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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20529
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO :
COMMISSION FILE NUMBER 0-25188
WASHINGTON MUTUAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WASHINGTON 91-1653725
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1201 THIRD AVENUE 98101
SEATTLE, WASHINGTON (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (206) 461-2000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock The Nasdaq Stock Market
9.12% Noncumulative Perpetual Preferred Stock, Series C The Nasdaq Stock Market
7.60% Noncumulative Perpetual Preferred Stock, Series E The Nasdaq Stock Market
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. YES X NO __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of January 31, 1997:
COMMON STOCK -- $5,625,829,311(1)
(1) Does not include any value attributable to 8,000,000 shares that are held in
escrow and not traded.
The number of shares outstanding of the issuer's classes of common stock as
of January 31, 1997:
COMMON STOCK -- 126,272,191(2)
(2) Includes the 8,000,000 shares held in escrow.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Annual Meeting of
Shareholders to be held April 15, 1997, are incorporated by reference into Part
III.
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WASHINGTON MUTUAL, INC.
1996 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I.................................................................................. 1
ITEM 1. BUSINESS...................................................................... 1
The Company........................................................................ 1
The Reorganization................................................................. 1
Business Strategy.................................................................. 2
Washington Mutual's Operating Subsidiaries......................................... 2
Lending Activities................................................................. 4
Asset Quality...................................................................... 9
Investing Activities............................................................... 10
Sources of Funds................................................................... 12
Asset and Liability Management..................................................... 14
Business Combinations.............................................................. 16
Employees.......................................................................... 16
Taxation........................................................................... 16
Environmental Regulation........................................................... 17
Regulation and Supervision......................................................... 18
Competitive Environment............................................................ 24
Principal Officers................................................................. 24
ITEM 2. PROPERTIES.................................................................... 25
ITEM 3. LEGAL PROCEEDINGS............................................................. 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................... 26
PART II................................................................................. 26
ITEM 5. MARKET FOR WASHINGTON MUTUAL'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS............................................................................ 26
Common Stock....................................................................... 26
Preferred Stock.................................................................... 27
Payment of Dividends and Policy.................................................... 27
ITEM 6. SELECTED FINANCIAL DATA....................................................... 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF
OPERATIONS......................................................................... 30
General............................................................................ 30
Results of Operations.............................................................. 30
Review of Financial Position....................................................... 39
Asset Quality...................................................................... 42
Interest Rate Risk Management...................................................... 48
Liquidity.......................................................................... 53
Capital Requirements............................................................... 53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................... 54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE......................................................................... 54
PART III................................................................................ 54
PART IV................................................................................. 54
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............. 54
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PART I
ITEM 1. BUSINESS
THE COMPANY
With a history dating back to 1889, Washington Mutual, Inc. ("Washington
Mutual" or the "Company") is a regional financial services company committed to
serving consumers and small to mid-sized businesses throughout the Western
United States. Through its subsidiaries, the Company 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,
the Company 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,
while ASB was the second largest originator of such loans in California.
- COMMERCIAL BANKING ACTIVITIES. Through the commercial banking division of
WMB, at December 31, 1996, the Company 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"), the Company 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"), the Company offers full service
securities brokerage and acts as the investment advisor to and the
distributor of mutual funds.
The Company operates in Washington, California, Oregon, Utah, Idaho,
Montana, Arizona, Colorado and Nevada. At December 31, 1996, the Company had
consolidated assets of $44.6 billion, deposits of $24.1 billion and
stockholders' equity of $2.4 billion.
On December 20, 1996, Washington Mutual consummated the merger of Keystone
Holdings, Inc. ("Keystone Holdings") with and into the Company and certain other
transactions in connection therewith (the "Keystone Transaction") and thereby
acquired ASB. Washington Mutual issued 47,883,333 shares of common stock to
complete the Keystone Transaction. At December 31, 1996, ASB had assets of $21.9
billion and deposits of $12.9 billion and operated 158 branches and 66 loan
centers, substantially all of which were located in California.
Washington Mutual continues to operate ASB under the name "American Savings
Bank" in ASB's markets. Washington Mutual intends to introduce its consumer
banking products and approaches throughout ASB's branch system and to expand
ASB's loan origination capabilities.
THE REORGANIZATION
Washington Mutual was formed in August 1994 by its predecessor, Washington
Mutual Savings Bank ("WMSB"), a Washington state-chartered savings bank, for the
purpose of serving as a holding company in the reorganization of WMSB into a
holding company structure (the "Reorganization"). The Reorganization was
completed in November 1994 through the merger of WMSB into WMB, with WMB as the
surviving entity. As a result of the Reorganization, Washington Mutual became
the parent company of the companies of which WMSB was, prior to the
Reorganization, the parent company.
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As a result of the Reorganization, all common and preferred shareholders of
WMSB became shareholders of Washington Mutual on a one-for-one basis with
substantially the same relative rights, privileges and preferences. Except as
noted otherwise, references herein to "Washington Mutual" or the "Company" refer
to both (i) Washington Mutual, Inc. and its consolidated subsidiaries after the
consummation of the Reorganization; and (ii) WMSB and its consolidated
subsidiaries prior to the consummation of the Reorganization.
BUSINESS STRATEGY
The main elements of the Company's strategic plan are:
- Strengthen the Company's consumer banking franchise throughout the
West. The Company focuses on increasing the number of households served
within its market areas and the scope of its customer relationships.
Washington Mutual primarily attracts new customers by offering
competitive consumer-oriented deposit products, including "Free Checking"
and money market accounts. The Company also offers residential mortgages
and a variety of higher margin consumer loan products, including
manufactured housing loans, home equity loans and lines of credit,
automobile and boat loans, student loans, and unsecured consumer loans,
as well as investment products such as mutual funds and annuities. To
further its penetration within its principal markets, Washington Mutual
delivers its products through several alternative distribution channels
that allow it to target sub-markets within its franchise area. These
alternative delivery channels complement the Company's freestanding
financial center network and include in-store financial centers, loan
centers, interactive banking kiosks, and telephone banking operations.
The Company plans to strengthen its franchise through the continued
introduction of its consumer banking products to all of its market areas,
targeted de novo branch openings, and selected in-market acquisitions.
- Expand the commercial banking franchise. The Company is developing a
growing commercial banking presence in Washington, Oregon and Idaho. The
commercial banking division of WMB, which operates primarily as "Western
Bank," focuses on serving the needs of small and mid-sized businesses and
offers a full range of commercial banking products, including business
checking accounts and secured and unsecured loans. The lending activities
of the commercial banking division generally provide higher margins than
the Company's residential mortgage lending activities. The Company plans
to expand its commercial banking activities within its existing market
areas and eventually to other parts of the Company's franchise.
- Limit sensitivity to interest rate movements. The Company intends to
limit the sensitivity of its net interest income to movements in market
interest rates. Through purchases and sales of loans and mortgage-backed
securities and the retention of internally originated adjustable-rate
mortgages ("ARMs"), the Company has decreased the percentage of
fixed-rate assets and increased the percentage of adjustable-rate assets
in its loan and investment portfolios in order to more closely match its
liability base. The acquisition of ASB, with its portfolio of
adjustable-rate loans and mortgage-backed securities ("MBS") furthered
this strategy.
The Company historically has used acquisitions to further its strategic
plan. Since 1988, the Company has completed 20 acquisitions, two of which were
commercial banks, which have expanded the Company's geographic service area
beyond the state of Washington. The Company anticipates that acquisitions will
continue to be an important element of its strategic plan in the future.
WASHINGTON MUTUAL'S OPERATING SUBSIDIARIES
Washington Mutual Bank. WMB's principal business is providing a broad
range of financial services, primarily to consumers. These services include
accepting deposits from the general public and making residential mortgage
loans, consumer loans and limited types of commercial real estate loans,
primarily loans secured by multi-family properties. Beginning in the latter half
of 1995, WMB, through its mergers with Enterprise and Western, diversified its
activities by entering into commercial banking.
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At December 31, 1996, WMB had assets of $20.6 billion, deposits of $10.8
billion and operated 226 consumer financial centers, of which 155 were in
Washington and 71 were in Oregon; 27 loan centers, of which 19 were in
Washington and eight were in Oregon; and 48 full-service business branches, of
which two were in Washington and 46 were in Oregon. WMB operates under Title 32
(Mutual Savings Banks) of the Revised Code of Washington. Its deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC") through the Bank
Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF").
On January 15, 1997, WMB completed the acquisition of United Western
Financial Group, Inc. ("United") and its subsidiaries, including United Savings
Bank, Uniwest Service Corporation and Western Mortgage Loan Corporation, for
approximately $79.5 million in cash. United operated eight branches in Utah, one
branch in Idaho and seven loan production offices. At January 15, 1997, United
had assets of $404.1 million and deposits of $299.9 million.
American Savings Bank, F.A. ASB's principal business is accepting deposits
from the general public and making residential mortgage loans and loans secured
by multi-family properties. At December 31, 1996, ASB had assets of $21.9
billion, deposits of $12.9 billion and operated 158 branches in California and
66 loan offices, of which 61 were in California, two in Arizona, two in Colorado
and one in Nevada. ASB's deposits are insured by the FDIC through the SAIF.
Washington Mutual Bank fsb. WMBfsb's principal business includes accepting
deposits from the general public and making residential loans, consumer loans
and limited types of commercial real estate loans, primarily loans secured by
multi-family properties. At December 31, 1996, WMBfsb had assets of $935.3
million, deposits of $445.4 million, and operated 29 financial centers, of which
19 were in Utah, seven were in Idaho, two were in Montana and one was in Oregon,
and operated one loan center in Idaho and two in Utah. On November 30, 1996,
WMBfsb acquired by merger Utah Federal Savings Bank ("Utah Federal"), which
operated five branches and two loan production offices in Utah and had assets of
$122.1 million, deposits of $106.7 million and stockholders' equity of $12.0
million. WMBfsb's deposits are insured by the FDIC through the SAIF.
WM Life Insurance Company. WM Life, an Arizona-domiciled life insurance
company, is licensed under state law to issue annuities in seven states. In
addition, WM Life owns Empire Life Insurance Co. ("Empire"), a
Washington-domiciled life insurance company, which is currently licensed under
state law to issue annuities in 28 states. WM Life currently issues fixed and
variable flexible premium deferred annuities, single premium fixed deferred
annuities and single premium immediate annuities. Empire currently issues fixed
flexible premium deferred annuities and single premium immediate annuities. Both
companies conduct business through licensed independent agents. The majority of
such agents are employees of affiliates of the Company and operate in WMB's
financial centers. Annuities presently are issued primarily in Washington and
Oregon. At December 31, 1996, WM Life had assets of $1.1 billion.
ASB Insurance Agency, Inc. ASB Insurance is a registered insurance broker
that offers a wide array of products, including life, property and casualty
insurance and annuities in California.
ASB Financial Services, Inc. ASB Financial is a registered broker-dealer
that distributes a broad array of mutual funds in California. ASB Financial
representatives are available for consultation regularly or by appointment in
many of ASB's branches.
Composite Research & Management Co. Composite Research is a registered
investment advisor and is the investment advisor of eight mutual funds. At
December 31, 1996, Composite Research had a total of $1.4 billion in funds under
management in the eight mutual funds.
Murphey Favre, Inc. Murphey Favre is a registered broker-dealer that
offers a broad range of securities brokerage services, including distribution of
mutual funds in Washington, Oregon, Idaho, Utah and Montana. Murphey Favre has
eight free-standing offices with representatives available for consultation
regularly or by appointment in many of WMB's financial centers.
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LENDING ACTIVITIES
General. The Company's lending activities are carried on through its
banking subsidiaries, WMB, ASB and WMBfsb. At December 31, 1996, the Company's
total loan portfolio (carried at historical cost) of $30.7 billion (exclusive of
reserve for loan losses) included $22.7 billion in mortgage loans secured by
first liens on 1-4 family residential properties; $723.6 million in residential
construction loans; $3.8 billion in mortgage loans secured by commercial real
estate such as apartment buildings, office buildings, warehouses, shopping
centers and medical office buildings; $3.2 billion in consumer loans; and $340.1
million in commercial business loans. For a discussion of the fair value of the
loan portfolio, see "Consolidated Financial Statements -- Note 28: Fair Value of
Financial Instruments."
Washington state law gives state-chartered savings banks such as WMB broad
lending powers, subject to certain statutory restrictions on total investment in
different types of loans. WMB may make loans secured by residential and
commercial real estate, secured and unsecured consumer loans, and secured and
unsecured commercial loans. ASB and WMBfsb have somewhat narrower lending
authority, but can make loans secured by residential and commercial real estate,
certain secured and unsecured consumer loans, and a limited amount of secured
and unsecured commercial loans.
In originating loans, the Company must compete directly with other savings
banks, savings and loan associations, commercial banks, credit unions, mortgage
companies and life insurance companies (primarily in the commercial real estate
area) and indirectly with government-sponsored entities ("GSEs") such as the
Federal National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC"), or the Government National Mortgage Association ("GNMA").
In addition, the Company's lending activities are heavily influenced by economic
trends affecting the availability of funds and by general interest rate levels,
as well as by competitive factors such as the lower cost structure of less
regulated originators and the influence of GSEs in establishing rates. The
condition of the construction industry and the demand for housing also directly
affect residential and commercial real estate lending volumes.
In addition to interest earned on loans, the Company receives fees for
originating loans and for providing loan commitments. The Company also charges
fees for loan modifications, late payments, changes in property ownership and
other miscellaneous services. Fees received in connection with loan originations
are deferred and amortized into interest income over the life of the loan. The
Company also receives fees for servicing loans for others.
Residential Loans
General. The bulk of the Company's residential loan portfolio is in
California, Washington and Oregon . All of the Company's residential mortgage
lending is subject to nondiscriminatory underwriting standards. All loans are
subject to underwriting review and approval by various levels of Company
personnel, depending on the size of the loan.
The Company requires title insurance on all first liens on real property
securing loans and also requires that fire and casualty insurance be maintained
on properties in an amount at least equal to the total of the Company's loan
amount plus all prior liens on the property or the replacement cost of the
property, whichever is less.
Mortgage insurance currently is required on all residential real estate
loans originated at a loan-to-value ratio of 90% or above. Any exceptions must
be reported to the board of directors of the subsidiary bank issuing the credit.
At December 31, 1996, 6% of the Company's residential real estate loan portfolio
had loan-to-value ratios that equaled or exceeded 90% at origination and were
without mortgage insurance.
Under federal regulations, a real estate loan may not exceed 100% of the
appraised value of the property at the time of origination. In addition,
depository institutions are required by regulation to adopt written policies
that establish appropriate limits and standards for real estate loans and to
consider certain regulatory guidelines in establishing these policies. These
guidelines specify that depository institutions should not originate any
commercial, multi-family or nonowner-occupied 1-4 family mortgage loan with an
initial loan-to-value ratio in excess of 85%. The guidelines further provide
that depository institutions should not originate
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any owner-occupied 1-4 family mortgage loan with a loan-to-value ratio that
equals or exceeds 90% at origination, unless such loan is protected by an
appropriate credit enhancement in the form of either mortgage insurance or
readily marketable collateral. These real estate lending guidelines recognize
that it may be appropriate for a depository institutions to originate mortgage
loans with loan-to-value ratios exceeding these specified levels, provided that
the aggregate amount of all loans in excess of these limits does not exceed a
specified level of such depository institution's total capital and such loans
are identified in the depository institution's records and reported at least
quarterly to its board of directors.
WMB and WMBfsb Residential Lending. WMB makes available to borrowers in
Washington and Oregon a full range of residential loans, including FHA-insured,
VA-guaranteed and conventional fixed-rate loans for terms of five, 15 or 30
years, in addition to ARMs. WMBfsb makes the same loan products available to
customers in Utah, Montana and Idaho.
ARMs are advantageous to the Company because adjustable-rate loans better
match the Company's natural liability base. However, WMB's and WMBfsb's ability
to originate ARMs in lieu of fixed-rate loans has varied in response to changes
in market interest rates. Between 1992 and 1993, ARMs constituted less than 25%
of WMB's residential loan originations, reflecting continuing lower market
interest rates. When interest rates rose in 1994, ARMs totaled 62% of WMB's
residential loan originations. However, interest rates declined in mid-1995 and,
as a result, ARMs totaled 32% of WMB's and 28% of WMBfsb's residential loan
originations during 1995. For the year ended December 31, 1996, ARMs accounted
for 35% of WMB's and 33% of WMBfsb's residential loan originations.
Under WMB's and WMBfsb's current ARM programs, the borrower may choose
among loans that have the initial interest rate fixed for one, three or five
years before the adjustments begin. Currently, such ARMs are indexed to the
one-year Constant Maturity Treasury Index and have annual caps of 2%. Under most
programs, the borrower may elect, between the sixth and the sixtieth months, to
convert to a fixed-rate loan payable over the remainder of the original term.
There is no conversion fee, and the fixed interest rate is indexed to the
then-current required net yield for loans sold to FNMA.
The majority of WMB's and WMBfsb's loan originations satisfy all
requirements to make them saleable in the secondary market. In 1996, WMB and
WMBfsb securitized and sold $1.0 billion of their fixed-rate loans, but did not
sell any ARMs. See "-- Loan Securitization."
WMB and WMBfsb originate loans through all of their branches, as well as
through home loan centers and loan representatives located in real estate
brokers' offices. In addition, a small portion of their originations comes
through loan brokers. WMB was the leading originator of first lien residential
mortgage loans in both Washington and Oregon for the year ended December 31,
1996.
ASB Residential Lending. ASB offers an array of mortgage products to
customers in California, Arizona, Nevada and Colorado. The primary products are
ARMs indexed to the 11th District Cost of Funds Index ("COFI") that adjust
monthly with maturities up to a maximum of 40 years; mortgages that have a fixed
initial rate for up to five years and then reprice monthly at a set margin over
COFI until maturity ("Flex-5 Loans"); and fixed-rate 15-, 20- and 30-year
mortgages. During 1996, substantially all of ASB's ARM residential loan
originations were indexed to COFI.
As interest rates increased in the latter part of 1994 and the first part
of 1995, the rates on COFI ARMs rose and the difference between those rates and
the rates on fixed-rate loans narrowed. As a result, ASB's origination volume of
fixed-rate loans increased, while the origination volume of adjustable-rate
loans stabilized. The same conditions also made the Flex-5 Loans more popular.
In 1996, even though long-term interest rates were generally higher than in
1995, originations of fixed-rate products remained consistent with 1995. ASB no
longer offers Flex-5 Loans. Nevertheless, because ASB sells virtually all of its
fixed-rate product on the secondary market, its portfolio is composed almost
entirely of ARMs. At December 31, 1996, ASB's gross loan balance consisted of
98% ARMs and 2% fixed-rate loans. Interest rates on the majority of the ARMs
adjust monthly to a predetermined margin over COFI.
The monthly payments on substantially all of ASB's ARMs adjust annually
with the adjustment limited to 7.5% per year (except at the end of each
five-year interval during the life of the loan, when the payment
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may be adjusted by more than 7.5% to assure that the loan will amortize over the
remaining term). These protections for borrowers can result in monthly payments
that are greater or less than the amount necessary to amortize a loan by its
maturity at the interest rate in effect in any particular month. In the event
that a monthly payment is not sufficient to pay the interest accruing on the
loan, the shortage is added to the principal balance and is repaid through
future monthly payments. This is referred to as negative amortization. The
portion of outstanding loan principal arising from negative amortization was
$30.7 million at December 31, 1996.
The majority of ASB's fixed-rate loan originations are saleable in the
secondary market either through FNMA or FHLMC or, in the case of loans with
balances larger than the FNMA/FHLMC limit for conforming loans ("Jumbo loans"),
to private investors. Substantially all such originations during 1996 (15% of
residential loan originations) have been sold. The remainder of ASB's
residential loan originations, consisting almost entirely of COFI ARMs, was
retained in ASB's portfolio.
One of the primary market segments in which ASB originates loans for its
portfolio is that group of borrowers who generally meet ASB underwriting
standards, but who are unable to provide some of the documentation required to
meet GSE secondary market rules. These loans are referred to as low
documentation (or alternative documentation) loans. Approximately 48% of ASB's
1996 portfolio originations consisted of low documentation loans. The
documentation that is omitted generally relates to the credit or employment
history of the borrower and not to the value of the collateral. All low
documentation loans are fully supported by appraisals and title insurance. In
addition, the maximum loan-to-value ratio on low documentation loans is 80% and
such ratio decreases as the amount of the loan increases. The average
loan-to-value ratio on all low documentation loans originated during 1996 was
70%.
The delinquency experience on low documentation loans originated by ASB in
1994, 1995 and 1996 is comparable to the experience on ASB's COFI ARM portfolio
as a whole. The delinquency experience on ASB's portfolio as a whole has
historically been higher than the delinquency experience at WMB and WMBfsb.
ASB does not originate residential mortgage loans in its branches. All
direct originations (49% of total 1996 residential originations) are through its
66 loan centers. In addition, ASB indirectly originates loans through
independent mortgage brokers throughout the state of California. Indirect
originations accounted for the balance of total 1996 residential loan
originations.
ASB's wholesale mortgage broker distribution channel was established in
1991 to serve geographic regions not covered by residential loan centers.
Initially the participating brokers were primarily in northern California, but
in 1993 the program was expanded to the rest of the state. Participation grew
through 1996 and the broker distribution channel is now a significant element of
ASB's overall lending strategy, including its more recently opened loan
production offices in Arizona, Colorado and Nevada. To monitor credit quality,
ASB conducts extensive due diligence and reviews the stability and credit
experience of each broker prior to accepting any loan packages. Loan production
from the wholesale channel is subjected to the same underwriting standards as
loan production from the residential loan centers. All underwriting decisions
are made by ASB personnel.
Residential Construction Loans. WMB and WMBfsb provide financing for two
different categories of residential construction loans. A custom construction
loan is made to the intended occupant of a house to finance its construction.
Speculative construction loans are made to borrowers who are in the business of
building homes for resale. Speculative construction loans are made either on a
house-by-house basis or, in certain circumstances, through a collateralized,
limited line of credit. Speculative construction lending involves somewhat more
risk than custom construction loans and involves different underwriting
considerations. All construction loans require approval by various levels of WMB
and WMBfsb personnel, depending on the size of the loan. Construction loans for
nonconforming residential properties (properties other than single-family
detached houses) are subject to more stringent approval requirements than loans
for conforming properties.
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Residential construction loans are an integral part of WMB's and WMBfsb's
overall lending program. Construction loans are of short duration, generally 12
to 18 months, and have adjustable rates, so they are an important element in the
Company's interest rate sensitivity management. Speculative construction loans
are generally priced at a higher spread than are permanent residential loans.
In addition, the residential construction loan program provides a source of
permanent loans. Most custom construction loans have provisions for conversion
to permanent loan status upon completion of construction. Speculative
construction builders are a good source of referrals when their buyers need
financing. WMB and WMBfsb have a program under which they waive certain closing
fees for borrowers who are buying homes for which WMB and WMBfsb provided
construction financing.
At December 31, 1996, 59% of the residential construction portfolio was
custom construction loans and 41% was speculative construction loans. The demand
for residential construction loans is sensitive to the same factors as the
market for residential loans generally. Low market interest rates help to
improve the market for houses generally and this, in turn, stimulates new
construction. As a result, originations of residential construction loans for
1996 totaled $1.3 billion, an increase of 38% from $935.8 million in 1995.
Historically, ASB has not originated residential construction loans.
Commercial Real Estate Loans.
General. Commercial real estate lending generally entails greater risks
than residential mortgage lending. Commercial real estate loans typically
involve large loan balances concentrated with single borrowers or groups of
related borrowers. In addition, the payment experience on loans secured by
income-producing properties usually depends on the successful operation of the
related real estate project and thus may be subject, to a greater extent, to
adverse conditions in the real estate market or in the economy generally. In
recent years, commercial real estate values in many areas of the country have
substantially declined, particularly in California, as a result of excess supply
and weak economies.
In all commercial real estate lending, the Company considers the location,
marketability and overall attractiveness of the project. Washington Mutual's
current underwriting guidelines for commercial real estate loans require an
economic analysis of each property with regard to the annual revenue and
expenses, debt service coverage and fair value to determine the maximum loan
amount. Commercial real estate loans require approval at various levels of
Company personnel, depending on the size of the loan.
WMB and WMBfsb Commercial Real Estate Lending. The Boards of Directors of
both WMB and WMBfsb have adopted lending policies that generally limit future
commercial real estate loan originations to Washington, Oregon, Idaho, Utah,
Montana, and contiguous states. WMB's existing commercial real estate loan
portfolio is principally concentrated in Washington, Oregon and California.
WMBfsb's commercial real estate loan portfolio is concentrated in Utah and
Montana.
During the past few years, WMB and WMBfsb focused their commercial real
estate lending on small and mid-sized apartment lending (loans of $2.5 million
or less). During 1996, WMB and WMBfsb broadened their lending scope by
originating or approving $101.3 million of nonresidential real estate loans in
addition to $209.3 million of apartment loans. In addition, both the Enterprise
and Western commercial real estate portfolios were predominantly nonresidential.
However, the relatively small size of both Enterprise and Western before they
merged with WMB placed constraints on the size and to some extent the type of
loans they could make. For example, the individual loan size limitations made
meaningful participation in office building and urban retail loans impossible.
With the added flexibility provided by WMB's size, the type and size of
commercial real estate loans that the commercial banking division will be able
to make will change. This will generally increase the risk characteristics of
the commercial loan portfolio.
ASB Commercial Real Estate Lending. ASB's commercial real estate loan
portfolio is concentrated in California. Due to ASB's past desire to remain a
"traditional thrift lender," management historically did not emphasize
commercial loan originations other than for apartment properties. No commercial
loans, other than apartment and mobile home park loans, have been originated by
ASB since 1994, at which time such commercial loans represented approximately 1%
of total loan originations by principal balance. Because of
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<PAGE> 10
credit weaknesses in the small and mid-sized apartment house market in
California, ASB tightened its underwriting of apartment loans in 1994. Due to
tightened underwriting standards, apartment loan originations declined as a
percentage of total real estate lending from 11% in 1994 to 5% in both 1995 and
1996. From time to time, ASB refinances its existing nonresidential commercial
real estate loans.
Loan Securitization. The Company from time to time, depending on its asset
and liability management strategy, converts a portion of its loans into either
FHLMC participation certificates, GNMA MBS or FNMA conventional MBS
(collectively, "GSE MBS"). This securitization of its loans provides the Company
with increased liquidity both because the mortgage securities are more readily
marketable than the underlying loans and because they can be used as collateral
for borrowing.
WMB has historically securitized a portion of its fixed-rate loan
production that is held for sale or originated with the intent to hold for sale
in order to sell those MBS in the secondary market and, from time to time,
securitizes other loans and retains the resulting MBS as investment securities.
ASB generally securitizes substantially all of its FNMA/FHLMC conforming
fixed-rate production for potential sale in the secondary market. Loans
securitized through GSEs for sale in the secondary market are sold without
recourse and become obligations of the applicable GSE. Generally, the servicing
of the loans is retained by the Company with the servicing fee income fixed by
the relevant GSE.
In 1995 and 1996, the Company securitized loans with FHLMC and FNMA under
programs in which the GSE has recourse against the originator of the loans.
These securitizations are generally less costly and may require less
documentation than securitizations without recourse. These MBS are generally
saleable in the secondary market and can be used as collateral for borrowings
and to meet regulatory liquidity requirements. Generally, however, MBS created
under this program are retained by the originator, and the Company has retained
the majority of MBS created under these programs. The Company has also sold
securitized loans with recourse. At December 31, 1996, the Company's total
recourse obligation with respect to securitized loans was $7.3 billion.
In 1995, ASB created a real estate mortgage investment conduit (a "REMIC")
by means of which it securitized a pool of loans consisting of $1.2 billion in
apartment loans and $200.0 million of its Flex-5 Loans. To date, ASB has not
sold any portion of this REMIC and the entire amount is still owned by ASB with
full recourse.
When MBS composed of loans originated by the Company's banking subsidiaries
are owned by such banking subsidiaries, they are serviced in the same manner as
any other loan in the loan portfolio. In addition, when loans sold with recourse
become nonperforming, the loans and the associated collateral properties are
included in the Company's total nonaccruing assets.
Manufactured Housing, Second Mortgage and Other Consumer Loans. WMB and
WMBfsb offer consumer loan programs in Washington, Oregon, Utah, Idaho and
Montana that include: (i) manufactured housing loans; (ii) second mortgage loans
for a variety of purposes, including purchase, renovation, or remodeling of
property, and for uses unrelated to the security; (iii) loans for the purchase
of automobiles, pleasure boats and recreational vehicles; (iv) student loans;
and (v) loans for general household purposes, including loans made under
Washington Mutual's secured line of credit programs. Consumer loans, in addition
to being an important part of the Company's orientation toward consumer
financial services, promote greater net interest income stability because of
their somewhat shorter maturities and faster prepayment characteristics. The
size of the consumer loan portfolio has grown in recent years. It is
management's intention to introduce these products into ASB's service area.
Lending in this area may involve special risks, including decreases in the value
of collateral and transaction costs associated with foreclosure and
repossession.
Consumer loans generally are secured loans and are made based on an
evaluation of the collateral and the borrower's creditworthiness, including such
factors as income, other indebtedness and credit history. Secured consumer loan
amounts typically do not exceed 80% of the value of the collateral, less the
outstanding balance of any first-mortgage loan. Manufactured housing loans do
not exceed 90% of the value of the collateral plus taxes and other costs.
Additional limitations may be based on the customer's income, credit history and
other
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<PAGE> 11
factors showing creditworthiness. Lines of credit are subject to periodic
review, revision and, when deemed appropriate by the Company, cancellation as a
result of changes in the borrower's financial circumstances.
ASB has originated various types of consumer loans that are generally
unsecured lines of credit and loans that are secured by personal property. These
loans have historically been provided as a service to ASB's existing customers
and have not represented a significant portion of its business. In the first
quarter of 1994, ASB discontinued its credit card operations and sold its entire
credit card portfolio for a gain of $25.0 million.
Commercial Business Loans. At year-end 1996, the commercial banking
division offered a full range of commercial banking products and services
through 48 free-standing, full-service business branches, supplemented by 10
business banking centers located near or in WMB financial centers. The Company's
commercial business loans are mainly loans to small and mid-sized businesses and
to individuals. They are secured by a variety of business and personal assets
or, in some cases, are unsecured. In 1996, the division originated $348.4
million of commercial business loans and the commercial business loan portfolio
totaled $340.1 million at December 31, 1996.
ASSET QUALITY
General. Washington Mutual reviews its assets for weakness on a regular
basis. Reserves are maintained for assets classified as substandard or doubtful.
Any portion of an asset classified as loss is immediately written off.
Washington Mutual's comprehensive process for identifying impaired assets,
classifying assets and asset review is performed on a quarterly basis. The
objective of the review process is to identify any trends and determine the
levels of loss exposure to evaluate the need for an adjustment to the reserve
accounts.
The principal measures of asset problems are the levels of nonaccrual
loans, loans under foreclosure and real estate owned ("REO"), which collectively
are classified as nonperforming assets, levels of impaired loans, the amount of
the provision for loan losses, loan charge-offs, and write-downs in the value of
REO. See "Management's Discussion and Analysis of Financial Position and Results
of Operations -- Asset Quality -- Classified Assets."
Management ceases to accrue interest income on any loan that becomes 90
days or more delinquent and reserves all interest accrued up to that time. In
addition, when circumstances indicate concern as to the future collectibility of
the principal of a commercial real estate loan, management stops accruing
interest on the loan, whether or not it has reached the 90-day delinquency
point. Thereafter, interest income is accrued only if and when, in management's
opinion, projected cash proceeds are deemed sufficient to repay both principal
and interest. All loans on which interest is not being accrued are referred to
as loans on nonaccrual status.
Nonperforming loans include loans on which payment is 90 days or more
delinquent and loans that are under foreclosure (a category that includes
properties for which decrees of foreclosure have been granted but that are held
under sheriffs' certificates pending expiration of the borrowers' redemption
rights).
REO. Real estate that served as security for a defaulted loan and becomes
REO is recorded on the Company's books at the lower of the outstanding loan
balance (net of any reserves charged off) or fair value, the determination of
which takes into account the effect of sales and financing concessions that may
be required to market the property. If management's estimate of fair value at
the time a property becomes REO is less than the loan balance, the loan is
written down at that time by a charge to the reserve for loan losses.
The REO reserve provides for losses that may result from unforeseen market
changes in the REO portfolio and declines in fair values of properties
subsequent to their initial transfer to REO. REO properties are analyzed
periodically to determine the adequacy of the REO reserve. Any adjustment in the
reserve that results from such evaluations is charged to the results of REO
operations in the period in which it is identified. Personal property that has
been repossessed is recorded at the lower of the outstanding loan balance (net
of any charge-offs) or fair value at the time the property was repossessed. See
"Management's Discussion and Analysis of Financial Position and Results of
Operations -- Asset Quality" for further discussion.
Provision for Loan Losses and Reserve for Loan Losses. Loan loss reserves
are based upon management's continuing analysis of pertinent factors underlying
the quality of the loan portfolio. These factors
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<PAGE> 12
include changes in the size and composition of the loan portfolio, historical
loan loss experience, industry-wide loss experience, current and anticipated
economic conditions and detailed analysis of individual loans and credits for
which full collectibility may not be assured, as well as management's policies,
practices and intentions with respect to credit administration and asset
management.
As part of the process of determining the adequacy of the reserve for loan
losses, management reviews the Company's loan portfolio for specific weaknesses.
Residential construction, commercial real estate and commercial business loans
are evaluated individually for impairment. This detailed analysis includes
techniques to estimate the fair value of loan collateral and the existence of
potential alternative sources of repayment. When available information confirms
that specific loans or portions thereof are uncollectible, those amounts are
charged-off against the reserve for loan losses. The existence of some or all of
the following criteria will generally confirm that a loss or impairment has
incurred: the loan is significantly delinquent and the borrower has not
evidenced the ability or intent to bring the loan current; the Company has no
recourse to the borrower, or if it does, the borrower has insufficient assets to
pay the debt; or the fair value of the loan collateral is significantly below
the current loan balance, and there is little or no near-term prospect for
improvement.
Unallocated reserves are established for loss exposure that may exist in
the remainder of the loan portfolio but has not yet been identified. In
determining the adequacy of unallocated reserves, management considers changes
in the size and composition of the loan portfolio, historical loan loss
experience, current and anticipated economic conditions, and the Company's
credit administration and asset management philosophies and procedures.
The Company recorded an additional $125.0 million to the reserve for loan
losses at the closing of the merger with Keystone Holdings. The additional
reserve for loan losses was provided principally because a number of credit
administration and asset management philosophies and procedures of WMB differed
from those of ASB. The Company is conforming ASB's administration, philosophies
and procedures to those of WMB and WMBfsb. The additional reserve for loan
losses was to a lesser degree provided because the Company believed that while
there had been an increase in the value of residential real estate in certain
California markets, a decline in collateral values in some portions of the
California real estate market occurred in 1996.
It is possible that the provision for loan losses may, in the future,
change as a percentage of total loans. The reserve for loan losses is maintained
at a level sufficient to provide for estimated loan losses based on evaluating
known and inherent risks in the loan portfolio. See "Management's Discussion and
Analysis of Financial Position and Results of Operations -- Asset
Quality -- Provision for Loan Losses and Reserve for Loan Losses."
INVESTING ACTIVITIES
General. Washington Mutual has authority under state law to make any
investment, but may be subject to certain restrictions imposed by the Home
Owners' Loan Act ("HOLA"). Under Washington state law, WMB has authority to make
any investment deemed prudent by its board of directors, and may invest in
commercial paper, corporate bonds, mutual fund shares, debt and equity
securities issued by creditworthy entities and interests in real estate located
inside or outside of Washington state. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), however, prohibits a state bank (such as
WMB) from making or retaining equity investments that are not permissible for a
national bank, subject to certain exceptions.
ASB and WMBfsb have authority to make investments specified by HOLA and
applicable regulations, including the purchase of governmental obligations,
investment-grade commercial paper, and investment-grade corporate debt
securities. Under the laws of the states of Arizona and Washington,
respectively, WM Life and Empire have broad authority to make investments in
debt and equity securities subject to applicable reserve requirements and
risk-based capital requirements.
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<PAGE> 13
Effective January 1, 1994, Washington Mutual adopted, as required,
Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities. This statement required
investment and equity securities to be segregated into three categories:
"trading" securities, "held-to-maturity" securities and "available-for-sale"
securities. As a result of SFAS No. 115, at December 31, 1996, a net unrealized
gain (on an after-tax basis) of $41.7 million associated with available-for-sale
securities was included as a separate component of stockholders' equity. At
December 31, 1996, the Company's investment portfolio included $2.9 billion of
held-to-maturity securities (with a fair value of $2.9 billion), $9.1 billion of
available-for-sale securities and $1.6 million of trading account securities. At
December 31, 1996, MBS accounted for $10.5 billion or 87% of the total
investment portfolio.
The Company's investment portfolio by investment type at carrying value
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1996 1995 1994
----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Investment securities:
U.S. government and agency obligations............. $ 279,189 $ 345,510 $ 565,025
Corporate debt obligations......................... 479,836 607,926 617,548
Municipal obligations.............................. 108,271 92,508 80,762
Equity securities.................................. 639,287 525,153 387,997
----------- ----------- ----------
1,506,583 1,571,097 1,651,332
Mortgage-backed securities:
U.S. government agency............................. 9,633,439 12,561,748 6,113,146
Private issue...................................... 831,432 1,222,270 913,941
----------- ----------- ----------
10,464,871 13,784,018 7,027,087
Derivative instruments:
Interest rate exchange agreements.................. (646) (11,847) 18,654
Interest rate cap agreements....................... 2,460 9,415 41,690
----------- ----------- ----------
1,814 (2,432) 60,344
----------- ----------- ----------
Total investment portfolio...................... $11,973,268 $15,352,683 $8,738,763
=========== =========== ==========
</TABLE>
For a discussion of the stated maturities of the Company's investment
portfolio at December 31, 1996, see "Consolidated Financial Statements -- Note
4: Available-for-Sale Securities" and "-- Note 5: Held-to-Maturity Securities."
The risk of loss upon default of the borrower is generally greater for
corporate debt securities than for real estate loans. In addition, investments
by the Company in debt or equity securities of an issuer are generally much
larger than investments in any particular real estate loan, resulting in a
greater effect on the Company in the event of default or decline in market
value. The Company regularly analyzes these securities for impairment of value
and makes adjustments in their carrying value or yield as appropriate.
Historically, the yield on private-issue MBS, collateralized mortgage
obligations ("CMOs"), and purchased loan pools has exceeded the yield on GSE MBS
because they expose the Company to certain risks that are not inherent in GSE
MBS, such as credit risk and liquidity risk. These assets are not guaranteed by
the U.S. government or one of its agencies because the loan size, underwriting
or underlying collateral of these assets often does not meet set industry
standards. Consequently, there is a higher potential of loss of the principal
investment. Additionally, the Company may not be able to sell such assets in
certain market conditions as the number of interested buyers may be limited at
that time. Furthermore, the complex structure of certain collateralized mortgage
obligations in the Company's portfolio increases the difficulty in assessing the
portfolio's risk and its fair value. Examples of some of the more complex
structures include certain collateralized mortgage obligations where the Company
holds subordinated tranches, certain collateralized mortgage obligations that
have been resecuritized, and certain securities that contain a significant
number of Jumbo loans.
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<PAGE> 14
In 1996, in an effort to reduce the aforementioned risks, the Company
instituted a policy of performing credit reviews on each individual security or
loan pool prior to purchase. Such a review includes consideration of the
collateral characteristics, borrower payment histories and information
concerning loan delinquencies and losses of the underlying collateral. After a
security is purchased, similar information is monitored on a periodic basis.
Furthermore, the Company has established internal guidelines limiting the
geographic concentration of the underlying collateral.
At December 31, 1996, the Company held $831.4 million of private-issue MBS.
Of that amount, 20% were the highest investment grade (AAA), 66% were rated
investment grade (AA or A), 9% were rated lowest investment grade (BBB) and 5%
were rated below investment grade (BB or below). The Company's policy is not to
purchase securities that are below investment grade. The below investment grade
securities in the Company's portfolio at December 31, 1996 were the result of
downgrades of such securities by the rating agencies. The Company recognized
losses of $2.4 million during 1996 and $8.4 million in 1995 on certain
securities in the below investment grade portfolio due to credit quality
deterioration.
At December 31, 1996, the Company held $639.3 million of equity securities
in its available-for-sale securities portfolio. Federal Home Loan Bank ("FHLB")
stock was $465.1 million or 73% of the total.
SOURCES OF FUNDS
Deposits. At December 31, 1996, WMB accepted deposits at 274 financial
centers in Washington and Oregon, ASB accepted deposits at 158 branches in
California, and WMBfsb accepted deposits at 29 financial centers in Utah, Idaho,
Montana and Oregon. The Company's banking subsidiaries compete with other
financial institutions in attracting savings deposits. Competition from
commercial banks has been particularly strong due to their extensive
distribution systems. In addition, there is strong competition for customer
dollars from credit unions, mutual funds and nonbank corporations, such as
securities brokerage companies and other diversified companies, some of which
have nationwide networks of offices.
In recent years, deposit growth has resulted almost exclusively from
business combinations. At December 31, 1996, the Company's deposits totaled
$24.1 billion. Business combinations during 1994, 1995 and 1996 added $211.5
million, $417.1 million and $13.7 billion in deposits, including $12.9 billion
in deposits from the Keystone Transaction. ASB has also grown deposits through
acquisitions, with $4.0 billion in acquired deposits over its eight-year life.
Without the addition of the acquired deposits, the Company's deposits would have
decreased from December 31, 1993 to December 31, 1996.
The Company offers traditional passbook and statement savings accounts as
well as checking accounts. In addition, the Company offers money market deposit
accounts ("MMDAs") with higher minimum balances that offer higher yields.
WMB's and WMBfsb's Deposits. WMB and WMBfsb offer a broad range of deposit
products and at December 31, 1996 had a total of $11.1 billion in deposits, $5.3
billion of which were time deposits, $4.2 billion of which were MMDAs and
savings accounts; and $1.6 billion of which were checking accounts. The most
popular time deposit is a product called "Investor's Choice," which is a time
deposit with maturities available from one to 120 months in any one of three
deposit size categories. Interest rates on Investor's Choice time deposits
generally increase with increased maturity and amount. Less than 50% of deposits
at December 31, 1996 were time deposits and of those, only $1.0 billion or 19%
of total time deposits had remaining maturities longer than one year.
Since 1995, WMB and WMBfsb have been heavily promoting a "Free Checking"
account. This account has helped to reduce the overall cost of funds by
increasing the percentage of deposits that are noninterest-bearing. At December
31, 1996, $726.6 million or 44% of WMB's and WMBfsb's total checking accounts
did not bear interest.
WMB and WMBfsb have also actively promoted MMDAs because, while a somewhat
volatile source of deposits, they have the advantage of being variable-rate
liabilities. At December 31, 1996, WMB and WMBfsb had an aggregate of $3.3
billion in MMDAs and only $921.3 million in regular savings accounts.
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<PAGE> 15
Wholesale deposits, primarily time deposits, are sold to political
subdivisions and public agencies. The Company considers wholesale deposits to be
a borrowing source rather than a customer relationship.
ASB's Deposits. Like WMB and WMBfsb, ASB's deposit liabilities are
primarily short term. Of ASB's total deposits of $12.9 billion at December 31,
1996, only $1.1 billion was in time deposits with remaining maturities of longer
than one year.
Like WMB and WMBfsb, ASB has also promoted a checking account product, in
its case, "Mileage Checking." Mileage Checking is, unlike Free Checking, an
interest-bearing checking account product. At December 31, 1996, ASB had total
interest-bearing checking deposits of $1.2 billion. Management of the Company
hopes to reduce ASB's cost of funds in the future by introducing Free Checking
in ASB's markets and discontinuing Mileage Checking. Management also hopes to
interest more of ASB's depositors in MMDAs, which currently account for only 15%
of ASB's deposits.
Borrowings and Annuities. The Company uses borrowings, in addition to
deposit acquisitions, as an integral part of funding its growth. In addition to
the borrowings discussed below, at December 31, 1996, the Company was in a
position to obtain an additional $9.7 billion, primarily through the use of
collateralized borrowings and deposits of public funds using unpledged
mortgage-backed securities and other wholesale borrowing sources. See
"Management's Discussion and Analysis of Financial Position and Results of
Operation -- Liquidity."
Borrowings include the sale of securities subject to repurchase agreements,
the purchase of federal funds, the issuance of mortgage-backed bonds or notes,
capital notes and other types of debt securities, and funds obtained as advances
from the FHLB of Seattle and the FHLB of San Francisco. The Company also has
access to the Federal Reserve Bank's discount window. Under Washington state
law, WMB may borrow up to 30% of total assets, but sales of securities subject
to agreements to repurchase are not deemed borrowings under such law, and
borrowings from federal, state or municipal governments, agencies or
instrumentalities thereof also are not subject to the 30% limit.
The Company actively engages in repurchase agreements with authorized
broker-dealers and major customers selling U.S. government and corporate
securities and MBS under agreements to repurchase them or similar securities at
a future date. At December 31, 1996, the Company had $7.8 billion of such
borrowings.
WMB, WMBfsb and WM Life are members of the FHLB of Seattle and ASB is a
member of the FHLB of San Francisco. As members, each company maintains a credit
line that is a percentage of its total regulatory assets, subject to
collateralization requirements. At year-end 1996, WMB, ASB, WMBfsb, and WM Life
had credit lines of 30%, 30%, 45% and 20%, respectively, of total regulatory
assets. At December 31, 1996, advances under these credit lines totaled $7.2
billion and were secured in aggregate by grants of security interests in all
FHLB stock owned, deposits with the FHLB, and certain mortgage loans and deeds
of trust and securities of the U.S. government and agencies thereof.
In August 1995, the Company filed a registration statement with the
Securities and Exchange Commission ("SEC") for the offering, on a delayed or
continuous basis, of up to $250.0 million of debt securities, of which $100.0
million remains available.
In December 1996, Washington Mutual entered into two Revolving Credit
Facilities (the "Facilities"): a $100.0 million 364-day facility and a $100.0
million four-year facility. Chase Manhattan Bank is administrative agent for the
Facilities. At December 31, 1996, no monies had been drawn. However, in January
1997, $150.0 million was borrowed, in part, for the redemption of $354.0 million
of debt securities of a Keystone Holdings' subsidiary, and in February 1997,
another $20.0 million was drawn. See "Consolidated Financial Statements -- Note
16: Other Borrowings" for further discussion. The remaining proceeds of the
Facilities are available for general corporate purposes, including providing
capital at a subsidiary level.
WM Life and Empire issue fixed annuity contracts through licensed agents
who are employees of subsidiaries of the Company and operate in WMB financial
centers. Currently, annuities are issued primarily in Washington and Oregon. At
December 31, 1996, the policy value of such contracts was $807.4 million. WM
Life also issues variable annuity contracts. At December 31, 1996, the policy
value of such contracts was
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<PAGE> 16
$70.7 million. All annuity contracts impose a contractual surrender charge in
the event of a customer's withdrawal of funds within a certain number of years
(in the case of most of WM Life's fixed annuity contracts, five years) from the
date the annuity contract was issued.
ASSET AND LIABILITY MANAGEMENT
The long-run profitability of the Company depends not only on the success
of the services it offers to its customers and the quality of its loans and
investments, but also the extent to which its earnings are unaffected by changes
in interest rates. The Company's asset and liability management strategy
attempts to reduce the risk of a significant decrease in net interest income
caused by interest rate changes without unduly penalizing current earnings.
WMB and WMBfsb, as is true of many financial institutions, have had a
mismatch between the maturity of its assets and liabilities. Their customers
generally prefer short-term deposits (see "Sources of Funds -- Deposits") and
many of them also prefer long-term fixed-rate loans. This mismatch is not a
problem when interest rates are stable or declining. However, with a rise in
short-term interest rates, as was experienced throughout most of 1994, the
interest paid on deposits and other short-term borrowings increases much more
quickly than the interest earned on loans and investments. The result for WMB
and WMBfsb was a reduction in their net interest spread and corresponding
pressure on net interest income in both 1994 and 1995. One means of reducing the
effect of interest rate volatility on net interest income is to shorten asset
durations. In recent years, WMB and WMBfsb have attempted to do this by
emphasizing ARMs and short-term consumer loan programs. At December 31, 1996,
the portion of WMB's and WMBfsb's residential loans and MBS that were adjustable
rate was approximately 52%. ASB does not suffer from the same asset liability
mismatch as WMB and WMBfsb because the majority of its assets are COFI ARMs
which reprice monthly. In times of rising interest rates, however, the Company
is negatively affected by an inherent timing difference between the repricing of
its ARM assets and its liabilities. The effect of this timing difference, or
"lag," will be favorable during a period of declining interest rates and
unfavorable in a rising interest rate environment. Although the effect of this
lag generally balances out over the life of a loan, it can produce short-term
volatility in the Company's net interest income during periods of interest rate
movement.
The lifetime interest rate caps which the Company offers to its ARM
borrowers introduce another element of interest rate risk to the Company. In
periods of high interest rates, it is possible for the index to exceed the rate
on the lifetime interest rate caps offered to customers. When determined
appropriate by management, the Company manages this risk by purchasing COFI- and
LIBOR-based interest rate cap agreements.
In 1995, the Company reclassified $4.9 billion of securities from its
held-to-maturity category to the available-for sale category. See "Management's
Discussion and Analysis of Financial Position and Results of
Operations -- Review of Financial Position." More than one-half of the
securities reclassified were fixed rate. The reclassification gave the Company
the flexibility to dispose of a portion of such securities over time and replace
them with adjustable-rate assets as part of its interest rate risk management
program. During 1996, the Company securitized and then sold a substantial
portion of the fixed-rate loans it originated, while retaining nearly all of its
adjustable-rate loan production. Generally, the Company retained the servicing
rights to the loans that were sold. In addition, as part of the restructuring
strategy initiated in late 1995, the Company purchased adjustable-rate assets
and sold fixed-rate mortgage-backed assets.
In the future, it is anticipated that a portion of the remaining fixed-rate
securities may be replaced with adjustable-rate GSE MBS, adjustable-rate
private-issue MBS, collateralized mortgage obligations, and purchased loan pools
as well as new originations of ARMs, as the fixed-rate securities pay down or
are sold as market conditions permit. During periods of moderate to high market
interest rates, originations of ARMs have been well received by customers.
During periods of low market interest rates, however, customers have preferred
fixed-rate mortgage loans. This portfolio restructuring strategy is intended to
reduce the Company's interest rate sensitivity while simultaneously protecting
its yield. As the Company substitutes adjustable-rate assets for fixed-rate
assets, its sensitivity to future changes in interest rates decreases, because,
unlike fixed-rate securities, interest rates on adjustable-rate assets change,
within certain periodic and lifetime cap
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<PAGE> 17
restraints, with corresponding changes in market rates. However, substituting
adjustable-rate assets for fixed-rate assets can have two disadvantages. First,
adjustable-rate assets, when compared with similar fixed-rate assets, carry
additional credit risk in an increasing interest rate environment. As these
assets reprice upward, the borrower's creditworthiness may become impaired.
Second, the holding of adjustable-rate assets will decrease the overall
portfolio yield in a stable or declining interest rate environment. Accordingly,
the Company plans to replace some of its fixed-rate MBS with private-issue MBS,
collateralized mortgage obligations, and purchased loan pools to minimize the
potential decline in portfolio yield.
Another way to reduce the effect of the volatility of interest rates is to
lengthen liability durations, which is difficult because of depositors'
preferences for liquidity. This was apparent from the fact that at December 31,
1996, the Company's MMDAs accounted for $5.2 billion or 22% of total deposits,
and time deposits with maturities less than one year totaled $12.2 billion or
50% of total deposits.
At December 31, 1996, interest-sensitive assets of $31.8 billion and
interest-sensitive liabilities of $33.4 billion were scheduled to mature or
reprice within one year. At December 31, 1996, the Company's one-year gap was a
negative 3.64%. The Company's interest rate sensitivity has decreased with the
sale of WMB's fixed-rate MBS undertaken in 1996 and the retention of ARMs
originated by ASB. It still, however, suffers, from some short-term volatility
of net income because of the effect of COFI lag. Management hopes to reduce this
short-term volatility in part by increasing production of non-COFI
adjustable-rate products and short-term fixed-rate products such as consumer
loans. In addition to managing the terms of its actual assets and liabilities,
the Company uses derivative instruments, such as interest rate exchange
agreements and interest rate cap agreements, to mitigate interest rate risk. At
December 31, 1996, the Company had entered into interest rate exchange
agreements and interest rate cap agreements with notional values of $9.1
billion. Without these instruments, the Company's one-year gap at December 31,
1996, would have been a negative 9.81% as opposed to a negative 3.64%. See
"Consolidated Financial Statements -- Note 17: Interest Rate Risk Management"
for a discussion of the use of derivative instruments.
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<PAGE> 18
BUSINESS COMBINATIONS
Most of the Company's growth since 1988 has occurred as a result of banking
business combinations. The following table summarizes Washington Mutual's
business combinations since April 1988:
<TABLE>
<CAPTION>
NUMBER OF
ACQUISITION NAME DATE ACQUIRED LOANS DEPOSITS ASSETS LOCATIONS
- -------------------------------------- ---------------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Columbia Federal Savings Bank and
Shoreline Savings Bank.............. April 29, 1988 $ 551.0 $ 555.0 $ 752.6 26
Old Stone Bank(1)..................... June 1, 1990 229.5 292.6 294.0 7
Frontier Federal Savings
Association(2)...................... June 30, 1990 -- 95.6 -- 6
Williamsburg Federal Savings
Bank(2)............................. Sept. 14, 1990 -- 44.3 -- 3
Vancouver Federal Savings Bank........ July 31, 1991 200.1 253.4 260.7 7
CrossLand Savings, FSB(2)............. Nov. 8, 1991 -- 185.4 -- 15
Sound Savings and Loan Association.... Jan. 1, 1992 16.8 20.5 23.5 1
World Savings and Loan
Association(2)...................... March 6, 1992 -- 37.8 -- 2
Great Northwest Bank.................. April 1, 1992 603.2 586.4 710.4 17
Pioneer Savings Bank.................. March 1, 1993 624.5 659.5 926.5 17
Pacific First Bank, A Federal Savings
Bank................................ April 9, 1993 3,770.7 3,831.7 5,861.3 129
Far West Federal Savings Bank(2)...... April 15, 1994 -- 42.2 -- 3
Summit Savings Bank................... Nov. 14, 1994 127.5 169.3 188.1 4
Olympus Bank, a Federal Savings
Bank................................ April 28, 1995 237.8 278.6 391.4 11
Enterprise Bank....................... Aug. 31, 1995 92.8 138.5 153.8 1
Western Bank.......................... Jan. 31, 1996 500.8 696.4 776.3 42
Utah Federal Savings Bank............. Nov. 30, 1996 88.9 106.7 122.1 5
American Savings Bank, F.A.(3)........ Dec. 20, 1996 14,562.9 12,815.4 21,893.5 224
United Western Financial Group........ Jan. 15, 1997 272.7 299.9 404.1 16
</TABLE>
- ---------------
(1) This was an acquisition of selected assets and liabilities.
(2) The acquisition was of branches and deposits only. The only assets acquired
were branch facilities or loans collateralized by acquired savings deposits.
(3) Information given as of November 30, 1996.
See "Consolidated Financial Statements -- Note 2: Business Combinations"
for a discussion of the accounting treatment of certain of the acquisitions.
EMPLOYEES
The number of full-time equivalent employees at the Company increased from
7,903 at December 31, 1995 to 8,322 at December 31, 1996. The Company believes
that it has been successful in attracting quality employees and believes its
employee relations are good.
TAXATION
General. For federal income tax purposes, the Company reports its income
and expenses using the accrual method of tax accounting and uses the calendar
year as its tax year. Except for the interest expense rules pertaining to
certain tax exempt income applicable to banks and the recently repealed bad debt
reserve deduction, the Company is subject to federal income tax, under existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), in
generally the same manner as other corporations.
Tax Bad Debt Reserve Recapture. The recently enacted Small Business Job
Protection Act of 1996 (the "Job Protection Act") requires that qualified thrift
institutions, such as WMB, ASB and WMBfsb, generally recapture, for federal
income tax purposes, that portion of the balance of their tax bad debt reserves
that exceeds the December 31, 1987 balance, with certain adjustments. Such
recaptured amounts are to be
16
<PAGE> 19
generally taken into ordinary income ratably over a six-year period beginning in
1997. Accordingly, Washington Mutual will have to pay approximately $4.2 million
(based upon current federal income tax rates) in additional federal income taxes
each year of the six-year period due to the Job Protection Act.
The Job Protection Act also repeals the reserve method of accounting for
tax bad debt deductions and, thus, requires thrifts to calculate the tax bad
debt deduction based on actual current loan losses.
State Income Taxation. The state of Washington does not currently have a
corporate income tax. A business and occupation tax based on a percentage of
gross receipts is assessed on businesses. Currently, interest received on loans
secured by first mortgages or deeds of trust on residential properties is not
subject to such tax. However, it is possible that legislation will be introduced
that would repeal or limit this exemption.
The states of California, Oregon, Utah, Idaho, Montana and Colorado have
corporate income taxes, which are imposed on companies doing business in those
states. The Company's operations in California and Oregon result in substantial
corporate income tax expenses in such states. As the Company's operations in the
remaining states increase, the corporate income taxes will have an increasing
effect on the Company's results of operations or financial condition.
If and to the extent the Company carries on activities in other states, the
Company may in certain circumstances be subject to taxation in such states.
Assistance Agreement. Keystone Holdings and certain of its affiliates are
parties to an agreement (the "Assistance Agreement") with a predecessor of the
FSLIC Resolution Fund (the "FRF"), which was designed, in part, to provide that
over time 75% of most of the federal tax savings and 19.5% of most of the
California tax savings (in each case computed in accordance with specific
provisions contained in the Assistance Agreement) attributable to the
utilization of certain tax losses or tax loss carryforwards of New West Federal
Savings and Loan Association ("New West") are paid ultimately to the FRF. The
provision for such payments is reflected in the financial statements as
"Payments in Lieu of Taxes." See "Management's Discussion and Analysis of
Financial Position and Results of Operations -- General -- The Keystone
Transaction" and "Consolidated Financial Statements -- Note 20: Payments in Lieu
of Taxes."
Due to Section 382 of the Code, most of the value of the net operating loss
carryforward deductions of Keystone Holdings and its subsidiaries was eliminated
due to the Keystone Transaction. Accordingly, the future tax savings
attributable to such net operating loss carryforward deductions (other than
amounts used to offset bad debt reserve deduction recapture for ASB) will be
greatly reduced.
ENVIRONMENTAL REGULATION
The Company's business and properties are subject to federal and state laws
and regulations governing environmental matters, including the regulation of
hazardous substances and wastes. For example, under the federal Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") and similar
state laws, owners and operators of contaminated properties may be liable for
the costs of cleaning up hazardous substances without regard to whether such
persons actually caused the contamination. Such laws may affect the Company both
as an owner of properties used in or held for its business and as a secured
lender of property that is found to contain hazardous substances or wastes.
Further, although CERCLA exempts holders of security interests, the
exemption may not be available if a secured party engages in the management of
its borrower or the collateral property in a manner deemed beyond the protection
of the secured party's interest. Recent federal and state legislation, as well
as guidance issued by the United States Environmental Protection Agency and a
number of court decisions, have provided assurance to lenders regarding the
activities they may undertake and remain within CERCLA's secured party
exemption. However, these assurances are not absolute and generally will not
protect a lender or fiduciary that participates or otherwise involves itself in
the management of its borrower, particularly in foreclosure proceedings. As a
result, CERCLA and similar state statutes may affect the Company's decision
whether to foreclose on property that is found to be contaminated. It is the
Company's general policy to obtain an environmental assessment prior to
foreclosure of commercial property. The existence of hazardous substances
17
<PAGE> 20
or wastes on such property may cause the Company to elect not to foreclose on
the property, thereby limiting, and in some instances precluding, the Company
from realizing its investment in such loans.
REGULATION AND SUPERVISION
General. WMI, in its capacity as a savings and loan holding company, is
subject to regulation by the Office of Thrift Supervision ("OTS"). WMB is
subject to regulation and supervision by the Director of Financial Institutions
of the State of Washington ("State Director"). Its deposit accounts are insured
by the FDIC through both the BIF and SAIF. The FDIC undertakes examination and
regulation of WMB and other state-chartered banks that are not members of the
Federal Reserve system ("FDIC-regulated banks"). Federal and state laws and
regulations govern, among other things, investment powers, deposit activities,
borrowings, maintenance of guaranty funds and retained earnings. ASB and WMBfsb
are subject to extensive regulation and examination by the OTS, which is their
primary federal regulator. Their deposit accounts are insured through the SAIF
by the FDIC, which also has some authority to regulate ASB and WMBfsb.
The description of statutory provisions and regulations applicable to
depository institutions, insurance companies, securities companies and their
holding companies set forth in this annual report does not purport to be a
complete description of the statutes and regulations mentioned herein, nor of
all such statutes and regulations.
Holding Company Regulation. WMI is a multiple savings and loan holding
company, as defined by federal law, because it owns three savings
associations -- WMB, ASB and WMBfsb. WMB has elected to be treated as a savings
association for purposes of the federal savings and loan holding company law.
WMI is treated as a unitary savings and loan holding company and is not subject
to certain federal statutory restrictions on activities and investments (the
"MHC Restrictions") as are some multiple savings and loan holding companies,
because ASB and WMBfsb are deemed to have been acquired in supervisory
transactions. WMI will become subject to the MHC Restrictions, however, if any
one of WMB, ASB or WMBfsb fails to be a qualified thrift lender ("QTL"), meaning
generally that either (a) at least 65% of a specified asset base must consist of
loans to small businesses, credit card loans, educational loans or certain
assets related to domestic residential real estate, including residential
mortgage loans and mortgage securities; or (b) at least 60% of total assets must
consist of cash, United States government or government agency debt or equity
securities, fixed assets, or loans secured by deposits, by real property used
for residential, educational, church, welfare or health purposes, or by real
property in certain urban renewal areas. Failure to remain a QTL also would
impose conditions on WMB's ability to obtain advances from the FHLB, and would
restrict the ability of ASB and WMBfsb, among other things, to branch, to pay
dividends and to obtain such advances. Each of WMB, ASB and WMBfsb are currently
in compliance with QTL standards.
HOLA and OTS regulations require WMI, as a savings and loan holding
company, to file periodic reports with the OTS. In addition, it must observe
such recordkeeping requirements as the OTS may prescribe and is subject to
holding company examination by the OTS. The OTS may take enforcement action if
the activities of a savings and loan holding company constitute a serious risk
to the financial safety, soundness or stability of a subsidiary savings
association. WMB, ASB and WMBfsb, as holding company subsidiaries that are
depository institutions, are subject to both qualitative and quantitative
limitations on the transactions they conduct with WMI and its other
subsidiaries.
The FDIC has authority to require FDIC-insured banks and savings
associations to reimburse the FDIC for losses incurred by the FDIC in connection
with the default of a commonly controlled depository institution or with the
FDIC's provision of assistance to such an institution. Institutions are commonly
controlled if they are controlled by the same holding company or if one
depository institution controls another depository institution (as WMI controls
WMB, ASB and WMBfsb).
State Regulation and Supervision. Savings banks in Washington, such as
WMB, are empowered by state statute to take deposits and pay interest thereon
and, subject to various conditions and limitations, to make loans on or invest
in residential and other real estate, to make consumer loans, to make commercial
loans, to invest in corporate obligations, government debt securities, and other
securities, and to offer various trust and banking services to their customers.
See " -- The Company" and " -- Washington Mutual's
18
<PAGE> 21
Operating Subsidiaries." Under state law, savings banks in Washington also
generally have all of the powers that federal mutual savings banks have under
federal laws and regulations.
FDIC Insurance. Deposits in WMB, ASB and WMBfsb are separately insured by
the FDIC to the applicable maximum limits in each institution. The FDIC
administers two separate deposit insurance funds. The BIF is a deposit insurance
fund for commercial banks and some state-chartered banks, including WMB. A
portion of WMB's deposits are also insured through SAIF. The SAIF is a deposit
insurance fund for most savings associations, such as ASB and WMBfsb. At
December 31, 1996, approximately 79% of the combined deposits of WMB, ASB and
WMBfsb were insured through SAIF.
The FDIC has developed a deposit insurance system under which the
assessment rate for an insured depository institution varies according to the
level of risk it poses to the BIF or SAIF. This system bases an institution's
risk category partly upon whether the institution is well capitalized,
adequately capitalized, or less than adequately capitalized. See "Regulation and
Supervision -- Capital Requirements." Each insured depository institution is
also assigned to one of three supervisory subgroups based on reviews by the
institution's primary federal or state regulator, statistical analyses of
financial statements, and other information relevant to gauging the risk posed
by the institution. Based on its capital and supervisory subgroups, each
institution is assigned an annual FDIC assessment rate. WMB qualifies for the
lowest rate on its BIF deposits, and WMB, ASB and WMBfsb qualify for the lowest
rate on their SAIF deposits. Regardless of the potential risk to the insurance
fund, Federal law requires the FDIC to establish assessment rates that will
maintain each insurance fund's ratio of reserves to insured deposits at $1.25
per $100.
The BIF reached the $1.25 per $100 of insured deposits reserve ratio and,
effective January 1996, BIF premiums declined. On September 30, 1996, President
Clinton signed legislation intended, among other things, to recapitalize the
SAIF and to reduce SAIF premiums. The legislation provided for a special
one-time assessment on SAIF-insured deposits that were held as of March 31,
1995, including certain deposits acquired after that date. This assessment
brought the SAIF's reserve ratio to the legally required $1.25 per $100 of
insured deposits level. Washington Mutual's special assessment resulted in a
pretax charge of $124.2 million. Even though the one-time charge reduced the
Company's 1996 earnings by $84.8 million, management believes the legislation is
in the best interests of the Company due to the reduction in SAIF assessment
rates. Beginning in January 1997, deposits insured through the SAIF at ASB,
WMBfsb and WMB are subject to regular FDIC assessments amounting to 6.48 cents
per $100 of insured deposits per year, while deposits insured through the BIF at
WMB are subject to regular FDIC assessments amounting to 1.30 cents per $100 of
insured deposits per year.
