan and real estate owned losses
provided to it by Washington Mutual and used by it in its analysis and in
arriving at its opinion were in the aggregate adequate to cover all such losses.
Lehman Brothers' opinion necessarily was based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the date of its
letter.
The following is a summary of the analyses Lehman Brothers performed in
arriving at its opinion dated March 5, 1997 as to the fairness, from a financial
point of view, to Washington Mutual of the Exchange Ratio. In connection with
the preparation and delivery of its opinion to the Board of Directors of
Washington Mutual, Lehman Brothers performed a variety of financial and
comparative analyses, as described below. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial and comparative analysis and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Washington
Mutual. Any estimates contained in these analyses were not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses did not purport to be appraisals or
to reflect the prices at which businesses may actually be sold.
Purchase Price Analysis. Based upon the Exchange Ratio, the closing price
of Washington Mutual's Common Stock on March 4, 1997 of $53.19 represented a
value to be received by holders of Great Western Common Stock of $47.87 per
share. Based on this implied transaction value per share, Lehman Brothers
calculated the price-to-market, price-to-book, price-to-tangible book,
price-to-adjusted tangible book
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(wherein tangible book value was adjusted to reflect a tangible common equity to
tangible assets ratio of 5.00%) and price to earnings multiples, and the implied
deposit premium paid, as adjusted (defined as the transaction value, adjusted to
exclude a range of implied values of Aristar, minus the tangible book value,
divided by total deposits), in the Washington Mutual/Great Western Merger. The
implied transaction value per share yielded a premium to market price multiple
of 40% over the closing price of Great Western Common Stock of $34.25 on
February 14, 1997, the last trading day prior to the announcement of the
Original Ahmanson Proposal. This analysis also yielded a price-to-book value
multiple of 2.72x, a price-to-tangible book value multiple of 3.08x, a
price-to-adjusted tangible book value multiple of 3.09x, a price to 1996
earnings multiple of 21.0x (based on Great Western's earnings, before non
recurring items, for the twelve months ended December 31, 1996), a price to
estimated 1997 earnings multiple of 17.6x, and a price to estimated 1998
earnings multiple of 15.4x (based on estimates of Great Western's 1997 and 1998
earnings published by First Call as of March 4, 1997) and an implied deposit
premium, as adjusted, in the range of 13.4% to 14.1%. First Call is a data
service that monitors and publishes a compilation of earnings estimates produced
by selected research analysts regarding companies of interest to institutional
investors.
Comparable Transaction Analysis. Using publicly available information,
Lehman Brothers reviewed certain terms and financial characteristics, including
historical price-to-earnings ratios, the price-to-book ratio, the
price-to-tangible book ratio, the price-to-adjusted tangible book ratio and the
deposit premium paid at the time of transaction announcement, of eight savings
institution merger or acquisition transactions (the "Comparable Thrift
Transactions Group") with values greater than $250 million publicly announced
since January 1, 1996 which Lehman Brothers deemed to be comparable to the
present transaction. The Comparable Thrift Transactions Group considered by
Lehman Brothers in its analysis consisted of the following transactions
(identified by acquiror/acquiree): Union Planters/Leader Financial, Washington
Mutual/Keystone Holdings, MacAndrews & Forbes/Cal Fed, HSBC Holdings/First FS&LA
of Rochester, ABN-AMRO/Standard Federal, Mercantile/Roosevelt Financial, CCB
Financial/American Federal and Summit/Collective. The median values for these
transactions for the price to latest twelve months earnings ratio, price-to-book
ratio, price-to-tangible book ratio and price-to-adjusted tangible book ratio
were 14.5x, 1.99x, 2.23x and 2.47x, respectively. The range of values for these
parameters were from 12.6x to 19.4x, 1.55x to 3.06x, 1.55x to 3.31x and 1.34x to
4.33x, respectively. These compared to transaction multiples of 21.0x, 2.72x,
3.08x and 3.09x for Washington Mutual/Great Western based on the closing price
of Washington Mutual Common Stock on March 4, 1997. The range of deposit
premiums paid in these transactions was 3.9% to 26.6%, with a median value of
14.0% compared to an implied deposit premium, as adjusted, in the range of 13.4%
to 14.1% for Washington Mutual/Great Western based on the closing price of
Washington Mutual Common Stock on March 4, 1997. Two transactions within the
Comparable Thrift Transactions Group were publicly announced since January 1,
1997: CCB Financial/American Federal and Summit/Collective. The mean values for
these transactions for the price to latest twelve months earnings ratio,
price-to-book ratio, price-to-tangible book ratio and price-to-adjusted tangible
book ratio were 18.9x, 2.68x, 2.94x and 3.67x, respectively. These compared to
transaction multiples of 21.0x, 2.72x, 3.08x and 3.09x for Washington
Mutual/Great Western based on the closing price of Washington Mutual Common
Stock on March 4, 1997. The mean value for the deposit premium paid in these
transactions was 21.1%, compared to an implied deposit premium, as adjusted, in
the range of 13.4% to 14.1% for Washington Mutual/Great Western based on the
closing price of Washington Mutual Common Stock on March 4, 1997.
Using publicly available information, Lehman Brothers also reviewed certain
terms and financial characteristics, including historical price-to-earnings
ratios, the price-to-book ratio, the price-to-tangible book ratio and the
price-to-adjusted tangible book ratio and the deposit premium paid at the time
of transaction announcement, of six banking company merger or acquisition
transactions (the "Comparable Bank Transactions Group") with values greater than
$750 million publicly announced since January 1, 1996 which Lehman Brothers
deemed to be relevant to the present transaction. The Comparable Bank
Transactions Group considered by Lehman Brothers in its analysis consisted of
the following transactions (identified by acquiror/ acquiree): Wells Fargo/First
Interstate, NationsBank/Boatmen's Bancshares, Crestar Financial/Citizens
Bancorporation, Mercantile Bancorp/Mark Twain Bancshares, Southern
National/United Carolina Bancshares and Allied Irish Bank/Dauphin Deposit
Corporation. The median values for these transactions for the price to latest
twelve months earnings ratio, price-to-book ratio, price to tangible book ratio
and price-to-
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adjusted tangible book were 18.9x, 2.76x, 2.91x and 3.57x, respectively. These
compared to transaction multiples of 21.0x, 2.72x, 3.08x and 3.09x for
Washington Mutual/Great Western based on the closing price of Washington Mutual
Common Stock on March 4, 1997. The median value for the deposit premium paid in
these transactions was 20.0%, compared to an implied deposit premium, as
adjusted, in the range of 13.4% to 14.1% for Washington Mutual/Great Western
based on the closing price of Washington Mutual Common Stock on March 4, 1997.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial conditions and prospects of Washington
Mutual, Great Western and the companies included in the Comparable Thrift
Transactions Group and the Comparable Bank Transactions Group, Lehman Brothers
believed that a purely quantitative comparable transaction analysis would not be
particularly meaningful in the context of the Washington Mutual/Great Western
Merger. Lehman Brothers believed that the appropriate use of a comparable
transaction analysis in this instance would involve qualitative judgments
concerning the differences between the characteristics of these transactions and
the Washington Mutual/Great Western Merger which would affect the acquisition
values of the acquired companies and Great Western.
Comparable Company Analysis. Using publicly available information, Lehman
Brothers compared the financial performance and stock market valuation of Great
Western with the following selected savings institutions (the "Comparable Thrift
Group") deemed relevant by Lehman Brothers: Astoria Financial Corporation, Bank
United Corp., Commercial Federal Corporation, Charter One Financial, Dime
Bancorp, Inc., Downey Financial Corp., First Financial Corp., Golden West
Financial, GreenPoint Financial Corp., People's Bank, MHC., Peoples Heritage
Financial Group, Sovereign Bancorp, Inc., TCF Financial Corp. and Washington
Federal Inc. Indications of such financial performance and stock market
valuation included profitability (return on average assets and return on average
equity for the latest twelve month period ended December 31, 1996, adjusted for
non-recurring items, of 0.73% and 11.6%, respectively, for Great Western and
medians of 0.98% and 15.4%, respectively, for the Comparable Thrift Group); the
ratio of tangible equity to tangible assets (5.42% for Great Western and a
median of 6.50% for the Comparable Thrift Group); the ratio of non-performing
assets to loans and foreclosed real estate (1.75% for Great Western and a median
of 1.47% for the Comparable Thrift Group); the ratio of price to estimated 1997
earnings (12.6x for Great Western and a median of 12.5x for the Comparable
Thrift Group); the ratio of price-to-book (1.94x for Great Western and a median
of 1.93x for the Comparable Thrift Group) and the ratio of
price-to-tangible-book (2.20x for Great Western and a median of 2.24x for the
Comparable Thrift Group). These ratios for the Comparable Thrift Group are based
on public financial statements as of December 31, 1996, closing stock market
prices on March 4, 1997 and earnings per share are based on the most recent
median estimates for 1997 and 1998 earnings published by the Institutional
Broker Estimate System ("IBES"). IBES is a data service that monitors and
publishes compilations of earnings estimates produced by selected research
analysts regarding companies of interest to institutional investors. These
ratios for Great Western are based on public financial statements as of December
31, 1996, First Call 1997 and 1998 earnings per share estimates as of March 4,
1997 and the closing price for Great Western Common Stock of $34.25 as of close
of business on February 14, 1997, the last trading day prior to the announcement
of the Ahmanson Proposal.
Because of the inherent differences in the businesses, operations,
financial conditions and prospects of Washington Mutual, Great Western and the
companies included in the Comparable Thrift Group, Lehman Brothers believed that
a purely quantitative comparable company analysis would not be particularly
meaningful in the context of the Washington Mutual/Great Western Merger. Lehman
Brothers believed that the appropriate use of a comparable company analysis in
this instance would involve qualitative judgments concerning the differences
between Great Western and the companies included in the Comparable Thrift Group
which would affect the trading values of the comparable companies and Great
Western.
Discounted Cash Flow Analysis. Lehman Brothers discounted three years of
estimated cash flows of Great Western and an estimated terminal value of Great
Western Common Stock, assuming a dividend rate sufficient to maintain a tangible
common equity to tangible assets ratio of 5.00% and using a range of discount
rates from 12% to 16%. Lehman Brothers derived an estimate of a range of
terminal values by applying multiples ranging from 11 times to 13 times
estimated year-end 1999 net income. These rates and values were chosen to
reflect different assumptions regarding the required rates of return of holders
or prospective buyers
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of Great Western Common Stock. In connection with this analysis, Washington
Mutual management provided Lehman Brothers with net income projections. This
analysis, and its underlying assumptions, yielded a range of values for Great
Western Common Stock from approximately $50.00 to $60.00 per share, as compared
to a per share transaction value of $47.87, based on the closing price of
Washington Mutual Common Stock on March 4, 1997.
Pro Forma Merger Analysis. Lehman Brothers analyzed the impact of the
Washington Mutual/Great Western Merger on Washington Mutual's estimated earnings
per share based on the most recent estimates for the 1997 and 1998 earnings of
Washington Mutual and Great Western published by First Call and assumed growth
rates of 12.0% and 10.5% from 1998 to 1999 for Washington Mutual and Great
Western, respectively. In connection with this analysis, management of each of
Washington Mutual and Great Western provided Lehman Brothers with projections
for cost savings and fee income and net interest income revenue enhancements
from the Washington Mutual/Great Western Merger, which projections were
incorporated in Lehman Brothers' analyses. Based on such First Call estimates,
assumed growth rates and management projections of cost savings and revenue
enhancements, Lehman Brothers concluded that the Washington Mutual/Great Western
Merger would result in dilution of 9% to Washington Mutual's earnings per share
in 1997 and accretion of 5% and 11% to Washington Mutual's earnings per share
for 1998 and 1999, respectively.
Contribution Analysis. Lehman Brothers analyzed the respective
contributions of Great Western and Washington Mutual to the Combined Company's
pro forma balance sheet as of December 31, 1996 and pro forma historic net
income for 1996, without giving effect to any cost savings or revenue
enhancements resulting from the Washington Mutual/Great Western Merger. This
analysis showed that Great Western would have contributed 49% of total assets,
50% of total loans (gross), 52% of total equity, 52% of common equity and 50% of
tangible common equity on a pro forma basis as of December 31, 1996 and that
Great Western's contribution to the Combined Company's pre-tax net income,
adjusted for non-recurring items, and net income, adjusted for non-recurring
items, would have been 46% and 44%, respectively. This analysis also showed
that, based on First Call earnings estimates for 1997 and 1998, without giving
effect to any cost savings or revenue enhancements resulting from the Merger,
Great Western's contribution to the Combined Company's net income, would be 46%
and 44% for 1997 and 1998, respectively. Based upon the Exchange Ratio, Great
Western shareholders would own an estimated 52% of the Combined Company upon
completion of the Washington Mutual/Great Western Merger.
Lehman Brothers is an internationally recognized investment banking firm.
Lehman Brothers, as part of its investment banking business, is continuously
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Washington Mutual Board
retained Lehman Brothers based upon Lehman Brothers' experience and expertise
and its familiarity with Washington Mutual. Lehman Brothers is acting as
financial advisor to Washington Mutual in connection with the Washington
Mutual/Great Western Merger. Pursuant to a letter agreement dated March 5, 1997,
between Washington Mutual and Lehman Brothers, Washington Mutual has agreed to
pay Lehman Brothers a fee of $20 million for its services in connection with the
Washington Mutual/Great Western Merger, so long as the Washington Mutual/Great
Western Merger occurs before March 1, 1999. The letter agreement with Lehman
Brothers also provides that Washington Mutual will reimburse Lehman Brothers for
its out-of-pocket expenses and indemnify Lehman Brothers and certain related
persons and entities against certain liabilities, including liabilities under
securities laws, incurred in connection with its services thereunder. In the
past, Lehman Brothers and its affiliates have provided financial advisory and
other services to both Washington Mutual (including underwriting of public
offerings of Washington Mutual's securities and acting as financial advisor to
Keystone Holdings in its sale to Washington Mutual) and Great Western (including
underwriting of public offerings of Great Western and its subsidiaries'
securities and advising GW Bank in its sale of Great Western Financial Services
to Aristar) and have received customary fees for the rendering of these
services. In the ordinary course of their business, Lehman Brothers and its
affiliates actively trade the debt and equity securities of Washington Mutual
and Great Western for their own account and for the accounts of their customers
and, accordingly, may at any time hold a long or short position in such
securities. In connection with Lehman Brothers' engagement as financial advisor
to Washington
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Mutual, Washington Mutual anticipates that certain employees of Lehman Brothers
may communicate in person, by telephone or otherwise with a limited number of
institutions, brokers or other persons who are Washington Mutual shareholders or
Great Western Stockholders for the purpose of assisting in the solicitation of
proxies in favor of the Share Issuance/Merger Proposal and the Articles
Amendment Proposal (in the case of the Washington Mutual shareholders) and the
Washington Mutual/Great Western Merger Proposal (in the case of the Great
Western Stockholders). Lehman Brothers will not receive any fee for or in
connection with such solicitation activities by its employees apart from the fee
it is otherwise entitled to receive as described above.
Opinions of Great Western Financial Advisors. The Great Western Board
retained Goldman Sachs and Merrill Lynch (the "Great Western Financial
Advisors") in connection with its consideration of the potential alternatives
available to Great Western. The Great Western Financial Advisors were retained
based upon their qualifications, expertise and reputation, as well as upon their
prior investment banking relationships with Great Western.
Opinion of Goldman, Sachs & Co. At the March 5, 1997 meeting of the Great
Western Board, Goldman Sachs rendered its written opinion that, as of such date,
and based upon and subject to various qualifications and assumptions described
therein, the Exchange Ratio is fair to holders of Great Western Common Stock. At
the March 25, 1997 meeting of the Great Western Board, Goldman Sachs rendered
its opinion that, as of such date, and based upon and subject to various
qualifications and assumptions described therein, the Exchange Ratio is fair to
holders of Great Western Common Stock.
THE FULL TEXT OF THE GOLDMAN SACHS OPINIONS, DATED MARCH 5, 1997 AND DATED
MARCH 25, 1997, WHICH SET FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS
ON THE SCOPE OF REVIEW UNDERTAKEN, ARE ATTACHED AS APPENDIX C AND APPENDIX D,
RESPECTIVELY, TO THIS JOINT PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF GREAT
WESTERN ARE URGED TO READ THESE OPINIONS IN THEIR ENTIRETY. NO LIMITATIONS WERE
IMPOSED BY THE GREAT WESTERN BOARD UPON GOLDMAN SACHS WITH RESPECT TO THE
INVESTIGATIONS MADE OR PROCEDURES FOLLOWED BY IT IN RENDERING ITS OPINIONS. THE
GOLDMAN SACHS OPINIONS, WHICH ARE ADDRESSED TO THE GREAT WESTERN BOARD, ARE
DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO AND DO NOT CONSTITUTE
RECOMMENDATIONS TO ANY GREAT WESTERN STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE GREAT WESTERN MEETING. THE SUMMARY OF THE GOLDMAN SACHS
OPINION, DATED MARCH 25, 1997, SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In connection with its opinion dated March 25, 1997, Goldman Sachs
reviewed, among other things, the Merger Agreement; the Registration Statement
on Form S-4 of Washington Mutual dated March 13, 1997, including the Joint Proxy
Statement/Prospectus; Annual Reports to stockholders and Annual Reports on Form
10-K of Great Western for the five years ended December 31, 1996; Annual Reports
to stockholders and Annual Reports on Form 10-K of Washington Mutual for the
three years ended December 31, 1996; Annual Reports to stockholders and Annual
Reports to the Federal Deposit Insurance Corporation on Form F-2 of Washington
Mutual Savings Bank, predecessor to Washington Mutual, for the two years ended
December 31, 1993; certain interim reports to stockholders and Quarterly Reports
on Form 10-Q of Great Western and Washington Mutual; certain other
communications from Great Western and Washington Mutual to their respective
stockholders; certain internal financial analyses and forecasts for Great
Western and Washington Mutual prepared by their respective managements,
including analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies; the S-4 Registration
Statement dated February 18, 1997 as amended March 18, 1997 of Ahmanson; and
certain press releases and filings with the Commission by Great Western,
Washington Mutual and Ahmanson in connection with the Washington Mutual/Great
Western Merger, the Ahmanson Proposal and related matters. Goldman Sachs also
held discussions with members of the senior managements of Great Western and
Washington Mutual regarding the past and current business operations, financial
condition and future prospects of their respective companies and each senior
managements' assessment of the future prospects of the Combined Company. In
addition, Goldman Sachs reviewed the reported price and trading activity for
Great Western Common Stock and Washington Mutual Common Stock, compared certain
financial and stock market information for Great Western and Washington Mutual
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the savings and
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loan industry specifically and in other industries generally and performed such
other studies and analyses as Goldman Sachs considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In that regard, Goldman Sachs assumed, with Great
Western's consent, that the financial forecasts, including, without limitation,
analysis of certain cost savings, operating efficiencies, revenue effects and
financial synergies and projections regarding under-performing and
non-performing assets and net charge-offs have been reasonably prepared on a
basis reflecting the best currently available judgments and estimates of Great
Western and Washington Mutual and that such forecasts will be realized in the
amounts and at the times contemplated thereby. Goldman Sachs is not an expert in
the evaluation of loan and lease portfolios for purposes of assessing the
adequacy of the allowances for losses with respect thereto and assumed, with
Great Western's consent, that such allowances for each of Great Western and
Washington Mutual are in the aggregate adequate to cover all such losses. In
addition, Goldman Sachs did not review individual credit files nor did it make
an independent evaluation or appraisal of the assets and liabilities of Great
Western or Washington Mutual or any of their subsidiaries and Goldman Sachs was
not furnished with any such evaluation or appraisal. Goldman Sachs assumed, with
Great Western's consent, that the Washington Mutual/Great Western Merger will be
accounted for as a pooling of interests under generally accepted accounting
principles. Goldman Sachs' opinion was based on economic, market and other
conditions as in effect on, and the information available to it as of, the date
of its opinion. Goldman Sachs did not express any opinion as to the price or
range of prices at which Washington Mutual Common Stock might trade subsequent
to the Washington Mutual/Great Western Merger.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Great Western having provided certain investment banking services
to Great Western from time to time, including having acted as managing
underwriter of its $300 million issue of capital securities in January 1997, and
having acted as its financial advisor in connection with, and participated in
certain of the negotiations leading to, the Merger Agreement. Goldman Sachs also
has provided certain investment banking services to Washington Mutual from time
to time and may provide investment banking services to Washington Mutual in the
future. In addition, Goldman Sachs is a full service securities firm and in the
course of its trading activities it may from time to time effect transactions,
for its own account or the account of customers, and hold positions in
securities or options on securities of Great Western and Washington Mutual.
Opinion of Merrill Lynch. On March 5, 1997, Merrill Lynch rendered its
written opinion that, as of such date, and based upon and subject to various
qualifications and assumptions described therein, the Exchange Ratio is fair to
the stockholders of Great Western from a financial point of view. On March 25,
1997, Merrill Lynch rendered its opinion that, as of such date, and based upon
and subject to various qualifications and assumptions described therein, the
Exchange Ratio is fair to the stockholders of Great Western from a financial
point of view.
A COPY OF THE MERRILL LYNCH OPINIONS, DATED MARCH 5, 1997 AND MARCH 25,
1997, WHICH SET FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL LYNCH, ARE ATTACHED AS APPENDIX E
AND APPENDIX F, RESPECTIVELY, TO THIS JOINT PROXY STATEMENT/PROSPECTUS. MERRILL
LYNCH ADDRESSED ITS OPINIONS TO THE GREAT WESTERN BOARD AND SUCH OPINIONS ARE
DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL POINT OF
VIEW AND DO NOT CONSTITUTE A RECOMMENDATION TO ANY GREAT WESTERN STOCKHOLDER AS
TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE GREAT WESTERN MEETING. THE SUMMARY OF
THE MERRILL LYNCH OPINION DATED MARCH 25, 1997 SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
In arriving at its opinion dated March 25, 1997, Merrill Lynch, among other
things: (i) reviewed Great Western's Annual Reports on Form 10-K and related
audited financial information for the five fiscal years ended December 31, 1996;
(ii) reviewed Washington Mutual's Annual Reports on Form 10-K, and related
audited financial information for the three fiscal years ended December 31, 1996
and Annual Reports to the
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Federal Deposit Insurance Company on Form F-2 of Washington Mutual Savings Bank,
predecessor to Washington Mutual for the two years ended December 31, 1993;
(iii) reviewed the Washington Mutual Registration Statement on Form S-4 dated
March 13, 1997; (iv) reviewed certain financial information, including financial
forecasts, relating to the respective businesses, earnings, assets, liabilities
and prospects of Great Western and Washington Mutual furnished to Merrill Lynch
by senior management of Great Western and Washington Mutual; (v) conducted
certain discussions with members of senior management of Great Western and
Washington Mutual concerning the respective financial condition, businesses,
earnings, assets, liabilities, operations, regulatory condition, financial
forecasts, contingencies and prospects, of Great Western and Washington Mutual
and their respective view as to the future financial performance of Great
Western, Washington Mutual and the combined entity, as the case may be,
following the Washington Mutual/Great Western Merger; (vi) reviewed the
historical market prices and trading activity for the Great Western Common Stock
and the Washington Mutual Common Stock and compared them with that of certain
publicly traded companies which Merrill Lynch deemed to be relevant; (vii)
compared the respective results of operations of Great Western and Washington
Mutual with those of certain publicly traded companies which Merrill Lynch
deemed to be relevant; (viii) compared the proposed financial terms of the
Washington Mutual/Great Western Merger contemplated by the Merger Agreement with
the financial terms of certain other mergers and acquisitions which Merrill
Lynch deemed to be relevant; (ix) reviewed the amount and timing of the
projected cost savings, related expenses and revenue enhancements expected to
result from the Washington Mutual/Great Western Merger (the "Expected
Synergies"), as presented by the senior management of Washington Mutual; (x)
considered, based upon information provided by the senior management of Great
Western and Washington Mutual, the pro forma impact of the transaction on the
earnings and book value per share, consolidated capitalization and certain
balance sheet and profitability ratios of Washington Mutual; (xi) reviewed the
Merger Agreement and related agreements; (xii) reviewed the Ahmanson Proposal as
set forth in Ahmanson's Registration Statement on Form S-4 dated February 18,
1997 and Amendment No. 1 thereto dated March 18, 1997; (xiii) reviewed certain
press releases and filings with the Commission by Great Western, Washington
Mutual and Ahmanson in connection with the Washington Mutual/Great Western
Merger and the Ahmanson Proposal and related matters; and (xiv) reviewed such
other financial studies and analyses and performed such other investigations and
took into account such other matters as Merrill Lynch deemed appropriate.
In preparing its opinion, with Great Western's consent, Merrill Lynch
assumed and relied on the accuracy and completeness of all information supplied
or otherwise made available to Merrill Lynch by Great Western and Washington
Mutual, including that contemplated in the numbered items above, and did not
assume responsibility for independently verifying such information or undertaken
an independent evaluation or appraisal of the assets or liabilities, contingent
or otherwise, of Great Western or Washington Mutual or any of their
subsidiaries, nor was Merrill Lynch furnished any such evaluation or appraisal.
Merrill Lynch is not an expert in the evaluation of allowances for loan losses
and, with Great Western's consent, Merrill Lynch did not make an independent
evaluation of the adequacy of the allowance for loan losses of Great Western or
Washington Mutual, nor did Merrill Lynch review any individual credit files
relating to Washington Mutual or Great Western and, with Great Western's
consent, Merrill Lynch assumed that the aggregate allowance for loan losses for
each of Washington Mutual and Great Western is adequate to cover such losses and
will be adequate on a pro forma basis for the combined entity. In addition,
Merrill Lynch did not conduct any physical inspection of the properties or
facilities of Great Western or Washington Mutual. With Great Western's consent,
Merrill Lynch assumed and relied upon the senior management of Great Western and
Washington Mutual as to the reasonableness and achievability of the financial
forecasts (and the assumptions and bases therefor) provided to, and discussed
with, Merrill Lynch. In that regard, Merrill Lynch assumed and relied with Great
Western's consent that such forecasts, including, without limitation, financial
forecasts, evaluations of contingencies, Expected Synergies and projections
regarding underperforming and non-performing assets, net chargeoffs, adequacy of
reserves, and future economic conditions reflect the best currently available
estimates, allocations and judgments of the senior management of Great Western
and Washington Mutual as to the future financial performance of Great Western,
Washington Mutual or the combined entity, as the case may be. Merrill Lynch's
opinion is predicated on the Washington Mutual/Great Western Merger receiving
the tax and accounting treatment contemplated in the Merger Agreement. Merrill
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Lynch's opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to Merrill Lynch as of March
25, 1997. Merrill Lynch's opinion has been rendered without regard to the
necessity for, or level of, any restrictions, obligations, undertakings or
divestitures which may be imposed or required in the course of obtaining
regulatory approval for the Washington Mutual/Great Western Merger. Merrill
Lynch did not express any opinion as to the price or range of prices at which
Washington Mutual Common Stock might trade subsequent to the Washington
Mutual/Great Western Merger.
Merrill Lynch was retained by the Great Western Board as an independent
contractor to act as financial advisor to Great Western with respect to the
Washington Mutual/Great Western Merger and will receive a fee for its services.
Merrill Lynch, in the past, has provided financial advisory and financing
services to Great Western and Washington Mutual and received customary fees for
the rendering of such services, including acting as lead underwriter for a 14.6
million share secondary public offering of Washington Mutual Common Stock in
January 1997. In addition, in the ordinary course of Merrill Lynch's securities
business, Merrill Lynch may actively trade debt and/or equity securities of
Great Western and Washington Mutual and their respective affiliates for Merrill
Lynch's own account and the accounts of Merrill Lynch customers, and Merrill
Lynch therefore may from time to time hold a long or short position in such
securities. In addition, certain affiliates of Merrill Lynch act as investment
advisors to publicly held mutual funds which owned, as of March 21, 1997,
approximately 4.93 million shares of Great Western Common Stock and
approximately 0.08 million shares of Washington Mutual Common Stock.
The March 4 Presentations by Great Western Financial Advisors. The
following summarizes financial and comparative analyses presented by the Great
Western Financial Advisors to the Great Western Board at its meeting on March 4,
1997, which analyses were also among those considered by the Great Western
Financial Advisors in rendering their opinions on March 5, 1997.
Summary Comparison of Potential Merger Alternatives. The Great Western
Financial Advisors presented a comparison of the Original Ahmanson Proposal with
the proposal by Washington Mutual to merge with Great Western in a transaction
under which Great Western Common Stock would be exchanged for 0.9 share of
Washington Mutual Common Stock pursuant to the Exchange Ratio (the "Washington
Mutual Proposal"). The implied values of the Original Ahmanson Proposal and the
Washington Mutual Proposal were $43.44 and $47.87, respectively. The implied
values were determined by multiplying the applicable exchange ratio by the
closing prices of Ahmanson Common Stock and Washington Mutual Common Stock,
respectively, on March 4, 1997. The implied values therefore necessarily were
dependent upon the respective closing prices of Ahmanson Common Stock and
Washington Mutual Common Stock at a specific time.
In addition to reviewing the implied values resulting from the Original
Ahmanson Proposal and the Washington Mutual Proposal, the analyses presented
implied values expressed as various multiples of certain historical and
projected earnings per share ("EPS") of Great Western, as well as multiples of
various measures of Great Western's book value. The Great Western Financial
Advisors also compared certain of those multiples with the multiples of certain
comparable thrift and bank acquisitions. The comparable thrift acquisitions
("Comparable Thrift Acquisitions") consisted of ten selected thrift acquisitions
since January 1, 1995 with a value of greater than $500 million. They were:
Mercantile Bancorp/Roosevelt Financial; ABN-AMRO Holding/Standard Federal Bank;
HSBC Holding plc/First FSLA-Rochester; MacAndrews & Forbes/California Federal
Bancorp; Washington Mutual/Keystone Holdings; Union Planters Corp./Leader
Financial Group; Republic of New York/Brooklyn Bancorp; NationsBank Corp./CSF
Holdings; Charter One Financial/FirstFed Michigan; and First Union Corp./Coral
Gables Fedcorp. The comparable bank acquisitions ("Comparable Bank
Acquisitions") consisted of nine selected bank acquisitions since January 1,
1995 with a value of greater than $3 billion. These acquisitions were:
NationsBank Corp./Boatmen's Bancshares; Wells Fargo/First Interstate; Fleet
Financial Group/National Westminster; CoreStates Financial/Meridian Bancorp;
Chemical Bank/Chase Manhattan Corp.; First Chicago Corp./NBD Bancorp, Inc.; PNC
Bank Corp./Midlantic Corp.; First Union Corp./First Fidelity Bancorp; and Fleet
Financial Group/Shawmut National.
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The Original Ahmanson Proposal and the Washington Mutual Proposal reflected
multiples of (i) 20.79 times and 22.90 times, respectively, the year ended
December 31, 1996 Great Western EPS (excluding a one time SAIF assessment in the
third quarter and certain other non-recurring charges in the fourth quarter),
compared to a median of 12.94 times and 12.44 times, respectively, for the
Comparable Thrift Acquisitions and Comparable Bank Acquisitions; (ii) 15.97
times and 17.60 times, respectively, 1997 Great Western EPS based on First Call
estimates (the "First Call Estimates") and 16.09 times and 17.73 times,
respectively, Great Western 1997 EPS based on forecasts prepared by Great
Western management (the "Great Western Management Forecast") (excluding an
anticipated gain of $32 million or $0.14 per share for the potential sale of
Great Western's investment management business); (iii) 14.06 times and 15.49
times, respectively, Great Western 1998 EPS based on the First Call Estimates
and 12.82 times and 14.12 times, respectively, Great Western 1998 EPS based on
the Great Western Management Forecast; (iv) 2.54 times and 2.80 times,
respectively, fully-diluted book value per share of Great Western at December
31, 1996, compared to a median of 1.66 times and 1.90 times, respectively, for
the Comparable Thrift Acquisitions and Comparable Bank Acquisitions; (v) 2.87
times and 3.18 times, respectively, fully-diluted tangible book value per share
of Great Western at December 31, 1996, compared to a median of 1.67 times and
2.30 times, respectively, for the Comparable Thrift Acquisitions and Comparable
Bank Acquisitions. The Original Ahmanson Proposal and the Washington Mutual
Proposal represented an implied deposit premium (aggregate implied values less
tangible book value divided by total deposits) of 14.05% and 16.32%,
respectively, compared to a median of 6.56% and 12.34%, respectively, for the
Comparable Thrift Acquisitions and Comparable Bank Acquisitions. In addition,
the implied values reflected premiums over the closing price of Great Western
Common Stock on February 14, 1997 (the last trading day prior to the
announcement of the Original Ahmanson Proposal) of 26.84% for the Original
Ahmanson Proposal and 39.76% for the Washington Mutual Proposal, compared to a
median of 27% and 24%, respectively, for the Comparable Thrift Acquisitions and
Comparable Bank Acquisitions. First Call is a service which provides a
compilation of securities analysts' earnings forecasts.
The Great Western Financial Advisors also graphed in chart form the implied
values of the Original Ahmanson Proposal and the Washington Mutual Proposal
based on daily closing prices for the period from (a) February 14, 1997 through
March 3, 1997 and (b) February 14, 1996 through March 3, 1997. In addition, the
Great Western Financial Advisors compared in tabular form the implied values of
the Original Ahmanson Proposal and the Washington Mutual Proposal for six
selected periods based on the average of the daily closing prices during these
periods. The implied values for the Original Ahmanson Proposal and the
Washington Mutual Proposal were, respectively: (i) $44.11 and $49.86 for the
period from February 14, 1997 to March 3, 1997; (ii) $42.41 and $49.30 for the
preceding one month period; (iii) $37.75 and $43.42 for the preceding three
month period; (iv) $34.18 and $39.45 for the preceding six month period; (v)
$30.20 and $33.51 for the preceding one year period; and (vi) $24.71 and $24.55
for the preceding three year period.
Pro Forma Financial Analysis. The Great Western Financial Advisors
analyzed the projected pro forma combined financial impact of the Original
Ahmanson Proposal and the Washington Mutual Proposal from the perspectives of
Ahmanson in the case of the Original Ahmanson Proposal, Washington Mutual in the
case of the Washington Mutual Proposal and Great Western for both the Original
Ahmanson Proposal and the Washington Mutual Proposal on a per share equivalent
basis compared to projected Great Western stand-alone data. The analysis
considered the pro forma effects of the transaction on a variety of financial
measures, including, among others, EPS calculated in accordance with generally
accepted accounting principles ("GAAP"), return on average common equity ("GAAP
ROACE"), cash earnings per share (defined as GAAP EPS before goodwill
amortization ("Cash EPS")), cash return on average common equity (defined as
GAAP net income before goodwill amortization divided by average tangible common
equity ("Cash ROACE")), goodwill as a percentage of total equity, goodwill
amortization as a percentage of net income, pro forma dividends per share (based
upon Ahmanson's and Washington Mutual's indicated dividends) and tangible book
value per share. This analysis was based on the assumptions that (i) the pro
forma combined company would realize the synergies as projected and within the
time period specified by Ahmanson ($400 million by 1999, including cost savings
and non-interest revenue synergies) and by Washington Mutual ($569 million by
1999, including cost savings and non-interest revenue synergies), respectively,
and (ii) Ahmanson's publicly disclosed plan to repurchase an aggregate of
approximately $2 billion of its common stock by 1999. Pro forma data for
Ahmanson was based on publicly available information and the First Call
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Estimates. Pro forma data for Washington Mutual was based on publicly available
information and Washington Mutual management estimates supplied to Great
Western. Pro forma data for Great Western was based on publicly available
information, the Great Western Management Forecast and the First Call Estimates
(the "Great Western First Call Estimates"). The pro forma financial analysis was
based upon the exchange ratios pursuant to the Original Ahmanson Proposal and
the Washington Mutual Proposal; such exchange ratios underlie much of the pro
forma financial analyses as well as the pro forma ownership levels of the
potential combined institutions.
Pro Forma Per Share Analysis from Ahmanson's Perspective. Among other
things, the analysis compared the pro forma accretion/dilution in Ahmanson EPS
under the Original Ahmanson Proposal for 1997, 1998 and 1999 as follows: for
Ahmanson GAAP EPS's: (i) in 1997, dilutive by 3.9% based on the Great Western
Management Forecast and by 3.6% based on the Great Western First Call Estimates;
(ii) in 1998, accretive by 3.0% based on the Great Western Management Forecast
and dilutive by 1.8% based on the Great Western First Call Estimates; and (iii)
in 1999, accretive by 11.8% based on the Great Western Management Forecast and
by 6.8% based on the Great Western First Call Estimates. The analysis indicated
that 1999 GAAP ROACE would be 12.5% based on the Great Western Management
Forecast. For Ahmanson Cash EPS, the analysis indicated that the Original
Ahmanson Proposal would be accretive by: (i) in 1997, 6.2% based on the Great
Western Management Forecast and 6.4% based on the Great Western First Call
Estimates; (ii) in 1998, 20.1% based on the Great Western Management Forecast
and 15.4% based on the Great Western First Call Estimates; and (iii) in 1999,
27.8% based on the Great Western Management Forecast and 23.1% based on the
Great Western First Call Estimates. The analysis indicated that 1999 Cash ROACE
would be 32.0% based on the Great Western Management Forecast. The December 31,
1997 goodwill to total equity ratio was estimated to be 55.2% and the 1998
goodwill amortization to net income ratio was estimated to be 22.8%. Tangible
book value per share of Ahmanson common stock was estimated to decrease by
17.6%.
Pro Forma Per Share Analysis from Washington Mutual's Perspective. Among
other things, the analysis compared the pro forma accretion/dilution in
Washington Mutual EPS (in relation to Washington Mutual's First Call Estimates)
under the Washington Mutual Proposal for 1997, 1998 and 1999 as follows: For
Washington Mutual GAAP EPS: (i) in 1997, dilutive by 12.1% based on the Great
Western Management Forecast and by 11.7% based on the Great Western First Call
Estimates; (ii) in 1998, accretive by 13.0% based on the Great Western
Management Forecast and by 9.5% based on the Great Western First Call Estimates;
and (iii) in 1999, accretive by 22.3% based on the Great Western Management
Forecast and by 18.9% based on the Great Western First Call Estimates. The
analysis indicated that 1999 GAAP ROACE would be 24.6% based on the Great
Western Management Forecast. For Washington Mutual Cash EPS, the analysis
indicated that the Washington Mutual/Great Western Merger would be (i) in 1997,
dilutive by 9.2% based on the Great Western Management Forecast and by 8.8%
based on the Great Western First Call Estimates; (ii) in 1998, accretive by
15.1% based on the Great Western Management Forecast and by 11.3% based on the
Great Western First Call Estimates; and (iii) in 1999, accretive by 23.9% based
on the Great Western Management Forecast and by 21.5% based on the Great Western
First Call Estimates. The analysis indicated that 1999 Cash ROACE would be 26.4%
based on the Great Western Management Forecast. The December 31, 1997 goodwill
to total equity ratio was estimated to be 6.7% and the 1998 goodwill
amortization to net income ratio was estimated to be 3.5%. Tangible book value
per share of Washington Mutual Common Stock was estimated to decline by 11.3%.
Pro Forma Per Share Analysis from Great Western's Perspective. Among other
things, the analysis compared the accretion in EPS under the Original Ahmanson
Proposal and the Washington Mutual Proposal for 1997, 1998 and 1999. The
analysis indicated that the proposed combination would be accretive on a per
share equivalent basis compared to stand-alone Great Western GAAP EPS by: (i) in
1997, 10.6% based on the Great Western Management Forecast and 9.7% based on the
Great Western First Call Estimates under the Original Ahmanson Proposal,
compared to 13.1% based on the Great Western Management Forecast and 12.4% based
on the Great Western First Call Estimates under the Washington Mutual Proposal;
(ii) in 1998, 9.8% based on the Great Western Management Forecast and 14.7%
based on the Great Western First Call Estimates under the Original Ahmanson
Proposal, compared to 38.1% based on the Great Western
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Management Forecast and 46.6% based on the Great Western First Call Estimates
under the Washington Mutual Proposal; and (iii) in 1999, 22.2% based on the
Great Western Management Forecast and 28.1% based on the Great Western First
Call Estimates under the Original Ahmanson Proposal, compared to 55.3% based on
the Great Western Management Forecast and 65.7% based on the Great Western First
Call Estimates under the Washington Mutual Proposal. The same analysis was
performed for Great Western Cash EPS. The analysis indicated that the proposed
combinations would be accretive on a per share equivalent basis compared to
stand-alone Great Western Cash EPS by: (i) in 1997, 17.3% based on the Great
Western Management Forecast and 16.5% based on the Great Western First Call
Estimates under the Original Ahmanson Proposal, compared to 8.5% based on the
Great Western Management Forecast and 8.0% based on the Great Western First Call
Estimates under the Washington Mutual Proposal; (ii) in 1998, 24.7% based on the
Great Western Management Forecast and 30.6% based on the Great Western First
Call Estimates under the Original Ahmanson Proposal, compared to 32.7% based on
the Great Western Management Forecast and 39.5% based on the Great Western First
Call Estimates under the Washington Mutual Proposal; and (iii) in 1999, 36.5%
based on the Great Western Management Forecast and 43.2% based on the Great
Western First Call Estimates under the Original Ahmanson Proposal, compared to
48.9% based on the Great Western Management Forecast and 59.2% based on the
Great Western First Call Estimates under the Washington Mutual Proposal. Implied
annual dividend per share of Great Western Common Stock was estimated to be
$0.92 under the Original Ahmanson Proposal, representing a 7.6% decline under
the Original Ahmanson Proposal, compared to $0.90 under the Washington Mutual
Proposal, representing a 10.0% decline. The ratio of tangible common equity to
tangible assets was estimated to be 3.75% under the Original Ahmanson Proposal,
representing a decline of 1.30%, compared to 4.72% under the Washington Mutual
Proposal, representing a decline of 0.32%. Tangible book value per share was
estimated to decline by 9.6% under the Original Ahmanson Proposal, compared to
an estimated decline of 0.8% under the Washington Mutual Proposal. Under the
Original Ahmanson Proposal, existing stockholders of Great Western would own 57%
of the combined company, compared to 52% under the Washington Mutual Proposal.
Sensitivity to Capital Ratios. The Great Western Financial Advisors
analyzed the Original Ahmanson Proposal under two capitalization scenarios. The
Great Western data for both scenarios were based on the Great Western Management
Forecast. In the first scenario, the ratio of tangible common equity to tangible
assets was 3.85% for Ahmanson (the "Base Case"). The second scenario assumed
that Ahmanson's repurchases of Ahmanson Common Stock were reduced to achieve and
maintain a 5% tangible common equity to tangible assets ratio for Ahmanson (the
"5% Case"). From Ahmanson's perspective, the proposed combination produced pro
forma: (i) 1999 GAAP EPS accretion of 11.8% in the Base Case and 6.7% in the 5%
Case; (ii) 1999 GAAP ROACE of 12.52% in the Base Case and 11.41% in the 5% Case;
(iii) 1999 Cash EPS accretion of 27.8% in the Base Case and 21.1% in the 5%
Case; and (iv) 1999 Cash ROACE of 31.98% in the Base Case and 25.31% in the 5%
Case. From Great Western's equivalent per share perspective: (i) 1999 GAAP EPS
under the Original Ahmanson Proposal would accrete by 22.2% in the Base Case and
16.6% in the 5% Case; and (ii) 1999 Cash EPS would accrete by 36.5% in the Base
Case and 29.3% in the 5% Case.
Sensitivity to Synergies. The Great Western Financial Advisors analyzed
the effects of achieving different levels of synergies on the impact of the
Original Ahmanson Proposal and the Washington Mutual Proposal. In this analysis,
the Great Western Financial Advisors reviewed projected pro forma combined data
for 1999 assuming that Ahmanson and Washington Mutual would achieve 50%, 75% and
100%, respectively, of the amount of synergies projected by Ahmanson and
Washington Mutual, respectively. The Great Western data for the analysis was
based on the Great Western Management Forecast. From Ahmanson's perspective: (i)
1999 GAAP EPS would be diluted by 1.5% if 50% of the projected synergies were
realized and would accrete by 5.2% if 75% of the projected synergies were
realized and by 11.8% if 100% of the projected synergies were realized; (ii)
1999 GAAP ROACE would be 11.10% if 50% of the projected synergies were realized,
11.81% if 75% of the projected synergies were realized and 12.52% if 100% of the
projected synergies were realized; (iii) 1999 Cash EPS would accrete by 14.73%
if 50% of the projected synergies were realized, 21.31% if 75% of the projected
synergies were realized and 27.8% if 100% of projected synergies were realized;
and (iv) 1999 Cash ROACE would be 28.47% if 50% of the projected synergies were
realized, 30.23% if 75% of the projected synergies were realized and 31.98% if
100% of the projected synergies were realized. From Washington Mutual's
perspective: (i) 1999 GAAP EPS would accrete by 8.7% if 50% of the projected
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synergies were realized, 15.5% if 75% of the projected synergies were realized
and 22.3% if 100% of the projected synergies were realized; and (ii) 1999 GAAP
ROACE would be 22.40% if 50% of the projected synergies were realized; 23.53% if
75% of the projected synergies were realized and 24.64% if 100% of the projected
synergies were realized.
From Great Western's per share perspective: (i) 1999 GAAP EPS would accrete
by 7.7% if 50% of the projected synergies were realized, 15.0% if 75% of the
projected synergies were realized and 22.2% if 100% of the projected synergies
were realized under the Original Ahmanson Proposal, compared to 38.0% if 50% of
the projected synergies were realized, 46.7% if 75% of the projected synergies
were realized and 55.3% if 100% projected synergies were realized under the
Washington Mutual Proposal; and (ii) 1999 Cash EPS would accrete by 22.5% if 50%
of the projected synergies were realized, 29.5% if 75% of the projected
synergies were realized, and 36.5% if 100% of the projected synergies were
realized under the Original Ahmanson Proposal.
Selected Company Analysis. Based on publicly available information and the
First Call Estimates, the Great Western Financial Advisors reviewed and compared
actual and estimated selected financial, operating, and stock market information
and financial ratios of Great Western, Ahmanson and Washington Mutual and a
group of seven thrift organizations consisting of Golden West, Greenpoint
Financial, Charter One, Dime Bancorp, TCF Financial, Glendale Federal and Bank
United (collectively the "Thrift Composite Companies"). With certain exceptions,
the financial data was at or for the year ended December 31, 1996; where
applicable, market data was at March 3, 1997 (except for the stock prices of
Great Western Common Stock and Ahmanson common stock, which were as of February
14, 1997) and estimates were based on First Call Estimates. For Ahmanson and
certain of the Thrift Composite Companies, the market data was adjusted to
eliminate the estimated market value of goodwill litigation claims based upon
trading data for California Federal Bank Contingent Litigation Recovery
Participation Interests.
The Great Western Financial Advisors noted that, among other things, Great
Western, Ahmanson and Washington Mutual had: (i) 1997 ratios of price to GAAP
EPS ("GAAP P/E") of 12.6 times, 12.3 times and 13.5 times, respectively,
compared to a median of 11.5 times for the Thrift Composite Companies; (ii) 1998
GAAP P/E of 11.1 times, 10.5 times and 11.3 times, respectively, compared to a
median of 10.3 times for the Thrift Composite Companies; (iii) 1997 ratios of
price to cash EPS ("Cash P/E") of 11.4 times, 11.5 times, and 12.8 times,
respectively, compared to a median of 11.4 times for the Thrift Composite
Companies; and (iv) 1998 Cash P/E of 10.2 times, 10.0 times and 10.8 times,
respectively, compared to a median of 10.3 times for the Thrift Composite
Companies. The price to book value per share ratio was 1.9 times for both Great
Western and Ahmanson and 2.9 times for Washington Mutual, compared to a median
of 1.7 times for the Thrift Composite Companies. The price to tangible book
value per share ratio was 2.2 times for both Great Western and Ahmanson and 3.0
times for Washington Mutual, compared to a median of 1.7 times for the Thrift
Composite Companies.
The Great Western Financial Advisors analyzed and compared the capital
structure of Great Western, Ahmanson, Washington Mutual and the Thrift Composite
Companies. Among other things, Great Western, Ahmanson and Washington Mutual
had: (i) ratios of total capital (including capital securities, preferred and
common stock) to total assets of 6.99%, 5.18% and 5.38%, respectively, compared
to a median of 6.37% for the Thrift Composite Companies; (ii) ratios of tangible
common equity to tangible assets of 5.03%, 3.31% and 4.83%, respectively,
compared to a median of 6.22% for the Thrift Composite Companies; and (iii)
estimated share repurchase percentages (estimated shares repurchased during the
past two calendar years divided by shares outstanding at December 1994 (adjusted
to reflect any major stock acquisitions)) of 5.1%, 14.5% and 0.0%, respectively,
for Great Western, Ahmanson and Washington Mutual, compared to a median of 2.8%
for the Thrift Composite Companies.
The Great Western Financial Advisors reviewed measures of asset quality for
Great Western, Ahmanson, Washington Mutual and the Thrift Composite Companies.
Great Western, Ahmanson and Washington Mutual had: (i) ratios of non-performing
assets to net loans plus other-real-estate-owned of 1.77%, 3.33%, and 1.46%,
respectively, compared to a median of 1.79% for the Thrift Composite Companies;
(ii) ratios of loan loss reserves to nonperforming loans of 74%, 50% and 107%,
respectively, compared to a median of 48% for the
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Thrift Composite Companies; and (iii) ratios of loan loss provisions to average
loans of 0.68%, 0.46%, and 0.75%, respectively, compared to 0.29% for the Thrift
Composite Companies.
The Great Western Financial Advisors examined certain profitability ratios
of Great Western, Ahmanson, Washington Mutual and the Thrift Composite
Companies. Great Western, Ahmanson and Washington Mutual had: (i) a return on
average assets (excluding extraordinary items and significant non-recurring
items) of 0.65%, 0.58%, and 0.65%, respectively, compared to a median of 1.10%,
for the Thrift Composite Companies; (ii) return on average common equity
(excluding extraordinary items and significant non-recurring items) of 10.6%,
11.1% and 12.2%, respectively, compared to a median of 17.7% for the Thrift
Composite Companies; (iii) ratios of non-interest income to revenues (excluding
significant non-recurring items) of 18%, 15% and 16%, respectively, compared to
a median of 15% for the Thrift Composite Companies; (iv) efficiency ratios
(defined as non-interest expenses divided by net interest income plus
non-interest income, but excluding amortization of intangibles and significant
non-recurring income and non-significant items) of 59%, 61% and 51%,
respectively, compared to a median of 54% for the Thrift Composite Companies;
and (v) net interest margins of 3.33%, 2.63% and 2.89%, respectively, compared
to a median of 2.53% for the Thrift Composite Companies.
Discounted Dividend Analysis. Using a discounted dividend analysis, the
Great Western Financial Advisors estimated the net present value per share of
Washington Mutual Common Stock. Using discount rates ranging from 13% to 15% and
terminal value multiples of 11.0 times to 13.0 earnings, the Great Western
Financial Advisors calculated that the net present value per share of Washington
Mutual Common Stock ranged from $45.28 per share to $55.47 per share. This
analysis was based on a number of assumptions, including the First Call
Estimates for 1997 and 1998 Washington Mutual EPS, earnings growth of 9% per
year from 1998 to 2002, growth of 5% per year from 1997 to 2001, maintaining a
constant tangible common equity to tangible assets ratio of 5%, and a terminal
value for year 2001 determined by applying a multiple to year 2002 forecasted
earnings. The Great Western Financial Advisors also conducted a sensitivity
analysis using earnings growth rates of 7% to 11% and capital ratios of 4% to 6%
(and assuming a 14.0% discount rate and a 12.0 times terminal multiple). This
analysis showed that the net present value per share of Washington Mutual Common
Stock ranged from $44.03 per share to $56.45 per share. In addition, the Great
Western Financial Advisors estimated the net present value per share of
Washington Mutual Common Stock using Washington Mutual's management estimates,
but otherwise using the same assumptions as set forth above. Based on these
assumptions, the Great Western Financial Advisors calculated that the net
present value per share of Washington Mutual Common Stock ranged from $53.10 per
share to $65.11 per share. The Great Western Financial Advisors also conducted a
sensitivity analysis using earnings growth rates of 7% to 11% and capital ratios
of 4% to 6% (and assuming a 14.0% discount rate and a 12.0 times terminal
multiple). The analysis showed that the net present value per share of
Washington Mutual Common Stock ranged from $53.14 per share to $64.67 per share.
The Great Western Financial Advisors also calculated the net present value
per share of Ahmanson common stock. Using discount rates ranging from 13% to 15%
and terminal value multiples of 11.0 times to 13.0 times, the Great Western
Financial Advisors calculated that the net present value per share of Ahmanson
common stock ranged from $32.29 per share to $40.22 per share. This analysis was
based on a number of assumptions, including the First Call Estimates for 1997
and 1998 Ahmanson EPS, earnings growth of 10% per year from 1998 to 2002, asset
growth of 0% per year from 1997 to 2001, maintaining a constant tangible common
equity to tangible assets ratio of 5%, and a terminal value for year 2001
determined by applying a multiple to year 2002 forecasted earnings. Because the
Great Western Financial Advisors could not determine the amount or timing of any
recovery from the Ahmanson goodwill litigation or any tax benefits related to
the sale or abandonment of certain state branching rights, neither of these
potential recoveries was included in the calculation of net present value per
share of Ahmanson common stock; however, the Great Western Financial Advisors
did note for the Great Western Board that the estimated market value of the
Ahmanson goodwill litigation claims, implied by trading data for California
Federal Bank Contingent Litigation Recovery Participation Interests, was $4.36
per share of Ahmanson common stock. The Great Western Financial Advisors also
conducted a sensitivity analysis using earnings growth rates of 8% to 12% and
capital ratios of 4%
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to 6% (and assuming a 14.0% discount rate and a 12.0 times terminal multiple);
the analysis showed that the net present value per share of Ahmanson common
stock ranged from $30.57 per share to $41.72 per share.