Capital Requirements. WMI is not subject to any regulatory capital
requirements. However, each of its subsidiary depository and insurance
institutions is subject to various capital requirements. WMB is subject to FDIC
capital requirements, while ASB and WMBfsb are subject to OTS capital
requirements. WM Life is subject to National Association of Insurance
Commissioners ("NAIC") capital requirements.
WMB. FDIC regulations recognize two types or tiers of capital: core ("Tier
1") capital and supplementary ("Tier 2") capital. Tier 1 capital generally
includes common stockholders' equity and noncumulative perpetual preferred
stock, less most intangible assets. Tier 2 capital, which is limited to 100% of
Tier 1 capital, includes such items as qualifying general loan loss reserves,
cumulative perpetual preferred stock, mandatory convertible debt, term
subordinated debt and limited life preferred stock; however, the amount of term
subordinated debt and intermediate term preferred stock (original maturity of at
least five years but less than 20 years) that may be included in Tier 2 capital
is limited to 50% of Tier 1 capital.
The FDIC currently measures an institution's capital using a leverage limit
together with certain risk-based ratios. The FDIC's minimum leverage capital
requirement specifies a minimum ratio of Tier 1 capital to total assets. Most
banks are required to maintain a minimum leverage ratio of at least 4.00% to
5.00%. The FDIC retains the right to require a particular institution to
maintain a higher capital level based on an institution's particular risk
profile. WMB has calculated its leverage ratio to be 5.76% as of December 31,
1996.
19
<PAGE> 22
FDIC regulations also establish a measure of capital adequacy based on
ratios of qualifying capital to risk-weighted assets. Assets are placed in one
of four categories and given a percentage weight -- 0%, 20%, 50% or
100% -- based on the relative risk of that category. For example, U.S. Treasury
Bills and GNMA securities are placed in the 0% risk category, FNMA and FHLMC
securities are placed in the 20% risk category, loans secured by 1-4 family
residential properties and certain privately issued mortgage-backed securities
are generally placed in the 50% risk category, and commercial real estate and
consumer loans are generally placed in the 100% risk category. In addition,
certain off-balance sheet items are converted to balance sheet credit equivalent
amounts, and each amount is then assigned to one of the four categories. Under
the guidelines, the ratio of total capital (Tier 1 capital plus Tier 2 capital)
to risk-weighted assets must be at least 8.00%, and the ratio of Tier 1 capital
to risk-weighted assets must be at least 4.00%. WMB has calculated its total
risk-based ratio to be 11.09% as of December 31, 1996, and its Tier 1 risk-based
capital ratio to be 10.28%. In evaluating the adequacy of a bank's capital, the
FDIC may also consider other factors that may affect a bank's financial
condition. Such factors may include interest rate risk exposure, liquidity,
funding and market risks, the quality and level of earnings, concentration of
credit risk, risks arising from nontraditional activities, loan and investment
quality, the effectiveness of loan and investment policies, and management's
ability to monitor and control financial operating risks.
ASB and WMBfsb. The OTS requires savings associations, such as ASB and
WMBfsb, to meet each of three separate capital adequacy standards: a core
capital leverage requirement, a tangible capital requirement and a risk-based
capital requirement. OTS regulations require savings associations to maintain
core capital (which may include, for a limited time, certain amounts of
qualifying supervisory goodwill) of at least 3.00% of assets and tangible
capital (excluding all goodwill) of at least 1.50% of assets. As of December 31,
1996, ASB's core capital and tangible capital ratios were 5.17% each and
WMBfsb's core capital and tangible capital ratios were each 6.90%. Most savings
institutions are required to maintain a minimum leverage ratio of at least
4.00%. OTS regulations incorporate a risk-based capital requirement that is
designed to be no less stringent than the capital standard applicable to
national banks and is modeled in many respects on, but not identical to, the
risk-based capital requirements adopted by the FDIC. These regulations require a
core risk-based capital ratio of at least 4.00% and a total risk-based capital
ratio of at least 8.00%. As of December 31, 1996, ASB had core risk-based and
total risk-based capital ratios of 8.90% and 10.92%, while WMBfsb had ratios of
10.50% and 11.58%, respectively.
FDICIA Requirements. FDICIA created a statutory framework that increased
the importance of meeting applicable capital requirements. For WMB, ASB and
WMBfsb, FDICIA established five capital categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. An institution's category depends upon where its capital
levels are in relation to relevant capital measures, which include a risk-based
capital measure, a leverage ratio capital measure, and certain other factors.
The federal banking agencies (including the FDIC and the OTS) have adopted
regulations that implement this statutory framework. Under these regulations, an
institution is treated as well capitalized if its ratio of total capital to
risk-weighted assets is 10.00% or more, its ratio of core capital to risk-
weighted assets is 6.00% or more, its ratio of core capital to adjusted total
assets is 5.00% or more and it is not subject to any federal supervisory order
or directive to meet a specific capital level. In order to be adequately
capitalized, an institution must have a total risk-based capital ratio of not
less than 8.00%, a Tier 1 risk-based capital ratio of not less than 4.00%, and a
leverage ratio of not less than 4.00%. Any institution which is neither well
capitalized nor adequately capitalized will be considered undercapitalized.
Undercapitalized institutions are subject to certain prompt corrective
action requirements, regulatory controls and restrictions which become more
extensive as an institution becomes more severely undercapitalized. Failure by
WMB, ASB or WMBfsb to comply with applicable capital requirements would, if
unremedied, result in restrictions on their activities and lead to enforcement
actions against WMB by the FDIC or against ASB or WMBfsb by the OTS, including,
but not limited to, the issuance of a capital directive to ensure the
maintenance of required capital levels. FDICIA requires the federal banking
regulators to take prompt corrective action with respect to depository
institutions that do not meet minimum capital requirements. Additionally, FDIC
or OTS approval of any regulatory application filed for their review may be
dependent on compliance with capital requirements.
20
<PAGE> 23
Federal law requires that the federal banking agencies risk-based capital
guidelines take into account various factors including interest rate risk,
concentration of credit risk, risks associated with nontraditional activities,
and the actual performance and expected risk of loss of multi-family mortgages.
In 1994, the federal banking agencies jointly revised their capital standards to
specify that concentration of credit and nontraditional activities are among the
factors that the agencies will consider in evaluating capital adequacy. In that
year, the OTS and FDIC amended their risk-based capital standards with respect
to the risk weighting of loans made to finance the purchase or construction of
multi-family residences. The OTS adopted final regulations adding an interest
rate risk component to the risk-based capital requirements for savings
associations (such as ASB and WMBfsb), although implementation of the regulation
has been delayed. Management believes that the effect of including such an
interest rate risk component in the calculation of risk-adjusted capital will
not cause ASB or WMBfsb to cease to be well capitalized. In June 1996, the FDIC
and certain other federal banking agencies (not including the OTS) issued a
joint policy statement providing guidance on prudent interest rate risk
management principles. The agencies stated that they would determine banks'
interest rate risk on a case-by-case basis, and would not adopt a standardized
measure or establish an explicit minimum capital charge for interest rate risk.
WM Life. WM Life is subject to risk-based capital requirements developed
by the NAIC. The NAIC measure uses four major categories of risk to calculate an
appropriate level of capital to support an insurance company's overall business
operations. The four risk categories are asset risk, insurance risk, interest
rate risk and business risk. At December 31, 1996, WM Life's actual capital was
663% of its required regulatory risk-based level.
Legal Restrictions on Dividends of Depository Institutions. A depository
institution such as WMB, ASB or WMBfsb may not make a capital distribution if,
following such distribution, the institution will be undercapitalized under the
FDICIA provisions described above. In addition, Washington state law prohibits
WMB from declaring or paying a dividend greater than its retained earnings or if
doing so would cause its net worth to be reduced below (i) the amount required
for the protection of preconversion depositors or (ii) the net worth
requirements, if any, imposed by the State Director.
OTS regulations limit the ability of savings associations such as ASB and
WMBfsb to pay dividends and make other capital distributions according to the
institution's level of capital and income, with the greatest flexibility
afforded to institutions that meet or exceed their OTS capital requirements.
Under current OTS regulations, a savings association that exceeds its OTS
regulatory capital requirements both before and after a proposed dividend (or
other distribution of capital) and has not been advised by the OTS that it is in
need of more than normal supervision may, after prior notice to but without the
approval of the OTS, make capital distributions during a calendar year up to the
higher of (i) 100% of its income during the calendar year plus the amount that
would reduce by one-half its "surplus capital ratio" (the institution's excess
capital over its capital requirements) at the beginning of the calendar year or
(ii) 75% of its net income over the most recent four-quarter period. In
addition, such an institution may make capital distributions in excess of the
foregoing limits if the OTS does not object within a 30-day period following
notice by the institution.
A savings association that would not meet OTS capital requirements
following payment of a dividend is subject to additional restrictions. It is not
anticipated that ASB or WMBfsb will pay any dividend that would cause either of
them to fail to meet OTS capital requirements.
FDIC and OTS Regulation and Examination. The FDIC has adopted regulations
to protect the deposit insurance funds and depositors, including regulations
governing the deposit insurance of various forms of accounts. The FDIC has also
adopted numerous regulations to protect the safety and soundness of FDIC-
regulated banks. These regulations cover a wide range of subjects including
financial reporting, change in bank control, affiliations with securities firms
and capital requirements. In certain instances, these regulations restrict the
exercise of powers granted by state law.
An FDIC regulation and a joint FDIC/OTS policy statement place a number of
restrictions on the activities of WMB's and ASB's securities and insurance
affiliates, and on such affiliates' transactions with WMB, ASB and WMBfsb. These
restrictions include requirements that such affiliates follow practices and
procedures to distinguish them from WMB, ASB and WMBfsb and that such affiliates
give customers notice
21
<PAGE> 24
from time to time of this distinction and of the distinction between insured
deposits and uninsured nondeposit products.
FDICIA also prohibited banks such as WMB and their subsidiaries from
exercising certain powers that were granted by state law to make investments or
carry on activities as principal (i.e. for their own account) unless either (i)
national banks have power under federal law to make such investments or carry on
such activities, or (ii) the bank and such investments or activities meet
certain requirements established by FDICIA and the FDIC.
FDICIA imposed new supervisory standards requiring annual examinations,
independent audits, uniform accounting and management standards, and prompt
corrective action for problem institutions. As a result of FDICIA, depository
institutions and their affiliates are subject to federal standards governing
asset growth, interest rate exposure, executive compensation, and many other
areas of depository institution operations. FDICIA contains numerous other
provisions, including reporting requirements and revised regulatory standards
for, among other things, real estate lending.
The FDIC may sanction any FDIC-regulated bank that does not operate in
accordance with FDIC regulations, policies and directives. Proceedings may be
instituted against any FDIC-regulated bank, or any institution-affiliated party,
such as a trustee, director, officer, employee, agent, or controlling person of
the bank, who engages in unsafe and unsound practices, including violations of
applicable laws and regulations. The FDIC may revalue assets of an institution,
based upon appraisals, and may require the establishment of specific reserves in
amounts equal to the difference between such revaluation and the book value of
the assets. The State Director has similar authority under Washington state law
and the OTS has similar authority under HOLA. The FDIC has additional authority
to terminate insurance of accounts, after notice and hearing, upon a finding
that the insured institution is or has engaged in any unsafe or unsound practice
that has not been corrected, or is operating in an unsafe or unsound condition,
or has violated any applicable law, regulation, rule, or order of or condition
imposed by the FDIC.
Federal savings institutions, such as ASB and WMBfsb, are subject to
regulatory oversight and examination by the OTS and the FDIC. HOLA and OTS
regulations delimit such institutions' investment and lending powers. Federal
savings institutions may not invest in noninvestment-grade debt securities, nor
may they generally make equity investments, other than investments in service
corporations.
Federal law and regulations requires ASB and WMBfsb to maintain, for each
calendar month, an average daily balance of liquid assets equal to not less than
5% of its average daily balance of total savings accounts and borrowings payable
in one year or less, subject to certain adjustments for deposit outflows. This
liquidity requirement may be changed from time to time.
Federal regulation of depository institutions is intended for the
protection of depositors (and the BIF and SAIF), and not for the protection of
stockholders or other creditors. In addition, a provision in the Omnibus Budget
Reconciliation Act of 1993 ("Budget Act") requires that in any liquidation or
other resolution of any FDIC-insured depository institution, claims for
administrative expenses of the receiver and for deposits in U.S. branches
(including claims of the FDIC as subrogee of the insured institution) shall have
priority over the claims of general unsecured creditors.
Federal Reserve Regulation. Under Federal Reserve Board regulations, WMB,
ASB and WMBfsb are each required to maintain reserves against their transaction
accounts (primarily checking and NOW accounts). Because reserves must generally
be maintained in cash or in noninterest-bearing accounts, the effect of the
reserve requirements is to increase an institution's cost of funds. These
regulations generally require that WMB, ASB and WMBfsb each maintain reserves
against net transaction accounts in the amount of 3% on amounts of $49.3 million
or less, plus 10% on amounts in excess of $49.3 million. Institutions may
designate and exempt $4.4 million of certain reservable liabilities from these
reserve requirements. These amounts and percentages are subject to adjustment by
the Federal Reserve Board. A savings bank, like other depository institutions
maintaining reservable accounts, may borrow from the Federal Reserve Bank
discount window, but the Federal Reserve Board's regulations require the savings
bank to exhaust other reasonable alternative sources before borrowing from the
Federal Reserve Bank.
22
<PAGE> 25
Numerous other regulations promulgated by the Federal Reserve Board affect
the business operations of the Company's banking subsidiaries. These include
regulations relating to equal credit opportunity, electronic fund transfers,
collection of checks, truth in lending, truth in savings and availability of
funds.
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
financial institutions regulated by the federal financial supervisory agencies
to ascertain and help meet the credit needs of their delineated communities,
including low-income and moderate-income neighborhoods within those communities,
while maintaining safe and sound banking practices. The regulatory agency
assigns one of four possible ratings to an institution's CRA performance and is
required to make public an institution's rating and written evaluation. The four
possible ratings of meeting community credit needs are outstanding,
satisfactory, needs to improve, and substantial noncompliance.
Many factors play a role in assessing a financial institution's CRA
performance. The institution's regulator must consider its financial capacity
and size, legal impediments, local economic conditions and demographics,
including the competitive environment in which it operates. The evaluation does
not rely on absolute standards and the institutions are not required to perform
specific activities or to provide specific amounts or types of credit.
ASB and WMBfsb each has received an "outstanding" CRA rating from the OTS,
and WMB has received an "outstanding" CRA rating from the FDIC. These ratings
reflect Washington Mutual's commitment to meeting the credit needs of the
communities it serves. The Company maintains a CRA statement for public viewing,
as well as an annual CRA highlights document. These documents describe
Washington Mutual's credit programs and services, community outreach activities,
public comments and other efforts to meet community credit needs.
Recent and Proposed Federal Legislation. Federal legislation was enacted in
1994, which will repeal, effective June 1, 1997, certain restrictions on the
establishment of interstate branches by national banks and state-chartered
banks. In addition, bank holding companies are now generally permitted to buy
banks in any state. WMBfsb already has authority to establish interstate
branches under current federal law and regulations, and management expects that
such legislation will primarily benefit competitors of the Company.
Various legislative proposals relating to depository institutions have been
or are expected to be introduced in the current session of Congress. These
include proposals to restrict or further regulate the sales of mutual funds and
annuities by depository institutions or their affiliates, to restrict
affiliations between the Company and nonbanking corporations including life
insurance companies, and effectively to require federal savings institutions
such as ASB and WMBfsb to convert to banks. The outcome of these legislative
proposals cannot be forecast reliably.
Regulation of Nonbanking Affiliates. As insurance companies, WM Life and
Empire are subject to comprehensive regulation and supervision by the states in
which they are domiciled (WM Life is domiciled in the state of Arizona and
Empire is domiciled in the state of Washington) as well as the states in which
they transact business. The laws of the various states establish supervisory
agencies with broad administrative and supervisory powers. Such agencies set
standards related to granting and revoking licenses to transact business,
regulation of trade practices and market conduct, licensing of agents, approval
of policy forms, regulating of certain premium rates, setting of insurance
liability and investment reserve requirements, determining the form and content
of required financial statements, determining the reasonableness and adequacy of
capital and surplus, and prescribing the types and amounts of permitted
investments. Insurance companies are subject to periodic examinations by such
supervisory agencies. State insurance laws and regulations also impose limits on
the extent to which the insurance company subsidiaries may pay dividends or lend
or otherwise supply funds to the Company.
As broker-dealers registered with the Securities and Exchange Commission
and as members of the National Association of Securities Dealers ("NASD"),
Murphey Favre and ASB Financial are subject to various regulations and
restrictions imposed by those entities, as well as by various state authorities.
As a registered investment advisor, Composite Research is subject to various
federal and state securities regulations and restrictions.
23
<PAGE> 26
The NASD has adopted and forwarded to the SEC for approval rules concerning
NASD member operations conducted in branches of depository institutions.
Although many of the NASD's proposed requirements are substantially similar to
the joint FDIC/OTS policy statement governing the activities of WMB's securities
affiliates, the NASD proposal, if approved by the SEC, could impose additional
restrictions on these affiliates.
COMPETITIVE ENVIRONMENT
Washington Mutual faces significant competition in attracting and retaining
deposits and making loans in all of its market areas. Its most direct
competition for deposits has historically come from other thrift institutions,
credit unions and commercial banks doing business in its primary market areas of
Washington, California and Oregon. As with all banking organizations, however,
Washington Mutual has experienced increasing competition from nonbanking
sources, including mutual funds, corporate and governmental debt securities and
other investment alternatives. Washington Mutual's competition for loans comes
principally from credit unions, insurance companies and other institutional
lenders. Many of these competitors have more significant financial resources,
larger market share and greater name recognition than the Company. The existence
of such competitors may make it difficult for Washington Mutual to achieve its
financial goals. In addition to the normal competitive factors described above,
Washington Mutual management at the holding company level has limited operating
experience in California, which has a much larger population with more large
financial institution competitors than the states in which WMB has historically
operated. Accordingly, there can be no assurance that the Company's consumer
banking strategy will prove successful in the California market.
Although consolidation has decreased the number of institutions competing
in the Company's market, both thrifts and commercial banks have reemphasized
their focus on the consumer, making competition for retail deposits and loans
extremely fierce. While the increased competitive pressures make the banking
environment more difficult, the Company remains a strong market force. For 1996,
WMB's originations of residential mortgage loans ranked first in both Washington
and Oregon, and ASB's originations of residential mortgages ranked second in
California.
PRINCIPAL OFFICERS
The following table sets forth certain information regarding the principal
officers of Washington Mutual:
<TABLE>
<CAPTION>
EMPLOYEE OF
PRINCIPAL OFFICERS AGE CAPACITY IN WHICH SERVED COMPANY SINCE
- -------------------------- --- ------------------------------------------------------- -------------
<S> <C> <C> <C>
Kerry K. Killinger........ 47 Chairman of the Board of Directors, President and Chief 1983
Executive Officer
Craig S. Davis............ 45 Executive Vice President 1996
Steven P. Freimuth........ 40 Executive Vice President 1988
Lee D. Lannoye............ 59 Executive Vice President 1988
William A. Longbrake...... 53 Executive Vice President and Chief Financial Officer 1996
Deanna W. Oppenheimer..... 38 Executive Vice President 1985
Craig E. Tall............. 51 Executive Vice President 1985
S. Liane Wilson........... 54 Executive Vice President 1985
Norman H. Swick........... 47 Senior Vice President and General Auditor 1980
Douglas G. Wisdorf........ 42 Senior Vice President, Deputy Chief Financial Officer, 1976
and Controller
</TABLE>
Mr. Killinger has been Chairman, President and Chief Executive Officer of
WMI since its organization. He has been Chairman of the Board of Directors of
WMB since 1991 and Chief Executive Officer since 1990. Mr. Killinger became an
Executive Vice President of WMB in 1983, a Senior Executive Vice President of
WMB in 1986 and the President and a director of WMB in 1988.
24
<PAGE> 27
Mr. Davis became an Executive Vice President and member of the Executive
Committee of WMI in January 1997, following WMI's merger with Keystone Holdings.
In his capacity as Executive Vice President, Mr. Davis is responsible for
lending and financial services. He was Director of Mortgage Origination of ASB
from 1993 through 1996 and served as President of ASB Financial from 1989 to
1993.
Mr. Freimuth has been an Executive Vice President of WMI and a member of
the Executive Committee since January 1997. In this capacity, he is responsible
for corporate lending administration. He joined WMB as a Senior Vice President
in 1988.
Mr. Lannoye has been an Executive Vice President of WMI since its
organization. He has been an Executive Vice President of WMB since 1988 and a
member of the Company's Executive Committee since its formation in 1990. In his
capacity as Executive Vice President, Mr. Lannoye is responsible for corporate
administration and credit.
Mr. Longbrake rejoined WMI in October 1996 as Executive Vice President and
Chief Financial Officer and a member of the Company's Executive Committee. In
his capacity as Executive Vice President, Mr. Longbrake is responsible for
corporate finance. From March of 1995 through September of 1996, he served as
Deputy to the Chairman for Finance and Chief Financial Officer of the Federal
Deposit Insurance Corporation. Mr. Longbrake was Senior Executive Vice President
and Chief Financial Officer of WMI from its organization through February 1995.
He was Chief Financial Officer of WMB from 1988 to 1995 and a member of the
Company's Executive Committee from its formation in 1990 until 1995 and again
since 1996. Mr. Longbrake became an Executive Vice President and Treasurer of
WMB in 1982 and a Senior Executive Vice President of WMB in 1986.
Ms. Oppenheimer has been an Executive Vice President of WMI since its
organization. She has been an Executive Vice President of WMB since 1993 and a
member of the Company's Executive Committee since its formation in 1990. In this
capacity, Ms. Oppenheimer is responsible for corporate marketing and consumer
bank distribution. She has been an officer of WMB since 1985. She became an
Assistant Vice President of WMB in 1986, a Vice President in 1987 and a Senior
Vice President in 1989.
Mr. Tall has been an Executive Vice President of WMI since its
organization. He had been an Executive Vice President of WMB since 1987 and a
member of the Company's Executive Committee since its formation in 1990. In his
capacity as Executive Vice President, Mr. Tall is responsible for corporate
development and commercial banking.
Ms. Wilson has been an Executive Vice President of WMI since its
organization. She has been an Executive Vice President of WMB since 1988 and a
member of the Company's Executive Committee since its formation in 1990. In her
capacity as Executive Vice President, Ms. Wilson is responsible for corporate
operations.
Mr. Swick has been Senior Vice President and General Auditor of WMI since
its organization. He has been an officer of WMB since 1980. Mr. Swick became a
Vice President in 1984, Senior Vice President in 1988, and General Auditor of
WMB in 1989. In this capacity, he monitors WMI's internal controls and
compliance with all laws and regulations.
Mr. Wisdorf has been Deputy Chief Financial Officer since 1996 and Senior
Vice President and Controller of WMI since its organization. Mr. Wisdorf has
been Senior Vice President and Controller of WMB since 1991. In this capacity,
he serves as principal accounting officer of WMI. He joined WMB in 1976 and has
been an officer since 1978. Since 1986, he has served as Vice President and
Controller.
ITEM 2. PROPERTIES
Washington Mutual's administrative offices are located at 1201 Third
Avenue, Seattle, Washington, 98101 where, as of December 31, 1996, WMB leased
approximately 180,000 square feet pursuant to a lease agreement that terminates
in 2007 with multiple options to renew at WMB's discretion. WMB also leased
approximately 160,000 square feet of space in Seattle in the Second and Seneca
Building pursuant to a lease agreement that terminates in 2001 and approximately
75,000 square feet in the adjoining building, pursuant to
25
<PAGE> 28
a lease agreement that terminates in 2006, with multiple options to renew both
leases at WMB's discretion. ASB administrative and subsidiary operations are
conducted from owned office space totaling 280,000 square feet in Irvine,
California and 237,000 square feet in Stockton, California. As of December 31,
1996, Washington Mutual's banking subsidiaries conducted business from 413
consumer financial centers, 48 business branches and 96 loan centers in
Washington, California, Oregon, Utah, Idaho, Montana, Arizona, Colorado and
Nevada. Nonbanking subsidiary operations were conducted in 8 non-financial
center locations in Washington, Oregon and Montana. See "Consolidated Financial
Statements -- Note 9: Premises and Equipment."
ITEM 3. LEGAL PROCEEDINGS
Washington Mutual has certain litigation and negotiations in progress
resulting from activities arising from normal operations. In the opinion of
management, none of these matters is likely to have a materially adverse effect
on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 18, 1996, the Company held a special meeting of shareholders to
vote on approval of the merger with Keystone Holdings and related transactions
and on an amendment to the Company's Articles of Incorporation to increase the
number of authorized shares of common stock.
The results of the votes cast on each matter were as follows:
<TABLE>
<CAPTION>
ABSTENTIONS
FOR AGAINST AND NON-VOTES
---------- --------- -------------
<S> <C> <C> <C>
Keystone Transaction................................... 57,344,192 233,170 2,736,252
Amendment to Articles
Common Shares........................................ 58,016,532 1,902,606 12,388,372
Aggregate Common and Preferred Shares................ 61,390,613 2,051,200 14,988,097
</TABLE>
PART II
ITEM 5. MARKET FOR WASHINGTON MUTUAL'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
COMMON STOCK
Washington Mutual's common stock trades on The Nasdaq Stock Market under
the symbol WAMU. As of January 31, 1997, there were 126,255,891 shares issued
and outstanding held by 15,975 shareholders of record. The last reported sales
price of common stock on February 14, 1997 was $55.19 per share.
The high and low common stock prices by quarter were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995
----------------- -----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First quarter........................... $32.25 $27.63 $20.75 $16.63
Second quarter.......................... 30.38 26.13 24.75 20.00
Third quarter........................... 39.25 28.50 26.75 22.50
Fourth quarter.......................... 45.88 36.50 29.50 24.75
</TABLE>
The cash dividends paid by quarter were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1996 1995
----- -----
<S> <C> <C>
First quarter................................................ $0.21 $0.19
Second quarter............................................... 0.22 0.19
Third quarter................................................ 0.23 0.19
Fourth quarter............................................... 0.24 0.20
</TABLE>
26
<PAGE> 29
PREFERRED STOCK
9.12% Noncumulative Perpetual Preferred Stock, Series C. Washington
Mutual's Series C Preferred Stock trades on The Nasdaq Stock Market under the
symbol WAMUO. The Series C Preferred Stock has a liquidation preference of $25
per share plus dividends accrued and unpaid for the then-current dividend
period. Dividends, if and when declared by Washington Mutual's Board of
Directors, are at an annual rate of $2.28 per share. Dividends of $0.57 per
share have been declared for each quarter for the two years ended December 31,
1996. At December 31, 1996, there were 2,752,500 shares issued and outstanding
held by 476 shareholders of record. The last reported sales price of the Series
C Preferred Stock on February 14, 1997 was $25.50 per share.
The high and low stock prices by quarter were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995
----------------- -----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First quarter........................... $27.00 $25.88 $25.88 $24.75
Second quarter.......................... 26.25 25.38 26.50 25.88
Third quarter........................... 26.38 25.63 26.88 25.63
Fourth quarter.......................... 26.31 25.00 26.75 26.00
</TABLE>
7.60% Noncumulative Perpetual Preferred Stock, Series E. Washington
Mutual's Series E Preferred Stock trades on The Nasdaq Stock Market under the
symbol WAMUM. The Series E Preferred Stock has a liquidation preference of $25
per share plus dividends accrued and unpaid for the then-current dividend
period. Dividends, if and when declared by Washington Mutual's Board of
Directors, are at an annual rate of $1.90 per share. Dividends of $0.475 per
share have been declared for each quarter for the two years ended December 31,
1996. At December 31, 1996, there were 1,970,000 shares issued and outstanding
held by 391 shareholders of record. The last reported sales price of the Series
E Preferred Stock on February 14, 1997 was $25.25 per share.
The high and low stock prices by quarter were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995
----------------- -----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First quarter........................... $25.63 $24.50 $23.75 $21.75
Second quarter.......................... 25.00 23.63 25.00 22.75
Third quarter........................... 24.75 24.00 24.63 23.63
Fourth quarter.......................... 25.75 24.25 25.00 24.38
</TABLE>
PAYMENT OF DIVIDENDS AND POLICY
Payment of future dividends is subject to a declaration by Washington
Mutual's Board of Directors. Factors considered in determining the size of
dividends are the amount and stability of profits, adequacy of capitalization,
and expected asset and deposit growth of its subsidiaries. The dividend policy
of Washington Mutual is also dependent on the ability of WMB, ASB and WMBfsb to
make dividends to their respective parent company, which is influenced by legal,
regulatory and economic restrictions. See "Business -- Regulation and
Supervision -- Legal Restrictions on Dividends of Depository Institutions."
Retained earnings of the Company at December 31, 1996 included a pre-1988
thrift bad debt reserve for tax purposes of approximately $450.0 million for
which no federal income taxes had been provided. In the future, if the thrift
bad debt reserve is used for any purpose other than to absorb bad debt losses,
or if any of the banking subsidiaries no longer qualifies as a bank, the Company
will incur a federal income tax liability at the then prevailing corporate tax
rate, to the extent of such subsidiaries pre-1988 thrift bad debt reserve. As a
result, the Company's ability to pay dividends in excess of current earnings may
be limited.
27
<PAGE> 30
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for
Washington Mutual and is derived from and should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto, which are included
elsewhere herein. The Keystone Transaction and merger with Western in 1996 and
the merger with Pioneer Savings Bank in 1993 were accounted for as
poolings-of-interests. The assets, liabilities, and results of operations of the
acquired companies have been recorded on the books of Washington Mutual at their
values as carried on the books of the acquired companies, and no goodwill was
created. Washington Mutual financial information contained herein has been
restated as if the respective companies had been combined for all 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...................................... -- -- -- (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.................................... $ 114,278 $ 289,902 $ 240,275 $ 267,323 $ 267,555
=========== =========== =========== =========== ===========
Net income attributable to common stock....... $ 95,859 $ 271,318 $ 221,691 $ 253,764 $ 262,140
=========== =========== =========== =========== ===========
Net income per common share(1):
Primary..................................... $0.85 $2.47 $2.09 $2.42 $2.82
Fully diluted............................... 0.85 2.42 2.06 2.36 2.71
Cash dividends paid per common share(1)(2).... 0.90 0.77 0.70 0.50 0.33
Common stock dividend payout ratio(2)(3)...... 29.01% 25.74% 24.50% 15.98% 15.43%
Return on average assets...................... 0.27 0.73 0.69 0.84 1.29
Return on average stockholders' equity........ 4.59 13.44 12.66 15.95 21.05
Return on average common stockholders'
equity...................................... 4.39 13.73 12.95 16.78 21.05
Average fully diluted common shares used to
calculate earnings per share(5)............. 113,138,724 115,363,724 111,664,374 110,753,774 103,446,289
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Assets................................... $44,551,925 $42,026,622 $37,481,296 $33,614,912 $27,678,923
Available-for-sale securities............ 9,111,274 12,154,725 4,282,160 1,751,905 --
Held-to-maturity securities.............. 2,860,347 3,197,720 4,456,031 5,663,635 4,638,473
Loans:
Residential............................ 22,660,715 17,303,305 17,766,215 13,828,459 11,734,594
Residential construction............... 723,645 615,814 549,271 430,215 366,808
Commercial real estate................. 3,810,968 3,487,574 4,699,220 4,515,449 3,194,184
Manufactured housing, second mortgage
and other consumer.................. 3,158,741 2,841,854 2,573,327 2,403,169 1,431,834
Commercial business.................... 340,149 179,568 129,048 131,468 118,717
Reserve for loan losses................ (363,442) (235,275) (244,989) (245,062) (179,612)
----------- ----------- ----------- ----------- -----------
Total loans......................... 30,330,776 24,192,840 25,472,092 21,063,698 16,666,525
========== ========== ========== ========== ==========
Deposits................................. 24,080,141 24,462,960 23,344,006 23,516,317 20,729,204
Annuities................................ 878,057 855,503 799,178 713,383 571,428
Borrowings............................... 16,805,931 13,724,132 11,147,389 6,653,241 4,563,052
Preferred stock.......................... 113,695 250,168 252,034 252,053 266,633
Stockholders' equity..................... 2,397,888 2,541,704 1,854,836 1,765,560 1,467,835
Stockholders' equity ratio............... 5.38% 6.05% 4.95% 5.25% 5.30%
Fully diluted book value per common
share(1)(4)............................ $19.30 $20.70 $15.33 $14.84 $12.78
Number of fully diluted common shares at
end of period(5)....................... 126,142,285 125,107,107 121,140,169 118,876,251 117,351,928
</TABLE>
- ---------------
(1) Net income per common share, cash dividends paid per common share, fully
diluted book value per common share and number of common shares outstanding
for 1992 have been adjusted for the third quarter 1993 50% stock dividend.
(2) Dividends include only amounts paid to Washington Mutual, Inc. shareholders.
(3) Dividend payout ratio is based on Washington Mutual's net income prior to
business combinations.
(4) Does not include 8,000,000 shares of common stock issued to an escrow for
the benefit of the general and limited partners of Keystone Holdings and the
FRF.
(5) As part of the business combination with Keystone Holdings, 8,000,000 shares
of common stock, with an assigned value of $42.75 per share, were issued to
an escrow for the benefit of the general and limited partners of Keystone
Holdings and the FRF and their transferees. The Company will use the
treasury stock method to determine the effect of the shares upon the
Company's financial statements. At December 31, 1996, the dilutive effect of
the 8,000,000 shares of common stock on primary and fully diluted earnings
per share was minimal.
29
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto presented elsewhere in
this report.
GENERAL
Washington Mutual is a regional financial services company committed to
serving consumers and small and mid-sized businesses throughout the Western
United States. The Company's banking subsidiaries accept deposits from the
general public, make residential loans, consumer loans, limited types of
commercial real estate loans (primarily loans secured by multi-family
properties), and engage in certain commercial banking activities. Washington
Mutual also underwrites and sells annuities, sells other insurance products,
offers full service securities brokerage, and acts as the investment advisor to
and the distributor of mutual funds.
The Keystone Transaction. In December 1996, Keystone Holdings merged with
and into Washington Mutual, and all of the subsidiaries of Keystone Holdings,
including ASB, became subsidiaries of the Company. ASB will remain an operating
subsidiary of the Company. The Keystone Transaction was accounted for as a
pooling-of-interests. The financial information presented herein has been
restated as if the respective companies had been combined for all periods
presented. Accordingly, unless otherwise noted, all references to Washington
Mutual or the Company refer to the combined entity, including Keystone Holdings.
Keystone Holdings commenced operations in December 1988 as an indirect
holding company for ASB. ASB was formed to effect the December 1988 acquisition
(the "1988 Acquisition") of certain assets and liabilities of the failed savings
and loan association subsidiary (the "Failed Association") of Financial
Corporation of America. In connection with the 1988 Acquisition, the Federal
Savings and Loan Insurance Corporation ("FSLIC") received warrants (the
"Warrants") that represented the right to purchase capital stock of ASB's
corporate parent, an intermediary holding company between Keystone Holdings and
ASB. In addition, the 1988 Acquisition had a "good bank/bad bank" structure,
with ASB, the "good bank," acquiring substantially all of the Failed
Association's performing loans and fixed assets and assuming substantially all
of its deposit liabilities. New West, the "bad bank," was formed to acquire the
Failed Association's other assets (including nonperforming loans) and
liabilities with a view toward their liquidation. New West was transferred to
the FDIC as manager of the FRF, prior to consummation of the Keystone
Transaction. New West was subsequently liquidated.
The Company anticipates that it will consolidate certain head office
functions and back office operations of ASB. The Company anticipates achieving
certain cost savings from such consolidations. However, the Company expects the
actual level of expenses to rise modestly as a result of anticipated growth in
ASB's residential lending and other consumer banking activities. In addition,
the Company will pursue opportunities to acquire other California operations. If
successful, the Company anticipates a further rise in expenses.
Other Acquisition Activity. In recent years, Washington Mutual has
continued to expand its operations through business combinations with other
financial institutions with locations in Washington, Oregon, Utah, and Montana.
Beginning in 1995, Washington Mutual took steps to diversify its operations into
commercial banking. In August 1995, the Company acquired Enterprise, a
Seattle-area commercial bank, and in January 1996, acquired Western, a
commercial bank with branch operations throughout Oregon. Each of these
transactions was accounted for as a pooling-of-interests.
RESULTS OF OPERATIONS
Washington Mutual's 1996 net income of $114.3 million was down from $289.9
million in 1995 and $240.3 million in 1994. Earnings for 1996 were reduced by
$294.6 million due to an after-tax charge of $209.8 million for
transaction-related expenses resulting from the Keystone Transaction, and by a
third quarter after-tax charge of $84.8 million representing the Company's
portion of the one-time assessment paid by savings institutions and banks
nationally to recapitalize the SAIF. Fully diluted earnings per share were $0.85
in 1996, compared with $2.42 in 1995 and $2.06 in 1994. Washington Mutual's
return on average assets for 1996 equaled 0.27%, down from 0.73% in 1995 and
0.69% in 1994. Its return on common stockholders'
30
<PAGE> 33
equity for 1996 was 4.39%, also down from 13.73% in 1995 and 12.95% in 1994. An
increase of approximately 250 basis points in short-term market interest rates
in 1994 led to a compression of the net interest margin and a corresponding
pressure on net interest income in 1994 and 1995. Certain short-term interest
rates decreased 25 basis points in mid-1995 and again in December 1995,
resulting in an improved operating environment for the Company during 1996 and
1995 over 1994.
Net Interest Income. Net interest income for 1996 of $1.2 billion
increased 20% from $992.7 million in 1995, which in turn was 3% higher than the
$960.1 million earned during 1994. The net interest margin (which measures the
Company's net interest income as a percentage of average interest-earning
assets) for 1996 was 2.89%, compared with 2.62% in 1995 and 2.90% in 1994. The
1996 increase in net interest income and margin reflected the effect of two
primary factors. First, average interest-earning assets of $41.2 billion
increased 9% from 1995. Second, the net interest spread (which is the difference
between the Company's yield on interest-earning assets and its cost of funds)
rose to 2.75% for 1996 from 2.53% during 1995. To a certain extent, the
Company's net interest spread is affected by changes in the yield curve. Savings
institutions generally have better financial results in a steep yield curve
environment. During 1996, the difference between the yield on a three-month
treasury bill and a 30-year bond was 155 basis points compared with 124 basis
points a year earlier. This increased differential helped increase the Company's
net interest spread.
The net interest spread rose to 2.75% during 1996 from 2.53% for 1995.
Although long-term interest rates were generally higher during 1996 when
compared with 1995, the Company's yield on loans and investments dropped 6 basis
points to 7.64% during 1996, compared with 7.70% for 1995. As part of a strategy
initiated in late 1995 and continued in 1996 to restructure the Company's asset
base, the Company purchased adjustable-rate assets while selling fixed-rate
assets. See "-- Interest Rate Risk Management." The disposition of these higher
yield fixed-rate assets and inclusion of more adjustable-rate assets more than
offset the increased yields resulting from higher market interest rates. The
decrease in market short-term interest rates during 1996 led to a decline in the
Company's cost of funds to 4.89% for 1996, from 5.17% during 1995. In addition
to the favorable interest rate environment, the Company's cost of funds was
positively affected by a change in its deposit mix. Maturing time deposit
accounts were replaced, in part, with lower interest-cost money market and
checking accounts.
The growth in net interest income in 1995 was due primarily to an increase
in average interest-earning assets. Although average interest-earning assets
increased 14% during 1995, a decline in the net interest spread from 2.82% in
1994 to 2.53% in 1995 limited the increase in net interest income. The full
effect of the rise in short-term rates that began in late 1994 was felt in 1995
(mitigated somewhat by a subsequent lowering of short-term rates mid-year)
increasing the cost of funds during 1995 to 5.17% from 4.11% during 1994. The
yield on interest-earning assets during 1995 increased to only 7.70% from 6.93%
during 1994 because long-term interest rates did not increase as much as
short-term rates. The Company also was not in a position to take full advantage
of the increase in long-term interest rates because a sizable portion of its
earning assets were fixed rate during this period. The net interest spread
declined to 2.53% for 1995 from 2.82% in 1994.
Rising interest rates during 1994 and into 1995 also had a negative effect
on the net interest spread due to the lag in repricing of the Company's ARMs,
particularly its ARMs indexed to COFI. In both 1995 and 1994, the net interest
spread was negatively affected by the lag between COFI and changes in the
repricing of the Company's interest-bearing liabilities. However, during 1996,
short-term interest rates, the main component of COFI, declined slightly with
the result that the repricing lag provided a slight benefit to the net interest
spread. See "-- Interest Rate Risk Management" and "Consolidated Financial
Statements -- Note 17: Interest Rate Risk Management."
31
<PAGE> 34
The following table sets forth information regarding the Company's
consolidated average statements of financial condition, together with the total
dollar amounts of interest income and expense and the weighted average interest
rates for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 YEAR ENDED DECEMBER 31, 1995 YEAR ENDED DECEMBER 31, 1994
--------------------------------- --------------------------------- ---------------------------------
INTEREST INTEREST INTEREST
INCOME INCOME INCOME
AVERAGE OR AVERAGE OR AVERAGE OR
BALANCE(1) RATE EXPENSE BALANCE(2) RATE EXPENSE BALANCE(2) RATE EXPENSE
----------- ---- ---------- ----------- ---- ---------- ----------- ---- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments........... $14,327,183 7.05% $1,009,723 $11,260,051 7.06% $ 795,444 $ 8,790,748 5.64% $ 495,556
New West Note......... 723,800 8.13 58,841 2,346,753 6.01 141,039
Loans(3).............. 26,903,243 7.95 2,139,513 25,877,673 7.97 2,061,801 21,987,836 7.54 1,658,818
----------- ---- ---------- ----------- ---- ---------- ----------- ---- ----------
Total
interest-earning
assets.......... 41,230,426 7.64 3,149,236 37,861,524 7.70 2,916,086 33,125,337 6.93 2,295,413
Other assets.......... 1,771,424 1,841,038 1,744,338
----------- ----------- -----------
Total assets...... $43,001,850 $39,702,562 $34,869,675
=========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Checking accounts... $ 2,449,233 1.00 24,578 $ 2,389,793 1.20 28,672 $ 2,424,250 1.22 29,530
Savings and money
market accounts... 7,115,008 3.40 242,023 6,648,539 3.94 261,958 6,107,997 2.74 167,091
Time deposits....... 14,482,419 5.48 794,222 15,242,445 5.54 844,188 14,557,602 4.51 656,045
----------- ---- ---------- ----------- ---- ---------- ----------- ---- ----------
Total deposits.... 24,046,660 4.41 1,060,823 24,280,777 4.67 1,134,818 23,089,849 3.69 852,666
Borrowings:
Annuities........... 812,185 5.01 40,658 801,129 5.58 44,716 734,969 4.51 33,143
Federal funds
purchased......... 847,690 5.46 46,269 305,468 5.30 16,188 -- -- --
Securities sold
under agreements
to repurchase..... 8,987,234 5.51 495,483 7,749,929 6.23 482,698 4,328,894 4.68 202,677
Advances from the
FHLB.............. 4,655,111 5.57 259,243 3,482,200 5.81 202,422 3,962,913 5.38 213,259
Other
interest-bearing
liabilities....... 675,507 8.25 55,753 558,320 7.63 42,594 397,307 8.46 33,613
----------- ---- ---------- ----------- ---- ---------- ----------- ---- ----------
Total
borrowings...... 15,977,727 5.62 897,406 12,897,046 6.11 788,618 9,424,083 5.12 482,692
----------- ---- ---------- ----------- ---- ---------- ----------- ---- ----------
Total
interest-bearing
liabilities..... 40,024,387 4.89 1,958,229 37,177,823 5.17 1,923,436 32,513,932 4.11 1,335,358
---- ---------- ---- ---------- ---- ----------
Other liabilities..... 486,701 367,702 458,350
----------- ----------- -----------
Total
liabilities..... 40,511,088 37,545,525 32,972,282
Stockholders'
equity.............. 2,490,762 2,157,037 1,897,393
----------- ----------- -----------
Total liabilities
and
stockholders'
equity.......... $43,001,850 $39,702,562 $34,869,675
=========== =========== ===========
Net interest spread
and net interest
income.............. 2.75% $1,191,007 2.53% $ 992,650 2.82% $ 960,055
==== ========== ==== ========== ==== ==========
Net interest margin... 2.89% 2.62% 2.90%
</TABLE>
- ---------------
(1) Average balances were calculated on a monthly basis. Due to the relative
consistency of the Company's asset and liability balances during 1996, the
average balances calculated on a monthly basis approximate the average
balances calculated on a daily basis and were representative of the
Company's operations in 1996.
(2) Average balances were calculated on a daily basis for Keystone Holdings and
were calculated on a monthly basis for Washington Mutual. Due to the
relative consistency of the Company's asset and liability balances during
1995 and 1994, the average balances calculated on a monthly basis
approximate the average balances calculated on a daily basis and were
representative of the Company's operations in 1995 and 1994.
(3) Nonaccruing loans were included in the average loan amounts outstanding.
32
<PAGE> 35
The following table presents certain information regarding changes in
interest income and interest expense of the Company during the periods
indicated. The dollar amounts of interest income and interest expense fluctuate
depending upon changes in interest rates and upon changes in amounts (volume) of
the Company's interest-earning assets and interest-bearing liabilities. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (i) changes in volume
(changes in average outstanding balances multiplied by the prior period's rate)
and (ii) changes in rate (changes in average interest rate multiplied by the
prior period's volume). Changes in rate/volume (changes in rate times the change
in volume) are allocated proportionately to the changes in volume and the
changes in rate.
<TABLE>
<CAPTION>
1996 VS. 1995 1995 VS. 1994
------------------------------- -------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
-------------------- TOTAL -------------------- TOTAL
VOLUME(1) RATE CHANGE VOLUME(2) RATE CHANGE
--------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Investments....................... $216,155 $ (1,876) $214,279 $ 157,735 $142,153 $299,888
New West Note..................... (58,841) -- (58,841) (167,731) 85,533 (82,198)
Loans(3).......................... 81,552 (3,840) 77,712 305,959 97,024 402,983
-------- -------- -------- --------- -------- --------
Total interest income........ 238,866 (5,716) 233,150 295,963 324,710 620,673
INTEREST EXPENSE
Deposits:
Checking accounts............... 734 (4,828) (4,094) (417) (441) (858)
Savings and money market
accounts..................... 21,029 (40,964) (19,935) 15,877 78,990 94,867
Time deposits................... (41,748) (8,218) (49,966) 32,067 156,076 188,143
-------- -------- -------- --------- -------- --------
Total deposit expense........ (19,985) (54,010) (73,995) 47,527 234,625 282,152
Borrowings:
Annuities....................... 627 (4,685) (4,058) 3,178 8,395 11,573
Federal funds purchased......... 29,582 499 30,081 16,188 -- 16,188
Securities sold under agreements
to repurchase................ 45,540 (32,755) 12,785 197,482 82,539 280,021
Advances from the FHLB.......... 64,912 (8,091) 56,821 (31,996) 21,159 (10,837)
Other........................... 9,467 3,692 13,159 11,855 (2,874) 8,981
-------- -------- -------- --------- -------- --------
Total borrowing expense...... 150,128 (41,340) 108,788 196,707 109,219 305,926
-------- -------- -------- --------- -------- --------
Total interest expense....... 130,143 (95,350) 34,793 244,234 343,844 588,078
-------- -------- -------- --------- -------- --------
Net interest income............... $108,723 $ 89,634 $198,357 $ 51,729 $(19,134) $ 32,595
======== ======== ======== ========= ======== ========
</TABLE>
- ---------------
(1) Average balances in 1996 were calculated on a monthly basis. Due to the
relative consistency of the Company's asset and liability balances during
1996, the average balances calculated on a monthly basis approximate the
average balances calculated on a daily basis and were representative of the
Company's operations in 1996.
(2) Average balances were calculated on a daily basis for Keystone Holdings and
were calculated on a monthly basis for Washington Mutual. Due to the
relative consistency of the Company's asset and liability balances during
1995 and 1994, the average balances calculated on a monthly basis
approximate the average balances calculated on a daily basis and were
representative of the Company's operations in 1995 and 1994.
(3) Nonaccruing loans were included in the average loan amounts outstanding.
33
<PAGE> 36
Other Income. Other income was $259.3 million in 1996, up from $208.3
million in 1995 and $220.8 million in 1994.
Other income consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Depositor fees..................................... $102,597 $ 79,017 $ 45,255
Loan servicing fees................................ 41,303 29,315 23,247
Securities, annuities and other fees............... 53,350 49,679 65,248
Other operating income............................. 36,419 31,035 39,630
Gain on sale of loans.............................. 19,729 1,717 23,488
Gain (loss) on sale of other assets................ 5,866 (655) 23,926
Loss on sale of covered assets..................... -- (37,399) --
FDIC assistance on covered assets.................. -- 55,630 --
-------- -------- --------
Total other income............................... $259,264 $208,339 $220,794
======== ======== ========
</TABLE>
Depositor fees of $102.6 million in 1996 increased substantially from fees
of $79.0 million in 1995 and $45.3 million in 1994. The increases reflected a
revised fee structure on checks drawn on nonsufficient funds and overdraft fees
combined with an aggressive marketing campaign that substantially increased the
number of checking accounts. The number of retail checking accounts grew to
863,837 in 1996 from 743,852 in 1995 and 611,482 in 1994. The primary component
of this growth was noninterest-bearing checking accounts, which management
considers the core accounts of its consumer banking strategy. Checking accounts
are an attractive means of providing low-cost deposits, producing added fee
income and generating opportunities to sell the Company's other products and
services. The growth in depositor fees has been tempered somewhat by an increase
in the amount of deposit account-related losses (included in other operating
expense) incurred by the Company resulting from the increased number of checking
accounts. Management closely monitors the amount of losses incurred to assure
the profitability of its revised fee structure.
Loan servicing fees were $41.3 million in 1996, up from $29.3 million in
1995 and $23.2 million in 1994. Included in the 1996 increase was $1.4 million
of additional loan servicing fees booked in September 1996 resulting from a
change of accounting method related to the loan servicing system. The higher
level of loan servicing fees recognized reflected the increase in the amount of
loans serviced for others. The average balance of loans serviced for others
during 1996 increased approximately 48% from 1995 due primarily to the
securitization and sale of residential loans. Loans serviced for others totaled
$23.0 billion at December 31, 1996. The increase in the portfolio of loans
serviced for others to $21.4 billion at December 31, 1995, from $15.3 billion at
the end of 1994 was due to the purchase of servicing rights on $4.2 billion of
loans and loan securitizations. During 1994, the Company purchased the rights to
service $3.9 billion of ARMs and sold servicing rights relating to $1.9 billion
of its fixed-rate loan portfolio.
Loan servicing fees consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loan servicing income.............................. $ 71,918 $ 53,155 $ 43,665
Amortization of mortgage servicing rights.......... (30,615) (23,840) (20,418)
-------- -------- --------
Loan servicing fees.............................. $ 41,303 $ 29,315 $ 23,247
======== ======== ========
</TABLE>
Securities, annuities and other fees were principally generated by the
Company's nonbanking subsidiaries and totaled $53.4 million for 1996, compared
with $49.7 million for 1995 and $65.2 million for 1994. During 1994, Mutual
Travel Inc. ("Mutual Travel"), the Company's travel agency subsidiary, recorded
$14.2 million of service fees. With the sale of Mutual Travel in March 1995,
fees recorded by the company amounted to
34
<PAGE> 37
only $3.6 million for 1995. The lower level of service fees during 1995 was also
the result of lower than anticipated sales activity at Murphey Favre.
Other operating income during 1996 was $36.4 million, compared with $31.0
million in 1995 and $39.6 million in 1994. The majority of other operating
income was derived from loan-related fees.
Gain on sale of loans totaled $19.7 million in 1996, compared with $1.7
million in 1995 and $23.5 million in 1994. Most of the gains recognized during
1996 were the result of selling $2.0 billion of fixed-rate loans as part of the
Company's program of selling fixed-rate loan production with the objective of
reducing the effect of future movements in interest rates. See below for further
discussion of gain recognition under a new accounting pronouncement. During 1995
and 1994, Washington Mutual retained or securitized most of its loan production.
During 1994, a $25.0 million gain was realized on the sale of the Company's
credit card portfolio with a book value of $151.9 million.
The balance of mortgage servicing rights increased to $140.7 million at
December 31, 1996, from $104.5 million at the end of 1995 and $70.9 million at
the end of 1994. The higher level of capitalized servicing rights reflected the
increase in the amount of loans serviced for others and the implementation of
SFAS No. 122, Accounting for Mortgage Servicing Rights by the Company in 1995.
SFAS No. 122 eliminates the distinction between servicing rights that are
purchased and those that are retained upon the sale or securitization of loans.
The statement requires mortgage servicers to record the servicing rights on
loans as separate assets, no matter what their origin. Banks that sell or
securitize loans and retain the servicing rights are required to allocate the
total cost of the loans between servicing rights and principal balance.
Capitalizing the mortgage servicing rights on loans originated for sale
effectively reduces the Company's cost basis in the loans and leads to higher
gains on sale. As a result, gains on the sale of loans were $17.4 million more
in 1996 than would have been recognized under prior accounting policies.
Mortgage servicing rights were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year......................... $104,495 $ 70,911 $ 66,031
Additions........................................ 74,398 58,306 38,385
Sales............................................ (5,395) -- (13,087)
Amortization..................................... (30,615) (23,840) (20,418)
Valuation allowance.............................. (2,158) (882) --
-------- -------- --------
Balance, end of year............................... $140,725 $104,495 $ 70,911
======== ======== ========
</TABLE>
Gain (loss) on sale of other assets consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Securities transactions............................... $(2,617) $ (400) $ 4,156
Mortgage servicing rights............................. 4,030 -- 20,396
Premises and equipment................................ (958) (1,458) (1,270)
Recognition of deferred gain on sale of Mutual
Travel.............................................. 4,100 -- --
Other................................................. 1,311 1,203 644
------- ------- -------
Total gain (loss) on sale of assets................. $ 5,866 $ (655) $23,926
======= ======= =======
</TABLE>
Net gains on the sale of other assets of $5.9 million during 1996 included
the recognition of a $4.1 million previously deferred gain on the March 1995
sale of Mutual Travel; a $4.0 million gain on the sale of mortgage servicing
rights related to $586.8 million of loans serviced for others; and a $2.6
million net loss on securities transactions. The net loss on the sale of
securities were incurred in connection with the Company's strategy to
35
<PAGE> 38
reduce its exposure to movements in interest rates. See "-- Net Interest Income"
and "-- Interest Rate Risk Management." During 1995, the net loss of $655,000 on
the sale of other assets was primarily due to an $8.4 million write-down
recorded due to credit quality deterioration on certain MBS partially offset by
gains generated through the sale of fixed-rate MBS. Included in gains on the
sale of other assets in 1994 of $23.9 million was the recognition of a $20.4
million gain on the sale of mortgage servicing rights related to $1.9 billion of
loans serviced for others.
During 1995, a loss of $37.4 million was recognized on the sale of certain
assets by ASB. These assets, single-family residential loans, were acquired by
ASB in the 1988 Acquisition and were designated by relevant agreements as
covered assets. The loss on the sale of the covered assets was offset by a $55.6
million payment received during the same year from the FRF representing
compensation, under the terms of the 1988 Acquisition, for the remaining value
of such covered assets computed in accordance with the Assistance Agreement.
Other Expense. Other expense in 1996 totaled $1.0 billion, compared with
$700.5 million in 1995 and $695.5 million in 1994. Included in other expense in
1996 were transaction-related expenses of $158.1 million resulting from the
Keystone Transaction and the one-time SAIF recapitalization assessment of $124.2
million.
Other expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits............................ $ 336,065 $ 313,304 $ 315,424
Occupancy and equipment................................... 124,278 110,981 102,403
Regulatory assessments.................................... 43,171 54,909 54,887
SAIF special assessment................................... 124,193 -- --
Data processing fees...................................... 40,733 36,538 33,862
Other operating expense................................... 159,541 143,794 146,463
Transaction-related expense............................... 158,121 2,000 --
Amortization of goodwill and other intangible assets...... 27,672 28,306 29,076
REO operations............................................ 11,530 10,682 13,402
---------- -------- --------
Total other expense..................................... $ 1,025,304 $ 700,514 $ 695,517
========== ======== ========
</TABLE>
Salaries and employee benefits increased to $336.1 million during 1996 from
$313.3 million during 1995 and $315.4 million during 1994 due primarily to
increases in staffing levels in commercial banking, consumer financial centers
and loan administration. Full-time equivalent employees were 8,322 at December
31, 1996, up from 7,903 at year-end 1995. The increase in full-time equivalent
employees was moderated by the sale of the Company's item processing operation
and outsourcing of functions in the information systems and property management
departments during 1996. The number of full-time equivalent employees at the end
of 1995 was virtually unchanged from 7,915 at the end of 1994.
The increase in occupancy and equipment expense to $124.3 million in 1996
from $111.0 million in 1995 and $102.4 million in 1994 was primarily due to the
growth in the number of consumer financial centers, an expansion of head office
facilities and technology upgrades.
Regulatory assessments (excluding the one-time SAIF recapitalization
assessment) decreased to $43.2 million from $54.9 million in both 1995 and 1994,
reflecting a reduction in the assessment rate on the portion of the Company's
deposits insured through the BIF. Although total deposits outstanding increased
in 1995, the increase in deposit balances was offset by a reduction in the
premium rate for BIF-insured deposits.
On September 30, 1996, President Clinton signed legislation intended in
part to recapitalize the SAIF and to reduce the gap between SAIF premiums and
BIF premiums. The legislation provided for a special one-time assessment on
SAIF-insured deposits that were held as of March 31, 1995, including certain
deposits acquired after that date. The assessment was designed to bring the
SAIF's reserve ratio to the legally required level of $1.25 for every $100 in
insured deposits. Prior to this legislation, deposits of Washington Mutual
36
<PAGE> 39
subsidiaries insured through the SAIF were subject to regular FDIC assessments
of 23 cents per $100 of insured deposits per year. Beginning in January 1997,
deposits of well-capitalized institutions insured through the SAIF are subject
to regular FDIC assessments of 6.48 cents per $100 per year, while deposits of
well-capitalized institutions insured through the BIF are subject to regular
FDIC assessments of 1.30 cents per $100 per year.
Washington Mutual's special assessment on deposits held by WMB, ASB and
WMBfsb resulted in a pretax charge of $124.2 million, which was taken in the
quarter ended September 30, 1996. Based on current levels of deposits,
Washington Mutual estimates that the reduction in the regular assessment on its
SAIF deposits beginning in 1997 should result in annual savings of approximately
$31 million.
Data processing fees in 1996 were $40.7 million, compared with $36.5
million in 1995 and $33.9 million in 1994. The year-to-year increase reflected
the continued use of outsourced data processing services.
Other operating expense increased to $159.5 million in 1996 from $143.8
million in 1995 and $146.5 million (inclusive of a $5.0 million expense for a
legal settlement) in 1994. See "-- Nonbanking Subsidiary Operations." Increases
in 1996 were due in part to higher telecommunications expenses and professional
fees associated with process reengineering projects. In general, other operating
expense tends to rise with the increased size of the Company.
Transaction-related expenses in 1996 associated with the Keystone
Transaction were related to severance and management payments, payments related
to a tax settlement between Keystone Holdings and the FRF, write-downs on
software and equipment, premiums paid on redemption of debt securities of a
Keystone Holdings subsidiary, professional fees and investment banking fees. As
part of the merger with Olympus Capital Corporation in 1995, the Company
recorded transaction-related expenses of $2.0 million.
Goodwill and other intangible assets have resulted from business
combinations accounted for as purchase transactions. Goodwill and other
intangible assets are amortized using the straight-line method over the period
that is expected to be benefited. The acquisition of Pacific First Bank, A
Federal Savings Bank in the second quarter of 1993 was the most significant of
such business combinations and resulted in the creation of $178.2 million in
goodwill and other intangible assets to be amortized over 10 years. The
amortization of goodwill and other intangible assets was $27.7 million in 1996,
compared with $28.3 million in 1995 and $29.1 million in 1994.
The expense from REO operations included provisions for REO losses of $7.1
million in 1996, $10.5 million in 1995 and $15.5 million in 1994. The provision
for REO losses mostly reflected credit problems in California. See "-- Asset
Quality -- Provision for Loan Losses and Reserve for Loan Losses." In general,
REO operations in California resulted in net operating expenses, as opposed to
net operating income in Washington.
Taxation. Income taxes include federal income taxes and applicable state
income taxes. See "Business -- Taxation."
In connection with the 1988 Acquisition, the Internal Revenue Service
entered into a closing agreement (the "Closing Agreement") with respect to the
federal income tax consequences of the 1988 Acquisition and certain aspects of
the taxation of Keystone Holdings and certain of its affiliates. The Closing
Agreement contains provisions that are intended to ensure that losses generated
by New West would be available to offset income of ASB for federal income tax
purposes. In connection with the 1988 Acquisition, Keystone Holdings and certain
of its affiliates entered into a number of continuing agreements with the
predecessor to the FRF, which agreements were designed, in part, to provide that
over time 75% of most of the federal income tax savings and 19.5% of most of the
California tax savings (in each case computed in accordance with specific
provisions contained in the Assistance Agreement) attributable to the
utilization of certain tax loss carryforwards of New West are paid ultimately to
the FRF. The provision for such payments is reflected in the financial
statements as "payments in lieu of taxes." Due to the above arrangements, the
Company's effective tax rate (including payments in lieu of taxes) for the two
years ended December 31, 1995 has ranged from approximately 28% to 30%, compared
to a normal corporate tax rate of 35%.
37
<PAGE> 40
The provision for income taxes of $95.6 million for 1996 represented an
effective tax rate of 43%. The 1996 provision included a $25.2 million provision
for payments in lieu of taxes. In 1996, the benefit for use of net operating
loss carryover decreased due to the change of control as of December 20, 1996.
1996 was also the first year in which New West's current losses were not
included in ASB's taxable income. In addition, ASB realized in 1995 and 1994
benefits from increases to tax base year bad debt reserves which were not
realized in 1996. See "Consolidated Financial Statements -- Note 19: Income
Taxes."
Due to Section 382 of the Code, most of the value of the net operating loss
carryforward deductions of Keystone Holdings and its subsidiaries was eliminated
due to the Keystone Transaction. Accordingly, the future tax savings
attributable to such net operating loss carryforward deductions (other than
amounts used to offset bad debt reserve deduction recapture for ASB) will be
greatly reduced.
Nonbanking Subsidiary Operations. For a description of the Company's
principal nonbanking subsidiaries, see "Business -- Washington Mutual's
Operating Subsidiaries."
Nonbanking subsidiary results of operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
WM Life................................................... $16,269 $14,292 $12,482
ASB Financial............................................. 12,616 10,599 11,245
Composite Research........................................ 3,364 2,967 2,854
ASB Insurance............................................. 1,690 1,100 --
Murphey Favre............................................. 1,461 437 (2,249)
Mutual Travel............................................. -- 229 1,178
Other..................................................... 4,520 (644) (23)
------- ------- -------
Net income before amortization of goodwill and other
intangible assets, elimination of intercompany
transactions, and income taxes ("pretax operating
income")................................................ 39,920 28,980 25,487
Amortization of goodwill and other intangible assets...... 106 932 1,501
------- ------- -------
Net income before elimination of intercompany transactions
and income taxes........................................ $39,814 $28,048 $23,986
======= ======= =======
</TABLE>
Pretax operating income for 1996 was $39.9 million, compared with $29.0
million in 1995 and $25.5 million in 1994.
WM Life improved its pretax operating income to $16.3 million during 1996
from $14.3 million in 1995 and $12.5 million in 1994. Most of the increase
during 1996 was due to higher net interest income resulting from growth in net
interest-earning assets funded in part by $79.3 million in advances from the
FHLB outstanding at the end of 1996. The improvement in earnings in 1995
primarily reflected asset growth funded by annuity sales. Annuities outstanding
at year-end 1995 were up 7% to $855.5 million from $799.2 million at the end of
1994 due to a high level of surrenders of annuity contracts. Annuities rose a
modest 3% during 1996 to end the year at $878.1 million.
ASB Financial had pretax operating income of $12.6 million in 1996, an
increase of 19%, compared with $10.6 million during 1995, primarily as a result
of greater securities sales. Higher sales commissions and salary expense,
related to higher securities commission revenues, resulted in a decrease in
pretax operating income in 1995 from $11.2 million in 1994.
Composite Research's pretax operating income improved slightly to $3.4
million during 1996 from $3.0 million during 1995 and $2.9 million during 1994.
Assets of the Composite Group of mutual funds, managed by Composite Research,
were $1.4 billion at December 31, 1996, $1.3 billion at year-end 1995 and $1.1
billion at December 31, 1994. The differences in asset balances are primarily
due to fluctuations in market valuation of the mutual fund assets.
38
<PAGE> 41
Pretax operating income for ASB Insurance for 1996 totaled $1.7 million,
compared with $1.1 million for 1995. ASB Insurance began operations in 1995.
Murphey Favre posted pretax operating income of $1.5 million during 1996,
compared with $437,000 during 1995. During 1996, Murphey Favre recorded a $1.7
million charge resulting from a legal settlement. Lower sales reduced pretax
operating income to $437,000 in 1995. The pretax net loss of $2.2 million in
1994 resulted primarily from the $5.0 million expense of a legal settlement.
The results of operations during 1996 for other nonbanking subsidiaries
included the recognition of a previously deferred gain of $4.1 million on the
1995 sale of Mutual Travel. In March 1995, Washington Mutual sold Mutual Travel
to a company whose principal shareholders were Mutual Travel's management team.
The sales price resulted in a pretax gain of $4.1 million, which was recognized
in 1996.
REVIEW OF FINANCIAL POSITION
Assets. At December 31, 1996, the Company's assets were $44.6 billion, an
increase of 6% from $42.0 billion at December 31, 1995. During 1995, total
assets grew $4.5 billion. Most of the growth during 1996 and 1995 resulted from
retaining originated loans (either as part of the loan portfolio or as MBS).
Investment Activities. Washington Mutual's investment portfolio of $12.0
billion at December 31, 1996 declined 22% from the December 31, 1995 balance of
$15.4 billion. Contributing to the decline were paydowns of investment
securities and the Company's decision to continue the restructuring of its
investment portfolio by selling fixed-rate securities and replacing them with
adjustable-rate loans and securities. This portfolio restructuring was intended
to reduce Washington Mutual's sensitivity to changes in market interest rates.
As noted above, however, the portfolio restructuring also negatively affected
the yield on interest-earning investment securities. See "-- Net Interest
Income."
At December 31, 1996, the Company's investment portfolio included $9.1
billion of available-for-sale securities, $2.9 billion of held-to-maturity
securities (with a fair value of $2.9 billion), and $1.6 million of trading
account securities. MBS constituted $10.5 billion or 87% of the total investment
portfolio.
The Company's investment portfolio increased 76% to $15.4 billion at
December 31, 1995 from $8.7 billion a year earlier, primarily due to the
Company's retention of $6.6 billion of loans which it securitized. Also in 1995,
Washington Mutual leveraged its capital through purchases of investment
securities. These purchases were funded mostly through borrowings. By leveraging
the balance sheet through the use of these wholesale activities, Washington
Mutual generated additional net interest income.
At December 31, 1995, the Company's investment portfolio included $12.2
billion of available-for-sale securities, $3.2 billion of held-to-maturity
securities (with a fair value of $3.3 billion), and $238,000 of trading account
securities. During 1995, the Financial Accounting Standards Board ("FASB")
issued a report entitled A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities, Questions and
Answers which allowed companies a one-time reassessment and related
reclassification from the held-to-maturity category to the available-for-sale
category without adverse accounting consequences for the remainder of the
portfolio. Pursuant to the FASB report, Washington Mutual reclassified $4.9
billion of its held-to-maturity securities into the available-for-sale category
on December 1, 1995. Of the securities transferred, over half were fixed-rate
securities. See "Business -- Asset and Liability Management."
Loans. Total loans outstanding at December 31, 1996 were $30.3 billion, up
from $24.2 billion at December 31, 1995. Changes in the loan balances are
primarily driven by originations of new loans, prepayments of existing loans,
scheduled repayments of principal, and loan securitizations.
39
<PAGE> 42
Loans, exclusive of reserve for loan losses, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans:
Residential................... $22,660,715 $17,303,305 $17,766,215 $13,828,459 $11,734,594
Residential construction...... 723,645 615,814 549,271 430,215 366,808
Commercial real estate........ 3,810,968 3,487,574 4,699,220 4,515,449 3,194,184
Manufactured housing, second
mortgage and other
consumer................... 3,158,741 2,841,854 2,573,327 2,403,169 1,431,834
Commercial business........... 340,149 179,568 129,048 131,468 118,717
----------- ----------- ----------- ----------- -----------
Total loans................ $30,694,218 $24,428,115 $25,717,081 $21,308,760 $16,846,137
========== ========== ========== ========== ==========
Loans as a percentage of total
loans:
Residential................... 74% 71% 69% 65% 70%
Residential construction...... 2 2 2 2 2
Commercial real estate........ 13 14 18 21 19
Manufactured housing, second
mortgage and other
consumer................... 10 12 10 11 8
Commercial business........... 1 1 1 1 1
--- --- --- --- ---
Total loans................ 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
Loans originated were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real estate:
Residential (1-4 family units):
Fixed rate........................................... $ 3,708,874 $2,365,603 $1,040,035
Adjustable rate...................................... 6,240,190 4,455,740 5,288,231
Residential construction:
Custom............................................... 779,698 583,658 705,655
Speculative.......................................... 510,047 352,169 328,521
Apartment buildings..................................... 504,531 348,942 618,201
Other commercial real estate............................ 267,043 166,987 136,749
----------- ---------- ----------
Total real estate loans.............................. 12,010,383 8,273,099 8,117,392
Consumer:
Second mortgage and other consumer...................... 953,952 722,871 776,176
Manufactured housing.................................... 334,721 274,115 277,358
----------- ---------- ----------
Total consumer loans................................. 1,288,673 996,986 1,053,534
Commercial business....................................... 348,400 167,830 128,539
----------- ---------- ----------
Total loans originated............................... $13,647,456 $9,437,915 $9,299,465
=========== ========== ==========
Residential refinances to total residential
originations............................................ 38.71% 42.14% 48.31%
</TABLE>
The strong housing market, attractive interest rates, and an increased
number of distribution outlets led to record lending volumes during 1996. In
early 1994, the Company's originations included significant refinancing activity
that was generated by low market interest rates. The onset of higher interest
rates later in 1994 curtailed refinancing activity for the year and resulted in
an increase in residential adjustable-rate originations compared to residential
fixed-rate originations. While refinancings increased again during the second
half of 1995 and during 1996 as market interest rates declined, they were
overshadowed by the rise in loans to purchase homes. Loans to purchase homes
accounted for $6.0 billion of residential originations during 1996
40
<PAGE> 43
while refinancing activity produced $3.9 billion of loans, compared with the
previous year's $3.9 billion of loans to purchase homes and $2.9 billion of
refinance activity. In addition, of the total residential loans originated in
1996, 63% were adjustable rate -- about the same as in 1995. The decline in
apartment building originations from 1994 to 1995 was due to a management
decision at ASB to reduce lending volumes in that product line.
Deposits. Total deposits were $24.1 billion at December 31, 1996, compared
with $24.5 billion at the end of 1995.
Deposits consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Checking accounts:
Interest bearing...................................... $ 2,138,782 $ 2,111,124 $ 2,342,407
Noninterest bearing................................... 841,180 665,205 499,282
----------- ----------- -----------
2,979,962 2,776,329 2,841,689
Savings accounts........................................ 1,660,376 1,905,659 2,224,784
MMDAs................................................... 5,181,685 4,667,884 3,502,981
Time deposit accounts:
Due within one year................................... 12,159,123 12,696,186 10,496,491
After one but within two years........................ 1,011,934 1,410,809 2,780,944
After two but within three years...................... 647,988 409,580 765,219
After three but within four years..................... 333,234 243,541 293,167
After four but within five years...................... 102,681 258,415 293,522
After five years...................................... 3,158 94,557 145,209
----------- ----------- -----------
14,258,118 15,113,088 14,774,552
----------- ----------- -----------
Total deposits..................................... $24,080,141 $24,462,960 $23,344,006
=========== =========== ===========
</TABLE>
Time deposits decreased during 1996 because management chose not to be
aggressive in their repricing. Partially offsetting the $855.0 million decline
in time deposits were increases in the level of money market and checking
accounts. Both of these products have the benefit of lower interest costs.
While the vast majority of its deposits are retail in nature, the Company
does engage in certain wholesale activities -- primarily accepting time deposits
from political subdivisions and public agencies. The Company considers wholesale
deposits to be an alternative borrowing source rather than a customer
relationship, and as such, their levels are determined by management's decisions
as to the most economic funding sources.
Financial data pertaining to deposits were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Decrease due to deposit outflow..................... $(1,550,305) $ (432,942) $(1,236,514)
Increase due to acquired deposits................... 106,663 417,078 211,537
Increase due to interest credited................... 1,060,823 1,134,818 852,666
----------- ----------- -----------
(Decrease) increase in total deposits.......... $ (382,819) $ 1,118,954 $ (172,311)
=========== =========== ===========
Total deposits at end of period..................... $24,080,141 $24,462,960 $23,344,006
Weighted average rate for the period................ 4.41% 4.69% 3.69%
</TABLE>
Borrowings and Annuities. Washington Mutual's borrowings primarily take the
form of federal funds purchased, securities sold under agreements to repurchase
and advances from the FHLBs of Seattle and San Francisco. See
"Business -- Sources of Funds -- Borrowings and Annuities." The exact mix at any
given time is dependent upon the market pricing of the individual borrowing
sources. The increase in the level of borrowings in 1996 was used to fund the
Company's asset growth.
41
<PAGE> 44
Borrowings and annuities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Annuities....................................... $ 878,057 $ 855,503 $ 799,178
Federal funds purchased......................... 1,052,000 433,420 --
Securities sold under agreements to
repurchase.................................... 7,835,453 7,984,756 6,637,346
Advances from the FHLB.......................... 7,241,492 4,715,739 4,128,977
Other borrowings................................ 676,986 590,217 381,066
----------- ----------- -----------
Total borrowings.............................. $17,683,988 $14,579,635 $11,946,567
=========== =========== ===========
</TABLE>
In August 1995, the Company filed a registration statement with the SEC for
the offering, on a delayed or continuous basis, of up to $250.0 million of debt
securities, of which $100.0 million remains available.
In December 1996, Washington Mutual entered into two Facilities: a $100.0
million 364-day facility and a $100.0 million 4-year facility. At December 31,
1996, no monies had been drawn. However, in January 1997, $150.0 million was
drawn for the redemption of debt securities of a Keystone Holdings' subsidiary
and in February 1997, another $20.0 million was drawn. The remaining proceeds of
the Facilities are available for general corporate purposes, including providing
capital at a subsidiary level.
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, was issued in June 1996 and established,
among other things, new criteria for determining whether a transfer of financial
assets in exchange for cash or other consideration should be accounted for as a
sale or as a pledge of collateral in a secured borrowing. As issued, Statement
No. 125 is effective for all transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. In December
1996, the FASB issued SFAS No. 127, Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125. In general, SFAS No. 127 defers for one
year the effective date of SFAS No. 125. The Company will implement SFAS No.
125, as amended by SFAS No. 127 as required. The adoption is not anticipated to
have a material impact on the results of operations or financial position of the
Company.
ASSET QUALITY
Provision for Loan Losses and Reserve for Loan Losses. The provision for
loan losses is based upon management's estimate of the amount necessary to
maintain adequate reserves for losses inherent in the Company's loan portfolio.
The estimate of inherent losses is developed by management considering a number
of factors, including matters pertinent to the underlying quality of the loan
portfolio and management's policies, practices and intentions with respect to
credit administration and asset management. The provision for loan losses during
1996 was $201.5 million, which included a $125.0 million addition to the reserve
for loan losses at the date of the merger with Keystone Holdings. The additional
reserve for loan losses was provided principally because a number of Washington
Mutual's credit administration and asset management philosophies and procedures
differed from those of ASB. Those differences consisted principally of the
following: (i) Washington Mutual is more proactive in dealing with emerging
credit problems and tends to prefer foreclosure actions to induce borrowers to
correct defaults, whereas ASB was not as proactive and tended to prefer workouts
in lieu of a more aggressive foreclosure stance; and (ii) ASB considered the
risk characteristics of its portfolio of loans secured by apartment buildings of
less than $1.0 million to be similar to its single-family residential portfolio;
Washington Mutual, on the other hand, considers the risk characteristics of that
portfolio to be more closely aligned with its commercial real estate loan
portfolio, which tends to have a higher incidence of loan losses than the
single-family residential portfolio. Washington Mutual is conforming ASB's asset
management practices, administration, philosophies and procedures to those of
WMB and WMBfsb. The plan of realization of troubled loans differed between the
companies and therefore resulted in different levels of loss reserves. The
addition to the reserve for loan losses was to a lesser degree provided because
Washington Mutual believed that, while there had been an increase in the value
of residential real estate in certain California markets, a decline in
collateral values for some portions of the California real estate market
occurred in 1996. Management of the Company has individually reviewed ASB's
large performing and
42
<PAGE> 45
nonperforming loans and performed a review of its other loan portfolios and is
developing appropriate strategies for such credits. As a result, Washington
Mutual allocated approximately 43% of the additional $125.0 million provision to
loans in the commercial real estate loan portfolio. The remainder was attributed
to ASB's various residential loan portfolios, for which specific reserve
allocations were not recorded.
In addition to the $125.0 million discussed above, the provision for loan
losses for 1996 included $76.5 million of charges, which was substantially
unchanged from the $75.0 million in 1995, reflecting the fact that the dollar
amounts of nonperforming assets were substantially the same in both periods. The
balance of the reserve for loan losses was $363.4 million or 110.29% of
nonperforming assets at December 31, 1996, compared with $235.3 million or
69.42% of nonperforming assets at December 31, 1995.
The provision for loan losses during 1995 was $75.0 million, compared with
$122.0 million in 1994 and $158.7 million in 1993. The 1995 provision reflected
a decline in the level of nonperforming assets, particularly California
residential and apartment building real estate loans. The 1994 provision
reflected a significant decline in the levels of certain nonperforming assets,
but was increased from levels otherwise indicated by $12.5 million related to
losses resulting from the Northridge, California earthquake in January 1994.
The provision for loan losses of $158.7 million during 1993 was virtually
unchanged from 1992's level of $158.5 million. During 1991, California's general
economic indicators, including employment, consumer confidence and the value of
residential real estate, began to deteriorate. These trends continued through
1992 and 1993. In response to these trends, the Company increased its reserve
for loan losses through the provision for loan losses during those years and
tightened underwriting standards at ASB. Management believes that the stricter
underwriting standards initiated at ASB in the latter part of 1991 and 1992 have
helped to alleviate the level of loan delinquencies, despite the recessionary
conditions that existed in California. The delinquency experience of loans
originated by ASB subsequent to 1992 has been significantly less than that of
those originated prior to 1992. Management believes that the high rate of
delinquencies in prior years' originations can be attributed to a subsequently
discontinued limited documentation program offered by ASB during 1989 and 1990,
as well as the general decline in the value of residential real estate that
resulted in the deterioration of many borrowers' equity. The loan loss provision
in 1992 and 1993 was also affected by the increase in the size of the loan
portfolio, and in 1993, caution about the quality of the loans acquired from
Pacific First.
Integral to determining the level of the provision for loan losses in any
given year is an analysis of actual loss experience and plans for problem loan
administration and resolution. Loan charge-offs, net of recoveries for 1996
totaled $74.4 million, which was less than the level of net charge-offs of $90.1
million in 1995, $123.0 million in 1994, $139.3 million in 1993, and $114.7
million in 1992. The downward trend in residential charge-offs over the past
several years resulted in declines in the overall provision for loan losses.
Charge-offs on loans secured by commercial real estate in 1996 were lower,
compared with the previous three years. Although charge-offs had been higher,
commercial real estate delinquencies as a percentage of the total commercial
real estate loan portfolio had declined significantly, contributing to the lower
overall provision for loan losses. At year-end 1992, commercial credits, which
consisted primarily of high-yield bonds, declined to $14.0 million from $22.2
million at the end of the previous year. This decline was mostly due to $6.6
million in sales during the year. However, by the end of 1992, nonperforming
assets in this portfolio had increased to $8.5 million from $360,000 one year
earlier. This increase in nonperforming credits was anticipated by management.
43
<PAGE> 46
Changes in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year.............. $235,275 $244,989 $245,062 $179,612 $130,423
Provision for loan losses............... 201,512 74,987 122,009 158,728 158,537
Reserves added through business
combinations.......................... 1,077 5,372 921 46,000 5,321
Loans charged-off:
Residential........................... (53,993) (57,147) (89,637) (93,799) (77,815)
Residential construction.............. (16) (125) (190) (297) (937)
Commercial real estate................ (21,752) (33,149) (26,835) (26,967) (19,377)
Manufactured housing, second mortgage
and other consumer................. (6,639) (6,888) (10,544) (16,964) (17,017)
Commercial business/credits........... (435) (813) (2,065) (3,065) (1,321)
-------- -------- -------- -------- --------
(82,835) (98,122) (129,271) (141,092) (116,467)
Recoveries of loans previously
charged-off:
Residential........................... 4,437 2,393 2,522 45 17
Residential construction.............. -- 47 -- -- --
Commercial real estate................ 3,197 4,426 2,186 889 571
Manufactured housing, second mortgage
and other consumer................. 705 701 1,117 768 313
Commercial business/credits........... 74 482 443 112 897
-------- -------- -------- -------- --------
8,413 8,049 6,268 1,814 1,798
-------- -------- -------- -------- --------
Net charge-offs......................... (74,422) (90,073) (123,003) (139,278) (114,669)
-------- -------- -------- -------- --------
Balance, end of year.................... $363,442 $235,275 $244,989 $245,062 $179,612
======== ======== ======== ======== ========
Net charge-offs as a percentage of
average loans......................... 0.28% 0.35% 0.56% 0.70% 0.69%
</TABLE>
As part of the process of determining the adequacy of the reserve for loan
losses, management reviews the loan portfolio for specific weaknesses. A portion
of the reserve is then allocated to reflect the identified loss exposure.
Residential real estate and consumer loans are not individually analyzed for
impairment and loss exposure because of the significant number of loans and
their relatively small individual balances. Residential construction, commercial
real estate and commercial business loans were evaluated individually for
impairment. Allocated reserves at the end of 1996 increased significantly to
$78.3 million. During 1996, the Company's review of ASB's loan portfolio
resulted in approximately 43% of the additional $125.0 million provision being
allocated to loans in the commercial real estate loan portfolio.
Unallocated reserves are established for loss exposure that may exist in
the remainder of the loan portfolio but has yet to be identified. In determining
the adequacy of unallocated reserves, management considers changes in the size
and composition of the loan portfolio, historical loan loss experience, current
and anticipated economic conditions, and the Company's credit administration and
asset management philosophies and procedures.
44
<PAGE> 47
An analysis of the reserve for loan losses was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allocated reserves:
Commercial real estate............ $ 77,054 $ 16,488 $ 20,025 $ 22,833 $ 22,496
Residential construction.......... -- 158 1,327 1,503 1,219
Commercial business/credits....... 1,285 -- -- 1,718 5,597
-------- -------- -------- -------- --------
Total allocated reserves....... 78,339 16,646 21,352 26,054 29,312
Unallocated reserves................ 285,103 218,629 223,637 219,008 150,300
-------- -------- -------- -------- --------
Total loan loss reserves....... $363,442 $235,275 $244,989 $245,062 $179,612
======== ======== ======== ======== ========
Total 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>
A reserve for REO losses is maintained for any subsequent decline in the
value of foreclosed property. The reserve for REO losses was $7.1 million at
December 31, 1996, compared with $10.1 million at December 31, 1995. The level
is based upon a routine review of the REO portfolio and the strength of national
and local economies.
Classified Assets. The following table sets forth the Company's classified
assets, which consist of nonaccrual loans, loans under foreclosure, REO and
performing loans (including substandard troubled debt restructurings) and
securities that exhibit credit quality weaknesses. When and if loans sold on a
recourse basis are nonperforming, they are included in nonaccrual loans. See
"Consolidated Financial Statements -- Note 1: Summary of Significant Accounting
Policies."
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Nonaccrual loans and loans under foreclosure........................... $226,412 $213,802
REO.................................................................... 103,111 125,101
-------- --------
Total nonperforming assets........................................... 329,523 338,903
Troubled debt restructurings (classified as substandard)............... 82,048 85,483
Other classified assets................................................ 136,442 129,264
-------- --------
Total classified assets.............................................. $548,013 $553,650
======== ========
</TABLE>
Nonperforming assets decreased to 0.74% of total assets at December 31,
1996 or $329.5 million, compared with $338.9 million or 0.81% of total assets at
December 31, 1995. Nonperforming assets decreased 19% to $338.9 million at the
end of 1995, from $418.7 million at the end of 1994. At December 31, 1996,
nonperforming assets in California accounted for 63% of total nonperforming
assets, down from 75% and 83% at the ends of 1995 and 1994. The decline in
nonperforming assets since 1992 was largely a result of a tightening of
underwriting standards at ASB beginning in mid-1991. Declining market rents and
occupancy rates in certain areas of Los Angeles that were negatively affected by
the economic environment during the three years ended December 31, 1995, as well
as the Los Angeles riots in 1992 and the Northridge earthquake in January 1994,
contributed to higher charge-offs in the apartment loan portfolio in 1994 and
1995, thereby reducing the level of nonperforming apartment loans. See
" -- Provision for Loan Losses and Reserve for Loan Losses."
45
<PAGE> 48
Nonperforming assets and troubled debt restructurings consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans and loans under
foreclosure:
Real estate loans:
Residential............................ $180,438 $158,040 $172,136 $233,618 $253,888
Residential construction............... 9,235 9,550 4,640 8,527 5,856
Apartment buildings.................... 7,642 23,300 70,944 53,474 37,059
Other commercial real estate........... 6,555 12,663 23,549 20,516 14,883
-------- -------- -------- -------- --------
Total real estate loans.............. 203,870 203,553 271,269 316,135 311,686
Second mortgage and other consumer
loans.................................. 13,199 7,502 6,969 14,783 7,218
Manufactured housing loans................ 8,275 1,923 1,643 2,207 1,571
Commercial business loans/credits......... 1,068 824 1,018 3,785 8,580
-------- -------- -------- -------- --------
Total nonperforming loans............ 226,412 213,802 280,899 336,910 329,055
REO, net of REO reserves.................... 103,111 125,101 137,767 185,492 232,568
-------- -------- -------- -------- --------
Total nonperforming assets........... $329,523 $338,903 $418,666 $522,402 $561,623
======== ======== ======== ======== ========
Troubled debt restructurings................ $112,287 $ 90,623 $ 54,583 $ 68,670 $104,538
Nonperforming assets as a percentage of
total assets.............................. 0.74% 0.81% 1.12% 1.55% 2.03%
</TABLE>
Nonperforming assets by geographic concentration were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------
OTHER
CALIFORNIA WASHINGTON OREGON UTAH STATES TOTAL
---------- ---------- ------- ------ ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential............... $ 119,524 $ 42,119 $ 9,516 $1,908 $ 7,371 $180,438
Residential
construction........... -- 5,823 2,143 1,130 139 9,235
Apartment buildings....... 5,840 1,759 -- -- 43 7,642
Other commercial real
estate................. 1,979 1,718 227 -- 2,631 6,555
-------- ------- ------- ------ ------- --------
Total real estate
loans................ 127,343 51,419 11,886 3,038 10,184 203,870
Second mortgage and other
consumer loans............ 1,605 5,514 3,010 278 2,792 13,199
Manufactured housing
loans..................... -- 3,893 1,818 330 2,234 8,275
Commercial business loans... -- 193 691 -- 184 1,068
-------- ------- ------- ------ ------- --------
Total nonperforming
loans................ 128,948 61,019 17,405 3,646 15,394 226,412
REO......................... 82,862 25,019 461 160 1,753 110,255
REO reserves................ (7,144)
-------- ------- ------- ------ ------- --------
Total nonperforming
assets............... $ 211,810 $ 86,038 $17,866 $3,806 $17,147 $329,523
======== ======= ======= ====== ======= ========
Nonperforming assets by
state as a percentage of
total nonperforming
assets.................... 63% 26% 5% 1% 5% 100%
</TABLE>
Impaired Loans. On January 1, 1995, the Company adopted SFAS No. 114,
Accounting by Creditors for Impairment of a Loan as modified by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures. It is applicable to all loans except large groups of
smaller-balance homogeneous loans that are collectively evaluated for
impairment. Loans collectively evaluated for impairment include residential real
estate and consumer loans. All residential construction, commercial real estate
and commercial business loans are individually evaluated for impairment. Factors
involved in determining impairment include, but are not limited to, the
financial condition of the borrower, the value of the underlying collateral, and
current economic conditions. SFAS No. 114 also applies to all loans that are
46
<PAGE> 49
restructured in a troubled debt restructuring, subsequent to the adoption of
SFAS No. 114, as defined by SFAS No. 15, Accounting by Debtors and Creditors for
Troubled Debt Restructurings. A troubled debt restructuring is a restructuring
in which the creditor grants a concession to the borrower that it would not
otherwise consider. At December 31, 1996, the Company had $112.3 million of
restructured loans of which $82.0 million, though performing, were considered to
be impaired. Troubled debt restructurings that were not considered to be
impaired were restructured prior to 1995 and have been performing according to
the terms of the restructure in the year subsequent to the restructure.
A loan is considered impaired when it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Impaired loans include all loans on nonaccrual, any substandard loan,
whether or not performing, with an allocated reserve and certain troubled debt
restructurings. SFAS No. 114 requires that impairment of loans be measured based
on the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. The Company bases the measurement of loan impairment on the fair
value of the loan's underlying collateral. The amount by which the recorded
investment in the loan exceeds the value of the impaired loan's collateral is
included in the Company's allocated reserve for loan losses. Any portion of an
impaired loan classified as loss under regulatory guidelines is charged off.
At December 31, 1996, loans totaling $317.3 million were impaired, of which
$260.7 million had allocated reserves of $42.9 million. The remaining $56.6
million were either nonperforming or previously written down and had no reserves
allocated to them. Of the $317.3 million of impaired loans, $22.7 million were
on nonaccrual status or under foreclosure. The average balance of impaired loans
during 1996 was $302.6 million and the Company recognized $14.6 million of
related interest income. Interest income is normally recognized on an accrual
basis; however, if the impaired loan is nonperforming, interest income is then
recorded on the receipt of cash. The rise in the level of impaired loans during
1996 reflected, for the most part, the Company's review of large commercial real
estate loans at ASB. Of the $125.0 million addition to the reserve for loan
losses, $18.9 million was allocated to $110.3 million of commercial real estate
loans that management deemed to be impaired.
The amount of impaired loans based upon the fair value of the underlying
collateral and the related allocated reserve for loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------
GROSS LOAN PRINCIPAL NET LOAN ALLOCATED
AMOUNT CHARGED-OFF AMOUNT RESERVES
---------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans and loans under foreclosure:
With allocated reserves...................... $ 10,909 $ 400 $ 10,509 $ 3,079
Without allocated reserves................... 15,792 3,552 12,240 --
-------- ------ -------- -------
26,701 3,952 22,749 3,079
Troubled debt restructurings:
With allocated reserves...................... 45,248 -- 45,248 7,960
Without allocated reserves................... 37,368 569 36,799 --
-------- ------ -------- -------
82,616 569 82,047 7,960
Other impaired loans:
With allocated reserves...................... 205,563 645 204,918 31,851
Without allocated reserves................... 12,437 4,833 7,604 --
-------- ------ -------- -------
218,000 5,478 212,522 31,851
-------- ------ -------- -------
Total impaired loans...................... $327,317 $ 9,999 $317,318 $ 42,890
======== ====== ======== =======
</TABLE>
At December 31, 1995, loans totaling $169.1 million were impaired, of which
$91.7 million had allocated reserves of $16.6 million. The remaining $77.4
million were either nonperforming or previously written down and had no reserves
allocated to them. Of the $169.1 million of impaired loans, $26.7 million were
on
47
<PAGE> 50
nonaccrual status or under foreclosure, and $142.3 million (including $57.1
million of troubled debt restructurings) were performing but judged to be
impaired.
The amount of impaired loans based upon the fair value of the underlying
collateral and the related allocated reserve for loan losses were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------
GROSS LOAN PRINCIPAL NET LOAN ALLOCATED
AMOUNT CHARGED-OFF AMOUNT RESERVES
---------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans and loans under foreclosure:
With allocated reserves...................... $ 9,853 $ 1,224 $ 8,629 $ 2,192
Without allocated reserves................... 19,226 1,113 18,113 --
-------- ------- -------- -------
29,079 2,337 26,742 2,192
Troubled debt restructurings:
With allocated reserves...................... 16,917 -- 16,917 3,115
Without allocated reserves................... 40,733 516 40,217 --
-------- ------- -------- -------
57,650 516 57,134 3,115
Other impaired loans:
With allocated reserves...................... 66,161 33 66,128 11,339
Without allocated reserves................... 25,665 6,600 19,065 --
-------- ------- -------- -------
91,826 6,633 85,193 11,339
-------- ------- -------- -------
Total impaired loans...................... $178,555 $ 9,486 $169,069 $ 16,646
======== ======= ======== =======
</TABLE>
INTEREST RATE RISK MANAGEMENT
Washington Mutual engages in a comprehensive asset and liability management
program that attempts to reduce the risk of significant decreases in net
interest income caused by interest rate changes. One of the Company's strategies
to reduce the effect of future movements in interest rates is to increase the
percentage of adjustable-rate assets in its portfolio. During 1996, the Company
securitized and then sold the majority of the fixed-rate loans it originated,
while retaining nearly all of its adjustable-rate loan production. In addition,
as part of the restructuring strategy initiated in late 1995, the Company
purchased adjustable-rate assets and sold fixed-rate mortgage-backed securities.
The Company still, however, has short-term volatility of net interest income
because of the effect of the COFI lag. Management plans to reduce this
short-term volatility in part by increasing production of non-COFI
adjustable-rate products and short-term fixed-rate products such as consumer
loans.
The implementation of strategies to reduce interest rate risk, however,
generally has a negative effect on earnings. The Company monitors its interest
rate sensitivity and attempts to reduce the risk of a significant decrease in
net interest income caused by a change in interest rates; nevertheless, rising
interest rates or a flat yield curve adversely affect the Company's operations.
Management tries to balance these two factors in administering its interest rate
risk program.
As part of its asset and liability management program, the Company actively
manages asset and liability maturities and at various times uses derivative
instruments, such as interest rate exchange agreements and interest rate cap
agreements, to reduce the negative effect that rising rates could have on net
interest income. Derivative instruments, if not used appropriately, can subject
a company to unintended financial exposure. Management, in conjunction with the
Company's Board of Directors, has established strict policies and guidelines for
the use of derivative instruments. Moreover, Washington Mutual has used these
instruments for many years to mitigate interest rate risk. These instruments
generally are not intended to be used as techniques to generate earnings by
speculating on the movements of interest rates, nor does the Company act as a
dealer of these instruments. See "Consolidated Financial Statements -- Note 17:
Interest Rate Risk Management."
48
<PAGE> 51
A conventional measure of interest rate sensitivity for savings
institutions is the one-year gap, which is calculated by dividing the difference
between assets maturing or repricing within one year and total liabilities
maturing or repricing within one year by total assets. The Company's assets and
liabilities that mature or reprice within one year were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest-sensitive assets......................................... $30,613,301 $27,732,380
Derivative instruments designated against assets.................. 1,150,000 1,825,000
Interest-sensitive liabilities.................................... (34,984,865) (31,469,960)
Derivative instruments designated against liabilities............. 1,598,400 832,000
----------- -----------
Net liability sensitivity....................................... $(1,623,164) $(1,080,580)
=========== ===========
One-year gap...................................................... (3.64)% (2.57)%
</TABLE>
At the end of 1996, Washington Mutual's one-year gap was a negative 3.64%,
compared with a negative 2.57% at the end of 1995. While the Company's
consolidated one-year gap at December 31, 1996 was fairly neutral, WMB's and
ASB's one-year gap positions were quite different. WMB's one-year gap was a
negative 18.19% at the end of 1996 due in large part to the preference of its
customers for fixed-rate loan products. Management can compensate for this
preference by selling fixed-rate loans, purchasing adjustable-rate assets, and
strategically using hedging instruments, all of which were done during 1996.
Since the vast majority of interest-earning assets at ASB were COFI ARM
products, its one-year gap at the end of 1996 was a positive 12.85%. At December
31, 1996, the Company had entered into interest rate exchange agreements and
interest rate cap agreements with notional values of $9.1 billion. Without these
instruments, the Company's one-year gap at December 31, 1996, would have been a
negative 9.81% as opposed to a negative 3.64%. See "Consolidated Financial
Statements -- Note 17: Interest Rate Risk Management" for a discussion of the
use of derivative instruments.
49
<PAGE> 52
Interest sensitivity analysis by maturity or repricing period was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------------------
DUE WITHIN DUE WITHIN AFTER ONE AFTER TWO AFTER FIVE
0-3 4-12 BUT WITHIN BUT WITHIN BUT WITHIN AFTER
MONTHS MONTHS TWO YEARS FIVE YEARS 10 YEARS 10 YEARS TOTAL
----------- ----------- ----------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-SENSITIVE ASSETS
Cash, cash equivalents, and trading
account securities(1)............ $ 1,089,527 $ -- $ -- $ 1,648 $ -- $ -- $ 1,091,175
Available-for-sale securities(2)... 4,528,217 2,276,537 176,759 712,406 586,049 766,347 9,046,315
Held-to-maturity securities........ 2,673,283 1,445 12,144 35,495 51,698 86,282 2,860,347
Loans(3):
Real estate...................... 15,533,194 3,674,232 1,524,297 3,918,552 2,280,039 2,561,670 29,491,984
Manufactured housing, second
mortgage and other consumer.... 335,209 215,226 137,456 154,309 82,017 35,200 959,417
Commercial business.............. 259,559 26,872 11,549 19,733 2,832 -- 320,545
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total loans.................. 16,127,962 3,916,330 1,673,302 4,092,594 2,364,888 2,596,870 30,771,946
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total interest-sensitive
assets..................... 24,418,989 6,194,312 1,862,205 4,842,143 3,002,635 3,449,499 43,769,783
Derivative instruments affecting
interest sensitivity:
Interest rate exchange agreements:
Designated against
available-for-sale
securities..................... 500,000 -- (300,000) (200,000) -- -- --
Interest rate cap agreements:
Designated against
available-for-sale
securities..................... 1,050,000 (400,000) (650,000) -- -- -- --
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total effect of derivative
instruments................ 1,550,000 (400,000) (950,000) (200,000) -- -- --
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total interest-sensitive
assets..................... 25,968,989 5,794,312 912,205 4,642,143 3,002,635 3,449,499 43,769,783
INTEREST-SENSITIVE LIABILITIES
Deposits(4)........................ 10,390,870 8,071,838 1,583,909 460,865 77,810 3,493,255 24,078,547
Borrowings and other liabilities... 14,639,325 1,882,832 490,240 375,853 253,529 42,209 17,683,988
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total interest-sensitive
liabilities................ 25,030,195 9,954,670 2,074,149 836,718 331,339 3,535,464 41,762,535
Derivative instruments affecting
interest sensitivity:
Interest rate exchange
agreements:
Designated against deposits and
short-term borrowings........ (1,269,400) 286,500 337,500 636,200 9,200 -- --
Interest rate cap agreements:
Designated against deposits and
short-term borrowings........ (615,500) -- 254,000 361,500 -- -- --
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total effect of derivative
instruments................ (1,884,900) 286,500 591,500 997,700 9,200 -- --
----------- ----------- ----------- ---------- ---------- ---------- -----------
Total interest-sensitive
liabilities................ 23,145,295 10,241,170 2,665,649 1,834,418 340,539 3,535,464 41,762,535
----------- ----------- ----------- ---------- ---------- ---------- -----------
Net asset (liability)
sensitivity................ $ 2,823,694 $(4,446,858) $(1,753,444) $2,807,725 $2,662,096 $ (85,965) $ 2,007,248
=========== =========== =========== ========== ========== ========== ===========
Cumulative net (liability) asset
sensitivity...................... $ 2,823,694 $(1,623,164)
Cumulative net (liability) asset
sensitivity as a percentage of
total assets..................... 6.34% (3.64)%
</TABLE>
- ---------------
(1) Includes accrued interest on interest-earning assets.
(2) Excludes mark-to-market adjustment.
(3) Excludes deferred loan fees, reserve for loan losses and premium and
discount on purchased loans.
(4) Excludes premium on purchased deposits. Deposits without stated maturity are
included in the category "Due within 0-3 months."
50
<PAGE> 53
While the one-year gap helps provide some information about a financial
institution's interest sensitivity, it does not predict the trend of future
earnings. For this reason, Washington Mutual uses financial modeling to forecast
earnings under different interest rate projections. Although this modeling is
very helpful in managing interest rate risk, it does require significant
assumptions for the projection of loan prepayment rates, loan origination
volumes and liability funding sources that may prove to be inaccurate.
Washington Mutual adopted, as required, SFAS No. 115. This statement
requires investment and equity securities to be segregated into three
categories: trading, held-to-maturity and available-for-sale.
The available-for-sale portfolio is maintained as a source of investment
income as well as potential liquidity should it be necessary for the Company to
raise cash or reduce its asset size. Because the available-for-sale portfolio is
required to be carried at fair value, its carrying value fluctuates with changes
in market factors, primarily interest rates. This portfolio is substantially
composed of MBS, of which 84% have adjustable rates and the remainder have fixed
rates. In an attempt to modify the interest flows on these securities, as well
as protect against market value changes, certain interest rate exchange
agreements and interest rate cap agreements have been designated to the
available-for-sale portfolio. The effect of such agreements in a rising interest
rate environment is to shorten the effective repricing period of the underlying
assets. Specifically, as short-term interest rates increase, the overall yield
of the portfolio rises. However, the yield is constrained by periodic and
lifetime interest rate adjustment limits or caps on the underlying
adjustable-rate assets and also by the very nature of the fixed-rate assets in
the portfolio. The Company, therefore, seeks to shorten the repricing period by
entering into interest rate cap agreements that are intended to provide an
additional layer of interest rate protection against the effect of the periodic
and lifetime interest rate adjustment limits or caps and fixed-rate securities
in the portfolio. Through the use of specific interest rate cap agreements,
management attempts to reduce the repricing ceiling of the portfolio and to
effectively shorten the repricing period. Thus, the Company has a degree of
interest rate protection when interest rates increase because the interest rate
cap agreements provide a mechanism for repricing the investment portfolio
generally on pace with current market rates. In a similar way, interest rate
exchange agreements are utilized to provide protection in an increasing rate
environment, but also result in sensitivity in a downward market. There can be
no assurance that interest rate exchange agreements and interest rate cap
agreements will provide the Company with protection in all scenarios or to the
full extent of the Company's exposure.
The following table presents the effect interest rate exchange agreements
and interest rate cap agreements would have had on the repricing period of
securities in the available-for-sale portfolio in an increasing interest rate
environment (up 200 basis points) for the period the derivatives are
outstanding:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------
DUE WITHIN AFTER ONE
DUE WITHIN 4-12 BUT WITHIN AFTER
0-3 MONTHS MONTHS TWO YEARS TWO YEARS TOTAL
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Principal amount of
securities.................... $4,528,217 $2,276,537 $ 176,759 $2,064,802 $9,046,315
Effect of derivative
instruments................... 2,225,000 -- (159,126) (2,065,874) --
---------- ---------- --------- ---------- ----------
Principal amount of securities
after effect of derivative
instruments................... $6,753,217 $2,276,537 $ 17,633 $ (1,072) $9,046,315
========== ========== ========= ========== ==========
</TABLE>
51
<PAGE> 54
The following table presents the effect interest rate exchange agreements
and interest rate cap agreements would have had on the repricing period of
securities in the available-for-sale portfolio in a decreasing interest rate
environment (down 200 basis points) for the period the derivatives are
outstanding:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------
DUE WITHIN AFTER ONE
DUE WITHIN 4-12 BUT WITHIN AFTER
0-3 MONTHS MONTHS TWO YEARS TWO YEARS TOTAL
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Principal amount of
securities.................... $4,528,217 $2,276,537 $ 176,759 $2,064,802 $9,046,315
Effect of derivative
instruments................... 700,000 -- -- (700,000) --
---------- ---------- -------- ---------- ----------
Principal amount of securities
after effect of derivative
instruments................... $5,228,217 $2,276,537 $ 176,759 $1,364,802 $9,046,315
========== ========== ======== ========== ==========
</TABLE>
Management actively manages the liability maturities and at various times
uses derivative instruments, such as interest rate exchange agreements and
interest rate cap agreements, to reduce the negative effect that rising rates
could have on net interest income. The Company seeks to lengthen the repricing
period of its deposits and borrowings by entering into interest rate cap
agreements to provide an additional layer of interest rate protection should
interest rates on deposits and borrowings rise. Through the use of these
agreements, management attempts to offset increases in interest expense related
to these deposits and borrowings and effectively lengthen the repricing period.
Thus, the Company has a degree of interest rate protection when interest rates
increase because the interest rate cap agreements provide a mechanism for
repricing the deposits and borrowings generally on pace with current market
rates. In a similar way, interest rate exchange agreements are utilized to
provide protection in an increasing rate environment, but also result in
sensitivity in a downward market. There can be no assurance that interest rate
exchange agreements and interest rate cap agreements will provide the Company
with protection in all scenarios or to the full extent of the Company's
exposure.
The following table presents the effect interest rate exchange and interest
rate cap agreements would have had on the repricing period of deposits and
borrowings currently (as of December 31, 1996) or in an increasing rate
environment (up 200 basis points) for the period the derivatives are
outstanding:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
AFTER ONE
DUE WITHIN DUE WITHIN BUT WITHIN AFTER
0-3 MONTHS 4-12 MONTHS TWO YEARS TWO YEARS TOTAL
----------- ----------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Amount of deposits and
borrowings...................... $25,030,195 $ 9,954,670 $2,074,149 $4,703,521 $41,762,535
Effect of derivative
instruments..................... (6,897,400) 3,460,500 963,000 2,473,900 --
----------- ----------- ---------- ---------- -----------
Amount of deposits and borrowings
after effect of derivative
instruments..................... $18,132,795 $13,415,170 $3,037,149 $7,177,421 $41,762,535
=========== =========== ========== ========== ===========
</TABLE>
The following table presents the effect interest rate exchange agreements
and interest rate cap agreements would have had on the repricing period of
deposits and borrowings currently (as of December 31, 1996) or in a decreasing
interest rate environment (down 200 basis points) for the period the derivatives
are outstanding:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------------------
AFTER ONE
DUE WITHIN DUE WITHIN BUT WITHIN AFTER
0-3 MONTHS 4-12 MONTHS TWO YEARS TWO YEARS TOTAL
----------- ----------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Amount of deposits and
borrowings...................... $25,030,195 $ 9,954,670 $2,074,149 $4,703,521 $41,762,535
Effect of derivative
instruments..................... (1,642,400) 459,500 397,500 785,400 --
----------- ----------- ---------- ---------- -----------
Amount of deposits and borrowings
after effect of derivative
instruments..................... $23,387,795 $10,414,170 $2,471,649 $5,488,921 $41,762,535
=========== =========== ========== ========== ===========
</TABLE>
52
<PAGE> 55
LIQUIDITY
Liquidity management focuses on the need to meet both short-term funding
requirements and long-term growth objectives. The long-term growth objectives of
the Company are to attract and retain stable consumer deposit relationships and
to maintain stable sources of wholesale funds. Because the low interest rate
environment of recent years inhibited consumer deposits, Washington Mutual has
supported its growth through business combinations with other financial
institutions and by increasing its use of wholesale borrowings. Should the
Company not be able to increase deposits either internally or through
acquisitions, its ability to grow would be dependent upon, and to a certain
extent limited by, its borrowing capacity.
Washington Mutual monitors its ability to meet short-term cash requirements
using guidelines established by its Board of Directors. The operating liquidity
ratio is used to ensure that normal short-term secured borrowing capacity is
sufficient to satisfy unanticipated cash needs. The volatile dependency ratio
measures the degree to which the Company depends on wholesale funds maturing
within one year weighted by the dependability of the source. At December 31,
1996, the Company had substantial liquidity compared with its established
guidelines.
The Company also computes ratios promulgated by the FDIC to monitor the
liquidity position of WMB. The regulatory liquidity ratio measures WMB's ability
to use liquid assets to meet unusual cash demands. The regulatory dependency
ratio measures WMB's reliance upon potentially volatile liabilities to fund
long-term assets. WMB manages both ratios to remain within the acceptable ranges
and, at December 31, 1996, met the established FDIC guidelines.
Regulations promulgated by the OTS require that ASB and WMBfsb maintain for
each calendar month an average daily balance of liquid assets at least equal to
5.00 percent of the prior month's average daily balance of net withdrawable
deposits plus borrowings due within one year. At December 31, 1996, the
liquidity ratio for ASB was 5.04% and for WMBfsb it was 8.29%.
Washington Mutual's major sources of funds are the collection of loan
principal and interest payments, attracting deposits, and borrowing from the
FHLBs of Seattle and San Francisco and elsewhere. In addition, Washington Mutual
is able to generate funds through the sale of loans and investment securities
available for sale. The Company uses these funds primarily to originate loans
and maintain its investment portfolio. See "Consolidated Financial
Statements -- Consolidated Statements of Cash Flows."
At December 31, 1996, the Company was in position to obtain an additional
$9.7 billion through the use of collateralized borrowings using unpledged
mortgage-backed securities and other wholesale sources. The ability of the
Company's banking subsidiaries to make dividends to the Company is influenced by
legal, regulatory and economic restrictions.
CAPITAL REQUIREMENTS
At December 31, 1996, Washington Mutual's banking subsidiaries exceeded all
current regulatory capital requirements and were categorized as well
capitalized, the highest regulatory standard.
The regulatory capital ratios of WMB, ASB and WMBfsb and minimum regulatory
requirements to be categorized as well capitalized were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 WELL-
---------------------- CAPITALIZED
WMB ASB WMBFSB MINIMUM
----- ----- ------ -----------
<S> <C> <C> <C> <C>
Capital ratios:
Leverage................................................... 5.76% 5.17% 6.90% 5.00%
Tier 1 risk-based.......................................... 10.28 8.90 10.50 6.00
Total risk-based........................................... 11.09 10.92 11.58 10.00
</TABLE>
In addition, ASB and WMBfsb are required by OTS regulations to maintain
core capital of at least 3.00% of assets and tangible capital of at least 1.50%
of assets. Both ASB and WMBfsb satisfied this requirement at December 31, 1996.
See "Business -- Regulation and Supervision."
53
<PAGE> 56
WM Life is subject to risk-based capital requirements developed by the
National Association of Insurance Commissioners. This measure uses four major
categories of risk to calculate an appropriate level of capital to support an
insurance company's overall business operations. The four risk categories are
asset risk, insurance risk, interest rate risk and business risk. At December
31, 1996, WM Life's capital was 663% of its required regulatory risk-based
level.
The Company's securities subsidiaries are also subject to capital
requirements. At December 31, 1996, all of Washington Mutual's securities
subsidiaries were in compliance with their applicable capital requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements, see index on page 56.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Part III is incorporated by reference from the Company's definitive proxy
statement issued in conjunction with the Company's Annual Meeting of
Shareholders to be held April 15, 1997. Certain information regarding the
principal officers of Washington Mutual is set forth in "Business -- Principal
Officers."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on page 56.
(2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules are omitted because they are not
applicable or not required, or because the required information is included in
the consolidated financial statements or the notes thereto.
(b) REPORTS ON FORM 8-K:
Form 8-K filed October 18, 1996, amended October 23, 1996 and October 25,
1996. Items 5 and 7. Financial Statements filed -- Washington Mutual, Inc.
audited restated financial statements for the year ended December 31, 1995.
(c) EXHIBITS:
See Index of Exhibits on page 114.
54
<PAGE> 57
SIGNATURES BY REGISTRANT
Pursuant to the requirements of the Section 13 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on February 18, 1997.
WASHINGTON MUTUAL, INC.
/s/ KERRY K. KILLINGER
--------------------------------------
Kerry K. Killinger
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities indicated on February 18, 1997.
<TABLE>
<S> <C>
/s/ KERRY K. KILLINGER /s/ WILLIAM A. LONGBRAKE
- -------------------------------------------- --------------------------------------------
Kerry K. Killinger William A. Longbrake
Chairman, President and Chief Executive Executive Vice President and Chief Financial
Officer; Director (Principal Executive Officer (Principal Financial Officer)
Officer)
/s/ DOUGLAS G. WISDORF
--------------------------------------------
Douglas G. Wisdorf
Deputy Chief Financial Officer, Senior Vice
President and Controller (Principal
Accounting Officer)
/s/ DOUGLAS P. BEIGHLE /s/ ANNE V. FARRELL
- -------------------------------------------- --------------------------------------------
Douglas P. Beighle Anne V. Farrell
Director Director
/s/ WILLIAM P. GERBERDING
- -------------------------------------------- --------------------------------------------
David Bonderman William P. Gerberding
Director Director
/s/ HERBERT M. BRIDGE /s/ DR. SAMUEL B. MCKINNEY
- -------------------------------------------- --------------------------------------------
Herbert M. Bridge Dr. Samuel B. McKinney
Director Director
/s/ J. TAYLOR CRANDALL /s/ MICHAEL K. MURPHY
- -------------------------------------------- --------------------------------------------
J. Taylor Crandall Michael K. Murphy
Director Director
/s/ ROGER H. EIGSTI /s/ LOUIS H. PEPPER
- -------------------------------------------- --------------------------------------------
Roger H. Eigsti Louis H. Pepper
Director Director
/s/ JOHN W. ELLIS /s/ WILLIAM G. REED, JR.
- -------------------------------------------- --------------------------------------------
John W. Ellis William G. Reed, Jr.
Director Director
/s/ DANIEL J. EVANS /s/ JAMES H. STEVER
- -------------------------------------------- --------------------------------------------
Daniel J. Evans James H. Stever
Director Director
</TABLE>
55
<PAGE> 58
CONSOLIDATED FINANCIAL STATEMENTS OF
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996, 1995 AND 1994
Independent Auditors' Report........................................................ 57
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and
1994............................................................................. 58
Consolidated Statements of Financial Position as of December 31, 1996 and 1995...... 59
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1996, 1995 and 1994.............................................................. 60
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994......................................................................... 61
Notes to Consolidated Financial Statements.......................................... 63
</TABLE>
56
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF WASHINGTON MUTUAL, INC.:
We have audited the accompanying consolidated statements of financial
position of Washington Mutual, Inc. and subsidiaries ("the Company") as of
December 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of Washington Mutual,
Inc. and Keystone Holdings, Inc., which has been accounted for as a pooling of
interests as described in Note 2 to the consolidated financial statements. We
did not audit the consolidated balance sheet of Keystone Holdings, Inc. and
subsidiaries as of December 31, 1995, or the related consolidated statements of
earnings, stockholder's equity, and cash flows for the years ended December 31,
1995 and 1994, which statements reflect total assets constituting 47% of
consolidated total assets as of December 31, 1995, and total net income
constituting 31% and 25% for the years ended December 31, 1995 and 1994,
respectively. Those statements were audited by other auditors whose report,
dated, January 26, 1996 (except as to Note 27 to the consolidated financial
statements, which is as of February 8, 1996) has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Keystone Holdings,
Inc. and subsidiaries for 1995 and 1994, is based solely on the report of such
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Washington Mutual,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 122, Accounting for
Mortgage Servicing Rights, on September 30, 1995.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
February 14, 1997
Seattle, Washington
57
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Keystone Holdings, Inc.:
We have audited the consolidated balance sheet of Keystone Holdings, Inc.
and subsidiaries as of December 31, 1995, and the related consolidated
statements of earnings, stockholder's equity, and cash flows for each of the
years in the two-year period ended December 31, 1995 (not presented separately
herein). These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Keystone
Holdings, Inc. and subsidiaries as of December 31, 1995, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
January 26, 1996, except as to note 27
to the consolidated financial statements,
which is as of February 8, 1996
58
<PAGE> 61
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C> <C>
INTEREST INCOME
Loans.............................................. $2,139,513 $2,061,801 $1,658,818
Note receivable.................................... -- 58,841 141,039
Available-for-sale securities...................... 782,737 381,633 258,678
Held-to-maturity securities........................ 220,673 409,063 235,709
Cash equivalents................................... 6,313 4,748 1,169
------- ------- -------
Total interest income............................ 3,149,236 2,916,086 2,295,413
INTEREST EXPENSE
Deposits........................................... 1,060,823 1,134,818 852,666
Borrowings......................................... 897,406 788,618 482,692
------- ------- -------
Total interest expense........................... 1,958,229 1,923,436 1,335,358
------- ------- -------
Net interest income........................... 1,191,007 992,650 960,055
Provision for loan losses.......................... 201,512 74,987 122,009
------- ------- -------
Net interest income after provision for loan
losses...................................... 989,495 917,663 838,046
OTHER INCOME
Depositor fees..................................... 102,597 79,017 45,255
Loan servicing fees................................ 41,303 29,315 23,247
Securities, annuities and other fees............... 53,350 49,679 65,248
Other operating income............................. 36,419 31,035 39,630
Gain on sale of loans.............................. 19,729 1,717 23,488
Gain (loss) on sale of other assets................ 5,866 (655) 23,926
Loss on sale of covered assets..................... -- (37,399) --
Federal Deposit Insurance Corporation ("FDIC")
assistance on covered assets..................... -- 55,630 --
------- ------- -------
Total other income............................ 259,264 208,339 220,794
OTHER EXPENSE
Salaries and employee benefits..................... 336,065 313,304 315,424
Occupancy and equipment............................ 124,278 110,981 102,403
Regulatory assessments............................. 43,171 54,909 54,887
SAIF special assessment............................ 124,193 -- --
Data processing fees............................... 40,733 36,538 33,862
Other operating expense............................ 159,541 143,794 146,463
Transaction-related expense........................ 158,121 2,000 --
Amortization of goodwill and other intangible
assets........................................... 27,672 28,306 29,076
Real estate owned ("REO") operations............... 11,530 10,682 13,402
------- ------- -------
Total other expense........................... 1,025,304 700,514 695,517
------- ------- -------
Income before income taxes and minority
interest.................................... 223,455 425,488 363,323
Income taxes....................................... 70,420 111,906 109,880
Provision (benefit) for payments in lieu of
taxes............................................ 25,187 7,887 (824)
------- ------- -------
Income before minority interest............... 127,848 305,695 254,267
Minority interest in earnings of consolidated
subsidiaries..................................... 13,570 15,793 13,992
------- ------- -------
Net Income......................................... $ 114,278 $ 289,902 $ 240,275
======= ======= =======
Net Income Attributable to Common Stock............ $ 95,859 $ 271,318 $ 221,691
======= ======= =======
Net income per common share:
Primary.......................................... $0.85 $2.47 $2.09
Fully diluted.................................... 0.85 2.42 2.06
</TABLE>
See Notes to Consolidated Financial Statements
59
<PAGE> 62
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents......................................... $ 831,063 $ 983,833
Trading account securities........................................ 1,647 238
Available-for-sale securities, amortized cost $9,050,960 and
$11,919,009..................................................... 9,111,274 12,154,725
Held-to-maturity securities, fair value $2,922,552 and
$3,262,850...................................................... 2,860,347 3,197,720
Loans, net of reserve for loan losses............................. 30,103,386 24,109,136
Loans held for sale............................................... 227,390 83,704
REO............................................................... 103,111 125,101
Premises and equipment............................................ 482,391 452,743
Goodwill and other intangible assets.............................. 133,509 161,127
Other assets...................................................... 697,807 758,295
----------- -----------
Total assets................................................. $44,551,925 $42,026,622
=========== ===========
LIABILITIES
Deposits:
Checking accounts............................................... $ 2,979,962 $ 2,776,329
Savings and money market deposit accounts....................... 6,842,061 6,573,543
Time deposit accounts........................................... 14,258,118 15,113,088
----------- -----------
Total deposits............................................... 24,080,141 24,462,960
Annuities......................................................... 878,057 855,503
Federal funds purchased........................................... 1,052,000 433,420
Securities sold under agreements to repurchase.................... 7,835,453 7,984,756
Advances from the Federal Home Loan Bank ("FHLB")................. 7,241,492 4,715,739
Other borrowings.................................................. 676,986 590,217
Other liabilities................................................. 389,908 362,323
----------- -----------
Total liabilities............................................ 42,154,037 39,404,918
Minority interest................................................. -- 80,000
Contingencies (Note 26)........................................... -- --
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 10,000,000 shares
authorized -- 4,722,500 and 6,122,500 shares issued and
outstanding..................................................... -- --
Common stock, no par value: 350,000,000 shares
authorized -- 126,142,285 and 119,687,860 shares issued and
outstanding..................................................... -- --
Capital surplus................................................... 952,747 920,406
Valuation reserve for available-for-sale securities............... 41,666 188,715
Retained earnings................................................. 1,403,475 1,432,583
----------- -----------
Total stockholders' equity................................... 2,397,888 2,541,704
----------- -----------
Total liabilities, minority interest and stockholders'
equity...................................................... $44,551,925 $42,026,622
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
60
<PAGE> 63
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
NUMBER OF SHARES SURPLUS VALUATION
------------------- OFFSET AGAINST RESERVE TOTAL
PREFERRED COMMON CAPITAL NOTE RETAINED FOR AFS STOCKHOLDERS'
STOCK STOCK SURPLUS RECEIVABLE EARNINGS SECURITIES EQUITY
--------- ------- -------- -------------- ---------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994.............. 6,200 113,457 $862,949 $ (167,000) $1,039,954 $ 29,657 $1,765,560
Establishment of valuation reserve for
available-for-sale securities
-- Washington Mutual, Inc............. -- -- -- -- -- 13,836 13,836
Net income.............................. -- -- -- -- 240,275 -- 240,275
Miscellaneous stock transactions........ -- 384 7,762 -- (7,774) -- (12)
Cash dividends paid on preferred
stock................................. -- -- -- -- (18,584) -- (18,584)
Cash dividends paid on common stock..... -- -- -- -- (67,835) -- (67,835)
Adjustments in valuation reserve for
available-for-sale securities......... -- -- -- -- -- (104,742) (104,742)
Common stock issued through stock
options and employee stock plans...... -- 426 10,038 -- -- -- 10,038
Immaterial business combination
accounted for as a
pooling-of-interests.................. -- 1,454 9,595 -- 6,705 -- 16,300
------ ------- -------- --------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1994............ 6,200 115,721 890,344 (167,000) 1,192,741 (61,249) 1,854,836
Net income.............................. -- -- -- -- 289,902 -- 289,902
Miscellaneous stock transactions........ -- (1) (13) -- -- -- (13)
Cash dividends paid on preferred
stock................................. -- -- -- -- (18,584) -- (18,584)
Cash dividends paid on common stock..... -- -- -- -- (57,997) -- (57,997)
Adjustments in valuation reserve for
available-for-sale securities......... -- -- -- -- -- 249,964 249,964
Common stock issued through stock
options and employee stock plans...... -- 539 8,379 -- -- -- 8,379
Capital surplus previously offset
against note receivable............... -- -- -- 167,000 -- -- 167,000
Repurchase of Series C and Series E
preferred stock....................... (77) -- (1,866) -- (124) -- (1,990)
Immaterial business combination
accounted for as a
pooling-of-interests.................. -- 3,429 23,562 -- 26,645 -- 50,207
------ ------- -------- --------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1995............ 6,123 119,688 920,406 -- 1,432,583 188,715 2,541,704
Net income.............................. -- -- -- -- 114,278 -- 114,278
Cash dividends paid on preferred
stock................................. -- -- -- -- (18,418) -- (18,418)
Cash dividends paid on common stock..... -- -- -- -- (124,968) -- (124,968)
Adjustments in valuation reserve for
available-for-sale securities......... -- -- -- -- -- (147,049) (147,049)
Common stock issued through stock
options and employee stock plans...... -- 692 20,604 -- -- -- 20,604
Redemption/conversion of Series D
preferred stock....................... (1,400) 5,415 (107) -- -- -- (107)
Immaterial business combination
accounted for as a
pooling-of-interests.................. -- 347 11,844 -- -- -- 11,844
------ ------- -------- --------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1996............ 4,723 126,142 $952,747 $ -- $1,403,475 $ 41,666 $2,397,888
====== ======= ======== ========= ========== ========= ==========
</TABLE>
See Notes to Consolidated Financial Statements
61
<PAGE> 64
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 114,278 $ 289,902 $ 240,275
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses........................... 201,512 74,987 122,009
(Gain) on sale of loans............................. (19,729) (1,717) (23,488)
(Gain) loss on sale of other assets................. (5,866) 655 (23,926)
Loss on sale of covered assets...................... -- 37,399 --
FDIC assistance on covered assets................... -- (55,630) --
REO operations...................................... 11,530 10,682 13,402
Depreciation and amortization....................... 85,741 54,361 58,939
FHLB stock dividend................................. (34,744) (23,155) (22,108)
(Increase) decrease in trading account securities... (1,404) 749 691
Origination of loans held for sale.................. (1,964,072) (822,025) (263,055)
Sales of loans held for sale........................ 2,005,610 1,127,076 764,710
(Increase) in interest receivable................... (9,881) (58,902) (28,800)
(Decrease) increase in interest payable............. (4,767) 31,027 22,159
(Decrease) increase in income taxes payable......... (10,575) 38,683 40,205
Decrease (increase) in other assets................. 91,563 (88,951) 10,757
Increase (decrease) in other liabilities............ 37,394 (23,527) (65,641)
---------- ---------- ----------
Net cash provided by operating activities........ 496,590 591,614 846,129
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of available-for-sale securities................ 4,370,458 1,673,853 499,719
Purchases of available-for-sale securities............ (1,817,811) (2,312,072) (1,480,421)
Principal payments and maturities of
available-for-sale securities....................... 1,339,910 817,048 545,753
Purchases of held-to-maturity securities.............. (3,414,473) (697,470) (1,931,537)
Principal payments and maturities of held-to-maturity
securities.......................................... 3,744,147 885,205 1,109,796
Sales of loans........................................ 55,188 84,197 221,069
Principal payments of loans........................... 3,972,002 3,067,145 3,332,483
Origination and purchases of loans.................... (11,446,810) (8,562,080) (8,666,382)
Payments received on New West Federal Savings and Loan
Association ("New West") Note....................... -- 1,682,040 1,569,018
Sales and operations of REO........................... 142,404 150,530 201,138
Sales of premises and equipment....................... 2,064 4,871 2,211
Purchase of premises and equipment.................... (84,985) (102,877) (58,396)
Purchase of mortgage servicing rights................. (16,243) (38,270) (37,605)
Cash acquired through acquisitions.................... 3,506 68,358 40,679
---------- ---------- ----------
Net cash (used) by investing activities.......... (3,150,643) (3,279,522) (4,652,475)
</TABLE>
62
<PAGE> 65
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in deposits....................... $ (480,059) $ 707,375 $ (380,297)
Increase in annuities................................. 22,554 56,325 85,795
Increase in federal funds purchased................... 622,000 433,420 --
(Decrease) increase in securities sold under
short-term agreements to repurchase................. (1,475,122) (186,833) 2,289,611
Proceeds from securities sold under long-term
agreements to repurchase............................ 2,497,407 2,872,557 1,391,682
Repurchase of securities sold under long-term
agreements to repurchase............................ (1,175,008) (1,408,127) (260,713)
Proceeds from FHLB advances........................... 14,332,232 4,710,333 8,209,790
Repayments of FHLB advances........................... (11,804,037) (4,123,336) (7,698,071)
Proceeds (repayments) of other borrowings............. 179,230 210,397 (3,488)
Repayments to minority interest....................... (95,372) -- --
Other capital transactions, net....................... 20,844 (1,298) 14,742
Cash dividends paid................................... (143,386) (76,581) (96,419)
---------- ---------- ----------
Net cash provided by financing activities........ 2,501,283 3,194,232 3,552,632
---------- ---------- ----------
(Decrease) increase in cash and cash
equivalents.................................... (152,770) 506,324 (253,714)
Cash and cash equivalents at beginning of year... 983,833 477,509 731,223
---------- ---------- ----------
Cash and cash equivalents at end of year......... $ 831,063 $ 983,833 $ 477,509
========== ========== ==========
NONCASH INVESTING ACTIVITIES
Loans exchanged for mortgage-backed securities........ $ 896,976 $6,588,124 $ 183,269
Implementation of new accounting standard -- reclass
to available-for-sale portfolio..................... -- -- 2,127,890
Transfer of securities to the available-for-sale
portfolio........................................... -- 4,924,168 --
Real estate acquired through foreclosure.............. 231,681 255,028 334,499
Loans originated to facilitate the sale of REO........ 68,995 65,693 92,415
Loans transferred to loans held for sale.............. 214,991 621,267 --
CASH PAID DURING THE YEAR FOR
Interest on deposits.................................. 1,068,198 1,125,226 851,546
Interest on borrowings................................ 893,190 762,000 458,033
Income taxes.......................................... 111,948 73,130 92,172
DIVIDENDS DECLARED AND PAYABLE IN DIFFERENT YEARS
Common stock dividends................................ -- -- (10,000)
</TABLE>
See Notes to Consolidated Financial Statements
63
<PAGE> 66
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Washington
Mutual, Inc. ("WMI" and together with its subsidiaries "Washington Mutual" or
the "Company"). WMI was formed in August 1994 by the Company's predecessor,
Washington Mutual Savings Bank ("WMSB"), a Washington state-chartered savings
bank, in connection with the reorganization of WMSB into a holding company
structure. The reorganization was completed in November 1994 through the merger
of WMSB into Washington Mutual Bank ("WMB"), the Company's Washington
state-chartered savings bank subsidiary, with WMB as the surviving entity. WMB
continued as a wholly owned subsidiary of WMI.
On December 20, 1996, Keystone Holdings, Inc. ("Keystone Holdings") merged
with and into Washington Mutual, and all of the subsidiaries of Keystone
Holdings, including American Savings Bank, F.A. ("ASB"), became subsidiaries of
the Company (the "Keystone Transaction"). The financial statements reflect the
accounting for the merger as a pooling-of-interests and are presented as if the
companies were merged as of the earliest period shown.
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to the 1996 presentation. All significant intercompany
transactions and balances have been eliminated. Results of operations of
companies acquired and accounted for as purchases are included from the dates of
acquisition. When Washington Mutual acquires a company through a material
pooling-of-interests, current and prior-period financial statements are restated
to include the accounts of merged companies. Previously reported balances of the
merged companies have been reclassified to conform to the Company's presentation
and restated to give effect to the combinations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements. Changes in
these estimates and assumptions are considered reasonably possible and may have
a material impact on the financial statements.
Lines of Business
Washington Mutual provides a broad range of financial services to consumers
and small and mid-sized businesses throughout the Western United States through
its subsidiary operations. Financial services of the Company include accepting
deposits from the general public and making residential loans, consumer loans,
limited types of commercial real estate loans (primarily loans secured by
multi-family properties), and commercial business loans which are offered
principally through WMB, ASB and Washington Mutual Bank fsb ("WMBfsb").
Washington Mutual, through other subsidiaries, also issues and markets annuity
contracts and is the investment advisor to and distributor of mutual funds.