Historical Stock Price Performance. The Great Western Financial Advisors
charted the weekly closing prices of Ahmanson common stock and Washington Mutual
Common Stock for the period from February 27, 1987 to February 28, 1997. The
Great Western Financial Advisors also compared the historical total returns of
Ahmanson common stock and Washington Mutual Common Stock to the historical total
returns for the S&P 500 Index, the S&P Bank Index and the S&P Thrift Index. The
analysis indicated a compounded annual total return (defined as stock price
appreciation plus reinvestment of dividends) to shareholders of: (i) for the
period from January 1, 1997 to March 3, 1997, 31% for the Ahmanson common stock
and 22% for Washington Mutual Common Stock, compared to 8% for the S&P 500
Index, 16% for the S&P Bank Index, and 32% for the S&P Thrift Index; (ii) for
the one year period ended December 31, 1996, 27% for the Ahmanson common stock
and 54% for the Washington Mutual Common Stock, compared to 23% for the S&P 500
Index, 42% for the S&P Bank Index, and 20% for the S&P Thrift Index; (iii) for
the three year period ended December 31, 1996, 23% for the Ahmanson common stock
and 26% for the Washington Mutual Common Stock, compared to 20% for the S&P 500
Index, 29% for the S&P Bank Index, and 20% for the S&P Thrift Index; (iv) for
the five year period ended December 31, 1996, 18% for the Ahmanson common stock
and 27% for Washington Mutual Common Stock, compared to 15% for the S&P 500
Index, 26% for the S&P Bank Index, and 14% for the S&P Thrift Index; (v) for the
ten year period ended December 31, 1996, 9% for the Ahmanson common stock and
24% for Washington Mutual Common Stock, compared to 15% for the S&P 500 Index
(the S&P Bank Index and the S&P Thrift Index are not available for these
periods).
The March 25 Presentations by the Great Western Financial Advisors. The
following summarizes the material financial and comparative analyses presented
by the Great Western Financial Advisors to the Great Western Board at its
meeting on March 25, 1997, which analyses were also among those considered by
the Great Western Financial Advisors in rendering their opinions on March 25,
1997. This summary does not purport to be a complete description of the analyses
underlying the opinions of the Great Western Financial Advisors.
Comparison of the Ahmanson Proposal and the Washington Mutual Proposal. The
Great Western Financial Advisors presented a comparison of the Ahmanson Proposal
with the Washington Mutual Proposal. The implied values of the Ahmanson Proposal
and the Washington Mutual Proposal were $46.95 and $45.23, respectively. The
implied values were determined by multiplying an exchange ratio of 1.2 times the
closing price of Ahmanson common stock on March 24, 1997 and an exchange ratio
of 0.9 times the closing price of Washington Mutual Common Stock on March 24,
1997. The implied values therefore necessarily were dependent upon the
respective closing prices of Ahmanson common stock and Washington Mutual Common
Stock at a specific time.
The Great Western Advisors also graphed in chart form the implied values of
the Ahmanson Proposal and the Washington Mutual Proposal based on daily closing
prices for the period from February 14, 1997 (the last trading day prior to the
announcement of the Original Ahmanson Proposal) through March 24, 1997. In
addition, the Great Western Financial Advisors compared in tabular form the
implied values of the Ahmanson Proposal and the Washington Mutual Proposal for
five selected periods based on the average of the daily closing prices during
these periods. The implied values for the Ahmanson Proposal and the Washington
Mutual Proposal were, respectively: (i) $49.42 and $48.08 for the period from
February 14, 1997 to March 24, 1997; (ii) $49.09 and $47.30 for the one month
period ended March 24, 1997; (iii) $45.58 and $45.65 for the three month period
ended March 24, 1997; (iv) $41.15 and $41.17 for the six month period ended
March 24, 1997; and (v) $35.69 and $34.71 for the year ended March 24, 1997.
Pro Forma Financial Analysis. The Great Western Financial Advisors analyzed
the pro forma financial impact of the Ahmanson Proposal and the Washington
Mutual Proposal from the perspectives of Ahmanson in the case of the Ahmanson
Proposal, Washington Mutual in the case of the Washington Mutual Proposal and
Great Western for both the Ahmanson Proposal and the Washington Mutual Proposal
on a per share equivalent basis compared to projected Great Western stand-alone
data. The analysis considered the pro forma effects of the transaction on a
variety of financial measures, including, among others, GAAP EPS,
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GAAP ROACE, Cash EPS, Cash ROACE, goodwill as a percentage of total equity,
goodwill amortization as a percentage of net income, pro forma dividends per
share (based upon Ahmanson's and Washington Mutual's indicated dividends) and
tangible book value per share. This analysis was based on, among other things,
the assumptions that: (i) under the Ahmanson Proposal, the pro forma combined
company would realize $35 million of cost-savings in 1997, $332 million of
cost-savings and $25 million of non-interest revenue synergies in 1998 and $454
million of cost-savings and $50 million of non-interest revenues synergies in
1999; (ii) under the Washington Mutual Proposal, the pro forma combined company
would realize $15 million of cost-savings in 1997, $208 million of cost-savings,
$60 million of non-interest revenue synergies and incremental net interest
income of $113 million in 1998, and $340 million of cost-savings, $88 million of
non-interest revenues synergies and incremental net interest income of $247
million in 1999; and (iii) Ahmanson would repurchase an aggregate of
approximately $2.8 billion of its common stock by 1999. Pro forma data for
Ahmanson was based on publicly available information and estimates supplied by
First Call. Pro forma data for Washington Mutual was based on publicly available
information and the Washington Mutual management estimates supplied to Great
Western. Pro forma data for Great Western was based on publicly available
information, the Great Western First Call Estimates and the Great Western
Management Forecast.
Pro Forma Per Share Analysis from Ahmanson's Perspective. Among other
things, the analysis compared the pro forma accretion/dilution in Ahmanson EPS
under the Ahmanson Proposal for 1998 and 1999 as follows: for Ahmanson GAAP EPS:
(i) in 1998, dilutive by 10.3% based on the Great Western First Call Estimates
and by 5.8% based on the Great Western Management Forecast; and (ii) in 1999,
accretive by 2.1% based on the Great Western First Call Estimates and by 6.9%
based on the Great Western Management Forecast. The analysis indicated that 1999
GAAP ROACE would be 12.9% based on the Great Western Management Forecast. For
Ahmanson Cash EPS, the analysis indicated that the Ahmanson Proposal would be
accretive by: (i) in 1998, 8.7% based on the Great Western First Call Estimates
and 12.9% based on the Great Western Management Forecast; and (ii) in 1999,
20.7% based on the Great Western First Call Estimates and by 25.2% based on the
Great Western Management Forecast. The analysis indicated that 1999 Cash ROACE
would be 44.3% based on the Great Western Management Forecast. The December 31,
1997 goodwill to total equity ratio was estimated to be 60.4% and the 1998
goodwill amortization to net income ratio was estimated to be 26.3%. Tangible
book value per share of Ahmanson common stock as of September 30, 1997 was
estimated to decrease by 28.1%.
Pro Forma Per Share Analysis from Washington Mutual's Perspective. Among
other things, the analysis compared the pro forma accretion/dilution in
Washington Mutual EPS under the Washington Mutual Proposal for 1998 and 1999 as
follows: for Washington Mutual GAAP EPS: (i) in 1998, accretive by 6.1% based on
the Great Western First Call Estimates and by 3.7% based on the Great Western
Management Forecast; and (ii) in 1999, accretive by 16.5% based on the Great
Western First Call Estimates and by 10.9% based on the Great Western Management
Forecast. The analysis indicated that 1999 GAAP ROACE would be 25.0% based on
the Great Western Management Forecast. For Washington Mutual Cash EPS, the
analysis indicated that the Merger would be accretive by: (i) in 1998, 8.2%
based on the Great Western First Call Estimates and 5.6% based on the Great
Western Management Forecast; and (ii) in 1999, 18.2% based on the Great Western
First Call Estimates and 12.6% based on the Great Western Management Forecast.
The analysis indicated that 1999 Cash ROACE would be 26.7% based on the Great
Western Management Forecast. The December 31, 1997 goodwill to total equity
ratio was estimated to be 6.7% and 1998 goodwill amortization to net income
ratio was estimated to be 3.4%. Tangible book value per share of Washington
Mutual Common Stock as of September 30, 1997 was estimated to decline by 10.0%.
Pro Forma Per Share Analysis from Great Western's Perspective. Among other
things, the analysis compared the accretion in Great Western's EPS under the
Ahmanson Proposal and the Washington Mutual Proposal for 1998 and 1999. The
analysis indicated that the proposed combinations would be accretive on a per
share equivalent basis compared to stand-alone Great Western GAAP EPS by: (i) in
1998, 23.0% based on the Great Western First Call Estimates and 17.7% based on
the Great Western Management Forecast under the Ahmanson Proposal, compared to
42.1% based on the Great Western First Call Estimates and 40.4% based on the
Great Western Management Forecast under the Washington Mutual Proposal; and (ii)
in
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1999, 41.7% based on the Great Western First Call Estimates and 35.3% based on
the Great Western Management Forecast under the Ahmanson Proposal, compared to
62.3% based on the Great Western First Call Estimates and 60.8% based on the
Great Western Management Forecast under the Washington Mutual Proposal. The same
analysis was performed for Great Western Cash EPS. The analysis indicated that
the proposed combinations would be accretive on a per share equivalent basis
compared to stand-alone Great Western Cash EPS by: (i) in 1998, 44.1% based on
the Great Western First Call Estimates and 37.5% based on the Great Western
Management Forecast under the Ahmanson Proposal, compared to 35.9% based on the
Great Western First Call Estimates and 34.8% based on the Great Western
Management Forecast under the Washington Mutual Proposal; and (ii) in 1999,
62.7% based on the Great Western First Call Estimates and 54.9% based on the
Great Western Management Forecast under the Ahmanson Proposal, compared to 54.9%
based on the Great Western First Call Estimates and 54.1% based on the Great
Western Management Forecast under the Washington Mutual Proposal. The implied
dividend per share of Great Western Common Stock was estimated to be $1.06 under
the Ahmanson Proposal, representing a 5.6% increase, compared to $0.90 under the
Washington Mutual Proposal, representing a 10.0% decline. Tangible book value
per share as of September 30, 1997 was estimated to decline by 9.4% under the
Ahmanson Proposal, compared to an estimated increase of 1.2% under the
Washington Mutual Proposal. The ratio of tangible common equity to tangible
assets was estimated to be 3.83% under the Ahmanson Proposal, compared to 4.76%
under the Washington Mutual Proposal. Under the Ahmanson Proposal, existing
stockholders of Great Western would own 60% of the combined company, compared to
52% under the Washington Mutual Proposal.
Sensitivity to Capital Ratios. The Great Western Financial Advisors
analyzed the Ahmanson Proposal under two capitalization scenarios. In the first
scenario, the ratio of tangible common equity to tangible assets was 3.83% for
Ahmanson (the "Revised Base Case"). The second scenario, the 5% case, assumed
that Ahmanson's repurchases of Ahmanson common stock were reduced to achieve and
maintain a 5% tangible common equity to tangible assets ratio for Ahmanson. The
data for both scenarios were based on the First Call Estimates. From Ahmanson's
perspective, the proposed combination produced pro forma: (i) 1999 GAAP EPS
accretion of 2.1% in the Revised Base Case and dilution of 4.6% in the 5% Case;
(ii) 1999 GAAP ROACE of 12.4% in the Revised Base Case and 10.6% in the 5% Case;
(iii) 1999 Cash EPS accretion of 20.7% in the Revised Base Case and 11.1% in the
5% Case; and (iv) 1999 Cash ROACE of 43.7% in the Revised Base Case and 26.3% in
the 5% Case. From Great Western's equivalent per share perspective: (i) 1999
GAAP EPS would accrete by 41.7% in the Revised Base Case and 32.4% in the 5%
Case; and (ii) 1999 Cash EPS would accrete by 62.7% in the Revised Base Case and
49.7% in the 5% Case.
Sensitivities to Synergies. The Great Western Financial Advisors analyzed
the effects of achieving different levels of synergies on the impact of the
Ahmanson Proposal and the Washington Mutual Proposal. In this analysis, the
Great Western Financial Advisors reviewed projected pro forma combined data for
1999 assuming that Ahmanson would achieve 50%, 80% (or $400 million, as
contemplated by the Original Ahmanson Proposal) and 100% of the amount of
synergies projected by it and Washington Mutual would achieve 50%, 75% and 100%
of the amount of synergies projected by it. The data for the analysis was based
on the First Call Estimates. From Ahmanson's perspective: (i) 1999 GAAP EPS
would be diluted by 13.7% under the Revised Base Case and 19.1% under the 5%
Case if 50% of the projected synergies were realized, 4.2% under the Revised
Base Case and 10.4% under the 5% Case if 80% of the projected synergies were
realized, and accrete by 2.1% under the Revised Base Case and be diluted by 4.6%
under the 5% Case if 100% of the projected synergies were realized; (ii) 1999
GAAP ROACE would be 10.6% under the Revised Base Case and 9.1% under the 5% Case
if 50% of the projected synergies were realized, 11.7% under the Revised Base
Case and 10.0% under the 5% Case if 80% of the projected synergies were
realized, and 12.4% under the Revised Base Case and 10.6% under the 5% Case if
100% of the projected synergies were realized; (iii) 1999 Cash EPS would accrete
by 5.3% under the Revised Base Case and be dilutive by 3.3% under the 5% Case if
50% of the projected synergies were realized, accrete by 14.5% under the Revised
Base Case and 5.3% under the 5% Case if 80% of the projected synergies were
realized, and 20.7% under the Revised Base Case and 11.1% under the 5% Case if
100% of the projected synergies were realized; and (iv) 1999 Cash ROACE would be
38.3% under the Revised Base Case and 22.8% under the 5% Case if 50% of the
projected synergies were realized, 41.6% under the Revised Base Case and 24.9%
under the 5% Case if 80% of the projected synergies were realized, and 43.7%
under the Revised Base Case and 26.3% under the 5% Case if 100% of the projected
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synergies were realized. From Washington Mutual's perspective: (i) 1999 GAAP EPS
would accrete by 6.7% if 50% of the projected synergies were realized, 11.6% if
75% of the projected synergies were realized, and 16.5% if 100% of the projected
synergies were realized; (ii) GAAP ROACE would be 21.8% if 50% of the projected
synergies were realized, 22.6% if 75% of the projected synergies were realized,
and 23.4% if 100% of the projected synergies were realized; (iii) 1999 Cash EPS
would accrete by 8.5% if 50% of the projected synergies were realized, 13.4% if
75% of the projected synergies were realized, and 18.2% if 100% of the projected
synergies were realized; and (iv) 1999 Cash ROACE would be 23.5% if 50% of the
projected synergies were realized, 24.3% if 75% of the projected synergies were
realized, and 25.1% if 100% of the projected synergies were realized.
From Great Western's perspective: (i) 1999 GAAP EPS would accrete by 19.8%
under the Revised Base Case and 12.3% under the 5% Case if 50% of the projected
synergies were realized, 33.0% under the Revised Base Case and 24.4% under the
5% Case if 80% of the projected synergies were realized, and 41.7% under the
Revised Base Case and 32.4% under the 5% Case if 100% of the projected synergies
were realized under the Ahmanson Proposal, compared to 48.6% if 50% of the
projected synergies were realized, 55.5% if 80% of the projected synergies were
realized and 62.3% if 100% of the projected synergies were realized under the
Washington Mutual Proposal; and (ii) 1999 Cash EPS would accrete by 41.9% under
the Revised Base Case and 30.4% under the 5% Case if 50% of the projected
synergies were realized, 54.4% under the Revised Base Case and 42.0% under the
5% Case if 80% of the projected synergies were realized, and 62.7% under the
Revised Base Case and 49.7% under the 5% Case if 100% of the projected synergies
were realized under the Ahmanson Proposal, compared to 42.2% if 50% of the
projected synergies were realized, 48.5% if 75% of the projected synergies were
realized and 54.9% if 100% of the projected synergies were realized under the
Washington Mutual Proposal.
Capital Analysis. The Great Western Financial Advisors compared the capital
ratios of the combined company under the Ahmanson Proposal and the Washington
Mutual Proposal with certain selected thrifts. The Great Western Financial
Advisors calculated that, as of December 31, 1996, the average ratio of tangible
common equity to tangible assets for 93 thrifts was 7.42%, compared to, for the
pro forma combined company, 3.83% under the Ahmanson Proposal (2.72% as of
December 31, 1999) and 4.76% under the Washington Mutual Proposal (5.83% as of
December 31, 1999). The Great Western Financial Advisors further calculated
that, as of December 31, 1996, the ratio of intangible assets to common equity
for 93 thrifts was 7.25%, compared to, for the pro forma combined company,
59.46% under the Ahmanson Proposal (64.56% as of December 31, 1999) and 7.21%
under the Washington Mutual Proposal (3.47% as of December 31, 1999). The
foregoing analysis includes thrifts with greater than $1.0 billion in assets.
In order to analyze the effect of Ahmanson's projected stock buybacks on
its pro forma capital position the Great Western Financial Advisors calculated
the sum of projected GAAP net income attributable to the Ahmanson common stock
and projected goodwill amortization for the period from October 1, 1997 through
December 31, 1999 (the "Projected Period"). Next, the Great Western Financial
Advisors calculated the projected cost of dividends on the Ahmanson common stock
and for the stock buybacks during the Projected Period. This analysis indicated
that, as a result of the projected buybacks, there would be a cumulative
shortfall in tangible capital for the Projected Period of approximately $763
million.
Selected Company Analysis. Based on publicly-available information and
First Call estimates, the Great Western Financial Advisors reviewed and compared
actual and estimated selected financial, operating, and stock market information
and financial ratios of Great Western, Ahmanson and Washington Mutual and the
Thrift Composite Companies. Such information and ratios included, among other
things, P/E ratios, cash P/E ratios, price to book value ratios, and price to
tangible book value ratios. The analysis was at or for the year ended December
31, 1996; where applicable, market data was at March 24, 1997 and estimates were
based on First Call estimates at March 20, 1997. For Ahmanson and certain of the
Thrift Composite Companies, the market data was adjusted to eliminate the
estimated market value of goodwill litigation claims based upon trading data for
California Federal Bank Contingent Litigation Recovery Participation Interests.
The Great Western Financial Advisors noted that, among other things, Great
Western, Ahmanson and Washington Mutual had: (i) 1997 GAAP P/Es of 16.2 times,
11.5 times and 13.1 times, respectively,
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compared to a median of 11.8 times for the Thrift Composite Companies; (ii) 1998
GAAP P/Es of 14.3 times, 10.0 times and 10.9 times, respectively, compared to a
median of 10.5 times for the Thrift Composite Companies; (iii) 1997 Cash P/Es of
14.7 times, 10.8 times, and 12.4 times, respectively, compared to a median of
11.6 times for the Thrift Composite Companies; and (iv) 1998 Cash P/Es of 13.1
times, 9.5 times and 10.4 times, respectively, compared to a median of 10.3
times for the Thrift Composite Companies. The price to tangible book ratios were
2.5 times, 1.8 times and 2.6 times, respectively, for Great Western, Ahmanson
and Washington Mutual, compared to a median of 1.7 times for the Thrift
Composite Companies.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The Great
Western Financial Advisors believe that their analyses must be considered as a
whole and that selecting portions of their analyses, without considering the
analyses taken as a whole, would create an incomplete or misleading view of the
process underlying the analyses set forth in their respective opinions. In
addition, the Great Western Financial Advisors considered the results of all
such analyses and did not assign relative weights to any of the analyses, so
that the ranges of valuations resulting from any particular analysis described
above should not be taken to be the Great Western Financial Advisors' view of
the actual value of Great Western.
In performing their analyses, the Great Western Financial Advisors made
numerous assumptions with respect to industry performance, general business,
economic and regulatory conditions and other matters, many of which are beyond
the control of Great Western. The analyses performed by the Great Western
Financial Advisors are not necessarily indicative of actual values, trading
values or actual future results that might be achieved, all of which may be
significantly more or less favorable than suggested by such analyses. No public
company utilized as a comparison is identical to Great Western and none of the
Comparable Thrift Acquisitions or other business combinations utilized as a
comparison is identical to the transactions contemplated by the Merger
Agreement. Accordingly, an analysis of publicly traded comparable companies and
comparable business combinations resulting from the transactions is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies or the company or transaction to which they are being compared. In
connection with their analyses, the Great Western Financial Advisors made, and
were provided estimates and forecasts by the respective management of Great
Western and Washington Mutual. Although some research reports and commentaries
by equity analysts were critical of Washington Mutual projections with respect
to the Great Western/Washington Mutual Merger, while others were supportive, in
the context of the totality of the information available to and reviewed by the
Great Western Financial Advisors, the Great Western Financial Advisors concluded
that it was appropriate to use projections provided to Great Western by
Washington Mutual (and as to which they had discussions with the managements of
both Washington Mutual and Great Western) for the financial analyses specified
above as being based on such projections. The Great Western Financial Advisors
also made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of Great Western and Washington Mutual. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of Great Western, Washington
Mutual or the Great Western Financial Advisors, neither Great Western,
Washington Mutual nor the Great Western Financial Advisors assume responsibility
if future results or actual values are materially different from these forecasts
or assumptions. Such analyses were prepared solely as part of the Great Western
Financial Advisors' analyses of the fairness of the Exchange Ratio and were
provided to the Great Western Board. The analyses do not purport to be
appraisals or to reflect the prices at which a company might be sold. In
addition, as described above, the opinions of the Great Western Financial
Advisors were one of many factors taken into consideration by the Great Western
Board in making its determination to approve the Washington Mutual/Great Western
Merger. Consequently, the analyses described above should not be viewed as
determinative of the Great Western Board's or Great Western management's opinion
with respect to the value of Great Western or a combination of either Great
Western and Ahmanson or Great Western and Washington Mutual or whether the Great
Western Board or Great Western management would have been willing to agree to a
different exchange ratio. The Great Western
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Board placed no limits on the scope of the analysis performed, or opinions
expressed, by the Great Western Financial Advisors. In light of Great Western's
decision to pursue a strategic business combination with a party other than
Ahmanson, the Great Western Financial Advisors did not contact Ahmanson in
connection with the investigation made or procedures followed by them in
rendering their fairness opinions. The Great Western Financial Advisors were not
asked to evaluate the fairness of the Ahmanson Proposal.
Pursuant to the terms of the engagement letters dated February 25, 1997 and
February 18, 1997 Great Western agreed to pay each of the Great Western
Financial Advisors (i) a retainer of $1 million, (ii) a fee of $8.8 million upon
execution of the Washington Mutual/Great Western Merger Agreement, and (iii) a
fee of 0.25% of the aggregate value of the consideration to be paid pursuant to
the Washington Mutual/Great Western Merger upon consummation of the Washington
Mutual/Great Western Merger against which the fees set forth in clauses in (i)
and (ii) of this sentence will be credited. Great Western also agreed to
reimburse each of the Great Western Financial Advisors for its reasonable
out-of-pocket expenses, including all reasonable fees and disbursements of its
attorneys, and to indemnify each of the Great Western Financial Advisors and
certain related persons against certain liabilities, including certain
liabilities under federal securities law, arising out of its engagement.
CONVERSION OF GREAT WESTERN CAPITAL STOCK
Conversion of Great Western Common Stock. At the Effective Time, each
outstanding share of Great Western Common Stock, other than shares held in Great
Western's treasury or directly or indirectly by Washington Mutual or its
subsidiaries or by Great Western or its subsidiaries other than shares held in a
fiduciary or nominee capacity or in respect of a debt previously contracted
("Trust/DPC Shares")), will automatically be converted into the right to receive
0.9 shares of Washington Mutual Common Stock, with cash being paid in lieu of
fractional shares.
Conversion of Great Western Preferred Stock. At the Effective Time, each
outstanding share of Great Western Preferred Stock will be converted into the
right to receive one share of Series F Preferred Stock. The terms of the Series
F Preferred Stock will be substantially identical to the terms of the Great
Western Preferred Stock. At the Effective Time, Washington Mutual will assume
the obligations of Great Western under the Deposit Agreement, dated as of
September 10, 1992 (the "Preferred Stock Deposit Agreement"), between Great
Western and Harris Trust Co. of California as depositary (the "Preferred Stock
Depositary"). Washington Mutual will instruct the Preferred Stock Depositary to
treat the shares of Series F Preferred Stock received by it in exchange for
shares of Great Western Preferred Stock as newly deposited securities under the
Preferred Stock Deposit Agreement. In accordance with the terms of the Preferred
Stock Deposit Agreement, receipts evidencing Great Western Depositary Shares
("Great Western Depositary Receipts") then outstanding would thereafter
represent shares of Series F Preferred Stock. Washington Mutual would request
that the Preferred Stock Depositary call for surrender of all outstanding Great
Western Depositary Receipts to be exchanged for receipts evidencing New
Washington Mutual Depositary Shares ("New Washington Mutual Depositary
Receipts"). See "Description of Washington Mutual Capital Stock."
Treasury Stock. Each outstanding share of Great Western Common Stock held
in Great Western's treasury or directly or indirectly by Washington Mutual or
its subsidiaries or Great Western or its subsidiaries, other than Trust/DPC
Shares, would be canceled at the Effective Time and would cease to exist, and no
securities of Washington Mutual or other consideration would be delivered in
exchange therefor. All shares of Washington Mutual Common Stock that are owned
by Great Western or its subsidiaries, if any, would become treasury stock of
Washington Mutual.
Conversion of Common Stock Options. At the Effective Time, each Great
Western Common Stock Option issued by Great Western pursuant to any Great
Western Common Stock Plan that is outstanding and unexercised immediately prior
to the Effective Time would be converted automatically into one Washington
Mutual Stock Option with (i) the number of shares of Washington Mutual Common
Stock subject to the Washington Mutual Stock Option being equal to the product
of the number of shares of Great Western Common Stock subject to the Great
Western Common Stock Option multiplied by the Exchange Ratio and rounded down to
the nearest share and (ii) the exercise price per share of Washington Mutual
Common Stock
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subject to the Washington Mutual Stock Option being equal to the exercise price
per share of Great Western Common Stock under the Great Western Common Stock
Option divided by the Exchange Ratio and rounded up to the nearest cent. The
conversion would be intended to be effected in a manner such that any Great
Western Common Stock Options that are "incentive stock options" within the
meaning of Section 422 of the Code shall remain so. Pursuant to the terms of the
Great Western Common Stock Plans, consummation of the Washington Mutual/Great
Western Merger will constitute a change in control of Great Western, resulting
in accelerated vesting of outstanding Great Western Common Stock Options. See
"-- Interests of Certain Persons in the Washington Mutual/Great Western Merger."
EFFECTIVE TIME
The Effective Time will be the date and time when the Washington
Mutual/Great Western Merger becomes effective, as set forth in a Certificate of
Merger, which, shall be filed with the Secretary of State of the State of
Delaware. The filing of the Certificate of Merger will occur at 10:00 a.m. on a
date to be specified by the parties, which will be the tenth business day of the
first month beginning at least two days after the satisfaction or waiver
(subject to applicable law) of the conditions to consummation of the Washington
Mutual/Great Western Merger set forth in the Merger Agreement (excluding
conditions which by their terms cannot be satisfied until the date of closing)
unless another date and time is agreed to by Washington Mutual and Great
Western. The Merger Agreement may be terminated by either party if, among other
reasons, the Washington Mutual/Great Western Merger shall not have been
consummated on or before March 31, 1998. See "-- Conditions to the Consummation
of the Washington Mutual/Great Western Merger" and "-- Termination of the Merger
Agreement" below.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement each of Washington Mutual and Great Western makes
representations and warranties to the other regarding, among other things, (i)
its corporate organization and existence; (ii) its capitalization; (iii) its
corporate power and authority to enter into, and its due authorization,
execution and delivery of, the Merger Agreement; (iv) that neither the Merger
Agreement nor the contemplated transactions violate its charter and bylaws,
applicable law and certain material agreements; (v) required governmental and
third party approvals; (vi) timely filing of required regulatory reports; (vii)
its financial statements and filings with the Commission; (viii) its investment
banking arrangements; (ix) the absence of certain materially adverse changes in
its business since September 30, 1996; (x) the absence of certain material legal
proceedings; (xi) the filing and accuracy of its tax returns; (xii) documents
filed with the Commission and the accuracy of the information contained therein;
(xiii) its compliance with applicable law; (xiv) the absence of undisclosed
agreements between it and regulatory agencies; (xv) the absence of undisclosed
liabilities; (xvi) that the Merger Agreement and the transactions contemplated
thereby do not result in the grant of any rights to any person under such
party's respective Rights Agreement; (xvii) accuracy of certain information;
(xviii) environmental liabilities; (xix) pooling of interests accounting
treatment; (xx) receipt of a fairness opinion from its financial advisor; (xxi)
intellectual property matters; and (xxii) compliance with the Community
Reinvestment Act.
In addition, Great Western has made certain other representations and
warranties to Washington Mutual regarding, among other things (i) employees,
employee benefit plans and related matters and (ii) the absence of certain
defaults under material contracts.
CONDUCT OF BUSINESS PENDING THE WASHINGTON MUTUAL/GREAT WESTERN MERGER AND OTHER
AGREEMENTS
Pursuant to the Merger Agreement, prior to the Effective Time, Washington
Mutual and Great Western have each agreed to, and to cause their respective
subsidiaries to, (i) conduct its business in the usual, regular and ordinary
course consistent with past practice, (ii) use its reasonable best efforts to
maintain and preserve intact its business organization, employees and
advantageous business relationships and retain the services of its officers and
key employees and (iii) refrain from taking any action that would reasonably be
expected to
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adversely affect or delay the ability of either Washington Mutual or Great
Western to obtain any Requisite Regulatory Approvals or to consummate the
transactions contemplated by the Merger Agreement.
In addition, except as expressly contemplated or permitted by the Merger
Agreement or specified in a schedule thereto or required by applicable law, each
of Great Western and Washington Mutual has agreed that it and its subsidiaries
will not, without the prior written consent of the other party, among other
things: (i) adjust, split, combine or reclassify any capital stock, declare or
pay dividends (except, subject to certain restrictions, cash dividends on common
stock not greater than the dividend paid during the fiscal quarter preceding the
date of the Merger Agreement, and, in the case of Washington Mutual only, as
such rates may be increased consistent with past practice, and regular dividends
on Great Western's and Washington Mutual's preferred stock); set any record or
payment dates for the payment of any dividends or distributions on its capital
stock except in the ordinary and usual course of business consistent with past
practice; or make any other distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its capital stock or any securities
or obligations convertible into or exchangeable for any shares of its capital
stock or issue any additional shares of capital stock except pursuant to certain
exceptions set forth in the Merger Agreement; (ii) sell, transfer, mortgage or
encumber or otherwise dispose of any of its properties or assets or cancel,
release or assign any indebtedness to any person except in the ordinary course
of business consistent with past practice or pursuant to certain exceptions set
forth in the Merger Agreement; (iii) except for transactions in the ordinary
course of business, consistent with past practice, make any material acquisition
of or investment either by purchase of stock or securities, merger or
consolidation, contributions to capital, property transfers or purchases of any
property or assets of any other party (other than a wholly owned subsidiary)
except that, subject to clause (iii) of the preceding paragraph, Washington
Mutual may enter into an agreement or agreements for, and may consummate,
business combinations provided that the aggregate amount of assets of such
acquired companies does not exceed $5,000,000,000 unless such acquisition would
require Washington Mutual to register as a bank holding company; (iv) in the
case of Great Western only, enter into, renew or terminate any contract or
agreement, other than loans made in the ordinary course of business, that calls
for aggregate annual payments of $500,000 and which either is not terminable at
will on 60 days or less notice without payment of a penalty or has a term of
less than one year; or make any material change in any of its leases or
contracts other than certain renewals of contracts and leases for a term of one
year or less without material adverse changes to their terms; (v) in the case of
Great Western only, other than general salary increases consistent with past
practice, increase in any material respect the compensation or fringe benefits
of any of its employees or enter into or modify any employee benefit plans or
employment agreements; (vi) in the case of Great Western only, make capital
expenditures in excess of specified amounts other than expenditures necessary to
maintain existing assets in good repair; (vii) in the case of Great Western
only, open, relocate or close any branch or loan production office or make any
application therefor; (viii) in the case of Great Western only, make or acquire
loans or issue commitments for any loans except in the ordinary course of
business consistent with past practice or issue or agree to issue any letters of
credit or otherwise guarantee the obligation of other persons except in the
ordinary course of business in order to facilitate the sale of REO; (ix) subject
to certain exceptions, engage or participate in any material transaction or
incur or sustain any material obligations not in the ordinary course of
business; (x) in the case of Great Western only, foreclose on or otherwise
acquire any real property other than 1-to-4 family residential properties in the
ordinary course of business; (xi) in the case of Great Western only, sell,
transfer or otherwise convey or agree to sell Sierra Investment Management
Corporation; (xii) settle any material litigation involving money damages except
in the ordinary course of business consistent with past practice; (xiii) take
any action that would prevent or impede the Washington Mutual/Great Western
Merger from qualifying (A) as a reorganization within the meaning of Section
368(a) of the Code or (B) for pooling of interests accounting treatment; (xiv)
amend its certificate of incorporation or bylaws or its Rights Agreement in a
manner that would materially and adversely affect either party's ability to
consummate the Washington Mutual/Great Western Merger; provided, that prior to
the Great Western Meeting, Great Western will not amend the Great Western Rights
Plan without Washington Mutual's prior written consent; (xv) in the case of
Great Western only, except in the ordinary course of business consistent with
past practice or following prior consultation with Washington Mutual, materially
change its investment securities portfolio policy or the manner in which the
portfolio is classified or reported; (xvi) take any action intended or
reasonably expected to result in any of its
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representations or warranties being or becoming untrue in any material respect,
or any Closing condition not being satisfied or in a violation of any provision
of the Merger Agreement; (xvii) subject to certain exceptions, make any changes
in its accounting methods; (xviii) in the case of Great Western only, engage in
the business of making or make any VA guaranteed or FHA insured mortgage loans;
or (xix) in the case of Great Western only, enter into any contract or
agreements or amendments or supplements thereto pertaining to any further
development of specialized software.
In the Merger Agreement, each party has agreed not to, and not to authorize
or permit any of its officers, directors, employees or agents (collectively,
"Representatives") to, directly or indirectly, solicit, initiate or encourage
any inquiries relating to or that may reasonably be expected to lead to, or the
making of any proposal which constitutes, a "Takeover Proposal" (as defined
below), recommend or endorse any Takeover Proposal, or participate in any
discussions or negotiations regarding any Takeover Proposal, or participate in
any discussions or negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal or otherwise facilitate
any effort or attempt to make or implement a Takeover Proposal. However, at any
time prior to the time its shareholders shall have voted to approve the Merger
Agreement, Washington Mutual or Great Western (each, a "party") may, and may
authorize and permit its Representatives to, provide third parties with
nonpublic information, otherwise facilitate any effort or attempt by any third
party to make or implement a Takeover Proposal, recommend or endorse any
Takeover Proposal with or by any third party, and participate in discussions and
negotiations with any third party relating to any Takeover Proposal, if such
party's Board of Directors, after having consulted with and considered the
advice of its financial advisors and outside counsel, has determined in good
faith that the failure to do so would create a reasonable possibility of a
breach of the fiduciary duties of such party's Board of Directors. Each of
Washington Mutual and Great Western shall (i) advise the other orally (within
one day) and in writing of the receipt of any such inquiry or proposal and (ii)
unless its Board of Directors, after consulting with, and considering the advice
of, its outside counsel has determined in good faith that such action would
create a reasonable possibility of a breach of the fiduciary duties of such
Board of Directors, inform the other party orally and in writing as promptly as
practicable of the material terms and conditions of any such inquiries or
proposals (including the identity of the party making such inquiry or proposal),
and shall keep the other party informed of the status thereof. Great Western may
not furnish any nonpublic information to any third party except pursuant to the
terms of a confidentiality agreement containing terms substantially identical to
the terms contained in the confidentiality agreement between Great Western and
Washington Mutual. "Takeover Proposal" means, with respect to any person, any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving Great Western or Washington Mutual or any of their
respective subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of, Great
Western or Washington Mutual or any of their respective subsidiaries, other than
the transactions contemplated or permitted by the Merger Agreement; provided,
however, that any proposal or offer involving the acquisition by Washington
Mutual of any equity interest in or assets of any person, whether by tender or
exchange offer, merger, consolidation, or otherwise, or the disposition by
Washington Mutual of assets, deposits or subsidiaries, which is permitted by the
Merger Agreement shall not constitute a Takeover Proposal.
Washington Mutual and Great Western have also agreed to use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain and to cooperate in obtaining permits, consents, approvals and
authorizations of all third parties and governmental entities necessary or
advisable to consummate the transactions contemplated by the Merger Agreement
and to comply with the terms and conditions of all such permits, consents,
approvals and authorizations. Washington Mutual and Great Western have, subject
to the restrictions set forth in the Merger Agreement, each agreed, upon
request, to furnish to the other party all information concerning themselves and
their subsidiaries, directors, officers and shareholders and such other matters
as may be necessary in furtherance of the Washington Mutual/Great Western
Merger. Washington Mutual and Great Western have also agreed, subject to the
terms and conditions of the Merger Agreement, to use their best efforts to take,
or cause to be taken, all actions necessary, proper or advisable to comply
promptly with all legal requirements which may be imposed on such party or its
subsidiaries and to consummate the Washington Mutual/Great Western Merger.
Washington Mutual has further agreed to use its best efforts to cause the shares
of
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Washington Mutual Common Stock and the New Washington Mutual Depositary Shares
to be issued in the Washington Mutual/Great Western Merger to be approved for
listing on NASDAQ, subject to official notice of issuance.
Washington Mutual also will be obligated to indemnify the officers and
directors of Great Western and its subsidiaries for any liabilities incurred in
connection with any matters existing or occurring at or prior to the Effective
Time and to provide directors and officers liability insurance with respect to
such matters for six years. See "-- Interests of Certain Persons in the
Washington Mutual/Great Western Merger."
CONDITIONS TO THE CONSUMMATION OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
Each of the party's obligation to effect the Washington Mutual/Great
Western Merger is subject, among other things, to satisfaction, at or prior to
the Effective Time of the following conditions: (i) the Washington Mutual/Great
Western Merger Proposal shall have been approved by the requisite affirmative
votes of the Great Western Stockholders and the Share Issuance/Merger Proposal
shall have been approved by the requisite affirmative vote of the shareholders
of Washington Mutual; (ii) the shares of Washington Mutual Common Stock and the
Washington Mutual Depositary Shares to be issued in the Washington Mutual/Great
Western Merger shall have been authorized for listing on NASDAQ, subject to
official notice of issuance; (iii) all regulatory approvals required to
consummate the transactions contemplated by the Merger Agreement shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired (all such approvals and the
expiration of all such waiting periods being referred to herein as the
"Requisite Regulatory Approvals"); (iv) the Registration Statement shall have
become effective under the Securities Act, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
Commission; (v) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Washington Mutual/Great Western Merger or any of the
transactions contemplated by the Merger Agreement shall be in effect and no
statute, rule, regulation, order, injunction or decree shall have been enacted,
entered or promulgated which prohibits, restricts or makes illegal consummation
of the Washington Mutual/Great Western Merger; and (vi) each of Washington
Mutual and Great Western shall each have received a letter from its independent
public accountants that the Washington Mutual/Great Western Merger will qualify
for pooling of interests accounting treatment.
Washington Mutual's obligation to effect the Washington Mutual/Great
Western Merger is also subject to, among other things, the satisfaction or
waiver by Washington Mutual at or prior to the Effective Time of, among others,
the following conditions: (i) the representations and warranties of Great
Western set forth in the Merger Agreement (including, without limitation, the
representation that since September 30, 1996, no event has occurred which has
had or would reasonably be expected to have, individually or in the aggregate, a
"Material Adverse Effect" (as such term is defined in the Merger Agreement) on
Great Western) shall be true and correct in all respects as of the date of the
Merger Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Time as though made on and as
of the Effective Time; provided, however, that for purposes of determining the
satisfaction of the condition described in this clause (i), such representations
and warranties (other than certain representations regarding capitalization and
related matters) shall be deemed to be true and correct in all respects unless
the failure or failures of such representations and warranties to be so true and
correct, individually or in the aggregate, results or would reasonably be
expected to result in a Material Adverse Effect on Great Western and its
subsidiaries taken as a whole; (ii) Great Western shall have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Effective Time; (iii) the Great Western
Rights issued pursuant to the Great Western Rights Plan shall not have become
nonredeemable, exercisable, distributed or triggered pursuant to the terms of
such plan; and (iv) receipt of an opinion of Foster Pepper & Shefelman PLLC,
addressed to Washington Mutual, substantially to the effect that the Washington
Mutual/Great Western Merger will qualify as a "reorganization" under Section
368(a) of the Code.
Great Western's obligation to effect the Washington Mutual/Great Western
Merger is also subject to, among other things, the satisfaction or waiver by
Great Western at or prior to the Effective Time of, among
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others, the following conditions: (i) the representations and warranties of
Washington Mutual set forth in the Merger Agreement (including, without
limitation, the representation that since September 30, 1996, no event has
occurred which has had or would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Washington Mutual) shall be true
and correct in all respects as of the date of the Merger Agreement and (except
to the extent such representations and warranties speak as of an earlier date)
as of the Effective Time as though made on and as of the Effective Time, and
provided, however, that, for purposes of the provision described in this clause
(i), such representations and warranties shall be deemed to be true and correct
in all respects unless the failure or failures of such representations and
warranties to be so true and correct, individually or in the aggregate, results
or would reasonably be expected to result in a Material Adverse Effect on
Washington Mutual and its subsidiaries taken as a whole; (ii) Washington Mutual
shall have performed in all material respects all obligations required to be
performed by it under the Merger Agreement at or prior to the Effective Time;
(iii) the Washington Mutual Rights issued pursuant to the Washington Mutual
Rights Plan shall not have become nonredeemable, exercisable, distributed or
triggered pursuant to the terms of such plan; and (iv) receipt of an opinion of
Skadden, Arps, Slate, Meagher & Flom, LLP, addressed to Great Western,
substantially to the effect that the Washington Mutual/Great Western Merger will
qualify as a "reorganization" under Section 368(a) of the Code.
Washington Mutual and Great Western each have the right to waive the
receipt of the tax opinion referenced above from their respective counsel and
receipt of the pooling letter referenced above from their respective independent
public accountants. If either of these conditions to the Washington Mutual/Great
Western Merger is waived because the tax opinions could not be rendered or the
pooling letter could not be delivered, as the case may be, the party waiving the
condition will schedule another special shareholders meeting and resubmit the
respective proposal to its shareholders for approval.
REGULATORY APPROVALS REQUIRED
Under the Merger Agreement, the obligations of both Washington Mutual and
Great Western to consummate the Washington Mutual/Great Western Merger are
conditioned upon the receipt of all Requisite Regulatory Approvals. See "The
Washington Mutual/Great Western Merger -- Conditions to the Consummation of the
Washington Mutual/Great Western Merger." Each of Washington Mutual and Great
Western has agreed to use its reasonable best efforts to obtain the Requisite
Regulatory Approvals.
The Washington Mutual/Great Western Merger and the Bank Merger are subject
to the approval of the OTS under the HOLA and the Federal Deposit Insurance Act,
respectively, and related OTS regulations. These approvals require consideration
by the OTS of various factors, including assessments of the competitive effect
of the contemplated transactions, the managerial and financial resources and
future prospects of the resulting institutions and the effect of the
contemplated transactions on the convenience and needs of the communities to be
served. The Community Reinvestment Act of 1977, as amended ("CRA"), also
requires that the OTS, in deciding whether to approve the Washington
Mutual/Great Western Merger and the Bank Merger, assess the records of
performance of GW Bank and the bank subsidiaries of Washington Mutual in meeting
the credit needs of the communities they serve, including low and moderate
income neighborhoods. As part of the review process, it is not unusual for the
OTS to receive protests and other adverse comments from community groups and
others. Each of GW Bank, WMB, ASB and WMBfsb currently has an "outstanding" CRA
rating from its primary regulator. The regulations of the OTS require
publication of notice of, and an opportunity for public comment with respect to,
the applications filed in connection with the Washington Mutual/Great Western
Merger and the Bank Merger and authorize the OTS to hold oral arguments in
connection therewith if the OTS, after reviewing the application or other
materials, determines it to be desirable. Any such hearing, meeting or comments
provided by third parties could prolong the period during which the Washington
Mutual/Great Western Merger and the Bank Merger are subject to review by the
OTS. The Washington Mutual/Great Western Merger and the Bank Merger may not be
consummated for a period of 15 to 30 days following OTS approval (the precise
length of the period to be determined by the OTS with the concurrence of the
Attorney General of the United States), during which time the United States
Department of Justice could challenge the Washington Mutual/Great Western Merger
or the Bank
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Merger on antitrust grounds. The commencement of an antitrust action would stay
the effectiveness of any approval granted by the OTS unless a court specifically
ordered otherwise.
The Washington Mutual/Great Western Merger is also subject to approvals of,
or notices to, various state agencies (each a "State Agency"), including state
banking regulators in Utah and Colorado, several state insurance departments,
and other state agencies such as those that regulate consumer finance.
Washington Mutual has filed applications and notices seeking the requisite
OTS and other State Agency approvals. The public comment period for the OTS
application is scheduled to expire April 28, 1997. To date, Washington Mutual
has not received any approvals or notices of disapproval. There can be no
assurance that these approvals will be granted, and if granted there can be no
assurance as to the dates of such approvals or as to what conditions, if any,
may be imposed. In addition, there can be no assurance that the U.S. Department
of Justice or the Attorney General of the state of California or any other state
will not challenge the Washington Mutual/Great Western Merger or, if challenged,
what the result of such a challenge would be.
Washington Mutual and Great Western are not aware of any other significant
governmental approvals that are required for consummation of the Washington
Mutual/Great Western Merger except as described above. Should any other approval
or action be required, it is presently contemplated that such approval would be
sought. There can be no assurance whether or when any such approval, if
required, could be obtained.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated by mutual agreement of the Great
Western Board and the Washington Mutual Board. The Merger Agreement may also be
terminated by either the Great Western Board or the Washington Mutual Board (a)
if any governmental authority which must grant a Requisite Regulatory Approval
has denied approval of the Washington Mutual/Great Western Merger and such
approval has become final and nonappealable or has issued a final nonappealable
order enjoining or otherwise prohibiting the consummation of the transactions
contemplated by the Merger Agreement; (b) if the Washington Mutual/Great Western
Merger shall not have been consummated on or before March 31, 1998, unless the
failure of the Closing (as defined in the Merger Agreement) to occur by such
date shall be due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe the covenants and agreements of such party set
forth therein; (c) provided that the terminating party is not then in material
breach of the Merger Agreement, if the other party shall have breached any of
the covenants or agreements made by such other party or any of the
representations or warranties made by such other party, and in either case, such
breach is not cured within 30 days following written notice to the breaching
party, or which breach cannot be cured prior to the Closing (as defined in the
Merger Agreement) and such breach would entitle the non-breaching party not to
consummate the transactions contemplated by the Merger Agreement; (d) if any
approval of the Washington Mutual shareholders or Great Western Stockholders
contemplated by the Merger Agreement shall not have been obtained by reason of
the failure to obtain the required vote at the relevant Special Meeting; (e) if
the board of directors of the other party shall have withdrawn, modified or
changed in a manner adverse to the terminating party its approval or
recommendation of the Merger Agreement and the transactions contemplated
thereby; or (f) by (i) the Washington Mutual Board if a tender offer or exchange
offer for 25% or more of the outstanding shares of Great Western Common Stock is
commenced (other than by Washington Mutual or one of its subsidiaries), and the
Great Western Board recommends that the Great Western Stockholders tender their
shares in such tender or exchange offer or otherwise fails to recommend that
such stockholders reject such tender offer or exchange offer within ten business
days after the commencement thereof; or (ii) the Great Western Board if a tender
offer or exchange offer for 25% or more of the outstanding shares of Washington
Mutual Common Stock is commenced and the Washington Mutual Board recommends that
the Washington Mutual shareholders tender their shares in such tender or
exchange offer or otherwise fails to recommend that such shareholders reject
such tender or exchange offer within ten business days after the commencement
thereof (which, in the case of any exchange offer, shall be the effective date
of the registration statement relating to such offer).
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TERMINATION FEES
Pursuant to the Merger Agreement, Great Western has agreed to pay a $75
million fee (plus reimbursement for documented reasonable out-of-pocket expenses
up to $20 million) to Washington Mutual if (a) Washington Mutual terminates the
Merger Agreement because the Great Western Board withdraws, modifies or changes
in a manner adverse to Washington Mutual its approval or recommendation of the
Washington Mutual/Great Western Merger, (b) Washington Mutual terminates the
Merger Agreement because the Great Western Board either recommends a third party
tender or exchange offer for 25% or more of the outstanding shares of the Great
Western Common Stock or fails to recommend that stockholders reject such tender
or exchange offer, (c) either Washington Mutual or Great Western terminates the
Merger Agreement because the Great Western Stockholders fail to approve the
Merger Agreement, but only if at the time of such failure, an alternative
proposal to acquire Great Western has been publicly disclosed (or any person
shall have publicly disclosed an intention (whether or not conditional) to make
an alternative takeover proposal; for this purpose, the Ahmanson Proposal, if
not unconditionally withdrawn prior to the mailing to Great Western Stockholders
of this Joint Proxy Statement/Prospectus, would be such an alternative
proposal), or (d) Washington Mutual terminates the Merger Agreement as a result
of the willful breach by Great Western of any material representation, warranty,
covenant or other agreement in the Merger Agreement, but only if at or prior to
the time of termination, an alternative takeover proposal to acquire Great
Western has been made known to Great Western or has been publicly disclosed,
whether or not such alternative proposal is rejected by Great Western or
withdrawn prior to the time of termination. For purposes of clause (d) above,
the Ahmanson Proposal constitutes such an alternative proposal. An additional
$100 million fee is payable by Great Western to Washington Mutual if, within 18
months after termination of the Merger Agreement under any of the circumstances
described above, Great Western enters into a definitive agreement with respect
to or consummates an alternative proposal for an acquisition of Great Western by
a third party.
The termination fees described above, which Washington Mutual and Great
Western believe are customary and typical for transactions such as the proposed
Washington Mutual/Great Western Merger, are intended, among other things, to
increase the likelihood that the Washington Mutual/Great Western Merger will be
consummated on the terms set forth in the Merger Agreement and, if the Merger is
not consummated under certain circumstances involving an acquisition or
potential acquisition of Great Western by a third party, to compensate
Washington Mutual for its efforts undertaken, expenses incurred and business
opportunities lost in connection with the proposed Washington Mutual/Great
Western Merger. These agreements may have the effect of discouraging offers by
third parties to acquire Great Western prior to the Washington Mutual/Great
Western Merger, even if such persons were prepared to offer to pay consideration
to Great Western Stockholders that has a higher current market price than the
shares of Washington Mutual Common Stock to be received by the holders of Great
Western Common Stock pursuant to the Merger Agreement. Ahmanson has filed suit
in the Court of Chancery of the State of Delaware to enjoin all steps necessary
for consummation of the Washington Mutual/Great Western Merger and is
challenging the termination fee described above. See "Litigation" and "The
Washington Mutual/Great Western Merger -- Background of the Washington
Mutual/Great Western Merger."
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
At any time prior to the Effective Time, Great Western and Washington
Mutual, by action taken or authorized by their respective boards of directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties, (ii) waive any
inaccuracies in the representations and warranties contained in the Merger
Agreement and (iii) waive compliance with any of the agreements or conditions
contained in the Merger Agreement. Subject to compliance with applicable law,
the Merger Agreement may be amended at any time by an agreement among the
parties, approved or authorized by their respective boards of directors; except
that after any approval of the transactions contemplated by the Merger Agreement
by the Great Western Stockholders, there may not be, without further approval of
such stockholders, any amendment to the Merger Agreement that reduces the amount
or changes the form of the consideration to be delivered to the Great Western
Stockholders thereunder.
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INTERESTS OF CERTAIN PERSONS IN THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
Certain members of Great Western's management and the Great Western Board,
respectively, may be deemed to have certain interests in the Washington
Mutual/Great Western Merger that are in addition to their interests as
stockholders of Great Western generally. The Great Western Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby.
Board of Directors. Pursuant to the terms of the Merger Agreement, members
of the Washington Mutual Board will continue to serve on the Washington Mutual
Board and, at the Effective Time, Washington Mutual will take all action
necessary to appoint four representatives of Great Western, mutually agreeable
to Washington Mutual and Great Western, to the Washington Mutual Board. See
"Management and Operations of Washington Mutual Following the Washington
Mutual/Great Western Merger."
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
requires that Washington Mutual and Great Western, to the extent set forth in
the following paragraph, cooperate and use their best efforts to defend and
respond to any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, whether asserted or
arising before or after the Effective Time (each a "Claim"), against each
present and former director, officer and employee of Great Western and its
subsidiaries (each an "Indemnified Party"), arising in whole or in part out of
(i) his or her actions as such a director, officer, employee, or serving on
behalf of such a person, or (ii) the Merger Agreement or any actions in
connection therewith.
The Merger Agreement also requires Washington Mutual after the Effective
Time to indemnify and hold harmless, as and to the fullest extent permitted by
the corporate governance documents of Great Western and its subsidiaries, the
indemnification letters between Great Western and each of its directors and
executive officers and by law, each Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorneys'
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of an undertaking from such Indemnified Party to
repay such advanced expenses if it is finally and unappealably determined that
such Indemnified Party was not entitled to indemnification hereunder),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time),
the Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Washington Mutual except as provided in the Merger Agreement.
These indemnification obligations of Washington Mutual will continue in
full force for at least six years after the Effective Time and will apply to any
Claim asserted or made within such period (including, without limitation, Claims
arising out of or pertaining to the transactions contemplated by the Merger
Agreement).
The Merger Agreement requires that Washington Mutual use its best efforts
to cause the persons serving as officers and directors of Great Western
immediately prior to the Effective Time to be covered for a period of six years
from the Effective Time by the directors' and officers' liability insurance
policy maintained by Great Western (provided that Washington Mutual may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous to such
directors and officers of Great Western than the terms and conditions of such
existing policy) with respect to acts or omissions occurring prior to the
Effective Time which were committed by such officers and directors in their
capacity as such.