Washington Mutual diversified its business mix by merging WMB with
Enterprise Bank of Bellevue, Washington ("Enterprise"), a Seattle-area
commercial bank in 1995 and Western Bank of Coos Bay, Oregon ("Western"),
Oregon's largest community-based commercial bank in 1996.
Derivative Instruments
The Company uses derivative instruments, such as interest rate exchange
agreements and interest rate cap agreements, forward sales of financial
instruments, financial futures and options to reduce its exposure to interest
rate risk. Interest rate exchange agreements and interest rate cap agreements
are used only if they
64
<PAGE> 67
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
have the effect of changing the interest rate characteristics of the assets or
liabilities to which they are designated. Such effect is measured either through
ongoing correlation or effectiveness tests.
Interest rate exchange agreements and interest rate cap agreements are
designated either against the available-for-sale portfolio or against deposits
and borrowings. Agreements designated against available-for-sale securities are
included at fair value in the available-for-sale portfolio and any
mark-to-market adjustments are reported with the change in value of the
available-for-sale portfolio. Interest rate exchange agreements and interest
rate cap agreements designated against deposits and borrowings are reported at
historic cost.
The interest differential paid or received on interest rate exchange
agreements is recorded as an adjustment to interest income or interest expense.
The purchase premium of interest rate cap agreements is capitalized and
amortized and included as a component of interest income or interest expense
over the original term of the interest rate cap agreement. No purchase premiums
are paid at the time interest rate exchange agreements are entered into.
From time to time, the Company terminates interest rate exchange agreements
and interest rate cap agreements prior to maturity. Such circumstances arise if,
in the judgment of management, such instruments no longer cost effectively meet
policy objectives. Often such instruments are within one year of maturity. Gains
and losses from terminated interest rate exchange agreements and interest rate
cap agreements are recognized, consistent with the gain or loss on the asset or
liability designated against the agreement. When the asset or liability is not
sold or paid off, the gains or losses are deferred and amortized on a
straight-line basis as additional interest income or interest expense over the
original terms of the agreements or the remaining life of the designated asset
or liability, whichever is less. When the asset or liability is sold or paid
off, the gains or losses are recognized in the current period as an adjustment
to the gain or loss recognized on the corresponding asset or liability.
From time to time, the Company redesignates interest rate exchange
agreements and interest rate cap agreements between available-for-sale
securities and deposits and borrowings. Such redesignations are recorded at fair
value at the time of transfer.
The Company may also buy put or call options on mortgage instruments. The
purpose and criteria for the purchase of options are to manage the interest rate
risk inherent in secondary marketing activities. The costs of such options are
capitalized and amortized on a straight-line basis as a reduction of other
income over the original terms of the options. The fair value of options matched
against closed loans are included in the lower of cost or market analysis.
Changes in the fair value of options designated against the Company's loan
pipeline are deferred to the extent they qualify as hedges, otherwise they are
carried at fair value with the corresponding gain or loss recognized in other
income.
The Company may write covered call options on its available-for-sale
portfolio. If the option is exercised, the option fee is an adjustment to the
gain or loss on the sale of the security. If the option is not exercised, it is
recognized as fee income. Covered call options are carried at fair value.
Additionally, to lock in prices on sales of loans originated for mortgage
banking activities, the Company uses forward sales of financial instruments to
lock in prices on similar types and coupons of financial instruments and thereby
limit market risk until these financial instruments are sold.
In the event that any of the derivative instruments fail to meet the above
established criteria, they are marked to market with the corresponding gain or
loss recognized in income.
Investment Securities
The Company accounts for investment and equity securities in the following
three categories: trading, held-to-maturity and available-for-sale.
65
<PAGE> 68
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Trading Securities
Trading securities are purchased and held principally for the purpose of
reselling them within a short period of time. Their unrealized gains and losses
are included in earnings.
Held-To-Maturity Securities
Investments classified as held-to-maturity are accounted for at amortized
cost, but a company must have both the positive intent and the ability to hold
those securities to maturity. There are limited circumstances under which
securities in the held-to-maturity category can be sold without jeopardizing the
cost basis of accounting for the remainder of the securities in this category.
Other than temporary declines in fair value are recognized as a reduction to
current earnings.
Available-For-Sale Securities
Securities not classified as either trading or held-to-maturity are
considered to be available-for-sale. Gains and losses realized on the sale of
these securities are based on the specific identification method. Unrealized
gains and losses for available-for-sale securities are excluded from earnings
and reported (net of tax) as a net amount in a separate component of
stockholders' equity until realized.
The available-for-sale portfolio contains some private-issue securities.
Private-issue securities include mortgage-backed securities ("MBS") and
collateralized mortgage obligations ("CMOs") that expose the Company to certain
risks that are not inherent in agency securities, primarily credit risk and
liquidity risk. Because of this added risk, private-issue securities have
historically paid a greater rate of interest than agency securities, enhancing
the overall yield of the portfolio. Such securities are not guaranteed by the
U.S. government or one of its agencies because the loan size, underwriting or
underlying collateral of these securities often does not meet industry
standards. Consequently, there is the possibility of loss of the principal
investment. For this reason, it is possible that the Company will not receive an
enhanced overall yield on the portfolio and, in fact, could incur a loss.
Additionally, the Company may not be able to sell such securities in certain
market conditions as the number of interested buyers may be limited at that
time. Furthermore, the complex structure of certain CMOs in the Company's
portfolio increases the difficulty in assessing the portfolio's risk and its
fair value. Examples of some of the more complex structures include certain CMOs
where the Company holds subordinated tranches, certain CMOs that have been
"resecuritized," and certain securities that contain a significant number of
jumbo, nonconforming loans. In 1996, in an effort to reduce the aforementioned
risks, the Company instituted a policy of performing a credit review on each
individual security prior to purchase. Such a review includes consideration of
the collateral characteristics, borrower payment histories and information
concerning loan delinquencies and losses of the underlying collateral. After a
security is purchased, similar information is monitored on a periodic basis.
Furthermore, the Company has established internal guidelines limiting the
geographic concentration of the underlying collateral.
Loans
Loans held for investment are stated at the principal amount outstanding,
net of deferred loan fees and any discounts or premiums on purchased loans. The
deferred fees, discounts and premiums are amortized using the interest method
over the estimated life of the loan. The Company sells residential fixed-rate
loans in the secondary market. At the date of origination, the loans so
designated and meeting secondary market guidelines are identified as loans held
for sale and carried at the lower of net cost or fair value on an aggregate
basis, net of their related hedge gains and losses.
Management ceases to accrue interest income on any loan that becomes 90
days or more delinquent and reverses all interest accrued up to that time.
Thereafter, interest income is accrued only if and when, in
66
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WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management's opinion, projected cash proceeds are deemed sufficient to repay
both principal and interest. All loans for which interest is not being accrued
are referred to as loans on nonaccrual status.
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan as
modified by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures. This standard is applicable to all
loans except large groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment. Loans that are collectively evaluated for
impairment by Washington Mutual include residential real estate and consumer
loans. Residential construction, commercial real estate and commercial business
loans are individually evaluated for impairment. Factors involved in determining
impairment include, but are not limited to, the financial condition of the
borrower, value of the underlying collateral, and current economic conditions.
SFAS No. 114 also applies to all loans that are restructured in a troubled debt
restructuring subsequent to the adoption of SFAS No. 114, as defined by SFAS No.
15, Accounting by Debtors and Creditors for Troubled Debt Restructurings. A
troubled debt restructuring is a restructuring in which the creditor grants a
concession to the borrower that it would not otherwise consider.
A loan is considered impaired when it is probable that a creditor will be
unable to collect all amounts due according to the terms of the loan agreement.
SFAS No. 114 requires that the valuation of impaired loans be based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
The Company bases the measurement of loan impairment on the fair value of the
loan's underlying collateral. The amount by which the recorded investment in the
loan exceeds the value of the impaired loan's collateral is included in the
Company's allocated reserve for loan losses. Any portion of an impaired loan
classified as loss under regulatory guidelines is charged-off. The adoption of
SFAS No. 114 had no material impact on the results of operations or financial
position of the Company.
The Company has full recourse on certain loans that have been securitized
or sold. Securitized MBS may or may not be held as part of the Company's
investment portfolio.
Reserve for Loan Losses
The reserve for loan losses is maintained at a level sufficient to provide
for estimated loan losses based on evaluating known and inherent risks in the
loan portfolio. The reserve is based on management's continuing analysis of the
pertinent factors underlying the quality of the loan portfolio. These factors
include changes in the size and composition of the loan portfolio, loan loss
experience, current and anticipated economic conditions, and detailed analysis
of individual loans and credits for which full collectibility may not be
assured. The detailed analysis includes techniques to estimate the fair value of
loan collateral and the existence of potential alternative sources of repayment.
The appropriate reserve level is estimated based upon factors and trends
identified by management at the time financial statements are prepared.
When available information confirms that specific loans or portions thereof
are uncollectible, these amounts are charged-off against the reserve for loan
losses. The existence of some or all of the following criteria will generally
confirm that a loss has been incurred: the loan is significantly delinquent and
the borrower has not evidenced the ability or intent to bring the loan current;
the Company has no recourse to the borrower, or if it does, the borrower has
insufficient assets to pay the debt; or the fair value of the loan collateral is
significantly below the current loan balance, and there is little or no
near-term prospect for improvement.
Commercial real estate loans are considered by the Company to have somewhat
greater risk of uncollectibility than residential real estate loans due to the
dependency on income production or future development of the real estate.
67
<PAGE> 70
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The ultimate recovery of all loans is susceptible to future market factors
beyond the Company's control. These factors may result in losses or recoveries
differing significantly from those provided in the financial statements.
REO
REO includes properties acquired through foreclosure that are transferred
to REO at the lower of cost or fair value, less estimated selling costs, which
represents the new recorded basis of the property. Subsequently, properties are
evaluated and any additional declines in value are provided for in the REO
reserve for losses. The amount the Company ultimately recovers from REO may
differ substantially from the net carrying value of these assets because of
future market factors beyond the Company's control or because of changes in the
Company's strategy for sale or development of the property.
Commercial REO that is managed and operated by the Company is depreciated
using the straight-line method over the property's estimated useful life.
Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 122, Accounting for Mortgage Servicing Rights. The statement eliminates the
distinction between servicing rights that are purchased and those that are
retained upon the sale or securitization of loans. The statement requires
mortgage servicers to recognize the servicing rights on loans as separate
assets, no matter how acquired. Banks that sell or securitize loans and retain
the servicing rights are required to allocate the total cost of the loans
between servicing rights and loans based on relative fair values if their values
can be estimated. In September 1995, the Company elected early adoption of SFAS
No. 122, as permitted by the Statement, and implemented it as of January 1,
1995.
Purchased servicing rights represents the cost of acquiring the right to
service mortgage loans. Originated servicing rights are recorded when mortgage
loans are originated and subsequently sold or securitized with the servicing
rights retained. The total cost of the mortgage loans is allocated to the
servicing rights and the loans (without the servicing rights) based on relative
fair values. The cost relating to purchased and originated servicing is
capitalized and amortized in proportion to, and over the period of, estimated
future net servicing income.
The Company assesses impairment of the capitalized servicing rights based
on the fair value of those rights on a stratum-by-stratum basis with any
impairment recognized through a valuation allowance for each impaired stratum.
For purposes of measuring impairment, the servicing rights are stratified based
on the following predominant risk characteristics of the underlying loans:
fixed-rate mortgage loans by coupon (less than 6%, 1% increments between 6% and
12% and greater than 12%); and adjustable-rate mortgage loans ("ARMs") by index,
such as the 11th District Cost of Funds Index ("COFI"), Treasury, or the London
Interbank Offering Rate ("LIBOR"). The amount of impairment recognized is the
amount by which the capitalized mortgage servicing rights for a stratum exceed
their fair value.
In order to determine the fair value of the servicing rights, the Company
primarily uses a valuation model that calculates the present value of future
cash flows. Assumptions used in the valuation model include market discount
rates and anticipated prepayment speeds. The prepayment speeds are determined
from market sources for fixed-rate mortgages with similar coupons, and
prepayment reports for comparable ARMs. In addition, the Company uses market
comparables for estimates of the cost of servicing per loan, an inflation rate,
ancillary income per loan, and default rates.
68
<PAGE> 71
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Premises and Equipment
Land, buildings, leasehold improvements and equipment are carried at
amortized cost. Buildings and equipment are depreciated over their estimated
useful lives using the straight-line method. Leasehold improvements are
amortized over the shorter of their useful lives or lease terms.
Annuity and Insurance Accounting
WM Life Insurance, Inc. ("WM Life") is an Arizona-domiciled life insurance
company. WM Life is authorized under state law to issue annuities in seven
states. In addition, WM Life owns Empire Life Insurance Co. ("Empire"), which is
currently licensed under state law to issue annuities in 28 states. WM Life
currently issues fixed and variable flexible premium deferred annuities, single
premium fixed deferred annuities and single premium immediate annuities. Empire
currently issues fixed flexible premium deferred annuities and single premium
immediate annuities. Both companies conduct business through licensed
independent agents. The majority of such agents are employees of affiliates of
the Company and operate in the Company's financial centers. Currently, annuities
are primarily issued in Washington and Oregon.
The Company defers certain costs, such as commissions and the expenses of
underwriting and issuing policies, that are involved in acquiring new annuity
and life insurance business. These costs, which are included in other assets in
the accompanying Consolidated Statements of Financial Position, are amortized
over the lives of the policies in relation to the estimated gross profit.
Annuities equal the policy value as defined in the policy contract as of the
balance sheet date.
Securities Sold Under Agreements to Repurchase
The Company enters into sales of securities under agreements to repurchase
the same ("reverse repurchase agreements") or similar ("dollar repurchase
agreements") securities. Reverse repurchase agreements and dollar repurchase
agreements are accounted for as financing arrangements, with the obligation to
repurchase securities sold reflected as a liability in the Consolidated
Statements of Financial Position. The dollar amount of securities underlying the
agreements remain in the respective asset accounts.
Trust Assets
Assets held by the Company in fiduciary or agency capacity for customers
are not included in the Consolidated Statements of Financial Position as such
items are not assets of the Company. Assets totaling $85.8 million and $67.3
million as of December 31, 1996 and 1995 were held by the Company in fiduciary
or agency capacity.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under
this method, a deferred tax asset or liability is determined based on the
enacted tax rates which will be in effect when the differences between the
financial statement carrying amounts and tax bases of existing assets and
liabilities are expected to be reported in the Company's income tax returns. The
deferred tax provision for the year is equal to the change in the deferred tax
liability from the beginning to the end of the year. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company reports income and expenses using the accrual method of
accounting and files a consolidated tax return that includes all of its
subsidiaries excluding Keystone Holdings and its subsidiaries. Keystone Holdings
and its subsidiaries filed a separate consolidated tax return for periods prior
to December 20, 1996. The Keystone Holdings returns included losses of ASB's
nominee, New West, incurred through
69
<PAGE> 72
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
October 24, 1995. Net operating losses of New West incurred prior to that date
are available for carryforward by ASB and have been included in the schedule of
net operating loss carryforwards presented in Note 19.
For periods subsequent to the merger with Keystone Holdings, the Company
will file a consolidated tax return that includes all of its subsidiaries. For
California franchise tax purposes, ASB joins in the filing of a combined return
with its subsidiaries and with ASB Real Estate Group, Inc. ("AREG"). AREG
formerly managed certain real estate related assets of New West and is now
inactive as a result of a restructuring transaction in 1993.
NOTE 2: BUSINESS COMBINATIONS
On April 28, 1995, Washington Mutual merged with Olympus Capital
Corporation of Salt Lake City, Utah ("Olympus"), the holding company of Olympus
Bank, a Federal Savings Bank ("Olympus Bank"). At the merger date, Olympus (on a
consolidated basis) had assets of $391.4 million, deposits of $278.6 million and
stockholders' equity of $37.2 million. Olympus Bank operated 11 branches in Utah
and Montana. Under the terms of the transaction, Olympus Bank merged into
WMBfsb. The merger was treated as a pooling-of-interests. Due to the immaterial
nature of the transaction, prior-period information has not been restated as if
the companies had been combined.
On August 31, 1995, Washington Mutual acquired Enterprise through a merger
of Enterprise with and into WMB. Enterprise, a Seattle-based commercial bank
specializing in lending to small and mid-size businesses, had assets of $153.8
million, deposits of $138.5 million and stockholders' equity of $14.0 million on
August 31, 1995. The merger was treated as a pooling-of-interests. Due to the
immaterial nature of the transaction, prior-period information has not been
restated as if the companies had been combined.
On January 31, 1996, the Company acquired Western through a merger of
Western with and into WMB. At the time of the merger, Western had 42 offices in
35 communities and was Oregon's largest community-based commercial bank. At
January 31, 1996 Western had assets of $776.3 million, deposits of $696.4
million and stockholders' equity of $69.5 million. The Company issued 5,865,235
shares of common stock to complete the merger with Western. The merger was
treated as a pooling-of-interests. The financial information presented in this
document reflects the pooling-of-interests method of accounting for the merger
of Western into the Company. Accordingly, under generally accepted accounting
principles, the assets, liabilities and stockholders' equity of Western were
recorded on the books of the resulting institution at their values as reported
on the books of Western immediately prior to the consummation of the merger with
Western. No goodwill was created in the merger with Western. This presentation
required the restatement of prior periods as if the companies had been combined
for all years presented.
70
<PAGE> 73
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following information represents the results of operations of the
Company and Western for 1995 and 1994 on an individual as well as a combined
basis. This information does not necessarily indicate the results that would
have been obtained, nor are they necessarily indicative of the future operations
of the combined companies. The supplemental results of operations were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C>
Washington Mutual:
Total revenue..................................... $1,625,451 $1,315,651
---------- ----------
Net income........................................ $ 190,624 $ 172,304
========== ==========
Net income per common share:
Primary........................................... $2.68 $2.54
Fully diluted..................................... 2.59 2.46
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Western:
Total revenue..................................... $71,383 $61,401
------- -------
Net income........................................ $ 9,177 $ 9,018
======= =======
</TABLE>
The restated results of operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C>
Washington Mutual and Western:
Total revenue..................................... $1,696,834 $1,377,052
---------- ----------
Net income........................................ $ 199,801 $ 181,322
========== ==========
Net income per common share:
Primary........................................... $2.59 $2.45
Fully diluted..................................... 2.51 2.38
</TABLE>
On November 30, 1996, WMI merged with Utah Federal Savings Bank ("Utah
FSB") by merging Utah FSB with and into WMBfsb. At November 30, 1996, Utah FSB,
which was an Ogden-based institution, had assets of $122.1 million, deposits of
$106.7 million and stockholders' equity of $12.0 million. The merger was
accounted for as a pooling-of-interests. Due to the immaterial nature of the
transaction, the Company has not restated prior-period information as if the
companies had been combined.
On December 20, 1996, WMI merged with Keystone Holdings. Keystone Holdings
was the indirect parent of ASB, a California-based federally chartered savings
bank. At November 30, 1996, Keystone Holdings had assets of $21.9 billion,
deposits of $12.8 billion and stockholder's equity of $808.6 million. The
Company issued 47,883,333 shares of common stock to complete the merger with
Keystone Holdings. The merger was treated as a pooling-of-interests. The
financial information presented in this document reflects the
pooling-of-interests method of accounting for the merger of Keystone Holdings
into the Company. Accordingly, under generally accepted accounting principles,
the assets, liabilities and stockholders' equity of Keystone Holdings were
recorded on the books of the resulting institution at their values as reported
on the books of Keystone Holdings immediately prior to the consummation of the
merger with Keystone Holdings. No goodwill was created in the merger with
Keystone Holdings. This presentation required the restatement of
71
<PAGE> 74
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prior periods as if the companies had been combined for all years presented.
Certain amounts in Keystone Holdings' financial statements have been restated to
conform to WMI's presentation.
The following information represents the results of operations of the
Company and Keystone Holdings for 1996, 1995 and 1994 on an individual as well
as a combined basis. This information does not necessarily indicate the actual
results that would have been obtained, nor are they necessarily indicative of
the future operations of the combined companies. The pro forma results of
Keystone Holdings have been adjusted to (i) eliminate earnings attributable to
the warrant holders and (ii) reflect the preferred stock dividends to related
parties as minority interest. The supplemental results of operations were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C>
Washington Mutual:
Total revenue........................ $1,845,777 $1,696,834 $1,377,052
---------- ---------- ----------
Net income........................... $ 223,761 $ 199,801 $ 181,322
========== ========== ==========
Net income per common share:
Primary.............................. $2.82 $2.59 $2.45
Fully diluted........................ 2.73 2.51 2.38
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Keystone Holdings:
Total revenue........................ $1,562,723 $1,427,591 $1,139,155
---------- ---------- ----------
Net income........................... $ (109,656) $ 90,101 $ 58,953
========== ========== ==========
</TABLE>
The restated results of operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C>
Washington Mutual and Keystone
Holdings:
Total revenue........................ $3,408,500 $3,124,425 $2,516,207
---------- ---------- ----------
Net income........................... $ 114,278 $ 289,902 $ 240,275
========== ========== ==========
Net income per common share:
Primary.............................. $0.85 $2.47 $2.09
Fully diluted........................ 0.85 2.42 2.06
</TABLE>
On January 15, 1997, Washington Mutual acquired United Western Financial
Group, Inc. ("United Western") of Salt Lake City and its United Savings Bank and
Western Mortgage Loan Corporation subsidiaries for $79.5 million in cash. At
January 15, 1997, United Western had assets of $404.1 million, deposits of
$299.9 million, and stockholders' equity of $53.7 million.
The acquisition of United Western was treated as a purchase for accounting
purposes. Accordingly on January 15, 1997, under generally accepted accounting
principles, the assets and liabilities of United Western were recorded on the
books of the Company at their respective fair market values at the time of the
consummation of the acquisition of United Western. Goodwill, the excess of the
purchase price over the net fair value of the assets and liabilities, including
indentified intangible assets, was recorded at $4.2 million.
72
<PAGE> 75
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of goodwill over a 10-year period will result in a charge to
earnings of approximately $420,000 per year.
NOTE 3: CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and demand deposits............................... $781,185 $689,258
Cash equivalents:
Overnight investments................................ 48,031 293,000
Time deposits........................................ 1,847 1,575
-------- --------
49,878 294,575
-------- --------
$831,063 $983,833
======== ========
</TABLE>
For the purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, overnight investments and time deposits.
Generally, time deposits are short term, with an original maturity of three
months or less.
Federal Reserve Board regulations require depository institutions to
maintain certain minimum reserve balances. Included in cash and demand deposits
were required deposits at the Federal Reserve of $22.9 million and $107.9
million at December 31, 1996 and 1995.
73
<PAGE> 76
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities classified by type and contractual maturity
date consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE YIELD(1)
---------- ---------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investment securities:
U.S. government and agency obligations:
Due after one but within five years..... $ 271,426 $ 58 $ (1,680) $ 269,804 6.62%
After five but within 10 years.......... 2,042 107 (2) 2,147 8.15
After 10 years.......................... 595 14 -- 609 6.58
---------- -------- -------- ---------- ----
274,063 179 (1,682) 272,560 6.63
Corporate debt obligations:
Due after one but within five years..... 129,469 3,164 (283) 132,350 7.54
After five but within 10 years.......... 167,294 2,764 (2,229) 167,829 7.12
After 10 years.......................... 98,693 3,354 (1,832) 100,215 7.64
---------- -------- -------- ---------- ----
395,456 9,282 (4,344) 400,394 7.39
Equity securities:
Preferred stock......................... 171,029 4,012 (831) 174,210 6.88
FHLB stock(2)........................... 465,056 -- -- 465,056 7.06
Other stock............................. 18 3 -- 21 --
---------- -------- -------- ---------- ----
636,103 4,015 (831) 639,287 7.01
---------- -------- -------- ---------- ----
1,305,622 13,476 (6,857) 1,312,241 7.05
Mortgage-backed securities:
U.S. government agency:
Due within one year..................... 308 -- (2) 306 4.89
After one but within five years......... 390,317 7,899 (817) 397,399 7.20
After five but within 10 years.......... 161,475 5,118 (2) 166,591 7.35
After 10 years.......................... 6,361,044 72,337 (31,890) 6,401,491 6.98
---------- -------- -------- ---------- ----
6,913,144 85,354 (32,711) 6,965,787 7.00
Private issue/corporate:
Due after five but within 10 years...... 24,175 791 (97) 24,869 7.59
After 10 years.......................... 803,374 7,581 (4,392) 806,563 7.73
---------- -------- -------- ---------- ----
827,549 8,372 (4,489) 831,432 7.73
---------- -------- -------- ---------- ----
7,740,693 93,726 (37,200) 7,797,219 7.08
Derivative instruments:
Interest rate exchange agreements.......... -- 265 (911) (646) --
Interest rate cap agreements............... 4,645 271 (2,456) 2,460 --
---------- -------- -------- ---------- ----
4,645 536 (3,367) 1,814 --
---------- -------- -------- ---------- ----
$9,050,960 $107,738 $(47,424) $9,111,274 7.08%
========== ======== ======== ========== ====
</TABLE>
- ---------------
(1) Weighted average yield at end of year.
(2) FHLB stock is carried at cost and is evaluated by the Company for
impairment.
74
<PAGE> 77
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE YIELD(1)
----------- ---------- ---------- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investment securities:
U.S. government and agency obligations:
Due within one year................... $ 65,120 $ -- $ (64) $ 65,056 4.72%
After one but within five years....... 184,837 526 (29) 185,334 6.48
After five but within 10 years........ 9,755 41 (125) 9,671 7.23
After 10 years........................ 59,813 121 (770) 59,164 7.02
----------- -------- -------- ----------- ----
319,525 688 (988) 319,225 6.24
Corporate debt obligations:
Due within one year................... 1,502 10 -- 1,512 8.27
After one but within five years....... 136,447 7,492 (205) 143,734 8.70
After five but within 10 years........ 181,038 8,237 (819) 188,456 7.02
After 10 years........................ 97,755 6,626 (98) 104,283 7.50
----------- -------- -------- ----------- ----
416,742 22,365 (1,122) 437,985 7.69
Equity securities:
Preferred stock....................... 110,532 2,535 (2,311) 110,756 7.21
FHLB stock(2)......................... 414,389 -- -- 414,389 6.74
Other stock........................... 5 3 -- 8 --
----------- -------- -------- ----------- ----
524,926 2,538 (2,311) 525,153 6.84
----------- -------- -------- ----------- ----
1,261,193 25,591 (4,421) 1,282,363 6.98
Mortgage-backed securities:
U.S. government agency:
Due within one year................... 5 -- -- 5 9.23
After one but within five years....... 467,226 14,883 (497) 481,612 7.64
After five but within 10 years........ 236,497 14,338 (86) 250,749 7.84
After 10 years........................ 8,713,086 226,286 (19,214) 8,920,158 6.93
----------- -------- -------- ----------- ----
9,416,814 255,507 (19,797) 9,652,524 6.99
Private issue/corporate:
Due after five but within 10 years.... 18,614 901 (258) 19,257 7.14
After 10 years........................ 1,211,290 8,739 (17,016) 1,203,013 7.37
----------- -------- -------- ----------- ----
1,229,904 9,640 (17,274) 1,222,270 7.37
----------- -------- -------- ----------- ----
10,646,718 265,147 (37,071) 10,874,794 7.03
Derivative instruments:
Interest rate exchange agreements........ (848) 2,225 (13,224) (11,847) --
Interest rate cap agreements............. 11,946 -- (2,531) 9,415 --
----------- -------- -------- ----------- ----
11,098 2,225 (15,755) (2,432) --
----------- -------- -------- ----------- ----
$11,919,009 $ 292,963 $ (57,247) $12,154,725 7.03%
=========== ======== ======== =========== ====
</TABLE>
- ---------------
(1) Weighted average yield at end of year.
(2) FHLB stock is carried at cost and is evaluated by the Company for
impairment.
Proceeds from sales of investment securities in the available-for-sale
portfolio during 1996 and 1995 were $139.1 million and $626.2 million. The
Company realized $1.9 million in gains and $799,000 in losses on these sales
during 1996. Similarly, the Company realized $4.0 million in gains and $2.2
million in losses on sales during 1995. Proceeds from sales of MBS in the
available-for-sale portfolio during 1996 and 1995 were
75
<PAGE> 78
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3.9 billion and $1.0 billion. The Company realized $31.4 million in gains and
$35.1 million in losses on these sales during 1996 and $13.5 million in gains
and $16.2 million in losses on these sales during 1995.
Available-for-sale MBS with an amortized cost of $6.0 billion and a fair
value of $6.0 billion at December 31, 1996 were pledged to secure public
deposits, securities sold under agreements to repurchase, other borrowings,
interest rate exchange agreements, and access to the Federal Reserve discount
window.
During 1995, FASB issued a report entitled A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities, Questions and Answers that allowed companies a one-time reassessment
and related reclassification from the held-to-maturity category to the
available-for-sale category without adverse accounting consequences for the
remainder of the portfolio. During the fourth quarter of 1995, the Company
elected to take advantage of this opportunity and reclassified held-to-maturity
securities with an amortized cost of $4.9 billion and gross unrealized gains of
$82.6 million and gross unrealized losses of $28.2 million. No transfers between
the held-to-maturity and available-for-sale categories were made during 1996.
At December 31, 1996, net unrealized gains on the available-for-sale
portfolio were $63.1 million and unrealized losses on the derivative instruments
designated against this portfolio were $2.8 million, resulting in a combined net
unrealized gain included as a separate component of stockholders' equity (on an
after-tax basis) of $41.7 million. At December 31, 1995, net unrealized gains on
the available-for-sale portfolio were $249.2 million and unrealized losses on
the derivative instruments designated against this portfolio were $13.5 million,
resulting in a combined net unrealized gain included as a separate component of
stockholders' equity (on an after-tax basis) of $188.7 million.
On December 31, 1996, the Company held $831.4 million of private-issue MBS
and CMOs. Of that amount, 20% were of the highest investment grade (AAA), 66%
were rated investment grade (AA or A), 9% were rated lowest investment grade
(BBB) and 5% were rated below investment grade (BB or below). During 1996, the
Company recognized $2.4 million in losses on securities in the below investment
grade portfolio. On December 31, 1995, the Company held $1.2 billion of
private-issue MBS and CMOs. Of that amount, 33% were of the highest investment
grade (AAA), 55% were rated investment grade (AA or A), 8% were rated lowest
investment grade (BBB) and 4% were rated below investment grade (BB or below).
During 1995, the Company recognized $8.4 million in losses on securities in the
below investment grade portfolio.
As of December 31, 1996, the Company had MBS with an amortized cost of
$249.7 million and a fair value of $249.6 million from a single issuer, the
Resolution Trust Corporation.
76
<PAGE> 79
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: HELD-TO-MATURITY SECURITIES
Held-to-maturity securities classified by type and contractual maturity
date consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE YIELD(1)
---------- ---------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investment securities:
U.S. government and agency obligations:
Due after five but within 10 years...... $ 6,629 $ 559 $ -- $ 7,188 8.25%
Corporate debt obligations:
Due within one year..................... 6,607 2 -- 6,609 5.02
After one but within five years......... 41,486 2,432 (5) 43,913 8.90
After five but within 10 years.......... 14,618 919 (23) 15,514 8.68
After 10 years.......................... 15,282 1,862 -- 17,144 9.19
---------- ------- ----- ---------- ----
77,993 5,215 (28) 83,180 8.61
Municipal obligations:
Due after one but within five years..... 7,096 205 -- 7,301 6.24
After five but within 10 years.......... 30,176 1,385 -- 31,561 6.70
After 10 years.......................... 70,801 2,028 (237) 72,592 6.02
---------- ------- ----- ---------- ----
108,073 3,618 (237) 111,454 6.23
---------- ------- ----- ---------- ----
192,695 9,392 (265) 201,822 7.28
Mortgage-backed securities
U.S. government agency:
Due after 10 years...................... 2,667,652 53,078 -- 2,720,730 7.33
---------- ------- ----- ---------- ----
$2,860,347 $ 62,470 $ (265) $2,922,552 7.33%
========== ======= ===== ========== ====
</TABLE>
- ---------------
(1) Weighted average yield at end of year.
77
<PAGE> 80
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE YIELD(1)
---------- ---------- ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Investment securities:
U.S. government and agency obligations:
Due within one year..................... $ 19,693 $ -- $ -- $ 19,693 5.24%
After five but within 10 years.......... 6,592 906 -- 7,498 8.09
---------- ------- ----- ---------- ----
26,285 906 -- 27,191 6.03
Corporate debt obligations:
Due within one year..................... 98,969 -- (9) 98,960 5.70
After one but within five years......... 31,173 2,895 (2) 34,066 8.66
After five but within 10 years.......... 22,586 2,472 (3) 25,055 8.37
After 10 years.......................... 17,162 2,310 (9) 19,463 8.91
---------- ------- ----- ---------- ----
169,890 7,677 (23) 177,544 7.00
Municipal obligations:
Due within one year..................... 1,090 1 -- 1,091 6.85
After one but within five years......... 1,658 89 -- 1,747 7.44
After five but within 10 years.......... 36,202 2,083 -- 38,285 6.88
After 10 years.......................... 53,371 2,908 -- 56,279 6.37
---------- ------- ----- ---------- ----
92,321 5,081 -- 97,402 6.60
---------- ------- ----- ---------- ----
288,496 13,664 (23) 302,137 6.78
Mortgage-backed securities
U.S. government agency:
Due after 10 years...................... 2,909,224 54,833 (3,344) 2,960,713 7.44
---------- ------- ----- ---------- ----
$3,197,720 $ 68,497 $ (3,367) $3,262,850 7.38%
========== ======= ===== ========== ====
</TABLE>
- ---------------
(1) Weighted average yield at end of year.
Held-to-maturity MBS with an amortized cost of $2.7 billion and a fair
value of $2.7 billion at December 31, 1996 were pledged to secure public
deposits, securities sold under agreements to repurchase, other borrowings,
interest rate exchange agreements and access to the Federal Reserve discount
window. There were no sales out of the held-to-maturity portfolio during 1996
and 1995.
78
<PAGE> 81
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6: LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real Estate:
Residential..................................... $22,660,715 $17,303,305
Residential construction........................ 723,645 615,814
Commercial real estate.......................... 3,810,968 3,487,574
----------- -----------
27,195,328 21,406,693
Second mortgage and other consumer................ 2,144,942 1,974,673
Manufactured housing.............................. 1,013,799 867,181
Commercial business............................... 340,149 179,568
Reserve for loan losses........................... (363,442) (235,275)
----------- -----------
$30,330,776 $24,192,840
=========== ===========
</TABLE>
Included in the table above are loans held for sale of $227.4 million and
$83.7 million at December 31, 1996 and 1995.
Nonaccrual loans totaled $226.4 million and $213.8 million at December 31,
1996 and 1995. If interest on these loans had been recognized, such income would
have been $15.0 million in 1996 and $10.8 million for 1995. At December 31, 1996
and 1995, the Company had troubled debt restructurings of $112.3 million and
$90.6 million. During 1996 and 1995, these troubled debt restructurings returned
a yield of 8.83% and 8.13%, thereby contributing $9.0 million and $5.9 million
to interest income. Had these loans not been restructured and interest accrued
at their original rates, the additional interest income would not have been
material.
At December 31, 1996, loans totaling $317.3 million were impaired, of which
$260.7 million had allocated reserves of $42.9 million. The remaining $56.6
million were previously written down and had no reserves allocated to them. Of
the $317.3 million of impaired loans, $22.7 million were on nonaccrual status
and $294.6 million (including $82.0 million of troubled debt restructurings)
were performing but judged to be impaired. Similarly, at December 31, 1995,
loans totaling $169.1 million were impaired, of which $91.7 million had
allocated reserves of $16.6 million. The remaining $77.4 million were previously
written down and had no reserves allocated to them. Of the $169.1 million of
impaired loans, $26.7 million were on nonaccrual status and $142.3 million
(including $57.1 million of troubled debt restructurings) were performing but
judged to be impaired. The average balance of impaired loans during 1996 and
1995 was $302.6 million and $177.6 million and the Company recognized $14.6
million and $12.4 million of related interest income. Interest income on
impaired loans is normally recognized on the accrual basis, unless the loan is
more than 90 days past due, in which case interest income is recorded on the
cash basis. An immaterial amount of interest income was recorded on the cash
basis during 1996 and 1995.
79
<PAGE> 82
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loans, exclusive of reserve for loan losses, by geographic concentration
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------
CALIFORNIA WASHINGTON OREGON OTHER TOTAL
----------- ---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate:
Residential..................... $13,154,086 $6,601,428 $1,890,021 $1,015,180 $22,660,715
Residential construction........ -- 374,653 256,637 92,355 723,645
Apartment buildings............. 1,617,747 558,412 272,060 110,552 2,558,771
Other commercial real estate.... 366,062 683,205 94,295 108,635 1,252,197
----------- ---------- ---------- ---------- -----------
15,137,895 8,217,698 2,513,013 1,326,722 27,195,328
Second mortgage and other
consumer........................ 96,992 1,178,797 551,165 317,988 2,144,942
Manufactured housing.............. 104,022 458,175 236,247 215,355 1,013,799
Commercial business............... -- 126,841 212,112 1,196 340,149
----------- ---------- ---------- ---------- -----------
$15,338,909 $9,981,511 $3,512,537 $1,861,261 $30,694,218
=========== ========== ========== ========== ===========
</TABLE>
Loans in California included $5.2 billion of loans in the Los Angeles area,
$5.0 billion of loans in the San Francisco Bay area, $1.7 billion of loans in
Orange County, and $3.4 billion of loans in other California areas.
Loans, exclusive of reserve for loan losses, deferred loan fees and
premiums and discounts, by maturity or repricing date were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Adjustable-rate loans:
Due within one year................................... $18,637,483
After one but within five years....................... 2,710,891
After five but within 10 years........................ 122,360
After 10 years........................................ 25,428
-----------
21,496,162
Fixed-rate loans:
Due within one year................................... 1,406,809
After one but within five years....................... 3,055,005
After five but within 10 years........................ 2,242,817
After 10 years........................................ 2,571,153
-----------
9,275,784
-----------
$30,771,946
===========
</TABLE>
In addition to loans the Company serviced for its own portfolio, it
serviced loans of $23.0 billion and $21.4 billion at December 31, 1996 and 1995
for U.S. government agencies, institutions and private investors.
Loans of $9.8 billion at December 31, 1996 were pledged to secure advances
from the FHLB. Unamortized deferred loan fees were $101.1 million and $75.1
million at December 31, 1996 and 1995.
At December 31, 1996, the Company had $488.4 million in fixed-rate mortgage
loan commitments, $570.9 million in adjustable-rate mortgage loan commitments,
$650.6 million in residential construction loan commitments, $114.1 million in
commercial real estate loan commitments, $169.1 million in commercial business
loan commitments and $681.8 million in undisbursed lines of credit.
80
<PAGE> 83
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7: RESERVE FOR LOAN LOSSES
Changes in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year................. $235,275 $244,989 $245,062
Provision for loan losses.................. 201,512 74,987 122,009
Reserves added through business
combinations............................. 1,077 5,372 921
Loans charged-off:
Residential.............................. (53,993) (57,147) (89,637)
Residential construction................. (16) (125) (190)
Commercial real estate................... (21,752) (33,149) (26,835)
Manufactured housing, second mortgage and
other consumer........................ (6,639) (6,888) (10,544)
Commercial business...................... (435) (813) (2,065)
-------- -------- --------
(82,835) (98,122) (129,271)
Recoveries of loans previously charged-off:
Residential.............................. 4,437 2,393 2,522
Residential construction................. -- 47 --
Commercial real estate................... 3,197 4,426 2,186
Manufactured housing, second mortgage and
other consumer........................ 705 701 1,117
Commercial business...................... 74 482 443
-------- -------- --------
8,413 8,049 6,268
-------- -------- --------
Net charge-offs............................ (74,422) (90,073) (123,003)
-------- -------- --------
Balance, end of year....................... $363,442 $235,275 $244,989
======== ======== ========
</TABLE>
The Company provided an additional $125.0 million in loan loss provision
with the merger of Keystone Holdings. This additional loan loss provision was
provided principally because a number of Washington Mutual (prior to the
business combination with Keystone Holdings) credit administration and asset
management philosophies and procedures differed from those of ASB.
As part of the ongoing process to determine the adequacy of the reserve for
loan losses, the Company reviews the components of its loan portfolio for
specific risk of principal loss.
81
<PAGE> 84
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
An analysis of the reserve for loan losses was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Allocated reserves:
Commercial real estate............................... $ 77,054 $ 16,488
Residential construction............................. -- 158
Commercial business.................................. 1,285 --
-------- --------
78,339 16,646
Unallocated reserves................................... 285,103 218,629
-------- --------
$363,442 $235,275
======== ========
Total reserve for loan losses as a percentage of:
Nonperforming loans.................................. 160.52% 110.04%
Nonperforming assets................................. 110.29 69.42
</TABLE>
NOTE 8: REO
REO consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Real estate acquired through foreclosure............... $107,604 $134,195
Other repossessed assets............................... 2,651 1,018
Reserve for losses..................................... (7,144) (10,112)
-------- --------
$103,111 $125,101
======== ========
</TABLE>
Changes in the REO reserve for losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
-------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year.................. $ 10,112 $ 8,135 $ 13,330
Provision for REO losses.................... 7,125 10,523 15,491
Reserves charged-off, net of recoveries..... (10,093) (8,546) (20,686)
-------- -------- --------
$ 7,144 $10,112 $ 8,135
======== ======== ========
</TABLE>
REO operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Operating expense.......................... $ (6,043) $ (3,457) $ (2,977)
Net gain on sale of REO.................... 1,638 3,298 5,066
Provision for REO losses................... (7,125) (10,523) (15,491)
-------- -------- --------
$(11,530) $(10,682) $(13,402)
======== ======== ========
</TABLE>
82
<PAGE> 85
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Furniture and equipment................................ $246,954 $243,527
Buildings.............................................. 331,988 363,894
Leasehold improvements................................. 59,812 54,683
Construction in progress............................... 4,052 8,080
-------- --------
642,806 670,184
Accumulated depreciation............................... (241,360) (296,779)
-------- --------
401,446 373,405
Land................................................... 80,945 79,338
-------- --------
$482,391 $452,743
======== ========
</TABLE>
In January 1995, a wholly owned service corporation subsidiary of ASB
purchased from a related limited partnership the Irvine Plaza building
structures and adjoining land currently utilized for ASB's executive offices and
various departments. The total cash purchase price paid for the property was
$45.2 million.
Depreciation expense for 1996, 1995 and 1994 was $42.3 million, $41.3
million and $38.4 million.
The Company has noncancelable operating leases for financial centers,
office facilities and equipment. Rental expense, including amounts paid under
month-to-month cancelable leases, amounted to $43.4 million, $40.4 million and
$44.5 million in 1996, 1995 and 1994.
Future minimum net rental commitments, including maintenance and other
associated costs, for all noncancelable leases were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
LAND & FURNITURE &
BUILDINGS EQUIPMENT
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due within one year................................. $ 32,787 $ 7,401
After one but within two years...................... 30,318 5,465
After two but within three years.................... 27,752 4,139
After three but within four years................... 25,741 878
After four but within five years.................... 20,112 644
After five years.................................... 83,201 --
-------- -------
$ 219,911 $18,527
======== =======
</TABLE>
In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The statement
establishes accounting standards for the impairment of long-lived assets that
either will be held and used in operations or that will be disposed of.
Effective January 1, 1996, the Company adopted SFAS No. 121. The Company
periodically evaluates long-lived assets for impairment.
83
<PAGE> 86
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Washington Mutual Bank, net of amortization of $125,542
and $98,654.......................................... $132,425 $159,259
Murphey Favre, Inc. and Composite Research & Management
Co., net of amortization of $10,125 and $9,389....... 732 1,468
Other, net of amortization of $133 and $85............. 352 400
-------- --------
$133,509 $161,127
======== ========
</TABLE>
Goodwill and other intangible assets result from business combinations
accounted for as a purchase of assets and an assumption of liabilities. Other
intangible assets primarily consist of core deposit intangibles and covenants
not-to-compete resulting from acquisitions of thrift branch systems. Goodwill
and other intangible assets are amortized using the straight-line method over
the period that is expected to be benefited, which ranges from three to 10
years. The average remaining amortization period at December 31, 1996 was
approximately five years. The Company periodically evaluates goodwill and other
intangible assets for impairment.
NOTE 11: MORTGAGE SERVICING RIGHTS
Mortgage servicing rights are included in other assets and consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year................. $104,495 $ 70,911 $ 66,031
Additions................................ 74,398 58,306 38,385
Sales.................................... (5,395) -- (13,087)
Amortization............................. (30,615) (23,840) (20,418)
Impairment valuation allowance........... (2,158) (882) --
-------- -------- --------
Balance, end of year....................... $140,725 $104,495 $ 70,911
======== ======== ========
</TABLE>
With the adoption of SFAS No. 122, the Company provided a valuation
allowance for impairment of mortgage servicing rights. No write-downs were
recorded in 1996, 1995 and 1994.
84
<PAGE> 87
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12: DEPOSITS
Deposits consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Checking accounts:
Interest bearing................................ $ 2,138,782 $ 2,111,124
Noninterest bearing............................. 841,180 665,205
----------- -----------
2,979,962 2,776,329
Savings accounts.................................. 1,660,376 1,905,659
Money market deposit accounts..................... 5,181,685 4,667,884
Time deposit accounts:
Due within one year............................. 12,159,123 12,696,186
After one but within two years.................. 1,011,934 1,410,809
After two but within three years................ 647,988 409,580
After three but within four years............... 266,922 243,541
After four but within five years................ 92,004 258,415
After five years................................ 80,147 94,557
----------- -----------
14,258,118 15,113,088
----------- -----------
$24,080,141 $24,462,960
=========== ===========
</TABLE>
Time deposit accounts in amounts of $100,000 or more totaled $3.1 billion
at both December 31, 1996 and 1995. At December 31, 1996, $506.3 million of
these deposits mature within three months, $211.2 million mature in three to six
months, $1.4 billion mature in six months to one year, and $1.0 billion mature
after one year.
Financial data pertaining to the weighted average cost of deposits were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Weighted daily average interest rate during the
year............................................. 4.41% 4.69% 3.69%
</TABLE>
NOTE 13: FEDERAL FUNDS PURCHASED
The Company purchased federal funds from a variety of counterparties during
1996 and 1995. All federal funds purchased had maturities of 30 days or less,
with the majority maturing in one day. As of December 31, 1996 and 1995, the
balance of federal funds purchased was $1.1 billion and $433.4 million.
Financial data pertaining to federal funds purchased were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average interest rate at end of
year....................................... 5.99% 5.83% --%
Weighted daily average interest rate during
the year................................... 5.39 5.98 --
Daily average balance of federal funds
purchased.................................. $ 857,889 $270,861 $ --
Maximum amount of federal funds purchased at
any month end.............................. 1,474,000 998,000 --
Interest expense during the year............. 46,269 16,188 --
</TABLE>
85
<PAGE> 88
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Reverse repurchase agreements....................... $7,591,658 $7,592,841
Dollar repurchase agreements........................ 243,795 391,915
---------- ----------
$7,835,453 $7,984,756
========== ==========
</TABLE>
The Company sold, under agreements to repurchase, specific securities of
the U.S. government and its agencies and other approved investments to
broker-dealers and customers. Securities underlying the agreements with
broker-dealers were delivered to the dealer who arranged the transaction or were
held by a safekeeping agent for the Company's account. Securities delivered to
broker-dealers may be loaned out in the ordinary course of operations.
Securities underlying agreements with customers were held in a segregated
account by a safekeeping agent for the Company.
Scheduled maturities or repricing of securities sold under agreements to
repurchase were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due within 30 days.................................. $3,202,302 $5,225,817
After 30 but within 90 days......................... 4,311,164 1,764,074
After 90 but within 180 days........................ 321,987 490,361
After one year...................................... -- 504,504
---------- ----------
$7,835,453 $7,984,756
========== ==========
</TABLE>
Financial data pertaining to securities sold under agreements to repurchase
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average interest rate at end of
year..................................... 5.53% 5.92% 5.94%
Weighted daily average interest rate during
the year................................. 5.53 6.14 4.69
Daily average of securities sold under
agreements to repurchase................. $8,960,288 $7,859,948 $4,318,592
Maximum securities sold under agreements to
repurchase at any month end.............. 9,453,202 8,647,814 6,637,346
Interest expense during the year........... 495,483 482,698 202,677
</TABLE>
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, was issued in June 1996 and established,
among other things, new criteria for determining whether a transfer of financial
assets in exchange for cash or other consideration should be accounted for as a
sale or as a pledge of collateral in a secured borrowing. As issued, Statement
No. 125 is effective for all transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. In December
1996, the FASB issued SFAS No. 127, Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125. In general, SFAS No. 127 defers for one
year the effective date of SFAS No. 125. The Company will implement SFAS No.
125, as amended by SFAS No. 127 as required. The adoption is not anticipated to
have a material impact on the results of operations or financial position of the
Company.
86
<PAGE> 89
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15: ADVANCES FROM THE FHLB
As members of the FHLB, WMB, WM Life, WMBfsb, and ASB maintain credit lines
that are percentages of their total regulatory assets, subject to
collateralization requirements. As members of the FHLB of Seattle, WMB's, WM
Life's and WMBfsb's advances are collateralized in aggregate by all FHLB stock
owned, by deposits with the FHLB, and by certain mortgages or deeds of trust and
securities of the U.S. government and agencies thereof. As a member of the FHLB
of San Francisco, ASB's advances are collateralized by all FHLB stock owned and
certain mortgages and deeds of trust.
Scheduled maturities of advances from the FHLB were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995
------------------------ ------------------------
RANGES OF RANGES OF
INTEREST INTEREST
AMOUNT RATES AMOUNT RATES
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due within one year...................... $5,376,850 4.38%-8.45% $2,545,594 4.74%-8.54%
After one but within two years........... 1,144,891 5.30 -8.50 1,331,000 4.38 -8.45
After two but within three years......... 67,889 6.45 -8.53 545,642 5.59 -8.50
After three but within four years........ 55,197 6.25 -9.34 57,000 8.50 -8.63
After four but within five years......... 450,000 5.40 -5.51 55,137 6.25 -9.34
After five years......................... 146,665 2.80 -8.65 181,366 2.80 -8.65
---------- ----------
$7,241,492 $4,715,739
========== ==========
</TABLE>
Financial data pertaining to FHLB advances were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average interest rate at end
of year.............................. 5.51% 5.76% 5.72%
Weighted daily average interest rate
during the year...................... 5.57 5.72 5.38
Daily average of FHLB advances......... $4,651,883 $3,539,006 $3,966,494
Maximum FHLB advances at any month
end.................................. 7,241,492 4,715,739 4,560,891
Interest expense during the year....... 259,243 202,422 213,259
</TABLE>
87
<PAGE> 90
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16: OTHER BORROWINGS
Other borrowings consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1996 1995
----------------------- -----------------------
AMOUNT INTEREST RATE AMOUNT INTEREST RATE
-------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Series C Floating Rate Notes, due
2000............................ $175,000 6.91% $175,000 7.31%
Series B 9.60% Notes, due 1999.... 169,000 9.60 169,000 9.60
Senior notes, due 2005............ 148,007 7.25 147,845 7.25
Subordinated notes, due 2006...... 98,650 6.63 -- --
Notes payable, due 1998........... 74,111 8.16 74,482 8.16
Subordinated notes, due 1998...... 10,000 8.41 20,500 8.81
Other............................. 2,218 -- 3,390 --
-------- --------
$676,986 $590,217
======== ========
</TABLE>
In March 1995, the Company completed the private placement of $175.0
million of its Series C Floating Rate Notes ("Series C Notes"). Interest on the
Series C Notes accrued at the three-month LIBOR plus 1.375%, reset on a
quarterly basis. The Series C Notes were redeemed in January 1997.
In January 1992, the Company completed the private placement of $169.0
million of its Series B 9.60% Notes ("Series B Notes"). The Series B Notes were
redeemed in January 1997.
In August 1995, the Company filed a registration statement with the
Securities and Exchange Commission for the offering, on a delayed or continuous
basis, of up to $250.0 million of debt securities, of which $100.0 million
remains available. In August 1995, the Company issued $150.0 million of senior
notes bearing an interest rate of 7.25%. The notes may not be redeemed prior to
maturity.
In February 1996, the Company issued $100.0 million of subordinated notes
bearing an interest rate of 6.625%.
In 1993, the Company assumed a $75.0 million note payable bearing an
interest rate of 8.16% to the City of Tampa. The City of Tampa issued capital
improvement revenue bonds in 1988 and invested a portion of the receipts with
Pacific First Bank, A Federal Savings Bank ("Pacific First"). The note is
subject to periodic withdrawals.
In October 1993, the Company issued $20.5 million of subordinated notes.
The subordinated notes accrued interest at a rate equal to the three-month LIBOR
plus 2.875%. In December 1996, $10.5 million of the notes were redeemed and the
remaining $10.0 million were redeemed in January 1997.
In December 1996, Washington Mutual entered into two Revolving Credit
Facilities (the "Facilities"): a $100.0 million 364-day facility and a $100.0
million four-year facility. Chase Manhattan Bank is the administrative agent for
the Facilities. At December 31, 1996, no monies had been drawn. However, in
January 1997, $150.0 million was drawn for the redemption of debt securities
mentioned above and in February 1997, another $20.0 million was drawn. The
remaining proceeds of the Facilities are available for general corporate
purposes, including providing capital at a subsidiary level.
NOTE 17: INTEREST RATE RISK MANAGEMENT
From time to time, the following strategies may be used by the Company to
reduce its exposure to interest rate risk: the origination and purchase of ARMs
and the purchase of adjustable-rate MBS; the sale of
88
<PAGE> 91
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fixed-rate residential mortgage loan production or fixed-rate MBS; and the use
of derivative instruments, such as interest rate exchange agreements and
interest rate cap agreements.
As of December 31, 1996, interest-sensitive assets of $31.8 billion and
interest-sensitive liabilities of $33.4 billion were scheduled to mature or
reprice within one year. At December 31, 1996, the Company had entered into
interest rate exchange agreements and interest rate cap agreements with notional
values of $9.1 billion. Without these instruments the Company's one-year gap at
December 31, 1996 would have been a negative 9.81% as opposed to a negative
3.64%.
Interest rate exchange agreements and interest rate cap agreements expose
the Company to credit risk in the event of nonperformance by counterparties to
such agreements. This risk consists primarily of the termination value of
agreements where the Company is in a favorable position. The Company controls
the credit risk associated with its interest rate exchange agreements and
interest rate cap agreements through counterparty credit review, counterparty
exposure limits and monitoring procedures.
The Company's use of derivative instruments reduces the negative effect
that changing interest rates may have on net interest income. The Company uses
such instruments to reduce the volatility of net interest income over an
interest rate cycle. The Company does not invest in leveraged derivative
instruments. These types of instruments are riskier than the derivatives used by
the Company in that they have significant embedded options that enhance the
performance in certain circumstances but dramatically reduce the performance in
other circumstances.
During 1995, the Company terminated an interest rate exchange agreement
with a notional value of $75.0 million and recorded a deferred gain of $845,000.
There were no other terminations of interest rate exchange agreements or
interest rate cap agreements in 1995. During 1994, the Company terminated
interest rate exchange agreements with a notional value of $370.0 million for
deferred gains of $1.4 million and deferred losses of $4.8 million. During 1994,
the Company terminated interest rate cap agreements with a notional value of
$375.0 million and deferred gains of $860,000 were recorded. During 1996, the
Company did not terminate any interest rate exchange agreements or interest rate
cap agreements.
Scheduled maturities of interest rate exchange agreements were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------
NOTIONAL SHORT-TERM LONG-TERM CARRYING
AMOUNT RECEIPT RATE(1) PAYMENT RATE VALUE FAIR VALUE
---------- --------------- ------------ -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Designated against available-for-sale
securities:
Due within one year.................. $ 200,000 5.56% 6.83% $ (799) $ (799)
After one but within two years....... 300,000 5.60 6.05 (112) (112)
After two but within three........... 200,000 5.87 6.09 265 265
Designated against deposits and
borrowings:
Due within one year.................. 459,500 5.71 6.60 -- (2,908)
After one but within two years....... 397,500 5.43 6.25 -- (2,581)
After two but within three years..... 282,600 5.43 7.79 -- (11,255)
After three years.................... 502,800 5.72 5.45 -- 18,066
---------- ---- ---- ------ ---------
$2,342,400 5.62% 6.34% $ (646) $ 676
========== ==== ==== ====== =========
</TABLE>
- ---------------
(1) The terms of each agreement have specific LIBOR reset and index
requirements, which result in different short-term receipt rates for each
agreement. The receipt rate represents the weighted average rate as of the
last reset date for each agreement.
89
<PAGE> 92
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------
NOTIONAL SHORT-TERM LONG-TERM CARRYING
AMOUNT RECEIPT RATE(1) PAYMENT RATE VALUE FAIR VALUE
---------- --------------- ------------ -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Designated against available-for-sale
securities:
Due within one year.................. $ 465,000 5.13% 5.92% $ 1,528 $ 1,528
After one but within two years....... 200,000 6.83 5.88 (4,144) (4,144)
After two but within three........... 300,000 6.05 5.92 (5,244) (5,244)
After three years.................... 200,000 6.88 5.88 (3,987) (3,987)
Designated against deposits and
borrowings:
Due within one year.................. 495,000 6.95 6.08 -- 2,385
After one but within two years....... 484,500 5.96 6.62 -- (8,461)
After two but within three years..... 276,000 6.04 6.75 -- (8,746)
After three years.................... 261,000 7.10 8.27 -- (7,793)
---------- ---- ---- -------- --------
$2,681,500 6.26% 6.38% $(11,847) $ (34,462)
========== ==== ==== ======== ========
</TABLE>
- ---------------
(1) The terms of each agreement have specific LIBOR reset and index
requirements, which result in different short-term receipt rates for each
agreement. The receipt rate represents the weighted average rate as of the
last reset date for each agreement.
Scheduled maturities of interest rate cap agreements were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------
NOTIONAL STRIKE SHORT-TERM CARRYING
AMOUNT RATE RECEIPT RATE(1) VALUE FAIR VALUE
---------- ------ --------------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Designated against available-for-sale
securities:
Due within one year(2)................... $ 875,000 5.85% 5.89% $ 499 $ 499
After one but within two years(3)........ 650,000 6.17 5.60 1,961 1,961
Designated against deposits and borrowings:
Due within one year(4)................... 3,001,000 6.12 5.61 707 2
After one but within two years(5)........ 565,500 7.89 5.49 1,881 798
After two but within three years(6)...... 855,750 7.17 5.16 5,814 1,396
After three years(7)..................... 832,750 8.06 5.04 9,131 1,215
---------- ---- ---- -------- ------
$6,780,000 6.61% 5.51% $ 19,993 $5,871
========== ==== ==== ======== ======
</TABLE>
- ---------------
(1) The terms of each agreement have specific LIBOR or COFI reset and index
requirements, which result in different short-term receipt rates for each
agreement. The receipt rate represents the weighted average rate as of the
last reset date for each agreement.
(2) Includes $600.0 million notional amount with a weighted average cap ceiling
of 7.75%.
(3) Includes $650.0 million notional amount with a weighted average cap ceiling
of 7.56%.
(4) Includes $45.0 million notional amount with a weighted average cap ceiling
of 9.50%.
(5) Includes $240.0 million notional amount with a weighted average cap ceiling
of 7.83% and $150.0 million notional amount with a weighted average floor of
5.50%.
(6) Includes $839.8 million notional amount with a weighted average cap ceiling
of 8.77%.
(7) Includes $571.8 million notional amount with a weighted average cap ceiling
of 9.49%.
90
<PAGE> 93
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------
NOTIONAL STRIKE SHORT-TERM CARRYING FAIR
AMOUNT RATE RECEIPT RATE(1) VALUE VALUE
---------- ---- --------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Designated against available-for-sale
securities:
Due within one year(2)............. $1,425,000 5.34% 5.90% $ 4,484 $ 4,484
After one but within two
years(3)........................ 875,000 5.85 5.83 3,799 3,799
After two but within three
years(4)........................ 250,000 6.05 5.90 1,132 1,132
Designated against deposits and
borrowings:
Due within one year(5)............. 5,193,000 7.43 5.63 151 (1,775)
After one but within two
years(6)........................ 386,000 9.18 5.60 1,241 2
After two but within three
years(7)........................ 286,000 8.81 5.49 1,177 42
After three years(8)............... 1,359,000 8.05 5.27 15,122 1,101
---------- ---- ---- ------- -------
$9,774,000 7.14% 5.64% $27,106 $ 8,785
========== ==== ==== ======= =======
</TABLE>
- ---------------
(1) The terms of each agreement have specific LIBOR or COFI reset and index
requirements, which result in different short-term receipt rates for each
agreement. The receipt rate represents the weighted average rate as of the
last reset date for each agreement.
(2) Includes $425.0 million notional amount with a weighted average cap ceiling
of 8.06%.
(3) Includes $600.0 million notional amount with a weighted average cap ceiling
of 7.75%.
(4) Includes $250.0 million notional amount with a weighted average cap ceiling
of 7.65%.
(5) Includes $30.0 million notional amount with a weighted average cap ceiling
of 9.50% and $5.0 billion notional amount with a weighted average floor of
4.85%.
(6) Includes $45.0 million notional amount with a weighted average cap ceiling
of 9.50%.
(7) Includes $40.0 million notional amount with a weighted average cap ceiling
of 9.50%.
(8) Includes $1.1 billion notional amount with a weighted average cap ceiling of
9.50%.
Changes in interest rate exchange agreements and interest rate cap
agreements were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------
INTEREST INTEREST
RATE RATE
EXCHANGE CAP
AGREEMENTS AGREEMENTS
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notional balance, beginning of year............. $ 2,681,500 $ 9,774,000
Purchases..................................... 668,400 3,805,500
Maturities.................................... (1,007,500) (6,799,500)
----------- -----------
Notional balance, end of year................... $ 2,342,400 $ 6,780,000
=========== ===========
</TABLE>
The unamortized balance of prepaid fees and deferred gains and losses from
terminated interest rate exchange agreements and interest rate cap agreements
are scheduled to be amortized into interest expense as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------
LOSS ON
AVAILABLE- LOSS ON
FOR-SALE DEPOSITS AND
SECURITIES BORROWINGS LOSS
------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1997........................................ $(3,612) $ (1,663) $(5,275)
1998........................................ (1,033) (1,237) (2,270)
1999........................................ -- (51) (51)
------- ------- -------
Unamortized deferred loss................. $(4,645) $ (2,951) $(7,596)
======= ======= =======
</TABLE>
91
<PAGE> 94
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial data pertaining to interest rate exchange agreements were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average net effective cost at end of year..... 0.73% 0.12% 0.42%
Weighted average net effective cost during the year.... 0.28 -- 1.44
Monthly average notional amount of interest rate
exchange agreements.................................. $2,598,250 $2,749,167 $2,803,750
Maximum notional amount of interest rate exchange
agreements at any month end.......................... 3,146,400 2,901,500 3,058,500
Net cost included with interest expense on deposits
during the year...................................... (70) 3,540 13,286
Net cost included with interest expense on borrowings
during the year...................................... 10,320 6,842 28,426
Net (benefit) included with interest income on
available-for-sale securities during the year........ (2,984) (10,495) (1,316)
</TABLE>
Financial data pertaining to interest rate cap agreements were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Monthly average notional amount of interest rate cap
agreements.......................................... $10,433,750 $6,363,000 $2,557,625
Maximum notional amount of interest rate cap
agreements at any month end......................... 12,514,500 9,774,000 3,584,000
Net cost included with interest expense on deposits
during the year..................................... 6,206 7,875 2,257
Net cost included with interest expense on borrowings
during the year..................................... 2,162 415 565
Net (benefit) cost included with interest income on
available-for-sale securities during the year....... (4,686) (5,340) 1,365
</TABLE>
NOTE 18: GAIN (LOSS) ON SALE OF OTHER ASSETS
Gain (loss) on sale of other assets consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Trading account securities.................... $ 31 $ 529 $ 45
Available-for-sale securities................. (2,648) (929) 4,111
Mortgage servicing rights..................... 4,030 -- 20,396
Premises and equipment........................ (958) (1,458) (1,270)
Recognition of deferred gain on sale of travel
subsidiary.................................. 4,100 -- --
Other......................................... 1,311 1,203 644
------ ------ -------
$ 5,866 $ (655) $23,926
====== ====== =======
</TABLE>
92
<PAGE> 95
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19: INCOME TAXES
The provision for income taxes from continuing operations consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current income tax expense.................. $96,613 $ 92,315 $ 94,452
Deferred income tax (benefit) expense....... (26,193) 19,591 15,428
------- -------- --------
$70,420 $111,906 $109,880
======= ======== ========
</TABLE>
In determining taxable income for years prior to 1996, savings banks were
allowed bad debt deductions based on a percentage of taxable income or on actual
experience. Each year, savings banks selected whichever method resulted in the
most tax savings. The Company primarily used the percentage method in 1995 and
1994. Effective with the adoption of SFAS No. 109, Accounting for Income Taxes,
this bad debt deduction is no longer treated as a permanent difference.
The recently enacted Small Business Job Protection Act of 1996 (the "Job
Protection Act") requires that qualified thrift institutions, such as WMB, ASB
and WMBfsb, generally recapture, for federal income tax purposes, that portion
of the balance of their tax bad debt reserves that exceeds the December 31, 1987
balance, with certain adjustments. Such recaptured amounts are to be generally
taken into ordinary income ratably over a six-year period beginning in 1997.
Accordingly, Washington Mutual will have to pay approximately $4.2 million
(based upon current federal income tax rates) in additional federal income taxes
each year of the six-year period due to the Job Protection Act.
The Job Protection Act also repeals the reserve method of accounting for
tax bad debt deductions and, thus, requires thrifts to calculate the tax bad
debt deduction based on actual current loan losses.