Employment Agreements. Great Western has entered into employment
agreements (the "EMC Agreements") with each of its seven executive officers
(Messrs. Maher, Pappas, Schenck, Geuther, Sims, Erikson and Ms. Studenmund) who
constitute the members of Great Western's Executive Management Committee, which
provide, among other things, for severance payments upon certain terminations of
employment prior to, or during the two year period (three years, in the case of
Mr. Maher's agreement) following, a change in control of Great Western. In order
to qualify for the severance benefits described below, termination of employment
must be (i) by Great Western or a successor employer other than for "cause" (as
such term is defined in the EMC Agreements) or (ii) by the executive because of
a material breach of the
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EMC Agreement by Great Western or a successor employer which is not cured within
fifteen days after receipt of notice thereof. The EMC Agreements provide that,
following a qualifying termination, the executive is entitled to receive (a) a
lump sum payment equal to the product of (1) the sum of (A) the executive's
annual base salary plus (B) the executive's target bonus under Great Western's
Annual Incentive Plan for Executive Officers (the "Executive Officer Incentive
Plan") in respect of the year in which such termination occurs (or the year in
which the change in control occurs, whichever is greater) and (2) the number
three, and (b) a pro-rata target bonus under the Executive Officer Incentive
Plan in respect of the year in which such termination occurs, provided, that if
the termination occurs during the same year in which the change in control
occurs, the amount described in this clause (b) will be offset by any payments
received under the Executive Officer Incentive Plan in connection with the
change in control. In addition, the executive would be entitled to continuation
of welfare-type benefits for three years following such termination. Mr. Maher's
EMC Agreement provides that he may elect to terminate his employment, without a
material breach by Great Western or a successor employer, and receive the
benefits described above during the period commencing no earlier than eighteen
months following a change in control of Great Western and ending no later than
the second anniversary of such change in control; provided, that the
eighteen-month minimum period shall not apply if, at any time during the first
year following such change in control, more than 50% of the non-employee members
of the Great Western Board as of the date immediately preceding the change in
control are no longer members of the Great Western Board; and provided further,
that, if Mr. Maher elects to so terminate his EMC Agreement, cash benefits which
would become payable will be reduced by 25%. If any payments received by an
executive under his or her EMC Agreement or any other benefit plan, agreement or
arrangement in which such executive participates would be subject to an excise
tax ("Excise Tax") under Section 4999 of the Code, he or she will be entitled to
receive any additional amount necessary to make such executive whole with
respect to such Excise Tax. If the value of the aggregate payments which are
contingent upon a change in control of Great Western ("parachute payments") is
less than specified Code limits that currently approximate three times the
average of an executive's compensation for the prior five years (the "Section
280G Limit") for any reason (including that some or all of such entitlement does
not constitute a parachute payment), the executive is entitled to receive the
Section 280G Limit. Consummation of the Washington Mutual/Great Western Merger
will constitute a change in control of Great Western for purposes of the EMC
Agreements. If the employment of the seven executive officers of Great Western
were terminated on or about the effective date of the Washington Mutual/Great
Western Merger under circumstances entitling them to severance benefits under
the EMC Agreements, such officers would be entitled to the following approximate
amounts in respect of the benefits described in clause (a) above: Mr. Maher,
$4,386,000; Mr. Pappas, $2,160,000; Mr. Schenck, $2,160,000; Mr. Geuther,
$1,920,000; Mr. Sims, $1,632,000; Mr. Erikson, $1,512,000; and Ms. Studenmund,
$1,680,000. There would be no amounts payable in respect of clause (b) under
these circumstances; the pro-rata target bonus amounts payable to such officers
upon a change in control of Great Western are set forth below under "Great
Western Cash-Based Incentive Plans."
Consulting Agreement. Great Western has entered into a consulting
agreement (the "Consulting Agreement") with Mr. James F. Montgomery, the
Chairman and former Chief Executive of Great Western, that has a term which
expires December 31, 2000 and which provides, among other things, that Mr.
Montgomery will serve as Chairman of the Board of Great Western for a term
ending no earlier than December 31, 1997. If, during the term of the Consulting
Agreement, Great Western or its successor materially breaches the Consulting
Agreement and fails to cure such breach within fifteen days of notice thereof,
Mr. Montgomery is entitled to terminate the Consulting Agreement and receive,
among other things, his consulting fees ($485,000 per year) and continuation of
his benefits under Great Western's executive medical program until the
expiration of the term. If, during the term of the Consulting Agreement, there
should occur a change in control of Great Western, Mr. Montgomery may, within 6
months after he first has knowledge of such event, elect to terminate the
Consulting Agreement and receive the benefits described in the immediately
preceding sentence. If the Consulting Agreement were terminated on or about the
effective date of the Washington Mutual/Great Western Merger under circumstances
entitling him to termination benefits described above, Mr. Montgomery would be
entitled to approximately $1,657,000 in respect of consulting fees.
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Supplemental Retirement Plans. Great Western's Supplemental Executive
Retirement Plan (the "SERP") provides that if, prior to, or within 24 months
following, a change in control of Great Western, an executive officer's
employment is terminated under circumstances which would entitle such officer to
receive the severance benefits payable under his or her EMC Agreement, such
officer will be entitled to receive (i) for executive officers who have attained
age 55 for purposes of the SERP, immediate commencement of retirement benefits
that are not actuarially reduced for early retirement, or (ii) for executive
officers who have not attained age 55 for purposes of the SERP, vesting of his
or her accrued retirement benefits as of such termination and commencement of
payment on such officer's attainment (or deemed attainment) of age 55, without
reduction for commencement prior to normal retirement. SERP participants will be
entitled to an additional 3 years of age and service credit as of their
termination date in calculating the amount and commencement date of their
retirement benefits. If the employment of the seven executive officers of Great
Western were terminated on or about the effective date of the Washington
Mutual/Great Western Merger under circumstances entitling them to the benefits
described above under the SERP, such officers would be entitled to the following
approximate annual benefit: Mr. Maher, $950,000; Mr. Pappas, $357,870; Mr.
Schenck, $324,029; Mr. Geuther, $310,848; Mr. Sims, $39,596; Mr. Erikson,
$238,252; and Ms. Studenmund, $121,864. The preceding amounts represent the
aggregate benefit which the individual will be entitled to receive under the
SERP generally in the form of a single-life annuity: these aggregate amounts are
subject to adjustment based on actual 1997 compensation, and amounts received by
the individual from Great Western's tax-qualified retirement plans (and for Mr.
Schenck and Ms. Studenmund, benefits paid from tax qualified retirement plans of
previous employers) and Social Security payments will serve to offset and reduce
these SERP benefits. Great Western's Retirement Restoration Plan provides for
the vesting of benefits payable thereunder if a participant incurs a qualifying
termination of employment prior to, or within 24 months following, a change in
control of Great Western. Consummation of the Washington Mutual/Great Western
Merger will constitute a change in control of Great Western for purposes of
these plans.
Deferred Compensation Plans. Great Western's deferred compensation plans
provide for deferral until retirement of portions of a participant's income.
Employee participants may also receive employer matching contributions under the
plans. Amounts deferred under each of these plans are credited with earnings
based upon rates applicable to U.S. Treasury Notes, which rates increase based
upon years of participation in such plan. The plans provide for full vesting
(where applicable) of employer matching contributions upon a change in control
of Great Western or if an employee participant incurs a termination of
employment under circumstances that would entitle such employee participant to
receive severance benefits under his or her EMC Agreement (if such participant
is an executive officer) or, if the employee is not an executive officer, under
the Special Severance Plan (as defined below) (whether or not a participant in
such Plan). In addition, if an employee participant's employment is terminated
under the circumstances described in the immediately preceding sentence, such
participant is entitled to be credited with the fully enhanced earnings rate on
his or her account balance. A participant may, prior to a change in control,
elect to receive the full amount of his or her account balances in a lump sum
within 45 days following such change in control, and may, during the 2-year
period following a change in control, elect to receive 95% of his or her account
balances in a lump sum. Consummation of the Washington Mutual/Great Western
Merger will constitute a change in control of Great Western for purposes of
these plans. The account balances of the executive officers of Great Western
under the deferred compensation plans as of the effective date of the Washington
Mutual/Great Western Merger will be approximately the following (all of these
amounts became vested prior to the Washington Mutual/Great Western Merger except
as noted in the immediately following sentence): Mr. Maher, $4,758,000; Mr.
Pappas, $132,000; Mr. Schenck, $89,000; Mr. Geuther, $794,000; Mr. Sims, $0; Mr.
Erikson, $29,000; and Ms. Studenmund, $106,000. The following approximate
amounts represent that portion of the executive officers' total account balances
which is attributable to crediting the fully enhanced earnings rate: Mr. Maher,
$266,000; Mr. Pappas, $0; Mr. Schenck, $2,500; Mr. Geuther, $39,000; Mr.
Erikson, $0; and Ms. Studenmund, $2,400. The following fully vested amounts are
currently credited to the accounts of the non-employee members of the Great
Western Board: Mr. Alexander, $723,500; Mr. Christie, $454,500; Mr. Frank,
$189,100; Mr. Giovenco, $831,200; Mr. Gryp, $187,200; Mr. Hernandez, $187,600;
Mr. Miller, $490,600; Mr. Montgomery, $2,490,600; Ms. Siegel, $204,500; and Mr.
Wood, $209,400.
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Great Western Equity-Based Incentive Awards. The provisions of the Merger
Agreement relating to the conversion of Great Western Stock Options outstanding
under Great Western Stock Plans into stock options for Washington Mutual Common
Stock are described under "The Washington Mutual/Great Western
Merger -- Conversion of Great Western Capital Stock." Pursuant to the terms of
the Great Western Stock Plans, upon consummation of the Washington Mutual/Great
Western Merger, each Great Western Common Stock Option held by employees and
directors will become immediately exercisable, all shares of restricted stock
will immediately vest free of restrictions and all other awards granted
thereunder will become fully vested and exercisable. As of April 1, 1997, the
seven executive officers of Great Western held unvested Great Western Stock
Options with respect to the following number of shares of Great Western Common
Stock at the indicated weighted average exercise price: Mr. Maher, 406,250
shares at $25.821; Mr. Pappas, 137,500 shares at $24.384; Mr. Schenck, 197,024
shares at $25.765; Mr. Geuther, 150,000 shares at $25.300; Mr. Sims, 60,028
shares at $31.250, Mr. Erikson, 100,000 shares at $25.775; and Ms. Studenmund,
97,500 shares at $27.846. As of April 1, 1997, certain of these executive
officers of Great Western held shares of restricted stock, as follows: Mr.
Maher, 43,750 shares; Mr. Pappas, 18,750 shares; Mr. Schenck, 5,386 shares, Mr.
Geuther, 15,000 shares; and Mr. Erikson, 7,500 shares. As of April 1, 1997, all
other employees of Great Western, as a group, held unvested Great Western Stock
Options with respect to 3,079,226 shares at a weighted average exercise price of
$25.082. As of April 1, 1997, Mr. Montgomery held unvested Great Western Stock
Options with respect to 153,750 shares at a weighted average exercise price of
$20.436, and held 43,750 shares of restricted stock; and each other non-employee
member of the Great Western Board held unvested Great Western Stock Options with
respect to 3,750 shares at a weighted average exercise price of $27.875.
Great Western Cash-Based Incentive Awards. Great Western maintains
separate cash-based incentive plans for the benefit of its executive officers
and its subsidiaries' senior officers, respectively. Each of these plans
provides that, within five days following a change in control of Great Western,
a participant will receive a pro-rata portion of such participant's target bonus
for the year in which such change in control occurs. The consummation of the
Washington Mutual/Great Western Merger will constitute a change in control of
Great Western for purposes of these cash-based incentive plans. Assuming that
the consummation of the Washington Mutual/Great Western Merger takes place on
the date currently anticipated, the seven executive officers of Great Western
would be entitled to receive, within five days thereafter, the following
approximate amounts in respect of the pro-rata portion of such individual's 1997
target bonus: Mr. Maher, $351,000; Mr. Pappas, $158,000; Mr. Schenck, $146,000;
Mr. Geuther; $140,000; Mr. Sims, $119,000; Mr. Erikson, $110,000; and Ms.
Studenmund, $123,000. These amounts are in addition to any severance benefits
which may be paid to executive officers under the EMC Agreements, to
participants in the Special Severance Plan and to certain participants under the
Severance Plan (each as defined below); however, the amounts payable upon a
change in control of Great Western under these cash-based incentive plans will
offset any pro-rata bonus which may become payable under the EMC Agreements and
the Special Severance Plan as a part of severance benefits, if such pro-rata
bonus becomes payable during the year in which a change in control occurs.
Umbrella Trusts. Great Western maintains two "rabbi trusts" (the "Trusts")
for the purposes of funding benefits payable under the following Great Western
benefit plans and agreements: the EMC Agreements; the Great Western deferred
compensation plans; the SERP; the Retirement Restoration Plan; the Consulting
Agreement; supplemental retirement benefit for Mr. Firmin A. Gryp, a director of
Great Western; and Great Western's retirement plan for directors. Each of the
Trusts provides for full funding thereof upon the occurrence of certain events
which would anticipate a change in control of Great Western. The Trusts are
funding vehicles for benefits payable to participants in the plans and
agreements funded thereby and do not provide any separate or additional
benefits. The delivery of the Original Ahmanson Proposal on February 17, 1997
constituted such an event.
EMPLOYEE MATTERS
Employee Benefit Plans. The Merger Agreement provides that for a period of
at least one year from and after the Effective Time, Washington Mutual will
provide to employees of Great Western immediately prior to
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the Effective Time ("Great Western Employees") compensation and benefits on
terms no less favorable in the aggregate than those provided to similarly
situated employees of Washington Mutual. For purposes of all employee benefit
plans of Washington Mutual or its subsidiaries in which Great Western Employees
participate from and after the Effective Time (including all policies and
employee fringe benefit programs, including vacation policies, of Washington
Mutual or its subsidiaries but excluding Washington Mutual's Service Award Plan)
and under which an employee's benefit depends, in whole or in part, on length of
service, credit will be given to Great Western Employees for service previously
credited with Great Western or its subsidiaries prior to the Effective Time to
the extent that such crediting of service does not result in duplication of
benefits, provided that Washington Mutual will determine each Great Western
Employee's length of service in a manner consistent with Washington Mutual's
customary practice with respect to its employees. Washington Mutual will also
cause each employee benefit plan in which Great Western Employees participate
from and after the Effective Time to waive (i) any preexisting condition
restriction which was waived under the terms of any analogous Great Western
employee benefit plan immediately prior to the Effective Time or (ii) any
waiting period limitation which would otherwise be applicable to a Great Western
Employee on or after the Effective Time to the extent such Great Western
Employee had satisfied any similar waiting period limitation under an analogous
Great Western employee benefit plan prior to the Effective Time. For a period of
three years, in the case of those beneficiaries who are entitled to participate
in such program pursuant to employment agreements, or two years, in the case of
those beneficiaries who are otherwise entitled to participate in such program,
commencing on the Effective Time, Washington Mutual has agreed that it will
continue to maintain Great Western's Executive Medical Program, on terms no less
favorable than those in effect as of March 5, 1997, for the benefit of those
Great Western Employees who are as of the date of the Merger Agreement eligible
to participate in such Program.
Pursuant to the Merger Agreement, Washington Mutual has agreed to honor in
accordance with their terms all of Great Western's employee benefit plans
("Great Western Plans"), provided that Washington Mutual will be entitled to
terminate such plans, agreements and arrangements in accordance with their terms
and applicable law. In addition, Washington Mutual and Great Western have agreed
that consummation of the Washington Mutual/Great Western Merger will constitute
a "Change in Control" for purposes of Great Western's employee benefit plans
that contain change in control provisions and have agreed to honor such change
in control provisions, including, but not limited to, the accelerated vesting
and/or payment of equity-based awards under Great Western's employee benefit
plans. Great Western has agreed to make no further mortgage loans to employees
under the Great Western employee home loan program; to amend the Great Western
retiree medical plans so that no additional retirees shall become entitled to
continuing medical insurance benefits thereunder; and to amend Great Western's
401(k) plan prior to Closing so that participant loans are no longer available.
SEVERANCE PLANS. Great Western has adopted for the benefit of its senior
vice presidents (and officers of equivalent rank) and first vice presidents (and
officers of equivalent rank) a severance plan (the "Special Severance Plan")
which provides for certain benefits to be paid and provided in the event of a
qualifying termination of employment prior to, or during the two-year period
following, a change in control of Great Western. Approximately 33 Great Western
employees participate in the Special Severance Plan at the senior vice president
level, and approximately 81 Great Western employees participate in the Special
Severance Plan at the first vice president level. In order to qualify for the
severance benefits described below, termination of employment must be (i) by
Great Western or a successor employer other than for "cause" or (ii) by the
executive for "good reason" (as each such term is defined in the Special
Severance Plan). The Special Severance Plan provides that, following a
qualifying termination, a participant is entitled to receive (a) a lump sum
payment equal to two times (for senior vice presidents and officers of
equivalent rank) or one and one-half times (for first vice presidents and
officers of equivalent rank) the sum of (1) such executive's annual base salary
and (2) such executive's target bonus under Great Western's annual incentive
program for the year in which the termination of employment occurs (or the year
in which the change in control occurs, whichever is higher), and (b) a pro-rata
bonus for the year during which the termination of employment occurs, provided,
that if the termination occurs during the same year in which the change in
control occurs, the amount described in this clause (b) will be offset by any
payments received under Great Western's annual incentive program in connection
with the change in control. In addition, the executive will be entitled to the
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continuation of welfare-type benefits for 24 months (in the case of senior vice
presidents and officers of equivalent rank) or 18 months (in the case of first
vice presidents and officers of equivalent rank). The Special Severance Plan
provides that no payment will be made to a participant that would be
nondeductible by reason of Section 280G of the Code. Consummation of the
Washington Mutual/Great Western Merger will constitute a change in control of
Great Western for purposes of the Special Severance Plan.
Great Western has also adopted a broad-based severance plan (the "Severance
Plan") for the benefit of eligible Great Western Employees who are not offered a
comparable position by an acquiring company or whose employment is terminated
within twelve months of a change in control of Great Western. Eligible employees
may receive the following benefits and payments: 60 days' non-working notice
pay; one month's salary for every full year of service, payable at such
employee's election in a lump sum or pursuant to Great Western's payroll
policies (subject to a four-month minimum and sixteen-month maximum);
continuation of group insurance coverage for a period corresponding to the
aggregate number of months of non-working notice pay and severance pay (but not
if severance is paid in a lump sum); additional contribution credits under Great
Western's retirement plan and credit for additional service for purposes of
calculating benefits thereunder; extension of mortgage loans under Great
Western's employee home loan program so long as the employee resides in the
residence; and certain other benefits.
ACCOUNTING TREATMENT
The Washington Mutual/Great Western Merger is intended to be treated as a
pooling of interests for accounting purposes. Accordingly, under generally
accepted accounting principles, the assets and liabilities of Great Western will
be recorded on the books of Washington Mutual at their values on the books of
Great Western at the time of consummation of the Washington Mutual/Great Western
Merger. If completed as proposed, no goodwill will be created as a result of the
Washington Mutual/Great Western Merger.
Pursuant to the Merger Agreement, each of Great Western and Washington
Mutual are required to use its reasonable best efforts to deliver from each
party who may be deemed to be an "affiliate" of such party (collectively, the
"Affiliates") for the purposes of SEC Accounting Series Release No. 130 as
amended by Release No. 135, to the other party an Affiliate Letter, pursuant to
which, among other things, each Affiliate agrees, with certain limited
exceptions, not to sell or otherwise dispose of any interest in the Great
Western Common Stock, or the Washington Mutual Common Stock during the period
commencing 30 days preceding the Effective Date until such time as consolidated
financial results covering at least 30 days of post-Merger combined operations
of Washington Mutual and Great Western have been published.
NO APPRAISAL OR DISSENTERS' RIGHTS
Great Western. Great Western Stockholders and holders of Great Western
Preferred Stock do not have any appraisal rights under Delaware law in
connection with the Washington Mutual/Great Western Merger Proposal or the
consummation of the transactions contemplated thereby.
Washington Mutual. Washington Mutual shareholders do not have dissenters'
rights under Washington law in connection with the Washington Mutual/Great
Western Merger, the Share Issuance/Merger Proposal or the Articles Amendment
Proposal.
EXCHANGE OF CERTIFICATES AND DEPOSITARY RECEIPTS; FRACTIONAL SHARES
Great Western. At or prior to the Effective Time, Washington Mutual will
deposit, or cause to be deposited, with an exchange agent (the "Exchange
Agent"), for the benefit of the holders of certificates of Great Western Common
Stock and Great Western Preferred Stock, certificates representing the shares of
Washington Mutual Common Stock and Series F Preferred Stock (and cash in lieu of
fractional shares of Washington Mutual Common Stock, if applicable).
As soon as is practicable after the Effective Time, and in no event later
than ten business days thereafter, the Exchange Agent will mail a form of
transmittal letter to the holders of certificates representing shares of Great
Western Common Stock. The form of transmittal letter will contain instructions
with respect to the
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<PAGE> 86
surrender of such certificates in exchange for shares of Washington Mutual
Common Stock (and cash in lieu of fractional shares of Washington Mutual Common
Stock, if applicable).
The Preferred Stock Depositary is the only holder of record of shares of
the Great Western Preferred Stock, which is represented by the Great Western
Depositary Shares. The Exchange Agent will effect the exchange of certificates
representing the Great Western Preferred Stock for certificates representing the
new Series F Preferred Stock in connection with the Washington Mutual/Great
Western Merger. All holders of record of Great Western Depositary Shares
evidenced by Great Western Depositary Receipts will be instructed to follow the
exchange procedures outlined immediately below.
Promptly after the Effective Time, the Preferred Stock Depositary will mail
to each holder of record of Great Western Depositary Shares a notice advising
the holder of the effectiveness of the Washington Mutual/Great Western Merger
accompanied by a transmittal form (the "Depositary Receipt Transmittal Form").
The Depositary Receipt Transmittal Form will contain instructions with respect
to the surrender of Great Western Depositary Receipts evidencing the Great
Western Depositary Shares and will specify that delivery will be effected, and
risk of loss and title to such Great Western Depositary Receipts will pass, only
upon delivery of the Great Western Depositary Receipts to the Preferred Stock
Depositary. Upon surrender in accordance with the instructions contained in the
Depositary Receipt Transmittal Form to the Preferred Stock Depositary of Great
Western Depositary Receipts evidencing the Great Western Depositary Shares, the
holder thereof will be entitled to receive in exchange therefor New Washington
Mutual Depositary Receipts evidencing the appropriate number of corresponding
New Washington Mutual Depositary Shares.
No dividends or other distributions declared with respect to Washington
Mutual Common Stock or Series F Preferred Stock with a record date after the
Effective Time will be paid to the holder of any certificate representing shares
of Great Western Common Stock or Great Western Preferred Stock until such
certificate has been surrendered for exchange. Holders of certificates
representing shares of Great Western Common Stock or Great Western Preferred
Stock will be paid the amount of dividends or other distributions with a record
date after the Effective Time after surrender of such certificates, without any
interest thereon.
No fractional shares of Washington Mutual Common Stock will be issued to
any holder of Great Western Common Stock upon consummation of the Washington
Mutual/Great Western Merger. In lieu of each fractional share that would
otherwise be issued, Washington Mutual will pay cash in an amount equal to such
fraction multiplied by the average of the closing sale prices of Washington
Mutual Common Stock on NASDAQ for the five trading days immediately preceding
the date on which the Effective Time occurs. No interest will be paid or accrued
on the cash in lieu of fractional shares payable to holders of such
certificates. No such holder will be entitled to dividends, voting rights or any
other rights as a shareholder in respect of any fractional share of Washington
Mutual Common Stock that such holder otherwise would have been entitled to
receive.
None of Washington Mutual, NACI, Great Western, the Exchange Agent, the
Preferred Stock Depositary or any other person would be liable to any former
holder of Great Western Common Stock or a Great Western Depositary Receipt for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
If a certificate representing Great Western Common Stock has been lost,
stolen or destroyed, the Exchange Agent will issue the consideration properly
payable in accordance with the Merger Agreement upon receipt of appropriate
evidence as to such loss, theft or destruction, appropriate evidence as to the
ownership of such certificate or receipt by the claimant, and appropriate and
customary indemnification.
For a description of the differences between the rights of the holders of
Washington Mutual Common Stock and Great Western Common Stock, see "Comparison
of Rights of Holders of Great Western Common Stock and Washington Mutual Common
Stock." For a description of Washington Mutual's capital stock, including the
Series F Preferred Stock and the New Washington Mutual Depositary Shares, see
"Description of Washington Mutual Capital Stock."
Shares of Washington Mutual Common Stock and Preferred Stock issued and
outstanding immediately prior to the Effective Time will remain issued and
outstanding and be unaffected by the Washington
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<PAGE> 87
Mutual/Great Western Merger, and holders of such stock will not be required to
exchange the certificates representing such stock or take any other action by
reason of the consummation of the Washington Mutual/Great Western Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER TO THE SHAREHOLDERS OF WASHINGTON
MUTUAL AND THE STOCKHOLDERS OF GREAT WESTERN. THIS SUMMARY DOES NOT ADDRESS ALL
THE TAX CONSEQUENCES OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER. EACH
SHAREHOLDER'S INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES OF THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER TO SUCH SHAREHOLDER. THIS SUMMARY MAY NOT
APPLY TO CERTAIN CLASSES OF TAXPAYERS, INCLUDING, WITHOUT LIMITATION, INSURANCE
COMPANIES, TAX-EXEMPT ORGANIZATIONS, FINANCIAL INSTITUTIONS, DEALERS IN
SECURITIES, PERSONS WHO ACQUIRED OR ACQUIRE SHARES OF GREAT WESTERN STOCK
PURSUANT TO THE EXERCISE OF DIRECTOR OR EMPLOYEE STOCK OPTIONS OR RIGHTS OR
OTHERWISE AS COMPENSATION AND PERSONS WHO HOLD SHARES OF GREAT WESTERN STOCK IN
A HEDGING TRANSACTION OR AS PART OF A STRADDLE OR CONVERSION TRANSACTION. IN
ADDITION, NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES
OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER TO SHAREHOLDERS UNDER APPLICABLE
FOREIGN, STATE OR LOCAL LAWS. CONSEQUENTLY, EACH SHAREHOLDER IS URGED TO CONSULT
SUCH SHAREHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER TO THAT SHAREHOLDER.
WASHINGTON MUTUAL SHAREHOLDERS
There will be no federal income tax consequences to the Washington Mutual
shareholders as a result of either voting on the proposals described herein or
the consummation of the Washington Mutual/Great Western Merger.
GREAT WESTERN STOCKHOLDERS
The Washington Mutual/Great Western Merger is expected to constitute a
"reorganization" within the meaning of Section 368(a) of the Code. Consummation
of the Washington Mutual/Great Western Merger is conditioned upon, among other
things, the receipt by Great Western of an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP and the receipt by Washington Mutual of an opinion of Foster
Pepper & Shefelman, each dated as of the Effective Time, to the effect that, on
the basis of facts, representations and assumptions set forth therein, the
Washington Mutual/Great Western Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
The opinions will not, however, be binding upon the Internal Revenue Service
(the "IRS") or the courts. No ruling from the IRS will be applied for with
respect to the federal income tax consequences of the Washington Mutual/Great
Western Merger. There can be no assurance that the IRS will agree with the
conclusions set forth in this Joint Proxy Statement/Prospectus.
Accordingly, such opinions will provide that no gain or loss will be
recognized by holders of Great Western Common Stock or Great Western Preferred
Stock who exchange such stock solely for Washington Mutual Common Stock or
Series F Preferred Stock, respectively, pursuant to the Washington Mutual/Great
Western Merger (except with respect to cash received in lieu of a fractional
share interest in Washington Mutual Common Stock). The aggregate tax basis of
the Washington Mutual Common Stock or Series F Preferred Stock received in the
Washington Mutual/Great Western Merger will equal the aggregate tax basis of the
Great Western Common Stock or Great Western Preferred Stock, as the case may be,
surrendered in exchange therefor, reduced by the tax basis of the Great Western
Common Stock allocable to any fractional
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<PAGE> 88
share of Washington Mutual Common Stock in lieu of which cash is received.
Provided that the Great Western Common Stock or Great Western Preferred Stock so
surrendered was held as a capital asset as of the Effective Time, the holding
period of the Washington Mutual Common Stock or Series F Preferred Stock
received will include the holding period of shares of Great Western Common Stock
or Great Western Preferred Stock surrendered in exchange therefor.
Each Great Western Stockholder who receives cash in lieu of a fractional
share of Washington Mutual Common Stock will be treated as receiving a
distribution in redemption of such share interest. In general, such distribution
in redemption will be treated as a payment in exchange for such share interest,
subject to the provisions and limitations of Code Section 302 (which in certain
circumstances could result in the receipt of cash being treated as a dividend).
If treated as a payment in exchange for such share interest, gain or loss will
be measured by the difference between the tax basis allocable to the fractional
share and the amount of cash received therefor. Such gain or loss will be a
capital gain or loss if the Great Western Common Stock was held as a capital
asset as of the Effective Time. Such capital gain or loss will be treated as
long-term capital gain or loss if the fractional share interest was held for
more than one year as of the Effective Time.
BACKUP WITHHOLDING
The cash payments, if any, due holders of Great Western Common Stock (other
than certain exempt entities and persons) pursuant to the Washington
Mutual/Great Western Merger will be subject to a 31 percent backup withholding
tax by the Exchange Agent under federal income tax law unless certain
requirements are met. Generally, the Exchange Agent will be required to deduct
and withhold the tax if (i) the stockholder fails to furnish a taxpayer
identification number ("TIN") to the Exchange Agent or fails to certify under
penalty of perjury that such TIN is correct, (ii) the IRS notifies the Exchange
Agent that the stockholder has failed to report interest dividends or original
issue discount in the past, or (iii) there has been a failure by the stockholder
to certify under penalty of perjury that such stockholder is not subject to the
31 percent backup withholding tax. Any amounts withheld by the Exchange Agent in
collection of the 31 percent backup withholding tax will generally be treated as
a credit against the federal income tax liability of the stockholder from whom
such tax was withheld. The TIN of an individual shareholder is the stockholder's
Social Security Number.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF THE FEDERAL INCOME
TAX CONSEQUENCES OF THE WASHINGTON MUTUAL/GREAT WESTERN MERGER TO GREAT WESTERN
STOCKHOLDERS UNDER CURRENTLY EXISTING FEDERAL INCOME TAX LAWS, WITHOUT
CONSIDERATION OF THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH STOCKHOLDER'S
SITUATION. EACH GREAT WESTERN STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
AND FINANCIAL ADVISOR WITH REGARD TO THE EFFECT OF THE WASHINGTON MUTUAL/GREAT
WESTERN MERGER ON SUCH STOCKHOLDER'S OWN SITUATION, INCLUDING ANY ESTATE, GIFT,
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE WASHINGTON
MUTUAL/GREAT WESTERN MERGER AND/OR ANY SALE THEREAFTER OF WASHINGTON MUTUAL
STOCK RECEIVED IN THE WASHINGTON MUTUAL/GREAT WESTERN MERGER.
DIVIDEND POLICY
WASHINGTON MUTUAL
Dividends may be paid on the Washington Mutual Common Stock as and when
declared by the Washington Mutual Board out of funds legally available for the
payment of dividends. The factors affecting this determination include
Washington Mutual's long-term interests, current and projected earnings,
adequacy of capitalization, expected asset and deposit growth as well as other
financial conditions, legal, regulatory and contractual restrictions, and tax
considerations.
According to Washington law, Washington Mutual dividends may be paid only
if, after giving effect to the dividend, Washington Mutual will be able to pay
its debts as they become due in the ordinary course of business and Washington
Mutual's total assets will not be less than the sum of its total liabilities
plus the amount that would be needed, if Washington Mutual were to be dissolved
at the time of the dividend, to
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<PAGE> 89
satisfy the preferential rights of persons whose right to payment is superior to
those receiving the dividend. Because Washington Mutual is a holding company,
its ability to pay dividends to its shareholders is also dependent on the
ability of WMBfsb, WMB and other subsidiary operations to pay dividends to
Washington Mutual.
The two series of outstanding Washington Mutual Preferred Stock rank prior
to the Washington Mutual Common Stock and to all other classes and series of
equity securities of Washington Mutual, other than any classes or series of
equity securities of Washington Mutual ranking on a parity with the Washington
Mutual Preferred Stock.
The rights of holders of Washington Mutual Preferred Stock to receive
dividends is noncumulative. Accordingly, if the Washington Mutual Board fails to
declare a dividend on any dividend payment date, the holders of Washington
Mutual Preferred Stock will have no right to receive a dividend in respect of
the dividend period ending on such dividend payment date and Washington Mutual
will have no obligation to pay the dividend accrued for such period, whether or
not dividends are declared payable on any future dividend payment dates.
Full dividends on Washington Mutual Preferred Stock must be declared and
paid or set apart for payment for the most recent dividend period ended before
(i) any dividend (other than in Washington Mutual Common Stock) on stock junior
to the Washington Mutual Preferred Stock ("Junior Stock") may be declared or
paid or set aside for payment or other distribution made upon the Washington
Mutual Common Stock or on any other Junior Stock or (ii) Junior Stock is
redeemed (or any moneys are paid to or made available for a sinking fund for the
redemption of any share of any such stock) or any Junior Stock or stock on a
parity with Preferred Stock ("Parity Stock") is purchased or otherwise acquired
by Washington Mutual for any consideration except by conversion into or exchange
for Junior Stock.
The Washington Mutual Board may issue Washington Mutual Preferred Stock
that is entitled to such dividend rights as the Washington Mutual Board may
determine, including priority over Washington Mutual Common Stock in the payment
of dividends.
GREAT WESTERN
Holders of shares of Great Western Common Stock are entitled to receive
dividends from funds legally available therefor when, as and if declared by the
Great Western Board. Each quarter, the Great Western Board considers the payment
of dividends. The factors affecting this determination include Great Western's
long-term interests, current and projected earnings, adequacy of capitalization,
expected asset and deposit growth, as well as other financial conditions, legal,
regulatory and contractual restrictions, and tax considerations.
RESALE OF WASHINGTON MUTUAL COMMON STOCK RECEIVED BY GREAT WESTERN COMMON
STOCKHOLDERS
The shares of Washington Mutual Common Stock to be issued to Great Western
Stockholders upon consummation of the Washington Mutual/Great Western Merger
have been registered under the Securities Act and may be traded freely without
restriction by those stockholders who are not deemed to be "affiliates" of Great
Western or Washington Mutual, as that term is defined in rules promulgated under
the Securities Act.
Shares of Washington Mutual Common Stock received by those stockholders of
Great Western who are deemed to be "affiliates" of Great Western at the time of
the Great Western Meeting may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted under the Securities Act.
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<PAGE> 90
WASHINGTON MUTUAL
GENERAL
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 ("WMBfsb"), 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. ("Composite
Research"), 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 December 31, 1996, Washington Mutual
had consolidated assets of $44.6 billion, deposits of $24.1 billion and
stockholders' equity of $2.4 billion. Based on deposits, Washington Mutual was
at that date the second largest banking organization in Washington and the 28th
largest in the United States.
PRINCIPAL HOLDERS OF WASHINGTON MUTUAL COMMON STOCK
The following table sets forth information regarding beneficial ownership
of Washington Mutual Common Stock by each person known to Washington Mutual to
have owned more than 5% of the outstanding shares of the Washington Mutual
Common Stock on May 9, 1997. The following is based solely on statements filed
with the Commission or other information believed by Washington Mutual to be
reliable. Each of the named shareholders has sole voting and investment power
with respect to the shares shown, except as noted below.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES OF COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
--------------------------------------- ---------------------- ----------------
<S> <C> <C>
Robert M. Bass......................... 11,546,451(2) 9.14%
201 Main Street, Suite 3100
Fort Worth, Texas 76102
FMR Corp............................... 6,481,795(3) 5.13%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- ---------------
(1) Includes 1,901,276 shares held in escrow for the benefit of Keystone
Holdings Partners, L.P. ("KH Partners") and its transferees pursuant to the
merger agreement dated July 21, 1996, as amended November 1, 1996, by and
among Washington Mutual, KH Partners, Keystone Holdings, Inc. and certain of
its subsidiaries (the "Keystone Merger Agreement"). Pursuant to the Keystone
Merger Agreement, shares of common stock received by KH Partners and a
governmental entity were placed in escrow pending the outcome of certain
litigation between Keystone Holdings, Inc. and the United States
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<PAGE> 91
of America. Pursuant to the escrow, KH Partners and its transferees have the
sole right to vote the Washington Mutual Common Stock received by KH
Partners while it is in escrow. KH Partners has distributed such voting
rights to its partners in accordance with their sharing percentages, and Mr.
Robert M. Bass ("Mr. Bass"), as a limited partner of KH Partners, may
therefore be deemed to be the beneficial owner of such 1,901,276 shares as
to which voting rights have been distributed to him.
(2) A Schedule 13D was filed by Mr. Bass; Acadia Partners, L.P. ("Acadia"), a
Delaware limited partnership; Acadia FW Partners, L.P. ("Acadia FW"), a
Delaware limited partnership; Acadia MGP, Inc. ("Acadia MGP"), a Texas
corporation; J. Taylor Crandall ("Mr. Crandall"); Capital Partnership, a
Texas general partnership ("Capital"); Margaret Lee Bass 1980 Trust, a trust
existing under the laws of Texas ("MLBT"); Panther City Investment Company,
a Texas corporation ("Panther City"); W. Robert Cotham ("Mr. Cotham"); KH
Carl Partners, L.P., a Delaware limited partnership ("KH Carl"); Bernard J.
Carl ("Mr. Carl"); Rosecliff New American 1988 Partners, L.P., a Delaware
limited partnership ("Rosecliff"); and Daniel J. Doctoroff ("Mr.
Doctoroff"). The Schedule 13D indicated that based on overlapping employment
and investment relationships, Mr. Bass, Acadia, Acadia FW, Acadia MGP, Mr.
Crandall, Capital, MLBT, Panther City, W. Cotham, KH Carl, Mr. Carl,
Rosecliff and Mr. Doctoroff may be deemed to constitute a "group" within the
meaning of section 13(d)(3) of the Exchange Act, although the foregoing
persons expressly disclaimed that any such "group" exists.
Acadia beneficially owns 6,215,004 shares of Washington Mutual Common Stock
and based on their relationship to Acadia, each of Acadia FW, Acadia MGP
and Mr. Crandall, as President and sole stockholder of Acadia MGP, may also
be deemed the beneficial owner of these 6,215,004 shares. Capital owns
1,126,946 shares of Washington Mutual Common Stock and based on their
relationship to Capital, MLBT, Panther City and Mr. Cotham may each also be
deemed to be the beneficial owner of these 1,126,946 shares. Rosecliff owns
1,062,535 shares of Washington Mutual Common Stock and Mr. Doctoroff, as
sole general partner of Rosecliff, also beneficially owns these 1,026,535
shares. Mr. Carl beneficially owns 2,298,162 shares of Washington Mutual
Common Stock, of which 555,514 shares are owned by KH Carl.
(3) Includes 5,928,815 shares owned by Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp.
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PRINCIPAL HOLDERS OF WASHINGTON MUTUAL PREFERRED STOCK
Washington Mutual knows of no person who owns more than 5% of the
outstanding shares of either the Series C Preferred or the Series E Preferred,
as of May 9, 1997.
SECURITY OWNERSHIP OF WASHINGTON MUTUAL BY DIRECTORS AND EXECUTIVE OFFICERS
The following table and accompanying footnotes provides a summary of the
beneficial ownership of the Washington Mutual Common Stock, Series C Preferred
and Series E Preferred as of May 9, 1997, including options to acquire shares of
Common Stock which are exercisable within 60 days of such date, by (i)
directors, (ii) Washington Mutual's Chief Executive Officer, (iii) the four
highest compensated executive officers other than the Chief Executive Officer
and (iv) the directors and executive officers as a group. The following summary
is based on information furnished by the respective directors and officers. Each
of the named directors and officers has sole voting and investment power with
respect to the shares shown, except as noted below.
<TABLE>
<CAPTION>
COMMON STOCK(1)
----------------
NAME NUMBER OF SHARES PERCENT OF CLASS
----------------------------------------- ------------------- ----------------
<S> <C> <C>
Douglas P. Beighle....................... 14,520(2)(3) *
David Bonderman.......................... 1,894,141(4) 1.50%
J. Taylor Crandall....................... 6,549,755(5) 5.19%
Roger H. Eigsti.......................... 7,000(2) *
John W. Ellis............................ 28,775(2)(6) *
Daniel J. Evans.......................... 15,750(7) *
Anne V. Farrell.......................... 4,000(8)(2) *
William P. Gerberding.................... 6,335(2) *
Kerry K. Killinger....................... 1,044,224(9) *
Lee D. Lannoye........................... 97,153(10) *
Samuel B. McKinney....................... 5,250(8) *
Michael K. Murphy........................ 6,750(2)(11) *
Deanna W. Oppenheimer.................... 86,052(12) *
William G. Reed, Jr...................... 27,375(2)(13) *
James H. Stever.......................... 10,500(2)(14) *
Craig E. Tall............................ 266,714(15) *
S. Liane Wilson.......................... 180,062(16) *
All directors and executive officers as a
group (20 persons)..................... 10,604,137(4)(5)(17) 8.40%
</TABLE>
- ---------------
* Less than 1%
(1) Other than as set forth below, none of the above named officers and
directors owned any shares of Series C Preferred or Series E Preferred as
of May 9, 1997:
<TABLE>
<CAPTION>
SERIES C PREFERRED NUMBER OF SHARES PERCENT OF CLASS
---------------------------------------------- ---------------- ----------------
<S> <C> <C>
James H. Stever............................... 500 shares less than 1%
All directors and executive officers as a
group....................................... 500 shares less than 1%
</TABLE>
(2) Includes 3,000 shares issuable pursuant to stock options.
(3) Includes 1,350 shares held in a Keogh Plan.
(4) Includes 255,517 shares held in escrow for the benefit of KH Partners and
its transferees pursuant to the Keystone Merger Agreement. Such shares were
placed in escrow pending the outcome of certain litigation between Keystone
Holdings, Inc. and the United States of America. Pursuant to the escrow, KH
Partners and its transferees have the sole right to vote such Washington
Mutual Common Stock received by KH Partners while it is in escrow. KH
Partners has distributed such voting rights to its partners in accordance
with their sharing percentages, and Mr. Bonderman, as a limited partner of
KH Partners, may therefore be deemed to be the beneficial owner of such
shares of the Washington Mutual
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Common Stock as to which voting rights have been distributed to him.
Includes also 364,810 shares owned by KH Group Management, Inc. ("KH
Group"), of which 60,952 shares are held in escrow for the benefit of KH
Group and its transferees pursuant to the Keystone Merger Agreement. (See
footnote 1 to the table in "Principal Holders of Washington Mutual Common
Stock" above). KH Group, as a limited partner of KH Partners, may be deemed
to be the beneficial owner of such shares of the Washington Mutual Common
Stock as to which voting rights have been distributed to it.
(5) Includes 6,215,004 shares owned by Acadia. Mr. Crandall is the president
and sole stockholder of Acadia MGP, which is the managing general partner
of Acadia FW, which is the sole general partner of Acadia, which is the
direct beneficial owner of these 6,215,004 shares.
(6) Includes 14,275 shares held in a Keogh plan and 1,500 shares held in trust
for the benefit of Mr. Ellis' grandchildren.
(7) Includes 5,175 shares held jointly with Mr. Evans' spouse and 7,575 shares
held in a Keogh Plan, which is part of the Evans Family Revocable Trust, of
which Mr. Evans and his spouse serve as co-trustees.
(8) Includes 1,000 shares issuable pursuant to stock options.
(9) Includes 463,916 shares issuable pursuant to stock options and 43,401
shares subject to divestiture under Washington Mutual's existing 1994
Restricted Stock Plan (the "Restricted Stock Plan") if Washington Mutual
fails to achieve certain earnings goals.
(10) Includes 17,769 shares issuable pursuant to stock options and 9,384 shares
subject to divestiture under the Restricted Stock Plan if Washington Mutual
fails to achieve certain earnings goals.
(11) Includes 1,500 shares held jointly with Mr. Murphy's spouse.
(12) Includes 29,000 shares issuable pursuant to stock options and 14,076 shares
subject to divestiture under the Restricted Stock Plan if Washington Mutual
fails to achieve certain earnings goals.
(13) All shares are held jointly with Mr. Reed's spouse.
(14) Includes 800 shares held in the Stever Family Foundation, for which Mr.
Stever is the President, and 4,500 shares are held jointly with Mr.
Stever's spouse.
(15) Includes 94,666 shares issuable pursuant to stock options and 16,422 shares
subject to divestiture under the Restricted Stock Plan if Washington Mutual
fails to achieve certain earnings goals.
(16) Includes 81,833 shares issuable pursuant to stock options and 16,422 shares
subject to divestiture under the Restricted Stock Plan if Washington Mutual
fails to achieve certain earnings goals.
(17) Includes, in the aggregate, 752,335 shares issuable pursuant to stock
options, and 133,722 shares subject to divestiture under the Restricted
Stock Plan if Washington Mutual fails to achieve certain earnings goals.
83
<PAGE> 94
GREAT WESTERN
GENERAL
Great Western, with consolidated assets of approximately $42.9 billion at
December 31, 1996, 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 GW Bank and Aristar. GW Bank is a federally chartered stock
savings bank and conducts most of its retail banking through 416 offices located
in California and Florida. Real estate lending operations are conducted directly
by GW Bank through more than 200 offices in 27 states with concentrations in
California, Florida, Texas and Washington. Directly or through its subsidiaries,
GW Bank also engages in mortgage banking, and other related financial services.
Aristar conducts consumer finance operations through 502 offices in 23 states,
most of which operate principally under the names Blazer Financial Services or
City Finance Company and provide direct installment loans and related credit
insurance services and purchase retail installment contracts.
PRINCIPAL HOLDERS OF GREAT WESTERN COMMON STOCK
The following table sets forth the number of shares of each class of equity
securities of Great Western beneficially owned as of May 9, 1997 (with the
exception of shares held in Great Western's Employee Savings Plan, which are
reported as of December 31, 1996), including stock options exercisable within 60
days of May 9, 1997, by each director and certain executive officers and by all
directors and executive officers as a group (17 persons). Beneficial ownership
is defined in accordance with the rules of the Commission and means generally
the power to vote or dispose of securities, regardless of any economic interest.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF OUTSTANDING
BENEFICIAL OWNERSHIP OF COMMON
NAME OF BENEFICIAL OWNER SHARES OF COMMON STOCK STOCK
- -------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
David Alexander............................................... 22,675(2) (1)
H. Frederick Christie......................................... 26,250(2) (1)
Charles D. Miller............................................. 30,460(3) (1)
Stephen E. Frank.............................................. 10,750(4) (1)
John V. Giovenco.............................................. 38,750(2) (1)
Firmin A. Gryp................................................ 103,644(2)(5) (1)
Enrique Hernandez, Jr. ....................................... 9,250(4) (1)
James F. Montgomery........................................... 680,488(6) (1)
Alberta E. Siegel............................................. 25,000(2) (1)
Willis B. Wood, Jr. .......................................... 16,750(7) (1)
John F. Maher................................................. 611,762(8) (1)
J. Lance Erikson.............................................. 119,959(9) (1)
Carl F. Geuther............................................... 220,350(10) (1)
Michael M. Pappas............................................. 249,525(11) (1)
A. William Schenck, III....................................... 68,288(12) (1)
Jaynie M. Studenmund.......................................... 23,100(13) (1)
Raymond W. Sims............................................... 0
All Directors and Executive Officers as a Group............... 2,218,251(14) 1.59%
</TABLE>
- ---------------
(1) Certain directors and executive officers share with their spouses voting
and investment powers with respect to these shares. The percentage of
shares beneficially owned by any director or executive officer does not
exceed one percent of the outstanding shares of Common Stock.
(2) Includes 21,250 shares subject to options granted to this Director under
Great Western's 1988 Stock Option and Incentive Plan (the "1988 Incentive
Plan").
84
<PAGE> 95
(3) Includes 18,750 shares subject to options granted to this Director under
the 1988 Incentive Plan.
(4) Includes 8,750 shares subject to options granted to this Director under the
1988 Incentive Plan.
(5) Includes 112 shares held by the trustee under Great Western's Employee
Savings Incentive Plan (the "Employee Savings Incentive Plan").
(6) Includes 570,600 shares subject to options and 945 shares held by the
Trustee under the Employee Savings Incentive Plan.
(7) Includes 16,250 shares subject to options granted to this Director under
the 1988 Incentive Plan.
(8) Includes 396,137 shares subject to options granted to this Director under
the 1988 Incentive Plan and 25 shares held by the Trustee under the
Employee Savings Incentive Plan.
(9) Includes 99,010 shares subject to options and 112 held by the Trustee under
the Employee Savings Incentive Plan.
(10) Includes 179,845 shares subject to options.
(11) Includes 172,500 shares subject to options.
(12) Includes 49,762 shares subject to options.
(13) Includes 12,500 shares subject to options.
(14) Includes options to purchase 2,013,991 shares under employee stock options
and 1,219 shares held in trust under the Employee Savings Incentive Plan
with respect to which such persons have the right to direct the vote.
The following entities are the only stockholders known to Great Western to
be the beneficial owners of more than 5% of Great Western's equity securities.
This information has been obtained from reports filed pursuant to Regulation
13D-G under the Exchange Act and the rules and regulations promulgated
thereunder.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF OUTSTANDING
BENEFICIAL OWNERSHIP OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF COMMON STOCK STOCK
- -------------------------------------------------------------- ----------------------- -----------
<S> <C> <C>
Wellington Management Company LLP............................. 8,771,730(1) 6.37%
75 State Street
Boston, Massachusetts 02109
Vanguard/Windsor Funds, Inc. ................................. 8,236,786(2) 5.98%
Vanguard Financial Center
Valley Forge, Pennsylvania 19482
</TABLE>
- ---------------
(1) Wellington Management Company ("WMC") has reported that it is an investment
advisor and, as such, is considered beneficial owner in the aggregate of
the shares listed in the table. WMC has declared that it has shared power
to vote 53,902 of the shares and shared dispositive power over all of the
shares shown in the table. The shares shown in the table for the
Vanguard/Windsor Funds, Inc. are also included in the total amount reported
in the table for WMC.
(2) Vanguard/Windsor Funds, Inc. ("Vanguard/Windsor") has reported that it is an
investment company and, as such, is considered the beneficial owner in the
aggregate of the shares listed in the table. Vanguard/Windsor has declared
that it has sole power to vote or direct the vote and shared power to
dispose or to direct the disposition of the shares shown in the table.
85
<PAGE> 96
MANAGEMENT AND OPERATIONS OF WASHINGTON MUTUAL
FOLLOWING THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
The estimates of cost savings, revenue enhancements and merger-related and
other expenses described below are forward-looking statements that, while
prepared on the basis of Washington Mutual's best judgments and currently
available information regarding Great Western's business and the future
operating performance of the two companies, are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the control of either company, and upon assumptions
with respect to future business decisions that are subject to change.
Accordingly, there can be no assurance that such cost-savings and revenue
enhancements will be realized in the amounts or within the time periods
currently estimated, or that such charges for merger-related expenses will be as
estimated. See "Risk Factors."
GENERAL
The Merger Agreement provides for the merger of Great Western with and into
NACI, with NACI as the surviving corporation. The separate existence of Great
Western will cease upon completion of the Washington Mutual/Great Western Merger
and stockholders of Great Western will become shareholders of Washington Mutual
as described herein.
BOARD OF DIRECTORS
At the Effective Time, four representatives mutually agreeable to
Washington Mutual and Great Western will be added to the existing Washington
Mutual Board to form the Board of Directors of the Combined Company. While there
are no agreements, arrangements, or contracts to appoint any specific person to
the Washington Mutual Board, it is expected that John F. Maher, the President
and Chief Executive Officer of Great Western, will be one of the four
representatives of Great Western chosen to serve on the Board of Directors of
the Combined Company. Information regarding the existing Washington Mutual Board
is set forth in the 1996 Washington Mutual 10-K and information regarding the
existing Great Western Board is set forth in the 1996 Great Western 10-K, which
are incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" and "Available Information."
OPERATIONS AFTER THE WASHINGTON MUTUAL/GREAT WESTERN MERGER
General. Upon consummation of the Washington Mutual/Great Western Merger,
it is anticipated that GW Bank will be merged with and into ASB, a wholly-owned
subsidiary of Washington Mutual, with ASB as the surviving corporation. It is
intended that at the effective date of such merger, ASB will change its name to
Great Western Bank. The Combined Company intends to conduct its banking
operations in California and Florida under the "Great Western Bank" name. Great
Western Bank loan offices in Washington will be combined with existing
Washington Mutual offices and operated under the "Washington Mutual Bank" name.
Operations. The Combined Company intends to utilize the Washington Mutual
marketing and sales products and systems which it has been installing in the ASB
system and to provide these same products and systems to Great Western. Great
Western's business banking programs will be retained and incorporated throughout
the Combined Company, with a particular emphasis on business checking.
Washington Mutual also intends to consolidate and coordinate the operations,
sales, marketing and product selection of the broker-dealer subsidiaries of WMB,
ASB and GW Bank. Washington Mutual and Great Western use the same information
and data processing systems for certain major functions, including the Hogan
system for deposit operations, the Alltel system for loan servicing and the EDS
system for item processing. It is expected that Great Western's Hogan system
will be upgraded to the more current version used by Washington Mutual and that
the other systems will be converted into Washington Mutual's systems. Washington
Mutual will also introduce its LoanWorks system for loan origination throughout
the Great Western network.
86
<PAGE> 97
Cost Savings. Although no assurances can be given that any specific level
of expense savings will be realized or as to the timing thereof, Washington
Mutual currently expects to achieve substantial savings in the Combined
Company's operating expense base, primarily through consolidation of back office
operations, elimination of redundant corporate overhead and staff positions,
consolidation of retail branches and loan offices, reduction of aggregate
marketing expenses and implementation of integrated technology platforms into
Great Western's operations in order to reduce loan origination, servicing and
other operational costs. Although the amounts shown below are expressed as
percentages of Great Western's expense base (as is industry practice),
Washington Mutual expects that cost reductions will come from the operations of
both companies. The following table provides details of the estimated cost
savings by business division and period in which they are expected to be
realized. All calculations are based on Great Western's 1997 budgeted expenses.
The divisional cost savings are shown as a percentage of Great Western's gross
divisional operating expenses.
<TABLE>
<CAPTION>
% OF GWF % OF GWF % OF GWF
1997 OPERATING 1998 OPERATING 1999 OPERATING
AMOUNT(1) EXPENSES AMOUNT EXPENSES AMOUNT EXPENSES
------- --------- ------ --------- ------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Administration/Finance............... $ 8 6% $ 52 41% $ 65 51%
Lending.............................. -- -- 15 11 69 49
Corporate Operations................. -- -- 56 25 96 43
Retail Banking....................... 7 2 77 21 99 27
Subsidiaries......................... -- -- 8 5 11 7
------- ------ ------
Total Pretax Cost Savings....... $15 $208 $340
======= ====== ======
Total Pretax Cost Savings as a
percentage of:
Gross estimated operating
expenses...................... -- 2% -- 21% -- 35%
Net estimated operating
expenses(2)................... -- 2 -- 23 -- 38
</TABLE>
- ---------------
(1) Consists primarily of savings in marketing and advertising costs and
salaries and benefits for administrative and executive personnel and does
not include any cost savings for branch or loan office consolidations.
(2) Net operating expenses are net of $85 million consisting principally of loan
origination costs which are deferred and amortized over the life of the
loans and various reimbursable costs.
The cost savings estimated above are based on information provided by Great
Western during Washington Mutual's due diligence investigation, the knowledge
and experience that Washington Mutual has accumulated from its prior
acquisitions and the following significant assumptions: (i) the closing of
approximately 100 branch offices, in addition to the seven branches already
scheduled for closure by Great Western, of the Combined Company in California
and Florida; (ii) the closing of approximately 100 loan offices, including 38
offices already scheduled for closure by Great Western, of the Combined Company
in California, Washington and other states; (iii) the consolidation of other
bank premises and facilities and the outsourcing of the corporate properties
management function; (iv) the adoption of a common branch operating system for
the Combined Company, with an attendant reduction in per deposit account
origination and maintenance costs; (v) the reduction of aggregate advertising
expenditures due to market overlap between ASB and GW Bank locations and
elimination of duplicative staff functions in marketing and research; (vi) the
elimination of duplicative back office functions, particularly in the
accounting, finance and human resources areas; (vii) a reduction in GW Bank's
current cost to originate a loan (which brings such costs to a level that more
closely approximates the industry average and is still above the comparable cost
of such originations at Washington Mutual); and (viii) a reduction in the cost
to service loans, again to a level that is below the current GW Bank cost but
still above the current cost at Washington Mutual.
Of the estimated annual cost savings of $340 million in 1999 described
above, approximately $50 million is expected to be derived from the
consolidation of retail branches. A substantial portion of the savings
(approximately $169 million) are expected to be derived from the integration of
information systems and other back office operations. Washington Mutual and
Great Western use the same systems for many of their major information
processing services (including the Hogan system for deposit operations and the
Alltel
87
<PAGE> 98
system for loan servicing), and Washington Mutual believes this will
significantly facilitate the integration process between the two companies.
The projected cost savings were determined by first identifying (i) all
back office functions of the two companies that are duplicative and can be
consolidated in a single location and (ii) all other potential office
consolidations. Subsequently, all fixed costs associated with consolidated back
office functions and other consolidated offices (such as occupancy expense and
management salaries and benefits) were identified as potential cost savings. In
addition, variable costs were identified and adjusted to more closely
approximate Washington Mutual's cost levels. This analysis involved both per
unit cost comparisons (e.g. servicing costs per loan) and productivity
comparisons (e.g. loans serviced per employee). This analysis resulted in
additional projected cost savings. The phase-in of all cost savings was then
projected based on Washington Mutual's estimates of the transaction closing
date, the various system conversion dates and its estimated transition plan for
systems integration.
Washington Mutual did not derive these cost savings estimates by looking at
amounts announced in connection with other recent transactions by other
companies and does not believe that such a comparison would be useful or
relevant to investors for several reasons. First, virtually all of the recent
major transactions to which the Washington Mutual/Great Western Merger might be
compared involved banks acquiring banks, and the cost structures of the
companies involved in those transactions are not necessarily the same as for
thrifts. Second, because the cost structure and efficiency levels of different
financial institutions can vary significantly, Washington Mutual does not
believe that comparisons to statistical averages are particularly useful in any
given transaction. The only data publicly available on cost savings in other
mergers relates to announced projections, rather than historical or actual
results, and accordingly it is difficult to assess the reliability of this
information for comparison purposes.
Potential Revenue Enhancements. Washington Mutual anticipates that the
Combined Company will be able to generate increased revenues as a result of the
Washington Mutual/Great Western Merger and related changes to the two companies'
existing business plans. The table below sets forth the estimated pretax amounts
of these revenue enhancements and the time periods in which they will be
generated. The amounts presented are estimates only, based on Washington
Mutual's current best judgment after its initial review of Great Western's
operations and business plan and on the assumptions as to capital ratios and
asset growth set forth below. Washington Mutual does not believe that reliable
data exists with respect to the amounts of projected revenue enhancements in
comparable transactions and accordingly does not believe that a comparison with
any such transactions is useful or relevant to investors. The projected revenue
enhancements are incremental to current First Call estimates of future earnings
of Great Western on a stand alone basis and do not include any potential
increases over First Call estimates for Washington Mutual on a stand alone
basis.
<TABLE>
<CAPTION>
INCREASE IN: 1998 1999
(DOLLARS IN MILLIONS) ---- ----
<S> <C> <C>
Fee Income (pre-tax).................................................. $ 60 $ 88
Net Interest Income (pre-tax)......................................... 113 246
--- ---
Total............................................................ $173 $334
=== ===
</TABLE>
Fee Income Enhancement. Washington Mutual believes that the Combined
Company will be able to enhance its fee income from retail operations.
Washington Mutual has begun to introduce its Free Checking program into ASB's
system and intends to expand the program into GW Bank following the Washington
Mutual/Great Western Merger. Based on Washington Mutual's historical experience
and the results of the recent introduction of Free Checking at ASB, Washington
Mutual has assumed that GW Bank will open approximately 200,000 net new checking
accounts per year in 1998 and 1999. Washington Mutual's historical experience
has been that the introduction of Free Checking substantially increases the
number of new checking accounts which correspondingly increases revenue from
sales of related product enhancements, ATM usage, account related services and
debit card use. Washington Mutual has assumed that each of these new accounts
will produce approximately $200 per year of such fees.
Washington Mutual also intends to implement new pricing policies for
checking account services throughout GW Bank and ASB, which policies it believes
are in line with competitive charges in their market
88
<PAGE> 99
areas. It is anticipated that the changes in pricing policies will contribute
approximately $10 million of fee income enhancements in each of 1998 and in
1999. Additional income from new accounts is projected to provide approximately
50% of fee income enhancements in 1998 and approximately 60% in 1999. The
balance of the projected increases in fee income include enhanced fees projected
for certain other products of the Combined Company and its financial services
subsidiaries.
Net Interest Income. Washington Mutual estimates that, as a result of the
Washington Mutual/Great Western Merger, pre-tax net interest income will
increase by approximately $113 million in 1998 and $246 million in 1999 over the
amounts that the two companies estimate they would have achieved on a
stand-alone basis. This estimate is based on leveraging the additional capital
generated by the Washington Mutual/Great Western Merger as follows: (i) net
retained earnings resulting from the cost savings and fee income increases
described above, after giving effect to the merger-related expenses and
provision described below, (ii) retention of the capital which Great Western had
intended to utilize in its stock repurchase program of up to 5 million shares
(for which approximately $80 million was budgeted for 1997), and (iii) capital
of Great Western in excess of approximately a 5% common equity to assets ratio.
Washington Mutual anticipates that excess capital of approximately $155 million
in 1997, $378 million in 1998 and $380 million in 1999 will be used to support
incremental asset growth.
The incremental asset growth is expected to be based on (i) increased loan
production at Great Western resulting primarily from the introduction of new
loan products from Washington Mutual and the installation of Washington Mutual's
loan origination system throughout the GW Bank network, and (ii) increased
retentions of loans in portfolio, including both higher retention levels at GW
Bank and retention of loan originations anticipated for ASB that would otherwise
have been sold under ASB's existing business plan due to capital levels of that
company. The increased retention of loans is not expected to have a significant
effect on the interest rate risk profile of the Combined Company since it is
expected that the preponderance of the retained loans will be ARMs. Washington
Mutual offers a wider selection of residential mortgage loan products than GW
Bank, including ARMs tied to indices other than those currently used by GW Bank.
Washington Mutual also offers three major loan product lines that historically
have not been available at GW Bank: secured and unsecured installment loans,
manufactured housing loans, and residential construction loans. In addition,
Washington Mutual believes that its loan origination system will reduce the
processing time of loan originations from that currently experienced by GW Bank,
which Washington Mutual believes will be a significant competitive advantage in
attracting new loan business. Washington Mutual's loan origination system is
also expected to substantially reduce origination processing time and costs due
to two major features: (1) Washington Mutual's utilization of a credit scoring
process, which automates and standardizes underwriting (currently, approximately
50% of applications are underwritten within 24 hours); and (2) a streamlined
appraisal process, which reduces the time required for approval by over one-half
compared to a standard appraisal. Washington Mutual also collects appraisal fees
on substantially all loan applications, which helps discourage cancelled
applications.
In making the estimate of increased pre-tax net interest income described
above, Washington Mutual has assumed incremental asset growth at Great Western
of approximately $3.1 billion in 1997 (from $42.9 billion at December 31, 1996),
$7.4 billion in 1998 and $7.6 billion in 1999. It has further assumed that the
weighted average pre-tax margin on these assets (adjusted for origination and
credit costs) will be approximately 1.66% in 1998 and approximately 1.72% in
1999, and that the weighted average pre-tax interest rate spread will be
approximately 1.46% in 1998 and 1.46% in 1999. These margins and spreads reflect
management's estimates with respect to the expected mix of loan types in the
additional retained loan originations. Although the higher retention rate
assumed in this estimate will result in a $6.8 million and $5.0 million decrease
in the gains on sale of loans recognized by Great Western and Washington Mutual
in 1998 and 1999, respectively, it is expected to make a positive contribution
to net interest income, as described above.
For purposes of estimating incremental asset growth at Great Western,
Washington Mutual assumed that loan originations at Great Western Bank in 1998
and 1999 would be comparable to GW Bank's average loan originations from 1993 to
1995 and that these loans will be retained as portfolio loans. Washington Mutual
also assumed that the excess capital generated at GW Bank will enable the
Combined Company to retain as portfolio loans excess ARM loan originations from
ASB, which currently are being sold.
89
<PAGE> 100
The Combined Company intends to continue Washington Mutual's strategy of
continuously analyzing returns on capital from various business activities and
product lines and maintaining flexibility in the use of capital in order to take
advantage of business opportunities that arise, whether through increased loan
production, purchases of loans or mortgage-backed securities, or acquisitions of
other companies. Washington Mutual anticipates that the Washington Mutual/Great
Western Merger will provide the Combined Company with a stronger capital base
and greater flexibility to pursue this growth strategy through efficient
leveraging of capital and capital management strategies to facilitate that
growth by allocating capital to the most productive business opportunities.
Washington Mutual has no present intention of instituting a common stock
repurchase program.
Merger-Related Expenses and Addition to Loan Loss Reserve. Merger-related
expenses of approximately $343 million (pre-tax) and a $100 million (pre-tax)
addition to the loan loss reserve are expected to be recorded by Washington
Mutual at the Effective Time. The merger-related expenses include the creation
of reserves of $145 million for severance and management payments (which include
all payments anticipated to be payable under all Great Western severance plans,
including the Severance Plan adopted in the first quarter of 1997), $106 million
for facilities and system conversion related expenses and $92 million for other
expenses.
The additional $100 million in loan loss provisions will be taken as a
charge to earnings at the Effective Date. This additional loan loss provision is
being provided principally because Washington Mutual's plan for managing certain
of the loans in Great Western's portfolio differs from Great Western's and
therefore requires different levels of reserves. Washington Mutual has
identified an aggregate principal amount of approximately $1.0 billion of
specific loans in Great Western's single family residential portfolio which were
originated between 1989 and 1993 that it has concluded, on a preliminary basis,
will be sold in one or more bulk sales, either as whole loans or in securitized
form. These loans had a FICO credit score of 620 or less and also had original
loan to value ratios of 90% or less, but due to declines in real estate values,
currently have an estimated loan to value ratio of greater than 95%. Washington
Mutual intends to reinvest the proceeds of these sales in other adjustable rate
single-family loans similar to the loans being sold but originated in more
recent years.
As the loans in question currently do not exhibit attributes that would
indicate an impairment requiring reserves in excess of those already provided by
Great Western, Washington Mutual does not believe it would be appropriate to
record this $100 million charge if it intended to retain those loans. Great
Western's management does not believe that this judgment indicates that the
existing loan loss reserves of Great Western are not reasonable.
Management After the Merger. Washington Mutual is undertaking a review of
its management needs following the Washington Mutual/Great Western Merger and
intends to retain those personnel which it believes will contribute to the
implementation of its business strategy.
90
<PAGE> 101
PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
The following pro forma combined unaudited consolidated statement of
financial position as of December 31, 1996 and the pro forma combined unaudited
consolidated statements of income for the three years ended December 31, 1996
are based upon the historical consolidated financial statements of Washington
Mutual and Great Western as previously filed with the Commission under the
Exchange Act, and incorporated by reference in this Joint Proxy
Statement/Prospectus, and should be read in conjunction with those consolidated
financial statements and related notes. These combined unaudited pro forma
condensed financial statements are not necessarily indicative of the operating
results that would have been achieved had the Washington Mutual/Great Western
Merger been consummated as of the beginning of the periods presented and should
not be construed as representative of future operating results. These combined
unaudited pro forma condensed financial statements give effect to the Washington
Mutual/Great Western Merger by combining the results of operations of Washington
Mutual and Great Western using the "pooling-of-interests" method of accounting.
91
<PAGE> 102
PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS(1) PRO FORMA
WASHINGTON GREAT -------------------------- INCLUDING
MUTUAL WESTERN DEBIT CREDIT REF. GREAT WESTERN
----------- ------------ -------- -------- ---- -------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ 831,063 $ 834,292 $ $145,000 1(b) $ 1,428,355
92,000 1(b)
Trading account securities........... 1,647 -- 1,647
Available-for-sale securities........ 9,111,274 7,827,071 16,938,345
Held-to-maturity securities.......... 2,860,347 1,618,709 4,479,056
Loans, net of the allowance for loan
losses............................. 30,103,386 30,717,320 100,000 1(b) 60,720,706
Loans held for sale.................. 227,390 105,872 333,262
REO and other real estate............ 103,111 159,997 263,108
Premises and equipment............... 482,391 552,422 106,000 1(b) 928,813
Goodwill and other intangible
assets............................. 133,509 285,991 419,500
Other assets......................... 697,807 772,898 1,470,705
----------- ----------- -------- -------- -----------
Total assets................ $44,551,925 $ 42,874,572 $ -- $443,000 $86,983,497
=========== =========== ======== ======== ===========
LIABILITIES
Deposits:
Checking accounts.................. $ 2,979,962 $ 4,577,626 $ $ $ 7,557,588
Savings and money market
accounts......................... 6,842,061 6,744,210 13,586,271
Time deposit accounts.............. 14,258,118 17,264,937 31,523,055
----------- ----------- -------- -------- -----------
Total deposits.............. 24,080,141 28,586,773 -- -- 52,666,914
Annuities............................ 878,057 -- 878,057
Federal funds and commercial paper... 1,052,000 1,101,506 2,153,506
Securities sold under agreements to
repurchase......................... 7,835,453 4,197,666 12,033,119
Advances from the FHLB............... 7,241,492 2,769,933 10,011,425
Other borrowings..................... 676,986 2,432,708 3,109,694
Other liabilities.................... 389,908 1,090,786 125,000 1(b) 1,355,694
----------- ----------- -------- -------- -----------
Total liabilities........... 42,154,037 40,179,372 125,000 -- 82,208,409
Great Western-obligated mandatorily
redeemable preferred securities of
Great Western subsidiary trust,
holding solely $103,092,800
aggregate principal amount of 8.25%
subordinated deferrable interest
notes, due 2025, of Great
Western............................ -- 100,000 100,000
STOCKHOLDERS' EQUITY
Preferred stock...................... -- 165,000 165,000 1(a) --
Common stock......................... -- 137,876 137,876 1(a) --
Capital surplus...................... 952,747 680,428 302,876 1(a) 1,936,051
Valuation reserve for
available-for-sale securities...... 41,666 76,959 118,625
Retained earnings.................... 1,403,475 1,534,937 318,000 1(b) 2,620,412
----------- ----------- -------- -------- -----------
Total stockholders'
equity.................... 2,397,888 2,595,200 620,876 302,876 4,675,088
----------- ----------- -------- -------- -----------
Total liabilities and
stockholders' equity...... $44,551,925 $ 42,874,572 $745,876 $302,876 $86,983,497
=========== =========== ======== ======== ===========
Book value per common share(2)....... $19.30 $17.63 $18.13
Number of common shares
outstanding(2)..................... 118,142,285 137,875,955 242,230,645
</TABLE>
92
<PAGE> 103
NOTES TO PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
(1) Statement of Financial Position. The pro forma adjustments reflected in the
unaudited pro forma combined statement of financial position of Washington
Mutual including Great Western as of December 31, 1996 give effect to the
following adjustments:
(a) Stockholders' equity of Great Western has been adjusted to give effect
to the exchange of 660,000 shares of Great Western Preferred Stock and
137,875,955 shares of Great Western Common Stock for 660,000 shares of
Series F Preferred Stock and 124,088,360 shares of Washington Mutual
Common Stock. Pro forma adjusting entries are as follows:
<TABLE>
<CAPTION>
DEBIT CREDIT
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Preferred stock........................................ $165,000
Common stock........................................... 137,876
Capital surplus........................................ $302,876
</TABLE>
(b) Merger-related Expenses. Merger-related expenses and addition to loan
loss reserve anticipated to be recorded are included in the Pro Forma
Including Great Western statement of financial position as of December
31, 1996. Merger-related expenses expected to be recorded by Washington
Mutual are summarized in the following table (dollars in thousands):
<TABLE>
<S> <C>
Additional 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>
Pro forma adjusting entries are as follows:
<TABLE>
<CAPTION>
DEBIT CREDIT
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Retained earnings -- net charges..................... $318,000
Other liabilities -- tax benefit..................... 125,000
Cash -- Severance and management premiums............ $145,000
Cash -- Other expenses............................... 92,000
Loans -- Additional loan loss reserves............... 100,000
Facilities and equipment............................. 106,000
</TABLE>
* See "Management and Operations of Washington Mutual Following the
Washington Mutual/Great Western Merger -- Operations After the
Merger -- Merger-Related Expenses and Addition to Loan Loss Reserve"
for a discussion of the increase in the loan loss provision and
merger-related expenses.
93
<PAGE> 104
(2) Per Share Data. Washington Mutual's book value per common share of $19.30
and pro forma combined book value per common share of $18.13 as of December 31,
1996 were calculated using the following information:
<TABLE>
<CAPTION>
WASHINGTON PRO FORMA INCLUDING
MUTUAL GREAT WESTERN
------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Stockholders' equity......................... $ 2,397,888 $ 4,993,088
Noncumulative Perpetual Series C
Preferred Stock............................ (68,813) (68,813)
Noncumulative Perpetual Series E
Preferred Stock............................ (49,250) (49,250)
Great Western Preferred Stock................ -- (165,000)
Merger-related expenses...................... -- (318,000)
------------ -------------------
Total stockholders' equity attributable to
common shares.............................. $ 2,279,825 $ 4,392,025
=========== ==============
Number of common shares outstanding(*)....... 118,142,285 242,230,645
</TABLE>
(*) Does not include 8,000,000 shares of common stock issued to an
escrow for the benefit of the shareholders of Keystone Holdings and
the FRF and their transferees.
94
<PAGE> 105
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
PRO FORMA
WASHINGTON GREAT INCLUDING
MUTUAL WESTERN GREAT WESTERN(1)(2)
------------ ------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT
FOR PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Loans........................................ $ 2,139,513 $ 2,481,640 $ 4,621,153
Investment and mortgage-backed securities.... 1,003,410 704,784 1,708,194
Cash equivalents............................. 6,313 47,507 53,820
---------- ---------- ----------
Total interest income................... 3,149,236 3,233,931 6,383,167
INTEREST EXPENSE
Deposits..................................... 1,060,823 1,179,479 2,240,302
Borrowings................................... 897,406 676,435 1,573,841
---------- ---------- ----------
Total interest expense.................. 1,958,229 1,855,914 3,814,143
---------- ---------- ----------
Net interest income................... 1,191,007 1,378,017 2,569,024
Provision for loan losses.................... 201,512 196,158 397,670
---------- ---------- ----------
Net interest income after provision... 989,495 1,181,859 2,171,354
OTHER INCOME
Depositor fees............................... 102,597 179,871 282,468
Loan servicing fees.......................... 41,303 45,684 86,987
Securities, annuities and other fees......... 53,350 88,850 142,200
Other operating income....................... 36,419 5,127 41,546
Gain on sale of loans........................ 19,729 31,950 51,679
Gain (loss) on sale of other assets.......... 5,866 (32,470) (26,604)
---------- ---------- ----------
Total other income...................... 259,264 319,012 578,276
OTHER EXPENSE
Salaries and employee benefits............... 336,065 438,604 774,669
Occupancy and equipment...................... 124,278 179,617 303,895
Regulatory assessments....................... 43,171 65,100 108,271
SAIF special assessment...................... 124,193 188,359 312,552
Data processing fees......................... 40,733 57,292 98,025
Other operating expense...................... 159,541 278,536 438,077
Restructure expense.......................... -- 68,293 68,293
Transaction-related expense.................. 158,121 -- 158,121
Amortization of goodwill and other intangible
assets..................................... 27,672 37,722 65,394
REO operations............................... 11,530 726 12,256
---------- ---------- ----------
Total other expense..................... 1,025,304 1,314,249 2,339,553
---------- ---------- ----------
Income before income taxes and
minority interest.................. 223,455 186,622 410,077
Income taxes................................. 70,420 70,800 141,220
Provision (benefit) for payments in lieu of
taxes...................................... 25,187 -- 25,187
---------- ---------- ----------
Income before minority interest....... 127,848 115,822 243,670
Minority interest in income of consolidated
subsidiaries............................... 13,570 -- 13,570
---------- ---------- ----------
Net Income(3)................................ $ 114,278 $ 115,822 $ 230,100
========== ========== ==========
Net Income Attributable to Common Stock...... $ 95,859 $ 95,527 $ 191,386
========== ========== ==========
Net income per common share(3)(4):
Primary.................................... $0.85 $0.69 $0.81
Fully diluted.............................. 0.85 0.69 0.80
Average number of common shares used to
calculate net income per common share(4):
Primary.................................... 112,858,781 138,505,046 237,513,322
Fully diluted.............................. 113,138,724 139,250,206 238,463,909
</TABLE>
95
<PAGE> 106
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
PRO FORMA
WASHINGTON GREAT INCLUDING
MUTUAL WESTERN GREAT WESTERN(1)(2)
------------ ------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT
FOR PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Loans........................................ $ 2,061,801 $ 2,387,937 $ 4,449,738
New West note receivable..................... 58,841 -- 58,841
Investment and mortgage-backed securities.... 790,696 806,496 1,597,192
Cash equivalents............................. 4,748 44,278 49,026
---------- ---------- ----------
Total interest income................... 2,916,086 3,238,711 6,154,797
INTEREST EXPENSE
Deposits..................................... 1,134,818 1,217,085 2,351,903
Borrowings................................... 788,618 719,497 1,508,115
---------- ---------- ----------
Total interest expense.................. 1,923,436 1,936,582 3,860,018
---------- ---------- ----------
Net interest income................... 992,650 1,302,129 2,294,779
Provision for loan losses.................... 74,987 177,050 252,037
---------- ---------- ----------
Net interest income after provision... 917,663 1,125,079 2,042,742
OTHER INCOME
Depositor fees............................... 79,017 154,862 233,879
Loan servicing fees.......................... 29,315 55,159 84,474
Securities, annuities and other fees......... 49,679 74,161 123,840
Other operating income....................... 31,035 13,284 44,319
Gain on sale of loans........................ 1,717 9,319 11,036
Gain (loss) on sale of other assets.......... (655) 10,233 9,578
Loss on sale of covered assets............... (37,399) -- (37,399)
FDIC assistance on covered assets............ 55,630 -- 55,630
---------- ---------- ----------
Total other income...................... 208,339 317,018 525,357
OTHER EXPENSE
Salaries and employee benefits............... 313,304 441,366 754,670
Occupancy and equipment...................... 110,981 179,654 290,635
Regulatory assessments....................... 54,909 66,365 121,274
Data processing fees......................... 36,538 60,847 97,385
Other operating expense...................... 143,794 225,852 369,646
Transaction-related expense.................. 2,000 -- 2,000
Amortization of goodwill and other
intangibles................................ 28,306 40,286 68,592
REO operations............................... 10,682 5,605 16,287
---------- ---------- ----------
Total other expense..................... 700,514 1,019,975 1,720,489
---------- ---------- ----------
Income before income taxes and
minority interest.................. 425,488 422,122 847,610
Income taxes................................. 111,906 161,100 273,006
Provision (benefit) for payments in lieu of
taxes...................................... 7,887 -- 7,887
---------- ---------- ----------
Income before minority interest....... 305,695 261,022 566,717
Minority interest in income of consolidated
subsidiaries............................... 15,793 -- 15,793
---------- ---------- ----------
Net Income(3)................................ $ 289,902 $ 261,022 $ 550,924
========== ========== ==========
Net Income Attributable to Common Stock...... $ 271,318 $ 236,007 $ 507,325
========== ========== ==========
Net income per common share(3)(4):
Primary.................................... $2.47 $1.72 $2.17
Fully diluted.............................. 2.42 1.71 2.15
Average number of common shares used to
calculate net income per common share(4):
Primary.................................... 109,944,477 137,111,074 233,344,444
Fully diluted.............................. 115,363,724 137,951,442 239,520,022
</TABLE>
96
<PAGE> 107
PRO FORMA COMBINED CONSOLIDATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------
PRO FORMA
WASHINGTON GREAT INCLUDING GREAT
MUTUAL WESTERN WESTERN(1)(2)
----------------- ------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT
FOR PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C>
INTEREST INCOME
Loans......................................... $ 1,658,818 $ 2,291,884 $ 3,950,702
New West note receivable...................... 141,039 -- 141,039
Investment and mortgage-backed securities..... 494,387 304,886 799,273
Cash equivalents.............................. 1,169 32,948 34,117
---------- ---------- ----------
Total interest income.................... 2,295,413 2,629,718 4,925,131
INTEREST EXPENSE
Deposits...................................... 852,666 950,299 1,802,965
Borrowings.................................... 482,692 357,149 839,841
---------- ---------- ----------
Total interest expense................... 1,335,358 1,307,448 2,642,806
---------- ---------- ----------
Net interest income.................... 960,055 1,322,270 2,282,325
Provision for loan losses..................... 122,009 206,379 328,388
---------- ---------- ----------
Net interest income after provision.... 838,046 1,115,891 1,953,937
OTHER INCOME
Depositor fees................................ 45,255 140,703 185,958
Loan servicing fees........................... 23,247 50,853 74,100
Securities, annuities and other fees.......... 65,248 96,923 162,171
Other operating income........................ 39,630 8,164 47,794
Gain on sale of loans......................... 23,488 7,012 30,500
Gain (loss) on sale of other assets........... 23,926 63,421 87,347
---------- ---------- ----------
Total other income....................... 220,794 367,076 587,870
OTHER EXPENSE
Salaries and employee benefits................ 315,424 469,115 784,539
Occupancy and equipment....................... 102,403 199,048 301,451
Regulatory assessments........................ 54,887 77,451 132,338
Data processing fees.......................... 33,862 32,512 66,374
Other operating expense....................... 146,463 207,764 354,227
Amortization of goodwill and other intangible
assets...................................... 29,076 58,689 87,765
REO operations................................ 13,402 31,854 45,256
---------- ---------- ----------
Total other expense...................... 695,517 1,076,433 1,771,950
---------- ---------- ----------
Income before income taxes and minority
interest............................ 363,323 406,534 769,857
Income taxes.................................. 109,880 155,300 265,180
Provision (benefit) for payments in lieu of
taxes....................................... (824) -- (824)
---------- ---------- ----------
Income before minority interest........ 254,267 251,234 505,501
Minority interest in income of consolidated
subsidiaries................................ 13,992 -- 13,992
---------- ---------- ----------
Net Income(3)................................. $ 240,275 $ 251,234 $ 491,509
========== ========== ==========
Net Income Attributable to Common Stock....... $ 221,691 $ 226,219 $ 447,910
========== ========== ==========
Net income per common share(3)(4):
Primary..................................... $2.09 $1.69 $1.98
Fully diluted............................... 2.06 1.69 1.97
Average number of common shares used to
calculate net income per common share(4):
Primary..................................... 106,245,127 133,769,724 226,637,879
Fully diluted............................... 111,664,374 133,769,724 232,057,126
</TABLE>
97
<PAGE> 108
NOTES TO PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
(1) No pro forma adjustments are necessary.
(2) Merger-related Expenses. Merger-related expenses anticipated to be
recorded are not included in the Pro Forma Including Great Western statements of
income for the three years ended December 31, 1996. Merger-related expenses
expected to be recorded by Washington Mutual are summarized in the following
table (dollars in thousands):
<TABLE>
<S> <C>
Additional 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>
(*) See "Management and Operations of Washington Mutual Following the
Washington Mutual/Great Western Merger -- Operations After the
Merger -- Merger-Related Expenses and Addition to Loan Loss Reserve"
for a discussion of the increase in the loan loss provision and the
merger-related expenses.
(3) "Net income from continuing operations" and "net income" are equal for
the three years ended December 31, 1996.
98
<PAGE> 109
(4) Per Share Data. Fully diluted net income per common share for the
three years ended December 31, 1996 were calculated using the following
information:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
WASHINGTON MUTUAL
Net income....................................... $ 114,278 $ 289,902 $ 240,275
Preferred stock dividends:
Noncumulative Perpetual, Series C.............. (6,276) (6,384) (6,384)
Noncumulative Perpetual, Series E.............. (3,743) (3,800) (3,800)
Noncumulative Convertible Perpetual Preferred
Stock, Series D(*).......................... (8,400) -- --
------------ ------------ ------------
Net income available to fully diluted common
stock.......................................... $ 95,859 $ 279,718 $ 230,091
============ ============ ============
Average common shares used to calculate net
income per common share:
Primary........................................ 112,858,781 109,944,477 106,245,127
Dilutive effect of stock options and litigation
shares(**).................................. 279,943 -- --
Noncumulative Convertible Perpetual Preferred
Stock, Series D............................. -- 5,419,247 5,419,247
------------ ------------ ------------
Fully diluted.................................. 113,138,724 115,363,724 111,664,374
============ ============ ============
PRO FORMA INCLUDING GREAT WESTERN
Net income....................................... $ 230,100 $ 550,924 $ 491,509
Preferred stock dividends:
Noncumulative Perpetual, Series C.............. (6,276) (6,384) (6,384)
Noncumulative Perpetual, Series E.............. (3,743) (3,800) (3,800)
Noncumulative Convertible Perpetual Preferred
Stock, Series D(*).......................... (8,400) -- --
Great Western Preferred Stock.................. (20,295) (25,015) (25,015)
------------ ------------ ------------
Net income available to fully diluted common
stock.......................................... $ 196,386 $ 515,725 $ 456,310
============ ============ ============
Average common shares used to calculate net
income per common share:
Primary........................................ 237,513,322 233,344,444 226,637,879
Dilutive effect of stock options and litigation
shares(**).................................. 950,587 756,331 --
Noncumulative Convertible Perpetual Preferred
Stock, Series D............................. -- 5,419,247 5,419,247
------------ ------------ ------------
Fully diluted.................................. 238,463,909 239,520,022 232,057,126
============ ============ ============
</TABLE>
(*)In 1996, for purposes of calculating fully diluted earnings per share, the
assumed conversion of the Series D Preferred Stock was anti-dilutive.
(**)As part of the business combination with Keystone Holdings, 8,000,000 shares
of Washington Mutual Common Stock, with an assigned value of $42.75 per
share, were issued to an escrow for the benefit of the shareholders of
Keystone Holdings and the FRF and their transferees. The Combined Company
will use the treasury stock method to determine the effect of the shares
upon the Combined Company's financial statements. At December 31, 1996, the
dilutive effect of the 8,000,000 shares of Washington Mutual Common Stock on
primary and fully diluted earnings per share was minimal.
99
<PAGE> 110
LITIGATION
On February 18, 1997, Ahmanson filed a Verified Complaint for Declaratory
and Injunctive Relief against Great Western and its directors (the "Ahmanson
Complaint") in the Court of Chancery of the State of Delaware. The Ahmanson
Complaint alleges, among other things, that: (i) the defendants have breached
their fiduciary duties with respect to the Great Western Rights Plan; (ii) the
adoption of any defensive measure by the defendants which has the effect of
impeding, thwarting, frustrating or interfering with the Ahmanson Proposal would
constitute a breach of the defendants' fiduciary duties; and (iii) the
individual directors of Great Western have breached their fiduciary duties with
respect to Section 203 of the DGCL (the "Delaware Business Combination
Statute").
Ahmanson seeks declaratory and injunctive relief as follows: (i) an order
enjoining the defendants from adopting any defensive measure which has the
effect of impeding, thwarting, frustrating or interfering with the Ahmanson
Proposal; (ii) an order compelling the defendants to redeem the rights
associated with the Great Western Rights Plan or to amend the Great Western
Rights Plan so as to make it inapplicable to the Ahmanson Proposal; (iii) an
order enjoining the defendants from taking any action pursuant to the Great
Western Rights Plan that would dilute or interfere with Ahmanson's voting rights
or otherwise discriminate against Ahmanson; (iv) an order compelling the
defendants to approve the Ahmanson Proposal for the purposes of the Delaware
Business Combination Statute; (v) an order enjoining the defendants from taking
any action to enforce or apply the Delaware Business Combination Statute that
would impede, thwart, frustrate or interfere with the Ahmanson Proposal; and
(vi) an order awarding Ahmanson its costs and expenses in the action.
On February 26, 1997, Great Western and the individual defendants filed
their Answer, and Affirmative Defenses to the Ahmanson Complaint and Great
Western and the individual defendants filed its Counterclaims to the Ahmanson
Complaint. In the Answer, Great Western and the individual defendants denied all
of the material allegations raised by the Ahmanson Complaint and asserted
affirmative defenses, including that: (i) the Ahmanson Complaint fails to state
a claim on which relief can be granted; and (ii) Ahmanson is acting in its own
self interest at the expense of Great Western and its stockholders and thus
comes to Court with unclean hands. In its Counterclaims to the Ahmanson
Complaint, Great Western seeks, among other things, declaratory and injunctive
relief, including dismissal of the Ahmanson Complaint with prejudice and denial
of the relief requested by Ahmanson. Ahmanson and Great Western have commenced
discovery. Great Western and Ahmanson are currently in the process of responding
to reciprocal requests for documents.
Between February 18, 1997 and February 26, 1997, six complaints (the
"Complaints") were filed against Great Western and its directors in the Court of
Chancery of the State of Delaware by Fred T. Isquith, Harry Lewis, Bernard
Bildstein, Charles Uttenreither, Melvyn Zupnick and Emil Schachter. Each action
was brought on behalf of the plaintiff, individually, and as a purported class
action on behalf of all stockholders of Great Western. The Complaints allege,
among other things, that the defendants are violating their fiduciary duties
owed to the stockholders of Great Western with respect to the Ahmanson Proposal.
The plaintiffs generally seek: (i) an order declaring that the action may be
maintained as a class action; (ii) an order preliminarily and permanently
enjoining the defendants to consider and negotiate with respect to all bona fide
offers or proposals for Great Western or its assets, in the best interests of
Great Western Stockholders; and (iii) compensatory damages, the costs and
disbursements of the action and such other and further relief as may be just and
proper. In addition, certain plaintiffs seek judgments ordering Great Western's
directors, individually, to announce their intention with respect to certain
matters relating to the Ahmanson Proposal. Great Western and its directors deny
the operative allegations of the Complaints and will file responses thereto as
appropriate; however, answers have not been filed.
On March 7, 1997, Ahmanson filed a Motion for Leave to File Amended and
Supplemental Complaint against Great Western and its directors (the "Ahmanson
Supplemental Complaint") in the Court of Chancery of the State of Delaware. In
addition to the allegations made in the Ahmanson Complaint, the Ahmanson
Supplemental Complaint further alleges, among other things, that: (i) the
defendants have failed to create a level playing field by discriminatorily
favoring other potential bidders to the exclusion of Ahmanson and by entering
into the Merger Agreement; (ii) the defendants have actively and unlawfully
sought to thwart
100
<PAGE> 111
its stockholders from exercising certain of their rights for the purpose of
entrenchment; (iii) the defendants have failed to find the best value reasonably
available; and (iv) the defendants have irreparably harmed Ahmanson by depriving
it of the unique opportunity to acquire Great Western. Consequently, Ahmanson
seeks additional declaratory and injunctive relief enjoining Great Western and
the individual defendants from, among other things, discriminating against
Ahmanson, delaying Great Western's annual meeting of stockholders, or taking
steps to consummate the Washington Mutual/Great Western Merger or other
transactions with Washington Mutual.
On March 14, 1997, a complaint (an "Additional Complaint") was filed
against Great Western and its directors in the Court of Chancery of the State of
Delaware by Marcel Ullman and Joseph Sonnenberg. The Additional Complaint was
brought on behalf of the plaintiffs, individually, and as a purported class
action on behalf of all stockholders of Great Western. The Additional Complaint
alleges, among other things, that the defendants are violating their fiduciary
duties owed to the stockholders of Great Western by failing to hold an open and
fair auction of Great Western, failing to negotiate the acquisition of Great
Western with all interested parties, and failing to provide a level playing
field through the use of a termination fee in the Merger Agreement and
employment of a "poison pill." The plaintiffs generally seek: (i) an order
declaring that the action may be maintained as a class action; (ii) an order
that the defendants carry out their fiduciary duties and requiring them to
respond in good faith to all bona fide potential acquirors of Great Western;
(iii) an order preliminarily and permanently enjoining implementation of Great
Western's poison pill; (iv) an order rescinding the severance agreements to be
paid to the defendants and the termination fee to be made to Washington Mutual;
and (v) the costs and disbursements of the action and such other and further
relief as may be just and proper. Great Western and its directors deny the
operative allegations of the Additional Complaint; however, an answer has not
yet been filed.
On March 18, 1997, Fred T. Isquith, Harris Lewis, Bernard Bildstein,
Charles Uttenreither and Emil Schachter filed an Amended Class Action Complaint
against Great Western and its directors in the Court of Chancery of the State of
Delaware (the "Amended Class Action Complaint"). The Amended Class Action
Complaint alleges, among other things, that: (i) the individual defendants are
violating their fiduciary duties owed to plaintiffs and other members of the
class with respect to the Ahmanson Proposal; (ii) the individual defendants have
violated their fiduciary duties with respect to certain actions taken in
connection with the proposed merger between Great Western and Washington Mutual;
and (iii) the individual defendants are acting to entrench themselves by
favoring Washington Mutual at the expense and to the detriment of the public
stockholders of Great Western. The plaintiffs seek judgments: (i) declaring that
the action is a proper class action and certifying plaintiffs as class
representatives; (ii) ordering the individual defendants to announce their
intention with respect to certain matters relating to, among other things, the
maximization of stockholder value and the employment of the Great Western Rights
Plan; (iii) enjoining any transaction between Great Western and Washington
Mutual which does not maximize stockholder value; (iv) declaring the approval of
the termination fee to be paid to Washington Mutual in the event that the Merger
Agreement is terminated to be a breach of fiduciary duty and rescinding it; (v)
ordering the individual defendants, jointly and severally, to account to
plaintiffs and the class for all damages suffered as a result of the acts and
transactions alleged in the Amended Class Action Complaint; and (vi) awarding
plaintiffs the costs and disbursements of the action and granting such other and
further relief as may be just and proper. Great Western and its directors deny
the operative allegations of the Amended Class Action Complaint; however, an
answer has not yet been filed.
On March 21, 1997, Ahmanson filed a second Motion for Leave to File Amended
and Supplemental Complaint against Great Western and its directors (the
"Ahmanson Second Supplemental Complaint") in the Court of Chancery of the State
of Delaware and on April 14, 1997, pursuant to a stipulation among the parties,
Ahmanson filed the Ahmanson Second Supplemental Complaint. In addition to the
allegations made in the Ahmanson Complaint and the Ahmanson Supplemental
Complaint, the Ahmanson Second Supplemental Complaint further alleges, among
other things, that: (i) Great Western is attempting to impede Ahmanson's
solicitation of consents by not recognizing March 13, 1997 as the record date
for Ahmanson's solicitation of consents for the New Ahmanson Proposals; and (ii)
Great Western has failed to make full disclosure of matters relating to the
availability of the pooling of interests method of accounting for the
101
<PAGE> 112
Washington Mutual/Great Western Merger. Consequently, Ahmanson seeks additional
declaratory and injunctive relief compelling Great Western and the individual
defendants to, among other things, (i) recognize March 13, 1997 as the record
date for Ahmanson's solicitation of consents for the New Ahmanson Proposals; and
(ii) disclose certain information that Ahmanson alleges relates to the
availability of pooling of interests accounting for the Washington Mutual/Great
Western Merger.
On April 9, 1997, Ahmanson filed a Complaint against Great Western pursuant
to Section 225 of the DGCL (the "225 Complaint") in the Court of Chancery of the
State of Delaware. The 225 Complaint alleges, among other things, that written
consents executed by the record holders of a majority of the Great Western
Common Stock outstanding on March 13, 1997 were delivered to Great Western on
April 9, 1997 that were effective at the time of delivery to adopt the Annual
Meeting By-law. Ahmanson seeks an order (i) declaring that the Annual Meeting
By-law was duly and validly adopted on April 9, 1997; and (ii) compelling Great
Western to hold its Annual Meeting on or before May 6, 1997.
On April 11, 1997, Ahmanson filed an Amended Complaint against Great
Western and, additionally, its directors (the "Amended 225 Complaint") in the
Court of Chancery of the State of Delaware. In addition to the allegations made
in the 225 Complaint, the Amended 225 Complaint alleges, among other things,
that: (i) the Annual Meeting By-law was effective at the time the consents were
delivered; and (ii) by their actions in announcing a May 9, 1997 record date and
setting a meeting for election of directors for June 13, 1997, Great Western's
directors violated the Annual Meeting By-law and the provision of Great
Western's By-laws regarding special meetings, thereby breaching their fiduciary
duties. In addition to the relief sought in the 225 Complaint, Ahmanson seeks an
order enjoining Great Western from scheduling or holding any vote on any
proposed transaction, including but not limited to the Washington Mutual/Great
Western Merger, prior to two weeks following the certification of the election
of directors.
On April 18, 1997, Ahmanson filed a Motion for Leave to File a Second
Amended Complaint against Great Western and its directors (the "Second Amended
225 Complaint") in the Court of Chancery of the State of Delaware. In addition
to the allegations made in the 225 Complaint and the Amended 225 Complaint, the
Second Amended 225 Complaint further alleged, among other things, that the Great
Western directors breached their fiduciary duties and engaged in "unlawful
manipulation of the corporate machinery" by changing the date of Great Western's
Annual Meeting of Stockholders (the "Annual Meeting"). Consequently, Ahmanson
seeks additional injunctive relief enjoining Great Western from scheduling or
holding any vote on any proposed transaction, including but not limited to the
Washington Mutual/Great Western Merger, for a "reasonable time" following the
election of directors and enjoining Great Western from failing to comply with
the Great Western By-laws regarding special meetings.
On April 25, 1997, the Court of Chancery of the State of Delaware (i)
granted, in part, Great Western and its directors' April 16, 1997 Motion to
Dismiss and for a Protective Order by dismissing, insofar as it sought
injunctive relief before the date of the Annual Meeting, Ahmanson's claim in the
Second Amended 225 Complaint that the Great Western directors breached their
fiduciary duties by manipulating the corporate machinery; and (ii) ordered
limited discovery concerning the scheduling of the Annual Meeting for June 13,
1997.
On April 28, 1997, Great Western filed a Complaint for Declaratory and
Injunctive Relief against Ahmanson in the Court of Chancery of the State of
Delaware and on April 29, 1997, Great Western filed an Amended Complaint for
Declaratory Relief against Ahmanson (the "Amended Great Western Complaint") in
the Court of Chancery of the State of Delaware. The Amended Great Western
Complaint alleges, among other things, that an approximately 5.2 million share
double vote occurred in connection with the Ahmanson consent solicitation
resulting in a substantial overvote, that certain revocations and abstentions
were not properly given effect and that certain Ahmanson consent cards
indicating consent to one or more but not all of the proposals for which
Ahmanson was soliciting consents were improperly counted as having consented to
all of such proposals. Great Western seeks, among other things, an order
declaring that there was an overvote entitling the inspectors of election to
consider extrinsic evidence concerning the duplicate vote of approximately 5.2
million shares, that the revocations and abstentions at issue revoked previously
given consents and that the Ahmanson consent cards as to which one or more but
not all proposals were consented to constitute
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consent only as to the specific proposals marked. On May 1, 1997, Great Western
and Ahmanson each requested that the independent inspectors retabulate the vote
without giving effect to the double-counted shares and recertify the results of
the Ahmanson consent solicitation.
On May 1, 1997, Fred T. Isquith, Harry Lewis, Bernard Bildstein, Charles
Uttenreither, and Emil Schachter filed a Motion for Leave to File Second Amended
Class Action Complaint against Great Western and its directors in the Court of
Chancery of the State of Delaware (the "Second Amended Class Action Complaint").
The Second Amended Class Action Complaint further alleges, among other things,
that the defendants are: (i) violating their fiduciary duties by wrongfully
manipulating the proxy solicitation machinery; (ii) failing to timely call a
stockholder meeting in contravention of Great Western's By-laws; and (iii)
interfering with and delaying the consideration of a slate of directors proposed
by Ahmanson for election to the Board. Consequently, the plaintiffs seek
additional relief including, among other things: (i) an order that the Great
Western Board refrain from taking any action which impedes or interferes with
the voting rights of Great Western stockholders; and (ii) an order that the
Great Western Board schedule a stockholder meeting to elect directors on May 6,
1997 or as soon thereafter as practicable. The parties have agreed to initiate
discovery on a limited basis.
On May 6, 1997, Great Western and the individual defendants filed their
Answer and Affirmative Defenses to the Ahmanson Second Supplemental Complaint.
In the Answer, the defendants denied all of the material allegations raised by
the Ahmanson Second Supplemental Complaint and asserted affirmative defenses,
including that: (i) the Ahmanson Second Supplemental Complaint fails to state a
claim on which relief can be granted; (ii) Ahmanson is acting in its own self
interest at the expense of Great Western and its stockholders and thus comes to
the Court with unclean hands; and (iii) Ahmanson's claims are not ripe.
On May 7, 1997, Great Western and the individual defendants filed their
Answer and Affirmative Defenses to the Ahmanson Second Amended 225 Complaint. In
the Answer, the defendants denied all of the material allegations raised by the
Ahmanson Second Amended 225 Complaint and asserted affirmative defenses,
including that: (i) the Ahmanson Second Amended 225 Complaint fails to state a
claim on which relief can be granted; (ii) Ahmanson is acting in its own self
interest at the expense of Great Western and its stockholders and thus comes to
the Court with unclean hands; and (iii) Ahmanson's claims are not ripe.
On May 8, 1997, Ahmanson submitted a letter (the "May 8 Letter") to the
Court of Chancery of the State of Delaware relating to its claims in the Second
Amended 225 Complaint. In the May 8 Letter, Ahmanson (i) states that it is no
longer seeking to advance the date of the Annual Meeting of Great Western
Stockholders (the "Great Western Annual Meeting") forward from June 13, 1997,
and (ii) requests that the Court require that the separate special meeting of
stockholders of Great Western at which the Washington Mutual/Great Western
Merger Proposal will be voted upon occur no earlier than six weeks after
certification of the results of the Great Western Annual Meeting.
On May 12, 1997, the Court of Chancery of the State of Delaware by letter
denied Ahmanson's request for a conference to schedule expedited proceedings on
Ahmanson's motion to require a six-week gap between the certification of results
of the election of directors at the Great Western Annual Meeting and the vote by
the Great Western Stockholders on the Washington Mutual/Great Western Merger
Proposal. The Court stated that it would hold such a conference only after a
date for such vote had been set and Ahmanson filed a motion seeking injunctive
relief.
Great Western and its directors intend to vigorously defend the claims in
the Ahmanson Complaint, the Ahmanson Supplemental Complaint, the Complaints and
the Additional Complaint, the Amended Class Action Complaint, the Ahmanson
Second Supplemental Complaint, the 225 Complaint, the Amended 225 Complaint and
the Second Amended Class Action Complaint.
COMPARISON OF RIGHTS OF WASHINGTON MUTUAL SHAREHOLDERS
AND GREAT WESTERN STOCKHOLDERS
Washington Mutual is incorporated under the laws of the State of Washington
and Great Western is incorporated under the laws of the State of Delaware. Upon
consummation of the Merger, the Great Western
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Stockholders, whose rights as stockholders are currently governed by the DGCL,
the Great Western Certificate of Incorporation and the Great Western Bylaws will
upon the exchange of their Great Western Common Stock become holders of shares
of Washington Mutual Common Stock and their rights as such will be governed by
the WBCA, the Washington Mutual Articles, and the Washington Mutual Bylaws. The
material differences between the rights of holders of Great Western Common Stock
and Washington Mutual Common Stock, resulting from the differences in their
governing documents and the application of the DGCL or the WBCA thereto, are
summarized below.
The following summary does not purport to be a complete summary and is
qualified in its entirety by reference to the governing corporate documents of
each of Washington Mutual and Great Western and applicable law. See
"Incorporation of Certain Documents by Reference."
CAPITAL STOCK
The Washington Mutual Articles currently authorize 350,000,000 shares of
Washington Mutual Common Stock and 10,000,000 shares of Washington Mutual
Preferred Stock. See "Description of Washington Mutual Capital Stock." If the
Articles Amendment Proposal is approved at the Washington Mutual Meeting, the
number of authorized shares of Washington Mutual Common Stock will be increased
to 800,000,000.
The Great Western Certificate currently authorizes 200,000,000 shares of
Great Western Common Stock and 10,000,000 shares of Great Western Preferred
Stock.
BOARD OF DIRECTORS
The Washington Mutual Articles provide that the number of directors
comprising the Washington Mutual Board shall be as stated in the Washington
Mutual Bylaws, provided that the number of directors shall not be less than
five. The Washington Mutual Board can amend the Washington Mutual Bylaws to
change the number of directors without shareholder approval. The Washington
Mutual Bylaws currently provide that the Washington Mutual Board shall consist
of fifteen directors. The Washington Mutual Board is divided into three classes
of as equal a number of directors as possible. The term of office of each
different class is three years, each term expiring in a different year. Upon
consummation of the Merger, the number of directors of the Combined Company will
be increased to nineteen.
The Great Western Certificate provides that the Great Western Board shall
consist of such number of directors as determined in the Great Western Bylaws,
and in the absence of such determination, the number of directors is set at
thirteen. The Great Western Bylaws currently provide that the number of
directors shall be eleven. The Great Western Board is divided into three classes
of as equal a number of directors as possible. The term of office of each
different class is three years, each term expiring in a different year.
MONETARY LIABILITY OF DIRECTORS
The Washington Mutual Articles and the Great Western Certificate each
provide for the elimination of personal monetary liability of directors to the
fullest extent permissible under the laws of Washington and Delaware,
respectively. The provision in the Washington Mutual Articles incorporates
future amendments to Washington law with respect to the elimination of such
liability.
VOTING RIGHTS
Neither the Washington Mutual Articles nor the Great Western Certificate
provide for cumulative voting in the election of directors. Upon consummation of
the Merger, based on the capitalization of Washington Mutual and Great Western
on May 9, 1997, Washington Mutual common shareholders and Great Western common
stockholders will hold approximately 126,291,687 shares and 124,129,833 shares
of common stock of the Combined Company, respectively, constituting
approximately 50.4% and 49.6%, respectively, of the Combined Company's voting
power. Consequently, following the Washington Mutual/Great Western Merger,
neither Washington Mutual nor Great Western shareholders will possess the same
relative voting power in the Combined Company as they possessed prior to the
Washington Mutual/Great Western Merger.
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INTERESTED SHAREHOLDERS
The Washington Mutual Articles prohibit, except under certain
circumstances, Washington Mutual (or any subsidiary of Washington Mutual) from
engaging in certain significant business transactions with a "Major Stockholder"
(defined as a person who, without the prior approval of the Washington Mutual
Board, acquires beneficial ownership of five percent or more of the votes held
by the holders of the outstanding shares of Washington Mutual's voting stock).
Prohibited transactions include, among others, any merger with, disposition of
assets to, acquisition by Washington Mutual of the assets of, issuance of
securities of Washington Mutual to, or acquisition by Washington Mutual of
securities of a Major Stockholder, or any reclassification of the voting stock
of Washington Mutual or of any subsidiary beneficially owned by a Major
Stockholder, or any partial or complete liquidation, spin off, split off or
split up of Washington Mutual or any subsidiary. The above prohibitions do not
apply, in general, if the specific transaction is approved by the Washington
Mutual Board prior to the involvement of the Major Stockholder; a vote of at
least eighty percent of the Continuing Directors (defined as those members of
the Washington Mutual Board prior to the involvement of the Major Stockholder);
a vote of ninety-five percent of the outstanding shares of Washington Mutual
voting stock other than shares held by the Major Stockholder; or a supermajority
vote of either the Washington Mutual Board or the holders of voting stock owned
other than by any Major Stockholder. The Washington Mutual Articles also provide
that during the time a Major Stockholder exists, Washington Mutual may
voluntarily dissolve only upon the unanimous consent of the Washington Mutual
shareholders or an affirmative vote of at least two-thirds of the Washington
Mutual Board and the holders of at least two-thirds of both the shares entitled
to vote on such a dissolution and of each class of shares entitled to vote on
such a dissolution as a class, if any.
The Great Western Certificate does not contain a similar provision.
REMOVAL OF DIRECTORS AND FILLING VACANCIES ON THE BOARD OF DIRECTORS
The Washington Mutual Articles provide that directors may only be removed
for "good cause" (which is not defined). Under the Washington Mutual Bylaws a
director may be removed by the vote of the holders of a majority of the shares
entitled to vote at an election of the director whose removal is sought. The
Washington Mutual Bylaws also provide that a vacancy on the Washington Mutual
Board arising through resignation, removal or death of an existing director, or
by reason of an authorized increase in the number of directors, may be filled by
the affirmative vote of four-fifths of the remaining directors, though less than
a quorum.