In addition, the Company will also be required to recapture its post-1987
additions to its tax bad debt reserves, whether such additions were made
pursuant to the percentage of taxable income method or the experience method. As
of December 31, 1995, these additions were $151.3 million which, pursuant to the
Job Protection Act, will be included in taxable income ratably over a
six-taxable-year period beginning with the year ending December 31, 1997. The
recapture of the post-1987 additions to tax basis bad debt reserves will not
result in a charge to earnings as these amounts are included in the deferred tax
liability at December 31, 1996.
93
<PAGE> 96
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's net deferred tax asset
(liability) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 1,269,124 $ 1,632,230
Book loan loss reserves......................... 173,116 106,828
Purchase accounting adjustments................. 20,153 41,343
Deferred losses................................. 41,757 --
Other........................................... 55,892 59,468
---------- ----------
1,560,042 1,839,869
Valuation allowance............................... (1,192,676) (1,150,206)
---------- ----------
Deferred tax asset, net of valuation allowance.... 367,366 689,663
Deferred tax liabilities:
Tax bad debt reserves........................... 63,193 467,125
FHLB stock dividends............................ 68,901 60,636
Deferred loan fees.............................. 41,416 32,958
Deferred gains.................................. 52,365 50,947
Purchase accounting adjustments................. 18,098 26,644
Other........................................... 83,925 63,546
---------- ----------
327,898 701,856
---------- ----------
Net deferred tax asset (liability)................ $ 39,468 $ (12,193)
========== ==========
</TABLE>
The valuation allowances of $1.2 billion at December 31, 1996 and 1995
included $45.8 million and $130.6 million related to payments in lieu of taxes
which are expected to arise from the realization of the net deferred tax asset.
These valuation allowances represented the excess of the gross deferred tax
asset over the sum of the taxes and the payments in lieu of taxes related to:
(i) projected future taxable income; (ii) reversing taxable temporary
differences; and (iii) tax planning strategies.
The increase in the valuation allowance of $42.5 million during the year
ended December 31, 1996 was due primarily to adjustments for anticipated use of
net operating losses and a change in state tax rates.
As of December 31, 1996, the Company's net deferred tax asset was $39.5
million. In order to fully realize the net deferred tax asset, ASB will need to
generate future taxable income of approximately $342.1 million prior to the
expiration of its tax net operating losses, which begin to expire in 1999. Due
to Section 382 of the Code, most of the value of the net operating loss
carryforward deductions of Keystone Holdings and its subsidiaries was eliminated
due to the Keystone Transaction. Accordingly, the future tax savings
attributable to such net operating loss carryforward deductions (other than
amounts used to offset bad debt reserve deduction recapture for ASB) will be
greatly reduced.
In August 1996, Keystone Holdings amended prior-year federal tax returns to
reduce tax bad debt deductions and to make other amendments. As a result, the
net operating loss carryforwards for federal tax purposes were reduced by
approximately $756 million. In September 1996, ASB amended prior-year state tax
returns to reduce tax bad debt deductions. The result was to decrease state net
operating loss carryovers by approximately $545 million. The decrease in the
gross deferred tax asset as a result of the amendments which reduced the federal
and state net operating loss carryforwards was offset by an equal decrease in
the valuation allowance for the deferred tax asset.
94
<PAGE> 97
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal and state income tax net operating loss carryforwards due to expire
under current law during the years indicated were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
FEDERAL STATE
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1999................................... $ -- $ 140
2000................................... 1,497 613,382
2001................................... 140 599,241
2002................................... 278 557,803
2003................................... 1,544,396 --
2004................................... 784,195 --
2005................................... 700,619 --
2007................................... 12,780 --
2008................................... 37,460 --
---------- ----------
$3,081,365 $1,770,566
========== ==========
</TABLE>
In April 1994, revenue procedures were issued allowing the Company to
change its method of accounting for loan fees, effective for 1993. The change
allowed most members of the Company's consolidated filing group to defer the
recognition of loan fees for income tax purposes.
Under SFAS No. 115, where actual benefits or liabilities are expected to be
realized, the net realizable tax effects of unrealized gains and losses on
available-for-sale securities at December 31, 1996 and 1995 were included in the
deferred tax liabilities and assets. The tax effect was made directly to
stockholders' equity and was not included in the provision for income taxes.
The change in the net deferred tax asset (liability) was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Deferred tax (liability), beginning of year............... $(12,193)
Tax effect of valuation adjustment on available-for-sale
securities........................................... 23,211
Deferred income tax benefit............................. 26,193
Other adjustments....................................... 2,257
--------
Deferred tax asset, end of year........................... $ 39,468
========
</TABLE>
95
<PAGE> 98
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations between income taxes computed at statutory rates and income
taxes included in the Consolidated Statements of Income were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income taxes computed at statutory rates........... $ 78,209 $148,920 $127,163
Tax effect of:
Utilization of tax losses of New West (nominee
of ASB)..................................... (31,200) (17,482) (55,100)
Amortization of goodwill and other intangible
assets...................................... 6,372 6,631 6,688
State franchise tax, net of federal tax
benefit..................................... (38,616) 3,899 (2,890)
Increase in base year reserve amount.......... (706) (16,318) (11,605)
Valuation allowance change from prior year.... 42,470 (7,114) 48,241
Dividends received deduction.................. (2,460) (987) (506)
Tax exempt income............................. (2,309) (1,973) (1,680)
Restructuring adjustments..................... 9,321 -- --
Other......................................... 9,339 (3,670) (431)
------- -------- --------
Income taxes included in the Consolidated
Statements of Income............................. $ 70,420 $111,906 $109,880
======= ======== ========
</TABLE>
NOTE 20: PAYMENTS IN LIEU OF TAXES
Keystone Holdings and certain of its affiliates are parties to a tax
related agreement (the "Assistance Agreement") with a predecessor of the FSLIC
Resolution Fund ("FRF") which generally provides that 75.0% of most of the
federal tax savings and approximately 19.5% of most of the California tax
savings (as computed in accordance with the Assistance Agreement) attributable
to ASB's utilization of any current tax losses or tax loss carryovers of New
West are to be paid by the Company for the benefit of the FRF. The Assistance
Agreement sets forth certain special adjustments to federal taxable income to
arrive at "FSLIC taxable income." The principal adjustments effectively permit
ASB to (i) recognize loan fees ratably over seven years adjusted for loan
dispositions, (ii) treat the income and expenses of N.A. Capital Holdings and
New American Capital, Inc., subsidiaries of Keystone Holdings, as income and
expenses of ASB, and (iii) for years ending on or before December 31, 1994, to
recognize approximately 36.0% of the amortization of the mark-to-market
adjustment attributable to the acquired loan portfolio.
The provision (benefit) for payments in lieu of taxes consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal........................................ $ 4,006 $3,450 $(137)
State.......................................... 21,181 4,437 (687)
------- ------ -----
$25,187 $7,887 $(824)
======= ====== =====
</TABLE>
96
<PAGE> 99
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21: STOCKHOLDERS' EQUITY
Common Stock
Cash dividends paid per share were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,(1)
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
First quarter....................................... $0.21 $0.19 $0.16
Second quarter...................................... 0.22 0.19 0.17
Third quarter....................................... 0.23 0.19 0.18
Fourth quarter...................................... 0.24 0.20 0.19
</TABLE>
- ---------------
(1) Does not include amounts paid by acquired companies prior to business
combinations.
Prior to the business combination with Washington Mutual, acquired
companies paid total common cash dividends of $60.0 million, $8.9 million and
$25.6 million in 1996, 1995 and 1994.
In addition to being influenced by legal, regulatory and economic
restrictions, Washington Mutual's ability to pay dividends is also predicated on
the ability of its subsidiaries to declare and pay dividends to WMI. These
subsidiaries are subject to legal and regulatory restrictions on their ability
to pay dividends.
Retained earnings of the Company at December 31, 1996 included a pre-1988
thrift bad debt reserve for tax purposes of $450.0 million for which no federal
income taxes had been provided. In the future, if this thrift bad debt reserve
is used for any purpose other than to absorb bad debt losses or if any of the
banking subsidiaries no longer qualifies as a bank, the Company will incur a
federal income tax liability, at the then prevailing corporate tax rate, to the
extent of such subsidiary's pre-1988 thrift bad debt reserve.
On October 16, 1990, the Company's Board of Directors adopted a shareholder
rights plan and declared a dividend of one right for each outstanding share of
common stock to shareholders of record on October 31, 1990. The rights have
certain anti-takeover effects. They are intended to discourage coercive or
unfair takeover tactics and to encourage any potential acquirer to negotiate a
price fair to all shareholders. The rights may cause substantial dilution to an
acquiring party that attempts to acquire the Company on terms not approved by
the Board of Directors, but they will not interfere with any friendly merger or
other business combination. The plan was not adopted in response to any specific
effort to acquire control of the Company.
As part of the business combination with Keystone Holdings, 8,000,000
shares of common stock, with an assigned value of $42.75 per share, were issued
to an escrow for the benefit of the general and limited partners of Keystone
Holdings and the FRF. Shares will be released from the Litigation Escrow, if and
only to, the extent that Washington Mutual receives net cash proceeds from
certain litigation that Keystone Holdings and certain of its subsidiaries were
pursuing against the United States, which litigation became an asset of the
Company in the Keystone Transaction.
Preferred Stock
In December 1992, the Company issued 2,800,000 shares of 9.12%
Noncumulative Perpetual Preferred Stock, Series C ("Series C Preferred Stock"),
at $25 per share for net proceeds of $67.4 million. The Series C Preferred Stock
has a liquidation preference of $25 per share plus dividends accrued and unpaid
for the then current dividend period. Dividends, if and when declared by
Washington Mutual's Board of Directors, are at an annual rate of $2.28 per
share. Dividends have been declared and paid in all quarters since issuance. The
Company may redeem the Series C Preferred Stock on or after December 31, 1997 at
the redemption price of $25 per share plus unpaid dividends, whether or not
declared, for the then current dividend period up to the date fixed for
redemption. In November 1995, the Company purchased and retired 47,500 shares of
the Series C Preferred Stock.
97
<PAGE> 100
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Also in December 1992, the Company issued 1,400,000 shares of $6.00
Noncumulative Convertible Perpetual Preferred Stock, Series D ("Series D
Preferred Stock"), at $100 per share for net proceeds of $136.4 million. The
Series D Preferred Stock had a liquidation preference of $100 per share plus
dividends accrued and unpaid for the then current dividend period. The Series D
Preferred Stock was convertible at a rate of 3.870891 shares of common stock per
share of Series D Preferred Stock. Dividends were at an annual rate of $6.00 per
share. Prior to December 31, 1996, substantially all of the Series D Preferred
Stock was converted into shares of common stock and the Company redeemed the
remaining shares.
In September 1993, the Company issued 2,000,000 shares of 7.60%
Noncumulative Perpetual Preferred Stock, Series E ("Series E Preferred Stock"),
at $25 per share for net proceeds of $48.2 million. The Series E Preferred Stock
has a liquidation preference of $25 per share plus dividends accrued and unpaid
for the then current dividend period. Dividends, if and when declared by
Washington Mutual's Board of Directors, are at an annual rate of $1.90 per
share. Dividends have been declared and paid in all quarters since issuance. The
Company may redeem the Series E Preferred Stock on or after September 15, 1998,
at the redemption price of $25 per share plus unpaid dividends, whether or not
declared, for the then current dividend period up to the date fixed for
redemption. In November 1995, the Company purchased and retired 30,000 shares of
the Series E Preferred Stock.
In December 1988, New Capital issued $80.0 million of Cumulative Redeemable
Preferred Stock. The Cumulative Redeemable Preferred Stock was presented as a
minority interest in the Company's Consolidated Financial Statements at December
30, 1995. The Cumulative Redeemable Preferred Stock was redeemed on December 20,
1996.
The Series C Preferred Stock and Series E Preferred Stock are senior to
common stock as to dividends and liquidation, but they do not confer general
voting rights.
98
<PAGE> 101
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22: EARNINGS PER COMMON SHARE
Primary earnings per common share have been calculated by dividing net
income, after deducting dividends on preferred stock, by the weighted average
number of shares outstanding for the period. Fully diluted earnings per common
share assume conversion of any outstanding convertible preferred stock.
Information used to calculate earnings per share was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income.............................................. $114,278 $289,902 $240,275
Preferred stock dividends:
Series C Preferred Stock.............................. (6,276) (6,384) (6,384)
Series E Preferred Stock.............................. (3,743) (3,800) (3,800)
Series D Preferred Stock.............................. (8,400) (8,400) (8,400)
-------- -------- --------
Net income attributable to primary common stock......... $ 95,859 $271,318 $221,691
======== ======== ========
Net income.............................................. $114,278 $289,902 $240,275
Preferred stock dividends:
Series C Preferred Stock.............................. (6,276) (6,384) (6,384)
Series E Preferred Stock.............................. (3,743) (3,800) (3,800)
Series D Preferred Stock.............................. (8,400)(1) -- --
-------- -------- --------
Net income attributable to fully diluted common stock... $ 95,859 $279,718 $230,091
======== ======== ========
Average common shares used to calculate earnings per
share(2)(3):
Primary............................................... 112,858,781 109,944,477 106,245,127
Fully diluted......................................... 113,138,724 115,363,724 111,664,374
</TABLE>
- ---------------
(1) In 1996, for purposes of calculating fully diluted earnings per share, the
assumed conversion of the Series D Preferred Stock was anti-dilutive.
(2) As part of the business combination with Keystone Holdings, 8,000,000 shares
of common stock, with a assigned value of $42.75 per share, were issued to
an escrow for the benefit of the general and limited partners of Keystone
Holdings and the FRF and their transferees. The Company will use the
treasury stock method to determine the effect of the shares upon the
Company's financial statements. At December 31, 1996, the dilutive effect of
the 8,000,000 shares of common stock on primary and fully diluted earnings
per share was minimal.
(3) If the conversion of the Series D Preferred Stock had taken place on January
1, 1996, primary earnings per common share for 1996 would have been $0.88.
NOTE 23: REGULATORY CAPITAL REQUIREMENTS
WMI is not subject to any regulatory capital requirements. However, each of
its subsidiary depository and insurance institutions is subject to various
capital requirements. WMB is subject to the FDIC capital requirements while ASB
and WMBfsb are subject to the Office of Thrift Supervision ("OTS") capital
requirements. WM Life is subject to National Association of Insurance
Commissioners ("NAIC") capital requirements.
The capital adequacy requirements are quantitative measures established by
regulation that require WMB, ASB and WMBfsb to maintain minimum amounts and
ratios of capital. The FDIC requires WMB to maintain minimum ratios of Tier 1
and total capital to risk-weighted assets as well as Tier 1 capital to average
assets. The OTS requires ASB and WMBfsb to maintain minimum ratios of total
capital to risk-weighted assets, as well as ratios of core capital and tangible
capital to total assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") created a statutory framework that increased the importance of
meeting applicable capital requirements. For WMB, ASB and
99
<PAGE> 102
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WMBfsb, FDICIA established five capital categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. An institution's category depends upon where its capital
levels are in relation to relevant capital measures, which include a risk-based
capital measure, a leverage ratio capital measure, and certain other factors.
The federal banking agencies (including the FDIC and the OTS) have adopted
regulations that implement this statutory framework. Under these regulations, an
institution is treated as well capitalized if its ratio of total capital to
risk-weighted assets is 10.00% or more, its ratio of core capital to
risk-weighted assets is 6.00% or more, its ratio of core capital to adjusted
total assets is 5.00% or more and it is not subject to any federal supervisory
order or directive to meet a specific capital level. In order to be adequately
capitalized, an institution must have a total risk-based capital ratio of not
less than 8.00%, a Tier 1 risk-based capital ratio of not less than 4.00%, and a
leverage ratio of not less than 4.00%. Any institution which is neither well
capitalized nor adequately capitalized will be considered undercapitalized.
Undercapitalized institutions are subject to certain prompt corrective
action requirements, regulatory controls and restrictions which become more
extensive as an institution becomes more severely undercapitalized. Failure by
WMB, ASB or WMBfsb to comply with applicable capital requirements would, if
unremedied, result in restrictions on their activities and lead to enforcement
actions against WMB by the FDIC or against ASB or WMBfsb by the OTS, including,
but not limited to, the issuance of a capital directive to ensure the
maintenance of required capital levels. FDICIA requires the federal banking
regulators to take prompt corrective action with respect to depository
institutions that do not meet minimum capital requirements. Additionally, FDIC
or OTS approval of any regulatory application filed for their review may be
dependent on compliance with capital requirements.
100
<PAGE> 103
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actual regulatory capital ratios calculated for WMB, ASB and WMBfsb,
along with the minimum capital amounts and ratios for capital adequacy purposes
and to be categorized as well capitalized under the regulatory framework for
prompt corrective action were as follows:
<TABLE>
<CAPTION>
MINIMUM TO BE
CATEGORIZED AS
MINIMUM WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES(1) PROVISIONS
------------------- ----------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- --------- ---- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996:
WMB
Total capital to risk-weighted
assets......................... $1,320,577 11.09% $ 952,810 8.00% $1,191,013 10.00%
Tier I capital to risk-weighted
assets......................... 1,224,620 10.28 476,405 4.00 714,608 6.00
Tier I capital to average
assets......................... 1,224,620 5.76 850,027 4.00 1,062,533 5.00
ASB
Total capital to risk-weighted
assets(2)...................... 1,395,814 10.92 1,022,484 8.00 1,278,105 10.00
Tier I capital to risk-weighted
assets......................... 1,137,311 8.90 n.a. n.a. 766,863 6.00
Tier I leverage capital to average
assets......................... 1,137,311 5.17 n.a. n.a. 1,099,506 5.00
Core capital to total assets...... 1,137,311 5.17 659,704 3.00 n.a. n.a.
Tangible capital to total
assets......................... 1,136,202 5.17 329,835 1.50 n.a. n.a.
WMBfsb
Total capital to risk-weighted
assets(2)...................... 71,327 11.58 49,285 8.00 61,607 10.00
Tier I capital to risk-weighted
assets......................... 64,707 10.50 n.a. n.a. 36,964 6.00
Tier I leverage capital to average
assets......................... 64,707 6.90 n.a. n.a. 46,923 5.00
Core capital to total assets...... 64,707 6.90 28,154 3.00 n.a. n.a.
Tangible capital to total
assets......................... 64,707 6.90 14,077 1.50 n.a. n.a.
DECEMBER 31, 1995:
WMB
Total capital to risk-weighted
assets......................... 1,280,948 11.58 885,259 8.00 1,106,573 10.00
Tier I capital to risk-weighted
assets......................... 1,184,144 10.70 442,629 4.00 663,944 6.00
Tier I capital to average
assets......................... 1,184,144 5.72 828,789 4.00 1,035,987 5.00
ASB
Total capital to risk-weighted
assets(2)...................... 1,131,295 10.12 894,190 8.00 1,117,738 10.00
Tier I capital to risk-weighted
assets......................... 1,049,987 9.39 n.a. n.a. 670,643 6.00
Tier I leverage capital to average
assets......................... 1,049,987 5.41 n.a. n.a. 970,949 5.00
Core capital to total assets...... 1,049,987 5.41 582,569 3.00 n.a. n.a.
Tangible capital to total
assets......................... 1,046,658 5.39 291,235 1.50 n.a. n.a.
WMBfsb
Total capital to risk-weighted
assets(2)...................... 49,620 12.64 31,401 8.00 39,252 10.00
Tier I capital to risk-weighted
assets......................... 44,696 11.39 n.a. n.a. 23,551 6.00
Tier I leverage capital to average
assets......................... 44,696 6.76 n.a. n.a. 33,065 5.00
Core capital to total assets...... 44,696 6.76 19,839 3.00 n.a. n.a.
Tangible capital to total
assets......................... 44,696 6.76 9,920 1.50 n.a. n.a.
</TABLE>
- ---------------
(1) Regulatory requirements listed under this column are not the same as capital
adequacy requirements under prompt corrective action provisions.
(2) The OTS requires institutions to maintain Tier 1 capital of not less than
one-half of total capital.
101
<PAGE> 104
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management believes, as of December 31, 1996, that WMB, ASB and WMBfsb
individually met all capital adequacy requirements to which they were subject.
Additionally, as of December 31, 1996, the most recent notification from the
FDIC (for WMB) and the OTS (for ASB and WMBfsb) individually categorized WMB,
ASB and WMBfsb as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, a bank must maintain
minimum total risk-based, Tier 1 risk-based, Tier 1 leverage ratios as set forth
in the table above. There are no conditions or events since that notification
that management believes have changed WMB's, ASB's and WMBfsb's category.
Federal law requires that the federal banking agencies' risk-based capital
guidelines take into account various factors including interest rate risk,
concentration of credit risk, risks associated with nontraditional activities,
and the actual performance and expected risk of loss of multi-family mortgages.
In 1994, the federal banking agencies jointly revised their capital standards to
specify that concentration of credit and nontraditional activities are among the
factors that the agencies will consider in evaluating capital adequacy. In that
year, the OTS and FDIC amended their risk-based capital standards with respect
to the risk weighting of loans made to finance the purchase or construction of
multi-family residences. The OTS adopted final regulations adding an interest
rate risk component to the risk-based capital requirements for savings
associations (such as ASB and WMBfsb), although implementation of the regulation
has been delayed. Management believes that the effect of including such an
interest rate risk component in the calculation of risk-adjusted capital will
not cause ASB or WMBfsb to cease to be well capitalized. In June 1996, the FDIC
and certain other federal banking agencies (not including the OTS) issued a
joint policy statement providing guidance on prudent interest rate risk
management principles. The agencies stated that they would determine banks'
interest rate risk on a case-by-case basis, and would not adopt a standardized
measure or establish an explicit minimum capital charge for interest rate risk.
WM Life is subject to risk-based capital requirements developed by the
NAIC. The NAIC measure uses four major categories of risk to calculate an
appropriate level of capital to support an insurance company's overall business
operations. The four risk categories are asset risk, insurance risk, interest
rate risk and business risk. At December 31, 1996, WM Life's actual capital was
663% of its required regulatory risk-based level.
NOTE 24: STOCK OPTION PLAN AND EMPLOYEE STOCK PURCHASE PLAN
On March 8, 1984, the Company's stockholders approved the adoption of the
1983 incentive stock option plan, providing for the award of incentive stock
options or nonqualified stock options to certain officers of the Company at the
discretion of the Board of Directors. On April 19, 1994, the Company's
stockholders' approved the adoption of the 1994 stock option plan in which the
right to purchase common stock of the Company may be granted to employees,
directors, consultants and advisers of the Company. The 1994 plan is generally
similar to the 1983 plan, which terminated according to its terms in 1993.
Consistent with the Company's practice under the 1983 plan, it is anticipated
that the majority of options available under the plan will be granted to the
most senior management of the Company. The 1994 plan does not affect any options
granted under the 1983 plan.
Under the 1994 stock option plan, on the date of the grant, the exercise
price of the option must at least equal the market value per share of the
Company's common stock. The 1994 plan provides for the granting of options for a
maximum of 4,000,000 common shares.
Stock options are generally exercisable on a phased-in schedule over three
years and expire 10 years from the grant date. At December 31, 1996, options to
purchase 884,464 shares were fully exercisable.
102
<PAGE> 105
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock options granted, exercised, surrendered or terminated were as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
WEIGHTED AVERAGE FAIR VALUE OF
NUMBER OF EXERCISE PRICE OPTION SHARES
OPTION SHARES OF OPTION SHARES GRANTED
------------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding January 1, 1994.................. 1,140,340 $11.24
Granted in 1994............................ 191,631 22.27
Exercised in 1994.......................... (106,399) 7.96
--------- ------
Outstanding December 31, 1994................ 1,225,572 13.17
Granted in 1995............................ 416,618 17.47 $ 4.87
Exercised in 1995.......................... (290,981) 13.60
Terminated in 1995......................... (49,848) 22.07
--------- ------
Outstanding December 31, 1995................ 1,301,361 14.71
Granted in 1996............................ 1,029,000 36.94 9.13
Exercised in 1996.......................... (212,222) 12.69
Surrendered in 1996........................ (6,750) 5.86
Terminated in 1996......................... (47,166) 27.08
--------- ------
Outstanding December 31, 1996................ 2,064,223 $25.85
========= ======
</TABLE>
Financial data pertaining to outstanding stock options were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- ---------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
EXERCISE
WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF PRICE
RANGES OF NUMBER OF REMAINING EXERCISE PRICE EXERCISABLE OF EXERCISABLE
EXERCISE PRICES OPTION SHARES CONTRACTUAL LIFE OF OPTION SHARES OPTION SHARES OPTION SHARES
- ---------------- ------------- ---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 6.03 - $ 8.44 404,375 3.7 years $ 8.07 404,375 $ 8.07
12.33 - 17.29 144,929 5.3 12.95 144,929 12.95
20.19 - 22.75 524,419 7.3 21.50 335,160 21.76
27.75 - 30.00 327,500 9.1 27.82 -- --
30.94 - 42.75 663,000 10.0 41.98 -- --
--------- ---------- ------ ------- ------
2,064,223 7.6 years $25.85 884,464 $ 14.06
========= ========== ====== ======= ======
</TABLE>
Under the terms of the employee stock purchase plan, an employee can
purchase WMI common stock at a 15% discount without paying brokerage fees or
commissions on purchases. The Company pays for the program's administrative
expenses. The plan is open to all employees who are at least 18 years old, have
completed at least one year of service, and work at least 20 hours per week.
Participation can be by either payroll deduction or lump sum payments with a
maximum annual contribution of 10% of employees previous year's eligible cash
compensation. Under the employee stock purchase plan, dividends are
automatically reinvested.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-based
Compensation. The statement requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
application of the fair value recognition provisions in the statement. SFAS No.
123 does not rescind or interpret the existing accounting rules for employee
stock-based arrangements. Companies may continue following those rules to
recognize and measure compensation as outlined in Accounting Principles Board
("APB") Opinion 25, Accounting for Stock Issued to Employees but they are now
required to disclose the pro forma amounts of net income and earnings per share
that would have been reported had the company elected to follow the fair value
recognition provisions of SFAS No. 123. Effective January 1, 1996, the Company
adopted the disclosure requirements of SFAS No. 123, but has determined
103
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WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that it will continue to measure its employee stock-based compensation
arrangements under the provisions of APB Opinion 25. Accordingly, no
compensation cost has been recognized for its stock option plan and its employee
stock purchase plan. Had compensation cost for the Company's compensation plans
been determined consistent with SFAS 123, the Company's net income available to
fully diluted common stock and fully diluted earning per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995
------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net income attributable to common stock:
Primary:
As reported.................................... $95,859 $271,318
Pro forma...................................... 93,241 270,728
Fully diluted:
As reported.................................... $95,859 $279,718
Pro forma...................................... 93,241 279,128
Net income per common share:
Primary:
As reported.................................... $0.85 $2.47
Pro forma...................................... 0.83 2.46
Fully diluted:
As reported.................................... $0.85 $2.42
Pro forma...................................... 0.83 2.41
</TABLE>
The compensation expense included in the pro forma net income attributable
to fully diluted common stock and fully diluted earnings per share is not likely
to be representative of the effect on reported net income for future years
because options vest over several years and additional awards generally are made
each year.
The fair value of options granted under the Company's stock option plan is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1996 and 1995:
annual dividend yield of 2.5% for both years; expected volatility of 23.99% for
1996 and 24.71% for 1995; risk-free interest rates of 5.78% for 1996 and 7.28%
for 1995; and expected lives of five years for both years.
NOTE 25: EMPLOYEE BENEFITS PROGRAMS
Washington Mutual maintains a noncontributory cash balance defined benefit
pension plan (the "Pension Plan") for substantially all eligible employees. ASB
provided a substantially similar plan (the "ASB Plan") which was terminated
effective June 30, 1995. Benefits earned for each year of service are based
primarily on the level of compensation in that year plus a stipulated rate of
return on the benefit balance. It is the Company's policy to fund the Pension
Plan on a current basis to the extent deductible under federal income tax
regulations. The combined net periodic pension cost for the Pension Plan and the
ASB Plan was $2.1 million, $2.0 million and $1.3 million for 1996, 1995 and
1994; the weighted average discount rate was 7.25% for 1996 and 1995 and 8.00%
for 1994: the long-term rate of return on assets was 8.00% for 1996, 1995 and
1994; and the assumed rate of increase in future compensation levels was 6.00%
for all years presented. The Pension Plan's assets consist primarily of listed
common stocks, U.S. government obligations, corporate debt obligations, and
annuity contracts.
At the termination date of the ASB plan, all participants' accrued benefits
became fully vested. The net assets of the plan were allocated as prescribed by
the Employee Retirement Income Security Act of 1974 and
104
<PAGE> 107
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Pension Benefit Guaranty Corporation and their related regulations. All
participants received full benefits. The termination resulted in a settlement
under SFAS No. 88, Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits. ASB recognized a
gain of $1.7 million as a result of the settlement. The benefit obligation was
settled in 1996.
The Pension Plan's funded status and amounts recognized in the Company's
financial statements were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Benefit obligations:
Vested benefits...................................................... $(44,659) $(46,628)
Nonvested benefits................................................... (3,178) (2,367)
-------- --------
Accumulated benefit obligation......................................... (47,837) (48,995)
Effect of future compensation increases................................ (1,168) (1,598)
-------- --------
Projected benefit obligation........................................... (49,005) (50,593)
Plan assets at fair value.............................................. 65,823 61,722
-------- --------
Plan assets in excess of projected benefit obligation.................. 16,818 11,129
Unrecognized (gain) loss due to past experience different from
assumptions.......................................................... (7,800) (2,103)
Unrecognized prior service cost........................................ (352) 2,093
Unrecognized net asset at transition being recognized over 18.6
years................................................................ (2,918) (3,300)
-------- --------
Prepaid pension asset................................................ $ 5,748 $ 7,819
======== ========
</TABLE>
The combined net periodic pension expense included the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period................. $ 4,083 $ 3,240 $ 2,952
Interest cost on projected benefit obligation..................... 3,172 3,930 3,383
Actual (gain) loss on plan assets................................. (7,690) (12,831) 615
Amortization and deferral, net.................................... 2,506 7,679 (5,675)
------- -------- -------
$ 2,071 $ 2,018 $ 1,275
======= ======== =======
</TABLE>
During 1994, the defined benefit pension plan acquired in the acquisition
of Pacific First was merged into the Company's Pension Plan. The fair value of
the Pacific First plan assets exceeded the projected benefit obligation, and the
accrued pension cost was reduced by $10.8 million.
In addition, the Company currently provides eligible retired employees with
access to medical coverage on the same basis as active employees and provides
certain other health care insurance benefits to a limited number of retired
employees. Postretirement benefits, such as retiree health benefits, are accrued
during the years an employee provides services.
105
<PAGE> 108
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of these benefits were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation............. $(5,736) $(5,484)
Unrecognized transition obligation........................ 2,356 2,503
Unrecognized (gain)....................................... (36) (36)
------- -------
Prepaid postretirement liability........................ $(3,416) $(3,017)
======= =======
</TABLE>
Net periodic postretirement expense included the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost........................................... $249 $206 $220
Interest cost.......................................... 384 344 322
Amortization of transition obligation.................. 147 147 147
---- ---- ----
$780 $697 $689
==== ==== ====
</TABLE>
Net periodic postretirement expense was calculated using the following
assumptions: the weighted average discount rate was 7.25% for 1996 and 1995 and
8.00% for 1994; and the medical trend rate was 13.00% for 1993 and declines
steadily to 6.00% by the year 2000. The effect of a 1.00% increase in the trend
rates is not significant.
Washington Mutual maintains a retirement savings and investment plan for
substantially all eligible employees that allows participants to make
contributions by salary deduction equal to 15.00% or less of their salary
pursuant to Section 401(k) of the Internal Revenue Code. ASB maintains a
substantially similar plan. Employees' contributions vest immediately. The
Company's partial matching contributions vest over five years.
ASB implemented a Supplemental Executive Retirement Plan ("SERP") in 1990.
The SERP is a nonqualified, noncontributory defined benefit plan where benefits
are paid to certain officers using a target percentage which is based upon the
number of years of service with ASB. This percentage is applied to the
participant's average annual earnings for the highest three out of the final ten
years of employment. These benefits are reduced to the extent a participant
receives benefits from the ASB Plan.
In 1990, ASB implemented a Phantom Share Plan (the "PSP") for the benefit
of certain of its officers. As a result of the Keystone Transaction, the phantom
shares became immediately exercisable and ASB incurred an expense of $12.0
million in December 1996.
ASB established a Short-Term Incentive Plan ("STI") for the benefit of
certain of its executives. The STI provides a short-term incentive to its
participants based upon the achievement of both overall company and individual
goals.
Washington Mutual uses grants of restricted stock as a component of
compensation to provide a long-term incentive for creation of shareholder value
and to encourage the recipient to remain at Washington Mutual.
106
<PAGE> 109
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total employee benefit plan expense was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net periodic pension expense.................. $ 2,071 $ 2,018 $ 1,275
Net periodic postretirement expense........... 780 697 689
Company's contributions to savings plan....... 12,381 10,027 12,374
SERP expense.................................. 2,161 1,590 1,900
STI expense................................... 3,609 3,247 2,219
Restricted stock expense...................... 911 701 1,046
------- ------- -------
$21,913 $18,280 $19,503
======= ======= =======
</TABLE>
NOTE 26: CONTINGENCIES
The Company has certain litigation and negotiations in progress resulting
from activities arising from normal operations. In the opinion of management,
none of these matters is likely to have a material adverse effect on the
Company's financial position.
As part of the administration and oversight of the Assistance Agreement and
other agreements among ASB, certain of its affiliates and the FDIC, the FDIC has
a variety of review and audit rights, including the right to review and audit
computations of payments in lieu of taxes. ASB and certain of its affiliates
have entered into settlement agreements with the FDIC for all periods through
June 30, 1994, pursuant to which ASB, its affiliates and the FDIC have mutually
settled and released various claims in consideration of certain nominal
payments. The Office of Inspector General has completed its audit of
transactions and payments under the Assistance Agreement and other agreements
occurring during the period beginning July 1, 1994 and ending June 30, 1996.
Keystone Holdings has received no notice of any issues involving more than
nominal amounts arising after June 30, 1994.
As part of the Keystone Transaction, 8,000,000 shares of common stock, with
an assigned value of $42.75 per share (the "Litigation Escrow Shares"), were
issued to an escrow for the benefit of the general and limited partners of
Keystone Holdings and the FRF and their transferees (the "Litigation Escrow").
Shares will be released from the Litigation Escrow if and only to the extent
that Washington Mutual receives net cash proceeds from certain litigation that
Keystone Holdings and certain of its subsidiaries are pursuing against the
United States (the "Case"), which litigation became an asset of the Company in
the Keystone Transaction. Upon Washington Mutual's receipt of net cash proceeds
from a judgment or settlement of the Case, if any ("Case Proceeds"), all or part
of the Litigation Escrow Shares will be released, 64.9% to the general and
limited partners of Keystone Holdings and 35.1% to the FRF. The number of
Litigation Escrow Shares released will be equal to the Case Proceeds, reduced by
certain tax and litigation-related expenses, divided by $42.75. If not all of
the Litigation Escrow Shares are distributed prior to the expiration of the
Litigation Escrow, any remaining Litigation Escrow Shares will be returned to
Washington Mutual for cancellation. The Litigation Escrow expires the earlier of
the date that is the sixth anniversary of the Keystone Transaction or that the
Litigation Escrow Shares are released. In general, the Litigation Escrow will be
automatically extended to 10 years if, prior to the sixth anniversary of the
Keystone Transaction, there has been any judgment or final settlement in the
Case granted or entered in favor of Washington Mutual or any of its
subsidiaries.
107
<PAGE> 110
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 27: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations on a quarterly basis have been restated to give
effect to the business combination with Keystone Holdings. Results of operations
on a quarterly basis were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER
-------------------------------- --------------------------------
WASHINGTON KEYSTONE WASHINGTON KEYSTONE
MUTUAL HOLDINGS RESTATED MUTUAL HOLDINGS RESTATED
---------- -------- -------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income..................... $415,420 $349,202 $764,622 $418,751 $357,518 $776,269
Interest expense.................... 244,425 233,195 477,620 240,607 235,901 476,508
-------- -------- -------- -------- -------- --------
Net interest income................. 170,995 116,007 287,002 178,144 121,617 299,761
Provision for loan losses........... 2,912 17,977 20,889 2,913 17,203 20,116
Other income........................ 36,762 20,248 57,010 36,752 21,872 58,624
Other expense....................... 110,092 71,002 181,094 114,687 71,364 186,051
-------- -------- -------- -------- -------- --------
Income before income taxes and
minority interest................. 94,753 47,276 142,029 97,296 54,922 152,218
Income taxes........................ 35,224 14,471 49,695 35,937 13,214 49,151
Minority interest in earnings of
consolidated subsidiary........... -- 3,527 3,527 -- 3,450 3,450
-------- -------- -------- -------- -------- --------
Net income.......................... $ 59,529 $ 29,278 $ 88,807 $ 61,359 $ 38,258 $ 99,617
======== ======== ======== ======== ======== ========
Net income attributable to common
stock............................. $ 54,924 $ 29,278 $ 84,202 $ 56,755 $ 38,258 $ 95,013
======== ======== ======== ======== ======== ========
Net income per common share:
Primary........................... $0.76 $0.75 $0.79 $0.84
Fully diluted..................... 0.74 0.74 0.76 0.83
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------
THIRD QUARTER FOURTH QUARTER
-------------------------------- --------------
WASHINGTON KEYSTONE
MUTUAL HOLDINGS RESTATED WMI
---------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Interest income...................................... $424,086 $373,608 $797,694 $810,651
Interest expense..................................... 244,707 256,367 501,074 503,027
-------- -------- -------- --------
Net interest income.................................. 179,379 117,241 296,620 307,624
Provision for loan losses............................ 2,913 14,220 17,133 143,374
Other income......................................... 42,792 25,396 68,188 75,442
Other expense........................................ 154,630 162,767 317,397 340,762
-------- -------- -------- --------
Income before income taxes and minority interest..... 64,628 (34,350) 30,278 (101,070)
Income taxes......................................... 24,454 (11,491) 12,963 (16,202)
Minority interest in earnings of consolidated
subsidiary......................................... -- 3,527 3,527 3,066
-------- -------- -------- --------
Net income........................................... $ 40,174 $(26,386) $ 13,788 $(87,934)
======== ======== ======== ========
Net income attributable to common stock.............. $ 35,569 $(26,386) $ 9,183 $(92,539)
======== ======== ======== ========
Net income per common share:
Primary............................................ $0.49 $0.08 $(0.81)
Fully diluted...................................... 0.49 0.08 (0.81)
</TABLE>
108
<PAGE> 111
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER
-------------------------------- ---------------------------------
WASHINGTON KEYSTONE WASHINGTON KEYSTONE
MUTUAL HOLDINGS RESTATED MUTUAL HOLDINGS RESTATED
---------- -------- -------- ---------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income...................... $367,447 $305,735 $673,182 $390,016 $ 330,727 $720,743
Interest expense..................... 218,374 228,270 446,644 240,585 242,493 483,078
-------- -------- -------- -------- -------- --------
Net interest income.................. 149,073 77,465 226,538 149,431 88,234 237,665
Provision for loan losses............ 2,800 18,869 21,669 2,850 15,664 18,514
Other income......................... 28,855 29,188 58,043 29,554 18,315 47,869
Other expense........................ 103,081 71,496 174,577 106,332 73,101 179,433
-------- -------- -------- -------- -------- --------
Income before income taxes and
minority interest.................. 72,047 16,288 88,335 69,803 17,784 87,587
Income taxes......................... 26,797 (6,081) 20,716 22,030 642 22,672
Minority interest in earnings of
consolidated subsidiary............ -- 3,948 3,948 -- 3,948 3,948
-------- -------- -------- -------- -------- --------
Net income........................... $ 45,250 $ 18,421 $ 63,671 $ 47,773 $ 13,194 $ 60,967
======== ======== ======== ======== ======== ========
Net income attributable to common
stock.............................. $ 40,604 $ 18,421 $ 59,025 $ 43,127 $ 13,194 $ 56,321
======== ======== ======== ======== ======== ========
Net income per common share:
Primary............................ $0.60 $0.55 $0.62 $0.51
Fully diluted...................... 0.58 0.54 0.60 0.51
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------
THIRD QUARTER FOURTH QUARTER
-------------------------------- ---------------------------------
WASHINGTON KEYSTONE WASHINGTON KEYSTONE
MUTUAL HOLDINGS RESTATED MUTUAL HOLDINGS RESTATED
---------- -------- -------- ---------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Interest income..................... $405,638 $346,343 $751,981 $415,859 $ 354,321 $770,180
Interest expense.................... 248,844 246,712 495,556 252,921 245,237 498,158
-------- -------- -------- -------- -------- --------
Net interest income................. 156,794 99,631 256,425 162,938 109,084 272,022
Provision for loan losses........... 2,800 14,557 17,357 2,700 14,747 17,447
Other income........................ 28,280 18,033 46,313 31,185 24,929 56,114
Other expense....................... 102,530 68,484 171,014 105,712 69,778 175,490
-------- -------- -------- -------- -------- --------
Income before income taxes and
minority interest................. 79,744 34,623 114,367 85,711 49,488 135,199
Income taxes........................ 28,056 5,023 33,079 30,621 12,705 43,326
Minority interest in earnings of
consolidated subsidiary........... -- 3,948 3,948 -- 3,949 3,949
-------- -------- -------- -------- -------- --------
Net income.......................... $ 51,688 $ 25,652 $ 77,340 $ 55,090 $ 32,834 $ 87,924
======== ======== ======== ======== ======== ========
Net income attributable to common
stock............................. $ 47,042 $ 25,652 $ 72,694 $ 50,444 $ 32,834 $ 83,278
======== ======== ======== ======== ======== ========
Net income per common share:
Primary........................... $0.66 $0.66 $0.71 $0.75
Fully diluted..................... 0.64 0.64 0.69 0.73
</TABLE>
NOTE 28: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are
109
<PAGE> 112
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The fair value of financial instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................. $ 831,063 $ 831,063 $ 983,833 $ 983,833
Trading account securities................ 1,647 1,647 238 238
Available-for-sale securities............. 9,109,460 9,109,460 12,157,157 12,157,157
Held-to-maturity securities............... 2,860,347 2,922,552 3,197,720 3,262,850
Mortgage servicing rights................. 140,725 169,183 104,495 109,950
Loans, exclusive of reserve for loan
losses................................. 30,786,473 30,932,973 24,428,115 24,788,750
----------- ----------- ----------- -----------
43,729,715 43,966,878 40,871,558 41,302,778
Financial liabilities:
Deposits.................................. 24,080,141 24,225,124 24,462,960 24,624,673
Annuities................................. 878,057 878,057 855,503 855,503
Federal funds purchased................... 1,052,000 1,052,000 433,420 433,493
Securities sold under agreements to
repurchase............................. 7,835,453 7,852,852 7,984,756 7,985,202
Advances from the FHLB.................... 7,241,492 7,256,785 4,715,739 4,732,366
Other borrowings.......................... 676,985 688,579 590,217 612,240
----------- ----------- ----------- -----------
41,764,128 41,953,397 39,042,595 39,243,477
Derivative instruments(1):
Interest rate exchange agreements:
Designated against available-for-sale
securities........................... (646) (646) (11,847) (11,847)
Designated against deposits and
borrowings........................... -- 1,322 -- (22,615)
Interest rate cap agreements:
Designated against available-for-sale
securities........................... 2,460 2,460 9,415 9,415
Designated against deposits and
borrowings........................... 17,533 3,411 17,691 (630)
----------- ----------- ----------- -----------
19,347 6,547 15,259 (25,677)
Off-balance sheet loan commitments.......... -- (19) -- 3,595
----------- ----------- ----------- -----------
Net financial instruments................... $ 1,984,934 $ 2,020,009 $ 1,844,222 $ 2,037,219
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) See Note 17: Interest Rate Risk Management.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument as of December 31, 1996 and 1995:
Cash and cash equivalents -- The carrying amount represented fair value.
Trading account securities -- Fair values were based on quoted market
prices.
110
<PAGE> 113
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Available-for-sale securities -- Fair values were based on quoted market
prices or dealer quotes. If a quoted market price was not available, fair value
was estimated using quoted market prices for similar securities.
Held-to-maturity securities -- Fair values were based on quoted market
prices or dealer quotes. If a quoted market price was not available, fair value
was estimated using quoted market prices for similar securities.
Loans -- Loans were priced using the discounted cash flow method. The
discount rate used was the rate currently offered on similar products.
Mortgage servicing rights -- The fair value of mortgage servicing rights is
estimated using projected cash flows, adjusted for the effects of anticipated
prepayments, using a market discount rate.
Deposits -- The fair value of checking accounts, savings accounts and money
market accounts was the amount payable on demand at the reporting date. For time
deposit accounts, the fair value was determined using the discounted cash flow
method. The discount rate was equal to the rate currently offered on similar
products. Core deposit intangibles are not included.
Annuities -- The carrying amount represented fair value.
Federal funds purchased -- These were valued using the discounted cash flow
method. The discount rate was equal to the rate currently offered on similar
borrowings.
Securities sold under agreements to repurchase -- These were valued using
the discounted cash flow method. The discount rate was equal to the rate
currently offered on similar borrowings.
Advances from the FHLB -- These were valued using the discounted cash flow
method. The discount rate was equal to the rate currently offered on similar
borrowings.
Other borrowings -- These were valued using the discounted cash flow
method. The discount rate was equal to the rate currently offered on similar
borrowings.
Derivative instruments -- The fair value for interest rate exchange
agreements was determined using dealer quotations, when available, or the
discounted cash flow method. The market prices for similar instruments were used
to value interest rate cap agreements.
Off-balance sheet loan commitments -- Loan commitments are commitments the
Company made to borrowers at locked-in rates. The fair value of loan commitments
was estimated based on current levels of interest rates versus the committed
interest rates. The balance shown represents the differential between committed
value and fair value.
NOTE 29: FINANCIAL INFORMATION -- WMI
WMI was formed August 17, 1994. The following WMI (parent company only)
financial information should be read in conjunction with the other notes to the
consolidated financial statements.
111
<PAGE> 114
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD OF
AUGUST 17, 1994
YEAR ENDED DECEMBER 31, (INCEPTION) TO
---------------------- DECEMBER 31,
1996 1995 1994
-------- --------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME
Available-for-sale securities........................... $ 6,777 $ 8,033 $ 1,641
Cash equivalents........................................ 5,378 471 44
-------- -------- --------
Total interest income................................. 12,155 8,504 1,685
INTEREST EXPENSE
Deposits................................................ (683) -- --
Borrowings.............................................. 15,079 9,072 884
-------- -------- --------
Total interest expense................................ 14,396 9,072 884
-------- -------- --------
Net interest (expense) income...................... (2,241) (568) 801
OTHER INCOME
Equity in net earnings of subsidiaries(1)............... 132,301 293,630 13,103
Other operating income.................................. 122 8 --
(Loss) on sale of other assets.......................... -- (171) --
-------- -------- --------
Total other income.................................... 132,423 293,467 13,103
OTHER EXPENSE
Salaries and employee benefits.......................... 3,561 2,716 --
Occupancy and equipment................................. 11 1 --
Other operating expense................................. 18,013 3,289 228
Amortization of goodwill................................ 629 -- --
-------- -------- --------
Total other expense................................... 22,214 6,006 228
-------- -------- --------
Income before income taxes......................... 107,968 286,893 13,676
Income tax (benefit) expenses........................... (8,105) (865) 201
-------- -------- --------
Net income(1)........................................... $116,073 $287,758 $13,475
======== ======== ========
</TABLE>
- ---------------
(1) Contains intercompany transactions eliminated upon consolidation.
112
<PAGE> 115
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 109,356 $ 90,096
Available-for-sale securities......................................... 82,033 99,932
Loans................................................................. 92,083 147,867
Investment in subsidiaries(1)......................................... 2,344,959 2,451,956
Other assets.......................................................... 12,917 929
---------- ----------
Total assets........................................................ $2,641,348 $2,790,780
========== ==========
LIABILITIES
Securities sold under agreements to repurchase........................ $ 68,326 $ 82,481
Other borrowings...................................................... 148,007 147,845
Other liabilities..................................................... 12,230 5,647
---------- ----------
Total liabilities................................................... 228,563 235,973
STOCKHOLDERS' EQUITY
Preferred stock, no par value: 10,000,000 shares
authorized -- 4,722,500 and 6,122,500 shares issued and
outstanding......................................................... -- --
Common stock, no par value: 350,000,000 shares
authorized -- 126,255,891 and 119,801,466 outstanding............... -- --
Capital surplus(1).................................................... 1,061,890 1,029,549
Valuation reserve for available-for-sale securities................... 1,156 2,390
Valuation reserve for available-for-sale securities -- subsidiaries... 40,510 186,325
Retained earnings(1).................................................. 1,309,229 1,336,543
---------- ----------
Total stockholders' equity.......................................... 2,412,785 2,554,807
---------- ----------
Total liabilities and stockholders' equity.......................... $2,641,348 $2,790,780
========== ==========
</TABLE>
- ---------------
(1) Contains intercompany transactions eliminated upon consolidation.
113
<PAGE> 116
WASHINGTON MUTUAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD OF
YEAR ENDED DECEMBER 31, AUGUST 17, 1994
----------------------- (INCEPTION) TO
1996 1995 DECEMBER 31, 1994
---------- ---------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(1)....................................... $ 116,073 $ 287,758 $ 13,475
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
(Increase) decrease in interest receivable........ (69) 80 (693)
Increase in interest payable...................... 530 3,167 884
(Decrease) in income taxes payable................ (8,105) (865) (1,151)
Equity in undistributed earnings of
subsidiaries................................... (132,301) (293,630) (13,103)
(Increase) decrease in other assets............... (16,619) 9,910 39
Increase in other liabilities..................... 14,867 720 252
--------- --------- ---------
Net cash (used) provided by operating
activities................................... (195,624) 7,140 (297)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities.......... -- -- (111,984)
Principal payments of available-for-sale
securities........................................ 16,118 12,594 4,486
Principal payments of loans......................... 147,867 -- --
Origination and purchases of loans.................. (92,083) (147,867) --
Investment in subsidiary............................ (170,000) -- --
Dividends received from subsidiaries................ 280,026 136,521 --
Acquisition of wholly owned subsidiary(1)........... -- -- (82,877)
--------- --------- ---------
Net cash provided (used) by investing
activities................................... 351,928 1,248 (190,375)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in securities sold under
agreements to repurchase.......................... (14,155) (1,848) 84,329
Proceeds of other borrowings........................ -- 147,845 --
Issuance of common stock through stock options and
employee stock plans.............................. 20,604 8,379 994
Repurchase of preferred stock....................... -- (1,990) --
Conversion of preferred stock to common stock....... (107) -- --
Cash dividends paid................................. (143,386) (76,581) --
Contribution from wholly owned subsidiaries(1)...... -- -- 111,252
--------- --------- ---------
Net cash (used) provided by financing
activities................................... (137,044) 75,805 196,575
--------- --------- ---------
Increase in cash and cash equivalents.......... 19,260 84,193 5,903
Cash and cash equivalents at beginning of
year......................................... 90,096 5,903 --
--------- --------- ---------
Cash and cash equivalents at end of year....... $ 109,356 $ 90,096 $ 5,903
========= ========= =========
</TABLE>
- ---------------
(1) Contains intercompany transactions eliminated upon consolidation.
114
<PAGE> 117
WASHINGTON MUTUAL, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- --------------------------------------------------------------- ----------------
<S> <C> <C>
2.1* Agreement for Reorganization between the Registrant and
Washington Mutual, dated October 19, 1994.
3.1 Restated Articles of Incorporation of the Registrant, as
amended (the "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 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 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 Debt Securities (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.
10.1* Washington Mutual 1994 Stock Option Plan.
10.2* Amended and Restated Incentive Stock Option Plan.
10.3* Amended and Restated Washington Mutual Restricted Stock Plan
(1986).
10.4* Washington Mutual Employees' Stock Purchase Program.
10.5* Washington Mutual Retirement Savings and Investment Plan.
10.6* Washington Mutual Employee Service Award Plan.
10.7 Supplemental Employee's Retirement Plan for Salaried Employees
of Washington Mutual.
10.8 Washington Mutual Supplemental Executive Retirement
Accumulation Plan.
10.9 Deferred Compensation Plan for Directors and Certain Highly
Compensated Employees.
10.10 Deferred Compensation Plan for Certain Highly Compensated
Employees.
10.11 Employment Contract of Kerry K. Killinger.
10.12 Employment Contract for Executive Officers.
10.13* Lease Agreement between Third and University Limited
Partnership and Washington Mutual Savings Bank, dated September
1, 1988.
</TABLE>
115
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- --------------------------------------------------------------- ----------------
<S> <C> <C>
10.14 Agreement For Merger, dated July 21, 1996, as amended November
1, 1996, by and among Washington Mutual, Inc., Keystone
Holdings Partners, L.P., Keystone Holdings, Inc., New American
Holdings, Inc., New American Capital, Inc., N.A.Capital
Holdings, Inc. and American Savings Bank, F.A. (Incorporated by
reference to the Washington Mutual, Inc. Current Report to the
Securities and Exchange Commission on Form 8-K dated January 3,
1997. File No. 0-25188).
10.15 Escrow Agreement, dated December 20, 1996, by and among
Washington Mutual, Inc., Keystone Holdings Partners, L.P., the
Federal Deposit Insurance Corporation as manager of the FSLIC
Resolution Fund, and The Bank of New York (Incorporated by
reference to the Washington Mutual, Inc. Current Report to the
Securities and Exchange Commission on Form 8-K dated January 3,
1997. File No. 0-25188).
10.16 Registration Rights Agreement, dated July 21, 1996, by and
among Washington Mutual, Inc., Keystone Holdings Partners,
L.P., and the Federal Deposit Insurance Corporation as manager
of the FSLIC Resolution Fund (Incorporated by reference to the
Washington Mutual, Inc. Current Report to the Securities and
Exchange Commission on Form 8-K dated January 3, 1997. File No.
0-25188).
10.17 364-Day Credit Agreement between the Registrant and The Chase
Manhattan Bank as Administrative Agent.
10.18 Four-Year Credit Agreement between the Registrant and The Chase
Manhattan Bank as Administrative Agent.
21 List of Subsidiaries of the Registrant.
23 Consent of Deloitte & Touche LLP.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to Washington Mutual, Inc. Current Report on Form
8-K dated November 29, 1994 (File No. 0-25188).
116
<PAGE> 1
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
WASHINGTON MUTUAL, INC.
Pursuant to the provisions of RCW 23B.10.070 of the Washington
Business Corporation Act, WASHINGTON MUTUAL, INC., hereby certifies that these
Restated Articles of Incorporation correctly set forth without change the
provisions of the Articles of Incorporation of the corporation, as amended.
These Restated Articles of Incorporation supersede the original Articles of
Incorporation and all amendments thereto.
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
Name
The name of this corporation is WASHINGTON MUTUAL, INC. (the
"Company").
IV
Capital Stock
A. Issuance of and Payment for Stock. The total number
of shares of capital stock which the Company has authority to issue is
110,000,000 shares of which 100,000,000 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. The shares may be issued by the Company
from time to time as approved by its Board of Directors without the approval of
the shareholders. The consideration for issuance of the shares shall be paid
in full before their issuance. Neither promissory notes nor the promise of
future services shall constitute payment or part payment for the issuance of
shares of the Company. The consideration for the shares shall be cash,
tangible or intangible property, labor or services actually performed for the
Company or any combination of the foregoing. In the absence of actual fraud
-1-
<PAGE> 2
in the transaction, the value of such property, labor or services, as
determined by the Board of Directors of the Company, shall be conclusive. Upon
payment of such consideration, such shares shall be deemed to be fully paid and
non-assessable.
B. Voting by Class or Series. Except as expressly
provided in these Articles or in any resolutions of the Board of Directors
designating and establishing the terms of any series of preferred stock, no
holders of any class or series of capital stock shall have any right to vote as
a separate class or series or to vote more than one vote per share.
Notwithstanding the foregoing, the restriction on voting separately by class or
series shall not apply to the extent that applicable law requires such voting,
nor shall this restriction apply to any amendment to these Articles which would
adversely change the specific terms of any class or series of capital stock as
set forth in this Article II or in any resolution of the Board of Directors
designating and establishing the terms of any series of preferred stock. For
purposes of the preceding sentence, an amendment which increases the number of
authorized shares of any class or series of capital stock, or substitutes the
surviving institution in a merger or consolidation for the Company, shall not
be such an adverse change.
C. Common Stock. On matters on which holders of common
stock are entitled to vote, each holder of shares of common stock shall be
entitled to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full
amount of dividends and of sinking fund or retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the common stock, then dividends may be paid on the common stock and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only when and
as declared by the Board of Directors.
In the event of any liquidation, dissolution or winding up of the
Company, after there shall have been paid to or set aside for the holders of
any class having preferences over the common stock in the event of liquidation,
dissolution or winding up of the full preferential amounts to which they are
respectively entitled, the holders of the common stock, and of any class or
series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets, shall be entitled, after payment or provision for
payment of all debts and liabilities of the Company, to receive pro rata the
remaining assets of the Company available for distribution, in cash or in kind.
-2-
<PAGE> 3
Each share of common stock shall have the same relative rights as and
be identical in all respects with all the other shares of common stock.
D. Preferred Stock.
(1) The authorized Preferred Stock shall be
comprised of 10,000,000 shares no par value per share, which authorized
Preferred Stock shall initially consist of 2,800,000 shares of 9.12%
Noncumulative Perpetual Preferred Stock, Series C, 1,400,000 shares of $6.00
Noncumulative Convertible Perpetual Preferred Stock, Series D, and 2,000,000
shares of 7.60% Noncumulative Perpetual Preferred Stock, Series E. The Board
of Directors of the Company is authorized by resolution or resolutions from
time to time adopted, to provide for the issuance of preferred stock in one or
more additional series by designating and establishing the terms of such a
series. With respect to any such series, the Board of Directors is authorized
to fix and state the voting powers, designations, preferences and relative,
participating, optional or other special right of the shares of each such
series and the qualifications, limitations and restrictions thereon, including,
but not limited to, determination of any of the following:
(a) The distinctive serial designation
and the number of shares constituting such series;
(b) The dividend rates or the amount of
dividends to be paid on the shares of such series, whether dividends shall be
cumulative and, if so, from which date or dates, the payment date or dates for
dividends, and the participating or other special rights, if any, with respect
to dividends;
(c) The voting powers, full, special or
limited, if any, of shares of such series;
(d) Whether the shares of such series
shall be redeemable and, if so, the price or prices at which, and the terms and
conditions on which, such shares may be redeemed;
(e) The amount or amounts payable upon
the shares of such series in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Company;
(f) Whether the shares of such series
shall be entitled to the benefit of a sinking or retirement fund to be applied
to the purchase or redemption of such shares, and if so entitled, the amount of
such fund and the manner of its application, including the price or prices at
which such shares may be redeemed or purchased through the application of such
fund;
-3-
<PAGE> 4
(g) Whether the shares of such series
shall be convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes of
stock of the Company and, if so convertible or exchangeable, the conversion
price or prices, or the rate of exchange, and the adjustments thereof, if any,
at which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange; and
(h) Whether the shares of such series
which are redeemed or converted shall have the status of authorized but
unissued shares of serial preferred stock and whether such shares may be
reissued as shares of the same or any other series of serial preferred stock.
Each share of each series of preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares
of the same series.
While the foregoing authorizes the Board of Directors, in establishing
the terms of a series of preferred stock, to permit holders of that series of
preferred stock to elect separately one or more directors, in no event shall
the total number of directors separately elected by holders of one or more
series of preferred stock equal or exceed fifty percent (50%) of the total
number of authorized directors.
(2) The terms and designations of the initially
authorized series of Preferred Stock shall be as follows:
(A) 9.12% Noncumulative Perpetual Preferred
Stock, Series C.
1. Designation. There shall initially
be a series of preferred stock whose designation shall be "9.12% Noncumulative
Perpetual Preferred Stock, Series C" ("Series C"). The number of shares of
Series C shall be 2,800,000. The liquidation preference of Series C shall be
$25.00 per share (plus accrued and unpaid dividends for the then-current
dividend period up to the date fixed for liquidation, dissolution or winding
up).
2. Rank. The shares of Series C shall,
with respect to dividend rights and rights on liquidation, winding up and
dissolution of the Company, rank prior to the Company's common stock (the
"Common Stock") and to all other classes and series of equity securities of the
Company now or hereafter authorized, issued or outstanding, other than any
classes or series of equity securities of the Company either (a) ranking on a
parity with shares of Series C as to dividend rights and rights upon
liquidation, winding up or dissolution of the Company (the "Series C Parity
Stock"), or (b) ranking senior to shares of
-4-
<PAGE> 5
Series C as to dividend rights and rights upon liquidation, winding up or
dissolution of the Company (the Common Stock and such other classes and series
of equity securities other than those described in (a) or (b) collectively may
be referred to herein as the "Series C Junior Stock"). The shares of Series C
shall be subject to the creation of such Series C Parity Stock and such Series
C Junior Stock to the extent not expressly prohibited by these Articles.
Any class or classes of stock of the Company shall be deemed to rank
prior to Series C as to dividends and as to distribution of assets upon
liquidation, dissolution or winding up if the holders of such class shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of shares of Series C.
3. Noncumulative Dividends and Dividend
Rate. Holders of shares of Series C shall be entitled to receive, when, as and
if declared by the Board of Directors, or a duly authorized committee thereof,
out of funds legally available therefor, cash dividends from the date of issue
thereof at the annual rate of $2.28 per share, payable quarterly in arrears, on
February 15, May 15, August 15 and November 15 (each a "Series C Dividend
Payment Date") of each year, commencing on the first Series C Dividend Payment
Date after issuance of the shares of Series C; provided, however, that if any
such day is a non-business day, the Series C Dividend Payment Date will be the
next business day. Each declared dividend shall be payable to holders of
record as they appear at the close of business on the stock books of the
Company on such record dates, not more than 30 calendar days and not less than
10 calendar days preceding the payment dates therefor, as are determined by the
Board of Directors of the Company or a duly authorized committee thereof (each
of such dates a "Series C Record Date"). Quarterly dividend periods (each a
"Series C Dividend Period") shall commence on and include the fifteenth day of
February, May, August and November of each year (except as set forth above with
respect to the initial Series C Dividend Period) and shall end on and include
the day next preceding the next following Series C Dividend Payment Date.
Dividends on the shares of Series C shall be noncumulative so that if
a dividend on the shares of Series C with respect to any Series C Dividend
Period is not declared by the Board of Directors of the Company, or any duly
authorized committee thereof, then the Company shall have no obligation at any
time to pay a dividend on the shares of Series C in respect of such Series C
Dividend Period. Holders of the shares of Series C shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the
noncumulative dividends declared by the Board of Directors, or a duly
authorized committee thereof, as set forth herein.
-5-
<PAGE> 6
Any Series C Parity Stock issued by the Company shall only have
dividend periods which end on the same date as a Series C Dividend Period. No
full dividends shall be declared or paid or set apart for payment on any Series
C Parity Stock in respect of any such dividend period unless full dividends on
Series C for the Series C Dividend Period ending on the same date as such
dividend period shall have been paid or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for such
payment.
If at any time with respect to any Series C Dividend Period dividends
are not declared and paid in full (or declared and a sum sufficient for such
full payment so set apart) upon the shares of Series C, dividends upon shares
of Series C and dividends on any shares of Series C Parity Stock outstanding
shall only be declared by the Board of Directors or a duly authorized committee
thereof pro rata with respect thereto, so that the amount of dividends declared
per share on Series C and such Series C Parity Stock shall bear to each other
the same ratio that accrued dividends per share on the shares of Series C for
such Series C Dividend Period (which shall not include any accumulation in
respect of unpaid dividends for prior Series C Dividend Periods) and full
dividends, including accumulations, if any, on shares of Series C Parity Stock,
bear to each other.
Unless full dividends have been declared and paid (or declared and a
sum sufficient for such full payment set apart for payment) on all outstanding
shares of Series C for the immediately preceding Series C Dividend Period, the
Company shall not declare or pay any dividends (other than in Common Stock or
other Series C Junior Stock) or set any amount aside for payment thereof or
make any other distribution on the Common Stock or on any other Series C Junior
Stock, nor shall any Common Stock nor any Series C Junior Stock be redeemed (or
any moneys be paid to or made available for a sinking fund for the redemption
of any shares of any such stock), or any Series C Junior Stock or Series C
Parity Stock be purchased or otherwise acquired by the Company for any
consideration except by conversion into or exchange for Series C Junior Stock.
Regardless of the length of the initial Series C Dividend Period and
whether or not the time period from the date of issue of the shares of Series C
to the Series C Dividend Payment Date constitutes a full quarter, a full
quarterly dividend of $.57 per share shall be paid on the initial Series C
Dividend Payment Date. Dividends payable for any other period shorter than a
full Series C Dividend Period shall be computed on the basis of twelve 30-day
months and a 360-day year. Dividends payable for each full quarterly dividend
period shall be computed by dividing the annual dividend rate by four.
-6-
<PAGE> 7
4. Voting Rights. Except as indicated
below and except as otherwise required by applicable law, the holders of shares
of Series C will not be entitled to vote for any purpose.
As long as any shares of Series C remain outstanding, the consent of
the holders of at least two-thirds of the shares of Series C at the time
outstanding (unless the vote or consent of the holders of a greater number of
shares shall then be required by law), given in person by proxy, by a vote at a
meeting of the holders of Series C called for such purpose at which the holders
of shares of Series C shall vote together as a separate class, shall be
necessary (i) to issue or authorize any additional class of equity stock (it
being understood that subordinated debt instruments, including mandatory
convertible debt, are not for these purposes equity stock) ranking prior to
Series C as to dividends or upon liquidation, winding up or dissolution or
which possess rights to vote separately as one class with Series C on a basis
of more than one vote for each $25.00 of stated liquidation preference thereof
(excluding any liquidation preference for accrued but unpaid dividends) or to
issue or authorize any obligation or security convertible into or evidencing a
right to purchase, or to reclassify any authorized stock of the Company into,
any such additional class of equity stock or (ii) to repeal, amend or otherwise
change any of the provisions of these Articles in any manner which adversely
affects the powers, preferences, voting power or other rights or privileges of
Series C; provided, however, that amending these Articles to increase the
number of authorized shares of common or preferred stock shall not be deemed to
be included within the scope of (ii) above.