Under Delaware law, a director of a corporation with a classified board may
be removed only for cause, unless the certificate of incorporation specifies
otherwise. Great Western has a classified board of directors and the Great
Western Certificate provides that directors may be removed only for cause. The
Great Western Certificate provides that any vacancy, whether arising through
death, resignation or removal of a director, or through an increase in the
number of directors of any class, shall be filled by a majority vote of the
remaining directors of the class in which the vacancy occurs or by the sole
remaining director of that class if only one such director remains.
WASHINGTON MUTUAL RIGHTS PLAN
Washington Mutual has adopted a shareholder rights plan (the "Washington
Mutual Rights Plan") which provides that one right to purchase an additional
share of common stock (the "Washington Mutual Rights") is attached to each
outstanding share of Washington Mutual Common Stock. The Washington Mutual
Rights have certain anti-takeover effects and are intended to discourage
coercive or unfair takeover tactics and to encourage any potential acquirer to
negotiate a price fair to all stockholders. The Washington Mutual Rights may
cause substantial dilution to an acquiring party that attempts to acquire
Washington Mutual on terms not approved by the Washington Mutual Board, but they
will not interfere with any merger or other business combination that is
approved by the Washington Mutual Board.
The Washington Mutual Rights are not exercisable until the tenth day after
a party acquires beneficial ownership of 20 percent or more of outstanding
Washington Mutual Common Stock or commences or publicly announces for the first
time a tender offer to do so. Each Washington Mutual Right entitles the holder
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to purchase one share of Washington Mutual Common Stock for an exercise price
that is currently $26.67 per share. In the event, among certain other specified
events, that an acquiring party thereafter gains control of 30 percent or more
of the Washington Mutual Common Stock, any Washington Mutual Rights held by that
party will be void and, for the next 60 days, all other holders of rights can
receive that number of shares of Washington Mutual Common Stock having a market
value of two times the exercise price of the Washington Mutual Right. The
Washington Mutual Rights, which expire on October 26, 2000, may be redeemed by
Washington Mutual for $0.0044 per right prior to being exercisable. Until a
Washington Mutual Right is exercised, the holder of that Washington Mutual Right
will have no rights as a shareholder of Washington Mutual, including, without
limitation, the right to vote or to receive dividends.
GREAT WESTERN RIGHTS PLAN
On June 27, 1995, the Great Western Board adopted a shareholder rights plan
(the "Great Western Rights Plan") and declared a dividend of one right for each
share of Great Western Common Stock outstanding on July 14, 1996, the expiration
date of the shareholder rights plan adopted by the Great Western Board in June
1986.
Like the Washington Mutual Rights Plan, the Great Western Rights Plan also
has certain anti-takeover effects. In the event that any person or group
acquires beneficial ownership of 15 percent or more of the outstanding shares of
Great Western Common Stock other than pursuant to a "Qualifying Offer," as
defined in the Great Western Rights Plan, each holder of a right, other than a
right beneficially owned by the acquiring person, will thereafter have the right
to receive upon exercise that number of shares of Great Western Common Stock
having a market value of two times the exercise price of the right. In addition,
if at any time following such acquisition of 15 percent or more of the
outstanding Great Western Common Stock, Great Western is acquired in a merger or
other business combination transaction or 50 percent or more of its consolidated
assets or earning power are sold, other than resulting from a Qualifying Offer
and meeting certain fair price criteria, each holder of a right will thereafter
enjoy the right to receive, upon exercise of that right at the prevailing
exercise price of the right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the right. As with the Washington Mutual
Rights Plan, the Great Western Rights Plan will not be triggered by a merger or
business combination which is approved in advance by the Great Western Board.
CERTAIN DIFFERENCES BETWEEN WASHINGTON
AND DELAWARE CORPORATE LAWS
The WBCA governs the rights of Washington Mutual shareholders and will
govern the rights of Great Western stockholders who become shareholders of the
Combined Company upon consummation of the Washington Mutual/Great Western
Merger. The WBCA and the DGCL differ in many respects. Certain of the
significant differences between the provisions of the WBCA and the DGCL that
could materially affect the rights of Great Western stockholders are discussed
below.
AMENDMENT OF ARTICLES/CERTIFICATES OF INCORPORATION
Under the WBCA, with certain exceptions, amendments to a corporation's
articles of incorporation must be recommended to the shareholders by the board
of directors, unless the board of directors determines that because of conflict
of interest or other special circumstances it should make no recommendation and
communicates the basis for its determination to the shareholders with the
amendment. All amendments to the Washington Mutual Articles must be approved by
a majority of all the votes entitled to be cast by any voting group entitled to
vote thereon unless another proportion is specified in the articles of
incorporation, by the board of directors as a condition to its recommendation or
by provisions of the WBCA. The Washington Mutual Articles require an amendment
to the articles to receive the affirmative vote of the shareholders representing
at least two-thirds of Washington Mutual's issued capital stock at any regular
meeting or special meeting duly called for that purpose.
Under the DGCL, amendments to a corporation's certificate of incorporation
require the approval of stockholders holding a majority of the outstanding
shares entitled to vote on such amendment, and if a class
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vote on such amendment is required by the DGCL, a majority of the outstanding
stock of such class, unless a greater proportion is specified in the certificate
of incorporation or by other provisions of the DGCL. The Great Western
Certificate is silent as to any voting requirement necessary to amend the Great
Western Certificate.
RIGHT TO CALL SPECIAL MEETING OF SHAREHOLDERS
The WBCA provides that a special meeting of shareholders of a corporation
may be called by its board of directors, by holders of at least 10 percent of
all the votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting, or by other persons authorized to do so by the
articles of incorporation or bylaws of the corporation. However, the WBCA allows
the right of shareholders to call a special meeting to be limited or denied to
the extent provided in the articles of incorporation. The Washington Mutual
Articles provide that the Washington Mutual Board or any person authorized by
the Washington Mutual Bylaws may call a special meeting. However, authority to
call a special meeting is limited to holders of at least twenty-five percent of
all the votes entitled to be cast on any issue to be considered at the proposed
meeting. The Washington Mutual Bylaws extend authority to call a special meeting
to the chairman of the Washington Mutual Board and to any one director making a
written request to call such a meeting.
Under the DGCL, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. Neither the Great Western Certificate nor the
Great Western Bylaws authorize any other person to call a special meeting.
INDEMNIFICATION OF OFFICERS, DIRECTORS AND EMPLOYEES
Under the WBCA, if authorized by its articles of incorporation, a bylaw
adopted or ratified by shareholders, or a resolution adopted or ratified, before
or after the event, by the shareholders, a corporation has the power to
indemnify a director, officer or employee made a party to a proceeding, or
advance or reimburse expenses incurred in a proceeding, under any circumstances,
except that no such indemnification shall be allowed for: (a) acts or omissions
of a director, officer or employee finally adjudged to be intentional misconduct
or a knowing violation of the law; (b) conduct of a director, officer or
employee finally adjudged to be an unlawful distribution; or (c) any transaction
with respect to which it was finally adjudged that such director, officer or
employee personally received a benefit in money, property or services to which
the director, officer or employee was not legally entitled. The WBCA's
legislative history suggests that a corporation may indemnify its directors,
officers and employees for amounts paid in settlement of derivative actions,
provided that the director's, officer's or employee's conduct does not fall
within one of the categories set forth above. Generally, the Washington Mutual
Bylaws provide that Washington Mutual shall indemnify its directors, officers
and employees to the fullest extent permitted by the WBCA, including
indemnification of persons seeking to enforce indemnification rights through a
proceeding authorized by the Washington Mutual Board and initiated by such
person.
Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interest of the corporation, and,
with respect to a criminal action or proceeding, if they had no reasonable cause
to believe their conduct was unlawful. The Great Western Bylaws provide for the
indemnification of its directors, officers and employees to the fullest extent
authorized by the DGCL.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
The WBCA imposes restrictions on certain transactions between a corporation
and certain significant shareholders. Subject to certain exceptions, pursuant to
the Fair Price Provision, a merger, share exchange, sale of assets other than in
the regular course of business, or dissolution of a corporation involving an
Interested Shareholder owning beneficially 20 percent or more of the
corporation's voting securities must be
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approved by the holders of two-thirds of the corporation's outstanding voting
securities, other than those shares held by an Interested Shareholder. This
restriction does not apply if a majority of the board of directors, excluding
Interested Directors, determine that the fair market value of the consideration
received by as a result of the transaction by shareholders who are not
Interested Shareholders is not less than the highest consideration paid by the
Interested Shareholder for the corporation's shares during the preceding two
years or if the transaction is approved by a majority of directors who are not
affiliated with the Interested Shareholder. Although a Washington corporation
may, in its original articles of incorporation, elect not to be covered by this
provision, Washington Mutual has not done so.
The WBCA also prohibits a "target corporation," with certain exceptions,
from engaging in certain "significant business transactions" with a person or
group of persons who beneficially owns 10% or more of the voting securities of a
target corporation (an "Acquiring Person") for a period of five years after the
acquisition of such securities, unless the transaction or acquisition of shares
is approved by a majority of the members of the target corporation's board of
directors prior to the date of the acquisition. The significant business
transactions include, among other, merger or consolidation with, disposition of
assets to or with, or issuance or redemption of stock to or from, the Acquiring
Person, termination of 5% or more of the employees of the target corporation
employed in Washington State as a result of the Acquiring Person's acquisition
of 10% or more of the shares or allowing the Acquiring Person to receive any
disproportionate benefit as a shareholder. Target corporations include domestic
corporations with their principal executive offices in Washington and either a
majority or over 1,000 of their employees resident in Washington. Washington
Mutual believes it currently meets these standards and is subject to the
statute. A corporation may not "opt out" of this statute.
Section 203 of the DGCL prohibits a Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for three years
following the date that such person becomes an interested stockholder. With
certain exceptions, an interested shareholder is a person or group who or which
owns 15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested shareholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to ten percent or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for certain transfers in a
conversion or exchange or a pro rata distribution or certain other transactions,
none of which increase the interested stockholder's proportionate ownership of
any class or series of the corporation's or such subsidiary's stock); or receipt
by the interested stockholder (except proportionately as a stockholder),
directly or indirectly, of any loans, advances, guarantees, pledges or other
financial benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date at which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested shareholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested shareholder (excluding from the 85% calculation shares
owned by directors who are also officers of the target corporation and shares
held by employee stock plans which do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or (iii) on or
after the date such person becomes an interested shareholder, the board approves
the business combination and it is also approved at a shareholder meeting by
66 2/3% of the voting stock not owned by the interested shareholder. Section 203
does not apply if the business combination is proposed prior to the consummation
or abandonment of and subsequent to the earlier of the public announcement or
the notice required under Section 203 of the proposed transaction which (i)
constitutes certain (x) mergers or consolidations, (y) sales or other transfers
of assets having an aggregate market value equal to 50% or more of the aggregate
market value of all of the assets of the corporation determined on a
consolidated basis or the
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aggregate or the aggregate market value of all the outstanding stock of the
corporation or (z) proposed tender or exchange offers for 50% or more of the
corporation's outstanding voting stock; (ii) is with or by a person who was
either not an interested stockholder during the last three years or who became
an interested stockholder with the approval of the corporation's board of
directors; and (iii) is approved or not opposed by a majority of the board
members elected prior to any person becoming an interested stockholder during
the previous three years (or their chosen successors).
A Delaware corporation may elect not to be governed by Section 203 by a
provision of its original certificate of incorporation or an amendment thereto
or to the bylaws, which amendment must be approved by majority stockholder vote
and may not be further amended by the board of directors. Such an amendment is
not effective until 12 months following its adoption. Great Western has not
opted out of Section 203.
MERGERS, SALES OF ASSETS AND OTHER TRANSACTIONS
Under the WBCA, a merger or share exchange of a corporation must be
approved by the affirmative vote of a majority of directors when a quorum is
present, and by each voting group entitled to vote separately on the plan by
two-thirds of all votes entitled to be cast on the plan by that voting group,
unless another proportion is specified in the articles of incorporation. The
Washington Mutual Articles provide for the affirmative vote of shareholders
holding a majority of the outstanding voting shares to approve such a
transaction.
The WBCA also provides that, in general, a corporation may sell, lease,
exchange or otherwise dispose of all, or substantially all, of its property,
other than in the usual and regular course of business or dissolve if the board
of directors recommends the proposed transaction to the shareholders and the
shareholders approve the transaction by two-thirds of all the votes entitled to
be cast in the transaction, unless another proportion is specified in the
articles of incorporation. The Washington Mutual Articles provide for the
affirmative vote of shareholders holding a majority of the outstanding voting
shares to approve such a transaction.
Under the DGCL, a merger, consolidation or sale of all, or substantially
all, of the assets of a corporation must be approved by the board of directors
and by a majority (unless the certificate of incorporation requires a higher
percentage) of outstanding stock of the corporation entitled to vote thereon,
provided that no vote of stockholders of a constituent corporation surviving a
merger is required (unless the corporation provides otherwise in its certificate
of incorporation) if (a) the merger agreement does not amend the surviving
corporation's certificate of incorporation, (b) each share of stock of the
surviving corporation outstanding immediately prior to the merger is to be an
identical outstanding or treasury share of the surviving corporation after the
merger, and (c) the number of shares to be issued by the surviving corporation
in the merger does not exceed twenty percent of the shares outstanding
immediately prior to the merger. The Great Western Certificate does not require
a higher percentage.
ACTION WITHOUT A MEETING
Under the WBCA, shareholder action that may be taken at a shareholders'
meeting may be taken without a meeting if written consents describing such
action are signed by all shareholders entitled to vote thereon.
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action that may be taken at a meeting of stockholders may be
taken without a meeting, without prior notice and without a vote if the holders
of outstanding stock, having not less than the minimum number of votes that
would be necessary to authorize such action, consent in writing. The Great
Western Certificate contains no provision restricting action by written
stockholder consent.
CLASS VOTING
Under the WBCA, a corporation's articles of incorporation may authorize one
or more classes of shares that have special, conditional or limited voting
rights, including the right to vote on certain matters as a group. The articles
of incorporation may not limit the rights of holders of a class to vote as a
group with respect to certain amendments to the articles of incorporation and
certain extraordinary transactions that adversely affect the rights of holders
of that class. The Washington Mutual Articles authorize for issuance three
series of preferred stock, no par value. Generally, each series is vested with
class voting rights limited to (i) issuance or
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authorization of any additional class of equity stock ranking prior to the
series affected and (ii) any amendment of the Washington Mutual Articles which
would adversely affect the powers, preferences or other rights or privileges of
the series.
The DGCL generally does not require class voting, except for amendments to
the certificate of incorporation that change the number of authorized shares or
the par value of shares of a specific class or that adversely affect such class
of shares.
TRANSACTIONS WITH OFFICERS OR DIRECTORS
The WBCA sets forth a safe harbor for transactions between a corporation
and one or more of its directors. A conflicting interest transaction may not be
enjoined, set aside or give rise to damages if: (i) it is approved by a majority
of qualified directors (but no fewer than two); (ii) it is approved by the
affirmative vote of the majority of all qualified shares after notice and
disclosure to the shareholders or (iii) at the time of commitment, the
transaction is established to have been fair to the corporation. For purposes of
this provision, a "qualified director" is one who does not have either: (a) a
conflicting interest respecting the transaction or (b) a familial, financial,
professional or employment relationship with a second director who does have a
conflicting interest respecting the transaction, which relationship would, in
the circumstances, reasonably be expected to exert an influence on the first
director's judgment when voting on the transaction. "Qualified shares" are
defined generally as shares other than those beneficially owned, or the voting
of which is controlled, by a director (or an affiliate of the director) who has
a conflicting interest respecting the transaction.
Under Delaware law, certain contracts or transactions in which one or more
of a corporation's directors has an interest are not void or voidable because of
such interest provided that certain conditions, such as obtaining the required
approval and fulfilling the requirements of good faith and full disclosure, are
met. Under Delaware law, either (a) the stockholders or the board of directors
must approve any such contract or transaction after full disclosure of the
material facts or (b) the contract or transaction must have been "fair" as to
the corporation at the time it was approved. If board approval is sought, the
contract or transaction must be approved by a majority of disinterested
directors (even though less than a majority of quorum).
DISSENTERS' RIGHTS
Under the WBCA, a shareholder is entitled to dissent from and, upon
perfection of the shareholder's appraisal right, to obtain the fair value of his
or her shares in the event of certain corporate actions, including certain
mergers, share exchanges, sales of substantially all assets of the corporation,
and certain amendments to the corporation's articles of incorporation that
materially and adversely affect shareholder rights.
Under Delaware law, a shareholder of a corporation participating in certain
major corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such shareholder may receive cash in the
amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. Such
appraisal rights are not available (a) with respect to the sale, lease or
exchange of all or substantially all of the assets of a corporation, (b) with
respect to a merger or consolidation by a corporation the shares of which are
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or are held of record by more than 2,000
holders if such stockholders receive only shares of the surviving corporation or
shares of any other corporation which are either listed on a national securities
exchange or held of record by more than 2,000 holders, plus cash in lieu of
fractional shares, or (c) to stockholders of a corporation surviving a merger if
no vote of the stockholders of the surviving corporation is required to approve
the merger because the merger agreement does not amend the existing certificate
or incorporation, each share of the surviving corporation outstanding prior to
the merger is an identical outstanding or treasury share after the merger, and
the number of shares to be issued in the merger does not exceed 20% of the
shares of the surviving corporation outstanding immediately prior to the merger
and if certain other conditions are met.
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DIVIDENDS
Under the WBCA, a corporation may make a distribution in cash or in
property to its shareholders upon the authorization of its board of directors
unless, after giving effect to such distribution, (i) the corporation would not
be able to pay its debts as they become due in the usual course of business or
(ii) the corporation's total assets would be less than the sum of its total
liabilities plus, unless the articles of incorporation permit otherwise, the
amount that would be needed, if the corporation were to be dissolved at the time
of the distribution, to satisfy the preferential rights of shareholders whose
preferential rights are superior to those receiving the distribution.
Delaware law permits a corporation to declare and pay dividends out of
statutory surplus or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation.
DESCRIPTION OF WASHINGTON MUTUAL CAPITAL STOCK
The Washington Mutual Articles authorize the issuance of up to 350,000,000
shares of Washington Mutual Common Stock and up to 10,000,000 shares of
preferred stock, no par value per share, issuable in one or more series with
such terms and at such times and for such consideration as the Washington Mutual
Board determines. As described later herein, the Washington Mutual Board is
recommending that the Washington Mutual shareholders approve an amendment to the
Articles to increase the number of authorized shares of Common Stock from
350,000,000 shares to 800,000,000 shares. As of May 9, 1997, there were issued
and outstanding 126,291,687 shares of Washington Mutual Common Stock, 2,752,500
shares of Series C Preferred and 1,970,000 shares of Series E Preferred. In the
Merger, Washington Mutual will issue approximately 124,129,833 shares of Common
Stock and 660,000 shares of Series F Preferred Stock. See "Proposed Amendment to
Washington Mutual Articles of Incorporation -- Increase in Authorized Shares."
The following description contains a summary of material features of the
capital stock of Washington Mutual but does not purport to be complete and is
subject in all respects to the applicable provisions of the WBCA and is
qualified on its entirety by reference to the Washington Mutual Articles and the
terms of Washington Mutual Rights Agreement.
WASHINGTON MUTUAL COMMON STOCK
Each holder of Washington Mutual Common Stock is entitled to one vote for
each share held on all matters voted upon by shareholders. Shareholders are not
permitted to cumulate their votes for the election of directors.
In the event of liquidation, dissolution or distribution of Washington
Mutual, holders of Washington Mutual Common Stock will be entitled to share
ratably in any remaining assets of Washington Mutual legally available for
distribution to the Shareholders after payment of all liabilities and amounts
owed with respect to Washington Mutual Preferred Stock.
Holders of Washington Mutual Common Stock are not entitled to preemptive
rights with respect to any additional shares that may be issued.
The authorized but unissued and unreserved shares of Washington Mutual
Common Stock will be available for general corporate purposes, including but not
limited to possible issuance in exchange for capital notes, as stock dividends
or stock splits, in future mergers or acquisitions, under a cash dividend
reinvestment plan, for employee benefit plans, or in a future underwritten or
other public offering. Except as described above or as otherwise required to
approve the transactions in which the additional authorized shares of Washington
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Mutual Common Stock would be issued, no shareholder approval will be required
for the issuance of these shares.
At March 31, 1997, options to purchase 2,046,489 shares of Washington
Mutual Common Stock under Washington Mutual's stock option plans had been
granted, but not exercised or terminated, leaving 2,362,751 shares available for
further grants under such plans.
WASHINGTON MUTUAL PREFERRED STOCK
Under the Washington Mutual Articles, the Washington Mutual Board is
authorized without further shareholder action to provide for the issuance of up
to 10,000,000 shares of Washington Mutual Preferred Stock in one or more series
with such voting powers, designations, preferences or relative, participating,
optional or other special rights, qualifications, limitations and restrictions,
as shall be set forth in resolutions providing for the issue thereof adopted by
the Washington Mutual Board. As of the date of this Joint Proxy
Statement/Prospectus, the series of Washington Mutual Preferred Stock
outstanding are the Series C Preferred and the Series E Preferred. The
Washington Mutual Preferred Stock is prior to the Washington Mutual Common Stock
as to dividends and liquidation, but does not confer general voting rights.
The Series C Preferred Stock has a liquidation preference of $25.00 per
share plus dividends accrued and unpaid for the then-current dividend period,
and is not convertible into any other Washington Mutual securities. Dividends on
the Series C Preferred, if and when declared by the Washington Mutual Board, are
at an annual rate of $2.28 per share, are noncumulative and payable quarterly.
On or after December 31, 1997, Washington Mutual may at its option redeem the
Series C Preferred. The Series C Preferred Stock is prior to the Washington
Mutual Common Stock as to dividends and liquidation. The Series C Preferred does
not confer general voting rights, except as provided by Washington law, or when
any dividends in the Series C Preferred are not declared and paid for six full
quarterly dividend periods. If such dividends are not declared and paid, holders
of Series C Preferred, together with holders of Washington Mutual Preferred
Stock ranking on parity with the Series C Preferred, voting separately as a
class, shall have the right to elect an additional two directors to the
Washington Mutual Board to serve until the dividends have been declared and paid
for four consecutive dividend periods. The affirmative vote or consent of the
holders of at least two-thirds of the outstanding shares of the Series C
Preferred, voting as a separate class, will be required for any amendment of the
Washington Mutual Articles (including any certificate of designation or any
similar document relating to any series of preferred stock of Washington Mutual)
that (a) provides for the authorization or issuance of any additional class of
equity stock ranking prior to the Series C Preferred as to dividends,
liquidations or dissolution or is convertible into an additional class of equity
stock; or (b) amends, repeals, changes or adversely affects the powers,
preferences, privileges or rights of Series C Preferred; provided, however, that
amending the Washington Mutual Articles to increase the number of authorized
shares of Washington Mutual Common Stock or Washington Mutual Preferred Stock is
not within the scope of (b) above.
The Series E Preferred has a liquidation preference of $25.00 per share
plus dividends accrued and unpaid for the then-current dividend period, and is
not convertible into any other Washington Mutual securities. Dividends on the
Series E Preferred, if and when declared by the Washington Mutual Board, are at
an annual rate of $1.90 per share, are noncumulative and payable quarterly. On
or after September 15, 1998, Washington Mutual may at its option redeem the
Series E Preferred. The Series E Preferred is prior to the Common Stock as to
dividends and liquidation. The Series E Preferred does not confer general voting
rights, except as provided by Washington law, or when any dividends in the
Series E Preferred are not declared and paid for six full quarterly dividend
periods. If such dividends are not declared and paid, holders of Series E
Preferred, together with holders of Washington Mutual Preferred ranking on
parity with the Series E Preferred, voting separately as a class, shall have the
right to elect an additional two directors to the Washington Mutual Board to
serve until the dividends have been declared and paid for four consecutive
dividend periods. The affirmative vote or consent of the holders of at least
two-thirds of the outstanding shares of the Series E Preferred, voting as a
separate class, will be required for any amendment of the Washington Mutual
Articles (including any certificate of designation or any similar document
relating to any series of preferred stock of Washington Mutual) that (a)
provides for the authorization or issuance of any additional class of equity
stock ranking prior to the Series E Preferred as to dividends, liquidations or
dissolution or is
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convertible into an additional class of equity stock; or (b) amends, repeals,
changes or adversely affects the powers, preferences, privileges or rights of
Series E Preferred Stock; provided, however, that amending the Washington Mutual
Articles to increase the number of authorized shares of Washington Mutual Common
Stock or Washington Mutual Preferred Stock is not within the scope of (b) above.
WASHINGTON MUTUAL 8.30% CUMULATIVE PREFERRED STOCK, SERIES F
The summary of terms of the Washington Mutual 8.30% Cumulative Preferred
Stock, Series F, contained herein does not purport to be complete and is subject
to, and qualified in its entirety by, the provisions of the Washington Mutual
Charter, as amended through the Effective Time, and the provisions of the
Preferred Stock Deposit Agreement.
Pursuant to the terms of the Merger Agreement, each share of Great Western
Preferred Stock will be converted in the Washington Mutual/Great Western Merger
into one share of Series F Preferred Stock. The Series F Preferred Stock will be
substantially identical to the Great Western Preferred Stock.
Rank. The Series F Preferred Stock will rank on a parity as to payment of
dividends and distribution of assets upon dissolution, liquidation or winding up
of Washington Mutual with each other currently outstanding series of Washington
Mutual Preferred Stock. See "Description of Washington Mutual Capital Stock --
Washington Mutual Preferred Stock." The Series F Preferred Stock will rank prior
to the Washington Mutual Common Stock with respect to the payment of dividends
and distribution of assets upon dissolution, liquidation or winding up of
Washington Mutual.
Dividends. Holders of shares of the Series F Preferred Stock will be
entitled to receive, when, as and if declared by the Washington Mutual Board out
of funds of Washington Mutual legally available for payment, cash dividends at
the rate of 8.30% per annum (equivalent to $2.075 per New Washington Mutual
Depositary Share). Dividends on the Series F Preferred Stock will be payable
quarterly on February 1, May 1, August 1 and November 1 of each year, commencing
upon consummation of the Merger, at such annual rate. Each dividend will be
payable to holders of record as they appear on the stock books of Washington
Mutual (or, if applicable, the records of the Preferred Stock Depositary) on
such record dates, not exceeding 45 days preceding the payment dates thereof, as
shall be fixed by the Washington Mutual Board. Dividends will be cumulative from
the date of original issue, whether or not there shall be funds legally
available for the payment thereof. Dividends payable on the Series F Preferred
Stock for any period greater or less than a full dividend period shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Dividends payable on the Series F Preferred Stock for each full dividend period
shall be computed by dividing the annual dividend rate by four.
Redemption. Shares of Series F Preferred Stock will not be redeemable prior
to November 1, 1997. The shares of Series F Preferred Stock will be redeemable
at the option of Washington Mutual, in whole or in part, at any time or from
time to time, on or after November 1, 1997, on not less than 30 nor more than 60
days' notice by mail, at a redemption price of $250.00 per share (equivalent to
$25.00 per New Washington Mutual Depositary Share) plus accrued and unpaid
dividends to the redemption date. If less than all of the outstanding shares of
Series F Preferred Stock are redeemed, the shares of the Series F Preferred
Stock will be selected pro rata or by lot or any other method that the
Washington Mutual Board determines to be equitable.
The Series F Preferred Stock will not be subject to any sinking fund or
other obligation of Washington Mutual to redeem or retire the Series F Preferred
Stock.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of Washington Mutual, the holders of
shares of Series F Preferred Stock are entitled to receive out of assets of
Washington Mutual available for distribution to stockholders, before any
distribution of assets is made to holders of Washington Mutual Common Stock or
of any other shares of stock of Washington Mutual ranking as to such a
distribution junior to the shares of Series F Preferred Stock, liquidating
distributions in the amount of $250.00 per share (equivalent to $25.00 per New
Washington Mutual Depositary Share) plus accrued and unpaid dividends. After
payment of such liquidating distributions, the holders of shares of
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Series F Preferred Stock will not be entitled to any further participation in
any distribution of assets by Washington Mutual.
Voting Rights. Except as indicated below or except as expressly required by
applicable law, the holders of the Series F Preferred Stock will not be entitled
to vote for any purpose.
If the equivalent of six quarterly dividends payable on the Series F
Preferred Stock are in arrears, the number of directors of Washington Mutual
will be increased by two and the holders of Series F Preferred Stock, voting
separately as a class together with any other series of Washington Mutual
Preferred Stock ranking on a parity with the Series F Preferred Stock as to
dividends and distributions of assets and which by its terms provides for
similar voting rights (the "Other Washington Mutual Preferred Stock"), will be
entitled to elect two directors to fill such vacancies. Such right to elect two
additional directors shall continue until all dividends in arrears have been
paid or declared and set apart for payment. Each director elected by the holders
of shares of the Series F Preferred Stock and any other class of Washington
Mutual Preferred Stock shall continue to serve as such director for the full
term for which he shall have been elected, notwithstanding that prior to the end
of such term such default shall cease to exist.
So long as any shares of the Series F Preferred Stock remain outstanding,
the consent or the affirmative vote of the holders of at least two-thirds of the
vote entitled to be cast with respect to the then outstanding shares of such
series of the Series F Preferred Stock together with any Other Washington Mutual
Preferred Stock, voting as one class, either expressed in writing or at a
meeting called for that purpose, will be necessary (i) to permit, effect or
validate the authorization, or any increase in the authorized amount, of any
class or series of shares of Washington Mutual ranking prior to the Series F
Preferred Stock as to dividends, voting or upon distribution of assets and (ii)
to repeal, amend or otherwise change any of the provisions applicable to the
Series F Preferred Stock in any manner which adversely affects the powers,
preferences, voting power or other rights or privileges of the Series F
Preferred Stock. In case the Series F Preferred Stock would be so affected by
any such action referred to in clause (ii) above in a different manner than one
or more series of the Other Washington Mutual Preferred Stock then outstanding,
the holders of shares of the Series F Preferred Stock, together with any series
of the Other Washington Mutual Preferred Stock which will be similarly affected,
will be entitled to vote as a class, and Washington Mutual will not take such
action without the consent or affirmative vote of the holders of at least
two-thirds of the total number of votes entitled to be cast with respect to each
such series of the Series F Preferred Stock and the Other Washington Mutual
Preferred Stock then outstanding.
With respect to any matter as to which the Series F Preferred Stock is
entitled to vote, holders of the Series F Preferred Stock and any Other
Washington Mutual Preferred Stock will be entitled to cast the number of votes
assigned to the outstanding shares of Series F Preferred Stock. As a result of
the provisions described in the preceding paragraph requiring the holders of
shares of the Series F Preferred Stock to vote together as a class with the
holders of shares of one or more series of Other Washington Mutual Preferred
Stock, it is possible that the holders of such shares of Other Washington Mutual
Preferred Stock could approve action that would adversely affect Series F
Preferred Stock, including the creation of a class of capital stock ranking
prior to such series of Series F Preferred Stock as to dividends, voting or
distributions of assets.
Conversion Rights. The Series F Preferred Stock is not convertible into
shares of any other class or series of Washington Mutual Capital Stock.
NEW WASHINGTON MUTUAL DEPOSITARY SHARES
At the Effective Time, Washington Mutual will assume the obligations of
Great Western under the Preferred Stock Deposit Agreement and will instruct the
Preferred Stock Depositary to treat the shares of Series F Preferred Stock as
new deposited securities under the Preferred Stock Deposit Agreement. In
accordance with the terms of the Preferred Stock Deposit Agreement, the Great
Western Depositary Shares then outstanding shall thereafter represent the shares
of Series F Preferred Stock. Washington Mutual will request that the Preferred
Stock Depositary call for surrender of all outstanding Great Western Depositary
Receipts to be exchanged for New Washington Mutual Depositary Receipts
specifically describing the Series F Preferred Stock. The New Washington Mutual
Depositary Receipts to be issued in exchange for the Great Western Depositary
Receipts will evidence the New Washington Mutual Depositary Shares.
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Each New Washington Mutual Depositary Share will represent a one-tenth
interest in a share of Series F Preferred Stock. Washington Mutual has agreed to
use its best efforts to list the New Washington Mutual Depositary Shares on the
NYSE, subject to official notice of issuance. The New Washington Mutual
Depositary Shares will be freely transferable under the Securities Act.
Subject to the terms of the Preferred Stock Deposit Agreement, each owner
of a New Washington Mutual Depositary Share will be entitled through the
Preferred Stock Depositary, in proportion to the one-tenth interest in a share
of Series F Preferred Stock underlying such New Washington Mutual Depositary
Share, to all rights and preferences of a share of Series F Preferred Stock
(including, voting, redemption and liquidation rights). Because each share of
Series F Preferred Stock entitles the holder thereof to one vote on matters on
which the Series F Preferred Stock is entitled to vote, each related New
Washington Mutual Depositary Share, will, in effect, entitle the holder thereof
to one-tenth of a vote thereon, rather than one full vote. See "--Washington
Mutual 8.30% Cumulative Preferred Stock, Series F -- Voting Rights."
Pending the preparation of definitive, engraved New Washington Mutual
Depositary Receipts, the Preferred Stock Depositary may, upon the written order
of Washington Mutual, issue temporary New Washington Mutual Depositary Receipts
substantially identical to (and entitling the holders thereof to all the rights
pertaining to) the definitive form. Definitive New Washington Mutual Depositary
Receipts will be prepared thereafter without unreasonable delay, and temporary
New Washington Mutual Depositary Receipts will be exchangeable for definitive
New Washington Mutual Depositary Receipts at Washington Mutual's expense.
Dividends and Other Distributions. The Preferred Stock Depositary will
distribute all cash dividends or other cash distributions received in respect of
the Series F Preferred Stock to the record holders of New Washington Mutual
Depositary Receipts in proportion, insofar as practicable, to the respective
numbers of New Washington Mutual Depositary Shares evidenced by the New
Washington Mutual Depositary Receipts held by such holders on the relevant
record date. The Preferred Stock Depositary shall distribute only such amount,
however, as can be distributed without attributing to any holder of New
Washington Mutual Depositary Receipts a fraction of one cent, and any balance
not so distributed shall be added to and treated as part of the next sum
received by the Preferred Stock Depositary for distribution to record holders of
New Washington Mutual Depositary Receipts then outstanding.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute such amounts of the securities or property received
by it as are, as nearly as practicable, in proportion to the respective numbers
of New Washington Mutual Depositary Shares evidenced by the New Washington
Mutual Depositary Receipts held by such holders on the relevant record date,
unless the Preferred Security Depositary determines that it is not feasible to
make such distribution, in which case the Preferred Stock Depositary may, with
the approval of Washington Mutual, adopt such method as it deems equitable and
practicable for the purpose of effecting such distribution, including the sale
of such securities or property.
The Preferred Stock Deposit Agreement also contains provisions relating to
the manner in which any subscription or similar rights offered by Washington
Mutual to holders of the Series F Preferred Stock shall be made available to
holders of the related New Washington Mutual Depositary Receipts.
The amounts distributed in all of the foregoing cases will be reduced by
any amounts required to be withheld by Washington Mutual or the Depositary on
account of taxes and governmental charges.
Redemption of New Washington Mutual Depositary Shares. If shares of Series
F Preferred Stock represented by New Washington Mutual Depositary Shares are
redeemed, the New Washington Mutual Depositary Shares will be redeemed from the
proceeds received by the Preferred Stock Depositary resulting from the
redemption, in whole or in part, of the Series F Preferred Stock held by the
Preferred Stock Depositary. The Preferred Stock Depositary shall mail notice of
redemption not less than 30 and not more than 60 days prior to the date fixed
for redemption to the record holders of the New Washington Mutual Depositary
Receipts evidencing the New Washington Mutual Depositary Shares to be so
redeemed at their respective addresses appearing in the Preferred Stock
Depositary's books. The redemption price per New Washington Mutual Depositary
Share will be equal to the applicable fraction of the redemption price per
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share payable with respect to such series of the Series F Preferred Stock plus
all money and other property, if any, payable with respect to such New
Washington Mutual Depositary Share, including all amounts payable by Washington
Mutual in respect of any accumulated but unpaid dividends. Whenever Washington
Mutual redeems shares of Series F Preferred Stock held by a Preferred Stock
Depositary, the Preferred Stock Depositary will redeem as of the same redemption
date the number of New Washington Mutual Depositary Shares representing shares
of the Series F Preferred Stock so redeemed. If less than all the New Depositary
Shares are to be redeemed, the New Washington Mutual Depositary Shares to be
redeemed will be selected by lot or pro rata (subject to rounding to avoid
fractions of New Washington Mutual Depositary Shares) as may be determined by
the Preferred Stock Depositary.
After the date fixed for redemption, the New Washington Mutual Depositary
Shares so called for redemption will no longer be deemed to be outstanding and
all rights of the holders of New Washington Mutual Depositary Receipts
evidencing such New Washington Mutual Depositary Shares will cease, except the
right to receive the redemption price payable and any money or other property to
which such holders were entitled upon such redemption upon surrender to the
Preferred Stock Depositary of the New Washington Mutual Depositary Receipts
evidencing such New Washington Mutual Depositary Shares.
Voting the Series F Preferred Stock. Upon receipt of notice of any meeting
or action to be taken by written consent at or as to which the holders of the
Series F Preferred Stock are entitled to vote or consent, the Preferred Stock
Depositary will mail the information contained in such notice of meeting or
action to the record holders of the New Washington Mutual Depositary Receipts
evidencing the New Washington Mutual Depositary Shares. Each record holder of
such New Washington Mutual Depositary Receipts on the record date (which will be
the same date as the record date for the Series F Preferred Stock) will be
entitled to instruct the Preferred Stock Depositary as to the exercise of the
voting rights or the giving or refusal of consent, as the case may be,
pertaining to the number of shares of the Series F Preferred Stock represented
by the New Washington Mutual Depositary Shares evidenced by such holder's New
Washington Mutual Depositary Receipts. The Preferred Stock Depositary will
endeavor, insofar as practicable, to vote, or give or withhold consent with
respect to, the maximum number of whole shares of the Series F Preferred Stock
represented by all New Washington Mutual Depositary Shares as to which any
particular voting or consent instructions are received, and Washington Mutual
will agree to take all action which may be deemed necessary by the Preferred
Stock Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting, or giving consents with
respect to, shares of the Series F Preferred Stock to the extent it does not
receive specific instructions from the holders of New Washington Mutual Receipts
evidencing New Washington Mutual Depositary Shares.
Amendment and Termination of the Preferred Stock Deposit Agreement. The
form of New Washington Mutual Depositary Receipts evidencing the New Washington
Mutual Depositary Shares and any provision of the Preferred Stock Deposit
Agreement may at any time and from time to time be amended by agreement between
Washington Mutual and the Preferred Stock Depositary in any respect which they
may deem necessary or desirable. However, any amendment which imposes or
increases any fees, taxes or charges upon holders of New Washington Mutual
Depositary Shares or New Washington Mutual Depositary Receipts or which
materially and adversely alters the existing rights of such holders will not be
effective unless such amendment has been approved by the record holders of New
Washington Mutual Depositary Receipts evidencing at least a majority of such New
Washington Mutual Depositary Shares then outstanding. Notwithstanding the
foregoing, no such amendment may impair the right of any holder of New
Washington Mutual Depositary Shares or New Washington Mutual Depositary Receipts
to receive any moneys or other property to which such holder may be entitled
under the terms of such New Washington Mutual Depositary Receipts or the related
Preferred Stock Deposit Agreement at the times and in the manner and amount
provided for therein. The Preferred Stock Deposit Agreement may be terminated by
Washington Mutual or the Preferred Stock Depositary only after (i) all
outstanding New Washington Mutual Depositary Shares relating thereto have been
redeemed and any accumulated and unpaid dividends on the Series F Preferred
Stock, together with all other moneys and property, if any, to which holders of
the related New Washington Mutual Depositary Shares are entitled under the terms
of such New Washington Mutual Depositary Shares or the Preferred Stock Deposit
Agreement, have been paid or distributed as provided in the Preferred Stock
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Deposit Agreement or provision therefor has been duly made or (ii) there has
been a final distribution in respect of the Series F Preferred Stock in
connection with any liquidation, dissolution or winding up of Washington Mutual
and such distribution has been distributed to the holders of the New Washington
Mutual Depositary Receipts.
Miscellaneous. The Preferred Stock Depositary will forward to record
holders of New Washington Mutual Depositary Receipts, at their respective
addresses appearing in the Preferred Stock Depositary's books, all reports and
communications from Washington Mutual which are delivered to the Preferred Stock
Depositary and which Washington Mutual is required to furnish to holders of such
New Washington Mutual Depositary Receipts. The Preferred Stock Deposit Agreement
contains provisions relating to adjustments in the fraction of a share of Series
F Preferred Stock represented by New Washington Mutual Depositary Shares in the
event of a change in par or stated value, split-up, combination or other
reclassification of the Series F Preferred Stock or upon any recapitalization,
merger or sale of substantially all of the assets of Washington Mutual.
Neither the Preferred Stock Depositary nor any of its agents nor any
registrar nor Washington Mutual will be (i) liable if it is prevented or delayed
by law or any circumstance beyond its control in performing its obligations
under the Preferred Stock Deposit Agreement, (ii) subject to any liability under
the Preferred Stock Deposit Agreement to holders of New Washington Mutual
Depositary Receipts other than for the relevant party's gross negligence or
willful misconduct, or (iii) obligated to prosecute or defend any legal
proceeding in respect of any New Washington Mutual Depositary Receipts, New
Washington Mutual Depositary Shares or the Series F Preferred Stock unless
satisfactory indemnity is furnished. They may rely upon written advice of
counsel or accountants, or information provided by holders of New Washington
Mutual Depositary Shares or other persons in good faith believed to be competent
and on documents reasonably believed to be genuine.
Charges of the Preferred Stock Depositary. Washington Mutual will pay all
transfer and other taxes and governmental charges arising solely from the
existence of the depositary arrangements. Washington Mutual will pay charges of
the Preferred Stock Depositary in connection with the initial deposit of the
related Washington Mutual Preferred Stock and the initial issuance of the New
Washington Mutual Depositary Receipts evidencing the New Washington Mutual
Depositary Shares, any redemption of the Series F Preferred Stock and any
withdrawals of Series F Preferred Stock by the holders of New Washington Mutual
Depositary Shares. Holders of New Washington Mutual Depositary Shares will pay
other transfer and other taxes and governmental charges and such other charges
as are expressly provided in the Preferred Stock Deposit Agreement to be for
their accounts.
Resignation or Removal of the Preferred Stock Depositary. The Preferred
Stock Depositary may resign at any time by delivering to Washington Mutual
notice of its election to do so, and Washington Mutual may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor depositary and its acceptance of such
appointment. Such successor depositary must be appointed within 60 days after
delivery of the notice of resignation or removal.
DESCRIPTION OF GREAT WESTERN COMMON STOCK
The holders of the outstanding shares of Great Western Common Stock have
full voting rights, one vote for each share held of record. Subject to the
rights of holders of preferred stock of Great Western, holders of Great Western
Common Stock are entitled to receive such dividends as may be declared by the
Great Western Board out of funds legally available therefor. Upon liquidation,
dissolution, or winding up of Great Western (but subject to the rights of
holders of preferred stock of Great Western), the assets legally available for
distribution to holders of Great Western Common Stock shall be distributed
ratably among such holders. Holders of Great Western Common Stock have no
preemptive or other subscription or conversion rights, and no liability for
further calls upon shares. The Great Western Common Stock is not subject to
assessment.
The Transfer Agent and Registrar for the Great Western Common Stock is
Harris Trust Company of California.
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PROPOSED AMENDMENT TO WASHINGTON MUTUAL ARTICLES OF INCORPORATION --
INCREASE IN AUTHORIZED SHARES
The Washington Mutual Board has adopted a resolution, and is seeking the
approval of the Washington Mutual shareholders, for an amendment to the
Washington Mutual Articles to increase the authorized shares of Washington
Mutual Common Stock. Article II of Washington Mutual's Articles currently
provides that Washington Mutual has authority to issue 350,000,000 shares of
Common Stock. In addition, a total of 10,000,000 shares of Preferred Stock are
authorized. The Washington Mutual Board has approved and recommends that the
shareholders adopt an amendment to Article II of the Washington Mutual Articles
to increase the number of authorized shares of Washington Mutual Common Stock to
800,000,000. The amendment will not increase or otherwise affect the number of
authorized shares of Preferred stock that may be issued by Washington Mutual.
The proposed amendment to the Washington Mutual Articles would amend and restate
the first sentence of Article II A. to read as follows:
The total number of shares of capital stock which the Company
has authority to issue is 810,000,000 shares of which
800,000,000 shares shall be shares of common stock with no par
value per share and 10,000,000 shares shall be shares of
preferred stock with no par value per share.
If approved, the amendment to Article II would be effective upon the filing
of articles of amendment to the Washington Mutual Articles with the Washington
Secretary of State, which would occur promptly after the Washington Mutual
Meeting. Approval of this Amendment is not a condition of the Washington
Mutual/Great Western Merger.
CURRENT CAPITALIZATION
The primary reasons for the proposed increase in the number of authorized
shares are to provide additional available shares for use in future transactions
and to have available shares to give effect to Washington Mutual's Shareholder
Rights Plan. As of the Washington Mutual Record Date, Washington Mutual had a
total of 126,291,687 shares of common stock issued and outstanding and an
aggregate of 2,362,751 shares reserved for issuance upon the exercise of
outstanding stock options and upon the issuance of additional stock options
under Washington Mutual's 1994 Stock Option Plan. Consequently, 221,689,230
shares of Washington Mutual Common Stock are authorized, unissued and not
reserved for issuance ("Available Common Shares"). In addition, Washington
Mutual must have available sufficient shares for issuance to give effect to the
Washington Mutual Rights Plan.
Assuming shareholder approval of the Share Issuance/Merger Proposal,
Washington Mutual will issue approximately 124,129,833 shares of Washington
Mutual Common Stock in connection with the Washington Mutual/Great Western
Merger, and will reserve approximately an additional 8,560,867 shares of
Washington Mutual Common Stock for issuance upon the exercise of Great Western
Stock Options converted to Washington Mutual Stock Options in the Washington
Mutual/Great Western Merger. Accordingly, following the Washington Mutual/Great
Western Merger, 88,998,530 shares of Washington Mutual Common Stock will be
authorized, unissued and not reserved for issuance and Washington Mutual will
also need to have additional shares available to give effect to the Washington
Mutual Rights Plan.
The Washington Mutual Board believes that having additional shares of
Washington Mutual Common Stock authorized and available for issuance at the
Washington Mutual Board's discretion is in the best interest of Washington
Mutual and its shareholders and would provide several long-term advantages to
Washington Mutual and its shareholders. Washington Mutual would have greater
flexibility in considering future actions involving the issuance of stock and in
determining the Company's proper capitalization, such as through stock dividends
or splits and other employee and shareholder distributions. Additional
authorized shares could also be used to raise cash through sales of stock to
public and private investors. The Washington Mutual Board also would have
greater flexibility to authorize the Company to pursue additional acquisitions
that involve the issuance of stock and that the Washington Mutual Board believes
provide the potential for growth and profit.
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Under Washington Mutual's Rights Plan, each share of Washington Mutual
Common Stock has attached to it the right to buy an additional share of
Washington Mutual Common Stock upon the occurrence of certain triggering events.
The rights have certain antitakeover effects and are intended to discourage
coercive or unfair takeover tactics and to encourage any potential acquiror to
negotiate a price fair to all shareholders. In order for the Shareholder Rights
Plan to have its intended effect, Washington Mutual must have a sufficient
number of Available Common Shares so that the rights can be fully exercised by
Washington Mutual shareholders. Upon consummation of the Merger, Washington
Mutual estimates that approximately 391,502,205 Available Common Shares will be
required for the Washington Mutual Rights Plan to have its intended effect and
that at that time, Washington Mutual will have only 88,998,530 Available Common
Shares. Accordingly, the Washington Mutual Board is recommending that Washington
Mutual shareholders approve the increase in the number of authorized shares of
Common Stock, in part to provide the additional shares necessary to give full
effect to the Shareholder Rights Plan.
CERTAIN EFFECTS OF THE PROPOSED AMENDMENT
In certain circumstances, an increase in the authorized shares of
Washington Mutual Common Stock could be used to enhance the Washington Mutual
Board's bargaining capability on behalf of Washington Mutual's shareholders in a
takeover situation and could render more difficult or discourage a merger,
tender offer or proxy contest. Similarly, an increase in the authorized shares
of Washington Mutual Common Stock could have an anti-takeover effect in that
such additional shares could be used to dilute the stock ownership of persons
seeking to obtain control of Washington Mutual. Washington Mutual is not aware
of any present efforts to gain control of Washington Mutual or to organize a
proxy contest. If such proposal was presented, management would make a
recommendation based upon the best interests of Washington Mutual's
shareholders.
In the event the proposal to increase the number of authorized shares of
Washington Mutual Common Stock is approved, further shareholder approval of the
issuance of the 450 million additional shares of Washington Mutual Common Stock
will not be sought prior to such issuance unless such issuances relate to a
merger, consolidation or other transaction that otherwise requires shareholder
approval. Upon issuance, such shares will have the same rights as the
outstanding shares of Washington Mutual Common Stock. Holders of Washington
Mutual Common Stock have no preemptive rights.
Other than the 132,690,700 shares to be issued and reserved for issuance
pursuant to the Merger and except as otherwise described in this Joint Proxy
Statement/Prospectus, Washington Mutual has no present plans to issue additional
shares of Washington Mutual Common Stock. The proposed increase in the number of
authorized shares will not change the number of shares currently outstanding or
the rights of the holders of such stock.
THE BOARD OF DIRECTORS, BY UNANIMOUS VOTE OF ALL THE DIRECTORS PRESENT,
APPROVED THE AMENDMENT TO THE WASHINGTON MUTUAL ARTICLES TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF WASHINGTON MUTUAL COMMON STOCK AND RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE AMENDMENT.
LEGAL MATTERS
The validity of the shares of Washington Mutual Common Stock which will be
issued in connection with the Merger and certain legal matters in connection
with the Merger will be passed upon for Washington Mutual by Foster Pepper &
Shefelman PLLC, Seattle, Washington.
Certain legal matters in connection with the Merger will be passed upon for
Great Western by Skadden, Arps, Slate, Meagher & Flom LLP.
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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.
STOCKHOLDER PROPOSALS
Any Washington Mutual shareholder who wishes to submit a proposal for
presentation to the 1998 Annual Meeting of Stockholders must submit the proposal
to Washington Mutual, 1201 Third Avenue, Seattle, Washington 98101, Attention:
Office of the Secretary, not later than January 16, 1998, for inclusion, if
appropriate, in Washington Mutual's proxy statement and the form of proxy
relating to the 1998 Annual Meeting.
If the Washington Mutual/Great Western Merger is consummated, Great Western
will not hold an annual meeting of stockholders in 1998. In the event a 1998
annual meeting of stockholders is held, stockholder proposals must be received
by Great Western at its headquarters office not later than November 21, 1997 and
must satisfy the conditions established by the SEC for stockholder proposals to
be included in Great Western's proxy materials for that meeting.
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APPENDIX A
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
WASHINGTON MUTUAL, INC.
NEW AMERICAN CAPITAL, INC.
AND
GREAT WESTERN FINANCIAL CORPORATION
DATED AS OF MARCH 5, 1997
<PAGE> 132
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
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PAGE
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<S> <C> <C>
1.1 The Merger...................................................................... A-1
1.2 Effective Time.................................................................. A-1
1.3 Effects of the Merger........................................................... A-1
1.4 Conversion of Subject Company Common Stock, Subject Company 8.30% Preferred A-1
Stock...........................................................................
1.5 Parent Common Stock; Parent Preferred Stock..................................... A-3
1.6 Merger Sub Common Stock......................................................... A-3
1.7 Options......................................................................... A-3
1.8 Certificate of Incorporation; Articles of Amendment............................. A-3
1.9 Bylaws.......................................................................... A-3
1.10 Tax Consequences................................................................ A-4
1.11 Board of Directors.............................................................. A-4
ARTICLE II
EXCHANGE OF SHARES
2.1 Parent to Make Shares Available................................................. A-4
2.2 Exchange of Shares.............................................................. A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUBJECT COMPANY
3.1 Corporate Organization.......................................................... A-5
3.2 Capitalization.................................................................. A-6
3.3 Authority; No Violation......................................................... A-7
3.4 Consents and Approvals.......................................................... A-8
3.5 Reports......................................................................... A-8
3.6 Financial Statements............................................................ A-9
3.7 Broker's Fees................................................................... A-9
3.8 Absence of Certain Changes or Events............................................ A-9
3.9 Legal Proceedings............................................................... A-10
3.10 Taxes........................................................................... A-10
3.11 Employees....................................................................... A-10
3.12 SEC Reports..................................................................... A-11
3.13 Compliance with Applicable Law.................................................. A-11
3.14 Certain Contracts............................................................... A-12
3.15 Agreements with Regulatory Agencies............................................. A-12
3.16 Undisclosed Liabilities......................................................... A-12
3.17 Rights Agreement; Anti-takeover Provisions...................................... A-12
3.18 Subject Company Information..................................................... A-13
3.19 Environmental Liability......................................................... A-13
3.20 Pooling of Interests............................................................ A-13
3.21 Opinions of Financial Advisors.................................................. A-13
3.22 Patents, Trademarks, Etc........................................................ A-13
3.23 Community Reinvestment Act Compliance........................................... A-13
</TABLE>
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
<TABLE>
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<S> <C> <C>
4.1 Corporate Organization.......................................................... A-14
4.2 Capitalization.................................................................. A-14
4.3 Authority; No Violation......................................................... A-15
4.4 Consents and Approvals.......................................................... A-16
4.5 Reports......................................................................... A-16
4.6 Financial Statements............................................................ A-16
4.7 Broker's Fees................................................................... A-17
4.8 Absence of Certain Changes or Events............................................ A-17
4.9 Legal Proceedings............................................................... A-17
4.10 Taxes........................................................................... A-17
4.11 SEC Reports..................................................................... A-17
4.12 Compliance with Applicable Law.................................................. A-17
4.13 Agreements with Regulatory Agencies............................................. A-18
4.14 Undisclosed Liabilities......................................................... A-18
4.15 Rights Agreement; Anti-takeover Provisions...................................... A-18
4.16 Parent Information.............................................................. A-18
4.17 Environmental Liability......................................................... A-18
4.18 Pooling of Interests............................................................ A-19
4.19 Opinion of Financial Advisor.................................................... A-19
4.20 Patents, Trademarks, Etc........................................................ A-19
4.21 Community Reinvestment Act Compliance........................................... A-19
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time............................... A-19
5.2 Forbearances.................................................................... A-19
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters.............................................................. A-22
6.2 Access to Information........................................................... A-23
6.3 Stockholders' Approvals......................................................... A-24
6.4 Legal Conditions to Merger...................................................... A-24
6.5 Affiliates...................................................................... A-24
6.6 Stock Exchange Listing.......................................................... A-24
6.7 Employee Benefit Plans.......................................................... A-24
6.8 Indemnification; Directors' and Officers' Insurance............................. A-25
6.9 Additional Agreements........................................................... A-27
6.10 Advice of Changes............................................................... A-27
6.11 Subsequent Interim and Annual Financial Statements.............................. A-27
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger...................... A-27
7.2 Conditions to Obligations of Parent............................................. A-28
7.3 Conditions to Obligations of Subject Company.................................... A-29
</TABLE>
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ARTICLE VIII
TERMINATION AND AMENDMENT
<TABLE>
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<S> <C> <C>
8.1 Termination..................................................................... A-30
8.2 Effect of Termination........................................................... A-31
8.3 Amendment....................................................................... A-32
8.4 Extension; Waiver............................................................... A-32
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing......................................................................... A-32
9.2 Nonsurvival of Representations, Warranties and Agreements....................... A-32
9.3 Expenses........................................................................ A-32
9.4 Notices......................................................................... A-32
9.5 Interpretation.................................................................. A-33
9.6 Counterparts.................................................................... A-34
9.7 Entire Agreement................................................................ A-34
9.8 Governing Law................................................................... A-34
9.9 Severability.................................................................... A-34
9.10 Publicity....................................................................... A-34
9.11 Assignment; Third Party Beneficiaries........................................... A-34
</TABLE>
A-iii
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 5, 1997 (this "Agreement"),
by and among Washington Mutual, Inc., a Washington corporation ("Parent"), New
American Capital, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of Parent ("Merger Sub"), and Great Western Financial Corporation, a
Delaware corporation ("Subject Company").