In connection with any matter on which holders of Series C are
entitled to vote including, without limitation, the election of directors as
set forth below or any matter on which the holders of Series C are entitled to
vote as one class or otherwise pursuant to law or the provisions of these
Articles, each holder of Series C shall be entitled to one vote for each share
of Series C held by such holder.
To the extent permitted by law, if the equivalent of six full
quarterly dividends on Series C, whether or not consecutive, are not declared
and paid, the holders of shares of Series C, together with the holders of any
Series C Parity Stock as to which the payment of dividends is in arrears and
unpaid in an aggregate amount equal to or exceeding the amount of dividends
payable for six quarterly dividend periods (or if dividends are payable other
than on a quarterly basis the number of dividend periods, whether or not
consecutive, containing in the aggregate not less than 540 calendar days) and
which by its terms provides for voting rights similar to those of the shares of
Series C (the "Series C Voting Parity Stock"), shall have the exclusive right
at the next annual meeting of shareholders for the election of directors or at
a
-7-
<PAGE> 8
special meeting called as described below, voting separately as one class, to
elect two directors for newly created directorships of the Company, each
director to be in addition to the number of directors constituting the Board of
Directors of the Company immediately prior to the accrual of such right (the
remaining directors to be elected by the other class or classes of stock
entitled to vote therefor). At any time when the right to elect such directors
shall have so vested, the Company may, and upon written request of the holders
of record of not less than 20% of the total number of shares of Series C and
such Series C Voting Parity Stock then outstanding shall, call a special
meeting of the holders of such shares to fill such newly created directorships.
In the case of such a written request, such special meeting shall be held
within 90 days after delivery of such request and in either case, at the place
and upon the notice provided by law and the Bylaws of the Company, provided
that the Company shall not be required to call such a special meeting if such
request is received less than 120 days before the date fixed for the next
annual meeting of shareholders. The right of holders of shares of Series C to
elect directors shall continue until dividends on the shares of Series C, have
been declared and paid in full for four consecutive Series C Dividend Periods,
at which time such voting right of the holders of the shares of Series C and
the Series C Voting Parity Stock shall, without further action, terminate,
subject to revesting in the event of each and every subsequent failure of the
Company to pay such dividends for the requisite number of periods as described
above.
The term of office of all directors elected by the holders of the
shares of Series C and the Series C Voting Parity Stock in office at any time
when the aforesaid voting right is vested in such holders shall terminate upon
the election of their successors at any meeting of shareholders for the purpose
of electing directors; provided however, that without further action and unless
otherwise required by law, any director who shall have been elected by holders
of the shares of Series C and the Series C Voting Parity Stock as provided
herein may be removed at any time, either with or without cause, by the
affirmative vote of the holders of record of a majority of the outstanding
shares of Series C and the Series C Voting Parity Stock, voting separately as
one class, at a duly held shareholders' meeting. Upon termination of the
aforesaid voting right in accordance with the foregoing provisions, the term of
office of all directors elected by the holders of the shares of Series C and
the Series C Voting Parity Stock pursuant thereto then in office shall, without
further action, thereupon terminate unless otherwise required by law. Upon
such termination the number of directors constituting the Board of Directors of
the Company shall, without further action, be reduced by two, subject always to
the increase of the number of directors pursuant to the foregoing provisions in
the case of the future right of holders of the shares
-8-
<PAGE> 9
of Series C and the Series C Voting Parity Stock to elect directors as provided
above.
Unless otherwise required by law, in case of any vacancy occurring
among the directors so elected, the remaining director who shall have been so
elected may appoint a successor to hold office for the unexpired term of the
director whose place shall be vacant, and if all directors so elected by the
holders of the shares of Series C and the Series C Voting Parity Stock shall
cease to serve as directors before their term shall expire, the holders of the
shares of Series C and the Series C Voting Parity Stock then outstanding may,
at a meeting of such holders duly held, elect successors to hold office of the
unexpired terms of the directors whose places shall be vacant.
The directors to be elected by the shares of Series C and the Series C
Voting Parity Stock, voting together as a class, shall not become members of
any of the three classes of directors otherwise required by these Articles. If
these Articles and applicable law were construed to require classification of
such directors and as a result, or if for any other reason, the holders of the
shares of Series C and the Series C Voting Parity Stock are not able to elect
the specified number of directors at the next annual meeting of shareholders in
the manner described above, the Company shall use its best efforts to take all
actions necessary to permit the full exercise of such voting rights (including,
if necessary, taking action to increase the authorized number of directors
standing for election at such next annual meeting of shareholders or seeking to
amend, alter or change these Articles and bylaws of the Company).
5. Optional Redemption. The shares of
Series C will not be redeemable before December 31, 1997. On or after December
31, 1997, the shares of Series C are redeemable at the option of the Company
for cash, in whole or in part, at any time and from time to time, at $25.00 per
share, to the extent that the Company has funds legally available therefor,
plus unpaid dividends (whether or not declared) for the then-current Series C
Dividend Period up to the date fixed for redemption (without accumulation of
accrued and unpaid dividends for prior Series C Dividend Periods) (the "Series
C Redemption Price") without interest.
The Company shall not redeem or set aside funds for the redemption of
any Series C Parity Stock unless prior to or contemporaneously therewith it
redeems, or sets aside funds for the redemption of, a number of shares of
Series C whose liquidation preference bears the same relationship to the
aggregate liquidation preference of all shares of Series C then outstanding as
the liquidation preference of such Series C Parity Stock to be redeemed bears
to the aggregate liquidation preference of all Series C Parity Stock then
outstanding. In addition, notwithstanding the
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<PAGE> 10
foregoing, the Company may redeem Series C Parity Stock without redeeming a
proportional amount of Series C in the event (i) such Series C Parity Stock is
convertible into Common Stock and (ii) the average of the daily closing prices
of Common Stock for the 30-day period ending 15 days prior to the date of the
notice of redemption is in excess of the conversion price of such Series C
Parity Stock.
In the event that fewer than all the outstanding shares of Series C
are to be redeemed, the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be determined by lot
or pro rata as may be determined by the Board of Directors or by any other
method as may be determined by the Board of Directors in its sole discretion to
be equitable.
In the event the Company shall redeem shares of Series C, notice of
such redemption (a "Series C Notice of Redemption") shall be given by first
class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the stock register of
the Company. Each Notice of Redemption shall include the following
information: (1) the redemption date; (2) the number of shares of Series C to
be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (3) the
Series C Redemption Price (specifying the amount of unpaid dividends to be
included therein); (4) the place or places where certificates for such shares
are to be surrendered for payment of the Series C Redemption Price; (5) that
dividends on the shares to be redeemed will cease to accrue as of such
redemption date; and (6) the provision hereunder pursuant to which such
redemption is being made.
On or after a redemption date, each holder of shares of Series C that
were called for redemption shall surrender the certificate or certificates
evidencing such shares to the Company at any place designated for such
surrender in the Notice of Redemption and shall then be entitled to receive
payment of the Series C Redemption Price for each share. If less than all the
shares represented by one share certificate are to be redeemed, the Company
shall issue a new share certificate for the shares not redeemed.
By noon of the business day immediately preceding the redemption date,
the Company shall irrevocably deposit with First Interstate Company of
Washington, N.A., in its capacity as paying agent with respect to the shares of
Series C or any successor paying agent (the "Paying Agent"), an aggregate
amount of immediately available funds or short-term money market instruments or
U.S. Treasury Securities sufficient to pay the Series C Redemption Price
specified herein for the shares of Series C to be
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<PAGE> 11
redeemed on such date and shall give the Paying Agent irrevocable instructions
to pay such Series C Redemption Price to the holders of record of the shares of
Series C called for redemption.
If a Notice of Redemption shall have been given and the deposit
referred to in the preceding paragraph made, then dividends shall cease, as of
the redemption date, to accumulate on the shares of Series C called for
redemption and all other rights of holders of the shares so called for
redemption shall cease on and after the redemption date, except the right of
holders of such shares to receive the Series C Redemption Price against
delivery of such shares, but without interest, and such shares shall cease to
be outstanding. The Company shall be entitled to receive, from time to time,
from the Paying Agent the interest, if any, earned on such monies deposited
with the Paying Agent, and the holders of any shares to be redeemed with such
monies shall have no claim to any such interest. With regard to any other
funds so deposited that are unclaimed by holders of shares at the end of two
years from such redemption date, the Paying Agent shall, upon demand, pay over
to the Company such amount remaining on deposit, the Paying Agent shall
thereupon be relieved of all responsibility to the holders of such shares and
the holders of shares of Series C so called for redemption shall thereafter be
entitled to look only to the Company for payment thereof.
Any shares of Series C which shall at any time have been redeemed
shall, after such redemption, have the status of authorized but unissued shares
of preferred stock of the Company, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors.
6. No Conversion Rights. Holders of
shares of Series C will have no right to convert shares of Series C into Common
Stock or any other security of the Company.
7. Liquidation Preference. In the
event of any liquidation, dissolution or winding up of the Company, voluntary
or involuntary, the holders of the outstanding shares of Series C shall be
entitled to receive out of the assets of the Company, or the proceeds thereof,
available for distribution to shareholders, before any distribution of assets
is made to the holders of Common Stock or other Series C Junior Stock,
liquidating distributions in the amount of $25.00 per share plus dividends
accrued and unpaid for the then-current Series C Dividend Period (without
accumulation of accrued and unpaid dividends for prior Series C Dividend
Periods) to the date fixed for such liquidation, dissolution or winding up.
After payment of the full amount of the liquidating distribution to which they
are entitled, the holders of shares of Series C will not be entitled to any
further participation in any distribution of assets of the Company. All
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<PAGE> 12
distributions made with respect to the shares of Series C in connection with
such liquidation, dissolution or winding up of the Company shall be made pro
rata to the holders entitled thereto.
If, upon any liquidation, dissolution or winding up of the Company,
the assets of the Company, and proceeds thereof, available for distribution
among the holders of the shares of Series C and of any Series C Parity Stock,
shall be insufficient to pay in full the preferential amount set forth in the
preceding paragraph above to the holders of the shares of Series C and
liquidating payments on all such Series C Parity Stock, then such assets and
proceeds shall be distributed among the holders of Series C and all such Series
C Parity Stock ratably in accordance with the respective amounts which would be
payable on such shares of Series C and any such Series C Parity Stock if all
amounts payable thereon were paid in full.
8. Payments on Stock Ranking Junior.
In the event of any such liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, unless and until payment in full is made to
the holders of all outstanding shares of Series C of the liquidation
distribution to which they are entitled, no dividend or other distribution
shall be made to the holders of the Common Stock or any other Series C Junior
Stock, and no purchase, redemption or other acquisition for any consideration
by the Company shall be made in respect of the shares of the Common Stock or
such other class of junior Stock.
Neither a consolidation or merger of the Company into or with another
entity or entities nor the sale, transfer or exchange (for cash, shares of
equity stock, securities or other consideration) of all or substantially all of
the property and assets of the Company, shall be deemed to be a liquidation,
dissolution or winding up of the Company within the meaning of this Section
D.(2)(A).
9. Sinking Fund. No sinking fund shall
be provided for the purchase of redemption of shares of Series C.
10. Preemptive Rights. No holder of
shares of Series C shall have any preemptive right to subscribe to stock,
obligations, warrants, rights to subscribe to stock, or other securities of
this corporation of any class, whether now or hereafter authorized.
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<PAGE> 13
(B) $6.00 Noncumulative Convertible Perpetual
Preferred Stock, Series D
1. Designation. There shall initially
be a series of preferred stock whose designation shall be "$6.00 Noncumulative
Convertible Perpetual Preferred Stock, Series D" ("Series D"). The number of
shares of Series D shall be 1,400,000. The liquidation preference of Series D
shall be $100.00 per share (plus accrued and unpaid dividends for the
then-current dividend period up to the date fixed for liquidation, dissolution
or winding up).
2. Rank. The shares of Series D shall,
with respect to dividend rights and rights on liquidation, winding up and
dissolution of the Company, rank prior to the Common Stock and to all other
classes and series of equity securities of the Company now or hereafter
authorized, issued or outstanding, other than any classes or series of equity
securities of the Company either (a) ranking on a parity with shares of Series
D as to dividend rights and rights upon liquidation, winding up or dissolution
of the Company (the "Series D Parity Stock"), or (b) ranking senior to shares
of Series D as to dividend rights and rights upon liquidation, winding up or
dissolution of the Company (the Common Stock and such other classes and series
of equity securities other than those described in (a) or (b) collectively may
be referred to herein as the "Series D Junior Stock"). The shares of Series D
shall be subject to the creation of such Series D Parity Stock and such Series
D Junior Stock to the extent not expressly prohibited by these Articles.
Any class or classes of stock of the Company shall be deemed to rank
prior to Series D as to dividends and as to distribution of assets upon
liquidation, dissolution or winding up if the holders of such class shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of shares of Series D.
3. Noncumulative Dividends and Dividend
Rate. Holders of shares of Series D shall be entitled to receive, when, as and
if declared by the Board of Directors, or a duly authorized committee thereof,
out of funds legally available therefor, cash dividends from the date of issue
thereof at the annual rate of $6.00 per share, payable quarterly in arrears, on
February 15, May 15, August 15 and November 15 (each a "Series D Dividend
Payment Date") of each year, commencing on the first Series D Dividend Payment
Date after issuance of the shares of Series D; provided, however, that if any
such day is a non-business day, the Series D Dividend Payment Date will be the
next business day. Each declared dividend shall be payable to holders of
record as they appear at the close of business on the stock books of the
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<PAGE> 14
Company on such record dates, not more than 30 calendar days and not less than
10 calendar days preceding the payment dates therefor, as are determined by the
Board of Directors of the Company or a duly authorized committee thereof (each
of such dates a "Series D Record Date"). Quarterly dividend periods (each a
"Series D Dividend Period") shall commence on and include the fifteenth day of
February, May, August and November of each year (except as set forth above with
respect to the initial Series D Dividend Period) and shall end on and include
the day next preceding the next following Series D Dividend Payment Date.
Dividends on the shares of Series D shall be noncumulative so that if
a dividend on the shares of Series D with respect to any Series D Dividend
Period is not declared by the Board of Directors of the Company, or any duly
authorized committee thereof, then the Company shall have no obligation at any
time to pay a dividend on the shares of Series D in respect of such Series D
Dividend Period. Holders of the shares of Series D shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the
noncumulative dividends declared by the Board of Directors, or a duly
authorized committee thereof, as set forth herein.
Any Series D Parity Stock issued by the Company shall only have
dividend periods which end on the same date as a Series D Dividend Period. No
full dividends shall be declared or paid or set apart for payment on any Series
D Parity Stock in respect of any such dividend period unless full dividends on
Series D for the Series D Dividend Period ending on the same date as such
dividend period shall have been paid or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for such
payment.
If at any time with respect to any Series D Dividend Period dividends
are not declared and paid in full (or declared and a sum sufficient for such
full payment so set apart) upon the shares of Series D, dividends upon shares
of Series D and dividends on any shares of Series D Parity Stock outstanding
shall only be declared by the Board of Directors or a duly authorized committee
thereof pro rata with respect thereto, so that the amount of dividends declared
per share on Series D and such Series D Parity Stock shall bear to each other
the same ratio that accrued dividends per share on the shares of Series D for
such Series D Dividend Period (which shall not include any accumulation in
respect of unpaid dividends for prior Series D Dividend Periods) and full
dividends, including accumulations, if any, on shares of Series D Parity Stock,
bear to each other.
Unless full dividends have been declared and paid (or declared and a
sum sufficient for such full payment set apart for payment) on all outstanding
shares of Series D for the immediately preceding Series D Dividend Period, the
Company shall not declare or pay any
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<PAGE> 15
dividends (other than in Common Stock or other Series D Junior Stock) or set
any amount aside for payment thereof or make any other distribution on the
Common Stock or on any other Series D Junior Stock, nor shall any Common Stock
nor any Series D Junior Stock be redeemed (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such
stock), or any Series D Junior Stock or Series D Parity Stock be purchased or
otherwise acquired by the Company for any consideration except by conversion
into or exchange for Series D Junior Stock.
Regardless of the length of the initial Series D Dividend Period and
whether or not the time period from the date of issue of the shares of Series D
to the Series D Dividend Payment Date constitutes a full quarter, a full
quarterly dividend of $1.50 per share shall be paid on the initial Series D
Dividend Payment Date. Dividends payable for any other period shorter than a
full Series D Dividend Period shall be computed on the basis of twelve 30-day
months and a 360-day year. Dividends payable for each full quarterly dividend
period shall be computed by dividing the annual dividend rate by four.
4. Voting Rights. Except as indicated
below and except as otherwise required by applicable law, the holders of shares
of Series D will not be entitled to vote for any purpose.
As long as any shares of Series D remain outstanding, the consent of
the holders of at least two-thirds of the shares of Series D at the time
outstanding (unless the vote or consent of the holders of a greater number of
shares shall then be required by law), given in person by proxy, by a vote at a
meeting of the holders of Series D called for such purpose at which the holders
of shares of Series D shall vote together as a separate class, shall be
necessary (i) to issue or authorize any additional class of equity stock (it
being understood that subordinated debt instruments, including mandatory
convertible debt, are not for these purposes equity stock) ranking prior to
Series D as to dividends or upon liquidation, winding up or dissolution or
which possess rights to vote separately as one class with Series D on a basis
of more than one vote for each $25.00 of stated liquidation preference thereof
(excluding any liquidation preference for accrued but unpaid dividends) or to
issue or authorize any obligation or security convertible into or evidencing a
right to purchase, or to reclassify any authorized stock of the Company into,
any such additional class of equity stock or (ii) to repeal, amend or otherwise
change any of the provisions of these Articles in any manner which adversely
affects the powers, preferences, voting power or other rights or privileges of
Series D; provided, however, that amending these Articles to increase the
number of authorized shares of common or preferred stock shall not be deemed to
be included within the scope of (ii) above.
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<PAGE> 16
In connection with any matter on which holders of Series D are
entitled to vote including, without limitation, the election of directors as
set forth below or any matter on which the holders of Series D are entitled to
vote as one class or otherwise pursuant to law or the provisions of these
Articles, each holder of Series D shall be entitled to one vote for each share
of Series D held by such holder.
To the extent permitted by law, if the equivalent of six full
quarterly dividends on Series D, whether or not consecutive, are not declared
and paid, the holders of shares of Series D, together with the holders of any
Series D Parity Stock as to which the payment of dividends is in arrears and
unpaid in an aggregate amount equal to or exceeding the amount of dividends
payable for six quarterly dividend periods (or if dividends are payable other
than on a quarterly basis the number of dividend periods, whether or not
consecutive, containing in the aggregate not less than 540 calendar days) and
which by its terms provides for voting rights similar to those of the shares of
Series D (the "Series D Voting Parity Stock"), shall have the exclusive right
at the next annual meeting of shareholders for the election of directors or at
a special meeting called as described below, voting separately as one class, to
elect two directors for newly created directorships of the Company, each
director to be in addition to the number of directors constituting the Board of
Directors of the Company immediately prior to the accrual of such right (the
remaining directors to be elected by the other class or classes of stock
entitled to vote therefor). At any time when the right to elect such directors
shall have so vested, the Company may, and upon written request of the holders
of record of not less than 20% of the total number of shares of Series D and
such Series D Voting Parity Stock then outstanding shall, call a special
meeting of the holders of such shares to fill such newly created directorships.
In the case of such a written request, such special meeting shall be held
within 90 days after delivery of such request and in either case, at the place
and upon the notice provided by law and in the Bylaws of the Company, provided
that the Company shall not be required to call such a special meeting if such
request is received less than 120 days before the date fixed for the next
annual meeting of shareholders. The right of holders of shares of Series D to
elect directors shall continue until dividends on the shares of Series D, have
been declared and paid in full for four consecutive Series D Dividend Periods,
at which time such voting right of the holders of the shares of Series D and
the Series D Voting Parity Stock shall, without further action, terminate,
subject to revesting in the event of each and every subsequent failure of the
Company to pay such dividends for the requisite number of periods as described
above.
The term of office of all directors elected by the holders of the
shares of Series D and the Series D Voting Parity Stock in
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<PAGE> 17
office at any time when the aforesaid voting right is vested in such holders
shall terminate upon the election of their successors at any meeting of
shareholders for the purpose of electing directors; provided however, that
without further action and unless otherwise required by law, any director who
shall have been elected by holders of the shares of Series D and the Series D
Voting Parity Stock as provided herein may be removed at any time, either with
or without cause, by the affirmative vote of the holders of record of a
majority of the outstanding shares of Series D and the Series D Voting Parity
Stock, voting separately as one class, at a duly held shareholders' meeting.
Upon termination of the aforesaid voting right in accordance with the foregoing
provisions, the term of office of all directors elected by the holders of the
shares of Series D and the Series D Voting Parity Stock pursuant thereto then
in office shall, without further action, thereupon terminate unless otherwise
required by law. Upon such termination the number of directors constituting
the Board of Directors of the Company shall, without further action, be reduced
by two, subject always to the increase of the number of directors pursuant to
the foregoing provisions in the case of the future right of holders of the
shares of Series D and the Series D Voting Parity Stock to elect directors as
provided above.
Unless otherwise required by law, in case of any vacancy occurring
among the directors so elected, the remaining director who shall have been so
elected may appoint a successor to hold office for the unexpired term of the
director whose place shall be vacant, and if all directors so elected by the
holders of the shares of Series D and the Series D Voting Parity Stock shall
cease to serve as directors before their term shall expire, the holders of the
shares of Series D and the Series D Voting Parity Stock then outstanding may,
at a meeting of such holders duly held, elect successors to hold office of the
unexpired terms of the directors whose places shall be vacant.
The directors to be elected by the shares of Series D and the Series D
Voting Parity Stock, voting together as a class, shall not become members of
any of the three classes of directors otherwise required by these Articles. If
these Articles and applicable law were construed to require classification of
such directors and as a result, or if for any other reason, the holders of the
shares of Series D and the Series D Voting Parity Stock are not able to elect
the specified number of directors at the next annual meeting of shareholders in
the manner described above, the Company shall use its best efforts to take all
actions necessary to permit the full exercise of such voting rights (including,
if necessary, taking action to increase the authorized number of directors
standing for election at such next annual meeting of shareholders or seeking to
amend, alter or change these Articles and Bylaws of the Company).
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<PAGE> 18
5. Optional Redemption. The shares of
Series D will not be redeemable before December 31, 1996. On or after December
31, 1996, the shares of Series D are redeemable at the option of the Company
for cash, in whole or in part, at any time and from time to time, at the
following redemption prices per share if redeemed during the 12-month period
ending December 31 in each of the following years to the extent that the
Company has funds legally available therefor:
<TABLE>
<CAPTION>
redemption price redemption price
per share of per share of
Year Series D Year Series D
---- -------- ---- --------
<S> <C> <C> <C>
1997 $103.60 2001 $101.20
1998 $103.00 2002 $100.60
1999 $102.40 2003 and
2000 $101.80 thereafter $100.00
</TABLE>
plus in each case accrued and unpaid dividends (whether or not declared) for
the last complete Series D Dividend Period immediately preceding the date fixed
for redemption (without accumulation of accrued and unpaid dividends for prior
Series D Dividend Periods) (the "Series D Redemption Price") without interest.
The Company shall not redeem or set aside funds for the redemption of
any Series D Parity Stock unless prior to or contemporaneously therewith it
redeems, or sets aside funds for the redemption of, a number of shares of
Series D whose liquidation preference bears the same relationship to the
aggregate liquidation preference of all shares of Series D then outstanding as
the liquidation preference of such Series D Parity Stock to be redeemed bears
to the aggregate liquidation preference of all Series D Parity Stock then
outstanding. In addition, notwithstanding the foregoing, the Company may
redeem Series D Parity Stock without redeeming a proportional amount of Series
D in the event (i) such Series D Parity Stock is convertible into Common Stock
and (ii) the average of the daily Closing Prices (as defined in 6(a) below) of
Common Stock for the 30-day period ending 15 days prior to the date of the
notice of redemption is in excess of the conversion price of such Series D
Parity Stock.
In the event that fewer than all the outstanding shares of Series D
are to be redeemed, the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be determined by lot
or pro rata as may be determined by the Board of Directors or by any other
method as may be determined by the Board of Directors in its sole discretion to
be equitable.
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<PAGE> 19
In the event the Company shall redeem shares of Series D, notice of
such redemption (a "Series D Notice of Redemption") shall be given by first
class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the stock register of
the Company. Each Series D Notice of Redemption shall include the following
information: (1) the redemption date; (2) the number of shares of Series D to
be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (3) the
Series D Redemption Price (specifying the amount of accrued and unpaid
dividends to be included therein); (4) the place or places where certificates
for such shares are to be surrendered for payment of the Series D Redemption
Price; (5) that dividends on the shares to be redeemed will cease or ceased to
accrue as of the end of the Series D Dividend Period immediately preceding such
redemption date; and (6) the provision hereunder pursuant to which such
redemption is being made.
On or after a redemption date, each holder of shares of Series D that
were called for redemption shall surrender the certificate or certificates
evidencing such shares to the Company at any place designated for such
surrender in the Series D Notice of Redemption and shall then be entitled to
receive payment of the Series D Redemption Price for each share. If less than
all the shares represented by one share certificate are to be redeemed, the
Company shall issue a new share certificate for the shares not redeemed.
By noon of the business day immediately preceding the redemption date,
the Company shall irrevocably deposit with First Interstate Company of
Washington, N.A., in its capacity as paying agent with respect to the shares of
Series D or any successor paying agent (the "Series D Paying Agent"), an
aggregate amount of immediately available funds or short-term money market
instruments or U.S. Treasury Securities sufficient to pay the Series D
Redemption Price specified herein for the shares of Series D to be redeemed on
such date and shall give the Series D Paying Agent irrevocable instructions to
pay such Series D Redemption Price to the holders of record of the shares of
Series D called for redemption.
If a Series D Notice of Redemption shall have been given and the
deposit referred to in the preceding paragraph made, then dividends shall cease
after the end of the complete Series D Dividend Period immediately preceding
the redemption date, to accumulate on the shares of Series D called for
redemption and all other rights of holders of the shares so called for
redemption shall cease on and after the redemption date, except the right of
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<PAGE> 20
holders of such shares to receive the Series D Redemption Price against
delivery of such shares, but without interest, and such shares shall cease to
be outstanding. The Company shall be entitled to receive, from time to time,
from the Series D Paying Agent the interest, if any, earned on such monies
deposited with the Series D Paying Agent, and the holders of any shares to be
redeemed with such monies shall have no claim to any such interest. The
Company shall be entitled to receive upon demand any amounts so deposited which
exceed the total obtained by multiplying the Series D Redemption Price times
the difference between the number of shares called for redemption and the
number of such shares converted on or before the redemption date. With regard
to any other funds so deposited that are unclaimed by holders of shares at the
end of two years from such redemption date, the Series D Paying Agent shall,
upon demand, pay over to the Company such amount remaining on deposit, the
Series D Paying Agent shall thereupon be relieved of all responsibility to the
holders of such shares and the holders of shares of Series D so called for
redemption shall thereafter be entitled to look only to the Company for payment
thereof.
Any shares of Series D which shall at any time have been redeemed
shall, after such redemption, have the status of authorized but unissued shares
of preferred stock of the Company, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors.
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<PAGE> 21
6. Conversion Rights.
(a) Holders of shares of Series D
will have the right, at their option at any time and from time to time, to
convert any or all of such shares into the number of shares of Common Stock of
the Company determined by dividing $100.00 for each share of Series D to be
converted by the then effective conversion price, except that if any shares of
Series D are called for redemption, the conversion rights pertaining thereto
will terminate at the close of business on the date fixed for redemption,
unless the Company defaults in the payment of the Series D Redemption Price.
The market value of a share of Common Stock (the "Series D Market Price") on
any date shall be deemed to be the average of the daily Closing Prices for the
30-day period ending 15 days prior to the date in question. The term "Series D
Closing Price," with respect to any day, shall mean (i) the last sales price in
the over-the-counter market, as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or a similar accepted
reporting service for the date of any such determination, or (ii) if the Common
Stock is listed or admitted for trading on the New York Stock Exchange, the
last reported sales price per share of Common Stock on such date on the New
York Stock Exchange, or (iii) if the Common Stock is not listed or admitted for
trading on the New York Stock Exchange, the last reported sales price on the
principal national securities exchange on which the Common Stock is admitted
for trading, or (iv) if no such quotations are available and the Common Stock
is not so listed or admitted, the fair market value on the date in question of
a share of Common Stock as determined in good faith by the Board of Directors.
If more than one share of Series D is surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock which shall be
issuable on conversion thereof shall be computed on the basis of all such
shares so surrendered.
(b) The holders of shares of Series
D at the close of business on a dividend payment Series D Record Date shall be
entitled to receive the dividend payable on such shares (except that holders of
shares of Series D subject to redemption on a redemption date between such
Series D Record Date and the Series D Dividend Payment Date shall not be
entitled to receive such dividend on such Series D Dividend Payment Date) on
the corresponding Series D Dividend Payment Date notwithstanding the conversion
thereof or the Company's default on payment of the dividend due on such Series
D Dividend Payment Date. However, shares of Series D surrendered for
conversion during the period after any dividend payment Series D Record Date
and before such Series D Dividend Payment Date (except shares subject to
redemption on a redemption date during such period) must be accompanied by
payment of an amount equal to the dividend payable on such shares on such
Series D Dividend Payment Date. Holders of shares of Series D on a dividend
payment Series D Record Date who (or whose
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<PAGE> 22
transferees) convert shares of Series D on a Series D Dividend Payment Date
will receive the dividend payable on such Series D by the Company on such date,
and the converting holder need not include payment in the amount of such
dividend upon surrender of shares of Series D for conversion.
(c) The initial conversion price
for each share of Series D is $25.8338. The initial conversion price or other
conversion price then in effect shall be subject to adjustment from time to
time as follows:
(i) In case the Company shall declare
a dividend or other distribution on any class of capital stock of the Company
payable in shares of Common Stock, the conversion price in effect at the
opening of business on the day following the date fixed for the determination
of stockholders entitled to receive such dividend or other distribution shall
be reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination.
(ii) In case the Company shall
subdivide the outstanding shares of the Common Stock into a greater number of
shares, the conversion price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, the conversion
price in effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately increased.
(iii) In case the Common Stock
issuable upon the conversion of Series D shall be changed into the same or a
different number of shares of any class or classes of stock, whether by capital
reorganization, reclassification, or otherwise (other than a stock dividend or
a subdivision or combination of shares provided for in subclause (i) or (ii),
or a reorganization, merger, consolidation or sale of assets provided for in
(d)), then and in each such event the holders of shares of Series D shall have
the right thereafter to convert such shares into the kind and amount of shares
of stock and other securities and property receivable upon such reorganization,
reclassification or other change, by holders of the number of shares of Common
Stock into which such shares of Series D might have been converted
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<PAGE> 23
immediately prior to such reorganization, reclassification or change.
(iv) In case the Company shall issue
to all holders of the Common Stock rights or warrants entitling them (within a
45 calendar-day period after the date fixed for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at less than the Series D Market Price on the
date fixed for such determination, the conversion price in effect at the
opening of business on the day following the date fixed for such determination
shall be reduced by multiplying such conversion price by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription or purchase would
purchase at such current Series D Market Price and the denominator shall be the
number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock so
offered for subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following the date fixed
for such determination.
(v) In case the Company shall, by
dividend or otherwise, distribute to all holders of shares of Common Stock
evidences of indebtedness or assets (including rights or warrants to purchase
capital stock, or any other securities, but excluding any dividend or
distribution referred to in (i), any rights or warrants referred to in (iv) and
any dividend or distribution paid in cash out of the retained earnings or
consolidated net income of the Company), the conversion price shall be adjusted
by multiplying the conversion price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled to
receive such distribution by a fraction of which the numerator shall be the
current Series D Market Price of the Common Stock on the date fixed for such
determination less the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so distributed allocable to one share of
Common Stock and the denominator shall be such current Series D Market Price of
the Common Stock, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the determination
of stockholders entitled to receive such distribution. In the event that the
Company shall distribute or shall have distributed to all holders of shares of
Common Stock rights or warrants to purchase capital stock that are not
initially detachable from the Common Stock (whether or not such distribution
shall have occurred prior to the date of issuance of Series D),
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<PAGE> 24
then the distribution of separate certificates representing such rights or
warrants subsequent to their initial distribution shall be deemed to be the
distribution of such rights or warrants for purposes of this subclause (v).
Notwithstanding the foregoing, in the event that the Company shall
distribute rights or warrants to purchase capital stock (other than those
referred in (iv) above) ("Series D Rights") to holders of Common Stock, the
Company may, in lieu of making the foregoing adjustment pursuant to this
subclause (v), make proper provision so that each holder of shares of Series D
who converts such shares of Series D before the record date for such
distribution shall be entitled to receive upon such conversion shares of Common
Stock issued with Series D Rights and after the record date for such
distribution and prior to the expiration or redemption of the Series D Rights
shall be entitled to receive upon such conversion, in addition to the shares of
Common Stock issuable upon such conversion, the same number of Series D Rights
to which a holder of the number of shares of Common Stock into which the shares
of Series D so converted were convertible immediately prior to the record date
for such distribution would have been entitled on the record date for such
distribution in accordance with the terms and provisions of and applicable to
the Series D Rights.
(vi) No adjustment in the conversion
price shall be required unless such adjustment would require an increase or
decrease of at least 1% of the conversion price then in effect; provided,
however, that any adjustments which by reason of this subsection (vi) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
(d) In case of any (i)
consolidation or merger of the Company with or into another entity (other than
a consolidation or merger in which the Company is the surviving entity), (ii)
sale, transfer, lease or conveyance of all or substantially all the assets of
the Company, (iii) reclassification, capital reorganization or change in the
Company's Common Stock (other than solely a change in par value, or from par
value to no par value), or (iv) consolidation or merger of another entity into
the Company and in which there is a reclassification or change of the Company's
Common Stock (other than solely a change in par value or from par value to no
par value), then each holder of shares of Series D then outstanding shall have
the right thereafter to convert each share of Series D held by such holder into
the same kind and amount of shares of stock, other securities, cash or other
property (or any combination thereof) which the holder would have received had
the holder converted such holder's shares of Series D to Common Stock
immediately prior to the occurrence of such event. If the consideration into
which Series D is convertible following any such event consists of common stock
of the Company or the surviving
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<PAGE> 25
entity (as the case may be), then from and after the occurrence of such event
the conversion price for each share of Series D into such common stock shall be
subject to the same anti-dilution and other adjustments described herein,
applied as if such common stock were Common Stock of the Company.
No fractional shares of Common Stock shall be issued upon any
conversion, but, in lieu thereof, there shall be paid to each holder of shares
of Series D surrendered for conversion who, but for the provisions of this
paragraph would be entitled to receive a fraction of a share of Common Stock on
such conversion, as soon as practicable after the date shares of Series D are
surrendered for conversion an amount in cash equal to the same fraction of the
Market Value on the date of surrender of a full share of Common Stock, unless
the Board of Directors or a duly authorized committee thereof shall determine
to adjust fractional shares by the issue of fractional scrip certificates or in
some other manner. If more than one share of Series D is surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock which shall be issuable on conversion thereof shall be computed on the
basis of all such shares so surrendered.
(e) In addition to the foregoing
adjustments, the Company may, but shall not be required to, make such
reductions in the conversion price as it considers to be advisable in order
that any event treated for federal income tax purposes as a dividend of stock
or stock rights will be taxable to the recipients to the minimum extent
determined to be reasonable under the circumstances as determined by the Board
of Directors.
(f) Whenever any adjustment is
required in the conversion price of Series D, the Company shall forthwith (A)
keep available at each of its offices and agencies at which shares of Series D
are convertible a statement describing in reasonable detail the adjustment and
the method of calculation used; and (B) cause a copy of such statement to be
mailed to the holders of record of the shares of Series D.
(g) If in any case a state of facts
occurs wherein in the opinion of the Board of Directors the other provisions of
this Section D.(2)(B) with respect to conversion rights are not strictly
applicable or if strictly applied would not fairly protect the conversion
rights of the shares of Series D in accordance with essential intent and
principles of such provisions, then the Board shall make an adjustment in the
application of such provisions, in accordance with the essential intent and
principles so as to protect such conversion rights aforesaid, all as the Board
in its discretion shall determine.
(h) The Company shall at all times
reserve and keep available out of the authorized but unissued
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<PAGE> 26
shares of Common Stock the maximum number of shares of Common Stock into which
all shares of Series D from time to time outstanding are convertible, but
shares of Common Stock held in the treasury of the Company may in its
discretion be delivered upon any conversion of shares of Series D.
(i) Shares of Series D converted
into Common Stock shall have the status of authorized but unissued shares of
Series D provided that the Board has the authority to declare at any time that
such converted shares shall, after conversion, have the status of authorized
but unissued shares of preferred stock of the Company without designation as to
series (until once more designated as a part of a particular series by the
Board of Directors) and provided that in the event a Series D Notice of
Redemption for all outstanding shares of Series D is made, then all shares
converted prior to the redemption date shall as of the redemption date
automatically have the status of such authorized but unissued shares of
preferred stock of the Company without designation as to series.
_ 7. Liquidation Preference. In the
event of any liquidation, dissolution or winding up of the Company, voluntary
or involuntary, the holders of the outstanding shares of Series D shall be
entitled to receive out of the assets of the Company, or the proceeds thereof,
available for distribution to shareholders, before any distribution of assets
is made to the holders of Common Stock or other Series D Junior Stock,
liquidating distributions in the amount of $100.00 per share plus dividends
accrued and unpaid for the then- current Series D Dividend Period (without
accumulation of accrued and unpaid dividends for prior Series D Dividend
Periods) to the date fixed for such liquidation, dissolution or winding up.
After payment of the full amount of the liquidating distribution to which they
are entitled, the holders of shares of Series D will not be entitled to any
further participation in any distribution of assets of the Company. All
distributions made with respect to the shares of Series D in connection with
such liquidation, dissolution or winding up of the Company shall be made pro
rata to the holders entitled thereto.
If, upon any liquidation, dissolution or winding up of the Company,
the assets of the Company, and proceeds thereof, available for distribution
among the holders of the shares of Series D and of any Series D Parity Stock,
shall be insufficient to pay in full the preferential amount set forth in the
preceding paragraph above to the holders of the shares of Series D and
liquidating payments on all such Series D Parity Stock, then such assets and
proceeds shall be distributed among the holders of Series D and all such Series
D Parity Stock ratably in accordance with the respective amounts which would be
payable on such shares of Series D and any such Series D Parity Stock if all
amounts payable thereon were paid in full.
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<PAGE> 27
8. Payments on Stock Ranking Junior.
In the event of any such liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, unless and until payment in full is made to
the holders of all outstanding shares of Series D of the liquidation
distribution to which they are entitled, no dividend or other distribution
shall be made to the holders of the Common Stock or any other Series D Junior
Stock, and no purchase, redemption or other acquisition for any consideration
by the Company shall be made in respect of the shares of the Common Stock or
such other class of junior Stock.
Neither a consolidation or merger of the Company into or with another
entity or entities nor the sale, transfer or exchange (for cash, shares of
equity stock, securities or other consideration) of all or substantially all of
the property and assets of the Company, shall be deemed to be a liquidation,
dissolution or winding up of the Company within the meaning of this Section
D.(2)(B).
9. Sinking Fund. No sinking fund shall
be provided for the purchase of redemption of shares of Series D.
10. Preemptive Rights. No holder of
shares of Series D shall have any preemptive right to subscribe to stock,
obligations, warrants, rights to subscribe to stock, or other securities of
this corporation of any class, whether now or hereafter authorized.
(C) 7.60% Noncumulative Perpetual Preferred
Stock, Series E.
1. Designation. There shall initially
be a series of preferred stock whose designation shall be "7.60% Noncumulative
Perpetual Preferred Stock, Series E" ("Series E"). The number of shares of
Series E shall be 2,000,000. The liquidation preference of Series E shall be
$25.00 per share (plus accrued and unpaid dividends for the then-current
dividend period up to the date fixed for liquidation, dissolution or winding
up).
2. Rank. The shares of Series E shall,
with respect to dividend rights and rights on liquidation, winding up and
dissolution of the Company, rank prior to the Common Stock and to all other
classes and series of equity securities of the Company now or hereafter
authorized, issued or outstanding, other than any classes or series of equity
securities of the Company either (a) ranking on a parity with shares of Series
E as to dividend rights and rights upon liquidation, winding up or dissolution
of the Company (the "Series E Parity Stock"), or (b) ranking senior to shares
of Series E as to dividend rights and rights upon liquidation, winding up or
dissolution of the Company (the Common Stock and such other classes and series
of equity securities other
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<PAGE> 28
than those described in (a) or (b) collectively may be referred to herein as
the "Series E Junior Stock"). The shares of Series E shall be subject to the
creation of such Series E Parity Stock and such Series E Junior Stock to the
extent not expressly prohibited by these Articles.
Any class or classes of stock of the Company shall be deemed to rank
prior to Series E as to dividends and as to distribution of assets upon
liquidation, dissolution or winding up if the holders of such class shall be
entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of shares of Series E.
3. Noncumulative Dividends and Dividend
Rate. Holders of shares of Series E shall be entitled to receive, when, as and
if declared by the Board of Directors, or a duly authorized committee thereof,
out of funds legally available therefor, cash dividends from the date of issue
thereof at the annual rate of $1.90 per share, payable quarterly in arrears, on
February 15, May 15, August 15 and November 15 (each a "Series E Dividend
Payment Date") of each year, commencing on the first Series E Dividend Payment
Date after issuance of the shares of Series E; provided, however, that if any
such day is a non-business day, the Series E Dividend Payment Date will be the
next business day. Each declared dividend shall be payable to holders of
record as they appear at the close of business on the stock books of the
Company on such record dates, not more than 30 calendar days and not less than
10 calendar days preceding the payment dates therefor, as are determined by the
Board of Directors of the Company or a duly authorized committee thereof (each
of such dates a "Series E Record Date"). Quarterly dividend periods (each a
"Series E Dividend Period") shall commence on and include the fifteenth day of
February, May, August and November of each year (except as set forth above with
respect to the initial Series E Dividend Period) and shall end on and include
the day next preceding the next following Series E Dividend Payment Date.
Dividends on the shares of Series E shall be noncumulative so that if
a dividend on the shares of Series E with respect to any Series E Dividend
Period is not declared by the Board of Directors of the Company, or any duly
authorized committee thereof, then the Company shall have no obligation at any
time to pay a dividend on the shares of Series E in respect of such Series E
Dividend Period. Holders of the shares of Series E shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the
noncumulative dividends declared by the Board of Directors, or a duly
authorized committee thereof, as set forth herein.
Any Series E Parity Stock issued by the Company shall only have
dividend periods which end on the same date as a Series E Dividend Period. No
full dividends shall be declared or paid or
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<PAGE> 29
set apart for payment on any Series E Parity Stock in respect of any such
dividend period unless full dividends on Series E for the Series E Dividend
Period ending on the same date as such dividend period shall have been paid or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment.
If at any time with respect to any Series E Dividend Period dividends
are not declared and paid in full (or declared and a sum sufficient for such
full payment so set apart) upon the shares of Series E, dividends upon shares
of Series E and dividends on any shares of Series E Parity Stock outstanding
shall only be declared by the Board of Directors or a duly authorized committee
thereof pro rata with respect thereto, so that the amount of dividends declared
per share on Series E and such Series E Parity Stock shall bear to each other
the same ratio that accrued dividends per share on the shares of Series E for
such Series E Dividend Period (which shall not include any accumulation in
respect of unpaid dividends for prior Series E Dividend Periods) and full
dividends, including accumulations, if any, on shares of Series E Parity Stock,
bear to each other.
Unless full dividends have been declared and paid (or declared and a
sum sufficient for such full payment set apart for payment) on all outstanding
shares of Series E for the immediately preceding Series E Dividend Period, the
Company shall not declare or pay any dividends (other than in Common Stock or
other Series E Junior Stock) or set any amount aside for payment thereof or
make any other distribution on the Common Stock or on any other Series E Junior
Stock, nor shall any Common Stock nor any Series E Junior Stock be redeemed (or
any moneys be paid to or made available for a sinking fund for the redemption
of any shares of any such stock), or any Series E Junior Stock or Series E
Parity Stock be purchased or otherwise acquired by the Company for any
consideration except by conversion into or exchange for Series E Junior Stock.
Regardless of the length of the initial Series E Dividend Period and
whether or not the time period from the date of issue of the shares of Series E
to the Series E Dividend Payment Date constitutes a full quarter, a full
quarterly dividend of $.475 per share shall be paid on the initial Series E
Dividend Payment Date. Dividends payable for any other period shorter than a
full Series E Dividend Period shall be computed on the basis of twelve 30-day
months and a 360-day year. Dividends payable for each full quarterly dividend
period shall be computed by dividing the annual dividend rate by four.
4. Voting Rights. Except as indicated
below and except as otherwise required by applicable law, the holders of shares
of Series E will not be entitled to vote for any purpose.
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<PAGE> 30
As long as any shares of Series E remain outstanding, the consent of
the holders of at least a majority of the shares of Series E at the time
outstanding (unless the vote or consent of the holders of a greater number of
shares shall then be required by law), given in person by proxy, by a vote at a
meeting of the holders of Series E called for such purpose at which the holders
of shares of Series E shall vote together as a separate class, shall be
necessary (i) to issue or authorize any additional class of equity stock (it
being understood that subordinated debt instruments, including mandatory
convertible debt, are not for these purposes equity stock) ranking prior to
Series E as to dividends or upon liquidation, winding up or dissolution or
which possess rights to vote separately as one class with Series E on a basis
of more than one vote for each $25.00 of stated liquidation preference thereof
(excluding any liquidation preference for accrued but unpaid dividends) or to
issue or authorize any obligation or security convertible into or evidencing a
right to purchase, or to reclassify any authorized stock of the Company into,
any such additional class of equity stock or (ii) to repeal, amend or otherwise
change any of the provisions of these Articles in any manner which adversely
affects the powers, preferences, voting power or other rights or privileges of
Series E; provided, however, that amending these Articles to increase the
number of authorized shares of common or preferred stock shall not be deemed to
be included within the scope of (ii) above.
In connection with any matter on which holders of Series E are
entitled to vote including, without limitation, the election of directors as
set forth below or any matter on which the holders of Series E are entitled to
vote as one class or otherwise pursuant to law or the provisions of these
Articles, each holder of Series E shall be entitled to one vote for each share
of Series E held by such holder.
To the extent permitted by law, if the equivalent of six full
quarterly dividends on Series E, whether or not consecutive, are not declared
and paid, the holders of shares of Series E, together with the holders of any
Series E Parity Stock as to which the payment of dividends is in arrears and
unpaid in an aggregate amount equal to or exceeding the amount of dividends
payable for six quarterly dividend periods (or if dividends are payable other
than on a quarterly basis the number of dividend periods, whether or not
consecutive, containing in the aggregate not less than 540 calendar days) and
which by its terms provides for voting rights similar to those of the shares of
Series E (the "Series E Voting Parity Stock"), shall have the exclusive right
at the next annual meeting of shareholders for the election of directors or at
a special meeting called as described below, voting separately as one class, to
elect two directors for newly created directorships of the Company, each
director to be in addition to the number of directors constituting the Board of
Directors of the Company
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<PAGE> 31
immediately prior to the accrual of such right (the remaining directors to be
elected by the other class or classes of stock entitled to vote therefor). At
any time when the right to elect such directors shall have so vested, the
Company may, and upon written request of the holders of record of not less than
20% of the total number of shares of Series E and such Series E Voting Parity
Stock then outstanding shall, call a special meeting of the holders of such
shares to fill such newly created directorships. In the case of such a written
request, such special meeting shall be held within 90 days after delivery of
such request and in either case, at the place and upon the notice provided by
law and in the Bylaws of the Company, provided that the Company shall not be
required to call such a special meeting if such request is received less than
120 days before the date fixed for the next annual meeting of shareholders.
The right of holders of shares of Series E to elect directors shall continue
until dividends on the shares of Series E, have been declared and paid in full
for four consecutive Series E Dividend Periods, at which time such voting right
of the holders of the shares of Series E and the Series E Voting Parity Stock
shall, without further action, terminate, subject to revesting in the event of
each and every subsequent failure of the Company to pay such dividends for the
requisite number of periods as described above.
The term of office of all directors elected by the holders of the
shares of Series E and the Series E Voting Parity Stock in office at any time
when the aforesaid voting right is vested in such holders shall terminate upon
the election of their successors at any meeting of shareholders for the purpose
of electing directors; provided however, that without further action and unless
otherwise required by law, any director who shall have been elected by holders
of the shares of Series E and the Series E Voting Parity Stock as provided
herein may be removed at any time, either with or without cause, by the
affirmative vote of the holders of record of a majority of the outstanding
shares of Series E and the Series E Voting Parity Stock, voting separately as
one class, at a duly held shareholders' meeting. Upon termination of the
aforesaid voting right in accordance with the foregoing provisions, the term of
office of all directors elected by the holders of the shares of Series E and
the Series E Voting Parity Stock pursuant thereto then in office shall, without
further action, thereupon terminate unless otherwise required by law. Upon
such termination the number of directors constituting the Board of Directors of
the Company shall, without further action, be reduced by two, subject always to
the increase of the number of directors pursuant to the foregoing provisions in
the case of the future right of holders of the shares of Series E and the
Series E Voting Parity Stock to elect directors as provided above.
Unless otherwise required by law, in case of any vacancy occurring
among the directors so elected, the remaining director
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<PAGE> 32
who shall have been so elected may appoint a successor to hold office for the
unexpired term of the director whose place shall be vacant, and if all
directors so elected by the holders of the shares of Series E and the Series E
Voting Parity Stock shall cease to serve as directors before their term shall
expire, the holders of the shares of Series E and the Series E Voting Parity
Stock then outstanding may, at a meeting of such holders duly held, elect
successors to hold office of the unexpired terms of the directors whose places
shall be vacant.
The directors to be elected by the shares of Series E and the Series E
Voting Parity Stock, voting together as a class, shall not become members of
any of the three classes of directors otherwise required by these Articles. If
these Articles and applicable law were construed to require classification of
such directors and as a result, or if for any other reason, the holders of the
shares of Series E and the Series E Voting Parity Stock are not able to elect
the specified number of directors at the next annual meeting of shareholders in
the manner described above, the Company shall use its best efforts to take all
actions necessary to permit the full exercise of such voting rights (including,
if necessary, taking action to increase the authorized number of directors
standing for election at such next annual meeting of shareholders or seeking to
amend, alter or change these Articles and bylaws of the Company).
5. Optional Redemption. The shares of
Series E will not be redeemable before September 15, 1998. On or after
September 15, 1998, the shares of Series E are redeemable at the option of the
Company for cash, in whole or in part, at any time and from time to time, at
$25.00 per share, to the extent that the Company has funds legally available
therefor, plus unpaid dividends (whether or not declared) for the then-current
Series E Dividend Period up to the date fixed for redemption (without
accumulation of accrued and unpaid dividends for prior Series E Dividend
Periods) (the "Series E Redemption Price") without interest.
The Company shall not redeem or set aside funds for the redemption of
any Series E Parity Stock unless prior to or contemporaneously therewith it
redeems, or sets aside funds for the redemption of, a number of shares of
Series E whose liquidation preference bears the same relationship to the
aggregate liquidation preference of all shares of Series E then outstanding as
the liquidation preference of such Series E Parity Stock to be redeemed bears
to the aggregate liquidation preference of all Series E Parity Stock then
outstanding. Notwithstanding the foregoing, the Company may redeem Series E
Parity Stock without redeeming a proportional amount of Series E in the event
(i) such Series E Parity Stock is convertible into Common Stock and (ii) the
average of the daily closing prices of Common Stock for the 30-day period
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<PAGE> 33
ending 15 days prior to the date of the notice of redemption is in excess of
the conversion price of such Series E Parity Stock.
In the event that fewer than all the outstanding shares of Series E
are to be redeemed, the number of shares to be redeemed shall be determined by
the Board of Directors and the shares to be redeemed shall be determined by lot
or pro rata as may be determined by the Board of Directors or by any other
method as may be determined by the Board of Directors in its sole discretion to
be equitable.
In the event the Company shall redeem shares of Series E, notice of
such redemption (a "Series E Notice of Redemption") shall be given by first
class mail, postage prepaid, mailed not less than 30 nor more than 60 days
prior to the redemption date, to each holder of record of the shares to be
redeemed, at such holder's address as the same appears on the stock register of
the Company. Each Series E Notice of Redemption shall include the following
information: (1) the redemption date; (2) the number of shares of Series E to
be redeemed and, if fewer than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (3) the
Series E Redemption Price (specifying the amount of unpaid dividends to be
included therein); (4) the place or places where certificates for such shares
are to be surrendered for payment of the Series E Redemption Price; (5) that
dividends on the shares to be redeemed will cease to accrue as of such
redemption date; and (6) the provision hereunder pursuant to which such
redemption is being made.
On or after a redemption date, each holder of shares of Series E that
were called for redemption shall surrender the certificate or certificates
evidencing such shares to the Company at any place designated for such
surrender in the Series E Notice of Redemption and shall then be entitled to
receive payment of the Series E Redemption Price for each share. If less than
all the shares represented by one share certificate are to be redeemed, the
Company shall issue a new share certificate for the shares not redeemed.
By noon of the business day immediately preceding the redemption date,
the Company shall irrevocably deposit with First Interstate Company of
Washington, N.A., in its capacity as paying agent with respect to the shares of
Series E or any successor paying agent (the "Series E Paying Agent"), an
aggregate amount of immediately available funds or short-term money market
instruments or U.S. Treasury Securities sufficient to pay the Series E
Redemption Price specified herein for the shares of Series E to be redeemed on
such date and shall give the Series E Paying Agent irrevocable instructions to
pay such Series E Redemption Price to the holders of record of the shares of
Series E called for redemption.
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<PAGE> 34
If a Series E Notice of Redemption shall have been given and the
deposit referred to in the preceding paragraph made, then dividends shall
cease, as of the redemption date, to accumulate on the shares of Series E
called for redemption and all other rights of holders of the shares so called
for redemption shall cease on and after the redemption date, except the right
of holders of such shares to receive the Series E Redemption Price against
delivery of such shares, but without interest, and such shares shall cease to
be outstanding. The Company shall be entitled to receive, from time to time,
from the Series E Paying Agent the interest, if any, earned on such monies
deposited with the Series E Paying Agent, and the holders of any shares to be
redeemed with such monies shall have no claim to any such interest. With
regard to any other funds so deposited that are unclaimed by holders of shares
at the end of two years from such redemption date, the Series E Paying Agent
shall, upon demand, pay over to the Company such amount remaining on deposit,
the Series E Paying Agent shall thereupon be relieved of all responsibility to
the holders of such shares and the holders of shares of Series E so called for
redemption shall thereafter be entitled to look only to the Company for payment
thereof.
Any shares of Series E which shall at any time have been redeemed
shall, after such redemption, have the status of authorized but unissued shares
of preferred stock of the Company, without designation as to series until such
shares are once more designated as part of a particular series by the Board of
Directors.
6. No Conversion Rights. Holders of
shares of Series E will have no right to convert shares of Series E into Common
Stock or any other security of the Company.
7. Liquidation Preference. In the
event of any liquidation, dissolution or winding up of the Company, voluntary
or involuntary, the holders of the outstanding shares of Series E shall be
entitled to receive out of the assets of the Company, or the proceeds thereof,
available for distribution to shareholders, before any distribution of assets
is made to the holders of Common Stock or other Series E Junior Stock,
liquidating distributions in the amount of $25.00 per share plus dividends
accrued and unpaid for the then-current Series E Dividend Period (without
accumulation of accrued and unpaid dividends for prior Series E Dividend
Periods) to the date fixed for such liquidatiodissolution or winding up. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of shares of Series E will not be entitled to any further
participation in any distribution of assets of the Company. All distributions
made with respect to the shares of Series E in connection with such
liquidation, dissolution or winding up of the Company shall be made pro rata to
the holders entitled thereto.
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<PAGE> 35
If, upon any liquidation, dissolution or winding up of the Company,
the assets of the Company, and proceeds thereof, available for distribution
among the holders of the shares of Series E and of any Series E Parity Stock,
shall be insufficient to pay in full the preferential amount set forth in the
preceding paragraph above to the holders of the shares of Series E and
liquidating payments on all such Series E Parity Stock, then such assets and
proceeds shall be distributed among the holders of Series E and all such Series
E Parity Stock ratably in accordance with the respective amounts which would be
payable on such shares of Series E and any such Series E Parity Stock if all
amounts payable thereon were paid in full.
8. Payments on Stock Ranking Junior.
In the event of any such liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, unless and until payment in full is made to
the holders of all outstanding shares of Series E of the liquidation
distribution to which they are entitled, no dividend or other distribution
shall be made to the holders of the Common Stock or any other Series E Junior
Stock, and no purchase, redemption or other acquisition for any consideration
by the Company shall be made in respect of the shares of the Common Stock or
such other class of junior Stock.
Neither a consolidation or merger of the Company into or with another
entity or entities nor the sale, transfer or exchange (for cash, shares of
equity stock, securities or other consideration) of all or substantially all of
the property and assets of the Company, shall be deemed to be a liquidation,
dissolution or winding up of the Company within the meaning of this Section
D.(A)(3).
9. Sinking Fund. No sinking fund shall
be provided for the purchase of redemption of shares of Series E.
10. Preemptive Rights. No holder of
shares of Series E shall have any preemptive right to subscribe to stock,
obligations, warrants, rights to subscribe to stock, or other securities of
this corporation of any class, whether now or hereafter authorized.
V
VI
Preemptive Rights
The shareholders of the Company have no preemptive rights to acquire
additional shares of the Company.
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<PAGE> 36
VIII
Board of Directors
The Company shall be managed by a Board of Directors. The number of
directors shall be stated in the Company's Bylaws, provided, however, that such
number shall be not less than five (5). In the absence of such a provision in
the Bylaws, the board shall consist of the number of directors constituting the
initial Board of Directors. The initial directors shall be five (5) in number.
There shall be three classes of elected directors designated as Class 1, Class
2, and Class 3 directors. Each class shall contain one-third of the total
number of directors, as near as may be. The terms of the Class 1 directors
shall expire at the first annual shareholders' meeting after their election.
The terms of the Class 2 directors shall expire at the second annual
shareholders' meeting after their election. The terms of the Class 3 directors
shall expire at the third annual shareholders' meeting after their election.
At each annual shareholders' meeting held thereafter, directors shall be chosen
for a term of three years to succeed those whose terms expire. A vacancy on
the Board of Directors may be filled by the Board in accordance with the
applicable provisions of the Company's Bylaws. A director elected to fill a
vacancy shall be elected for a term of office continuing only until the next
election of directors by shareholders.
IX
Removal of Directors
Any director may be removed by the shareholders only with good cause
and in accordance with the applicable provisions of the Company's Bylaws.
X
Cumulative Voting
The right to cumulate votes in the election of directors shall not
exist with respect to shares of stock of the Company.
XI
Bylaws
The Board of Directors has the power to adopt, amend or repeal the
Bylaws of the Company, subject to the concurrent power of the shareholders, by
at least two-thirds affirmative vote of the shares of the Company entitled to
vote thereon, to adopt, amend or repeal the Bylaws.
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<PAGE> 37
XII
Dealings With Interested Persons
The Company may enter into contracts and otherwise transact business
as vendor, purchaser, or otherwise, with its directors, officers, and
shareholders and with corporations, associations, firms, and entities in which
they are or may become interested as directors, officers, shareholders,
members, or otherwise, as freely as though such interest did not exist;
provided, however, that no director or officer shall become an indorser, surety
or guarantor or in any manner an obligor for any loan made by the Company, and
provided further that no director or officer shall, for himself or as agent or
partner of another, directly or indirectly borrow any of the funds or deposits
held by the Company or become the owner of real property upon which the Company
holds a mortgage. A loan to or a purchase by a corporation in which a director
or officer of the Company is a stockholder of fifteen percent (15%) or more of
the total outstanding stock, or in which such director or officer and other
directors of the Company are collectively stockholders of twenty-five percent
(25%) or more of the total outstanding stock, shall be deemed a loan to or a
purchase by such director or officer within the meaning of this Article, except
when the loan to or purchase by such corporation occurred without his or her
knowledge or against his or her protest. Except as otherwise provided in this
Article and in the absence of fraud, the fact that any director, officer,
shareholder, or any corporation, association, firm or other entity of which any
director, officer, or shareholder is interested, is in any way interested in
any transaction or contract shall not make the transaction or contract void or
voidable, or require the director, officer, or shareholder to account to the
Company for any profits therefrom if the transaction or contract is or shall be
authorized, ratified, or approved by (i) vote of a majority of a quorum of the
Board of Directors excluding any interested director or directors, (ii) the
written consent of the holders of a majority of the shares entitled to vote, or
(iii) a general resolution approving the acts of the directors and officers
adopted at a shareholders meeting by vote of the holders of the majority of the
shares entitled to vote. Nothing herein contained shall create any liability
in the events described or prevent the authorization, ratification or approval
of such transactions or contracts in any other manner.
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<PAGE> 38
Shareholder Vote Required to Approve Plan of Merger
If pursuant to the Washington Business Corporation Act the Company's
shareholders are required to approve a plan of merger, then (a) if two-thirds
of the directors vote to recommend the plan of merger to the shareholders, the
plan of merger shall be approved by a vote of the holders of a majority of the
outstanding voting shares of the Company; (b) in all other cases where a
shareholder vote is required by the Washington Business Corporation Act, such
Act, as it may be amended, will control.
XIV
Indemnification
The Company has the power to indemnify, and to purchase and maintain
insurance for, its directors, officers, employees, and other persons and agents
against all liability, damage, and expenses arising from or in connection with
service for or at the request of, employment by, or other affiliation with the
Company or other firms or entities.
ARTICLE XI
Business Combinations
I
B. For the purposes of this Article XI:
(1) The terms "Affiliate" and "Associate" shall have the
meanings attached to them by Rule 12b-2 under the Securities Exchange Act of
1934, as amended, or any similar successor rule.
(2) The term "beneficial owner" and correlative terms
shall have the meaning as set forth in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended, or any similar successor rule. Without limitation and
in addition to the foregoing, any shares of Voting Stock of the Company which
any Major Stockholder has the right to vote or to acquire (i) pursuant to any
agreement, (ii) by reason of tenders of shares by shareholders of the Company
in connection with or pursuant to a tender offer made by such Major Stockholder
(whether or not any tenders have been accepted, but excluding tenders which
have been rejected), or (iii) upon the exercise of conversion rights, warrants,
options or otherwise, shall be deemed "beneficially owned" by such Major
Stockholder.
(3) The term "Business Combination" shall mean:
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<PAGE> 39
(a) any merger or consolidation (whether in a
single transaction or a series of related transactions, including a series of
separate transactions with a Major Stockholder, any Affiliate or Associate
thereof or any Person acting in concert therewith) of the Company or any
Subsidiary with or into a Major Stockholder or of a Major Stockholder into the
Company or a Subsidiary;
(b) any sale, lease, exchange, transfer,
distribution to stockholders or other disposition, including without
limitation, a mortgage, pledge or any other security device, to or with a Major
Stockholder by the Company or any of its Subsidiaries (in a single transaction
or a series of related transactions) of all, substantially all or any
Substantial Part of the assets of the Company or a Subsidiary (including,
without limitation, any securities of a Subsidiary);
(c) the purchase, exchange, lease or other
acquisition by the Company or any of its Subsidiaries (in a single transaction
or a series of related transactions) of all, substantially all or any
Substantial Part of the assets or business of a Major Stockholder;
(d) the issuance of any securities, or of any
rights, warrants or options to acquire any securities, of the Company or a
Subsidiary to a Major Stockholder or the acquisition by the Company or a
Subsidiary of any securities, or of any rights, warrants or options to acquire
any securities, of a Major Stockholder;
(e) any reclassification of Voting Stock,
recapitalization or other transaction (other than a redemption in accordance
with the terms of the security redeemed) which has the effect, directly or
indirectly, of increasing the proportionate amount of Voting Stock of the
Company or any Subsidiary which is beneficially owned by a Major Stockholder,
or any partial or complete liquidation, spin off, split off or split up of the
Company or any Subsidiary; provided, however, that this Section A(2)(e) shall
not relate to any transaction of the types specified herein that has been
approved by a majority of the Continuing Directors; and
(f) any agreement, contract or other arrangement
providing for any of the transactions described herein.
(4) The term "Continuing Director" shall mean (i)
a person who was a member of the Board of Directors of the Company immediately
prior to the time that any then-existing Major Stockholder became a Major
Stockholder, or (ii) a person designated (before initially becoming a director)
as a Continuing Director by a majority of the then Continuing Directors. All
references to a
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<PAGE> 40
vote of the Continuing Directors shall mean a vote of the total number of
Continuing Directors.
(5) The term "Major Stockholder" shall mean any Person
which, together with its Affiliates and Associates and any Person acting in
concert therewith, is the beneficial owner of five percent (5%) or more of the
votes held by the holders of the outstanding shares of the Voting Stock of the
Company, and any Affiliate or Associate of a Major Stockholder, including a
Person acting in concert therewith. The term "Major Stockholder" shall not
include a Subsidiary.
(6) The term "other consideration to be received" shall
include, without limitation, Voting Stock retained by the Company's existing
shareholders in the event of a Business Combination which is a merger or
consolidation in which the Company is the surviving corporation.
(7) The term "Person" shall mean any individual,
corporation, partnership or other person, group or entity (other than the
Company, any Subsidiary or a trustee holding stock for the benefit of employees
of the Company or its Subsidiaries, or any one of them, pursuant to one or more
employee benefit plans or arrangements). When two or more persons act as a
partnership, limited partnership, syndicate, association or other group for the
purpose of acquiring, holding or disposing of shares of stock, such
partnerships, syndicate, association or group will be deemed a "Person."
(8) The term "Subsidiary" shall mean any business entity
fifty percent (50%) or more of which is beneficially owned by the Company.
(9) The term "Substantial Part," as used in reference to
the assets of the Company or any Subsidiary or of any Major Stockholder means
assets having a value of more than five percent (5%) of the total consolidated
assets of the Company and its Subsidiaries as of the end of the Company's most
recent fiscal year ending prior to the time the determination is made.
(10) The term "Voting Stock" shall mean the stock or other
securities entitled to vote upon any action to be taken in connection with any
Business Combination or entitled to vote generally in the election of
directors, including stock or other securities convertible into Voting Stock.
B. Notwithstanding any other provisions of these Articles of
Incorporation and except as set forth in Section C of this Article XI, neither
the Company nor any Subsidiary shall be a party to a Business Combination
unless:
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<PAGE> 41
(1) The Business Combination was approved by the Board of
Directors of the Company prior to the Major Stockholder involved in the
Business Combination becoming such; or
(2) The Major Stockholder involved in the Business
Combination sought and obtained the unanimous prior approval of the Board of
Directors to become a Major Stockholder and the Business Combination was
approved by a majority of the Continuing Directors; or
(3) The Business Combination was approved by at least
eighty percent (80%) of the Continuing Directors of the Company; or
(4) The Business Combination was approved by at least
ninety-five percent (95%) of the outstanding Voting Stock beneficially owned by
shareholders other than any Major Stockholder.
C. The approval requirements of Section B shall not apply if:
(1) The Business Combination is approved by at least the
majority vote of the shares of the Voting Stock and the majority vote of the
shares of the Voting Stock beneficially owned by shareholders other than any
Major Stockholder; and
(2) All of the following conditions are satisfied:
(a) The aggregate of the cash and the fair market
value of other consideration to be received per share (as adjusted for stock
splits, stock dividends, reclassification of shares into a lesser number and
similar events) by holders of the common stock of the Company in the Business
Combination is not less than the higher of (i) the highest per share price
(including brokerage commissions, soliciting dealers' fees, dealer-management
compensation, and other expenses, including, but not limited to, costs of
newspaper advertisements, printing expenses and attorneys' fees) paid by the
Major Stockholder in acquiring any of the Company's common stock; or (ii) an
amount which bears the same or a greater percentage relationship to the market
price of the Company's common stock immediately prior to the announcement of
such Business Combination as the highest per share price determined in (i)
above bears to the market price of the Company's common stock immediately prior
to the commencement of acquisition of the Company's common stock by such Major
Stockholder, but in no event in excess of two times the highest per share price
determined in (i) above; and
(b) The consideration to be received in such
Business Combination by holders of the common stock of the Company
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<PAGE> 42
shall be, except to the extent that a stockholder agrees otherwise as to all or
a part of his or her shares, in the same form and of the same kind as paid by
the Major Stockholder in acquiring his Voting Stock.
(c) After becoming a Major Stockholder and prior
to the consummation of such Business Combination, (i) such Major Stockholder
shall not have acquired any newly issued shares of capital stock, directly or
indirectly, from the Company or a Subsidiary (except upon conversion of
convertible securities acquired by it prior to becoming a Major Stockholder or
upon compliance with the provisions of this Article XI or as a result of a pro
rata stock dividend or stock split), and (ii) such Major Stockholder shall not
have received the benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or other financial
assistance or tax credits provided by the Company or a Subsidiary, or made any
major changes in this Company's business or equity capital structure; and
(d) A proxy statement responsive to the
requirements of the Securities Exchange Act of 1934, whether or not the Company
is then subject to such requirements, shall be mailed to all shareholders of
the Company for the purpose of soliciting shareholder approval of such Business
Combination and shall contain on the front thereof, in a prominent place, (i)
any recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors may choose to state, and (ii) the
opinion of a reputable national investment banking firm as to the fairness (or
lack thereof) of the terms of such Business Combination, from the point of view
of the remaining shareholders of the Company. Such investment banking firm
shall be engaged solely on behalf of the remaining shareholders, be paid a
reasonable fee for their services by the Company upon receipt of such opinion,
and be one of the so-called major bracket investment banking firms which has
not previously been associated with such Major Stockholder and to be selected
by a majority of the Continuing Directors.
D. During the time a Major Stockholder exists, a resolution to
voluntarily dissolve the Company shall be adopted only upon: (1) the consent
of all of the Company's shareholders; or (2) the affirmative vote of at least
two-thirds of the total number of directors, the affirmative vote of the
holders of at least two-thirds of the shares of the Company entitled to vote
thereon, and the affirmative vote of the holders of at least two-thirds of the
shares of each class of shares entitled to vote thereon as a class, if any.
E. As to any particular transaction, the Continuing Directors
shall have the power and duty to determine, on the basis of information known
to them:
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<PAGE> 43
(1) The amount of Voting Stock beneficially held by any
Person;
(2) Whether a Person is an Affiliate or an Associate of
another;
(3) Whether a Person is acting in concert with another;
(4) Whether the assets subject to any Business
Combination constitute a Substantial Part;
(5) Whether a proposed transaction is subject to the
provisions of this Article; and
(6) Such other matters with respect to which a
determination is required under this Article.
Any such determination shall be conclusive and binding for all
purposes of this Article.
F. The affirmative vote required by this Article is in addition
to the vote of the holders of any class or series of stock of the Company
otherwise required by law, these Articles of Incorporation, any resolution
which has been adopted by the Board of Directors providing for the issuance of
a class or series of stock or any agreement between the Company and any
national securities exchange.
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<PAGE> 44
ARTICLE XII
Amendment
The Company may increase or decrease its capital stock or otherwise
amend these Articles of Incorporation by a vote of the stockholders
representing two-thirds of its issued capital stock at any regular meeting or
special meeting duly called for that purpose in the manner prescribed by its
Bylaws, provided, however, that Article XI may not be repealed or amended in
any respect unless such action is approved by at least a ninety-five percent
(95%) vote of the outstanding Voting Stock beneficially owned by shareholders
other than any Major Stockholder, and provided further, that the Board of
Directors may amend these Articles without stockholder action as necessary to
designate the preferences, limitations, and relative rights of a class or
series of shares of the Company prior to issuance of any shares in that class
or series. Notice of a meeting to increase or decrease authorized capital
stock shall first be published once a week for four weekly issues in a
newspaper published in Seattle, Washington, of if there is no newspaper
published in Seattle, then in some newspaper published in King County,
Washington. The notice shall state the purpose of the meeting, the amount of
the present authorized capital stock of the Company and the proposed new
authorized capital stock.
ARTICLE XIII
Limitation of Liability
A director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for conduct as a director
("Protected Conduct"). However, Protected Conduct shall exclude (i) acts or
omissions which involve intentional misconduct by the director or a knowing
violation of law by the director, (ii) any conduct violating Section 23B.08.310
of the Revised Code of Washington, and (iii) 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 further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall
be eliminated or limited to the fullest extent permitted by Washington law, as
so amended. Any repeal or modification of this Article XIII by the
shareholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
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<PAGE> 45
ARTICLE XIV
The street address of the initial registered office of the Company is:
1201 Third Avenue
15th Floor
Seattle, WA 98101
and the name of the initial registered agent at that address is:
Marc R. Kittner
ARTICLE XV
The name and address of the incorporator is:
William L. Lynch
Washington Mutual Savings Bank
1201 Third Ave. 15th Floor
Seattle, WA 98101
ARTICLE XVI
Special Meeting of the Shareholders
Special meetings of the shareholders for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the board of directors
or by any other person or persons authorized to do so in the Company's Bylaws.
Notwithstanding RCW 23B.07.020(1)(b) or any other provision in these Articles
or the Company's Bylaws, a special meeting of the shareholders may be called by
the shareholders only if the holders of at least twenty-five percent of all the
votes to be cast on any issue proposed to be considered at the proposed special
meeting sign, date and deliver to the Company's secretary one or more written
demands for the meeting describing the purpose or purposes for which it is to
be held.
Executed this 28th day of November 1994.
/s/ William L. Lynch
--------------------------------------
William L. Lynch,
Corporate Secretary
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<PAGE> 46
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
WASHINGTON MUTUAL, INC.
Pursuant to the provisions of Chapter 23B.10 of the Washington
Business Corporation Act, WASHINGTON MUTUAL, INC., a Washington corporation,
hereby adopts the following articles of amendment to its restated articles of
incorporation:
FIRST: The name of the corporation is:
WASHINGTON MUTUAL, INC.
SECOND: The first sentence of Article IIA. of the Restated Articles
of Incorporation, "Capital Stock--Issuance of and Payment for Stock", is
amended to read in its entirety as follows:
"The total number of shares of capital stock which the Company has
authority to issue is 360,000,000 shares of which 350,000,000 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."
THIRD: The amendment does not provide for an exchange,
reclassification or cancellation of any issued shares.
FOURTH: The foregoing amendment of the Articles of Incorporation was
adopted on October 16, 1996, by the board of directors of the corporation in
accordance with the provisions of RCW 23B.10.030, and duly approved by the
shareholders on December 18, 1996, in accordance with the provisions of RCW
23B.10.030 and RCW 23B.10.040.
EXECUTED this 18th day of December, 1996.
WASHINGTON MUTUAL, INC.
By: Kerry K. Killinger
-------------------------------------
Its: President and Chief Executive Officer
<PAGE> 1
EXHIBIT 4.6
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") is
made and entered into as of November 26, 1996, between WASHINGTON MUTUAL, INC.
(the "Company"), a corporation organized and existing under the laws of the
state of Washington, and its successors and assigns (the "Issuer"), and HARRIS
TRUST AND SAVINGS BANK, a banking corporation duly organized and existing under
the laws of Illinois, as trustee, (the "Trustee"). Capitalized terms used in
this Supplemental Indenture without definition have the meanings assigned to
them in the Indenture.
RECITALS
The Company and the Trustee entered into an Indenture (the
"Indenture") dated as of August 25, 1995, pursuant to which the Company issued
its senior unsecured notes in the original principal amount of $150,000,000
(the "Notes").
Pursuant to Section 902 of the Indenture, the Company and the Trustee
may, subject to certain exceptions, with the consent of the Holders of not less
than 66-2/3% in principal amount of the Outstanding Securities of each series
affected, enter into one or more supplements to the Indenture for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of modifying in any manner the rights of the
Holders of Securities of any such series.
The Company desires to amend certain provisions of the Indenture and
has obtained the consent of at least 66-2/3% in principal amount of the Notes
to such amendments.
Accordingly, the Company and the Trustee agree as follows:
ARTICLE ONE
AMENDMENTS
SECTION 101. The following definitions of Section 101 of the
Indenture are amended in their entirety to read as follows:
<PAGE> 2
"Restricted Subsidiary" means (a) Washington Mutual Bank
("WMB"), and Washington Mutual Bank fsb ("WMFSB") and any successor to
any of the foregoing entities and (b) any other Subsidiary that (i) is
a depository institution (as defined in 12 U.S.C. Section 1461
(b)(1)(A)), a consumer finance company, a mortgage company, an
insurance company, a trust company, an investment advisor or a
securities broker-dealer, or that is otherwise primarily engaged in
the business of providing financial services or in a business that may
be engaged in by a Washington state chartered savings bank (as defined
in RCW 32.04.020) or a federal savings association (as defined in 12
U.S.C. Section 1462(5)) or a subsidiary of any of them and (ii) is
designated by the Company, in its sole discretion, as a "Restricted
Subsidiary" pursuant to a supplemental indenture.
"Subsidiary" means any Corporation of which, at the time of
determination, the Company and/or one or more Subsidiaries owns or
controls directly or indirectly more than 50% of the outstanding
shares of voting stock or other outstanding equity interests entitled
to vote.
SECTION 102. Section 902 of the Indenture is amended in its entirety
to read as follows:
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following
purposes:
(1) to evidence the succession of another Person
to the Company as permitted by the terms of this Indenture, and the
assumption by any such successor of the due and punctual payment of
the principal and interest on all of the Securities and of the
covenants of the Company herein and in the Securities contained; or
(2) to add to the covenants of the Company, for
the benefit of the Holders of Securities of any series, to convey,
transfer, assign, mortgage or pledge any property to or with the
Trustee or to surrender any right or power herein conferred upon the
Company; or
(3) to provide for the issuance under this
Indenture of Securities in bearer form (including Securities
registrable as to principal only) and to provide for exchangeability
of such Securities for Securities issued hereunder in fully registered
form, and to make all appropriate changes for such purpose; or
(4) to add to, change or eliminate any of the
provisions of this Indenture in respect of one or more series of
Securities, provided that such addition, change or elimination (i)
shall neither (A) apply to any Security of any series created prior to
the execution of such supplemental indenture and entitled to the
benefit of such provisions nor (B) modify the right of the Holder of
any such Security with respect
<PAGE> 3
to such provision or (ii) shall become effective only when there are
no such Securities Outstanding; or
(5) to cure any ambiguity, to correct or
supplement any provision herein which may be inconsistent with any
other provision herein, or to make any other provisions with respect
to matters or questions arising under this Indenture, provided such
action shall not materially adversely affect the interest of the
Holders of Outstanding Securities of any series; or
(6) to establish the form or terms or Securities
of any series pursuant to Section 201 or 301; or
(7) to add an event that will be an Event of
Default under Section 501; or
(8) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the
Securities of one or more series or to add to or change any of the
provisions of this Indenture necessary to provide for more than one
Trustee; or
(9) to designate any Subsidiary of the Company as
a Restricted Subsidiary.
Any supplemental indenture authorized by the provisions of this
Section 901 may be executed by the Company and the Trustee without the consent
of the Holders of Outstanding Securities of any series, notwithstanding any of
the provisions of Section 902.
SECTION 103. Section 1008 of the Indenture is amended in its entirety
to read as follows:
The Company will not directly or indirectly sell, assign,
transfer, or otherwise dispose of any shares of capital stock of a
Restricted Subsidiary or any securities convertible into shares of
capital stock of a Restricted Subsidiary and it will not permit a
Restricted Subsidiary to issue any shares of its capital stock or any
securities convertible into shares of its stock, except for sales,
assignments, transfers, other dispositions or issuances: (i) which
are for the purpose of qualifying a person to serve as a director;
(ii) the proceeds of which (a) are received in cash or cash
equivalents in an amount equal to the fair market value of such stock
or securities (determined by management in good faith and on a
reasonable basis) and (b) within 90 days thereof, are invested in such
a manner that the consolidated assets of the Restricted Subsidiaries
and any successor to any of the foregoing entities account for at
least 80% of the consolidated assets of the Company, determined as of
the end of the most recent fiscal quarter of the Company; or (iii) to
the Company or any Restricted Subsidiary.
The Company will not permit a Restricted Subsidiary to (a)
merge or consolidate with or into any Person unless, immediately after
giving effect to such merger or
<PAGE> 4
consolidation, (i) the survivor of such merger or consolidation is a
Restricted Subsidiary or the Company, and (ii) the consolidated assets
of the Restricted Subsidiaries and any successor to any of the
foregoing entities account for at least 80% of the consolidated assets
of the Company; or (b) sell, convey or transfer all or substantially
all of its properties or assets, except (i) to the Company or a
Restricted Subsidiary, or (ii) if, within 90 days of such sale,
conveyance or transfer, the proceeds thereof are invested in such a
manner that the consolidated assets of the Restricted Subsidiaries and
any successor to any of the foregoing entities account for at least
80% of the consolidated assets of the Company, determined as of the
end of the most recent fiscal quarter of the Company.
ARTICLE TWO
MISCELLANEOUS
SECTION 201. Ratification.
Except as expressly modified by the foregoing, the terms and
conditions of the Indenture are hereby ratified and reaffirmed by the
parties hereto and shall continue in full force and effect.
SECTION 202. Governing Law.
This Supplement shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 203. Counterparts.
This Supplement may be executed in several counterparts, each
of which shall be an original and all of which shall constitute one
and the same instrument.
The parties hereto have caused this Supplement to be duly executed, as
of the date and year set forth above.
WASHINGTON MUTUAL, INC.
By: ______________________________
Its: ______________________________
HARRIS TRUST AND SAVINGS BANK
By: ______________________________
Its: ______________________________
<PAGE> 5
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE (this "Supplemental Indenture") is
made and entered into as of January 6, 1997, between WASHINGTON MUTUAL, INC.
(the "Company"), a corporation organized and existing under the laws of the
state of Washington, and its successors and assigns, and HARRIS TRUST AND
SAVINGS BANK, a banking corporation duly organized and existing under the laws
of Illinois, as trustee, (the "Trustee"). Capitalized terms used in this
Supplemental Indenture without definition have the meanings assigned to them in
the Indenture.
RECITALS
The Company and the Trustee entered into an Indenture dated as of
August 25, 1995 as hereafter amdended and supplemented, (the "Indenture")
pursuant to which the Company issued its senior unsecured notes in the original
principal amount of $150,000,000 (the "Notes").
The Company and the Trustee entered into a supplemental indenture (the
"First Supplemental Indenture") dated November 26, 1996, pursuant to which
certain provisions of the Indenture were amended.
Pursuant to Section 901(9) of the Indenture, the Company and the
Trustee may, without the consent of the Holders, designate any Subsidiary of
the Company meeting certain requirements a "Restricted Subsidiary" under the
Indenture.
The Company desires to designate American Savings Bank, F.A. a
Restricted Subsidiary as that term is defined in Section 101 of the Indenture.
American Savings Bank, F.A. is a federally chartered savings association and
accordingly satisfies the requirements of a Restricted Subsidiary under the
Indenture.
Accordingly, the Company and the Trustee agree as follows:
<PAGE> 6
ARTICLE ONE
AGREEMENT
SECTION 101. The Company hereby designates American Savings Bank,
F.A. a Restricted Subsidiary of the Company as that term is defined in Section
101 of the Indenture, and as that term is used throughout the Indenture.
ARTICLE TWO
MISCELLANEOUS
SECTION 201. Ratification.
Except as expressly modified by the foregoing, the terms and
conditions of the Indenture are hereby ratified and reaffirmed by the
parties hereto and shall continue in full force and effect.
SECTION 202. Governing Law.
This Supplemental Indenture shall be governed by and construed
in accordance with the laws of the State of New York.
SECTION 203. Counterparts.
This Supplemental Indenture may be executed in several
counterparts, each of which shall be an original and all of which
shall constitute one and the same instrument.
The parties hereto have caused this Supplemental Indenture to be duly
executed, as of the date and year set forth above.
WASHINGTON MUTUAL, INC.
By_____________________________
Its____________________________
HARRIS TRUST AND SAVINGS BANK
By_____________________________
Its____________________________
<PAGE> 1
EXHIBIT 10.7
WASHINGTON MUTUAL, INC.
SUPPLEMENTAL EMPLOYEES' RETIREMENT PLAN
Effective January 1, 1994
<PAGE> 2
WASHINGTON MUTUAL, INC.
SUPPLEMENTAL EMPLOYEES' RETIREMENT PLAN
Effective January 1, 1994
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
NATURE OF PLAN
1.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Top Hat Plan and Excess Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Unfunded Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Cash Balance Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Disabled or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Former Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.14 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.15 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.16 Plan Administration Committee or Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.17 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.18 Related Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.19 Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.20 RSIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.21 Year of Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE III
BENEFITS
3.1 Participant's Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Benefits Credited to Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Interest Credited to Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
PAYMENT OF BENEFITS
4.1 Commencement of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Determination of Nonforfeitable Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Payment of Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.4 Payment in the Event of Legal Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Accounts Charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Unclaimed Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
PLAN ADMINISTRATION COMMITTEE
5.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Powers of Plan Administration Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.5 Manner of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.6 Authorized Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.7 Interested Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI
PARTICIPANT ADMINISTRATIVE PROVISIONS
6.1 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 Personal Data to Plan Administration Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Address for Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 Place of Payment and Proof of Continued Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Assignment or Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.6 Information Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.7 Beneficiary's Right to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.8 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.9 Appeal Procedure for Denial of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.10 No Rights Implied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VII
AMENDMENT AND TERMINATION
7.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII
MISCELLANEOUS
8.1 Execution of Receipts and Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2 Employer Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3 Interpretations and Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.4 Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.6 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.7 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.8 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.9 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
iii
<PAGE> 5
WASHINGTON MUTUAL, INC.
SUPPLEMENTAL EMPLOYEES' RETIREMENT PLAN
Effective January 1, 1994
PREAMBLE
WHEREAS, Washington Mutual, Inc. (the "Company") has established
certain tax-qualified retirement plans for the benefit of its employees, and
provides retirement benefits thereunder within the limits prescribed by the
Code;
WHEREAS, pursuant to the Revenue Reconciliation Act of 1993, the
amount of a participant's compensation that can be considered under a
tax-qualified retirement plan has been significantly reduced, which will,
beginning January 1, 1994, result in lower benefit accruals for certain key
management and highly compensated employees under the retirement plans
maintained by the Company;
WHEREAS, upon the recommendation of the compensation committee, the
board of directors of the Company's predecessor, Washington Mutual Savings
Bank, previously established this plan to supplement the benefits that are
accrued under the tax-qualified retirement plans of the Company with respect to
compensation earned above the compensation limits prescribed by the Code;
NOW, THEREFORE, the Company, having assumed all benefit plans
established by Washington Mutual Savings Bank, hereby establishes this
Washington Mutual, Inc. Supplemental Employees' Retirement Plan for the
purposes stated in Article I, to be effective January 1, 1994.
ARTICLE I
NATURE OF PLAN
1.1 PURPOSE. The purpose of this Plan is to provide retirement
benefits for certain key employees of the Company and its affiliates that
supplement the benefits accrued under the Cash Balance Plan and the RSIP.
1.2 TOP HAT PLAN AND EXCESS BENEFITS. The Plan is an unfunded
plan maintained primarily to provide deferred compensation benefits for a
select group of management or highly compensated employees (within the meaning
of sections 201(2), 301(a)(3), and 401(a)(1) of ERISA), and is intended to be
exempt from Parts 2, 3, and 4 of ERISA. The Plan also separately accounts for
benefits that are provided to certain employees in excess of the limitations on
contributions and benefits imposed by section 415 of the Code, as described in
1
<PAGE> 6
section 3(36) of ERISA, and such separate part of the Plan is intended to be an
"excess benefit plan" exempt from ERISA pursuant to section 4(b)(5) of ERISA.
1.3 UNFUNDED PLAN. This Plan is established as an unfunded plan
of deferred compensation. The compensation that is payable hereunder and
interest that accrues thereon are represented solely by bookkeeping entries on
accounts maintained by the Plan Administration Committee. No funds are held in
trust or otherwise segregated for the sole purpose of paying Plan benefits.
All Plan benefits are payable solely from the general assets of the Company.
The Company may from time to time reserve assets in a general account or
grantor trust owned by the Company for the purpose paying liabilities that are
accrued under this Plan. Participants and Beneficiaries shall have no legal or
equitable rights, interest or claims in any specific collateral, property or
assets of the Company, but shall be general unsecured creditors of the Company
until benefits are paid hereunder.
_________________________
End of Article I
2
<PAGE> 7
ARTICLE II
DEFINITIONS AND CONSTRUCTION
For the purpose of this Plan, the following definitions shall apply
unless the context requires otherwise. Words used in the masculine gender
shall apply to the feminine, where applicable, and wherever the context of the
Plan dictates, the plural shall be read as the singular and the singular as the
plural. The words "Article" or "Section" in this Plan shall refer to an
Article or Section of this Plan unless specifically stated otherwise.
Compounds of the word "here," such as "herein" and "hereof" shall be construed
to refer to another provision of this Plan, unless otherwise specified or
required by the context. In determining the time within which an event or
action is to take place for purposes of the Plan, no fraction of a day shall be
considered, and any act, the performance of which would fall on a Saturday,
Sunday, holiday or other non-business day, may be performed on the next
following business day.
2.1 ACCOUNTS. The separate bookkeeping records maintained to
record the benefits of a Participant earned under the Plan which include the
following or any others that are established by the Plan Administration
Committee:
(a) "Cash Balance Account" shall mean the Account
reflecting benefits credited to a Participant hereunder that are earned with
reference to the Cash Balance Plan and are not allocated to the Excess Benefits
Account, together with earnings, gains and losses credited thereto.
(b) "Excess Benefits Account" shall mean the Account
reflecting benefits credited to a Participant hereunder that are in excess of
the limitations on contributions and benefits under the Retirement Plans
imposed by section 415 of the Code, as described in section 3(36) of ERISA,
together with earnings, gains and losses credited thereto.
(c) "RSIP Account" shall mean the Account reflecting
benefits credited to a Participant hereunder that are earned with reference to
the RSIP and are not allocated to the Excess Benefits Account, together with
earnings, gains and losses credited thereto.
2.2 BENEFICIARY. Any person or fiduciary designated by a
Participant who is or may become entitled to a benefit under the Plan following
the death of the Participant; provided, that in the case of a married
Participant, the Participant's Beneficiary shall be the Participant's surviving
spouse unless the Participant's spouse (i) consents in writing to the
designation of another party as Beneficiary of all or a part of the benefit to
which the Participant may become entitled under the Plan, (ii) such election
designates a Beneficiary which may not be changed without spousal consent (or
the consent of the spouse expressly permits designations by the Participant
without any requirement of further spousal consent), (iii) the spouse's consent
acknowledges the effect of such election, and (iv) such consent is witnessed by
a notary public or a member of the Plan Administration Committee. Such spousal
consent shall not be required if it is established to the satisfaction of the
Plan Administration Committee that such consent cannot be obtained because the
spouse cannot be located or because of such other circumstances
3
<PAGE> 8
as the Secretary of the Treasury may prescribe by regulations. Any consent by
a spouse hereunder shall be effective only with respect to that spouse.
2.3 CASH BALANCE PLAN. The Washington Mutual, Inc. Cash Balance
Pension Plan.
2.4 CODE. The Internal Revenue Code of 1986, as amended.
2.5 COMPANY. Washington Mutual, Inc. or any successor thereto.
2.6 COMPENSATION. A Participant's compensation, determined
according to the definition of "compensation" under the Cash Balance Plan for a
Plan Year, without regard to the limitations of section 401(a)(17) of the Code
contained in the Cash Balance Plan, that is actually paid or made available to
the Participant during such year, less the maximum amount of compensation that
can be considered under section 401(a)(17)(A) of the Code, as adjusted by
section 401(a)(17)(B) of the Code.
2.7 DISABLED OR DISABILITY. A Participant is Disabled when the
Committee determines, in its sole and absolute discretion, that the Participant
has become totally and permanently disabled and unable to engage in any
occupation for wage or profit, as described in section 22(e)(3) of the Code.
The Committee may require a Participant to submit to a medical examination in
order to confirm Disability. The Committee may also rely on the determination
of Disability by the Social Security Administration.
2.8 ELIGIBLE EMPLOYEE. Any Employee who is (i) part of a select
group of management or highly compensated employees within the meaning of
sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, or who accrues annual
additions under the Retirement Plans that are in excess of the limitations on
contributions and benefits imposed by section 415 of the Code, as described in
section 3(36) of ERISA, and (ii) who is identified on Exhibit A of this Plan,
as it may be modified by the Company or the Plan Administration Committee from
time to time.
2.9 EMPLOYEE. Any employee of an Employer; specifically
excluding, however, a person who is a nonresident alien who receives no earned
income which constitutes income from sources within the United States.
2.10 EMPLOYER. The Company, Washington Mutual Bank, Washington
Mutual, a Federal Savings Bank, Washington Mutual Federal Savings Bank, WM Life
Insurance Company, Murphey Favre, Inc., Murphey Favre Securities Services,
Inc., Composite Research & Management Co., and Washington Mutual Insurance
Services, Inc. The term Employer also includes any Related Employer which is
designated by the Company or the Plan Administration Committee as an Employer,
or whose Employee is designated by the same as an Eligible Employee in any Plan
Year.
2.11 ERISA. The Employee Retirement Income Security Act of 1974,
as amended.
4
<PAGE> 9
2.12 FORMER PARTICIPANT. Any individual, other than a Re-Employed
Employee, who has been a Participant, but who has terminated employment, and
who has not yet received the entire benefit to which he is entitled under the
Plan.
2.13 NORMAL RETIREMENT AGE. The first day of the month that
coincides with or immediately precedes the date the Participant attains age 65.
2.14 PARTICIPANT. An Eligible Employee who is eligible for
benefits under any of the Retirement Plans and who the Committee has identified
in writing as a Participant hereunder on Exhibit A to the Plan, including a
Former Participant.
2.15 PLAN. The Washington Mutual, Inc. Supplemental Employees'
Retirement Plan as embodied herein and as amended from time to time.
2.16 PLAN ADMINISTRATION COMMITTEE OR COMMITTEE. The committee
specified under Article V, as from time to time constituted, to be the
administrator of the Plan. If a Committee is not appointed, the Company shall
be the Committee.
2.17 PLAN YEAR. The fiscal year of the Plan, which is the period
from January 1 through December 31 of each year.
2.18 RELATED EMPLOYER. Any business entity that is, along with an
Employer, (i) a member of a controlled group of corporations (as defined by
section 414(b) of the Code), (ii) a member of a group of trades or businesses
(whether or not incorporated) that are under common control (as defined by
section 414(c) of the Code), (iii) a member of an affiliated service group (as
defined by section 414(m) of the Code), or (iv) any other entity described by
Treasury Regulations promulgated pursuant to section 414(o) of the Code.
2.19 RETIREMENT PLANS. The Washington Mutual, Inc. Cash Balance
Pension Plan and the Washington Mutual, Inc. Retirement Savings Investment
Plan.
2.20 RSIP. The Washington Mutual, Inc. Retirement Savings
Investment Plan.
2.21 YEAR OF VESTING SERVICE. Each Plan Year in which a
Participant earns a year of vesting service under the Cash Balance Plan. A
Year of Vesting Service will also be credited for each year of vesting service
earned under the Cash Balance Plan prior to the time the Participant was
eligible to participate in this Plan.
_________________________
End of Article II
5
<PAGE> 10
ARTICLE III
BENEFITS
3.1 PARTICIPANT'S ACCOUNTS. The Plan Administration Committee
shall establish for each Participant one or more of the Accounts described in
Section 2.1, as appropriate, to which shall be allocated the proper benefit
accruals hereunder, together with interest credited thereto and less the
distributions therefrom.
3.2 BENEFITS CREDITED TO ACCOUNTS. For each Plan Year that a
Participant earns a Year of Vesting Service, the following amounts shall be
credited to his appropriate Accounts as of the last day of the Plan Year:
(a) Excess Benefits. Any amount that exceeds the
limitations on annual additions under the Retirement Plans for a Participant
during a Plan Year shall be credited to his Excess Benefits Account.
(b) Cash Balance. A percentage of each Participant's
Compensation for the Plan Year shall be credited to the Participant's Cash
Balance Account, as follows:
(1) 3% for Compensation earned in Plan Years
beginning before January 1, 1995.
(2) For Compensation earned in Plan Years
beginning on and after January 1, 1995, the percentage credited shall
be based on the Participant's Years of Vesting Service, as follows:
<TABLE>
<CAPTION>
Years of
Vesting Service Percentage of Compensation
--------------- --------------------------
<S> <C>
Less than 5 2.5%
5 but less than 10 3.0%
10 or more 4.0%
</TABLE>
(3) The amount credited for the Plan under
paragraph (1) or (2) multiplied by one-half of the Interest Credit
(described in Section 3.3) in effect for the Plan Year.
(c) RSIP. Each Participant's RSIP Account shall be
credited with the profit sharing contributions under the RSIP that would have
been allocated to the Participant's accounts thereunder but for the limitations
of section 401(a)(17) of the Code. This credit shall not include any matching
contributions that are based on salary deferral elections of the Participant
under the RSIP.
6
<PAGE> 11
3.3 INTEREST CREDITED TO ACCOUNTS. On the last day of each Plan
Year and prior to crediting benefits described in Section 3.2, each
Participant's Account shall be credited with an amount of interest payable on
the accumulated amounts previously credited to the Accounts:
(a) For the Plan Year beginning January 1, 1994, 7.5%.
(b) For the Plan Year beginning on January 1, 1995,
7.625%, applied to Accounts on a prorated basis for the period from January 1,
1995, through September 30, 1995.
(c) Effective October 1, 1995, the Assumed Interest
Credit for a Plan Year shall be the yield on 30-year Treasury Constant
Maturities, determined for each Plan Year on the basis of the rate announced on
December 31 of the prior year. This annual rate shall be applied to Accounts
on a prorated basis for the period from October 1, 1995, through December 31,
1995.
_________________________
End of Article III
7
<PAGE> 12
ARTICLE IV
PAYMENT OF BENEFITS
4.1 COMMENCEMENT OF PAYMENTS. A Participant shall generally
receive payment of the nonforfeitable balance of his Accounts in ten equal
annual installments, commencing 90 days after the later of termination of
employment with the Company and all Related Employers or attainment of Normal
Retirement Age. However, a Participant may, upon the consent of the Plan
Administration Committee, make a one-time irrevocable election for (i) payments
to commence on a fixed or determinable time, and/or (ii) payments to be made in
equal annual installments of less than ten years or in a single sum. The
Participant's election must be made prior to the time that payments would
otherwise commence and the later of December 28, 1995, and 60 days following
termination of employment with the Company and all Related Employers. Unpaid
installments will continue to be credited with interest as specified in Section
3.3.
The Plan Administration Committee may give its consent to any alternate payment
election made by the Participant in its absolute discretion, based on any
business or financial considerations that the Committee deems appropriate. The
decision of the Plan Administration Committee to consent or deny consent to a
Participant's election described in this Section shall for all purposes be
deemed to have been made pursuant to valid business or financial
considerations.
4.2 DETERMINATION OF NONFORFEITABLE BENEFITS. A Participant's
Accounts shall be fully nonforfeitable if termination of employment occurs as a
result of death or Disability or at any time following Normal Retirement Age.
Upon termination of employment for any other reason, the nonforfeitable
percentage of a Participant's Accounts shall be based upon such Participant's
Years of Vesting Service and shall be determined in accordance with the
appropriate forfeiture schedule in paragraph (a) or (b) below. Any portion of
a Participant's Accounts that is not nonforfeitable shall be forfeited at the
time benefit payments commence.
(a) The following forfeiture schedule shall apply if a
Participant has not engaged in an act of dishonesty, as described in paragraph
(b):
<TABLE>
<CAPTION>
Years of Percent
Vesting Service Nonforfeitable
--------------- --------------
<S> <C>
Fewer than 2 0%
2 25%
3 50%
4 75%
5 or more 100%
</TABLE>
(b) The Account of a Participant who has engaged in
dishonesty shall be completely forfeited if such Participant has not completed
at least five Years of Vesting Service at the time of termination of
employment, but shall be completely nonforfeitable after the completion of five
Years of Vesting Service. For purposes of this Section, dishonesty means that
the Participant has engaged in acts of fraud, embezzlement, theft or any other
crime of moral turpitude or has otherwise been dishonest in his or her
relationship with the Employer (without necessity of formal criminal
proceedings being initiated) and the Participant's employment terminated by
either discharge or resignation, all as determined by the Plan Administration
Committee.
8
<PAGE> 13
4.3 PAYMENT OF DEATH BENEFITS. If a Participant dies prior to
receiving full payment of his benefits hereunder, payment of his remaining
benefits shall be made to his Beneficiary as soon as administratively feasible
after death in the manner payable or elected by the Participant under Section
4.1.
4.4 PAYMENT IN THE EVENT OF LEGAL DISABILITY. Payments to any
Participant, Former Participant, or Beneficiary shall be made to the recipient
entitled thereto in person or upon his personal receipt, in form satisfactory
to the Committee, except when the recipient entitled thereto shall be under a
legal disability, or, in the sole judgment of the Committee, shall otherwise be
unable to apply such payment in furtherance of his own interest and advantage.
The Committee may, in such event, in its sole discretion, direct all or any
portion of such payments to be made in any one or more of the following ways:
(a) To such person directly;
(b) To the guardian of his person or his estate;
(c) To a relative or friend of such person, to be
expended for his benefit; or
(d) To a custodian for such person under any Uniform
Gifts to Minors Act.
The decision of the Committee, in each case, will be final, binding, and
conclusive upon all persons ever interested hereunder. The Committee shall not
be obliged to see to the proper application or expenditure of any payment so
made. Any payment made pursuant to the power herein conferred upon the
Committee shall operate as a complete discharge of all obligations of the
Employer and the Committee, to the extent of the distributions so made.
4.5 ACCOUNTS CHARGED. The Committee shall charge all
distributions made to a Participant or to his Beneficiary from his Accounts
against the Accounts of the Participant when made.
4.6 UNCLAIMED ACCOUNTS. Neither the Employer nor the Plan
Administration Committee shall be obliged to search for or ascertain the
whereabouts of any Participant or Beneficiary. The Committee, by certified or
registered mail addressed to his last known address of record with the
Committee or the Employer, shall notify any Participant or Beneficiary that he
is entitled to a distribution under this Plan, and the notice shall state the
provisions of this Section. If the Participant has attained Normal Retirement
Age, and the Participant or Beneficiary fails to claim his benefits or make his
whereabouts known in writing to the
9
<PAGE> 14
Committee by the date that is immediately prior to three years (adjusted
according to the abandonment period of the escheat laws of the applicable
state) after the date of notification, the Participant's Accounts shall be
forfeited.
_________________________
End of Article IV
10
<PAGE> 15
ARTICLE V
PLAN ADMINISTRATION COMMITTEE
5.1 APPOINTMENT. The Plan Administration Committee has been
appointed by the Company to administer the Plan and serves in such capacity at
the pleasure of the board of directors of the Company. The board of directors
may remove the Committee or appoint a successor committee at any time. If the
Plan Administration Committee ceases to exist or is removed by the board of
directors without the appointment of a replacement committee, the Company shall
function as the Plan Administration Committee.
5.2 TERM. Each member of each Committee shall serve until his
successor is appointed. Any member of the Committee may be removed by the
Company, with or without cause, which shall have the power to fill any vacancy
which may occur. A member may resign upon written notice to the Company.
5.3 COMPENSATION. The members of the Committee shall serve
without compensation for services as such, but the Company shall pay all
expenses of the members of the Committee.
5.4 POWERS OF PLAN ADMINISTRATION COMMITTEE. The Committee shall
have full and absolute discretion in the exercise of its powers hereunder. All
exercises of power by the Committee hereunder shall be final, conclusive and
binding on all interested parties, unless found by a court of competent
jurisdiction, in a final judgment that is no longer subject to review or
appeal, to be arbitrary and capricious. In addition to the power otherwise
enumerated herein, the Committee shall have the following specific authority:
(a) To direct the administration of the Plan in
accordance with the provisions herein set forth;
(b) To adopt rules of procedure and regulations necessary
for the administration of the Plan provided the rules are not inconsistent with
the terms of the Plan;
(c) To interpret the provisions of the Plan and determine
all questions with respect to rights of Employees, Participants, and
Beneficiaries under the Plan, including but not limited to rights of
eligibility of an Employee to participate in the Plan, the value of a
Participant's Accounts, and the nonforfeitable percentage of each Participant's
Accounts.
(d) To interpret and enforce the terms of the Plan and
the rules and regulations it adopts;
(e) To review and render decisions with respect to a
claim for, (or denial of a claim for) a benefit under the Plan;
(f) To furnish the Employer with information which the
Employer may require for tax or other purposes;
11
<PAGE> 16
(g) To engage the service of counsel (who may, if
appropriate, be counsel for the Employer) and agents whom it may deem advisable
to assist it with the performance of its duties;
(h) To prescribe procedures to be followed by
distributees in obtaining benefits;
(i) To receive from the Employer and from Employees such
information as shall be necessary for the proper administration of the Plan;
(j) To maintain, or cause to be maintained, separate
Accounts in the name of each Participant.
(k) To select a secretary, who need not be a member of
the Committee; and
(l) To interpret and construe the Plan.
5.5 MANNER OF ACTION. The decision of a majority of the members
of the Plan Administration Committee appointed and qualified shall control. In
case of a vacancy in the membership of the Committee, the remaining members may
exercise any and all of the powers, authorities, duties, and discretion
conferred upon the Committee. The Committee may, but need not, call or hold
formal meetings. Any decisions made or action taken pursuant to written
approval of a majority of the then members shall be sufficient. The Committee
shall maintain adequate records of its decisions.
5.6 AUTHORIZED REPRESENTATIVE. The Committee may authorize any
one of its members, or its secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters,
or other documents.
5.7 INTERESTED MEMBER. No member of the Committee may decide or
determine any matter concerning the distribution, nature, or method of
settlement of his own benefits under the Plan unless there is only one person
acting alone in the capacity as the Committee.
5.8 INDEMNITY. The Company shall indemnify and save harmless the
Committee, and its members, and each of them, from and against any and all loss
resulting from liability to which the Committee, or its members, may be
subjected by reason of any act, conduct, or inaction (except willful or
reckless misconduct), in their official capacities in the administration of the
Plan, including all expenses reasonably incurred in their defense, in case the
Company fails to provide such defense.
_________________________
End of Article V
12
<PAGE> 17
ARTICLE VI
PARTICIPANT ADMINISTRATIVE PROVISIONS
6.1 BENEFICIARY DESIGNATION. Each Participant may from time to
time designate, in writing, a Beneficiary to whom his Accounts shall be paid in
the event of his death. The Plan Administration Committee shall prescribe the
form for the written designation of Beneficiary and, upon the Participant's
filing the form with the Committee, it shall revoke all designations filed
prior to that date by the same Participant. A Participant may designate
multiple and/or contingent Beneficiaries. If a Participant fails to name a
Beneficiary, or if the Beneficiary named by a Participant predeceases him, the
Beneficiary shall be, first, his spouse at the time of his death, or if he has
no surviving spouse, then to his surviving children (including adopted
children) in equal shares, or if the Participant has no surviving children,
then to his surviving parents in equal shares, or if the Participant has no
surviving parents, then to his estate. If the Participant dies after
distributions have commenced hereunder but before a complete distribution of
his nonforfeitable benefits, payment of such benefits shall be in a lump sum to
the legal representative of the estate of the last to die of the Participant
and his Beneficiary. The Committee, in its sole discretion, shall direct the
Employer to whom payments shall be made under this Section.
6.2 PERSONAL DATA TO PLAN ADMINISTRATION COMMITTEE. Each
Participant and Beneficiary must furnish to the Committee evidence, data, or
information as the Committee considers necessary or desirable for the purpose
of administering the Plan. The provisions of this Plan are effective for the
benefit of each Participant upon the condition precedent that each Participant
will promptly furnish full, true, and complete evidence, data, and information
when requested by the Committee, provided the Committee shall advise each
Participant of the effect of his failure to comply with its request.
6.3 ADDRESS FOR NOTIFICATION. Each Participant and each
Beneficiary of a deceased Participant shall file with the Committee, in
writing, his post office address, and each subsequent change of such post
office address. Any payment or distribution hereunder, and any communication
addressed to a Participant or his Beneficiary, at the last address filed with
the Committee, or if no address has been filed, then the last address indicated
on the records of the Employer shall be deemed to have been delivered to the
Participant or his Beneficiary on the date that such distribution or
communication is deposited in the United States Mail, postage prepaid.
6.4 PLACE OF PAYMENT AND PROOF OF CONTINUED ELIGIBILITY. Any
check representing payment hereunder and any communication addressed to an
Employee, a former Employee, a retired Employee, or Beneficiary at his last
address filed with the Committee, or if no such address has been filed, then at
his last address as indicated on the records of the Employer, shall be deemed
to have been delivered to such person on the date on which such check or
communication is deposited in the United States mail. If the Committee, for
any reason, is in doubt as to whether benefit payments are being received by
the person entitled thereto, it shall, by registered mail addressed to the
person concerned, at his address last known to the
13
<PAGE> 18
Committee, notify such person that all unmailed and future retirement income
payments shall be henceforth withheld until he provides the Committee with
evidence of his continued life and his proper mailing address.
6.5 ASSIGNMENT OR ALIENATION. Except as may be specified under a
"qualified domestic relations order," as defined in section 514(b)(7) of ERISA,
no benefit payable under the Plan shall be subject in any manner to alienation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment,
execution, or levy of any kind, either voluntary or involuntary prior to
actually being received by the person entitled to the benefit under the terms
of the Plan. The Company shall not in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of any person entitled
to benefits hereunder.
6.6 INFORMATION AVAILABLE. Any Participant or Beneficiary may
examine copies of this Plan or any other instrument under which the Plan was
established or is operated. The Plan Administration Committee will maintain
all of the items listed in this Section in its office, or in such other place
or places as he may designate from time to time for examination during
reasonable business hours. Upon the written request of a Participant or
Beneficiary, the Plan Administration Committee shall furnish him with a copy of
any item listed in this Section. The Plan Administration Committee may make a
reasonable charge to the requesting person for the copy so furnished.
6.7 BENEFICIARY'S RIGHT TO INFORMATION. A beneficiary's right to
(and the Committees' duty to provide to the Beneficiary) information or data
concerning the Plan shall not arise until he first becomes entitled to receive
a benefit under the Plan.
6.8 CLAIMS PROCEDURE. Prior to or upon becoming entitled to
receive a benefit hereunder, a Participant or Beneficiary shall file a claim
for such benefit with the Committee at the time and in the manner prescribed
thereby. However, the Committee may direct payment of a Participant's or
Beneficiary's benefits hereunder without requiring the filing of a claim
therefor, if the Committee has knowledge of such Participant's or Beneficiary's
whereabouts.
6.9 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Committee shall
provide adequate notice in writing to any Participant or to any Beneficiary
("Claimant") whose claim for benefits under the Plan the Committee has denied.
(a) Such notice must be sent within 90 days of the date
the claim is received by the Committee unless special circumstances require an
extension of time for processing the claim. Such extension shall not exceed 90
days and no extension shall be allowed unless, within the initial 90 day
period, the claimant is sent an extension notice indicating the special
circumstances requiring the extension and specifying a date by which the
Committee expects to render its decision.
14
<PAGE> 19
The Committee's notice of denial to the Claimant
shall set forth the following:
(1) The specific reason or reasons for the
denial.
(2) Specific references to pertinent Plan
provisions on which the Committee based its denial.
(3) A description of any additional material and
information needed for the Claimant to perfect his or her claim and an
explanation of why the material or information is needed.
(4) A statement that the Claimant may request a
review upon written application to the Committee, review pertinent
Plan documents, and submit issues and comments in writing. The notice
must also state that any appeal of the Committee's adverse
determination must be made in writing to the Committee within 60 days
after receipt of the Committee's notice of denial of benefits. The
notice must further advise the Claimant that failure to appeal the
action to the Committee in writing within the 60-day period will
render the Committee's determination final, binding, and conclusive.
(5) The address of the Plan Administration
Committee to which the Claimant may forward his or her appeal.
(c) If the Claimant should appeal to the Committee, the
Claimant or a duly authorized representative, may submit, in writing, whatever
issues and comments the Claimant deems pertinent. The Committee shall
re-examine all facts related to the appeal and make a final determination as to
whether the denial of benefits is justified under the circumstances. The
Committee shall advise the Claimant in writing of its decision on the appeal,
the specific reasons for the decision, and the specific Plan provisions on
which the decision is based. The notice of the decision shall be given within
60 days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the 60 day period infeasible, but in no event shall the Committee render a
decision regarding the denial of a claim for benefits later than 120 days after
its receipt of a request for review. If an extension of time for review is
required because of special circumstances, written notice of the extension
shall be furnished to the claimant prior to the date the extension period
commences.
6.10 NO RIGHTS IMPLIED. Nothing contained in this Plan, or in any
modification or amendment to the Plan, shall give any Employee, Participant, or
any Beneficiary any right to continue employment, any legal or equitable right
against an Employer, or Employee of the Employer, or against their agents,
except as expressly provided by the Plan.
_________________________
End of Article VI
15
<PAGE> 20
ARTICLE VII
AMENDMENT AND TERMINATION
7.1 AMENDMENT. The Company shall have the right at any time,
without prior notice and without cause, to amend or terminate the Plan by
action of its board of directors or by action of the compensation committee of
its board of directors. The Company shall make all amendments in writing.
Each amendment shall state the date to which it is either retroactively or
prospectively effective.
7.2 TERMINATION. Upon termination of the Plan, the Company shall
pay all benefits credited to Participants pursuant to Section 4.1.
_________________________
End of Article VII
16
<PAGE> 21
ARTICLE VIII
MISCELLANEOUS
8.1 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any
Participant, or to his legal representative or Beneficiary, in accordance with
the provisions of the Plan, shall to the extent thereof be in full satisfaction
of all claims hereunder against the Plan. The Plan Administration Committee
may require such Participant, legal representative, or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release therefor
in such form as it shall determine.
8.2 EMPLOYER RECORDS. Each Employer shall, upon request or as may
be specifically required hereunder, furnish or cause to be furnished, all of
the information or documentation which is necessary or required by the Plan
Administration Committee to perform its duties and functions under the Plan.
Records of an Employer as to an Employee's or Participant's period of
employment, termination of employment and the reason therefor, leaves of
absence, reemployment, and Compensation will be conclusive on all persons,
unless determined by the Plan Administration Committee to be incorrect.
8.3 INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by
law, an interpretation of the Plan and a decision on any matter within the
Committee's discretion made in good faith is binding on all persons. A
misstatement or other mistake of fact shall be corrected when it becomes known
and the person responsible shall make such adjustment on account thereof as he
considers equitable and practicable.
8.4 EVIDENCE. Evidence required of anyone under the Plan may be
by certificate, affidavit, document, or other information which the person
acting on it considers pertinent and reliable, and signed, made or presented by
the proper party or parties. Any action required of the Employer may be by
resolution of its board of directors or by any person authorized to act on
behalf of the Employer.
8.5 SEVERABILITY. In the event any provision of the Plan shall be
held to be illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining provisions of the Plan, but shall be fully
severable and the Plan shall be construed and enforced as if the illegal or
invalid provision had never been included herein.
8.6 NOTICE. Any notice required to be given herein by an Employer
or the Plan Administration Committee, shall be deemed delivered, when (a)
personally delivered, or (b) placed in the United States mails, in an envelope
addressed to the last known address of the person to whom the notice is given.
8.7 WAIVER OF NOTICE. Any person entitled to notice under the
Plan may waive the notice.
17
<PAGE> 22
8.8 SUCCESSORS. The Plan shall be binding upon all persons
entitled to benefits under the Plan, their respective heirs and legal
representatives, upon each Employer, its successors and assigns, and upon the
Plan Administration Committee, and its successors.
8.9 HEADINGS. The titles and headings of Articles and Sections
are included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
8.10 GOVERNING LAW. All questions arising with respect to the
provisions of this Agreement shall be determined by application of the laws of
the State of Washington except to the extent Washington law is preempted by
federal law.
_________________________
End of Article VIII
18
<PAGE> 23
IN WITNESS WHEREOF, the undersigned officer of Washington Mutual, Inc.
has executed this instrument to be effective as of January 1, 1994.
WASHINGTON MUTUAL, INC.
By: [SIG]
--------------------------------
Its: Senior Vice President &
Plan Administrator
--------------------------------
19
<PAGE> 1
EXHIBIT 10.8
WASHINGTON MUTUAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT ACCUMULATION PLAN
Effective January 1, 1996
<PAGE> 2
WASHINGTON MUTUAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT ACCUMULATION PLAN
Effective January 1, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
NATURE OF PLAN
1.1 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Top Hat Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Unfunded Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Cash Balance Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Disabled or Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Early Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.14 Former Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.15 Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.16 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.17 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.18 Plan Administration Committee or Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.19 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.20 Related Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.21 Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.22 Year of Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE III
BENEFITS
3.1 Participant's Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Eligible Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Benefits Credited to Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Interest Credited to Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
PAYMENT OF BENEFITS
4.1 Automatic Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Elective Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Hardship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Determination of Nonforfeitable Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.5 Payment of Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.6 Payment in the Event of Legal Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Accounts Charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Unclaimed Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V
PLAN ADMINISTRATION COMMITTEE
5.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.3 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4 Powers of Plan Administration Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.5 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.6 Manner of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.7 Authorized Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.8 Interested Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.9 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI
PARTICIPANT ADMINISTRATIVE PROVISIONS
6.1 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Personal Data to Plan Administration Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.3 Address for Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.4 Place of Payment and Proof of Continued Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.5 Assignment or Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.6 Information Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.7 Beneficiary's Right to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.8 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.9 Appeal Procedure for Denial of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.10 No Rights Implied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII
AMENDMENT AND TERMINATION
7.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII
MISCELLANEOUS
8.1 Execution of Receipts and Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.2 Employer Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.3 Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.5 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.6 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.7 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
iii
<PAGE> 5
WASHINGTON MUTUAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT ACCUMULATION PLAN
Effective January 1, 1996
PREAMBLE
WHEREAS, Washington Mutual, Inc. (the "Company") has established
certain retirement plans for the benefit of its employees that are intended to
provide income to its employees after retirement, which include the Washington
Mutual, Inc. Cash Balance Pension Plan, the Washington Mutual, Inc. Retirement
Savings and Investment Plan, and the Washington Mutual, Inc. Supplemental
Employees' Retirement Plan.
WHEREAS, the Company has analyzed the level of retirement income that
is anticipated to be provided under such retirement plans and pursuant to the
federal Social Security Act and has determined that certain executive employees
will not receive the level of retirement income desired by the Company;
WHEREAS, the Company intends to annually review the expected level of
retirement income for such executive employees so that it can determine the
appropriate level of supplemental retirement benefits, if any, that it desires
to provide to such employees; and
WHEREAS, upon the recommendation of the compensation committee, the
board of directors of the Company has authorized and directed the Company to
establish this plan to provide benefits to employees of the Company and its
affiliates who (i) are in a select group of management and highly compensated
employees, and (ii) are annually selected by the compensation committee of the
Company's board of directors to be eligible to accrue a supplemental retirement
benefit hereunder;
NOW, THEREFORE, the Company, hereby establishes this Washington
Mutual, Inc. Supplemental Executive Retirement Accumulation Plan for the
purposes stated in Article I, to be effective January 1, 1996.
1
<PAGE> 6
ARTICLE I
NATURE OF PLAN
1.1 PURPOSE. The purpose of this Plan is to provide retirement
benefits to certain executive employees of the Company and its affiliates that
supplement the benefits accrued under the Retirement Plans.
1.2 TOP HAT PLAN. The Plan is an unfunded plan maintained
primarily to provide deferred compensation benefits for a select group of
management or highly compensated employees (within the meaning of sections
201(2), 301(a)(3), and 401(a)(1) of ERISA), and is intended to be exempt from
Parts 2, 3, and 4 of ERISA.
1.3 UNFUNDED PLAN. This Plan is established as an unfunded plan
of deferred compensation. The compensation that is payable hereunder and
interest that accrues thereon are represented solely by bookkeeping entries on
accounts maintained by the Plan Administration Committee. No funds are held in
trust or otherwise segregated for the sole purpose of paying Plan benefits.
All Plan benefits are payable solely from the general assets of the Company.
Participants and Beneficiaries shall have no legal or equitable rights,
interest or claims in any specific collateral, property or assets of the
Company, but shall be general unsecured creditors of the Company until benefits
are paid hereunder. The Company may from time to time reserve assets in a
general account or grantor trust owned by the Company for the purpose paying
liabilities that are accrued under this Plan.
_________________________
End of Article I
2
<PAGE> 7
ARTICLE II
DEFINITIONS AND CONSTRUCTION
For the purpose of this Plan, the following definitions shall apply
unless the context requires otherwise. Words used in the masculine gender
shall apply to the feminine, where applicable, and wherever the context of the
Plan dictates, the plural shall be read as the singular and the singular as the
plural. The words "Article" or "Section" in this Plan shall refer to an
Article or Section of this Plan unless specifically stated otherwise.
Compounds of the word "here," such as "herein" and "hereof" shall be construed
to refer to another provision of this Plan, unless otherwise specified or
required by the context.
In determining the time within which an event or action is to take
place for purposes of the Plan, no fraction of a day shall be considered, and
any act, the performance of which would fall on a Saturday, Sunday, holiday
observed by the Company, or other non-business day, may be performed on the
next following business day.
2.1 ACCOUNTS. The separate bookkeeping records that are
established and maintained by the Plan Administration Committee to record any
amounts credited on behalf of each Participant under the terms of the Plan. A
Participant's Account shall only include the amounts actually credited thereto
by the Compensation Committee or, as appropriate, the Plan Administration
Committee.
2.2 BENEFICIARY. Any person or fiduciary designated by a
Participant who is or may become entitled to a benefit under the Plan following
the death of the Participant; provided, that, in the case of a married
Participant, the Participant's Beneficiary shall be the Participant's surviving
spouse unless the Participant's spouse (i) consents in writing to the
designation of another party as Beneficiary of all or a part of the benefit to
which the Participant may become entitled under the Plan, (ii) such election
designates a Beneficiary which may not be changed without spousal consent (or
the consent of the spouse expressly permits designations by the Participant
without any requirement of further spousal consent), (iii) the spouse's consent
acknowledges the effect of such election, and (iv) such consent is witnessed by
a notary public or a member of the Plan Administration Committee. Such spousal
consent shall not be required if it is established to the satisfaction of the
Plan Administration Committee that such consent cannot be obtained because the
spouse cannot be located (and any other circumstances the Secretary of the
Treasury may prescribe by regulations). Any consent by a spouse hereunder
shall be effective only with respect to that spouse.
2.3 CASH BALANCE PLAN. The Washington Mutual, Inc. Cash Balance
Pension Plan.
2.4 CODE. The Internal Revenue Code of 1986, as amended.
3
<PAGE> 8
2.5 COMPANY. Washington Mutual, Inc. or any successor thereto.
2.6 COMPENSATION. An Eligible Employee's compensation, determined
according to the definition of "compensation" under the Cash Balance Plan for a
Plan Year, without regard to the limitations of section 401(a)(17) of the Code
contained in the Cash Balance Plan, that is actually paid or made available to
the Eligible Employee during such year, plus any grants of restricted stock
under the Washington Mutual, Inc. Restricted Stock Plan that are made for the
Plan Year, as valued on the date of grant.
2.7 COMPENSATION COMMITTEE. The compensation and stock option
committee of the board of directors of the Company, as it is appointed from
time to time pursuant to the Bylaws of the Company.
2.8 DISABLED OR DISABILITY. A Participant is Disabled when the
Committee determines that the Participant has become totally and permanently
disabled and unable to engage in any occupation for wage or profit, as
described in section 22(e)(3) of the Code. The Committee may require a
Participant to submit to a medical examination in order to confirm Disability.
The Committee may also rely on the determination of Disability by the Social
Security Administration.
2.9 EARLY RETIREMENT AGE. The first day of the month that
coincides with or immediately precedes the date the Participant terminates
employment and has attained age 62.
2.10 ELIGIBLE EMPLOYEE. An Employee who is (i) part of a select
group of management or highly compensated employees within the meaning of
sections 201(2), 301(a)(3), and 401(a)(1) of ERISA, and (ii) who is identified
pursuant to Section 3.2 by the Compensation Committee for a particular Plan
Year as being eligible for a benefit accrual under Section 3.3. An Employee's
status as an Eligible Employee shall be determined separately for each Plan
Year.
2.11 EMPLOYEE. Any employee of an Employer; specifically
excluding, however, a person who is a nonresident alien who receives no earned
income that constitutes income from sources within the United States.
2.12 EMPLOYER. The Company, Washington Mutual Bank, Washington
Mutual Bank fsb, WM Life Insurance Company, Murphey Favre, Inc., Murphey Favre
Securities Services, Inc., Composite Research & Management Co., and Washington
Mutual Insurance Services, Inc. The term Employer also includes any Related
Employer from time to time designated by the Compensation Committee as an
Employer.
2.13 ERISA. The Employee Retirement Income Security Act of 1974,
as amended.
4
<PAGE> 9
2.14 FORMER PARTICIPANT. Any individual who is a Participant, but
who has terminated employment, and who has not yet received the entire benefit
to which he or she is entitled under the Plan.
2.15 NORMAL RETIREMENT AGE. The first day of the month that
coincides with or immediately precedes the date the Participant attains age 65.
2.16 PARTICIPANT. An individual who is or has been an Eligible
Employee.
2.17 PLAN. The Washington Mutual, Inc. Supplemental Executive
Retirement Accumulation Plan as embodied herein and as amended from time to
time.
2.18 PLAN ADMINISTRATION COMMITTEE OR COMMITTEE. The committee
specified under Article V, as from time to time constituted, to be the
administrator of the Plan.
2.19 PLAN YEAR. The fiscal year of the Plan, which is the period
from January 1 through December 31 of each year. The first Plan Year is
January 1, 1996, to December 31, 1996.
2.20 RELATED EMPLOYER. Any business entity that is, along with an
Employer, (i) a member of a controlled group of corporations (as defined by
section 414(b) of the Code), (ii) a member of a group of trades or businesses
(whether or not incorporated) that are under common control (as defined by
section 414(c) of the Code), (iii) a member of an affiliated service group (as
defined by section 414(m) of the Code), or (iv) any other entity described by
Treasury Regulations promulgated pursuant to section 414(o) of the Code.
2.21 RETIREMENT PLANS. The sources of retirement income provided
by or contributed to on behalf of Participants by the Company or a Related
Employer, including but not limited to the Washington Mutual, Inc. Cash Balance
Pension Plan, the Washington Mutual, Inc. Retirement Savings and Investment
Plan, the Washington Mutual, Inc. Supplemental Employees' Retirement Plan, and
the program of old-age and survivors disability benefits established pursuant
to the federal Social Security Act.
2.22 YEAR OF VESTING SERVICE. Each Plan Year in which a
Participant earns a year of vesting service under the Cash Balance Plan. A
Year of Vesting Service will also be credited for each year of vesting service
earned under the Cash Balance Plan prior to the establishment of this Plan.
_________________________
End of Article II
5
<PAGE> 10
ARTICLE III
BENEFITS
3.1 PARTICIPANT'S ACCOUNTS. The Plan Administration Committee
shall establish for each Participant one or more Accounts, as appropriate, to
which shall be allocated the proper benefit accruals hereunder, together with
interest credited thereto and less the distributions therefrom.
3.2 ELIGIBLE EMPLOYEES. For each Plan Year in which the
Compensation Committee determines to provide an accrual of benefits under the
Plan, the Compensation Committee shall, in its sole and absolute discretion and
in accordance with the purposes of this Plan, designate the Employees who will
be Eligible Employees for that Plan Year. Such designation shall be in a
writing that is delivered to the Plan Administration Committee. Each person
who has been an Eligible Employee will continue to be a Participant pursuant to
the terms of the Plan until all nonforfeitable benefits credited to the
Participant's Account are distributed.
3.3 BENEFITS CREDITED TO ACCOUNTS. For each Plan Year in which an
Employee is designated by the Compensation Committee as an Eligible Employee in
accordance with Section 3.2, the Account of each such Eligible Employee shall
be credited, as of the last day of the Plan Year, with a benefit accrual in the
amount determined in writing by the Compensation Committee. The amount of the
benefit credited to an Account, if any, shall be determined in the sole and
absolute discretion of the Compensation Committee, by reference to the Eligible
Employee's Compensation, the total amount accrued for the benefit of the
Eligible Employee under this Plan and any other retirement plans of the
Company, or any other factors or business considerations that the Compensation
Committee deems appropriate.
3.4 INTEREST CREDITED TO ACCOUNTS. For the periods described in
paragraphs (a) and (b) below, each Participant's Account shall be credited with
an amount of interest that is payable on the accumulated benefit accruals and
interest amounts previously credited to his or her Account. The rate of
interest shall be equal to the rate that would have been paid by the Company at
the beginning of the Plan Year had it issued unsecured junior debt with a
maturity date of ten years. If the Company did not make such a debt offering
at or near the beginning of the Plan Year for which the interest rate is being
determined, the Plan Administration Committee shall, in its discretion,
determine this rate by reference to the following: (i) the rates paid on
similar debt offerings of comparably rated financial institutions, and (ii) an
estimate of the probable interest rate on such a debt offering from at least
one nationally-recognized investment banking firm. The interest rate so
determined will be set forth in writing and kept with the Plan records.
(a) Interest will be credited on the last day of each
Plan Year and prior to the crediting of benefits described in Section 3.3 to
the Accounts of all Participants who are not Former Participants.
6
<PAGE> 11
(b) Interest will be credited on the last day of each
Plan Year and prior to the crediting of benefits described in Section 3.3 to
the Account of a Former Participant who:
(1) has retired on or after his or her Early
Retirement Age, or whose employment terminated as a result of death or
disability; or
(2) has terminated employment prior to his or her
Early Retirement Age and the Compensation Committee has, in its sole
and absolute discretion, determined that such interest credits shall
be added the Former Participant's Account for the period following
termination of employment.
_________________________
End of Article III
7
<PAGE> 12
ARTICLE IV
PAYMENT OF BENEFITS
4.1 AUTOMATIC FORM OF PAYMENT. In the absence of any election
described in this Article, a Participant shall generally receive payment of the
nonforfeitable balance of his or her Accounts, commencing 90 days after the
later of termination of employment with the Company and all Related Employers
or attainment of Early Retirement Age in 10 substantially equal annual
installments. The unpaid Account balance will continue to be credited with
interest as specified in Section 3.4, and subsequent installments will be
recalculated to reflect the credit of such interest to the Account balance.
However, a Participant may instead elect for payments to be made pursuant
Sections 4.2 or 4.3.
4.2 ELECTIVE FORM OF PAYMENT. Notwithstanding the provisions of
Section 4.1, a Participant may, upon the consent of the Plan Administrating
Committee, make a one-time irrevocable election for payments to made pursuant
to one of the methods described below in this Section. The Participant's
election under this Section must be made prior to the time that payments would
otherwise commence and within 60 days of termination of employment with the
Company and all Related Employers. The Committee's consent will generally be
based on any business or financial considerations that the Committee deems
appropriate. The decision of the Committee to give or deny consent to a
Participant's election shall for all purposes be deemed to have been made
pursuant to valid business or financial considerations. The Participant may
elect from the following methods of payment:
(a) substantially equal installments paid over a period
of 10 years or fewer than 10 years, each such payment to be recalculated for
interest that is credited on the unpaid Account balance, as described in
Section 4.1;
(b) a single payment of the entire Account; or
(c) substantially equal annual installment payments for
the life of the Participant and, thereafter, annual installment payments for
the life of the Participant's surviving Beneficiary, if any, that are 50% of
the amount of the annual installments that were paid during the joint lives of
the Participant and Beneficiary, and such payments shall: (i) be actuarially
equivalent to a single sum payment, (ii) be determined by considering
appropriate life expectancy and interest rate factors that are consistent with
the actuarial factors designated under the Cash Balance Plan; and (iii) cease
upon the death of the Participant and his or her Beneficiary (if any) if this
method of payment is elected, regardless of the amount credited to the
Participant's Account at the time payments commenced.