WHEREAS, the Boards of Directors of Parent and Subject Company have each
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the business combination transaction provided for
herein; and
WHEREAS, the Boards of Directors of Parent and Subject Company have each
determined that the transactions provided for herein and contemplated hereby are
consistent with, and in furtherance of, their respective business strategies and
goals.
NOW, THEREFORE,
In consideration of the mutual covenants, representations, warranties and
agreements contained herein, and intending to be legally bound hereby, the
parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the Delaware General Corporation Law (the "DGCL") at the
Effective Time (as defined in Section 1.2 hereof), Subject Company shall merge
(the "Merger") with and into Merger Sub. Merger Sub shall be the surviving
corporation (hereinafter sometimes called the "Surviving Corporation") in the
Merger, and shall continue its corporate existence under the laws of the State
of Delaware. The name of the Surviving Corporation shall be New American
Capital, Inc. Upon consummation of the Merger, the separate corporate existence
of Subject Company shall terminate.
1.2 Effective Time. The Merger shall become effective as set forth in the
certificate of merger (the "Certificate of Merger") which shall be filed with
the Secretary of State of the State of Delaware (the "Delaware Secretary") on
the Closing Date (as defined in Section 9.1 hereof). The term "Effective Time"
shall be the date and time when the Merger becomes effective, as set forth in
the Certificate of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in the Section 253 of the DGCL.
1.4 Conversion of Subject Company Common Stock, Subject Company 8.30%
Preferred Stock. At the Effective Time, subject to Section 2.2(e) hereof, by
virtue of the Merger and without any action on the part of Parent, Merger Sub,
Subject Company or the holder of any of the following securities:
(a) Each share of the common stock, par value $1.00 per share, of
Subject Company (the "Subject Company Common Stock") issued and outstanding
immediately prior to the Effective Time (other than shares of Subject
Company Common Stock held (x) in Subject Company's treasury or (y) directly
or indirectly by Parent or Subject Company or any of their respective
Subsidiaries (as defined below) (except for Trust Account Shares and DPC
shares, as such terms are defined below)), together with the rights (the
"Subject Company Rights") attached thereto issued pursuant to the Rights
Agreement, dated as of June 27, 1995, between Subject Company and First
Chicago Trust Company of New York, as Rights Agent (the "Subject Company
Rights Agreement"), shall, subject to Section 1.4(c) hereof, be converted
into the right to receive .90 shares (the "Common Exchange Ratio") of the
common stock, no par value, of Parent ("Parent Common Stock"), together
with the number of rights ("Parent Rights") issued pursuant to the Parent
Rights Agreement (as defined in Section 4.2 hereof) associated therewith.
(b) Each share of 8.30% Cumulative Preferred Stock, par value $1.00,
of Subject Company (the "Subject Company 8.30% Preferred Stock") issued and
outstanding immediately prior to the Effective
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<PAGE> 136
Time shall be converted into the right to receive one share of 8.30%
Cumulative Preferred Stock of Parent (the "Parent New Preferred Stock").
The terms of the Parent New Preferred Stock shall be substantially the same
as the terms of the Subject Company 8.30% Preferred Stock. For purposes of
this Agreement (i) the Subject Company Common Stock and Subject Company
Preferred Stock (as defined below) are referred to herein as the "Subject
Company Capital Stock," and (ii) the Parent Common Stock and Parent
Preferred Stock (as defined below) are collectively referred to as the
"Parent Capital Stock."
(c) All of the shares of Subject Company Common Stock converted into
the right to receive Parent Common Stock pursuant to this Article I shall
no longer be outstanding and shall automatically be cancelled and shall
cease to exist as of the Effective Time, and each certificate (each a
"Common Certificate") previously representing any such shares of Subject
Company Common Stock shall thereafter represent the right to receive (i) a
certificate representing the number of whole shares of Parent Common Stock
and (ii) the cash in lieu of fractional shares into which the shares of
Subject Company Common Stock represented by such Common Certificate have
been converted pursuant to this Section 1.4 and Section 2.2(e) hereof.
Common Certificates previously representing shares of Subject Company
Common Stock shall be exchanged for certificates representing whole shares
of Parent Common Stock and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such Common Certificates in
accordance with Section 2.2 hereof, without any interest thereon. If prior
to the Effective Time the outstanding shares of Parent Common Stock shall
have been increased, decreased, changed into or exchanged for a different
number or kind of shares or securities as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse
stock split, or other similar change in Parent's capitalization, then an
appropriate and proportionate adjustment shall be made to the Common
Exchange Ratio.
(d) All of the shares of Subject Company 8.30% Preferred Stock
converted into the right to receive Parent New Preferred Stock pursuant to
this Article I shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist as of the Effective Time, and each
certificate (each a "Preferred Certificate," and collectively with the
Common Certificates, the "Certificates") previously representing any such
shares of Subject Company 8.30% Preferred Stock shall thereafter represent
the right to receive a certificate representing the number of shares of
corresponding Parent New Preferred Stock into which the shares of Subject
Company 8.30% Preferred Stock represented by such Preferred Certificate
have been converted pursuant to this Section 1.4. Preferred Certificates
previously representing shares of Subject Company 8.30% Preferred Stock
shall be exchanged for certificates representing shares of corresponding
Parent New Preferred Stock issued in consideration therefor upon the
surrender of such Preferred Certificates in accordance with Section 2.2
hereof, without any interest thereon.
(e) At the Effective Time, all shares of Subject Company Capital Stock
that are owned by Subject Company as treasury stock and all shares of
Subject Company Capital Stock that are owned directly or indirectly by
Parent or Subject Company or any of their respective Subsidiaries (other
than shares of Subject Company Capital Stock held directly or indirectly in
trust accounts, managed accounts and the like or otherwise held in a
fiduciary or nominee capacity that are beneficially owned by third parties
(any such shares, and shares of Parent Common Stock which are similarly
held, whether held directly or indirectly by Parent or Subject Company or
any of their respective Subsidiaries, as the case may be, being referred to
herein as "Trust Account Shares") and other than any shares of Subject
Company Capital Stock held by Parent or Subject Company or any of their
respective Subsidiaries in respect of a debt previously contracted (any
such shares of Subject Company Capital Stock, and shares of Parent Common
Stock which are similarly held, whether held directly or indirectly by
Parent or Subject Company or any of their respective Subsidiaries, being
referred to herein as "DPC Shares")) shall be cancelled and shall cease to
exist and no stock of Parent or other consideration shall be delivered in
exchange therefor. All shares of Parent Common Stock that are owned by
Subject Company or any of its Subsidiaries (other than Trust Account Shares
and DPC Shares) shall become treasury stock of Parent.
(f) At the Effective Time, Parent shall assume the obligations of
Subject Company under the Deposit Agreement, dated as of September 2, 1992,
between Subject Company and Harris Trust Co. of
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<PAGE> 137
California, as depositary (relating to the Subject Company 8.30% Preferred
Stock). Parent shall instruct the applicable depositary to treat the shares
of Parent New Preferred Stock received by such depositary in exchange for
and upon conversion of the shares of Subject Company 8.30% Preferred Stock
as new deposited securities under the deposit agreement. In accordance with
the terms of the deposit agreement, the depositary receipts then
outstanding shall thereafter represent the shares of Parent New Preferred
Stock so received upon conversion and exchange for the shares of Subject
Company 8.30% Preferred Stock. Parent shall request that such depositary
call for the surrender of all outstanding receipts to be exchanged for new
receipts (the "New Parent Depositary Shares") specifically describing the
series of Parent New Preferred Stock.
1.5 Parent Common Stock; Parent Preferred Stock. At and after the
Effective Time, each share of Parent Common Stock and each share of Parent
Preferred Stock issued and outstanding immediately prior to the Effective Time
shall remain an issued and outstanding share of common stock or preferred stock,
as the case may be, of Parent and shall not be affected by the Merger.
1.6 Merger Sub Common Stock. Each of the issued and outstanding shares of
the common stock of Merger Sub immediately prior to the Effective Time shall
remain issued and outstanding after the Merger as shares of the Surviving
Corporation, which shall thereafter constitute all of the issued and outstanding
shares of common stock of the Surviving Corporation. No capital stock of Merger
Sub will be issued or used in the Merger.
1.7 Options. At the Effective Time, each option granted by Subject Company
to purchase shares of Subject Company Common Stock (each a "Subject Company
Option") which is outstanding and unexercised immediately prior thereto shall
cease to represent a right to acquire shares of Subject Company Common Stock and
shall be converted automatically into an option to purchase shares of Parent
Common Stock in an amount and at an exercise price determined as provided below
(and otherwise subject to the terms of the Subject Company 1979 Stock Option and
Incentive Plan and the Subject Company 1988 Stock Option and Incentive Plan,
each as amended to date (together, the "Subject Company Stock Option Plans"),
and the agreements evidencing grants thereunder, including, but not limited to,
the accelerated vesting of such options which shall occur in connection with and
by virtue of the consummation of the Merger as and to the extent required by
such plans and agreements):
(1) the number of shares of Parent Common Stock to be subject to the
new option shall be equal to the product of the number of shares of Subject
Company Common Stock subject to the original option and the Common Exchange
Ratio, provided that any fractional shares of Parent Common Stock resulting
from such multiplication shall be rounded down to the nearest share; and
(2) the exercise price per share of Parent Common Stock under the new
option shall be equal to the exercise price per share of Subject Company
Common Stock under the original option divided by the Common Exchange
Ratio, provided that such exercise price shall be rounded up to the nearest
cent.
In the case of any options which are "incentive stock options" (as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code")),
the exercise price, the number of shares purchasable pursuant to such options
and the terms and conditions of exercise of such options shall be determined in
order to comply with Section 424(a) of the Code. The duration and other terms of
the new option shall be the same as the original option (subject to Section
6.7(b) hereof) except that all references to Subject Company shall be deemed to
be references to Parent.
1.8 Certificate of Incorporation; Articles of Amendment. At the Effective
Time, the Certificate of Incorporation of Merger Sub, as in effect at the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation. At or prior to the Effective Time, Parent shall duly execute and
file with the Secretary of State of the State of Washington (the "Washington
Secretary") articles of amendment (the "Preferred Stock Articles of Amendment")
establishing the Parent New Preferred Stock.
1.9 Bylaws. At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended in accordance with applicable law.
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<PAGE> 138
1.10 Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" for purposes of the Code.
1.11 Board of Directors. At the Effective Time, Parent shall take all
action necessary to appoint four representatives of Subject Company, mutually
agreeable to Parent and Subject Company, to Parent's Board of Directors.
ARTICLE II
EXCHANGE OF SHARES
2.1 Parent to Make Shares Available. At or prior to the Effective Time,
Parent shall deposit, or shall cause to be deposited, with a bank or trust
company which may be a Subsidiary of Parent or the Parent's transfer agent (the
"Exchange Agent"), for the benefit of the holders of Certificates, for exchange
in accordance with this Article II, certificates representing the shares of
Parent Common Stock and Parent New Preferred Stock and an estimated amount of
cash in lieu of any fractional shares (the cash payable in lieu of fractional
shares of Parent Common Stock and certificates for shares of Parent Common Stock
and Parent New Preferred Stock, together with any dividends or distributions
with respect thereto, being hereinafter referred to as the "Exchange Fund") to
be issued pursuant to Section 1.4 and paid pursuant to Section 2.2(a) in
exchange for outstanding shares of Subject Company Capital Stock.
2.2 Exchange of Shares. (a) As soon as practicable after the Effective
Time, and in no event later than ten business days thereafter, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates a
form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing, as the case may be, the shares of Parent Common Stock or Parent
New Preferred Stock and the cash in lieu of fractional shares of Parent Common
Stock, if any, into which the shares of Subject Company Capital Stock
represented by such Certificate or Certificates shall have been converted
pursuant to this Agreement. Upon proper surrender of a Certificate for exchange
and cancellation to the Exchange Agent, together with such properly completed
letter of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor, as applicable, (i) a certificate
representing that number of shares of Parent Common Stock to which such holder
of Subject Company Common Stock shall have become entitled pursuant to the
provisions of Article I hereof, (ii) a certificate representing that number of
shares of Parent New Preferred Stock to which such holder of Subject Company
8.30% Preferred Stock shall have become entitled pursuant to the provisions of
Article I hereof and (iii) a check representing the amount of cash in lieu of
fractional shares of Parent Common Stock, if any, which such holder has the
right to receive in respect of the Certificate surrendered pursuant to the
provisions of this Article II, and the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on the cash in lieu
of fractional shares and unpaid dividends and distributions, if any, payable to
holders of Certificates.
(b) No dividends or other distributions with a record date after the
Effective Time with respect to Parent Common Stock or Parent New Preferred shall
be paid to the holder of any unsurrendered Certificate until the holder thereof
shall surrender such Certificate in accordance with this Article II. After the
surrender of a Certificate in accordance with this Article II, the record holder
thereof shall be entitled to receive any such dividends or other distributions,
without any interest thereon, which theretofore had become payable with respect
to shares of Parent Common Stock or Parent New Preferred Stock represented by
such Certificate.
(c) If any certificate representing shares of Parent Common Stock or Parent
New Preferred Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the Certificate so surrendered shall be
properly endorsed (or accompanied by an appropriate instrument of transfer) and
otherwise in proper form for transfer, and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of a certificate representing shares of
Parent Common Stock or Parent New
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Preferred Stock in any name other than that of the registered holder of the
Certificate surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Subject Company of the shares of Subject Company Capital
Stock which were issued and outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates representing such shares are
presented for transfer to the Exchange Agent, they shall be cancelled and
exchanged for certificates representing shares of Parent Capital Stock as
provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of Common Certificates, no
dividend or distribution with respect to Parent Common Stock shall be payable on
or with respect to any fractional share, and such fractional share interests
shall not entitle the owner thereof to vote or to any other rights of a
stockholder of Parent. In lieu of the issuance of any such fractional share,
Parent shall pay to each former stockholder of Subject Company who otherwise
would be entitled to receive such fractional share an amount in cash determined
by multiplying (i) the average of the closing sale prices of Parent Common Stock
on The Nasdaq Stock Market ("Nasdaq") as reported by The Wall Street Journal for
the five trading days immediately preceding the date on which the Effective Time
occurs by (ii) the fraction of a share of Parent Common Stock to which such
holder would otherwise be entitled to receive pursuant to Section 1.4 hereto.
For the purposes of determining any such fractional share interests, all shares
of Subject Company Common Stock owned by any Subject Company stockholder shall
be combined so as to calculate the maximum number of shares of Parent Company
Common Stock issuable to such Subject Company Stockholder.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Subject Company for twelve months after the Effective Time shall
be paid, at the request of Parent, to Parent. Any stockholders of Subject
Company who have not theretofore complied with this Article II shall thereafter
look only to Parent for payment of the shares of Parent Common Stock or Parent
New Preferred Stock, cash in lieu of any fractional shares and unpaid dividends
and distributions on the Parent Common Stock or Parent New Preferred Stock
deliverable in respect of each share of Subject Company Common Stock or Subject
Company 8.30% Preferred Stock, as the case may be, held by such stockholder at
the Effective Time as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding anything to the contrary contained
herein, none of Parent, Merger Sub, Subject Company, the Exchange Agent or any
other person shall be liable to any former holder of shares of Subject Company
Common Stock or Subject Company 8.30% Preferred Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may determine is
reasonably necessary as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the shares of Parent Common Stock and
cash in lieu of fractional shares or Parent New Preferred Stock, as the case may
be, deliverable in respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUBJECT COMPANY
Subject Company hereby represents and warrants to Parent as follows:
3.1 Corporate Organization. (a) Subject Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Subject Company has the corporate power and authority to own or lease
all of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the
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business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have nor
reasonably be expected to have a Material Adverse Effect (as defined below) on
Subject Company. As used in this Agreement, the term "Material Adverse Effect"
means, with respect to Parent, Subject Company or the Surviving Corporation, as
the case may be, a material adverse effect on the business, results of
operations, financial condition or prospects of such party and its Subsidiaries
taken as a whole or a material adverse effect on such party's ability to
consummate the transactions contemplated hereby on a timely basis; provided,
however, that in determining whether a Material Adverse Effect has occurred
there shall be excluded any effect on the referenced party the cause of which is
(i) any change in banking, savings association and similar laws, rules or
regulations of general applicability or interpretations thereof by courts or
governmental authorities, (ii) any change in generally accepted accounting
principles ("GAAP") or regulatory accounting requirements applicable to banks,
savings associations, or their holding companies generally, (iii) any action or
omission of Subject Company or Parent or any Subsidiary of either of them taken
with the prior written consent of Parent or Subject Company, as applicable, in
contemplation of the Merger and (iv) any changes in general economic conditions
affecting banks, savings associations, or their holding companies generally. As
used in this Agreement, the word "Subsidiary" when used with respect to any
party means any corporation, partnership or other organization, whether
incorporated or unincorporated, which is consolidated with such party for
financial reporting purposes. Subject Company is duly registered as a savings
and loan holding company under the Home Owners' Loan Act, as amended ("HOLA"),
and qualifies as a savings and loan holding company of the type described in
Section 10(c)(3)(A) of HOLA. The copies of the Restated Certificate of
Incorporation and Bylaws of Subject Company which have previously been made
available to Parent are true, complete and correct copies of such documents as
in effect as of the date of this Agreement.
(b) Each Subject Company Subsidiary (i) is duly organized and validly
existing as a corporation or partnership under the laws of its jurisdiction of
organization, (ii) is duly qualified to do business and is in good standing in
all jurisdictions (whether federal, state, local or foreign) where its ownership
or leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have or reasonably
be expected to have a Material Adverse Effect on Subject Company, and (iii) has
all requisite corporate power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
(c) Except for its ownership of Great Western Bank, a Federal Savings Bank
("Great Western Bank"), First Community Industrial Bank and Great Western Thrift
and Loan, Subject Company does not own any stock of or equity interest in any
depository institution (as defined in 12 U.S.C. sec. 1813(c)(1)). Great Western
Bank is a qualified thrift lender pursuant to Section 10(m) of HOLA and its
deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC")
through the Savings Association Insurance Fund ("SAIF") to the fullest extent
permitted by law. Great Western Bank is a member in good standing of the Federal
Home Loan Bank ("FHLB") of San Francisco. The deposits of each of First
Community Industrial Bank and Great Western Thrift and Loan are insured by the
FDIC through the Bank Insurance Fund ("BIF") to the fullest extent permitted by
law. Each of First Community Industrial Bank and Great Western Thrift and Loan
is an institution described in Section 2(c)(2)(H) of the Bank Holding Company
Act of 1956, as amended. Neither Subject Company nor First Community Industrial
Bank or Great Western Thrift and Loan has received a notice from either the
Office of Thrift Supervision (the "OTS") or the FDIC to the effect that either
regulator deems First Community Industrial Bank or Great Western Thrift and Loan
a savings association under Section 10(a)(1) of HOLA or 12 CFR sec. 583.21.
3.2 Capitalization. (a) The authorized capital stock of Subject Company
consists of 200,000,000 shares of Subject Company Common Stock and 10,000,000
shares of preferred stock, par value $1.00 per share (the "Subject Company
Preferred Stock"). At the close of business on March 4, 1997, there were
137,574,634 shares of Subject Company Common Stock outstanding, 660,000 shares
of Subject Company 8.30% Preferred Stock outstanding (evidenced by 6,600,000
Subject Company Depositary Shares, each of which represents a one-tenth interest
in a share of Subject Company 8.30% Preferred Stock) and 437,639 shares of
Subject Company Common Stock held in Subject Company's treasury. As of March 4,
1997, no
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shares of Subject Company Common Stock or Subject Company Preferred Stock were
reserved for issuance, except (i) 4,121,941 shares of Subject Company Common
Stock were reserved for issuance pursuant to Subject Company's dividend
reinvestment and stock purchase plans, (ii) 9,859,477 shares of Subject Company
Common Stock were reserved for issuance upon the exercise of stock options
pursuant to the Subject Company Stock Option Plans, (iii) 4,000,000 shares of
the Subject Company Common Stock are reserved for issuance pursuant to the
Subject Company Employee Savings Incentive Plan (the "ESIP") and (iv) the shares
of Subject Company Preferred Stock reserved for issuance upon exercise of the
Subject Company Rights distributed to holders of Subject Company Common Stock
pursuant to the Subject Company Rights Agreement. All of the issued and
outstanding shares of Subject Company Common Stock and Subject Company 8.30%
Preferred Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, except (i)
as set forth in Section 3.2(a) of the disclosure schedule of Subject Company
delivered to Parent concurrently herewith (the "Subject Company Disclosure
Schedule"), (ii) for the Subject Company Rights Agreement (a true and correct
copy of which, including all amendments thereto, has been made available to
Parent) and (iii) as set forth elsewhere in this Section 3.2(a), Subject Company
does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of Subject Company Common Stock or Subject
Company Preferred Stock or any other equity securities of Subject Company or any
securities representing the right to purchase or otherwise receive any shares of
Subject Company Common Stock or Subject Company Preferred Stock. Except as set
forth in Section 3.2(a) of the Subject Company Disclosure Schedule, since March
4, 1997, Subject Company has not issued any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock,
other than pursuant to Subject Company's dividend reinvestment and stock
purchase plans and the ESIP, the exercise of employee stock options granted
prior to such date and as disclosed in Section 3.2(a) of the Subject Company
Disclosure Schedule, and the issuance of Subject Company Rights pursuant to the
Subject Company Rights Agreement.
(b) Section 3.2(b) of the Subject Company Disclosure Schedule lists all
"Significant Subsidiaries" of the Subject Company (as such term is defined in
Rule 1-02 of Regulation S-X). Each Subsidiary in which Subject Company or any
Subject Company Subsidiary beneficially owns or controls, directly or
indirectly, more than 9.9% equity interest is a legal investment for a unitary
savings and loan holding company and, for those owned by Great Western Bank, for
a federal savings association. Except as set forth in Section 3.2(b) of the
Subject Company Disclosure Schedule, Subject Company owns, directly or
indirectly, all of the issued and outstanding shares of capital stock of or all
other equity interests in each of the Subject Company Subsidiaries, free and
clear of any liens, charges, encumbrances, adverse rights or claims and security
interests whatsoever ("Liens"), and all of such shares are duly authorized and
validly issued and are fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof. Neither Subject
Company nor any Subject Company Subsidiary has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase, sale or issuance of any shares of capital
stock or any other equity security of any Subsidiary of Subject Company or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of any such Subsidiary.
3.3 Authority; No Violation. (a) Subject Company has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Subject Company. The Board of
Directors of Subject Company has directed that the agreement of merger (within
the meaning of Section 251 of the DGCL) contained in this Agreement and the
transactions contemplated hereby be submitted to Subject Company's stockholders
for approval at a meeting of such stockholders and, except for the adoption of
such agreement of merger by the affirmative vote of the holders of a majority of
the outstanding shares of Subject Company Common Stock, no other corporate
proceedings on the part of Subject Company are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Subject Company and
(assuming due authorization, execution and delivery by Parent and Merger Sub)
constitutes a valid and binding obligation of Subject Company, enforceable
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against Subject Company in accordance with its terms, except as enforcement may
be limited by general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally. Subject Company acknowledges that
Parent intends promptly after the Effective Time to cause the merger of Great
Western Bank and one of Parent's wholly owned depository institution
subsidiaries (the "Association Merger"); provided, however, that Parent agrees
that the structure of the Association Merger shall not adversely affect the
ability of the Merger to be treated as a reorganization within the meaning of
Section 368(a) of the Code. Great Western Bank has full corporate power and
authority to consummate the Association Merger.
(b) Except as set forth in Section 3.3(b) of the Subject Company Disclosure
Schedule, neither the execution and delivery of this Agreement by Subject
Company nor the consummation by Subject Company of the transactions contemplated
hereby nor the consummation of the Association Merger, nor compliance by Subject
Company with any of the terms or provisions hereof, will (i) violate any
provision of the Restated Certificate of Incorporation or Bylaws of Subject
Company or any of the similar governing documents of any of its Subsidiaries or
(ii) assuming that the consents and approvals referred to in Section 3.4 are
duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Subject Company or any
of its Subsidiaries or any of their respective properties or assets, or (y)
violate, conflict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any Lien upon any of the respective
properties or assets of Subject Company or any of its Subsidiaries under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
Subject Company or any of its Subsidiaries is a party, or by which they or any
of their respective properties or assets may be bound or affected, except (in
the case of clause (y) above) for such violations, conflicts, breaches or
defaults which, either individually or in the aggregate, will not have and would
not reasonably be expected to have a Material Adverse Effect on Subject Company.
3.4 Consents and Approvals. Except for (i) the approval of the Merger and
the Association Merger by the OTS, (ii) approval of the listing of the Parent
Capital Stock to be issued in the Merger on Nasdaq, (iii) the filing with the
Securities and Exchange Commission (the "SEC") of a joint proxy statement in
definitive form relating to the meetings of Parent's and Subject Company's
stockholders to be held in connection with this Agreement and the transactions
contemplated hereby (the "Joint Proxy Statement") and the filing and declaration
of effectiveness of the registration statement on Form S-4 (the "S-4") in which
the Joint Proxy Statement will be included as a prospectus and any filings or
approvals under applicable state securities laws, (iv) the filing of the
Certificate of Merger with the Delaware Secretary pursuant to the DGCL and the
filing of the Preferred Stock Articles of Amendment with the Washington
Secretary, (v) the adoption of the agreement of merger (within the meaning of
Section 251 of the DGCL) contained in this Agreement by the requisite votes of
the stockholders of Subject Company and the issuance of the shares of Parent
Common Stock in the Merger by the stockholders of Parent, (vi) the consents and
approvals set forth in Section 3.4 of the Subject Company Disclosure Schedule,
and (vii) the consents and approvals of third parties which are not Governmental
Entities (as defined below), the failure of which to obtain will not have and
would not be reasonably expected to have a Material Adverse Effect, no consents
or approvals of, or filings or registrations with, any court, administrative
agency or commission or other governmental authority or instrumentality or
self-regulatory organization (each a "Governmental Entity") or with any third
party are necessary in connection with (A) the execution and delivery by Subject
Company of this Agreement and (B) the consummation by Subject Company of the
Merger and the other transactions contemplated hereby.
3.5 Reports. Subject Company and each of its Subsidiaries have timely
filed all material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since January 1, 1994 with any Governmental Entity and have paid all fees
and assessments due and payable in connection therewith. Except for normal
examinations conducted by a Governmental Entity in the regular course of the
business of Subject Company and its Subsidiaries or as set forth in Section 3.5
of the Subject Company Disclosure Schedule, no Governmental Entity has initiated
any
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proceeding or, to the best knowledge of Subject Company, investigation into the
business or operations of Subject Company or any of its Subsidiaries since
January 1, 1994. Except as set forth in Section 3.5 of the Subject Company
Disclosure Schedule, there is no material unresolved violation, criticism or
exception by any Governmental Entity with respect to any report or statement
relating to any examinations of Subject Company or any of its Subsidiaries.
3.6 Financial Statements. Subject Company has previously made available to
Parent copies of (a) the consolidated balance sheets of Subject Company and its
Subsidiaries, as of December 31, for the fiscal years 1994 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the fiscal years 1993 through 1995, inclusive, as reported in Subject
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
filed with the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in each case accompanied by the audit report of Price
Waterhouse LLP, independent auditors with respect to Subject Company and (b) the
unaudited consolidated balance sheets of Subject Company and its Subsidiaries as
of September 30, 1995 and September 30, 1996 and the related unaudited
consolidated statements of operations, shareholders' equity and cash flows for
the periods then ended, as reported in Subject Company's Quarterly Report on
Form 10-Q for the period ended September 30, 1996 filed with the SEC under the
Exchange Act. Each of the financial statements referred to in this Section 3.6
(including the related notes, where applicable) fairly present, and the
financial statements referred to in Section 6.11 hereof will fairly present
(subject, in the case of the unaudited statements, to normal recurring
adjustments, none of which are expected to be material in nature or amount), the
results of the consolidated operations and changes in stockholders' equity and
consolidated financial position of Subject Company and its Subsidiaries for the
respective fiscal periods or as of the respective dates therein set forth. Each
of such statements (including the related notes, where applicable) complies, and
the financial statements referred to in Section 6.11 hereof will comply, in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto and each of such
statements (including the related notes, where applicable) has been, and the
financial statements referred to in Section 6.11 will be, prepared in accordance
with GAAP consistently applied during the periods involved, except in each case
as indicated in such statements or in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q. The books and records of
Subject Company and its Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions.
3.7 Broker's Fees. Except as set forth in Section 3.7 of the Subject
Company Disclosure Schedule, neither Subject Company nor any Subject Company
Subsidiary nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement. Copies of all agreements with each broker or finder listed in Section
3.7 of the Subject Company Disclosure Schedule have previously been furnished to
Parent.
3.8 Absence of Certain Changes or Events. (a) Except as publicly disclosed
in Subject Company Reports (as defined in Section 3.12) filed prior to the date
hereof, or as set forth in Section 3.8(a) of the Subject Company Disclosure
Schedule, since September 30, 1996, no event has occurred which has had or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Subject Company or the Surviving Corporation.
(b) Except as set forth in Section 3.8(b) of the Subject Company Disclosure
Schedule, since September 30, 1996, Subject Company and its Subsidiaries have
carried on their respective businesses in all material respects in the ordinary
course of business, and neither Subject Company nor any of its Subsidiaries has
(i) except for normal increases in the ordinary course of business consistent
with past practice and except as required by applicable law, increased the
wages, salaries, compensation, pension or other fringe benefits or perquisites
payable to any officer or director, other than persons newly hired for such
position, from the amount thereof in effect as of September 30, 1996, or granted
any severance or termination pay, entered into any contract to make or grant any
severance or termination pay, or paid any bonus, in each case to any such
officer or director, other than pursuant to preexisting agreements or
arrangements or (ii) suffered any strike, work stoppage, slow-down or other
labor disturbance.
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3.9 Legal Proceedings. (a) Except as set forth in Section 3.9 of the
Subject Company Disclosure Schedule, neither Subject Company nor any of its
Subsidiaries is a party to any, and there are no pending or, to the best of
Subject Company's knowledge, threatened, legal, administrative, arbitral or
other proceedings, claims, actions or governmental or regulatory investigations
of any nature against Subject Company or any of its Subsidiaries or challenging
the validity or propriety of the transactions contemplated by this Agreement as
to which there is a significant possibility of an adverse determination and
which, if adversely determined, would, individually or in the aggregate, have or
reasonably be expected to have a Material Adverse Effect on Subject Company.
(b) There is no injunction, order, judgment, decree or regulatory
restriction imposed upon Subject Company, any of its Subsidiaries or the assets
of Subject Company or any of its Subsidiaries which has had, or would reasonably
be expected to have, a Material Adverse Effect on Subject Company or the
Surviving Corporation.
3.10 Taxes. (a) Except as set forth in Section 3.10(a) of Subject Company
Disclosure Schedule or except to the extent of any failure to correctly file
which results in aggregate Taxes of less than $20,000,000 or a reduction in net
operating loss carryforward deductions of less than $60,000,000, each of Subject
Company and its Subsidiaries has (i) duly and timely filed (including pursuant
to applicable extensions granted without penalty) all Tax Returns (as
hereinafter defined) required to be filed at or prior to the Effective Time, and
such Tax Returns are to the best knowledge of Subject Company true, correct and
complete in all respects, and (ii) paid in full or made adequate provision in
the financial statements of Subject Company (in accordance with GAAP) for all
Taxes (as hereinafter defined) related to such Tax Returns. Except as set forth
in Section 3.10(a) of the Subject Company Disclosure Schedule or except to the
extent the aggregate Taxes described in this sentence or otherwise described in
this paragraph (a) (relating to undisclosed failures to file or pay taxes or the
existence of undisclosed liens for Taxes) are less than $20,000,000, no
deficiencies for any Taxes have been proposed, asserted or assessed against or
with respect to Subject Company or any of its Subsidiaries. Except as set forth
in Section 3.10(a) of the Subject Company Disclosure Schedule or except to the
extent the aggregate Taxes described in this sentence or otherwise described in
this paragraph (a) (relating to undisclosed failures to file or pay taxes on
undisclosed proposed deficiencies for Taxes) are less than $20,000,000, to the
best knowledge of Subject Company there are no liens for Taxes upon the assets
of either Subject Company or its Subsidiaries except for statutory liens for
current Taxes not yet due.
(b) For purposes of this Agreement, "Taxes" shall mean all taxes, charges,
fees, levies, penalties or other assessments imposed by any United States
federal, state, local or foreign taxing authority, including, but not limited to
income, excise, property, sales, transfer, franchise, payroll, withholding,
social security or other similar taxes, including any interest or penalties
attributable thereto.
(c) For purposes of this Agreement, "Tax Return" shall mean any return,
report, information return or other document (including any related or
supporting information) with respect to Taxes.
(d) Neither Subject Company nor any of its Subsidiaries has filed a consent
to the application of Section 341(f) of the Code.
3.11 Employees. (a) Section 3.11(a) of the Subject Company Disclosure
Schedule sets forth a true and complete list of each material employee benefit
plan, arrangement or agreement and any amendments or modifications thereof
(including, without limitation, all stock purchase, stock option, severance,
employment, change-in-control, health/welfare and section 125 plans, fringe
benefit, bonus, incentive, deferred compensation and other agreements, programs,
policies and arrangements, whether or not subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) that is maintained as of the
date of this Agreement (the "Plans") by Subject Company or any of its
Subsidiaries or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), all of which together with Subject Company would be deemed a
"single employer" within the meaning of Section 4001 of ERISA.
(b) Subject Company has previously made available to Parent true and
complete copies of each of the Plans and all related documents, including but
not limited to (i) the actuarial report for such Plan (if
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applicable) for each of the last two years, and (ii) the most recent
determination letter from the Internal Revenue Service (if applicable) for such
Plan.
(c) Except as set forth in Section 3.11(c) of the Subject Company
Disclosure Schedule, (i) each of the Plans has been operated and administered in
all material respects in accordance with applicable laws, including but not
limited to ERISA and the Code, (ii) each of the Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified, (iii) with
respect to each Plan which is subject to Title IV of ERISA, the present value of
accrued benefits under such Plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such Plan's
actuary with respect to such Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Plan allocable to such
accrued benefits, (iv) no Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of Subject Company, its Subsidiaries or any ERISA Affiliate
beyond their retirement or other termination of service, other than (w) coverage
mandated by applicable law, (x) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of ERISA, (y)
deferred compensation benefits accrued as liabilities on the books of Subject
Company, its Subsidiaries or the ERISA Affiliates or (z) benefits the full cost
of which is borne by the current or former employee (or his beneficiary), (v) no
liability under Title IV of ERISA has been incurred by Subject Company, its
Subsidiaries or any ERISA Affiliate that has not been satisfied in full (other
than payment of premiums to the Pension Benefit Guaranty Corporation (the
"PBGC")), and no condition exists that presents a material risk to Subject
Company, its Subsidiaries or any ERISA Affiliate of incurring a material
liability thereunder, (vi) no Plan is a "multiemployer pension plan," as such
term is defined in Section 3(37) of ERISA, (vii) all contributions or other
amounts payable by Subject Company or its Subsidiaries as of the Effective Time
with respect to each Plan in respect of current or prior plan years have been
paid or accrued in accordance with generally accepted accounting practices and
Section 412 of the Code, (viii) neither Subject Company, its Subsidiaries nor
any ERISA Affiliate has engaged in a transaction in connection with which
Subject Company, its Subsidiaries or any ERISA Affiliate could be subject to
either a material civil penalty assessed pursuant to Section 409 or 502(i) of
ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code,
and (ix) to the best knowledge of Subject Company there are no pending,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Plans or any trusts related thereto which would,
individually or in the aggregate, have or be reasonably expected to have a
Material Adverse Effect on Subject Company.
(d) Except as set forth in Section 3.11(d) of the Subject Company
Disclosure Schedule, no Plan exists which provides for or could result in the
payment to any Subject Company employee of any money or other property or rights
or accelerate the vesting or payment of such amounts or rights to any Subject
Company employee as a result of the transactions contemplated by this Agreement,
including the Merger and the Association Merger, whether or not such payment or
acceleration would constitute a parachute payment within the meaning of Code
Section 280G. Since December 31, 1996, neither Subject Company nor any of its
Subsidiaries has taken any action that would result in the payment of any
amounts, or the accelerated vesting of any rights or benefits, under the Plans
set forth in Section 3.11(d) of the Subject Company Disclosure Schedule.
3.12 SEC Reports. Subject Company has previously made available to Parent
an accurate and complete copy of each final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1994 and
prior to the date hereof by Subject Company with the SEC pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act
(the "Subject Company Reports"), and no such registration statement, prospectus,
report, schedule or proxy statement contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading. Subject Company has timely filed all
Subject Company Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Subject Company Reports complied in all material respects with the published
rules and regulations of the SEC with respect thereto.
3.13 Compliance with Applicable Law. Except as disclosed in Section 3.13
of the Subject Company Disclosure Schedule, Subject Company and each of its
Subsidiaries hold, and have at all times held, all
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material licenses, franchises, permits and authorizations necessary for the
lawful conduct of their respective businesses under and pursuant to all, and
have complied with and are not in default in any material respect under any,
applicable law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to Subject Company or any of its Subsidiaries,
except where the failure to hold such license, franchise, permit or
authorization or such noncompliance or default would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect on
Subject Company, and neither Subject Company nor any of its Subsidiaries knows
of, or has received notice of, any violations of any of the above which,
individually or in the aggregate, would have or would reasonably be expected to
have a Material Adverse Effect on Subject Company.
3.14 Certain Contracts. (a) Except as set forth in Section 3.14(a) of the
Subject Company Disclosure Schedule, neither Subject Company nor any of its
Subsidiaries is a party to or is bound by any contract, arrangement, commitment
or understanding (whether written or oral) (i) which is a material contract (as
defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after
the date of this Agreement, (ii) which limits the freedom of Subject Company or
any of its Subsidiaries to compete in any line of business, in any geographic
area or with any person, or (iii) with or to a labor union or guild (including
any collective bargaining agreement). Each contract, arrangement, commitment or
understanding of the type described in this Section 3.14(a), whether or not set
forth in Section 3.14(a) of the Subject Company Disclosure Schedule, is referred
to herein as a "Subject Company Contract," and neither Subject Company nor any
of its Subsidiaries knows of, or has received notice of, any violation of the
above by any of the other parties thereto which, individually or in the
aggregate, would have or would reasonably be expected to have a Material Adverse
Effect on Subject Company. Subject Company has made available or will make
available within five days after the date hereof all contracts which involved
payments by Subject Company or any of its Subsidiaries in 1996 of more than
$1,000,000 or which could reasonably be expected to involve payments during 1997
of $1,000,000.
(b) (i) Each Subject Company Contract is valid and binding and in full
force and effect, (ii) Subject Company and each of its Subsidiaries has in all
material respects performed all obligations required to be performed by it to
date under each Subject Company Contract, and (iii) no event or condition exists
which constitutes or, after notice or lapse of time or both, would constitute a
material default on the part of Subject Company or any of its Subsidiaries under
any such Subject Company Contract, except, in each case, where such invalidity,
failure to be binding, failure to so perform or default, individually or in the
aggregate, would not have or reasonably be expected to have a Material Adverse
Effect on Subject Company.
3.15 Agreements with Regulatory Agencies. Except as set forth in Section
3.15 of the Subject Company Disclosure Schedule, neither Subject Company nor any
of its Subsidiaries is subject to any cease-and-desist or other order issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has adopted any
board resolutions at the request of (each, whether or not set forth in Section
3.15 of the Subject Company Disclosure Schedule, a "Regulatory Agreement"), any
Governmental Entity that restricts the conduct of its business or that in any
manner relates to its capital adequacy, its credit policies, its management or
its business, nor has Subject Company or any of its Subsidiaries been advised by
any Governmental Entity that it is considering issuing or requesting any
Regulatory Agreement.
3.16 Undisclosed Liabilities. Except (i) for those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of Subject
Company included in the Subject Company Form 10-Q for the quarter ended
September 30, 1996 or (ii) for liabilities incurred in the ordinary course of
business consistent with past practice since September 30, 1996, neither Subject
Company nor any of its Subsidiaries has incurred any liability of any nature
whatsoever (whether absolute, accrued or contingent or otherwise and whether due
or to become due) that, either alone or when combined with all similar
liabilities, has had, or would be reasonably expected to have, a Material
Adverse Effect on Subject Company.
3.17 Rights Agreement; Anti-takeover Provisions. Subject Company has taken
all action so that the entering into of this Agreement and the consummation of
the transactions contemplated hereby do not and will not result in the grant of
any rights to any person under the Subject Company Rights Agreement or enable
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or require the Subject Company Rights to be exercised, distributed or triggered.
The Board of Directors of Subject Company has taken all necessary action so that
the provisions of Section 203 of the DGCL (and any applicable provisions of the
takeover laws of any other state) and any comparable provisions of Subject
Company's Restated Certificate of Incorporation do not and will not apply to
this Agreement, the Merger or the transactions contemplated hereby.
3.18 Subject Company Information. The information relating to Subject
Company and its Subsidiaries to be provided by Subject Company for inclusion in
the Joint Proxy Statement and the S-4, or in any other document filed with any
other Governmental Entity in connection herewith, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading. The Joint Proxy Statement (except for such portions thereof as
relate only to Parent or any of its Subsidiaries) will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
3.19 Environmental Liability. Except as set forth in Section 3.19 of the
Subject Company Disclosure Schedule, there are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that reasonably could be
expected to result in the imposition, on Subject Company or any of its
Subsidiaries of any liability or obligation arising under common law standards
relating to environmental protection, human health or safety, or under any
local, state or federal environmental statute, regulation or ordinance,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (collectively, the
"Environmental Laws"), pending or, to the knowledge of Subject Company,
threatened, against Subject Company or any of its Subsidiaries, which liability
or obligation would have or would reasonably be expected to have a Material
Adverse Effect on Subject Company. To the knowledge of Subject Company or any of
its Subsidiaries, there is no reasonable basis for any such proceeding, claim,
action or governmental investigation that would impose any liability or
obligation that would have or would reasonably be expected to have a Material
Adverse Effect on Subject Company. To the knowledge of Subject Company, during
or prior to the period of (i) its or any of its Subsidiaries' ownership or
operation of any of their respective current properties, (ii) its or any of its
Subsidiaries' participation in the management of any property, or (iii) its or
any of its Subsidiaries' holding of a security interest or other interest in any
property, there were no releases or threatened releases of hazardous, toxic,
radioactive or dangerous materials or other materials regulated under
Environmental Laws in, on, under or affecting any such property which would
reasonably be expected to have a Material Adverse Effect. Neither Subject
Company nor any of its Subsidiaries is subject to any agreement, order,
judgment, decree, letter or memorandum by or with any court, governmental
authority, regulatory agency or third party imposing any material liability or
obligation pursuant to or under any Environmental Law that would have or would
reasonably be expected to have a Material Adverse Effect on Subject Company.
3.20 Pooling of Interests. As of the date of this Agreement, Subject
Company has no reason to believe that the Merger will not qualify as a pooling
of interests for accounting purposes.
3.21 Opinions of Financial Advisors. Subject Company has received the
opinions of each of Goldman, Sachs & Co. and Merrill Lynch & Co., dated March 5,
1997, to the effect that, as of such date, the Common Exchange Ratio is fair
from a financial point of view to the holders of Subject Company Common Stock.
3.22 Patents, Trademarks, Etc. Subject Company owns or possesses all legal
rights to use all proprietary rights, including without limitation all
trademarks, trade names, service marks and copyrights, that are material to the
conduct of Subject Company's existing and proposed businesses. Except for the
agreements listed on Section 3.22 of the Subject Company Disclosure Schedule,
Subject Company is not bound by or a party to any options, licenses or
agreements of any kind with respect to any trademarks, service marks or trade
names which Subject Company claims to own. Subject Company has not received any
communications alleging that it or its Subsidiaries has violated or would
violate any of the patents, trademarks, service marks, trade names, copyrights
or trade secrets or other proprietary rights of any other person or entity.
3.23 Community Reinvestment Act Compliance. Great Western Bank is in
substantial compliance with the applicable provisions of the Community
Reinvestment Act of 1977 and the regulations promulgated
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thereunder (collectively, "CRA") and has received a CRA rating of "outstanding"
from the OTS in its most recent exam, and Subject Company has no knowledge of
the existence of any fact or circumstance or set of facts or circumstances which
could be reasonably expected to result in Great Western Bank failing to be in
substantial compliance with such provisions or having its current rating
lowered.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT
Parent hereby represents and warrants to Subject Company as follows:
4.1 Corporate Organization. (a) Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Washington.
Parent has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have or reasonably be expected to have a Material Adverse Effect on
Parent. Parent is duly registered as a savings and loan holding company under
HOLA and qualifies as a savings and loan holding company of the type described
in Section 10(c)(3)(B) of HOLA. The copies of the Articles of Incorporation and
Bylaws of Parent which have previously been made available to Subject Company
are true, complete and correct copies of such documents as in effect as of the
date of this Agreement.
(b) Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Merger Sub will be a
wholly owned direct subsidiary of Parent at least one day prior to, and as of,
the Effective Time. Each Parent Subsidiary (i) is duly organized and validly
existing as a bank, savings association, corporation or partnership under the
laws of its jurisdiction of organization, (ii) is duly qualified to do business
and in good standing in all jurisdictions (whether federal, state, local or
foreign) where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and in which the failure to be so
qualified would have or reasonably be expected to have a Material Adverse Effect
on Parent, and (iii) has all requisite corporate power and authority to own or
lease its properties and assets and to carry on its business as now conducted.
(c) Except for its ownership of Washington Mutual Bank, Washington Mutual
Bank fsb, American Savings Bank, F.A. and Family Savings Bank, FSB, Parent does
not own any stock of or equity interest in any depository institution (as
defined in 12 U.S.C. sec. 1813(c)(1)). Washington Mutual Bank is a qualified
thrift lender pursuant to Section 10(m) of HOLA and its deposits are insured by
the FDIC through the SAIF and the BIF to the fullest extent permitted by law.
Washington Mutual Bank is a member in good standing of the FHLB of Seattle.
Washington Mutual Bank fsb and American Savings Bank are each qualified thrift
lenders pursuant to Section 10(m) of HOLA and their deposits are insured by the
FDIC through the SAIF to the fullest extent permitted by law. Washington Mutual
Bank fsb is a member in good standing of the FHLB of Seattle. American Savings
Bank is a member in good standing of the FHLB of San Francisco.
4.2 Capitalization. (a) The authorized capital stock of Parent consists of
350,000,000 shares of Parent Common Stock and 10,000,000 shares of Preferred
Stock, no par value ("Parent Preferred Stock"). At the close of business on
December 31, 1996, there were 126,255,891 shares of Parent Common Stock
outstanding, 2,752,500 shares of Parent Preferred Stock designated Series C
issued and outstanding, and 1,970,000 shares of Parent Preferred Stock
designated Series E issued and outstanding. On December 31, 1996, no shares of
Parent Common Stock or Parent Preferred Stock were reserved for issuance. All of
the issued and outstanding shares of Parent Common Stock and Parent Preferred
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, except (i)
as set forth in Section 4.2(a) of the Parent Disclosure Schedule (as defined
below), (ii) the Rights Agreement, dated as of October 16, 1990, between Parent
and First Interstate Bank of Washington (as amended and supplemented, the
"Parent Rights Agreement"), and
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(iii) as set forth elsewhere in this Section 4.2(a), Parent does not have and is
not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Parent Common Stock or Parent Preferred Stock or any other
equity securities of Parent or any securities representing the right to purchase
or otherwise receive any shares of Parent Common Stock or Parent Preferred
Stock. Except (i) as set forth in Section 4.2(a) of the disclosure schedule of
Parent delivered to Subject Company concurrently herewith (the "Parent
Disclosure Schedule"), (ii) for options and restricted shares of Parent Common
Stock permitted by this Agreement to be granted subsequent to the date of this
Agreement, and (iii) for shares and other securities issued in connection with
transactions permitted by Section 5.2, since December 31, 1996, Parent has not
issued any shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock, other than pursuant to Parent's
dividend reinvestment and employee stock purchase plans, the exercise of
employee stock options granted prior to such date or thereafter as permitted by
or disclosed in this Agreement, or as disclosed in Section 4.2(a) of the Parent
Disclosure Schedule. The shares of Parent Capital Stock to be issued pursuant to
the Merger will be duly authorized and validly issued and, at the Effective
Time, all such shares will be fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof.
(b) Except as set forth in Section 4.2(b) of the Parent Disclosure
Schedule, Parent owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of or all other equity interests in each of the Parent
Subsidiaries, free and clear of any Liens, and all of such shares are duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. No Parent Subsidiary has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
4.3 Authority; No Violation. (a) Parent has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Parent. The Board of Directors of
Parent will direct that the issuance of shares of Parent Common Stock in the
Merger be submitted to Parent's stockholders for approval at a meeting of such
stockholders and, except for the approval of such issuance by the affirmative
vote of the holders of a majority of the votes cast at such meeting, no other
corporate proceedings on the part of Parent are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Parent and (assuming due
authorization, execution and delivery by Subject Company) constitutes a valid
and binding obligation of Parent, enforceable against Parent in accordance with
its terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) Merger Sub has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby has been duly and validly approved by the Board
of Directors of Merger Sub and will be duly and validly approved by the sole
shareholder of Merger Sub, and, upon such approval, no other corporate
proceedings on the part of Merger Sub will be necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Merger Sub and (assuming due authorization, execution
and delivery by the Subject Company) constitutes a valid and binding obligation
of Merger Sub, enforceable against Merger Sub in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(c) Except as set forth in Section 4.3(c) of the Parent Disclosure
Schedule, neither the execution and delivery of this Agreement by Parent or
Merger Sub, nor the consummation by Parent of the transactions contemplated
hereby, nor compliance by Parent with any of the terms or provisions hereof will
(i) violate any provision of the Articles of Incorporation or Bylaws of Parent
or any of the similar governing documents of any of its Subsidiaries or (ii)
assuming that the consents and approvals referred to in Section 4.4 are duly
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obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Parent or any of its
Subsidiaries (including Merger Sub) or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the respective properties or assets of Parent or any of its Subsidiaries
(including Merger Sub) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Parent or any of its Subsidiaries
(including Merger Sub) is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such violations, conflicts, breaches or defaults which either
individually or in the aggregate will not have and would not reasonably be
expected to have a Material Adverse Effect on Parent.
4.4 Consents and Approvals. Except for (i) the approval of the Merger and
the Association Merger by the OTS, (ii) approval of the listing of the Parent
Capital Stock to be issued in the Merger on Nasdaq, (iii) the filing with the
SEC of the Joint Proxy Statement and the filing and declaration of effectiveness
of the S-4 and any filings or approvals under applicable state securities laws,
(iv) the filing of the Certificate of Merger with the Delaware Secretary
pursuant to the DGCL and the filing of the Preferred Stock Articles of Amendment
with the Washington Secretary, (v) the adoption of the agreement of merger
(within the meaning of Section 251 of the DGCL) contained in this Agreement by
the requisite votes of the stockholders of Subject Company and the approval of
the issuance of the shares of Parent Common Stock in the Merger by the
stockholders of Parent as required by Nasdaq, (vi) the consents and approvals
set forth in Section 4.4 of the Parent Disclosure Schedule, and (vii) the
consents and approvals of third parties which are not Governmental Entities, the
failure of which to obtain will not have and would not be reasonably expected to
have a Material Adverse Effect, no consents or approvals of, or filings or
registrations with, any Governmental Entity or any third party are necessary in
connection with (A) the execution and delivery by Parent or Merger Sub of this
Agreement and (B) the consummation by Parent and Merger Sub of the Merger and
the other transactions contemplated hereby.
4.5 Reports. Parent and each of its Subsidiaries have timely filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
January 1, 1994 with any Governmental Entities, and have paid all fees and
assessments due and payable in connection therewith. Except as set forth in
Section 4.5 of the Parent Disclosure Schedule and except for normal examinations
conducted by a Governmental Entity in the regular course of the business of
Parent and its Subsidiaries, no Governmental Entity has initiated any proceeding
or, to the best knowledge of Parent, investigation into the business or
operations of Parent or any of its Subsidiaries since January 1, 1994. There is
no material unresolved violation, criticism, or exception by any Government
Entity with respect to any report or statement relating to any examinations of
Parent or any of its Subsidiaries.
4.6 Financial Statements. Parent has previously made available to Subject
Company copies of (a) the consolidated balance sheets of Parent and its
Subsidiaries, as of December 31, for the fiscal years 1994 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1993 through 1995, inclusive, as reported in
Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
filed with the SEC under the Exchange Act, in each case accompanied by the audit
report of Deloitte & Touche, LLP, independent public accountants with respect to
Parent and (b) the unaudited consolidated balance sheets of Parent and its
Subsidiaries as of September 30, 1995 and September 30, 1996 and the related
unaudited consolidated statements of income, cash flows and changes in
stockholders' equity for the periods then ended, as reported in Parent's
Quarterly Report on Form 10-Q for the period ended September 30, 1996 filed with
the SEC under the Exchange Act. Each of the financial statements referred to in
this Section 4.6 (including the related notes, where applicable) fairly present,
and the financial statements referred to in Section 6.11 hereof will fairly
present (subject, in the case of the unaudited statements, to normal recurring
adjustments, none of which are expected to be material in nature and amount),
the results of the consolidated operations and changes in stockholders' equity
and consolidated financial position of Parent and its Subsidiaries for the
respective fiscal periods or as of the respective dates
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therein set forth. Each of such statements (including the related notes, where
applicable) complies, and the financial statements referred to in Section 6.11
hereof will comply, in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been, and the financial statements referred to in Section 6.11
will be, prepared in accordance with GAAP consistently applied during the
periods involved, except in each case as indicated in such statements or in the
notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q. The books and records of Parent and its Subsidiaries have been, and are
being, maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
4.7 Broker's Fees. Except as set forth in Section 4.7 of the Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary nor any of their
respective officers or directors has employed any broker or finder or incurred
any liability for any broker's fees, commissions or finder's fees in connection
with any of the transactions contemplated by this Agreement. Copies of all
agreements with each broker or finder listed in Section 4.7 of the Parent
Disclosure Schedule have previously been furnished to Subject Company.
4.8 Absence of Certain Changes or Events. Except as publicly disclosed in
Parent Reports (as defined below) filed prior to the date hereof, since
September 30, 1996, no event has occurred which has had or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent.
4.9 Legal Proceedings. (a) Neither Parent nor any of its Subsidiaries is a
party to any, and there are no pending or, to the best of Parent's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against
Parent or any of its Subsidiaries or challenging the validity or propriety of
the transactions contemplated by this Agreement as to which there is a
significant possibility of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on Parent.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Parent, any of its Subsidiaries or the assets of Parent
or any of its Subsidiaries which has had, or would reasonably be expected to
have, a Material Adverse Effect on Parent or the Surviving Corporation.
4.10 Taxes. Except as set forth in Section 4.10 of the Parent Disclosure
Schedule, each of Parent and its Subsidiaries has (i) duly and timely filed
(including pursuant to applicable extensions granted without penalty) all
material Tax Returns required to be filed at or prior to the Effective Time, and
such Tax Returns are to the best knowledge of the Parent true, correct and
complete in all material respects, and (ii) paid in full or made adequate
provision in the financial statements of Parent (in accordance with GAAP) for
all Taxes related to such Tax Returns. Except as set forth in Section 4.10 of
the Parent Disclosure Schedule, no material deficiencies for any Taxes have been
proposed, asserted or assessed against or with respect to Parent or any of its
Subsidiaries, and, to the best knowledge of Parent, there are no material liens
for Taxes upon the assets of either Parent or its Subsidiaries except for
statutory liens for current Taxes not yet due.
4.11 SEC Reports. Parent has previously made available to Subject Company
an accurate and complete copy of each final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1994 and
prior to the date hereof by Parent with the SEC pursuant to the Securities Act
or the Exchange Act (the "Parent Reports"), and no such registration statement,
prospectus, report, schedule or proxy statement contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. Parent has timely filed
all Parent Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Parent Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
4.12 Compliance with Applicable Law. Except as disclosed in Section 4.12
of the Parent Disclosure Schedule, Parent and each of its Subsidiaries hold, and
have at all times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in default in any
material respect under any, applicable law, statute,
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order, rule, regulation, policy and/or guideline of any Governmental Entity
relating to Parent or any of its Subsidiaries, except where the failure to hold
such license, franchise, permit or authorization or such noncompliance or
default would not, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on Parent, and neither Parent nor any
of its Subsidiaries knows of, or has received notice of, any material violations
of any of the above which, individually or in the aggregate, would have or
reasonably be expected to have a Material Adverse Effect on Parent.
4.13 Agreements with Regulatory Agencies. Except as set forth in Section
4.13 of the Parent Disclosure Schedule, neither Parent nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has adopted any
board resolutions at the request of (each, whether or not set forth in Section
4.13 of the Parent Disclosure Schedule, a "Parent Regulatory Agreement"), any
Governmental Entity that restricts the conduct of its business or that in any
manner relates to its capital adequacy, its credit policies, its management or
its business, nor has Parent or any of its Subsidiaries been advised by any
Governmental Entity that it is considering issuing or requesting any Regulatory
Agreement.
4.14 Undisclosed Liabilities. Except for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Parent
included in the Parent Form 10-Q for the quarter ended September 30, 1996 or for
liabilities incurred in the ordinary course of business consistent with past
practice since September 30, 1996, neither Parent nor any of its Subsidiaries
has incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that, either alone or
when combined with all similar liabilities, has had, or would reasonably be
expected to have, a Material Adverse Effect on Parent.
4.15 Rights Agreement; Anti-takeover Provisions. Parent has taken all
action (including, if required, redeeming all of the outstanding Rights issued
pursuant to the Parent Company Rights Agreement or amending or terminating the
Parent Rights Agreement) so that the entering into of this Agreement and the
consummation of the transactions contemplated hereby do not and will not result
in the grant of any rights to any person under the Parent Rights Agreement or
enable or require the Parent Rights to be exercised, distributed or triggered.
The Board of Directors of Parent has taken all necessary action so that the
takeover laws of the Washington Business Corporation Act (and any applicable
provisions of the takeover laws of any other state) and any comparable
provisions of Parent's Articles of Incorporation do not and will not apply to
this Agreement, the Merger or the transactions contemplated hereby.
4.16 Parent Information. The information relating to Parent and its
Subsidiaries to be provided by Parent to be contained in the Joint Proxy
Statement and the S-4, or in any other document filed with any other
Governmental Entity in connection herewith, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading. The Joint Proxy Statement (except for such portions thereof that
relate only to Subject Company or any of its Subsidiaries) will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. The S-4 will comply as to form in all material respects
with the provisions of the Securities Act and the rules and regulations
thereunder.
4.17 Environmental Liability. Except as set forth in Section 4.17 of the
Parent Disclosure Schedule, there are no legal, administrative, arbitral or
other proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose, or that reasonably would be expected to result in the
imposition, on Parent or any of its Subsidiaries of any liability or obligation
arising under any Environmental Law, pending or, to the knowledge of Parent,
threatened, against Parent or any of its Subsidiaries, which liability or
obligation would reasonably be expected to have a Material Adverse Effect on
Parent. To the knowledge of Parent, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would impose any
liability or obligation that would reasonably be expected to have a Material
Adverse Effect on Parent. To the knowledge of Parent, during or prior to the
period of (i) its or any of its Subsidiaries' ownership or operation of any of
their respective current properties, (ii) its or any of its Subsidiaries'
participation in the management of any
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property, or (iii) its or any of its Subsidiaries' holding of a security
interest or other interest in any property, there were no releases or threatened
releases of hazardous, toxic, radioactive or dangerous materials or other
materials regulated under Environmental Laws in, on, under or affecting any such
property, which would reasonably be expected to have a Material Adverse Effect
on Parent. Neither Parent nor any of its Subsidiaries is subject to any
agreement, order, judgment, decree, letter or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any material
liability or obligation pursuant to or under any Environmental Law that would
reasonably be expected to have a Material Adverse Effect on Parent.
4.18 Pooling of Interests. As of the date of this Agreement, Parent has no
reason to believe that the Merger will not qualify as a pooling of interests for
accounting purposes.
4.19 Opinion of Financial Advisor. Parent has received the opinion of
Lehman Brothers Inc., to the effect that, as of the date of this Agreement, the
Common Exchange Ratio is fair from a financial point of view to Parent.
4.20 Patents, Trademarks, Etc. Parent owns or possesses all legal rights
to use all proprietary rights, including without limitation all trademarks,
trade names, service marks and copyrights, that are material to the conduct of
Parent's existing and proposed businesses. Except for the agreements listed on
Section 4.20 of the Parent Disclosure Schedule, Parent is not bound by or a
party to any options, licenses or agreements of any kind with respect to any
trademarks, service marks or trade names which Parent claims to own. Parent has
not received any communications alleging that it or its Subsidiaries has
violated or would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity.
4.21 Community Reinvestment Act Compliance. Each of Washington Mutual Bank
and American Savings Bank, F.A. is in substantial compliance with the applicable
provisions of the CRA and has received a CRA rating of "outstanding" from the
OTS in its most recent exam, and Parent has no knowledge of the existence of any
fact or circumstances or set of facts or circumstances which could be reasonably
expected to result in Washington Mutual Bank or American Savings Bank, F.A.
failing to be in substantial compliance with such provisions or having its
current rating lowered.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of Businesses Prior to the Effective Time. Except as set forth
in the Subject Company Disclosure Schedule or the Parent Disclosure Schedule, as
the case may be, as expressly contemplated or permitted by this Agreement, or as
required by applicable law, rule or regulation, during the period from the date
of this Agreement to the Effective Time, each of Parent and Subject Company
shall, and shall cause each of their respective Subsidiaries to, (i) conduct its
business in the usual, regular and ordinary course consistent with past
practice, (ii) use reasonable best efforts to maintain and preserve intact its
business organization, employees and advantageous business relationships and
retain the services of its officers and key employees and (iii) take no action
which would reasonably be expected to adversely affect or delay the ability of
either Parent or Subject Company to obtain any approvals of any Governmental
Entity required to consummate the transactions contemplated hereby or to
consummate the transactions contemplated hereby.
5.2 Forbearances. Except as set forth in Section 5.2 of the Subject
Company Disclosure Schedule or Section 5.2 of the Parent Disclosure Schedule, as
the case may be, as expressly contemplated or permitted by this Agreement, or as
required by applicable law, rule or regulation, during the period from the date
of this Agreement to the Effective Time, neither Parent nor Subject Company
shall, and neither Parent nor Subject Company shall permit any of their
respective Subsidiaries to, without the prior written consent of the other:
(a) adjust, split, combine or reclassify any capital stock; set any
record or payment dates for the payment of any dividends or distributions
on its capital stock except in the ordinary and usual course of business
consistent with past practice; make, declare or pay any dividend or make
any other distribution
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on, or directly or indirectly redeem, purchase or otherwise acquire, any
shares of its capital stock or any securities or obligations convertible
into or exchangeable for any shares of its capital stock, or except as
otherwise permitted by this paragraph (a) grant any stock appreciation
rights or grant any individual, corporation or other entity any right to
acquire any shares of its capital stock (except for (i) regular quarterly
cash dividends on Subject Company Common Stock and on Parent Common Stock
at a rate equal to the rates paid by each of Subject Company and Parent, as
the case may be, during the fiscal quarter immediately preceding the date
hereof, as such rates may be increased, in the case of Parent only, in the
ordinary course of business consistent with past practice; provided,
however, that no dividend shall be paid by Subject Company on Subject
Company Common Stock if Subject Company shall be required to borrow to do
so; (ii) in the case of Subject Company 8.30% Preferred Stock and Parent
Preferred Stock, for regular quarterly or semiannual cash dividends thereon
at the rates set forth in the applicable certificate of incorporation or
certificate of designation for such securities; (iii) dividends paid by any
of the wholly owned Subsidiaries of each of Parent and Subject Company to
Parent or Subject Company or any of their wholly owned Subsidiaries,
respectively, provided that no such dividend shall cause Great Western Bank
to cease to qualify as a "well capitalized" institution under 12 CFR Part
565; and (iv) in the case of Parent only, the issuance of employee stock
options and restricted stock consistent with past practices); or issue any
additional shares of capital stock except (A) pursuant to the exercise of
stock options outstanding as of the date hereof or, in the case of Parent
only, issued after the date hereof in a manner consistent with past
practice, (B) in the case of Parent only, the award of restricted shares of
Parent Common Stock in a manner consistent with past practice, (C) pursuant
to the Subject Company Rights Agreement, (D) pursuant to the Parent Rights
Agreement, (E) pursuant to contracts or agreements in force at the date of
this Agreement and set out in Section 5.2 of the Subject Company Disclosure
Schedule and Section 5.2 of the Parent Disclosure Schedule, as the case may
be, and (F) in connection with acquisitions and investments permitted by
paragraph (c) hereof;
(b) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any individual, corporation or other entity
(other than a direct or indirect wholly owned Subsidiary), or cancel,
release or assign any indebtedness to any such person or any claims held by
any such person, in each case that is material to such party, except (i) in
the ordinary course of business consistent with past practice or (ii)
pursuant to contracts or agreements in force at the date of this Agreement
and set out in Section 5.2 of the Subject Company Disclosure Schedule or
Section 5.2 of the Parent Disclosure Schedule, as the case may be;
(c) except for transactions in the ordinary course of business
consistent with past practice, make any material acquisition or investment
either by purchase of stock or securities, merger or consolidation,
contributions to capital, property transfers, or purchases of any property
or assets of any other individual, corporation or other entity other than a
wholly owned Subsidiary thereof; provided, however, that subject to clause
(iii) of Section 5.1, Parent may enter into an agreement or agreements for,
and may consummate, business combination transactions with other companies
provided that the aggregate amount of assets of such companies does not
exceed $5,000,000,000; provided, further, however that, notwithstanding
anything to the contrary contained herein, Parent shall not make any
acquisition that would require it to register as a bank holding company
under the Bank Holding Company Act of 1956, as amended;
(d) in the case of the Subject Company, only enter into, renew or
terminate any contract or agreement, other than loans made in the ordinary
course of business, that calls for aggregate annual payments of $500,000
and which is not either (i) terminable at will on 60 days or less notice
without payment of a penalty or (ii) has a term of less than one year; or
make any material change in any of its leases or contracts, other than
renewals of contracts or leases for a term of one year or less without
materially adverse changes to the terms thereof;
(e) in the case of Subject Company only, other than general salary
increases consistent with past practice, increase in any material respect
the compensation or fringe benefits of any of its employees or pay any
pension or retirement allowance not required by any existing plan or
agreement to any such employees or become a party to, amend or commit
itself to any pension, retirement, profit-sharing or
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welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee or accelerate the vesting of any stock options or
other stock-based compensation;
(f) authorize or permit any of its officers, directors, employees,
representatives or agents (collectively, "Representatives") to directly or
indirectly solicit, initiate or encourage any inquiries relating to or that
may reasonably be expected to lead to, or the making of any proposal which
constitutes, a Takeover Proposal (as defined below), or recommend or
endorse any Takeover Proposal, or participate in any discussions or
negotiations, or provide third parties with any nonpublic information,
relating to any such inquiry or proposal or otherwise facilitate any effort
or attempt to make or implement a Takeover Proposal, provided, however,
that, at any time prior to the time its stockholders shall have voted to
approve this Agreement, each of Parent and Subject Company may, and may
authorize and permit its Representatives to, provide third parties with
nonpublic information, otherwise facilitate any effort or attempt by any
third party to make or implement a Takeover Proposal, recommend or endorse
any Takeover Proposal with or by any third party, and participate in
discussions and negotiations with any third party relating to any Takeover
Proposal, if such party's Board of Directors, after having consulted with
and considered the advice of its financial advisers and outside counsel,
has determined in good faith that the failure to do so would create a
reasonable possibility of a breach of the fiduciary duties of such party's
Board of Directors. Each of Parent and Subject Company shall (i) advise the
other orally (within one day) and in writing (as promptly as practicable)
of the receipt of any such inquiry or proposal by it or by any of its
Subsidiaries or any of its Representatives and (ii) unless its Board of
Directors, after consulting with, and considering the advice of, its
outside counsel, has determined in good faith that such action would create
a reasonable possibility of a breach of the fiduciary duties of such Board
of Directors, inform the other party orally and in writing, as promptly as
practicable after the receipt thereof, of the material terms and conditions
of any such inquiries or proposals (including the identity of the party
making such inquiry or proposal) and shall keep the other party informed of
the status thereof. Subject Company shall not furnish any nonpublic
information to any other party pursuant to this Section 5.2(f) except
pursuant to the terms of a confidentiality agreement containing terms
substantially identical to the terms contained in the Confidentiality
Agreement (as defined in Section 6.2(b) hereof). Subject Company will
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of this Agreement with any parties
other than Parent with respect to any of the foregoing and require the
return (or if permitted by the terms of the applicable confidentiality
agreement, the certified destruction) of all confidential information
previously provided to such parties. As used in this Agreement, "Takeover
Proposal" shall mean, with respect to any Person, any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving Subject Company or Parent or any of their respective Subsidiaries
or any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, Subject Company or
Parent or any of their respective Subsidiaries, other than the transactions
contemplated or permitted by this Agreement; provided, however, that any
proposal or offer involving the acquisition by Parent of any equity
interest in or assets of any person, whether by tender or exchange offer,
merger, consolidation or otherwise, or the disposition by Parent of assets,
deposits or Subsidiaries, which is permitted by the terms of Section 5.2 of
this Agreement shall not constitute a Takeover Proposal;
(g) in the case of Subject Company only, make any capital expenditures
in excess of (A) $500,000 per project or related series of projects or (B)
$3,000,000 in the aggregate, other than expenditures necessary to maintain
existing assets in good repair;
(h) in the case of Subject Company only, make application for the
opening, relocation or closing of any, or open, relocate or close any,
branch or loan production office;
(i) in the case of Subject Company only, make or acquire any loan or
issue a commitment for any loan except for loans and commitments that are
made in the ordinary course of business consistent with past practice or
issue or agree to issue any letters of credit or otherwise guarantee the
obligations of any other persons except in the ordinary course of business
in order to facilitate the sale of REO;
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(j) except as otherwise permitted elsewhere in this Section 5.2,
engage or participate in any material transaction or incur or sustain any
material obligation not in the ordinary course of business;
(k) in the case of Subject Company only, except as otherwise permitted
hereby foreclose upon or otherwise acquire (whether by deed in lieu of
foreclosure or otherwise) any real property (other than 1-to-4 family
residential properties in the ordinary course of business);
(l) in the case of Subject Company only, sell, transfer or otherwise
convey or agree to sell, transfer or otherwise convey, Sierra Investment
Management Corporation;
(m) settle any claim, action or proceeding involving money damages
which is material to Parent or Subject Company, as applicable, except in
the ordinary course of business consistent with past practice;
(n) take any action that would prevent or impede the Merger from
qualifying (i) as a reorganization within the meaning of Section 368(a) of
the Code or (ii) for pooling of interests accounting treatment;
(o) amend its certificate of incorporation, bylaws or similar
governing documents or the Subject Company Rights Agreement or the Parent
Rights Agreement, as the case may be, in a manner that would materially and
adversely affect either party's ability to consummate the Merger or the
economic benefits of the Merger to either party; provided, however that
prior to the meeting of Subject Company's stockholders held to vote on this
Agreement, Subject Company shall not amend the Subject Company Rights
Agreement without Parent's prior written consent;
(p) in the case of Subject Company only, except in the ordinary course
of business consistent with past practice or following prior consultation
with Parent, materially change its investment securities portfolio policy,
or the manner in which the portfolio is classified or reported;
(q) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time
prior to the Effective Time, or in any of the conditions to the Merger set
forth in Article VII not being satisfied or in a violation of any provision
of this Agreement, except, in every case, as may be required by applicable
law;
(r) make any changes in its accounting methods, except as may be
required under law, rule, regulation or GAAP, in each case as concurred in
by such party's independent public accountants;
(s) in the case of Subject Company only, engage in the business of
making or make any VA guaranteed or FHA insured mortgage loans;
(t) in the case of Subject Company only, enter into any contracts or
agreements or amendments or supplements thereto pertaining to any further
development of specialized software for Subject Company or its
Subsidiaries; or
(u) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.2.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters. (a) Parent and Subject Company shall promptly
prepare and file with the SEC a Joint Proxy Statement and Parent shall promptly
prepare and file with the SEC the S-4, in which the Joint Proxy Statement will
be included as a prospectus. Each of Parent and Subject Company shall use all
reasonable efforts to have the S-4 declared effective under the Securities Act
as promptly as practicable after such filing, and Parent and Subject Company
shall thereafter mail the Joint Proxy Statement to their respective
stockholders.
(b) The parties hereto shall cooperate with each other and use reasonable
best efforts to promptly prepare and file all necessary documentation, to effect
all applications, notices, petitions and filings, to obtain
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as promptly as practicable all permits, consents, approvals and authorizations
of all third parties and Governmental Entities which are necessary or advisable
to consummate the transactions contemplated by this Agreement (including without
limitation the Merger and the Association Merger) and to comply with the terms
and conditions of all such permits, consents, approvals and authorizations of
all such Governmental Entities. Parent and Subject Company shall have the right
to review in advance and to the extent practicable each will consult the other
on, in each case subject to applicable laws relating to the exchange of
information, all the information relating to Subject Company or Parent, as the
case may be, and any of their respective Subsidiaries which appears in any
filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto shall
act reasonably and as promptly as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the transactions contemplated by
this Agreement (including without limitation the Merger and the Association
Merger) and each party will keep the other apprised of the status of matters
relating to completion of the transactions contemplated herein.
(c) Parent and Subject Company shall, upon request, furnish each other with
all information concerning themselves, their Subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with the Joint Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of Parent, Subject
Company or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) Parent and Subject Company shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval (as defined below) will not be
obtained or that the receipt of any such approval will be materially delayed.
6.2 Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, each of Parent and
Subject Company shall, and shall cause each of their respective Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of the other party access, during normal business hours during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments and records, and to its officers, employees, accountants, counsel
and other representatives and, during such period, each of Parent and Subject
Company shall, and shall cause their respective Subsidiaries to, make available
to the other party (i) a copy of each report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of Federal securities laws or Federal or state banking laws (other
than reports or documents which Parent or Subject Company, as the case may be,
is not permitted to disclose under applicable law) and (ii) all other
information concerning its business, properties and personnel as such other
party may reasonably request. Neither Parent nor Subject Company nor any of
their respective Subsidiaries shall be required to provide access to or to
disclose information where such access or disclosure would violate or prejudice
the rights of its customers, jeopardize the attorney-client privilege of the
institution in possession or control of such information or contravene any law,
rule, regulation, order, judgment, decree, fiduciary duty or binding agreement
entered into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) Each of Parent and Subject Company shall hold all information furnished
by the other party or any of such party's Subsidiaries or representatives
pursuant to Section 6.2(a) in confidence to the extent required by, and in
accordance with, the provisions of the Confidentiality Agreement, dated February
21, 1997, between Parent and Subject Company (the "Confidentiality Agreement").
(c) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
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6.3 Stockholders' Approvals. Each of Parent and Subject Company shall duly
call, give notice of, convene and hold a meeting of its stockholders to be held
as soon as practicable following the date hereof for the purpose of obtaining
the requisite stockholder approvals required in connection with this Agreement
and the Merger, and each shall use its best efforts to cause such meetings to
occur on the same date. Subject Company shall, through its Board of Directors,
recommend to its stockholders approval of the Merger and Parent shall, through
its Board of Directors, recommend to its stockholders approval of the issuance
of the shares of Parent Common Stock in the Merger as required by Nasdaq;
provided, however, that this Section 6.3(a) shall not prohibit accurate
disclosure by either party of information that is required in the S-4 or the
Joint Proxy Statement or any other document required to be filed with the SEC
(including without limitation a disclosure statement on Schedule 14D-9) or
otherwise required by applicable law or regulation or the rules of the NYSE or
Nasdaq to be publicly disclosed.
6.4 Legal Conditions to Merger. (a) Subject to the terms and conditions of
this Agreement, each of Parent and Subject Company shall, and shall cause its
Subsidiaries to, use their reasonable best efforts (i) to take, or cause to be
taken, all actions necessary, proper or advisable to comply promptly with all
legal requirements which may be imposed on such party or its Subsidiaries with
respect to the Merger and the Association Merger and, subject to the conditions
set forth in Article VII hereof, to consummate the transactions contemplated by
this Agreement and (ii) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity and any other third party which is required to be
obtained by Subject Company or Parent or any of their respective Subsidiaries in
connection with the Merger and the Association Merger and the other transactions
contemplated by this Agreement.
(b) Subject to the terms and conditions of this Agreement, each of Parent
and Subject Company agrees to use reasonable best efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective, as soon as practicable
after the date of this Agreement, the transactions contemplated hereby,
including, without limitation, using reasonable best efforts to (i) modify or
amend any contracts, plans or arrangements to which Parent or Subject Company is
a party (to the extent permitted by the terms thereof) if necessary in order to
satisfy the conditions to Closing set forth in Article VII hereof, (ii) lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby,
and (iii) defend any litigation seeking to enjoin, prevent or delay the
consummation of the transactions contemplated hereby or seeking material
damages.
6.5 Affiliates. Each of Parent and Subject Company shall use its
reasonable best efforts to cause each director, executive officer and other
person who is an "affiliate" (for purposes of Rule 145 under the Securities Act,
in the case of affiliates of Subject Company, and for purposes of qualifying the
Merger for pooling of interests accounting treatment, in the case of affiliates
of either Parent or Subject Company) of such party to deliver to the other
party, as soon as practicable after the date of this Agreement, and in any event
prior to the date of the stockholders meetings called by Parent and Subject
Company pursuant to Section 6.3 hereof, a written agreement, in the form and
substance reasonably satisfactory to Subject Company (in the case of affiliates
of Parent) and Parent (in the case of affiliates of Subject Company).
6.6 Stock Exchange Listing. Parent shall use its best efforts to cause the
shares of Parent Common Stock to be issued in the Merger and the New Parent
Depositary Shares to be approved for listing on Nasdaq, subject to official
notice of issuance, prior to the Effective Time.
6.7 Employee Benefit Plans. (a) Parent agrees that, for a period of at
least one year from and after the Effective Time, it shall, and shall cause its
Subsidiaries to, provide to employees of the Subject Company immediately prior
to the Effective Time (such employees, the "Subject Company Employees")
compensation and benefits on terms no less favorable in the aggregate than those
provided to similarly situated employees of Parent and its Subsidiaries. For
purposes of all employee benefit plans of Parent or its Subsidiaries in which
Subject Company Employees participate from and after the Effective Time
(including all policies and employee fringe benefit programs, including vacation
policies, of Parent or its Subsidiaries but excluding Parent's Service Award
plan) and under which an employee's benefit depends, in whole or in part, on
length of
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service, credit will be given to Subject Company Employees for service
previously credited with the Subject Company or its Subsidiaries prior to the
Effective Time to the extent that such crediting of service does not result in
duplication of benefits; provided, however, that Parent shall determine each
employee's length of service in a manner consistent with Parent's customary
practice with respect to its employees. Parent shall also cause each employee
benefit plan in which Subject Company Employees participate from and after the
Effective Time to waive (i) any preexisting condition restriction which was
waived under the terms of any analogous Plan immediately prior to the Effective
Time or (ii) any waiting period limitation which would otherwise be applicable
to a Subject Company Employee on or after the Effective Time to the extent such
Subject Company Employee had satisfied any similar waiting period limitation
under an analogous Plan prior to the Effective Time. Notwithstanding the
generality of the foregoing, for a period of three (3) years, in the case of
those beneficiaries who are entitled to participate in such Program pursuant to
employment agreements, or two (2) years, in the case of those beneficiaries who
are otherwise entitled to participate in such Program, commencing on the
Effective Date, Parent agrees that it shall continue to maintain the Subject
Company's Executive Medical Program, on terms no less favorable that those in
effect as of the date hereof, for the benefit of those Subject Company Employees
who are currently eligible to participate in such Program.
(b) Notwithstanding the foregoing, Parent shall, and shall cause its
Subsidiaries to, honor in accordance with their terms all Plans, each as amended
to the date hereof, and other contracts, arrangements, commitments or
understandings described in the Subject Company Disclosure Schedule; provided,
however, that this paragraph (b) shall be subject to the provisions of paragraph
(f) hereof. Parent and Subject Company hereby acknowledge that consummation of
the Merger will constitute a "Change in Control" for purposes of all Plans,
contracts, arrangements and commitments that contain change in control
provisions and agree to abide by the provisions of any Plan, contract,
arrangement or commitment which relate to a Change in Control, including, but
not limited to, the accelerated vesting and/or payment of equity-based awards
under the Subject Company Stock Option Plans.
(c) Subject Company and its Subsidiaries shall take all action necessary to
ensure that no further mortgage loans will be made to employees under the Great
Western employee loan program and to amend the retiree medical plans so that no
additional retirees shall become entitled to continuing medical insurance
benefits thereunder.
(d) Subject Company and its Subsidiaries agree to amend their 401(k) plan
prior to Closing (as hereinafter defined) so that participant loans are no
longer available, and may amend their 401(k) plan to allow partial repayment of
existing loans thereunder.
(e) Subject Company shall consult with Parent and, to the extent permitted
by applicable law and the governing instrument of the respective trusts, obtain
Parent's prior approval which shall not be unreasonably withheld regarding the
investments used to fund the two umbrella trusts for the nonqualified plans for
directors and officers.
(f) Except as otherwise provided herein, nothing in this Section 6.7 shall
be interpreted as preventing Parent or its Subsidiaries from amending, modifying
or terminating any of the Plans, or other contracts, arrangements, commitments
or understandings, in accordance with their terms and applicable law.
6.8 Indemnification; Directors' and Officers' Insurance. (a) In the event
of any threatened or actual claim, action, suit, proceeding or investigation,
whether civil, criminal or administrative, including, without limitation, any
such claim, action, suit, proceeding or investigation in which any person who is
now, or has been at any time prior to the date of this Agreement, or who becomes
prior to the Effective Time, a director, officer or employee of Subject Company
or any of its Subsidiaries (the "Indemnified Parties") is, or is threatened to
be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he is or was a director, officer or
employee of Subject Company, any of the Subject Company Subsidiaries or any of
their respective predecessors or was prior to the Effective Time serving at the
request of any such party as a director, officer, employee, fiduciary or agent
of another corporation, partnership, trust or other enterprise or (ii) this
Agreement, or any of the transactions contemplated hereby and all actions taken
by an Indemnified Party in connection herewith, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend
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against and respond thereto to the extent set forth in the next sentence. It is
understood and agreed that after the Effective Time, Parent shall indemnify and
hold harmless, as and to the fullest extent permitted by the corporate
governance documents of Subject Company or its Subsidiaries and the
indemnification letters between the Subject Company and each of the directors
and executive officers of Subject Company (the "Indemnification Letters") and by
law, each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of an undertaking from such Indemnified Party to repay such
advanced expenses if it is finally and unappealably determined that such
Indemnified Party was not entitled to indemnification hereunder), judgments,
fines and amounts paid in settlement in connection with any such threatened or
actual claim, action, suit, proceeding or investigation, and in the event of any
such threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time), the
Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Parent; provided, however, that (1) Parent shall have the
right to assume the defense thereof and upon such assumption Parent shall not be
liable to any Indemnified Party for any legal expenses of other counsel or any
other expenses subsequently incurred by any Indemnified Party in connection with
the defense thereof, except that if Parent elects not to assume such defense or
counsel for the Indemnified Parties reasonably advises the Indemnified Parties
that there are or may be (whether or not any have yet actually arisen) issues
which raise conflicts of interest between Parent and the Indemnified Parties,
the Indemnified Parties may retain counsel reasonably satisfactory to them, and
Parent shall pay the reasonable fees and expenses of such counsel for the
Indemnified Parties, (2) Parent shall be obligated pursuant to this paragraph to
pay for only one firm of counsel for all Indemnified Parties, (3) Parent shall
not be liable for any settlement effected without its prior written consent
(which consent shall not be unreasonably withheld) and (4) Parent shall have no
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by the corporate governance
documents of Subject Company or its Subsidiaries, the Indemnification Letters or
applicable law. Any Indemnified Party wishing to claim indemnification under
this Section 6.8, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify Parent thereof, provided that the failure to so
notify shall not affect the obligations of Parent under this Section 6.8 except
(and only) to the extent such failure to notify materially prejudices Parent.
Parent's obligations under this Section 6.8 shall continue in full force and
effect for a period of six (6) years from the Effective Time; provided, however,
that all rights to indemnification in respect of any claim (a "Claim") asserted
or made within such period shall continue until the final disposition of such
Claim.
(b) Without limiting any of the obligations under paragraph (a) of this
Section 6.8, Parent agrees that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties as
provided in Subject Company's Restated Certificate of Incorporation or ByLaws or
in the similar governing documents of any of Subject Company's Subsidiaries as
in effect as of the date of this Agreement or as provided in the Indemnification
Letters of Subject Company with respect to matters occurring on or prior to the
Effective Time shall survive the Merger and shall continue in full force and
effect, without any amendment thereto, for a period of six years from the
Effective Time; provided, however, that all rights to indemnification in respect
of any Claim asserted or made within such period shall continue until the final
disposition of such Claim; provided, further, however, that nothing contained in
this Section 6.8(b) shall be deemed to preclude the liquidation, consolidation
or merger of Subject Company or any Subject Company Subsidiary, in which case
all of such rights to indemnification and limitations on liability shall be
deemed to so survive and continue notwithstanding any such liquidation,
consolidation or merger and shall constitute rights which may be asserted
against Parent. Nothing contained in this Section 6.8(b) shall be deemed to
preclude any rights to indemnification or limitations on liability provided in
Subject Company's Restated Certificate of Incorporation or Bylaws or the similar
governing documents of any of Subject Company's Subsidiaries with respect to
matters occurring subsequent to the Effective Time to the extent that the
provisions establishing such rights or limitations are not otherwise amended to
the contrary.
(c) Parent shall use its best efforts to cause the persons serving as
officers and directors of Subject Company immediately prior to the Effective
Time to be covered for a period of six (6) years from the
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Effective Time by the directors' and officers' liability insurance policy
maintained by Subject Company (provided that Parent may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are not less advantageous to such directors and officers of
Subject Company than the terms and conditions of such existing policy) with
respect to acts or omissions occurring prior to the Effective Time which were
committed by such officers and directors in their capacity as such.
(d) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent
shall assume the obligations set forth in this Section 6.8.
(e) The provisions of this Section 6.8 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
6.9 Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement (including, without limitation, any merger between a Subsidiary of
Parent and a Subsidiary of Subject Company) or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of any of the parties to the Merger, the proper officers and
directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by, and at
the sole expense of, Parent.
6.10 Advice of Changes. Parent and Subject Company shall promptly advise
the other party of any change or event which, individually or in the aggregate
with other such changes or events, has a Material Adverse Effect on it or which
it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein.
6.11 Subsequent Interim and Annual Financial Statements. As soon as
reasonably available, but in no event more than 45 days after the end of each
fiscal quarter (other than the fourth quarter of a fiscal year) or 90 days after
December 31, 1996 or the end of each fiscal year ending after the date of this
Agreement, each party will deliver to the other party its Quarterly Report on
Form 10-Q or its Annual Report on Form 10-K, as the case may be, as filed with
the SEC under the Exchange Act.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. The agreement of merger contained in this
Agreement shall have been approved and adopted by the requisite affirmative
vote of the holders of Subject Company Common Stock entitled to vote
thereon and the issuance of shares of Parent Common Stock in the Merger
shall have been approved by the requisite affirmative vote of the holders
of Parent Common Stock entitled to vote thereon as required by Nasdaq.
(b) Nasdaq Listing. The shares of Parent Common Stock which shall be
issued to the stockholders of Subject Company upon consummation of the
Merger and the New Parent Depositary Shares shall have been authorized for
listing on Nasdaq, subject to official notice of issuance.
(c) Other Approvals. All regulatory approvals required to consummate
the transactions contemplated hereby shall have been obtained and shall
remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired (all such approvals and the expiration
of all such waiting periods being referred to herein as the "Requisite
Regulatory Approvals").
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(d) S-4. The S-4 shall have become effective under the Securities
Act, no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger or any of the other transactions contemplated by
this Agreement shall be in effect. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or
enforced by any Governmental Entity which prohibits or makes illegal the
consummation of the Merger.
(f) Pooling. Each of Parent and Subject Company shall have received a
letter from its independent public accountants, dated the Closing Date, in
form and substance reasonably satisfactory to Parent and Subject Company,
respectively, to the effect that the Merger will qualify for "pooling of
interests" accounting treatment.
7.2 Conditions to Obligations of Parent. The obligation of Parent to
effect the Merger is also subject to the satisfaction or waiver by Parent at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Subject Company set forth in this Agreement shall be true and
correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date; provided,
however, that for purposes of determining the satisfaction of this
condition, no effect shall be given to any exception in such
representations and warranties relating to materiality or a Material
Adverse Effect, and provided, further, however, that, for purposes of this
condition, such representations and warranties (other than the
representations and warranties contained in Section 3.2(a), which shall be
true and correct in all material respects) shall be deemed to be true and
correct in all respects unless the failure or failures of such
representations and warranties to be so true and correct, individually or
in the aggregate, results or would reasonably be expected to result in a
Material Adverse Effect on Subject Company and its Subsidiaries taken as a
whole. Parent shall have received a certificate signed on behalf of the
Subject Company by the Chief Executive Officer and Chief Financial Officer
of Subject Company to the foregoing effect.
(b) Performance of Obligations of Subject Company. Subject Company
shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date,
and Parent shall have received a certificate signed on behalf of Subject
Company by the Chief Executive Officer and the Chief Financial Officer of
Subject Company to such effect.
(c) Subject Company Rights Agreement. The rights issued pursuant to
the Subject Company Rights Agreement shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of such
agreement.
(d) Federal Tax Opinion. Parent shall have received an opinion of
Foster, Pepper & Shefelman, counsel to Parent ("Parent's Counsel"), in form
and substance reasonably satisfactory to Parent, dated as of the Effective
Time, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code and that, accordingly, for federal income tax purposes:
(1) No gain or loss will be recognized by the shareholders of
Subject Company who exchange (i) all of their Subject Company Common
Stock solely for Parent Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in
Parent Common Stock) and (ii) all of their Subject Company 8.30%
Preferred Stock solely for Parent New Preferred Stock pursuant to the
Merger; and
(2) The aggregate tax basis of (i) the Parent Common Stock received
by shareholders who exchange all of their Subject Company Common Stock
solely for Parent Common Stock pursuant to
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the Merger will be the same as the aggregate tax basis of the Subject
Company Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash is
received) and (ii) the Parent New Preferred Stock received by
shareholders who exchange all of their Subject Company 8.30% Preferred
Stock solely for Parent New Preferred Stock pursuant to the Merger will
be the same as the aggregate tax basis of the Subject Company 8.30%
Preferred Stock surrendered in exchange therefor .
In rendering such opinion, Parent's Counsel may require and rely upon
representations and covenants contained in certificates of officers of
Parent, Subject Company and others.
7.3 Conditions to Obligations of Subject Company. The obligation of
Subject Company to effect the Merger is also subject to the satisfaction or
waiver by Subject Company at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Parent set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date; provided,
however, that for purposes of determining the satisfaction of this
condition, no effect shall be given to any exception in such
representations and warranties relating to materiality or a Material
Adverse Effect, and provided, further, however, that, for purposes of this
condition, such representations and warranties shall be deemed to be true
and correct in all respects unless the failure or failures of such
representations and warranties to be so true and correct, individually or
in the aggregate, results or would reasonably be expected to result in a
Material Adverse Effect on Parent and its Subsidiaries taken as a whole.
Subject Company shall have received a certificate signed on behalf of
Parent by the Chief Executive Officer and the Chief Financial Officer of
Parent to the foregoing effect.
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Subject Company
shall have received a certificate signed on behalf of Parent by the Chief
Executive Officer and the Chief Financial Officer of Parent to such effect.
(c) Parent Rights Agreement. The rights issued pursuant to the Parent
Rights Agreement shall not have become nonredeemable, exercisable,
distributed or triggered pursuant to the terms of such agreement.
(d) Federal Tax Opinion. Subject Company shall have received an
opinion of Skadden, Arps, Slate, Meagher & Flom LLP ("Subject Company's
Counsel"), in form and substance reasonably satisfactory to Subject
Company, dated as of the Effective Time, substantially to the effect that,
on the basis of facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the
Effective Time, the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code and that, accordingly, for federal
income tax purposes:
(1) No gain or loss will be recognized by the shareholders of
Subject Company who exchange (i) all of their Subject Company Common
Stock solely for Parent Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in
Parent Common Stock) and (ii) all of their Subject Company 8.30%
Preferred Stock solely for Parent New Preferred Stock pursuant to the
Merger; and
(2) The aggregate tax basis of (i) the Parent Common Stock received
by shareholders who exchange all of their Subject Company Common Stock
solely for Parent Common Stock pursuant to the Merger will be the same
as the aggregate tax basis of the Subject Company Common Stock
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received) and (ii) the
Parent New Preferred Stock received by shareholders who exchange all of
their Subject Company 8.30% Preferred Stock solely for Parent New
Preferred Stock pursuant to the Merger will be the same as the aggregate
tax basis of the Subject Company 8.30% Preferred Stock surrendered in
exchange therefor.
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In rendering such opinion, Subject Company's Counsel may require and
rely upon representations and covenants contained in certificates of
officers of Parent, Subject Company and others.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual consent of Parent and Subject Company in a written
instrument, if the Board of Directors of each so determines;
(b) by either the Board of Directors of Parent or the Board of
Directors of Subject Company if (i) any Governmental Entity which must
grant a Requisite Regulatory Approval has denied approval of the Merger and
such denial has become final and nonappealable or (ii) any Governmental
Entity of competent jurisdiction shall have issued a final nonappealable
order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement;
(c) by either the Board of Directors of Parent or the Board of
Directors of Subject Company if the Merger shall not have been consummated
on or before March 31, 1998, unless the failure of the Closing to occur by
such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements of such
party set forth herein;
(d) by either the Board of Directors of Parent or the Board of
Directors of Subject Company (provided that the terminating party is not
then in material breach of any representation, warranty, covenant or other
agreement contained herein) if the other party shall have breached (i) any
of the covenants or agreements made by such other party herein or (ii) any
of the representations or warranties made by such other party herein, and
in either case, such breach (x) is not cured within thirty (30) days
following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the Closing and (y) would
entitle the non-breaching party not to consummate the transactions
contemplated hereby under Article VII hereof;
(e) by either the Board of Directors of Parent or the Board of
Directors of Subject Company if any approval of the stockholders of Parent
or the Subject Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly
held meeting of stockholders or at any adjournment or postponement thereof;
(f) by either the Board of Directors of Parent or the Board of
Directors of Subject Company, if the Board of Directors of the other party
shall have withdrawn, modified or changed in a manner adverse to the
terminating party its approval or recommendation of this Agreement and the
transactions contemplated hereby; and
(g) by (i) the Board of Directors of Parent if a tender offer or
exchange offer for 25% or more of the outstanding shares of Subject Company
Common Stock is commenced (other than by Parent or a Parent Subsidiary),
and the Board of Directors of the Subject Company recommends that the
stockholders of Subject Company tender their shares in such tender or
exchange offer or otherwise fails to recommend that such stockholders
reject such tender offer or exchange offer within ten business days after
the commencement thereof (which, in the case of an exchange offer, shall be
the effective date of the registration statement relating to such exchange
offer); or (ii) the Board of Directors of Subject Company if a tender offer
or exchange offer for 25% or more of the outstanding shares of Parent
Common Stock is commenced and the Board of Directors of Parent recommends
that the stockholders of Parent tender their shares in such tender or
exchange offer or otherwise fails to recommend that such stockholders
reject such tender or exchange offer within ten business days after the
commencement thereof (which, in the case of an exchange offer, shall be the
effective date of the registration statement relating to such exchange
offer).
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8.2 Effect of Termination. (a) In the event of termination of this
Agreement by either Parent or Subject Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, and none of Parent,
Subject Company, any of their respective Subsidiaries or any of the officers or
directors of any of them shall have any liability of any nature whatsoever
hereunder, or in connection with the transactions contemplated hereby, except
that (i) Sections 6.2(b), 8.2, and 9.3 shall survive any termination of this
Agreement and (ii) notwithstanding anything to the contrary contained in this
Agreement, neither Parent nor Subject Company shall be relieved or released from
any liabilities or damages arising out of its willful breach of any provision of
this Agreement.
(b) If this Agreement is terminated (A) by Parent pursuant to Section
8.1(f) or (g)(i), (B) by Parent or Subject Company pursuant to Section 8.1(e)
because of a failure to obtain the required approval of the stockholders of
Subject Company after a Takeover Proposal for Subject Company shall have been
publicly disclosed, or any person shall have publicly disclosed an intention
(whether or not conditional) to make a Takeover Proposal (it being agreed and
understood that the proposal made with respect to Subject Company prior to the
date hereof by H.F. Ahmanson & Company ("Ahmanson"), if not unconditionally
withdrawn prior to the mailing of the Joint Proxy Statement to Subject Company's
stockholders, shall be deemed to be a Takeover Proposal within the meaning of
this clause), or (C) by Parent pursuant to Section 8.1(d) if the breach giving
rise to such termination was willful and, at or prior to such termination, a
Takeover Proposal shall have been made known to Subject Company or any of its
Subsidiaries or shall have been publicly disclosed to Subject Company's
stockholders, or any person shall have made known to Subject Company or any of
its Subsidiaries or otherwise publicly disclosed an intention (whether or not
conditional) to make a Takeover Proposal, and regardless of whether such
Takeover Proposal shall have been rejected by Subject Company or withdrawn prior
to the time of such termination, then in any such case Subject Company shall pay
to Parent a termination fee of $75 million and reimburse Parent for its
documented reasonable out-of-pocket expenses incurred by it in connection with
this Agreement and the transactions contemplated hereby (including fees and
expenses of legal, financial and accounting advisors), up to a maximum of $20
million in the aggregate (collectively, the "Initial Subject Company Termination
Fee"). In addition, if, within 18 months after any such termination described in
the preceding sentence that gave rise to an obligation to pay the Initial
Subject Company Termination Fee, Subject Company enters into a definitive
agreement with respect to or consummates a transaction contemplated in any
Takeover Proposal with any party, Subject Company shall pay to Parent an
additional termination fee equal to $100 million (the "Subsequent Subject
Company Termination Fee").
(c) Any Initial Subject Company Termination Fee that becomes payable
pursuant to Section 8.1(b) shall be paid within one business day following the
termination of this Agreement or the receipt of a request from Parent for such
reimbursement, as the case may be. Any Subsequent Subject Company Termination
Fee that becomes payable pursuant to Section 8.1(b) shall be paid within one
business day following the earlier of the consummation of any such Takeover
Proposal or the execution and delivery by Subject Company of a definitive
agreement with respect to any such Takeover Proposal. Notwithstanding the
foregoing, in no event shall Subject Company be obligated to pay any such fees
to Parent if Parent was in material breach of its obligations under this
Agreement immediately prior to the termination thereof.
(d) Subject Company and Parent agree that the agreements contained in
paragraph (b) above are an integral part of the transactions contemplated by
this Agreement, that without such agreements Parent would not have entered into
this Agreement, and that such amounts constitute liquidated damages and not a
penalty. If Subject Company fails to pay Parent the amounts due under paragraph
(b) within the time periods specified in paragraph (c), Subject Company shall
pay the costs and expenses (including legal fees and expenses) incurred by
Parent in connection with any action, including the filing of any lawsuit, taken
to collect payment of such amounts, together with interest on the amount of any
such unpaid amounts at the publicly announced prime rate of The Chase Manhattan
Bank from the date such amounts were required to be paid.
(e) For purposes of Section 8.2(b)(C), the proposal made prior to the date
hereof by Ahmanson to enter into a business combination with Subject Company
shall not be deemed to constitute a Takeover Proposal that has been publicly
announced or otherwise made known to Subject Company; provided, however, that
any Takeover Proposal made by Ahmanson after the date hereof, or any amendment
or modification
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made after the date hereof to the proposal made by Ahmanson prior to the date
hereof, shall constitute a Takeover Proposal for purposes of Section 8.2(b)(C).
8.3 Amendment. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Subject
Company and Parent; provided, however, that after any approval of the
transactions contemplated by this Agreement by Subject Company's stockholders,
there may not be, without further approval of such stockholders, any amendment
of this Agreement which reduces the amount or changes the form of the
consideration to be delivered to the Subject Company stockholders hereunder
other than as contemplated by this Agreement. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to
be specified by the parties, which shall be the first day which is (a) the tenth
business day of a month and (b) at least two business days after the
satisfaction or waiver (subject to applicable law) of the latest to occur of the
conditions set forth in Article VII hereof, other than conditions which by their
terms are to be satisfied at Closing, or such date or time as the parties may
mutually agree (the "Closing Date").
9.2 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for those covenants and agreements contained herein and therein
which by their terms apply in whole or in part after the Effective Time.
9.3 Expenses. Except as provided in Section 8.2 hereof, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense, provided,
however, that (i) the costs and expenses of printing and mailing the Joint Proxy
Statement, and all filing and other fees paid to the SEC in connection with the
Merger, shall be borne equally by Parent and Subject Company and (ii)
notwithstanding anything to the contrary contained in this Agreement, neither
Parent nor Subject Company shall be relieved or released from any liabilities or
damages arising out of its willful breach of any provision of this Agreement.
9.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return
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receipt requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent, to:
Washington Mutual, Inc.
1201 Third Avenue
Seattle, WA 98101
Fax: (206) 554-2790
Attn: Marc R. Kittner
Senior Vice President and
Corporate Counsel
with a copy to:
Foster Pepper & Shefelman
1111 Third Avenue
Suite 3400
Seattle, WA 98101
Attn: Fay L. Chapman, Esq.
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attn: Charles I. Cogut, Esq.
Lee Meyerson, Esq.
(b) if to Subject Company, to:
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, California 91311
Attn: John F. Maher, President and Chief
Executive Officer
and
J. Lance Erikson, Esq.
Executive Vice President and
General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 735-2000
Attn: Peter Allan Atkins, Esq.
Fred B. White, III, Esq.
9.5 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". No provision of this Agreement shall be construed to require
Subject Company, Parent or any of
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their respective Subsidiaries or affiliates to take any action which would
violate or conflict with any applicable law (whether statutory or common), rule
or regulation.
9.6 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
9.7 Entire Agreement. This Agreement (together with the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law.
9.9 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.10 Publicity. Parent and Subject Company shall consult with each other
before issuing any press release with respect to the Merger or this Agreement
and shall not issue any such press release or make any such public statement
without the prior consent of the other party, which shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
other party (but after prior consultation, to the extent practicable in the
circumstances) issue such press release or make such public statement as may
upon the advice of outside counsel be required by law or the rules and
regulations of the NYSE (in the case of Subject Company) or Nasdaq (in the case
of Parent). Without limiting the reach of the preceding sentence, Parent and
Subject Company shall cooperate to develop all public announcement materials and
(b) make appropriate management available at presentations related to the
transactions contemplated by this Agreement as reasonably requested by the other
party. In addition, Subject Company and its Subsidiaries shall (a) consult with
Parent regarding communications with customers, shareholders, prospective
investors and employees related to the transactions contemplated hereby, (b)
provide Parent with shareholder lists of Subject Company and (c) allow and
facilitate Parent contact with shareholders of Subject Company and other
prospective investors.
9.11 Assignment; Third Party Beneficiaries. Neither this Agreement nor any
of the rights, interests or obligations of any party hereunder shall be assigned
by any of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and permitted assigns. Except as
otherwise specifically provided in Section 6.8 hereof, this Agreement (including
the documents and instruments referred to herein) is not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
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<PAGE> 169
IN WITNESS WHEREOF, Parent, Merger Sub and Subject Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
WASHINGTON MUTUAL, INC.
By: /s/ CRAIG TALL
------------------------------------
Name: Craig Tall
Title: Executive Vice President
Corporate Development
GREAT WESTERN FINANCIAL CORPORATION
By: /s/ JOHN MAHER
------------------------------------
Name: John Maher
Title: President and Chief
Executive Officer
NEW AMERICAN CAPITAL, INC.
By: /s/ KERRY K. KILLINGER
------------------------------------
Name: Kerry K. Killinger
Title: President and Chief
Executive Officer
A-35
<PAGE> 170
APPENDIX B
LEHMAN BROTHERS
March 5, 1997
Board of Directors
Washington Mutual, Inc.
1201 Third Avenue
Seattle, WA 98101
Members of the Board:
We understand that Washington Mutual, Inc. (the "Company") and Great
Western Financial Corporation ("Great Western") have entered into a definitive
merger agreement pursuant to which Great Western will be merged with and into
the Company and each share of common stock of Great Western will be converted
into the right to receive 0.9 shares (the "Exchange Ratio") of the Company's
common stock (the "Merger"). The terms and conditions of the Merger are set
forth in more detail in the Agreement and Plan of Merger dated as of March 5,
1997 by and among the Company, New American Capital, Inc. and Great Western (the
"Merger Agreement").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company of the Exchange Ratio to be offered by the Company to the stockholders
of Great Western in the Merger. We have not been requested to opine as to, and
our opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Merger.
In arriving at our opinion, we reviewed and analyzed: (1) the Merger
Agreement and the specific terms of the Merger, (2) such publicly available
information concerning the Company and Great Western that we believe to be
relevant to our analysis including, without limitation, the Forms 10-K for the
year ended December 31, 1995 and preliminary draft copies of Forms 10-K for the
year ended December 31, 1996, quarterly reports on Form 10-Q for the periods
ended March 31, June 30 and September 30, 1996 and recent press releases for the
Company and Great Western, (3) financial and operating information with respect
to the business, operations and prospects of the Company and Great Western
furnished to us by the Company and Great Western, (4) a trading history of the
common stock of the Company and Great Western and a comparison of that trading
history with those of other companies that we deemed relevant, (5) a comparison
of the historical financial results and present financial condition of the
Company and Great Western with those of other companies that we deemed relevant,
and (6) a comparison of the financial terms of the Merger with the financial
terms of certain other recent transactions that we deemed relevant. In addition,
we have had discussions with the management of the Company and Great Western
concerning their respective businesses, operations, assets, liabilities,
financial conditions and prospects, and the potential cost savings, operating
synergies, revenue enhancements and strategic benefits expected to result from a
combination of the businesses of the Company and Great Western, and have
undertaken such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company and Great
Western that they are not aware of any facts or circumstances that would make
such information inaccurate or misleading. With respect to the financial
projections of the Company and Great Western, upon advice of the Company, we
have assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
respective managements of the Company and of Great Western, as to the future
financial performance of the Company and Great Western including, without
limitation, with respect to projected cost savings, operating synergies and
revenue enhancements expected to
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<PAGE> 171
result from a combination of the businesses of the Company and Great Western and
that the Company and Great Western would perform, and that the combined company
will perform, substantially in accordance with such projections. Upon advice of
the Company and its legal and accounting advisors, we have assumed that the
Merger will qualify for pooling accounting treatment and as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and therefore as a tax-free transaction. In arriving at our opinion, we
have not conducted a physical inspection of the properties and facilities of
Great Western or the Company and have not made or obtained any evaluations or
appraisals of the assets or liabilities of Great Western or the Company. In
addition, we are not experts in the evaluation of loan portfolios or allowances
for loan and real estate owned losses and, upon advice of the Company, we have
assumed that the allowances for loan and real estate owned losses provided to us
by the Company and used by us in our analysis and in arriving at our opinion are
in the aggregate adequate to cover all such losses. Our opinion necessarily is
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered by the Company to the stockholders of Great Western in the Merger is
fair to the Company.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company (including underwriting of public offerings of the
Company's securities and acting as financial advisor to Keystone Holdings, Inc.
in its sale to the Company) and for Great Western (including underwriting of
public offerings of Great Western and its subsidiaries' securities and advising
Great Western Bank in its sale of Great Western Financial Services to Aristar,
Inc.) in the past and have received customary fees for such services. In the
ordinary course of our business, we actively trade in the debt and equity
securities of the Company and Great Western for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Merger. This opinion is not intended to be and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger.
Very truly yours,
LEHMAN BROTHERS
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APPENDIX C
Goldman, Sachs & Co. / 85 Broad Street / New York, New York 10004
Tel: 212-902-1000 / Fax: 212-357-4449
LOGO
PERSONAL AND CONFIDENTIAL
March 5, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, California 91311
Gentlemen and Madame:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of
Great Western Financial Corporation (the "Company") of the exchange ratio of 0.9
shares of Common Stock, no par value, of Washington Mutual, Inc. ("Washington
Mutual") to be received for each Share (the "Exchange Ratio") pursuant to the
merger (the "Merger") contemplated by the Agreement and Plan of Merger dated as
of March 5, 1997 by and among Washington Mutual, New American Capital, Inc. and
the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having provided certain investment banking services to the Company
from time to time, including having acted as managing underwriter of its $300
million issue of Capital Securities in January 1997, and having acted as its
financial advisor in connection with, and participated in certain of the
negotiations leading to, the Agreement. We also have provided certain investment
banking services to Washington Mutual from time to time and may provide
investment banking services to Washington Mutual in the future. In addition,
Goldman, Sachs & Co. is a full service securities firm and in the course of its
trading activities it may from time to time effect transactions, for its own
account or the account of customers, and hold positions in securities or options
on securities of the Company and Washington Mutual.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1995; Annual Reports to
Stockholders and Annual Reports on Form 10-K of Washington Mutual for the two
years ended December 31, 1995; Annual Reports to Stockholders and Annual Reports
to the FDIC on Form F-2 of Washington Mutual Savings Bank, predecessor to
Washington Mutual, for the three years ended December 31, 1993; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company and
Washington Mutual; certain other communications from the Company and Washington
Mutual to their respective stockholders; and certain internal financial analyses
and forecasts for the Company and Washington Mutual prepared by their respective
managements, including analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies (collectively, the
"Synergies"). We also have held discussions with members of the senior
managements of the Company and Washington Mutual regarding the past and current
business operations, financial condition and future prospects of their
respective companies and each senior managements' assessment of the future
prospects of the combined company. In addition, we have reviewed the reported
price and trading activity for the Shares and Washington Mutual Common Stock,
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<PAGE> 173
Great Western Financial Corporation
March 5, 1997
Page Two
compared certain financial and stock market information for the Company and
Washington Mutual with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the savings and loan industry specifically and
in other industries generally and performed such other studies and analyses as
we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts, including, without limitation, the Synergies and
projections regarding under-performing and non-performing assets and net
charge-offs have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of the Company and Washington Mutual
and that such forecasts will be realized in the amounts and at the times
contemplated thereby. We are not experts in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed, with your consent, that such allowances
for each of the Company and Washington Mutual are in the aggregate adequate to
cover all such losses. In addition, we have not reviewed individual credit files
nor have we made an independent evaluation or appraisal of the assets and
liabilities of the Company or Washington Mutual or any of their subsidiaries and
we have not been furnished with any such evaluation or appraisal. We also have
assumed, with your consent, that the Merger will be accounted for as a pooling
of interests under generally accepted accounting principles. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair to the holders of Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- ------------------------------------------------
GOLDMAN, SACHS & CO.
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<PAGE> 174
APPENDIX D
Goldman, Sachs & Co. / 85 Broad Street / New York, New York 10004
Tel: 212-902-1000 / Fax: 212-357-4449
LOGO
PERSONAL AND CONFIDENTIAL
March 25, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, California 91311
Gentlemen and Madames:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of
Great Western Financial Corporation (the "Company") of the exchange ratio of 0.9
shares of Common Stock, no par value, of Washington Mutual, Inc. ("Washington
Mutual") to be received for each Share (the "Exchange Ratio") pursuant to the
merger (the "Merger") contemplated by the Agreement and Plan of Merger dated as
of March 5, 1997 by and among Washington Mutual, New American Capital, Inc. and
the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having provided certain investment banking services to the Company
from time to time, including having acted as managing underwriter of its $300
million issue of Capital Securities in January 1997, and having acted as its
financial advisor in connection with, and participated in certain of the
negotiations leading to, the Agreement. We also have provided certain investment
banking services to Washington Mutual from time to time and may provide
investment banking services to Washington Mutual in the future. In addition,
Goldman, Sachs & Co. is a full service securities firm and in the course of its
trading activities it may from time to time effect transactions, for its own
account or the account of customers, and hold positions in securities or options
on securities of the Company and Washington Mutual.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4 of Washington Mutual dated
March 13, 1997, including the Joint Proxy Statement/Prospectus of Washington
Mutual and the Company; Annual Reports to Stockholders and Annual Reports on
Form 10-K of the Company for the five years ended December 31, 1996; Annual
Reports to Stockholders and Annual Reports on Form 10-K of Washington Mutual for
the three years ended December 31, 1996; Annual Reports to Stockholders and
Annual Reports to the FDIC on Form F-2 of Washington Mutual Savings Bank,
predecessor to Washington Mutual, for the two years ended December 31, 1993;
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
the Company and Washington Mutual; certain other communications from the Company
and Washington Mutual to their respective stockholders; certain internal
financial analyses and forecasts for the Company and Washington Mutual prepared
by their respective managements, including analyses and forecasts of certain
cost savings, operating efficiencies, revenue effects and financial synergies
(collectively, the "Synergies"); the S-4 Registration Statement dated February
18, 1997 as amended March 18, 1997 of H.F. Ahmanson & Company ("Ahmanson"); and
certain press releases and filings with the Securities and Exchange Commis-
D-1
<PAGE> 175
sion by the Company, Washington Mutual and Ahmanson in connection with the
Merger, the Ahmanson proposal and related matters. We also have held discussions
with members of the senior managements of the Company and Washington Mutual
regarding the past and current business operations, financial condition and
future prospects of their respective companies and each senior management's
assessment of the future prospects of the combined company. In addition, we have
reviewed the reported price and trading activity for the Shares and Washington
Mutual Common Stock, compared certain financial and stock market information for
the Company and Washington Mutual with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the savings and loan industry
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts, including, without limitation, the Synergies and
projections regarding under performing and non performing assets and net
charge-offs have been reasonably prepared on a basis reflecting the best
currently available judgments and estimates of the Company and Washington Mutual
and that such forecasts will be realized in the amounts and at the times
contemplated thereby. We are not experts in the evaluation of loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed, with your consent, that such allowances
for each of the Company and Washington Mutual are in the aggregate adequate to
cover all such losses. In addition, we have not reviewed individual credit files
nor have we made an independent evaluation or appraisal of the assets and
liabilities of the Company or Washington Mutual or any of their subsidiaries and
we have not been furnished with any such evaluation or appraisal. We also have
assumed, with your consent, that the Merger will be accounted for as a pooling
of interests under generally accepted accounting principles. Our advisory
services and the opinion expressed herein are provided for the information and
assistance of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Agreement and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote at the stockholders' meeting to be held in connection
with the Merger.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair to the holders of Shares.
Very truly yours,
GOLDMAN, SACHS & CO.
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<PAGE> 176
APPENDIX E
(LOGO)
Investment Banking
Corporate and
Institutional
Client Group
World Financial Center
North Tower
New York, New York
10281-1325
212 449 1000
March 5, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, CA 91311
Members of the Board:
We understand that it is proposed that Washington Mutual, Inc. ("Washington
Mutual") and Great Western Financial Corporation ("Great Western") are proposing
to enter into an Agreement and Plan of Merger (the "Agreement") pursuant to
which Great Western will be merged with and into Washington Mutual in a
transaction (the "Merger") in which each outstanding share of Great Western's
common stock, par value $1.00 per share (the "Great Western Shares"), will be
converted into the right to receive 0.90 shares (the "Exchange Ratio") of the
common stock, no par value, of Washington Mutual (the "Washington Mutual
Shares"), all as set forth more fully in the Agreement.
You have asked us whether, in our opinion, the proposed Exchange Ratio in
the Merger is fair to the shareholders of Great Western from a financial point
of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Great Western's Annual Reports on Form 10-K and related
audited financial information for the five fiscal years ended December
31, 1995, a draft of Great Western's Annual Report on Form 10-K for
the period ended December 31, 1996, and Great Western's Quarterly
Reports on Form 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1996, June 30, 1996 and
September 30, 1996;
(2) Reviewed Washington Mutual's Annual Reports on Form 10-K and related
audited financial information for the two fiscal years ended December
31, 1995, a draft of Washington Mutual's Annual Report on Form 10-K
for the period ended December 31, 1996, Washington Mutual's Quarterly
Reports on Form 10-Q and the related unaudited financial information
for the quarterly periods ending March 31, 1996, June 30, 1996 and
September 30, 1996, and Annual Reports to the FDIC on Form S-2 of
Washington Mutual Savings Bank, predecessor to Washington Mutual for
the three years ended December 31, 1993;
(3) Reviewed certain limited financial information, including financial
forecasts, relating to the respective business, earnings, assets,
liabilities and prospects of Great Western and Washington Mutual
furnished to us by senior management of Great Western and Washington
Mutual;
(4) Conducted certain discussions with members of senior management of
Great Western and Washington Mutual concerning respective financial
condition, businesses, earnings, assets, liabilities, operations,
regulatory condition, financial forecasts, contingencies and
prospects, of Great Western and Washington Mutual and their respective
view as to the future financial performance of Great Western,
Washington Mutual and the combined entity, as the case may be,
following the Merger;
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<PAGE> 177
(LOGO)
(5) Reviewed the historical market prices and trading activity for the
Great Western Shares and the Washington Mutual Shares and compared
them with that of certain publicly traded companies which we deemed to
be relevant;
(6) Compared the respective results of operations of Great Western and
Washington Mutual with those of certain publicly traded companies
which we deemed to be relevant;
(7) Compared the proposed financial terms of the Merger contemplated by
the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(8) Reviewed the amount and timing of the projected cost savings, related
expenses and revenue enhancements expected to result from the Merger
(the "Expected Synergies"), as presented by the senior management of
Washington Mutual;
(9) Considered, based upon information provided by the senior management
of Great Western and Washington Mutual, the pro forma impact of the
transaction on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of
Washington Mutual;
(10) Reviewed a draft of the Agreement and Plan of Merger and related
agreements; and
(11) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed appropriate.
In preparing our opinion, with your consent, we have assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us by Great Western and Washington Mutual, including that
contemplated in the numbered items above, and we have not assumed responsibility
for independently verifying such information or undertaken an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of Great Western or Washington Mutual or any of their subsidiaries, nor have we
been furnished any such evaluation or appraisal. We are not experts in the
evaluation of allowances for loan losses and, with your consent, we have not
made an independent evaluation of the adequacy of the allowance for loan losses
of Great Western or Washington Mutual, nor have we reviewed any individual
credit files relating to Washington Mutual or Great Western and, with your
consent, we have assumed that the aggregate allowance for loan losses for each
of Washington Mutual and Great Western is adequate to cover such losses and will
be adequate on a pro forma basis for the combined entity. In addition, we have
not conducted any physical inspection of the properties or facilities of Great
Western or Washington Mutual. With your consent, we have also assumed and relied
upon the senior management of Great Western and Washington Mutual as to the
reasonableness and achievability of the financial forecasts (and the assumptions
and bases therefor) provided to, and discussed with, us. In that regard, we have
assumed and relied with your consent that such forecasts, including without
limitation, financial forecasts, evaluations of contingencies. Expected
Synergies and projections regarding underperforming and non-performing assets,
net charge-offs, adequacy of reserves, and future economic conditions reflect
the best currently available estimates, allocations and judgments of the senior
management of Great Western and Washington Mutual as to the future financial
performance of Great Western, Washington Mutual or the combined entity, as the
case may be. Our opinion is predicated on the Merger receiving the tax and
accounting treatment contemplated in the Agreement. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed or required in the course of obtaining regulatory approval for the
Merger.
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<PAGE> 178
(LOGO)
We have been retained by the Board of Directors of Great Western as an
independent contractor to act as financial advisor to Great Western with respect
to the Merger Proposal and will receive a fee for our services. We have, in the
past, provided financial advisory and financing services to Great Western and
Washington Mutual and received customary fees for the rendering of such
services, including acting as lead underwriter for a 14.6 million share
secondary public offering of Washington Mutual common stock in January 1997. In
addition, in the ordinary course of our securities business, we may actively
trade debt and/or equity securities of Great Western and Washington Mutual and
their respective affiliates for our own account and the accounts of our
customers, and we therefore may from time to time hold a long or short position
in such securities. In addition, certain affiliates of Merrill Lynch & Co. act
as investment advisors to publicly held mutual funds which owned, as of March 4,
1997, approximately 5.1 million shares of Great Western's Common Stock and
approximately 0.5 million shares of Washington Mutual's Common Stock.
Our opinion is directed to the Board of Directors of Great Western and does
not constitute a recommendation to any shareholder of Great Western as to how
such shareholder should vote at any shareholder meeting of Great Western held in
connection with the Merger Proposal. This opinion is directed only to the
proposed Exchange Ratio and is for the confidential use of the Board of
Directors of Great Western and may not be reproduced, summarized, described or
referred to or given to any other person without our consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio in the Merger is fair to the shareholders of Great
Western from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
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<PAGE> 179
APPENDIX F
Investment Banking
Corporate and
Institutional
Client Group
World Financial Center
North Tower
New York, New York
10281-1325
212 449 1000
(LOGO)
March 25, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, CA 91311
Members of the Board:
Washington Mutual, Inc. ("Washington Mutual") and Great Western Financial
Corporation ("Great Western") have entered into an Agreement and Plan of Merger,
dated March 5, 1997 (the "Agreement"), pursuant to which Great Western will be
merged with and into Washington Mutual in a transaction (the "Merger") in which
each outstanding share of Great Western's common stock, par value $1.00 per
share (the "Great Western Shares"), will be converted into the right to receive
0.90 shares (the "Exchange Ratio") of the common stock, no par value, of
Washington Mutual (the "Washington Mutual Shares"), all as set forth more fully
in the Agreement.
You have asked us to confirm, as of the date hereof, whether, in our
opinion, the proposed Exchange Ratio in the Merger is fair to the shareholders
of Great Western from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Great Western's Annual Reports on Form 10-K and related
audited financial information for the five fiscal years ended December
31, 1996;
(2) Reviewed Washington Mutual's Annual Reports on Form 10-K, and related
audited financial information for the three fiscal years ended
December 31, 1996 and Annual Reports to the FDIC on Form F-2 of
Washington Mutual Savings Bank, predecessor to Washington Mutual for
the two years ended December 31, 1993;
(3) Reviewed the Washington Mutual Registration Statement on Form S-4
dated March 13, 1997;
(4) Reviewed certain financial information, including financial forecasts,
relating to the respective business, earnings, assets, liabilities and
prospects of Great Western and Washington Mutual furnished to us by
senior management of Great Western and Washington Mutual;
(5) Conducted certain discussions with members of senior management of
Great Western and Washington Mutual concerning the respective
financial condition, businesses, earnings, assets, liabilities,
operations, regulatory condition, financial forecasts, contingencies
and prospects, of Great Western and Washington Mutual and their
respective view as to the future financial performance of Great
Western, Washington Mutual and the combined entity, as the case may
be, following the Merger;
(6) Reviewed the historical market prices and trading activity for the
Great Western Shares and the Washington Mutual Shares and compared
them with that of certain publicly traded companies which we deemed to
be relevant;
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<PAGE> 180
(LOGO)
(7) Compared the respective results of operations of Great Western and
Washington Mutual with those of certain publicly traded companies
which we deemed to be relevant;
(8) Compared the proposed financial terms of the Merger as set forth in
the Agreement with the financial terms of certain other mergers and
acquisitions which we deemed to be relevant;
(9) Reviewed the amount and timing of the projected cost savings, related
expenses and revenue enhancements expected to result from the Merger
(the "Expected Synergies"), as presented by the senior management of
Washington Mutual;
(10) Considered, based upon information provided by the senior management
of Great Western and Washington Mutual, the pro forma impact of the
transaction on the earnings and book value per share, consolidated
capitalization and certain balance sheet and profitability ratios of
Washington Mutual;
(11) Reviewed the Agreement and Plan of Merger and related agreements;
(12) Reviewed the H.F. Ahmanson & Company ("Ahmanson") proposal to merge
with Great Western pursuant to which each share of Great Western would
be exchanged for between 1.10 and 1.20 shares of Ahmanson common
stock, as set forth more fully in Ahmanson's Registration Statement on
Form S-4 dated February 18, 1997 and Amendment No. 1 thereto dated
March 18, 1997;
(13) Reviewed certain press releases and filings with the SEC by Great
Western, Washington Mutual and Ahmanson in connection with the Merger
and the Ahmanson merger proposal and related matters; and
(14) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed appropriate.
In preparing our opinion, with your consent we have assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to us by Great Western and Washington Mutual, including that
contemplated in the numbered items above, and we have not assumed responsibility
for independently verifying such information or undertaken an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of Great Western or Washington Mutual or any of their subsidiaries, nor have we
been furnished any such evaluation or appraisal. We are not experts in the
evaluation of allowances for loan losses and, with your consent, we have not
made an independent evaluation of the adequacy of the allowance for loan losses
of Great Western or Washington Mutual, nor have we reviewed any individual
credit files relating to Washington Mutual or Great Western and, with your
consent, we have assumed that the aggregate allowance for loan losses for each
of Washington Mutual and Great Western is adequate to cover such losses and will
be adequate on a pro forma basis for the combined entity. In addition, we have
not conducted any physical inspection of the properties or facilities of Great
Western or Washington Mutual. With your consent, we have also assumed and relied
upon the senior management of Great Western and Washington Mutual as to the
reasonableness and achievability of the financial forecasts (and the assumptions
and bases therefor) provided to, and discussed with, us. In that regard, we have
assumed and relied with your consent that such forecasts, including without
limitation, financial forecasts, evaluations of contingencies, Expected
Synergies and projections regarding underperforming and nonperforming assets,
net charge-offs, adequacy of reserves and future economic conditions reflect the
best currently available estimates, allocations and judgments of the senior
management of Great Western and Washington Mutual as to the future financial
performance of Great Western, Washington Mutual or the combined entity, as the
case may be. Our opinion is predicated on the Merger receiving the tax and
accounting treatment contemplated in the Agreement. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
F-2
<PAGE> 181
(LOGO)
Our opinion has been rendered without regard to the necessity for, or level
of, any restrictions, obligations, undertakings or divestitures which may be
imposed or required in the course of obtaining regulatory approval for the
Merger.
We have been retained by the Board of Directors of Great Western as an
independent contractor to act as financial advisor to Great Western with respect
to the Merger Proposal and will receive a fee for our services. We have, in the
past, provided financial advisory and financing services to Great Western and
Washington Mutual and received customary fees for the rendering of such
services, including acting as lead underwriter for a 14.6 million share
secondary public offering of Washington Mutual common stock in January 1997. In
addition, in the ordinary course of our securities business, we may actively
trade debt and/or equity securities of Great Western and Washington Mutual and
their respective affiliates for our own account and the accounts of our
customers, and we therefore may from time to time hold a long or short position
in such securities. In addition, certain affiliates of Merrill Lynch & Co. act
as investment advisors to publicly held mutual funds which owned, as of March
21, 1997, approximately 4.93 million shares of Great Western's Common Stock and
approximately 0.08 million shares of Washington Mutual's Common Stock.
Our opinion is directed to the Board of Directors of Great Western and does
not constitute a recommendation to any shareholder of Great Western as to how
such shareholder should vote at any shareholder meeting of Great Western held in
connection with the Merger Proposal. This opinion is directed only to the
proposed Exchange Ratio and is for the confidential use of the Board of
Directors of Great Western and may not be reproduced, summarized, described or
referred to or given to any other person without our consent.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed Exchange Ratio in the Merger is fair to the shareholders of Great
Western from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
F-3
<PAGE> 182
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 23B.08.320 of the Washington Business Corporation Act (the
"Corporation Act") provides that the personal liability of directors to a
corporation imposed by Section 23B.08.310 of the Corporation Act may be
eliminated by the articles of incorporation of the corporation, except in the
case of acts or omissions involving certain types of conduct. At Article XIII of
its Restated Articles of Incorporation, the Registrant has elected to eliminate
the liability of directors to the Registrant to the extent permitted by law.
Thus, a director of the Registrant is not personally liable to the Registrant or
its shareholders for monetary damages for conduct as a director, except for
liability of the director (i) for acts or omissions that involve intentional
misconduct by the director or a knowing violation of law by the director, (ii)
for conduct violating Section 23B.08.310 of the Corporation Act, or (iii) for
any transaction from which the director will personally receive a benefit in
money, property or services to which the director is not legally entitled. If
Washington law is amended to authorize corporate action that further eliminates
or limits the liability of directors, then the liability of Washington Mutual
directors will be eliminated or limited to the fullest extent permitted by
Washington law, as so amended.
Section 23B.08.560 of the Corporation Act provides that if authorized by
(i) the articles of incorporation, (ii) a bylaw adopted or ratified by the
shareholders, or (iii) a resolution adopted or ratified, before or after the
event, by the shareholders, a corporation will have the power to indemnify
directors made party to a proceeding, or to obligate itself to advance or
reimburse expenses incurred in a proceeding, without regard to the limitations
on indemnification contained in Sections 23B.08.510 through 23B.08.550 of the
Corporation Act.
Pursuant to Article X of Washington Mutual's Restated Articles of
Incorporation and Article VIII of Washington Mutual Bylaws, Washington Mutual
must, subject to certain exceptions, indemnify and defend its directors against
any expense, liability or loss arising from or in connection with any actual or
threatened action, suit or proceeding relating to service for or at the request
of Washington Mutual, including without limitation, liability under the
Securities Act. Washington Mutual is not permitted to indemnify a director from
or on account of acts or omissions of such director which are finally adjudged
to be intentional misconduct, or from or on account of conduct in violation of
RCW 23B.08.310, or a knowing violation of the law from or on account of any
transaction with respect to which it is finally adjudged that such director
received a benefit in money, property or services to which he or she was not
entitled. If Washington law is amended to authorize further indemnification of
directors, then Washington Mutual directors shall be indemnified to the fullest
extent permitted by Washington law, as so amended. Also, pursuant to Article X
of Washington Mutual's Restated Articles of Incorporation and Article VIII of
Washington Mutual's Bylaws, Washington Mutual may, by action of the Washington
Mutual Board, provide indemnification and pay expenses to officers, employees
and agents of Washington Mutual or another corporation, partnership, joint
venture, trust or other enterprise with the same scope and effect as above
described in relation to directors. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or
persons controlling Washington Mutual pursuant to the provisions described
above, Washington Mutual has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
II-1
<PAGE> 183
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger between the Registrant, NACI and Great
Western, dated March 5, 1997. (Incorporated by reference to Appendix A
of the Joint Proxy Statement/Prospectus included in this Registration
Statement). Registrant agrees to furnish supplementally to the
Commission upon request a copy of any omitted schedule.
3.1* Restated Articles of Incorporation of the Registrant, as amended (the
"Washington Mutual Articles").
3.2* Bylaws of the Registrant (Incorporated by reference to the Washington
Mutual, Inc. Annual Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1995. File No. 0-25188).
4.1* Article II, Sections D(2), D(3), and D(4) of the Washington Mutual
Articles, which define the rights of holders of the Series C Preferred
Stock and the Series E Preferred Stock (filed together with Exhibit 3.1
hereto).
4.2** Rights Agreement, dated October 16, 1990.
4.3** Amendment No. 1 to the Rights Agreement, dated October 31, 1994.
4.4** Supplement to Rights Agreement, dated November 29, 1994.
4.5* Form of Indenture between the Registrant and Harris Trust and Savings
Bank, as Trustee, for the Washington Mutual Senior Unsecured 7 1/4%
Notes ("Senior Notes") (incorporated by reference to Washington Mutual,
Inc. Registration Statement on Form S-3, registration no. 33-93850).
4.6* First Supplemental Indenture dated November 26, 1996 and Second
Supplemental Indenture dated January 6, 1997 to the Indenture between
Washington Mutual, Inc. and Harris Trust and Savings Bank, as Trustee,
dated August 25, 1995, affecting the rights of the holders of the
Registrant's Senior Notes.
4.7 Form of Certificate of Designations of the Series F Preferred Stock.
5.1 Opinion of Foster Pepper & Shefelman PLLC.
8.1 Tax Opinion of Foster Pepper & Shefelman PLLC.
21.1* List of Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Foster Pepper & Shefelman PLLC (included in its Opinions
filed as Exhibits 5.1 and 8.1).
23.5 Consent of Lehman Brothers Inc.
23.6 Consent of Goldman, Sachs & Co.
23.7 Consent of Merrill Lynch & Co.
24.2 Powers of Attorney (included on the signature page of this Registration
Statement).
99.1 Form of Proxy Card of Washington Mutual, Inc. (Common).
99.2 Form of Proxy Card of Washington Mutual, Inc. (Preferred).
99.3 Form of Proxy Card of Great Western Financial Corporation.
</TABLE>
- ---------------
* Incorporated by reference to Washington Mutual, Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K for the year ended December
31, 1996 (File No. 0-25188).
** Incorporated by reference to Washington Mutual, Inc. Current Report on Form
8-K dated November 29, 1994 (File No. 025188).
II-2
<PAGE> 184
ITEM 22. UNDERTAKINGS
The Undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
by a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 185
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Seattle, State of Washington on May 12, 1997.
WASHINGTON MUTUAL, INC.
By: /s/ MARC R. KITTNER
-----------------------------------
Marc R. Kittner
Title: Senior Vice President
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated below on the 12th day of May, 1997.
<TABLE>
<S> <C>
* *
- --------------------------------------------- ---------------------------------------------
Kerry K. Killinger William A. Longbrake
Chairman, President and Executive Vice President and
Chief Executive Officer; Director Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
*
---------------------------------------------
Douglas G. Wisdorf
Senior Vice President and Controller
(Principal Accounting Officer)
*
- --------------------------------------------- ---------------------------------------------
Douglas P.Beighle Anne V. Farrell
Director Director
*
- --------------------------------------------- ---------------------------------------------
David Bonderman William P. Gerberding
Director Director
*
- --------------------------------------------- ---------------------------------------------
J. Taylor Crandall Dr. Samuel B. McKinney
Director Director
*
- --------------------------------------------- ---------------------------------------------
Roger H. Eigsti Michael K. Murphy
Director Director
*
- --------------------------------------------- ---------------------------------------------
John W. Elllis William G. Reed, Jr.
Director Director
*
- --------------------------------------------- ---------------------------------------------
Daniel J. Evans James H. Stever
Director Director
</TABLE>
*By: /s/ MARC R. KITTNER
---------------------------------
Marc R. Kittner
Attorney-in-Fact
II-4
<PAGE> 186
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED
- ----------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
2.1 Agreement and Plan of Merger between the Registrant, NACI and Great
Western, dated March 5, 1997. (Incorporated by reference to Appendix A
of the Joint Proxy Statement/Prospectus included in this Registration
Statement). Registrant agrees to furnish supplementally to the
Commission upon request a copy of any omitted schedule.................
3.1* Restated Articles of Incorporation of the Registrant, as amended (the
"Washington Mutual Articles")..........................................
3.2* Bylaws of the Registrant (Incorporated by reference to the Washington
Mutual, Inc. Annual Report to the Securities and Exchange Commission on
Form 10-K for the year ended December 31, 1995. File No. 0-25188)......
4.1* Article II, Sections D(2), D(3), and D(4) of the Washington Mutual
Articles, which define the rights of holders of the Series C Preferred
Stock and the Series E Preferred Stock (filed together with Exhibit 3.1
hereto)................................................................
4.2** Rights Agreement, dated October 16, 1990...............................
4.3** Amendment No. 1 to the Rights Agreement, dated October 31, 1994........
4.4** Supplement to Rights Agreement, dated November 29, 1994................
4.5* Form of Indenture between the Registrant and Harris Trust and Savings
Bank, as Trustee, for the Washington Mutual Senior Unsecured 7 1/4%
Notes ("Senior Notes") (incorporated by reference to Washington Mutual,
Inc. Registration Statement on Form S-3, Registration No. 33-93850)....
4.6* First Supplemental Indenture dated November 26, 1996 and Second
Supplemental Indenture dated January 6, 1997 to the Indenture between
Washington Mutual, Inc. and Harris Trust and Savings Bank, as Trustee,
dated August 25, 1995, affecting the rights of the holders of the
Registrant's Senior Notes..............................................
4.7 Form of Certificate of Designations of the Series F Preferred Stock....
5.1 Opinion of Foster Pepper & Shefelman PLLC..............................
8.1 Tax Opinion of Foster Pepper & Shefelman PLLC..........................
21.1* List of Subsidiaries of the Registrant.................................
23.1 Consent of Deloitte & Touche LLP.......................................
23.2 Consent of Price Waterhouse LLP........................................
23.3 Consent of KPMG Peat Marwick LLP.......................................
23.4 Consent of Foster Pepper & Shefelman PLLC (included in its Opinions
filed as Exhibits 5.1 and 8.1).........................................
23.5 Consent of Lehman Brothers Inc.........................................
23.6 Consent of Goldman, Sachs & Co.........................................
23.7 Consent of Merrill Lynch & Co..........................................
24.2 Powers of Attorney (included on the signature page of this Registration
Statement).............................................................
99.1 Form of Proxy Card of Washington Mutual, Inc. (Common)
99.2 Form of Proxy Card of Washington Mutual, Inc. (Preferred)
99.3 Form of Proxy card of Great Western Financial Corporation.
</TABLE>
- ---------------
* Incorporated by reference to Washington Mutual, Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K for the year ended December
31, 1996 (File No. 0-25188).
** Incorporated by reference to Washington Mutual, Inc. Current Report on Form
8-K dated November 29, 1994 (File No. 025188).
<PAGE> 1
EXHIBIT 4.7
FORM OF
DESIGNATIONS OF RIGHTS AND PREFERENCES
OF THE
8.30% CUMULATIVE PREFERRED STOCK
NO PAR VALUE PER SHARE
1. Designation. The designation of the series of Preferred Stock shall be
8.30% Cumulative Preferred Stock, Series F, no par value, of Washington Mutual,
Inc. (the "Corporation") (hereinafter referred to as "Cumulative Preferred
Stock"), and the number of shares constituting such series shall be 660,000,
which n umber may be increased (but not above the total number of authorized but
unissued shares of Preferred Stock of the Corporation) or decreased (but not
below the number of shares then outstanding) from time to time by the Board of
Directors or any authorized committee thereof.
2. Dividend Rights.
(a) The holders of shares of Cumulative Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cash dividends, accruing from [INSERT FIRST DAY OF
DIVIDEND PERIOD IN WHICH EFFECTIVE TIME OCCURS], at the annual rate of 8.30% per
annum, and no more, payable, when, as and if declared by the Board of Directors,
quarterly on February 1, May 1, August 1, and November 1 of each year (each
quarterly period ending on any such date being hereinafter referred to as a
"dividend period"), commencing [INSERT LAST DAY OF DIVIDEND PERIOD IN WHICH
EFFECTIVE TIME OCCURS], at such annual rate. Each dividend will be payable to
holders of record as they appear on the stock books of the Corporation on such
record dates, not exceeding 45 days preceding the payment dates thereof, as
shall be fixed by the Board of Directors of the Corporation. The date of initial
issuance of shares of Cumulative Preferred Stock is hereinafter referred to as
the "Issue Date". Dividends payable on the Cumulative Preferred Stock (i) for
any period other than a full dividend period, shall be computed on the basis of
a 360-day year consisting of twelve 30-day months and (ii) for each full
dividend period, shall be computed by dividing the annual dividend rate by four.
<PAGE> 2
(b) Dividends on shares of Cumulative Preferred Stock shall be cumulative
from the Issue Date whether or not there shall be funds legally available for
the payment thereof. If there shall be outstanding shares of any other series of
Preferred Stock ranking on a parity with the Cumulative Preferred Stock as to
dividends, no full dividends shall be declared or paid or set apart for payment
on any such other series for any period unless full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Cumulative Preferred
Stock for all dividend periods terminating on or prior to the data of payment of
such dividends. If dividends on the Cumulative Preferred Stock and on any other
series of Preferred Stock ranking on a parity as to dividends with the
Cumulative Preferred Stock are in arrears, in making any dividend payment on
account of such arrears, the Corporation shall make payments ratably upon all
outstanding shares of the Cumulative Preferred Stock and shares of such other
series of Preferred Stock in proportion to the respective amounts of dividends
in arrears on the Cumulative Preferred Stock and on such other series of
Preferred Stock to the data of such dividend payment. Holders of shares of the
Cumulative Preferred Stock shall not be entitled to any dividend, whether
payable in cash, property or stock, in excess of full cumulative dividends on
such shares. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments which may be in arrears.
(c) Unless full cumulative dividends on all outstanding shares of the
Cumulative Preferred Stock shall have been paid or declared and set aside for
payment for all past dividend periods and the Corporation is not in default or
in arrears in respect to the optional redemption of any shares of Cumulative
Preferred Stock, no dividend shall be declared upon the Common Stock or upon any
other stock ranking junior to the Cumulative Preferred Stock as to dividends or
the distribution of assets upon liquidation, dissolution or winding up of the
affairs of the Corporation (the Common Stock and any other such stock being
herein referred to as "Junior Stock"), nor shall the Corporation make any
payment on account of, or set apart money for, the purchase, redemption or other
retirement of, or for a sinking or other analogous fund for any shares of Junior
Stock or make any distribution in respect thereof, whether in cash or property
or in obligations or stock of the Corporation, other than Junior Stock which is
neither convertible into, nor exchangeable or exercisable for, any securities of
the Corporation other than Junior Stock and other
<PAGE> 3
than the rights (the "Rights") distributed pursuant to the Rights Agreement
previously entered into by and between Washington Mutual Savings Bank ("WMSB")
and First Interstate Bank of Washington, N.A. ("First Interstate") dated as of
October 16, 1990, as amended by the Amendment No. 1 to Rights Agreement dated as
of October 31, 1994 by and between WMSB and First Interstate and as supplemented
by the Supplement to Rights Agreement dated as of November 29, 1994 by and
between WMHC and First Interstate (as so amended and supplemented, the "Rights
Agreement").
3. Liquidation Preferences.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, the holders of
Cumulative Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders an amount equal to $250
per share of Cumulative Preferred Stock plus an amount equal to any accrued and
unpaid dividends thereon to and including the data of such distribution, and no
more, before any distribution shall be made to the holders of Common Stock or
any other class of stock of the Corporation ranking junior to the Cumulative
Preferred Stock as to the distribution of assets upon any such liquidation,
dissolution or winding up. After payment of such liquidating distributions, the
holders of shares of Cumulative Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Corporation.
(b) In the event the assets of the Corporation available for distribution
to stockholders upon any liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, shall be insufficient to
pay in full the amounts payable with respect to the Cumulative Preferred Stock
and any other shares of Preferred Stock ranking on a parity with the Cumulative
Preferred Stock as to the distribution of assets upon any such liquidation,
dissolution or winding up, the holders of Cumulative Preferred Stock and the
holders of such other Preferred Stock shall share ratably in any distribution of
assets of the Corporation in proportion to the full respective preferential
amounts to which they are entitled.
(c) The merger or consolidation of the Corporation into or with any other
corporation, the merger or consolidation of any other corporation into or with
the Corporation or the sale of the assets of the Corporation substantially as an
entirety shall not
<PAGE> 4
be deemed a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this Section 3.
4. Redemption.
(a) The Corporation, at its option, may redeem any or all shares of
Cumulative Preferred Stock, at any time or from time to time, on or after
November 1, 1997, at a redemption price of $250.00 per share, plus an amount
equal to accrued and unpaid dividends thereon to and including the date of
redemption (the "Redemption Price").
(b) If less than all the outstanding shares of Cumulative Preferred Stock
are to be redeemed, the shares to be redeemed shall be selected pro rata
(subject to rounding to avoid fractional shares) as nearly as practicable or by
lot, or by such other method as the Board of Directors may determine to be
equitable.
(c) Notice of any redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the date fixed
for redemption to the holders of record of the shares of Cumulative Preferred
Stock to be redeemed, at their respective addresses appearing on the stock books
of the Corporation. Notice so mailed shall be conclusively presumed to have duly
given whether or not actually received. Such notice shall state: (i) the date
fixed for redemption; (ii) the Redemption Price; (iii) the number of shares of
Cumulative Preferred Stock to be redeemed and if less than all the shares held
by such holder are to be redeemed, the number of such shares to be so redeemed
from such holder; (iv) the place where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (v) that after the close of
business on such data fixed for redemption the shares to be redeemed shall not
accrue dividends. If such notice is mailed as aforesaid, and if on or before the
date fixed for redemption funds sufficient to redeem the shares called for
redemption are set aside by the Corporation in trust for the account of the
holders of the shares to be redeemed, notwithstanding the fact that any
certificate for shares called for redemption shall not have been surrendered for
cancellation, from and after the related redemption date the shares represented
thereby so called for redemption shall be deemed to be no longer outstanding,
dividends thereon shall cease to accrue, and all rights of the holder of such
shares s stockholders of the Corporation shall cease, except the right to
<PAGE> 5
receive the Redemption Price, without interest, upon surrender of the
certificate representing such shares. Upon surrender in accordance with the
aforesaid notice of the certificate for any shares so redeemed (duly endorsed or
accompanied by appropriate instruments of transfer, if so required by the
Corporation in such notice), the holders of record of such shares shall be
entitled to receive the Redemption Price, without interest. In case fewer than
all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof.
(d) At the option of the Corporation, if notice of redemption is mailed
as aforesaid, and if prior to the date fixed for redemption funds sufficient to
pay in full the Redemption Price are deposited in trust, for the account of the
holders of the shares to be redeemed, with a bank or trust company named in such
notice doing business in the Borough of Manhattan, The City of New York, State
of New York or The City of Los Angeles, State of California and having capital
surplus and undivided profits of at least $50 million (which bank or trust
company also may be the transfer agent and/or paying agent for the Cumulative
Preferred Stock), notwithstanding the fact that any certificate(s) for shares
called for redemption shall not have been surrendered for cancellation, on and
after such date of deposit the shares represented thereby so called for
redemption shall be deemed to be no longer outstanding, and all rights of the
holders of such shares as stockholders of the Corporation shall cease, except
the right of the holders thereof to receive out of the funds so deposit din
trust the Redemption Price, without interest, upon surrender of the
certificate(s) representing such shares. Any funds so deposited with such bank
or trust company which shall remain unclaimed by the holders of shares called
for redemption at the end of two years after the related redemption date shall
be repaid to the Corporation, on demand, and thereafter the holder of any such
shares shall look only to the Corporation for the payment, without interest
thereon, of the Redemption Price.
(e) Any provision of this Section 4 to the contrary notwithstanding, in
the event that any quarterly dividend payable on the Cumulative Preferred Stock
or any dividend on any other series of Preferred Stock of the Corporation
ranking on a parity with the Cumulative Preferred Stock as to dividends and
distribution of assets upon liquidation, dissolution or winding up of the
affairs of the Corporation (the "Parity Preferred Stock") shall be in arrears
and until all such dividends in shall have
<PAGE> 6
been paid or declared and set apart for payment, the Corporation shall not
redeem any shares of Cumulative Preferred Stock or Parity Preferred Stock unless
all outstanding shares of Cumulative Preferred Stock and Parity Preferred Stock
are simultaneously redeemed and shall not purchase or otherwise acquire any
shares of Cumulative Preferred Stock or the Parity Preferred Stock except in
accordance with a purchase or exchange offer made on the same terms to all
holders of record of Cumulative Preferred Stock and Parity Preferred Stock for
the purchase of all outstanding shares thereof.
5. Voting Rights. Other than as required by applicable law,
the Cumulative Preferred stock shall not have any voting powers
either general or special, except that:
(a) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of the
holders of at least 66-2/3% of all of the shares of the Cumulative Preferred
Stock, and any ones or more other series of Parity Preferred Stock which by its
terms provides for similar voting rights (the "other Preferred Stock") and is
similarly affected, at the time outstanding, given in person or by proxy, either
in writing or by a vote at a meeting called for the purpose at which the holders
of shares of the Cumulative Preferred Stock and any such other series of Other
Preferred Stock shall vote together as a separate and single class, shall be
necessary for authorizing, effecting or validating the amendment, alteration or
repeal of, or any other change in, any of the provisions of the Restated
Certificate of Incorporation or of any amendment or supplement thereto
(including any Certificate of Designations or any similar document relating to
any series of Preferred Stock) of the Corporation, which would adversely affect
the preferences, rights, powers or privileges, qualifications, limitations and
restrictions of the Cumulative Preferred Stock and any such other series of
Other Preferred Stock.
(b) Unless the vote or consent of the holders of a greater number of
shares shall then be required by law, the affirmative vote or consent of the
holders of at least 66-2/3% of all of the shares of the Cumulative Preferred
Stock and any series of other Preferred Stock of the Corporation at the time
outstanding, given in person or by proxy, either in writing or by a vote at a
meeting called for the purpose at which the holders of shares of the Cumulative
Preferred Stock and any such series of Other Preferred Stock of the Corporation
shall vote together as s single class
<PAGE> 7
without regard to series, shall be necessary to create, authorize or issue, or
reclassify any authorized stock of the Corporation into, or create, authorize or
issue any obligation or security convertible into or evidencing a right to
purchase, or increase the authorized amount of, any shares of any class of stock
of the Corporation ranking prior to the Cumulative Preferred Stock and any
series of Other Preferred Stock. Subject to the foregoing, the Corporation's
Restated Certificate of Incorporation may be amended to the increase the number
of authorized shares of Preferred Stock without the vote of the holders of
Preferred stock, including the Cumulative Preferred Stock.
(c) Whenever, at any time or times, dividends payable on the shares of
Cumulative Preferred Stock shall be in arrears in an amount equal to at least
six full quarterly dividends on shares of the Cumulative Preferred Stock at the
time outstanding, the holders of the outstanding shares of Cumulative Preferred
Stock shall have the exclusive right, voting separately as a class together with
holders of shares of any one or more series of Other Preferred Stock to elect
two directors of the Corporation at the Corporation's next annual meeting of
stockholders and at each subsequent annual meeting of stockholders at which such
directors or their successors are to be elected. At elections for such
directors, each holder of Cumulative Preferred Stock shall be entitled to one
vote for each share held (the holders of shares of any series of Other Preferred
Stock being entitled to such number of votes, if any, for each such share of
Other Preferred Stock held as may be granted to them). Upon the vesting of such
right of the holders of Cumulative Preferred Stock, the maximum authorized
number of members of the Board of Directors shall automatically be increased by
two and the two vacancies so created shall be filled by vote of the holders of
the outstanding shares of Cumulative Preferred Stock (either alone or together
with the holders of shares of any series of Other Preferred Stock) as
hereinafter set forth. The right of the holders of Cumulative preferred Stock,
voting separately as a class to elect (either alone or together with the holders
of shares of any series of Other Preferred Stock) members of the Board of
Directors of the Corporation as aforesaid shall continue until such time as all
dividends accumulated on the Cumulative Preferred Stock shall have been paid in
full or declared and st apart for payment, at which time such right shall
terminate, except as herein or by law expressly provided, subject to revesting
in the event of each and every subsequent default of the character above
mentioned.
<PAGE> 8
(d) Each director elected by the holders of shares of Cumulative
Preferred Stock (either alone or together with the holders of shares of any
series of Other Preferred Stock) shall continue to serve as such director for
the full term for which he or she shall have been elected, notwithstanding that
prior to the end of such term all dividends on the Cumulative Preferred Stock
shall have been paid in full. If the office of any director elected by the
holders of Cumulative Preferred Stock voting as a class becomes vacant by reason
of death, resignation, retirement, disqualification, removal from office, or
otherwise, such vacancy shall be filled as provided in the Restated Certificate
of Incorporation of the Corporation and the applicable provisions of the General
Corporation Law of the State of Delaware. Whenever the term of office of the
directors selected by the holders of the Cumulative Preferred Stock and the
special voting powers vested in the holders of Cumulative Preferred Stock as
provided in this subsection (d) shall have expired, the number of directors
shall be such number as may be provided for in the Restated Certificate of
Incorporation or the By-Law, as amended, irrespective of any increase made
pursuant to the provisions of this subsection (d).
6. Reacquired Shares. Shares of Cumulative Preferred Stock
redeemed or otherwise purchased or acquired by the Corporation
shall be restored to the status of authorized but unissued shares
of Preferred Stock without designation as to series.
7. No Sinking Fund. Shares of Cumulative Preferred Stock
are not subject to the operation of a sinking fund or other
obligation of the Corporation to redeem or retire the Cumulative
Preferred Stock.
8. Rank. The Cumulative Preferred Stock shall rank on a parity, both as
to the payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up of the affairs of the Corporation, with the
Corporation's 7.60% Noncumulative Perpetual Preferred Stock, Series E. The
Cumulative Preferred Stock shall rank prior, both as to the payment of dividends
and the distribution of assets upon dissolution, liquidation or winding up of
the affairs of the Corporation, to the Common Stock of the Corporation.
<PAGE> 1
EXHIBIT 8.1
[FOSTER PEPPER & SHEFELMAN PLLC LETTERHEAD]
May 12, 1997
Washington Mutual, Inc.
1201 Third Avenue
Seattle, Washington 98101
Ladies and Gentlemen:
You have requested our opinion regarding the discussion of the material
U.S. federal income tax consequences under the captions "SUMMARY--Certain
Federal Income Tax Consequences" and "THE WASHINGTON MUTUAL/GREAT WESTERN
MERGER--Certain Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus (the "Joint Proxy Statement/Prospectus") which is included
in the Registration Statement on Form S-4 (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended(the "Securities Act"). The Joint Proxy
Statement/Prospectus relates to the proposed merger of Great Western Financial
Corporation with and into New American Capital, Inc., a wholly owned subsidiary
of Washington Mutual, Inc. This opinion is delivered in accordance with the
requirements of Item 601(b)(8) of Regulation S-K under the Securities Act.
We have reviewed the Joint Proxy Statement/Prospectus and such other
materials as we have deemed necessary or appropriate as a basis for our opinion
described therein, and have considered the applicable provisions of the Internal
Revenue Code of 1986, as amended, Treasury regulations, pertinent judicial
authorities, rulings of the Internal Revenue Service, and such other authorities
as we have considered relevant to such opinion.
<PAGE> 2
Based upon the foregoing, it is our opinion that the statements made
under the captions "SUMMARY--Certain Federal Income Tax Consequences" and "THE
WASHINGTON MUTUAL/GREAT WESTERN MERGER-- Certain Federal Income Tax
Consequences" in the Joint Proxy Statement/Prospectus, to the extent that they
constitute matters of law or legal conclusions, are correct in all material
respects.
In accordance with the requirements of Item 601(b)(23) of Regulation S-K
under the Securities Act, we hereby consent to the use of our name under the
caption "THE WASHINGTON MUTUAL/GREAT WESTERN MERGER--Certain Federal Income Tax
Consequences" in the Joint Proxy Statement/Prospectus and to the filing of this
opinion as an Exhibit to the Registration Statement. In giving this consent, we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission thereunder.
Very truly yours,
/s/ Foster Pepper & Shefelman PLLC
<PAGE> 1
EXHIBIT 23.6
PERSONAL AND CONFIDENTIAL
- -------------------------
May 9, 1997
Board of Directors
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, California 91311
Re: Amendment No. 2 to the Registration Statement on Form S-4 of
Washington Mutual, Inc. dated May 9, 1997, including the
Joint Proxy Statement/Prospectus of Washington Mutual, Inc. and
Great Western Financial Corporation
Gentlemen and Madame:
Reference is made to our opinion letters dated March 5, 1997 and March 25, 1997
with respect to the fairness to the holders of the outstanding shares of Common
Stock, par value $1.00 per share (the "Shares"), of Great Western Financial
Corporation (the "Company") of the exchange ratio of 0.9 shares of Common Stock,
no par value, of Washington Mutual, Inc. to be received for each Share pursuant
to the merger contemplated by the Agreement and Plan of Merger dated as of March
5, 1997 by and among Washington Mutual, Inc., New American Capital, Inc. and the
Company.
The foregoing opinion letters are for the information and assistance of the
Board of Directors of the Company in connection with its consideration of the
transaction contemplated therein and are not to be used, circulated, quoted or
otherwise referred to for any other purpose, nor are they to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. We understand that the Company has determined to include our
opinion in the Joint Proxy Statement/Prospectus included in the above-mentioned
Registration Statement.
In that regard, we hereby consent to the reference to the opinions of our Firm
under the captions "SUMMARY - The Washington Mutual/Great Western Merger -
Opinions of Financial Advisors," THE WASHINGTON MUTUAL/GREAT WESTERN MERGER -
Background of the Washington Mutual/Great Western Merger," "THE WASHINGTON
MUTUAL/GREAT WESTERN MERGER - Reasons for the Washington Mutual/Great Western
Merger; Recommendations of the Boards of Directors" and "THE WASHINGTON
MUTUAL/GREAT WESTERN MERGER - Opinions of Financial Advisors" and to the
inclusion of the foregoing opinion in the Joint Proxy Statement/Prospectus
included in the above-mentioned Registration Statement. In giving such consent,
we do not thereby admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933 or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
<PAGE> 2
[GOLDMAN, SACHS & CO. LETTERHEAD]
EXHIBIT 23.6
May 9, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir/Madam:
Enclosed herewith please find the consent of Goldman, Sachs & Co. to the
reference to the opinion of our Firm in certain specified sections of the
Registration Statement on Form S-4 of Washington Mutual, Inc. relating to the
Common Stock, no par value, of Washington Mutual, Inc. being registered in
connection with the proposed merger among Washington Mutual, Inc., New American
Capital, Inc. and Great Western Financial Corporation (the "Registration
Statement") and to the inclusion of the foregoing opinion in the Joint Proxy
Statement/Prospectus included in such Registration Statement. We understand
that there are ongoing discussion between Catherine T. Dixon of the Securities
and Exchange Commission and our counsel relating to the form of consents
provided by Goldman, Sachs & Co. The content and nature of the enclosed consent
does not in any way concede the issues under contention in such discussions.
However, the language to which the Securities and Exchange Commission has
expressed an objection has been deleted.
Sincerely,
/s/ TODD G. OWENS
- -----------------------------
Todd G. Owens
<PAGE> 1
[Merrill Lynch Letterhead]
EXHIBIT 23.7
May 9, 1997
Great Western Financial Corporation
9200 Oakdale Avenue
Chatsworth, CA 91311
Members of the Board:
We hereby consent to the use of our opinion letters to the Board of Directors of
Great Western Financial Corporation, included as Appendix E and F to the
Prospectus/Joint Proxy Statement which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of Great Western
Financial Corporation with Washington Mutual, Inc., and to the references to
such opinions in such Prospectus/Joint Proxy Statement under the captions
"Summary," "The WASHINGTON MUTUAL/GREAT WESTERN Merger - Reasons for the
Washington Mutual/Great Western Merger; Recommendations of the Boards
of Directors," and "Opinions of Great Western Financial Advisors." In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "experts" as
used in the Securities Act of 1933, as amended, or the rules and regulations of
the Securities and Exchange Commission thereunder.
Very truly yours,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
/s/ John P. Esposito
Name: John P. Esposito
Title: Vice President
<PAGE> 1
EXHIBIT 99.3
GREAT WESTERN FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF GREAT WESTERN FINANCIAL CORPORATION
The undersigned, a holder of shares of common stock, par value $1.00 per
share ("Common Stock"), of Great Western Financial Corporation ("Great
Western"), acting with respect to all shares of Common Stock held by the
undersigned, hereby appoints John F. Maher and James F. Montgomery, and each of
them, as proxies of the undersigned, with full power of substitution, to
represent and to vote such shares of Common Stock, with like effect as if the
undersigned were personally present and voting at the Special Meeting of
Stockholders of Great Western to be held on Friday, June 13, 1997, and at any
adjournments, postponements, or reschedulings thereof.
The shares of Common Stock represented by this proxy will be voted as
directed by the stockholder. UNLESS OTHERWISE DIRECTED, SUCH SHARES WILL BE
VOTED "FOR" THE APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER AND
THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY AND OTHERWISE IN THE
DISCRETION OF THE PROXY HOLDERS.
(continued on other side)
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL AND
ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
1. To approve and adopt the Agreement and Plan of Merger, dated as of March 5,
1997, by and among Washington Mutual, Inc., New American Capital, Inc., a
wholly owned subsidiary of Washington Mutual, Inc., and Great Western
Financial Corporation and the transactions contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENTS,
POSTPONEMENTS OR RESCHEDULINGS THEREOF.
Please sign your name below exactly
as it appears hereon. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation,
please sign in full corporate name by
president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
Date: , 1997
-------------------------------------
Signature:
-------------------------------------
Title:
-------------------------------------
Signature (if held jointly):
-------------------------------------
Title:
-------------------------------------
PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY.