4.3 HARDSHIP. Notwithstanding the provisions of Sections 4.1 or
4.2, a Participant may, upon receiving consent from the Compensation Committee,
receive payment of the nonforfeitable balance of his or her Accounts upon the
occurrence of
8
<PAGE> 13
a hardship. The existence of a hardship shall be determined by the
Compensation Committee on the basis of (i) adverse changes in the Participant's
or Beneficiary's financial conditions that are not within the control of the
Participant or Beneficiary (e.g., due to a physical or mental disability), (ii)
a change in the ownership or control of the Employer of the Participant that
results in the termination of the Participant's employment with the Employer
and all Related Employers, or (iii) such other business or financial
considerations that the Compensation Committee deems appropriate. If the
Compensation Committee determines the existence of a hardship, the Participant
or Beneficiary may only receive payment under this Section if the Compensation
Committee additionally determines that payment from the Plan is, in view of the
hardship, necessary or appropriate. Whereupon, payments will commence
following the occurrence of the hardship in a single sum or installments
described in Section 4.2(a), all as determined by the Compensation Committee.
All such determinations of the Compensation Committee shall be deemed to have
been validly made pursuant to the considerations of this Section.
4.4 DETERMINATION OF NONFORFEITABLE BENEFITS. A Participant's
Accounts shall be fully nonforfeitable if termination of employment occurs as a
result of death or Disability or at any time following Normal Retirement Age.
Upon termination of employment for any other reason, a Participant shall only
be entitled to payment of the amounts actually credited to his or her Accounts
pursuant to Article III and only to the extent that his or her right to payment
has become nonforfeitable. Unless the Participant has engaged in an act of
dishonesty described in paragraph (b) below, the right to such payment will
become nonforfeitable in accordance with his or her Years of Vesting Service
pursuant to the forfeiture schedule described in paragraph (a).
(a) The following forfeiture schedule shall apply if a
Participant has not engaged in an act of dishonesty, as described in paragraph
(b):
<TABLE>
<CAPTION>
Years of Percent
Vesting Service Nonforfeitable
--------------- --------------
<S> <C>
Fewer than 2 0%
2 25%
3 50%
4 75%
5 or more 100%
</TABLE>
(b) The Account of a Participant who has engaged in
dishonesty shall be completely forfeited, regardless of the Participant's Years
of Vesting Service. For this purpose, dishonesty means that the Participant
has engaged in acts of fraud, embezzlement, theft or any other crime of moral
turpitude or has otherwise been dishonest in his or her relationship with the
Employer (without necessity of formal criminal proceedings being initiated) and
the Participant's employment terminated by either discharge or resignation, all
as determined by the Compensation Committee.
9
<PAGE> 14
4.5 PAYMENT OF DEATH BENEFITS. If a Participant dies prior to
receiving full payment of benefits hereunder, payment of any remaining benefits
shall be made to the Participant's Beneficiary in the manner described in
Sections 4.1 and 4.2.
4.6 PAYMENT IN THE EVENT OF LEGAL DISABILITY. Payments to any
Participant, Former Participant, or Beneficiary shall be made to the recipient
entitled thereto in person or upon such recipient's personal receipt, in form
satisfactory to the Plan Administration Committee, except when the recipient
entitled thereto shall be under a legal disability, or, in the judgment of the
Committee, shall otherwise be unable to apply such payment in furtherance of
such recipient's own interest and advantage. The Committee may, in such event,
direct all or any portion of such payments to be made in any one or more of the
following ways:
(a) to such person directly;
(b) to the guardian or estate of such person;
(c) to a relative or friend of such person, to be
expended for such person's benefit; or
(d) to a custodian for such person under any Uniform
Gifts to Minors Act.
4.7 ACCOUNTS CHARGED. The Committee shall charge all
distributions made to a Participant or to such Participant's Beneficiary from
and against the Accounts of the Participant when made.
4.8 UNCLAIMED ACCOUNTS. Neither the Employer nor the Plan
Administration Committee shall be obliged to search for or ascertain the
whereabouts of any Participant or Beneficiary. If the Plan Administration
Committee is unable to locate a Participant or Beneficiary at the time payment
from the Plan is required, the Committee, by certified or registered mail
addressed to the last address of record with the Committee or the Employer,
shall notify such Participant or Beneficiary that a distribution is pending
under this Plan. If, following such notification, the Participant or
Beneficiary fails to make a claim in writing for benefits or provide in writing
a current address for correspondence, the Participant's Account shall be
forfeited on the date that is one day prior to three years (adjusted according
to the abandonment period of the escheat laws of the applicable state) after
the Participant has or would have attained Normal Retirement Age. Provided,
however, that if the Participant or appropriate Beneficiary later makes a claim
for benefits that would otherwise be valid, the Participant's Account shall, at
the direction of the Plan Administration Committee, be reinstated.
_________________________
End of Article IV
10
<PAGE> 15
ARTICLE V
PLAN ADMINISTRATION COMMITTEE
5.1 APPOINTMENT. The Plan Administration Committee has been
appointed by the Company to administer the Plan and serves in such capacity at
the pleasure of the board of directors of the Company. The board of directors
of the Company may remove the Plan Administration Committee or appoint a
successor committee at any time. If the Plan Administration Committee ceases
to exist or is removed without the appointment of a replacement committee, the
Company shall function as the Plan Administration Committee.
5.2 TERM. Each member of the Committee shall serve until his or
her successor is appointed and assumes membership. Any member of the Committee
may be removed, with or without cause, and the board of directors of the
Company shall have the power to fill any vacancy that may occur. A member may
resign upon written notice to the board of directors of the Company or the Plan
Administration Committee.
5.3 COMPENSATION. The members of the Committee shall serve
without compensation for services as such, but the Company shall pay all
expenses of the members of the Committee.
5.4 POWERS OF PLAN ADMINISTRATION COMMITTEE. The Committee shall
have full and absolute discretion in the exercise of its powers hereunder. All
exercises of power by the Committee hereunder shall be final, conclusive and
binding on all interested parties, unless found by a court of competent
jurisdiction, in a final judgment that is no longer subject to review or
appeal, to be arbitrary and capricious. In addition to the power otherwise
enumerated herein, the Committee shall have the following specific authority:
(a) to direct the administration of the Plan in
accordance with the provisions herein set forth;
(b) to adopt rules of procedure and regulations necessary
for the administration of the Plan that are not inconsistent with the terms of
the Plan;
(c) to interpret and construe the provisions of the Plan
and determine all questions with respect to rights of Employees, Participants,
and Beneficiaries under the Plan, including but not limited to rights of
eligibility of an Employee to participate in the Plan, the value of a
Participant's Accounts, and the nonforfeitable percentage of each Participant's
Accounts;
(d) to interpret and enforce the terms of the Plan and
the rules and regulations it adopts;
11
<PAGE> 16
(e) to review and render decisions with respect to a
claim for, (or denial of a claim for) a benefit under the Plan;
(f) to furnish the Employer with information that the
Employer may require for tax or other purposes;
(g) to engage the service of counsel (who may, if
appropriate, be counsel for the Employer) and agents whom the Committee may
deem advisable to assist it with the performance of its duties;
(h) to receive from the Employer and from Employees such
information as shall be necessary for the proper administration of the Plan;
(i) to maintain, or cause to be maintained, separate
Accounts in the name of each Participant; and
(j) to select a secretary, who need not be a member of
the Committee.
5.5 ADJUSTMENTS. Any misstatement or other mistake of fact may be
corrected by the Committee when it becomes known, in the manner the Committee
deems equitable and practicable.
5.6 MANNER OF ACTION. The decision of a majority of the members
of the Plan Administration Committee shall control. In case of a vacancy on
the Committee, the remaining members may exercise any and all of the powers,
authorities, duties, and discretion conferred upon the Committee. The
Committee may, but need not, call or hold formal meetings. Any decision may be
made or action may be taken by the Committee pursuant to written approval of a
majority of the then members. The Committee shall maintain adequate records of
its decisions.
5.7 AUTHORIZED REPRESENTATIVE. The Committee may authorize any
one of its members, or its secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters,
or other documents requested pursuant hereto or necessary or desirable for the
Committee to administer the Plan as provided herein, or to do any act necessary
to carry out the Committee's duties and obligations set forth herein.
5.8 INTERESTED MEMBER. No member of the Committee may decide or
determine any matter concerning the distribution, nature, or method of
settlement of his or her own benefits under the Plan unless there is only one
person acting alone as the Committee.
5.9 INDEMNITY. The Company shall indemnify and save harmless the
Committee, and its members, and each of them, from and against any and all
loss,
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<PAGE> 17
damage, action, fee, cost, claim, liability, proceeding, or expense (including
reasonable attorneys fees) to which the Committee, or its members, may be
subjected arising out of, resulting in whole or in part from, or otherwise
related to any act, conduct, or inaction (except willful or reckless
misconduct), in their official capacities in the administration of the Plan.
_________________________
End of Article V
13
<PAGE> 18
ARTICLE VI
PARTICIPANT ADMINISTRATIVE PROVISIONS
6.1 BENEFICIARY DESIGNATION. Each Participant may from time to
time designate, in writing, a Beneficiary to whom such Participant's Accounts
shall be paid in the event of the Participant's death. The Plan Administration
Committee shall prescribe the form for the written designation of Beneficiary
and, upon the Participant's filing the form with the Committee, all
designations filed prior to that date by the same Participant shall be revoked.
A Participant may designate multiple and/or contingent Beneficiaries. If a
Participant fails to name a Beneficiary, or if the named Beneficiary
predeceases the Participant, the Beneficiary shall be, first, the Participant's
spouse at the time of death, or if the Participant has no surviving spouse,
then to the Participant's surviving children (including adopted children) in
equal shares, or if the Participant has no surviving children, then to the
Participant's surviving parents in equal shares, or if the Participant has no
surviving parents, then to the Participant's estate. If the Participant dies
after distributions have commenced hereunder but before such Participant's
nonforfeitable Account has been fully distributed, payment of such
nonforfeitable Account shall be in a lump sum to the legal representative of
the estate of the last to die of the Participant and his or her Beneficiary, as
determined by the Committee.
6.2 PERSONAL DATA TO PLAN ADMINISTRATION COMMITTEE. Each
Participant and Beneficiary must furnish to the Committee such evidence, data,
or information as the Committee considers necessary or desirable for the
purpose of administering the Plan. The provisions of this Plan are effective
for the benefit of each Participant upon the condition precedent that each
Participant will promptly furnish full, true, and complete evidence, data, and
information when requested by the Committee.
6.3 ADDRESS FOR NOTIFICATION. Each Participant and each
Beneficiary of a deceased Participant shall file with the Plan Administration
Committee, in writing, such person's post office address, and each subsequent
change of such post office address.
6.4 PLACE OF PAYMENT AND PROOF OF CONTINUED ELIGIBILITY. Any
payment or distribution hereunder, and any communication addressed to a
Participant or Beneficiary, at the last address filed with the Plan
Administration Committee, or if no address has been filed, then the last
address indicated on the records of the Employer shall be deemed to have been
delivered to the Participant or Beneficiary on the date that such distribution
or communication is deposited in the United States Mail, postage prepaid. If
the Committee, for any reason, is in doubt as to whether benefit payments are
being received by the person entitled thereto, it shall, by registered mail
addressed to the person concerned, at the last address of record, notify such
person that all unmailed and future retirement income payments shall be
henceforth withheld until such person provides the Committee with evidence of
continued life and the proper mailing address for future payments.
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<PAGE> 19
6.5 ASSIGNMENT OR ALIENATION. Except as may be specified under a
"qualified domestic relations order," as defined in section 514(b)(7) of ERISA,
no benefit payable under the Plan shall be subject in any manner to alienation,
sale, transfer, assignment, pledge, encumbrance, charge, garnishment,
execution, or levy of any kind, either voluntary or involuntary prior to
actually being received by the person entitled to the benefit under the terms
of the Plan. The Company shall not in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of any person entitled
to benefits hereunder.
6.6 INFORMATION AVAILABLE. Any Participant or Beneficiary may
examine copies of this Plan or any other instrument under which the Plan was
established or is operated. The Plan Administration Committee will maintain
such documents in its office, or in such other place or places as the Committee
may designate from time to time for examination during reasonable business
hours. Upon the written request of a Participant or Beneficiary, the Plan
Administration Committee shall furnish him or her with a copy of such
documents. The Plan Administration Committee may make a reasonable charge to
the requesting person for the copy so furnished.
6.7 BENEFICIARY'S RIGHT TO INFORMATION. A beneficiary's right to
(and the Committees' duty to provide to the Beneficiary) information or data
concerning the Plan shall not arise until the Beneficiary first becomes
entitled to receive a benefit under the Plan.
6.8 CLAIMS PROCEDURE. Prior to or upon becoming entitled to
receive a benefit hereunder, a Participant or Beneficiary shall file a claim
for such benefit with the Committee at the time and in the manner prescribed
thereby. However, the Committee may direct payment of a Participant's or
Beneficiary's benefits hereunder without requiring the filing of a claim
therefor, if the Committee has knowledge of such Participant's or Beneficiary's
whereabouts.
6.9 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Committee shall
provide adequate notice in writing as prescribed pursuant to paragraph (b)
below to any Participant or to any Beneficiary ("Claimant") whose claim for
benefits under the Plan has been denied.
(a) Such notice must be sent within 90 days of the date
the claim is received by the Committee unless special circumstances require an
extension of time for processing the claim. Such extension shall not exceed 90
days and no extension shall be allowed unless, within the initial 90 day
period, the claimant is sent an extension notice indicating the special
circumstances requiring the extension and specifying a date by which the
Committee expects to render its decision.
(b) The Committee's notice of denial to the Claimant
shall set forth the following:
(1) the specific reason or reasons for the
denial;
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<PAGE> 20
(2) specific references to pertinent Plan
provisions on which the Committee based its denial;
(3) a description of any additional material and
information needed for the Claimant to perfect his or her claim and an
explanation of why the material or information is needed;
(4) a statement that the Claimant may request a
review upon written application to the Committee, review pertinent
Plan documents, and submit issues and comments in writing;
(5) a statement that any appeal of the
Committee's adverse determination must be made in writing to the
Committee within 60 days after receipt of the Committee's notice of
denial of benefits, and that failure to appeal the action to the
Committee in writing within the 60-day period will render the
Committee's determination final, binding, and conclusive; and
(6) the address of the Plan Administration
Committee to which the Claimant may forward his or her appeal.
(c) If the Claimant should appeal to the Committee, the
Claimant or a duly authorized representative, may submit, in writing, whatever
issues and comments the Claimant deems pertinent. The Committee shall
re-examine all facts related to the appeal and make a final determination as to
whether the denial of benefits is justified under the circumstances. The
Committee shall advise the Claimant in writing of its decision on the appeal,
the specific reasons for the decision, and the specific Plan provisions on
which the decision is based. The notice of the decision shall be given within
60 days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the 60 day period infeasible, but in no event shall the Committee render a
decision regarding the denial of a claim for benefits later than 120 days after
its receipt of a request for review. If an extension of time for review is
required because of special circumstances, written notice of the extension
shall be furnished to the claimant prior to the date the extension period
commences.
6.10 NO RIGHTS IMPLIED. Nothing contained in this Plan, or in any
modification or amendment to the Plan, shall give any Employee, Participant, or
any Beneficiary any right to continue employment, or any other legal or
equitable right against an Employer, or Employee of the Employer, or against
their agents, except as expressly provided by the Plan.
_________________________
End of Article VI
16
<PAGE> 21
ARTICLE VII
AMENDMENT AND TERMINATION
7.1 AMENDMENT. The Company shall have the right at any time,
without prior notice and without cause, to amend or terminate the Plan by
action of its board of directors or by action of the Compensation Committee.
All amendments shall be in writing. Each amendment shall state the date to
which it is either retroactively or prospectively effective.
7.2 TERMINATION. Upon termination of the Plan, the Company shall
pay all benefits credited to Participants pursuant to Section 4.1.
_________________________
End of Article VII
17
<PAGE> 22
ARTICLE VIII
MISCELLANEOUS
8.1 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any
Participant, or to such Participant's legal representative or Beneficiary, in
accordance with the provisions of the Plan, shall to the extent thereof be in
full satisfaction of all claims hereunder against the Plan. The Plan
Administration Committee may require such Participant, legal representative, or
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release therefor in the form determined by the Committee. Any payment made
pursuant to the power herein conferred upon the Plan Administration Committee
shall operate as a complete discharge of all obligations of the Employer, the
Plan Administration Committee and the Compensation Committee, to the extent of
the distributions so made. Neither the Employer, Plan Administration
Committee, nor the Compensation Committee are obliged to ensure the proper
application or expenditure of any payment so made.
8.2 EMPLOYER RECORDS. Each Employer shall, upon request or as may
be specifically required hereunder, furnish or cause to be furnished, all of
the information or documentation which is necessary or required by the Plan
Administration Committee to perform its duties and functions under the Plan.
Records of an Employer as to an Employee's or Participant's period of
employment, termination of employment and the reason therefor, leaves of
absence, reemployment, and Compensation will be conclusive on all persons,
unless determined by the Plan Administration Committee to be incorrect.
8.3 EVIDENCE. Evidence required of anyone under the Plan may be
by certificate, affidavit, document, or other information which the person
acting on it considers pertinent and reliable, and signed, made or presented by
the proper party or parties. Any action required of an Employer may be by
resolution of its board of directors or by any person authorized to act on
behalf of the Employer.
8.4 SEVERABILITY. In the event any provision of the Plan shall be
held to be illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining provisions of the Plan, but shall be fully
severable and the Plan shall be construed and enforced as if the illegal or
invalid provision had never been included herein.
8.5 NOTICE. Any notice required to be given herein by an Employer
or the Plan Administration Committee, shall be deemed delivered, when (a)
personally delivered, or (b) placed in the United States mails, in an envelope
addressed to the last address of record the person to whom the notice is given.
8.6 WAIVER OF NOTICE. Any person entitled to notice under the
Plan may waive the notice.
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<PAGE> 23
8.7 SUCCESSORS. The Plan shall be binding upon all persons
entitled to benefits under the Plan, their respective heirs and legal
representatives, upon each Employer, its successors and assigns, and upon the
Plan Administration Committee, and its successors.
8.8 HEADINGS. The titles and headings of Articles and Sections
are included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
8.9 GOVERNING LAW. All questions arising with respect to the
provisions of this Agreement shall be determined by application of the internal
laws of the State of Washington except to the extent Washington law is
preempted by federal law.
_________________________
End of Article VIII
19
<PAGE> 24
IN WITNESS WHEREOF, the undersigned officer of Washington Mutual, Inc.
has executed this instrument to be effective as of January 1, 1996.
WASHINGTON MUTUAL, INC.
By: /s/ [SIG]
--------------------------------
Its: Senior Vice President
--------------------------------
20
<PAGE> 1
EXHIBIT 10.9
WASHINGTON MUTUAL
DEFERRED COMPENSATION PLAN FOR
DIRECTORS AND CERTAIN HIGHLY COMPENSATED EMPLOYEES
INITIALLY ADOPTED FEBRUARY 17, 1987
AMENDED AND RESTATED EFFECTIVE FEBRUARY 1, 1997
This Deferred Compensation Plan for Directors and Certain Highly
Compensated Employees was initially adopted by Washington Mutual Savings Bank
on February 17, 1987, was amended and restated effective January 1, 1988 and
was subsequently amended and restated effective January 1, 1993. Sponsorship
of this Plan was transferred to Washington Mutual, Inc. in 1994 in connection
with the corporate reorganization pursuant to which Washington Mutual Savings
Bank was merged into Washington Mutual Bank and become a subsidiary of
Washington Mutual, Inc. This Plan is hereby amended and restated in its
entirety by Washington Mutual, Inc., effective February 1, 1997 (except as
otherwise provided below), to provide as follows:
1. DEFINITIONS.
1.1 "Account" means a separate bookkeeping account established for
each Participant on the books of the Company that employs the applicable
Participant for the purpose of recording amounts of Compensation deferred by
such Participant and income earned thereon, pursuant to the provisions of this
Plan.
1.2 "Board" means the Board of Directors of WM, Inc.
1.3 "Annual Bonus" has its usual and ordinary meaning. It is not
intended to include commissions or other similar variable compensation, and is
not intended to include bonuses for services for less than the full calendar
year.
1.4 "Code" means the Internal Revenue Code of 1986, as it may be
amended or replaced from time to time.
1.5 "Company" means WM, Inc., or any direct or indirect subsidiary
of WM, Inc. With respect to any Participant or former Participant, the term
"Company" means the Company by whom the Participant is currently employed, or
was last employed in the case of a former Participant.
1.6 "Compensation" means salary, Annual Bonus, quarterly or
semi-annual bonuses, commissions, variable compensation, and other direct
compensation payable by a Company to an Eligible Employee for employment by the
Company, and Directors' fees payable by WM, Inc. to its Directors. The term
"Compensation" shall not include reimbursement for expenses incurred by the
Eligible Employee, or contributions to or benefits accrued under any Retirement
Plan.
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<PAGE> 2
1.7 "Effective Date" means February 1, 1997, the effective date of
this amendment and restatement of the Plan. This stated effective date
notwithstanding, the revisions to the Plan reflected in Sections 4.2, 5.2 and
the last sentence of Section 1.8 shall be retroactive, the revisions to the
Plan reflected in Sections 1.3, 2.1, 2.2, 2.6 and 4.2 shall be effective
January 1, 1997, and the deletion of Section 2.8 shall be effective January 1,
1997.
1.8 "Eligible Employee" means (a) each Director of WM, Inc., (b)
each salaried employee of either WM, Inc. or any banking subsidiary of WM, Inc.
who has the following corporate title: Chairman, President, Senior Executive
Vice President or Executive Vice President, (c) each salaried employee of
either WM, Inc. or any banking subsidiary of WM, Inc. who has the corporate
title of Senior Vice President and who is determined by the Plan Administration
Committee, in its discretion, to be eligible to participate under this Plan,
and (d) each salaried employee of a non-banking subsidiary of WM, Inc. who has
the corporate title of President. The provisions of the Pre-Existing Plan
notwithstanding, no former employee of American Savings Bank or Western Bank
shall be considered to have been an Eligible Employee under the Pre-Existing
Plan.
1.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
1.10 "Final Payment Date" means the date of any payment to a
Participant or former Participant attributable to amounts deferred hereunder
which reduces such Participant's or former Participant's Account to zero.
1.11 "Participant" means any Eligible Employee who has elected to
defer Compensation under this Plan.
1.12 "Plan" means this plan for the deferral of Compensation, as it
may be amended from time to time.
1.13 "Plan Administration Committee" or "Committee" means such
person or persons appointed under the provisions of Section 6 hereof to
administer and interpret the terms of the Plan.
1.14 "Plan Year" means the 12 consecutive month period commencing
each January 1 and ending each December 31.
1.15 "Pre-Existing Plan" shall mean this Plan as in effect prior to
the Effective Date.
1.16 "Retirement Plan" means any defined benefit or defined
contribution plan qualified under Section 401(a) of the Code, and which is
sponsored by one or more Companies.
1.17 "Termination Date" means the date on which an Eligible
Employee ceases to be an Eligible Employee, for any reason.
1.18 "WM, Inc." means Washington Mutual, Inc., a Washington
corporation.
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<PAGE> 3
2. DEFERRAL ELECTION.
2.1 Election to Defer Compensation.
(a) Any Eligible Employee may elect at any time on or
prior to 15 days preceding the first day of any calendar quarter to
defer the receipt of all or any portion of his or her Compensation for
services to be rendered in the immediately following calendar quarter
or quarters (not including any Annual Bonus). In the case of a bonus
determined on less than an annual basis (e.g., a quarterly or
semi-annual bonus), the deferral election must be made on or prior to
15 days preceding the first day of the first calendar quarter in which
any services will be rendered that relate, in whole or in part, to the
bonus in question.
(b) Notwithstanding anything in this Section 2.1 to the
contrary, any amount to be deferred under this Plan shall not reduce
the current Compensation of the Participant below the total amount
which is to be withheld from the Participant's Compensation pursuant
to a requirement of law or pursuant to an elected optional payroll
deduction.
(c) The parties hereto understand that this Plan does not
determine or affect any Participant's entitlement to any bonus.
Accordingly, in the event that a Participant elects to defer a
percentage of any potential bonus which is not ultimately awarded,
such election shall be null and void.
2.2 Election to Defer Annual Bonus.
(a) Each Eligible Employee may elect to defer a certain
percentage amount, up to 100%, of any Annual Bonus which may be
awarded by the Company. Each such election must be made on or before
December 31 of the calendar year preceding the Plan Year in respect to
which the Annual Bonus may be awarded. For example, for an Annual
Bonus for services rendered during the Plan Year 1998, any Annual
Bonus deferral election must be made by December 31, 1997.
(b) In addition to the foregoing, any Eligible Employee
who is a former employee of American Savings Bank or Western Bank may
elect, for any Annual Bonus which may be awarded for services in the
1997 Plan Year, a condition of which is that the Eligible Employee
must remain employed by the Company through the end of 1997, to defer
a certain percentage amount, up to 100%, of any such Annual Bonus
which may be awarded by the Company. Any election under this
provision must be made on or before March 1, 1997.
(c) The parties hereto understand that this Plan does not
determine or affect any Participant's entitlement to any Annual Bonus.
Accordingly, in the event that a Participant elects to defer a
percentage of his or her potential Annual Bonus which is not
ultimately awarded, such election shall be null and void.
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<PAGE> 4
2.3 Form and Manner of Election. Any election under Section 2.1
or Section 2.2 shall be made in writing and in such form and manner as may be
prescribed by the Plan Administration Committee. The election shall specify
such items as the Committee shall reasonably require, including but not limited
to:
(a) The amount to be deferred, either as a specific
dollar amount or as a percentage of Compensation. Each election of a
dollar amount shall be not less than $300 for each calendar quarter.
Each election of a percentage amount shall be not less than 15% of
Compensation for each calendar quarter; provided, however, that an
election under Section 2.2 with respect to any Annual Bonus that may
be granted by the Company shall be only in such percentage amount as
determined by the Participant;
(b) One of the applicable payment options designated
under Section 2.4 below, unless an option has previously been
designated (including any designation under the Pre-Existing Plan), in
which event the election need include such a designation only if a
change from the existing designated payment option is desired;
(c) A payment commencement date as specified under
Section 2.5 below, unless a payment commencement date has previously
been designated (including any designation under the Pre-Existing
Plan), in which event the election need include such a designation
only if a change from the existing designated commencement date is
desired; and
(d) A designated beneficiary or beneficiaries as provided
in Section 3 hereof.
2.4 Payment Options. At the time of making an election under
Section 2.1 or Section 2.2, the Participant shall specify one of the following
payment options:
(a) Payment of the entire Account balance in a single
lump sum payment.
(b) Payment of the Account balance in monthly
installments over a period certain not to exceed 10 years, with each
installment to be an amount equal to the Account balance as of the
date of payment divided by the number of installments remaining to be
paid, including the current installment; provided, however, that no
monthly installment may be less than $300.
If a Participant fails to specify a payment option described
above, option (a) shall apply. If a Participant designates different payment
options at different times, the last payment option elected shall apply
(including any last election under the Pre-Existing Plan).
2.5 Commencement of Payment. At the time of making a deferral
election under Section 2.1 or Section 2.2, the Participant shall irrevocably
specify the date for the commencement of payment of the Compensation deferred
pursuant to that election. If a Participant fails to specify a payment date,
payment shall be made or commenced, as the case may be, on the first day of the
month immediately following such Participant's Termination Date. A Participant
may designate different payment commencement dates to apply to separate
deferral elections. A payment date may be a date certain, or may be a date
related to an
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<PAGE> 5
employment event such as the date of termination of employment or retirement,
or may be a date related to any other objectively determined event acceptable
to the Plan Administration Committee. The payment commencement date may not be
modified with respect to deferrals elected at the time the payment commencement
date is designated. Subsequent deferral elections may specify a different
payment commencement date for those deferrals.
2.6 Modification of Election.
(a) A Participant's election under Section 2.1 above
shall continue from calendar quarter to calendar quarter until the
election is terminated pursuant to Section 2.7 below, or the election
is modified; provided that an election modification must be made at
least 15 days prior to the first day of such calendar quarter; and
provided further that if an election has been made to defer
compensation that is for services to be rendered during more than one
calendar quarter (e.g., a semi-annual bonus), any modification of that
election must be made at least 15 days prior to the first day of the
first calendar quarter in which any services are to be rendered that
relate, in whole or in part, to the element of Compensation that was
deferred. A Participant's election under Section 2.2 above is
effective only for the Plan Year for which the election is made. Any
modification of such election must be made prior to January 1 of the
Plan Year for which the Annual Bonus may be awarded.
(b) Payment options may be modified at any time more than
30 days prior to the Participant's payment commencement date. As
provided in Section 3 hereof, Beneficiary designations may be modified
at any time. Payment commencement dates may not be modified. Any
modification of an election pursuant to this Section 2.6 shall be
ineffective unless it is made in writing and is timely delivered to
the Plan Administration Committee, in such form as shall be reasonably
required by the Committee.
2.7 Termination of Election. A Participant's deferral election
under Section 2.1 above shall terminate upon the earlier of: (a) the first day
of the calendar quarter immediately following the date on which the Plan
Administration Committee receives from such Participant written notice stating
that his or her election is terminated (provided that if an election has been
made to defer compensation that is for services to be rendered during more than
one calendar quarter (e.g., a semi-annual bonus), any termination of that
election must be done at least 15 days prior to the first day of the first
calendar quarter in which any services are to be rendered that relate, in whole
or in part, to the element of Compensation that was deferred); (b) such
Participant's Termination Date; or (c) termination of this Plan. In the event
of a voluntary termination of an election by the Participant pursuant to clause
(a) above, the Participant may not defer additional amounts until a timely
election is made to defer Compensation which is payable in a subsequent
calendar quarter, as provided in Section 2.1 hereof.
3. BENEFICIARY DESIGNATION.
3.1 Designation of Beneficiary. At the time of making an election
under Section 2.1 or Section 2.2 hereof, a Participant shall designate a person
or persons as the Participant's
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<PAGE> 6
beneficiary or beneficiaries (both primary as well as secondary) to whom
payment under this Plan shall be made in the event of the Participant's death
prior to complete distribution of such Participant's Account balance under the
Plan. Each beneficiary designation shall become effective only when filed in
writing with the Plan Administration Committee during the Participant's
lifetime on a form prescribed by the Committee. Such payments shall be made to
the primary beneficiary if such person survives the Participant. If not, such
payments shall be made to the secondary beneficiary if such person survives the
Participant, and if not, then payments will be made in accordance with the
provisions of Section 3.3 below. If a beneficiary dies at a time such
beneficiary is entitled to receive payments hereunder, the remaining payments
shall be made to such beneficiary's estate, as provided in Section 3.4 below.
3.2 Filing New Designation. The filing of a new beneficiary
designation form will cancel all beneficiary designations previously filed.
Any finalized divorce, dissolution or annulment of marriage or any new marriage
of a Participant subsequent to the date of filing of a beneficiary designation
form shall revoke such designation.
3.3 Failure to Designate. If a Participant fails to designate a
beneficiary as provided above, or if a Participant's beneficiary designation is
revoked by marriage, divorce, dissolution, annulment or otherwise without
execution of a new designation; or if all designated beneficiaries predecease
the Participant or die prior to complete distribution of the Participant's
benefits hereunder; then, the Plan Administration Committee shall direct the
distribution of such benefits to the Participant's estate.
3.4 Death of Beneficiary. At the death of the beneficiary who is
entitled to receive payments hereunder, the balance (if any) then remaining in
the Participant's Account shall be paid in a lump sum to the beneficiary's
estate. Such payment shall completely discharge the Company's obligations
under this Plan.
3.5 Change of Beneficiary. Notwithstanding any other provision of
this Plan, any beneficiary designation may be changed by a Participant at any
time by the written filing of such change on a form prescribed by the Plan
Administration Committee.
4. ACCOUNTS.
4.1 Separate Accounts. The Plan Administration Committee shall
establish a separate Account for each Participant, to which it will credit each
amount required to be credited hereunder. The Account thus established shall
be a bookkeeping Account, and shall not grant to any Participant any security
interest or other prior right in any assets of the Company by reason of such
credits.
4.2 Timing of Credit.
(a) Subject to Section 5.2(c), as of the first day of
each month, the Plan Administration Committee shall credit to each
Participant's Account that portion of such Participant's regular
monthly Compensation earned during the immediately preceding month for
which a deferral election under Section 2.1 is in effect.
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<PAGE> 7
(b) Subject to Section 5.2(c), with respect to each
deferral election under Section 2.1 or 2.2 that defers any bonus,
commission, variable compensation or other element of Compensation
that is not regular monthly compensation, the Plan Administration
Committee shall credit to each Participant's Account the amount of the
deferral election as of the date the bonus, commission, variable
compensation or other Compensation, if any, is awarded by the Company
to the Participant.
4.3 Interest. As of the first day of each calendar quarter, the
Plan Administration Committee shall credit to each Participant's Account
interest on the average daily balance of such Account during the immediately
preceding calendar quarter, using the actual number of days in the calendar
quarter, at an interest rate determined as follows:
As of January 1 of each year, commencing with the Effective Date, the
Plan Administration Committee will determine the applicable interest
rate for the then commencing Plan Year by reference to the interest
rate which would be applicable as of such date to any unsecured junior
debt offering by Washington Mutual Bank or by a comparable financial
institution or public corporation. Such determination will be made by
the Committee, which shall request an estimate of such debt offering
interest rate from at least one nationally-recognized investment
banking firm. The interest rate so determined will be set forth in
writing and kept with the Plan records, and will be applicable to all
Compensation amounts deferred by Participants during the Plan Year.
5. PAYMENT OF ACCOUNT BALANCE.
5.1 Payment Method. Following the Participant's Termination Date,
the Company shall pay the Participant's Account balance under this Plan to such
Participant in accordance with the payment option designated by the Participant
pursuant to Section 2.4 hereof. In the event of the death of the Participant
prior to payment of the entire Account balance, payment shall be made to such
Participant's beneficiary or beneficiaries designated under Section 3 in
accordance with the payment method designated by the Participant pursuant to
Section 2 hereof, or in accordance with any accelerated method (including lump
sum) as the Plan Administration Committee shall determine in its sole
discretion.
5.2 Withholding and Offset.
(a) Any payment or other distribution of benefits under
this Plan may be reduced by any amount required to be withheld by the
Company under any applicable law, rule, regulation, order or other
requirement, now or hereafter in effect, of any governmental
authority.
(b) If a Participant becomes entitled to a distribution
of benefits under the Plan, and if at such time such Participant has
outstanding any debt, obligation or other liability representing an
amount owing to the Company, then the Company may offset such amount
owing it against the amount of benefits otherwise distributable. Such
determination shall be made by the Plan Administration Committee.
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(c) If any tax withholding is required with respect to
Compensation deferred hereunder, the Company shall withhold such
amounts as are required from Compensation paid to the Participant that
is not deferred; provided that if there is insufficient non-deferred
Compensation to allow for the required withholding the withholding
shall be taken from the deferred Compensation and the Participant's
credit under Section 4.2 shall be reduced accordingly.
5.3 Payment for Unforeseeable Emergency. A Participant shall not
be entitled to withdraw any portion of the balance of his or her Account except
that, in cases of an unforeseeable emergency, the Plan Administration Committee
may authorize, on a uniform and nondiscriminatory basis and taking into account
other resources reasonably available to the Participant, payment of so much of
the Participant's Account as is required to meet the need created by the
emergency. For the purposes hereof, an "unforeseeable emergency" is an
unanticipated emergency that is caused by an event beyond the control of the
Participant or the Participant's beneficiary and that would result in severe
financial hardship to the individual if early withdrawal were not permitted.
Without limiting the generality of the foregoing, an unforeseeable emergency
shall include a sudden and unexpected illness or accident of the Participant or
of a dependent (as defined in Code Section 152(a)) of the Participant, loss of
the Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
Participant's control. The circumstances that will constitute an unforeseeable
emergency will depend upon the facts of each case, as determined by the Plan
Administration Committee in its sole discretion, but, in any case, payment may
not be made to the extent that such hardship is or may be relieved:
(a) through reimbursement or compensation by insurance or
otherwise;
(b) by liquidation of the Participant's assets, to the
extent the liquidation of such assets would not itself cause severe
financial hardship, or
(c) by cessation of deferrals under this Plan.
For the purposes hereof, examples of what are not considered to be
unforeseeable emergencies shall include the need to send a Participant's child
to college or the desire to purchase a home.
5.4 Limitation on Liability. The Company's maximum liability to
make payments hereunder is limited to the amount of the Participant's Account
(including the interest thereon pursuant to Section 4.3 above).
6. ADMINISTRATION OF THE PLAN.
The Board shall from time to time appoint a committee, which shall be
designated the Plan Administration Committee, to administer the Plan. The
Board may fix or change the number of members of the Committee at any time at
its discretion. Each member of the Plan Administration Committee shall serve
until such member resigns or becomes unable to serve due to death or disability
or until such member is removed by the Board. The Plan Administration
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<PAGE> 9
Committee shall administer and interpret the Plan and for that purpose may
make, amend or revoke rules and regulations at any time. The Committee also
shall make determinations about benefits hereunder. All decisions of the Plan
Administration Committee shall be by vote of a majority of its members eligible
to vote on a particular matter, and shall be final and binding on all parties.
The Plan Administration Committee shall have absolute discretion to carry out
its responsibilities hereunder. Members of the Plan Administration Committee
shall be eligible to participate in the Plan while serving as a member of the
Committee; provided, however, that no member shall be entitled to vote or take
any other action as part of the Committee with respect to such member's
benefits or any other matter affecting such member's rights as a Participant
under the Plan.
7. CLAIMS PROCEDURE.
7.1 Claims Procedure. Any person desiring a benefit under,
interpretation or construction of, ruling under or information regarding this
Plan shall submit a written request therefor to the Plan Administration
Committee. The Committee shall respond in writing to any such request as soon
as practicable. Any interpretation or construction of, and any ruling under,
this Plan by the Plan Administration Committee shall be final and binding on
all parties.
7.2 Denial of Claim. If a claim for benefits is denied in whole
or in part, the Plan Administration Committee shall notify the claimant of such
denial and of his or her right to a conference with an individual designated in
the notice for the purpose of explaining the denial. If the claimant does not
want such a conference, or is dissatisfied with its outcome, he or she shall be
furnished in writing, in a manner calculated to be understood by the claimant,
specific reasons for such denial, specific references to the Plan provisions on
which the denial is based, a description of any additional material necessary
for his or her to perfect his or her claim, an explanation of why such material
is necessary, and an explanation of this Plan's review procedure as described
in Section 7.3 below.
7.3 Review Procedure. Any person, or his or her duly authorized
representative, whose claim for benefits under this Plan has been denied in
whole or in part, may appeal from such denial to the Plan Administration
Committee by submitting to the Committee a written request for review within 75
days after receiving notice of denial. The Plan Administration Committee shall
give the claimant an opportunity to review pertinent documents relating to the
denial in preparing his or her request for review. The request must set forth
all the grounds upon which it is based, supporting facts and documents, and any
other matters which the claimant deems pertinent, and the relief sought. The
Committee may require the claimant to submit such additional facts, documents
or other material as it deems necessary or advisable in making its review. The
Plan Administration Committee shall act upon a request for review within 60
days after receipt thereof unless special circumstances require further time,
but in no event later than 120 days after such receipt. If the Plan
Administration Committee confirms the denial in whole or in part, the Committee
shall give written notice to the claimant setting forth, in a manner calculated
to be understood by the claimant, the specific reasons for denial and specific
reference to the Plan provisions on which the decision was based. The
determination of the Plan Administration Committee upon such review shall be
final and conclusive and shall
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be binding upon the claimant and all persons claimed by, through or under him
or her, subject, however, to any right of appeal under applicable law.
8. AMENDMENT AND TERMINATION OF PLAN.
8.1 Amendment. The Board may at any time amend this Plan,
provided that no amendment shall deny or reduce any amounts previously credited
to any Participant's Account.
8.2 Termination.
(a) The Board may at any time terminate this Plan, if in
its judgment the continuance of the Plan, or the tax, accounting or
other effects thereof would not be in the best interest of the
Company.
(b) Upon any termination of the Plan under this Section
8.2, the Participant will be deemed to have withdrawn from the Plan as
of the date of such termination, the remaining deferred Compensation
for the balance of the calendar quarter shall prospectively cease to
be deferred for such calendar quarter, and the Company will pay to
Participant the then balance in the Participant's Account at such
times and pursuant to such terms and conditions as the Board in its
sole discretion shall determine.
9. MISCELLANEOUS.
9.1 Unsecured General Creditor; Unfunded Plan. A Participant and
such Participant's beneficiaries, heirs, successors and assigns shall have no
legal or equitable rights, interest or claims in any property or assets of the
Company. Such assets of the Company shall not be held under any trust for the
benefit of Participant, Participant's beneficiaries, heirs, successors or
assigns, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. Any and all assets of the Company
shall be, and remain, the general, unpledged, unrestricted assets of the
Company. The Company's obligation hereunder shall be merely that of an
unfunded and unsecured promise of the Company to pay money in the future. It
is the intention of the parties hereto that this Plan be unfunded for tax
purposes and for purposes of Title I of ERISA.
9.2 Plan Administrator. With respect to ERISA, the Plan
Administration Committee shall be the plan administrator and named fiduciary as
to this Plan and the corporate secretary of WM, Inc. shall be the agent for
purposes of receiving legal process.
9.3 No Right to Employment. This Plan shall not confer upon any
person the right to be retained in the employ of the Company, interfere with
the right of the Company to discharge or otherwise deal with any person without
regard to the existence of this Plan or otherwise be interpreted or construed
as creating or modifying any employment or other contract between the Company
and any person.
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9.4 Alienation. No right, interest or benefit under this Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, security interest, encumbrance, charge, execution,
attachment, garnishment or legal process by the creditors of the Participant or
the Participant's beneficiary, and any attempt to do so shall be void.
9.5 Information. Participants and their beneficiaries under this
Plan shall provide such authorizations, elections, designations and other
information as the Plan Administration Committee shall deem necessary for the
proper administration of this Plan. All such authorizations, elections,
designations and other information shall be in form approved by the Committee.
The Plan Administration Committee shall not be obligated to determine the
accuracy or authenticity of any information provided by any Participant or
beneficiary under this Plan and any payment or other distribution of benefits
based thereon shall be binding on such person, or on anyone claiming by,
through or under such person, and shall completely discharge any liability
under this Plan to the extent of any payment made.
9.6 Headings. Headings of sections and paragraphs of this Plan
are inserted for convenience of reference only and shall not constitute a part
of this Plan.
9.7 Applicable Law. This Plan shall be interpreted, construed and
enforced in accordance with the laws of the State of Washington, except insofar
as state law has been preempted by ERISA.
9.8 Validity. In the event any provision of this Plan is held
invalid, void or unenforceable, the same shall not affect in any respect
whatsoever, the remainder of this Plan.
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EXHIBIT 10.10
WASHINGTON MUTUAL
DEFERRED COMPENSATION PLAN FOR
CERTAIN HIGHLY COMPENSATED EMPLOYEES
INITIALLY ADOPTED EFFECTIVE JANUARY 1, 1997
AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1997
This Deferred Compensation Plan was initially adopted by Washington
Mutual, Inc. effective January 1, 1997. This Plan covers those highly
compensated employees who are not eligible under the Deferred Compensation Plan
for Directors and Certain Highly Compensated Employees, which was initially
adopted on February 17, 1987. This Plan is hereby amended and restated in its
entirety, effective as of January 1, 1997, to provide as follows:
1. DEFINITIONS.
1.1 "Account" means a separate bookkeeping account established for
each Participant on the books of the Company that employs the applicable
Participant for the purpose of recording amounts of Compensation deferred by
such Participant and income earned thereon, pursuant to the provisions of this
Plan.
1.2 "Board" means the Board of Directors of WM, Inc.
1.3 "Annual Bonus" has its usual and ordinary meaning. It is not
intended to include commissions or other similar variable compensation, and is
not intended to include bonuses for services for less than the full calendar
year.
1.4 "Code" means the Internal Revenue Code of 1986, as it may be
amended or replaced from time to time.
1.5 "Company" means WM, Inc., or any direct or indirect subsidiary
of WM, Inc. With respect to any Participant or former Participant, the term
"Company" means the Company by whom the Participant is currently employed, or
was last employed in the case of a former Participant.
1.6 "Compensation" means salary, Annual Bonus, quarterly or
semi-annual bonuses, commissions, variable compensation, and other direct
compensation payable by a Company to an Eligible Employee for employment by the
Company. The term "Compensation" shall not include reimbursement for expenses
incurred by the Eligible Employee, or contributions to or benefits accrued
under any Retirement Plan.
1.7 "Effective Date" means January 1, 1997, the effective date of
this Plan.
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1.8 "Eligible Employee" means each employee of any Company who, at
the time of making an election under this Plan, is reasonably anticipated to
receive Compensation of more than $100,000 (before any and all elections under
this Plan) for services during the calendar year to which the election relates.
The foregoing notwithstanding, employees who are eligible to participate in the
Deferred Compensation Plan for Directors and Certain Highly Compensated
Employees (initially adopted February 17, 1987) during any given Plan Year are
not "Eligible Employees" under this Plan for that Plan Year.
1.9 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
1.10 "Final Payment Date" means the date of any payment to a
Participant or former Participant attributable to amounts deferred hereunder
which reduces such Participant's or former Participant's Account to zero.
1.11 "Participant" means any Eligible Employee who has elected to
defer Compensation under this Plan.
1.12 "Plan" means this plan for the deferral of Compensation, as it
may be amended from time to time.
1.13 "Plan Administration Committee" or "Committee" means such
person or persons appointed under the provisions of Section 6 hereof to
administer and interpret the terms of the Plan.
1.14 "Plan Year" means the 12 consecutive month period commencing
each January 1 and ending each December 31.
1.15 "Retirement Plan" means any defined benefit or defined
contribution plan qualified under Section 401(a) of the Code, and which is
sponsored by one or more Companies.
1.16 "Termination Date" means the date on which an Eligible
Employee ceases to be an Eligible Employee, for any reason.
1.17 "WM, Inc." means Washington Mutual, Inc., a Washington
corporation.
2. DEFERRAL ELECTION.
2.1 Election to Defer Compensation.
(a) Any Eligible Employee may elect at any time on or
prior to 15 days preceding the first day of any calendar quarter,
commencing April 1, 1997, and each calendar quarter thereafter, to
defer the receipt of all or any portion of his or her Compensation for
services to be rendered in the immediately following calendar quarter
or quarters (not including any Annual Bonus). In the case of a bonus
determined on less
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than an annual basis (e.g., a quarterly or semi-annual bonus), the
deferral election must be made on or prior to 15 days preceding the
first day of the first calendar quarter in which any services will be
rendered that relate, in whole or in part, to the bonus in question.
(b) In addition to the foregoing, for the first calendar
quarter of 1997, any Eligible Employee may elect, within 30 days of
receiving written notification of this Plan, to defer the receipt of
all or any portion of his or her Compensation for services to be
rendered in that calendar quarter after the date of the Eligible
Employee's election (not including any Annual Bonus), provided that
the service period covered by the election may not begin until the
first day of the next full payroll period after the election is made
(for instance, an election made on January 10, 1997 would first become
effective for the payroll period January 15, 1997 to January 31,
1997).
(c) Notwithstanding anything in this Section 2.1 to the
contrary, any amount to be deferred under this Plan shall not reduce
the current Compensation of the Participant below the total amount
which is to be withheld from the Participant's Compensation pursuant
to a requirement of law or pursuant to an elected optional payroll
deduction.
(d) The parties hereto understand that this Plan does not
determine or affect any Participant's entitlement to any bonus.
Accordingly, in the event that a Participant elects to defer a
percentage of any potential bonus which is not ultimately awarded,
such election shall be null and void.
2.2 Election to Defer Annual Bonus.
(a) Commencing with any Annual Bonus which may be awarded
for services in the 1998 Plan Year or for each Plan Year thereafter,
each Eligible Employee may elect to defer a certain percentage amount,
up to 100%, of any such Annual Bonus which may be awarded by the
Company. Each such election must be made on or before December 31 of
the calendar year preceding the Plan Year in respect to which the
Annual Bonus may be awarded. For example, for an Annual Bonus for
services rendered during the Plan Year 1998, any Annual Bonus deferral
election must be made by December 31, 1997.
(b) In addition to the foregoing, for any Annual Bonus
which may be awarded for services in the 1997 Plan Year, any Eligible
Employee may elect, within 30 days of receiving written notification
of this Plan, to defer a certain percentage amount, up to 100%, of any
such Annual Bonus which may be awarded by the Company.
(c) The parties hereto understand that this Plan does not
determine or affect any Participant's entitlement to any Annual Bonus.
Accordingly, in the event that a Participant elects to defer a
percentage of his or her potential Annual Bonus which is not
ultimately awarded, such election shall be null and void.
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2.3 Form and Manner of Election. Any election under Section 2.1
or Section 2.2 shall be made in writing and in such form and manner as may be
prescribed by the Plan Administration Committee. The election shall specify
such items as the Committee shall reasonably require, including but not limited
to:
(a) The amount to be deferred, either as a specific
dollar amount or as a percentage of Compensation. Each election of a
dollar amount shall be not less than $300 for each calendar quarter.
Each election of a percentage amount shall be not less than 15% of
Compensation for each calendar quarter; provided, however, that an
election under Section 2.2 with respect to any Annual Bonus that may
be granted by the Company shall be only in such percentage amount as
determined by the Participant;
(b) One of the applicable payment options designated
under Section 2.4 below, unless an option has previously been
designated, in which event the election need include such a
designation only if a change from the existing designated payment
option is desired;
(c) A payment commencement date as specified under
Section 2.5 below, unless a payment commencement date has previously
been designated, in which event the election need include such a
designation only if a change from the existing designated commencement
date is desired; and
(d) A designated beneficiary or beneficiaries as provided
in Section 3 hereof.
2.4 Payment Options. At the time of making an election under
Section 2.1 or Section 2.2, the Participant shall specify one of the following
payment options:
(a) Payment of the entire Account balance in a single
lump sum payment.
(b) Payment of the Account balance in monthly
installments over a period certain not to exceed 10 years, with each
installment to be an amount equal to the Account balance as of the
date of payment divided by the number of installments remaining to be
paid, including the current installment; provided, however, that no
monthly installment may be less than $300.
If a Participant fails to specify a payment option described
above, option (a) shall apply. If a Participant designates different payment
options at different times, the last payment option elected shall apply.
2.5 Commencement of Payment. At the time of making a deferral
election under Section 2.1 or Section 2.2, the Participant shall irrevocably
specify the date for the commencement of payment of the Compensation deferred
pursuant to that election. If a Participant fails to specify a payment date,
payment shall be made or commenced, as the case may be, on the first day of the
month immediately following such Participant's Termination Date. A Participant
may designate different payment commencement dates to apply to separate
deferral elections. A payment date may be a date certain, or may be a date
related to an
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<PAGE> 5
employment event such as the date of termination of employment or retirement,
or may be a date related to any other objectively determined event acceptable
to the Plan Administration Committee. The payment commencement date may not be
modified with respect to deferrals elected at the time the payment commencement
date is designated. Subsequent deferral elections may specify a different
payment commencement date for those deferrals.
2.6 Modification of Election.
(a) A Participant's election under Section 2.1 above
shall continue from calendar quarter to calendar quarter until the
election is terminated pursuant to Section 2.7 below, or the election
is modified; provided that an election modification must be made at
least 15 days prior to the first day of such calendar quarter; and
provided further that if an election has been made to defer
compensation that is for services to be rendered during more than one
calendar quarter (e.g., a semi-annual bonus), any modification of that
election must be made at least 15 days prior to the first day of the
first calendar quarter in which any services are to be rendered that
relate, in whole or in part, to the element of Compensation that was
deferred. A Participant's election under Section 2.2 above is
effective only for the Plan Year for which the election is made. Any
modification of such election must be made prior to January 1 of the
Plan Year for which the Annual Bonus may be awarded.
(b) Payment options may be modified at any time more than
30 days prior to the Participant's payment commencement date. As
provided in Section 3 hereof, Beneficiary designations may be modified
at any time. Payment commencement dates may not be modified. Any
modification of an election pursuant to this Section 2.6 shall be
ineffective unless it is made in writing and is timely delivered to
the Plan Administration Committee, in such form as shall be reasonably
required by the Committee.
2.7 Termination of Election. A Participant's deferral election
under Section 2.1 above shall terminate upon the earlier of: (a) the first day
of the calendar quarter immediately following the date on which the Plan
Administration Committee receives from such Participant written notice stating
that his or her election is terminated (provided that if an election has been
made to defer compensation that is for services to be rendered during more than
one calendar quarter (e.g., a semi-annual bonus), any termination of that
election must be done at least 15 days prior to the first day of the first
calendar quarter in which any services are to be rendered that relate, in whole
or in part, to the element of Compensation that was deferred); (b) such
Participant's Termination Date; or (c) termination of this Plan. In the event
of a voluntary termination of an election by the Participant pursuant to clause
(a) above, the Participant may not defer additional amounts until a timely
election is made to defer Compensation which is payable in a subsequent
calendar quarter, as provided in Section 2.1 hereof.
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3. BENEFICIARY DESIGNATION.
3.1 Designation of Beneficiary. At the time of making an election
under Section 2.1 or Section 2.2 hereof, a Participant shall designate a person
or persons as the Participant's beneficiary or beneficiaries (both primary as
well as secondary) to whom payment under this Plan shall be made in the event
of the Participant's death prior to complete distribution of such Participant's
Account balance under the Plan. Each beneficiary designation shall become
effective only when filed in writing with the Plan Administration Committee
during the Participant's lifetime on a form prescribed by the Committee. Such
payments shall be made to the primary beneficiary if such person survives the
Participant. If not, such payments shall be made to the secondary beneficiary
if such person survives the Participant, and if not, then payments will be made
in accordance with the provisions of Section 3.3 below. If a beneficiary dies
at a time such beneficiary is entitled to receive payments hereunder, the
remaining payments shall be made to such beneficiary's estate, as provided in
Section 3.4 below.
3.2 Filing New Designation. The filing of a new beneficiary
designation form will cancel all beneficiary designations previously filed.
Any finalized divorce, dissolution or annulment of marriage or any new marriage
of a Participant subsequent to the date of filing of a beneficiary designation
form shall revoke such designation.
3.3 Failure to Designate. If a Participant fails to designate a
beneficiary as provided above, or if a Participant's beneficiary designation is
revoked by marriage, divorce, dissolution, annulment or otherwise without
execution of a new designation; or if all designated beneficiaries predecease
the Participant or die prior to complete distribution of the Participant's
benefits hereunder; then, the Plan Administration Committee shall direct the
distribution of such benefits to the Participant's estate.
3.4 Death of Beneficiary. At the death of the beneficiary who is
entitled to receive payments hereunder, the balance (if any) then remaining in
the Participant's Account shall be paid in a lump sum to the beneficiary's
estate. Such payment shall completely discharge the Company's obligations
under this Plan.
3.5 Change of Beneficiary. Notwithstanding any other provision of
this Plan, any beneficiary designation may be changed by a Participant at any
time by the written filing of such change on a form prescribed by the Plan
Administration Committee.
4. ACCOUNTS.
4.1 Separate Accounts. The Plan Administration Committee shall
establish a separate Account for each Participant, to which it will credit each
amount required to be credited hereunder. The Account thus established shall
be a bookkeeping Account, and shall not grant to any Participant any security
interest or other prior right in any assets of the Company by reason of such
credits.
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4.2 Timing of Credit.
(a) Subject to Section 5.2(c), as of the first day of
each month, the Plan Administration Committee shall credit to each
Participant's Account that portion of such Participant's regular
monthly Compensation earned during the immediately preceding month for
which a deferral election under Section 2.1 is in effect.
(b) Subject to Section 5.2(c), with respect to each
deferral election under Section 2.1 or 2.2 that defers any bonus,
commission, variable compensation or other element of Compensation
that is not regular monthly compensation, the Plan Administration
Committee shall credit to each Participant's Account the amount of the
deferral election as of the date the bonus, commission, variable
compensation or other Compensation, if any, is awarded by the Company
to the Participant.
4.3 Interest. As of the first day of each calendar quarter, the
Plan Administration Committee shall credit to each Participant's Account
interest on the average daily balance of such Account during the immediately
preceding calendar quarter, using the actual number of days in the calendar
quarter, at an interest rate determined as follows:
As of January 1 of each year, commencing with the Effective Date, the
Plan Administration Committee will determine the applicable interest
rate for the then commencing Plan Year by reference to the interest
rate which would be applicable as of such date to any unsecured junior
debt offering by Washington Mutual Bank or by a comparable financial
institution or public corporation. Such determination will be made by
the Committee, which shall request an estimate of such debt offering
interest rate from at least one nationally-recognized investment
banking firm. The interest rate so determined will be set forth in
writing and kept with the Plan records, and will be applicable to all
Compensation amounts deferred by Participants during the Plan Year.
5. PAYMENT OF ACCOUNT BALANCE.
5.1 Payment Method. Following the Participant's Termination Date,
the Company shall pay the Participant's Account balance under this Plan to such
Participant in accordance with the payment option designated by the Participant
pursuant to Section 2.4 hereof. In the event of the death of the Participant
prior to payment of the entire Account balance, payment shall be made to such
Participant's beneficiary or beneficiaries designated under Section 3 in
accordance with the payment method designated by the Participant pursuant to
Section 2 hereof, or in accordance with any accelerated method (including lump
sum) as the Plan Administration Committee shall determine in its sole
discretion.
5.2 Withholding and Offset.
(a) Any payment or other distribution of benefits under
this Plan may be reduced by any amount required to be withheld by the
Company under any applicable law, rule, regulation, order or other
requirement, now or hereafter in effect, of any governmental
authority.
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(b) If a Participant becomes entitled to a distribution
of benefits under the Plan, and if at such time such Participant has
outstanding any debt, obligation or other liability representing an
amount owing to the Company, then the Company may offset such amount
owing it against the amount of benefits otherwise distributable. Such
determination shall be made by the Plan Administration Committee.
(c) If any tax withholding is required with respect to
Compensation deferred hereunder, the Company shall withhold such
amounts as are required from Compensation paid to the Participant that
is not deferred; provided that if there is insufficient non- deferred
Compensation to allow for the required withholding the withholding
shall be taken from the deferred Compensation and the Participant's
credit under Section 4.2 shall be reduced accordingly.
5.3 Payment for Unforeseeable Emergency. A Participant shall not
be entitled to withdraw any portion of the balance of his or her Account except
that, in cases of an unforeseeable emergency, the Plan Administration Committee
may authorize, on a uniform and nondiscriminatory basis and taking into account
other resources reasonably available to the Participant, payment of so much of
the Participant's Account as is required to meet the need created by the
emergency. For the purposes hereof, an "unforeseeable emergency" is an
unanticipated emergency that is caused by an event beyond the control of the
Participant or the Participant's beneficiary and that would result in severe
financial hardship to the individual if early withdrawal were not permitted.
Without limiting the generality of the foregoing, an unforeseeable emergency
shall include a sudden and unexpected illness or accident of the Participant or
of a dependent (as defined in Code Section 152(a)) of the Participant, loss of
the Participant's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
Participant's control. The circumstances that will constitute an unforeseeable
emergency will depend upon the facts of each case, as determined by the Plan
Administration Committee in its sole discretion, but, in any case, payment may
not be made to the extent that such hardship is or may be relieved:
(a) through reimbursement or compensation by insurance or
otherwise;
(b) by liquidation of the Participant's assets, to the
extent the liquidation of such assets would not itself cause severe
financial hardship, or
(c) by cessation of deferrals under this Plan.
For the purposes hereof, examples of what are not considered to be
unforeseeable emergencies shall include the need to send a Participant's child
to college or the desire to purchase a home.
5.4 Limitation on Liability. The Company's maximum liability to
make payments hereunder is limited to the amount of the Participant's Account
(including the interest thereon pursuant to Section 4.3 above).
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6. ADMINISTRATION OF THE PLAN.
The Board shall from time to time appoint a committee, which shall be
designated the Plan Administration Committee, to administer the Plan. The
Board may fix or change the number of members of the Committee at any time at
its discretion. Each member of the Plan Administration Committee shall serve
until such member resigns or becomes unable to serve due to death or disability
or until such member is removed by the Board. The Plan Administration
Committee shall administer and interpret the Plan and for that purpose may
make, amend or revoke rules and regulations at any time. The Committee also
shall make determinations about benefits hereunder. All decisions of the Plan
Administration Committee shall be by vote of a majority of its members eligible
to vote on a particular matter, and shall be final and binding on all parties.
The Plan Administration Committee shall have absolute discretion to carry out
its responsibilities hereunder. Members of the Plan Administration Committee
shall be eligible to participate in the Plan while serving as a member of the
Committee; provided, however, that no member shall be entitled to vote or take
any other action as part of the Committee with respect to such member's
benefits or any other matter affecting such member's rights as a Participant
under the Plan.
7. CLAIMS PROCEDURE.
7.1 Claims Procedure. Any person desiring a benefit under,
interpretation or construction of, ruling under or information regarding this
Plan shall submit a written request therefor to the Plan Administration
Committee. The Committee shall respond in writing to any such request as soon
as practicable. Any interpretation or construction of, and any ruling under,
this Plan by the Plan Administration Committee shall be final and binding on
all parties.
7.2 Denial of Claim. If a claim for benefits is denied in whole
or in part, the Plan Administration Committee shall notify the claimant of such
denial and of his or her right to a conference with an individual designated in
the notice for the purpose of explaining the denial. If the claimant does not
want such a conference, or is dissatisfied with its outcome, he or she shall be
furnished in writing, in a manner calculated to be understood by the claimant,
specific reasons for such denial, specific references to the Plan provisions on
which the denial is based, a description of any additional material necessary
for his or her to perfect his or her claim, an explanation of why such material
is necessary, and an explanation of this Plan's review procedure as described
in Section 7.3 below.
7.3 Review Procedure. Any person, or his or her duly authorized
representative, whose claim for benefits under this Plan has been denied in
whole or in part, may appeal from such denial to the Plan Administration
Committee by submitting to the Committee a written request for review within 75
days after receiving notice of denial. The Plan Administration Committee shall
give the claimant an opportunity to review pertinent documents relating to the
denial in preparing his or her request for review. The request must set forth
all the grounds upon which it is based, supporting facts and documents, and any
other matters which the claimant deems pertinent, and the relief sought. The
Committee may require the claimant to submit such additional facts, documents
or other material as it deems necessary or advisable in
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<PAGE> 10
making its review. The Plan Administration Committee shall act upon a request
for review within 60 days after receipt thereof unless special circumstances
require further time, but in no event later than 120 days after such receipt.
If the Plan Administration Committee confirms the denial in whole or in part,
the Committee shall give written notice to the claimant setting forth, in a
manner calculated to be understood by the claimant, the specific reasons for
denial and specific reference to the Plan provisions on which the decision was
based. The determination of the Plan Administration Committee upon such review
shall be final and conclusive and shall be binding upon the claimant and all
persons claimed by, through or under him or her, subject, however, to any right
of appeal under applicable law.
8. AMENDMENT AND TERMINATION OF PLAN.
8.1 Amendment. The Board may at any time amend this Plan,
provided that no amendment shall deny or reduce any amounts previously credited
to any Participant's Account.
8.2 Termination.
(a) The Board may at any time terminate this Plan, if in
its judgment the continuance of the Plan, or the tax, accounting or
other effects thereof would not be in the best interest of the
Company.
(b) Upon any termination of the Plan under this Section
8.2, the Participant will be deemed to have withdrawn from the Plan as
of the date of such termination, the remaining deferred Compensation
for the balance of the calendar quarter shall prospectively cease to
be deferred for such calendar quarter, and the Company will pay to
Participant the then balance in the Participant's Account at such
times and pursuant to such terms and conditions as the Board in its
sole discretion shall determine.
9. MISCELLANEOUS.
9.1 Unsecured General Creditor; Unfunded Plan. A Participant and
such Participant's beneficiaries, heirs, successors and assigns shall have no
legal or equitable rights, interest or claims in any property or assets of the
Company. Such assets of the Company shall not be held under any trust for the
benefit of Participant, Participant's beneficiaries, heirs, successors or
assigns, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. Any and all assets of the Company
shall be, and remain, the general, unpledged, unrestricted assets of the
Company. The Company's obligation hereunder shall be merely that of an
unfunded and unsecured promise of the Company to pay money in the future. It
is the intention of the parties hereto that this Plan be unfunded for tax
purposes and for purposes of Title I of ERISA.
9.2 Plan Administrator. With respect to ERISA, the Plan
Administration Committee shall be the plan administrator and named fiduciary as
to this Plan and the corporate secretary of WM, Inc. shall be the agent for
purposes of receiving legal process.
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9.3 No Right to Employment. This Plan shall not confer upon any
person the right to be retained in the employ of the Company, interfere with
the right of the Company to discharge or otherwise deal with any person without
regard to the existence of this Plan or otherwise be interpreted or construed
as creating or modifying any employment or other contract between the Company
and any person.
9.4 Alienation. No right, interest or benefit under this Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, security interest, encumbrance, charge, execution,
attachment, garnishment or legal process by the creditors of the Participant or
the Participant's beneficiary, and any attempt to do so shall be void.
9.5 Information. Participants and their beneficiaries under this
Plan shall provide such authorizations, elections, designations and other
information as the Plan Administration Committee shall deem necessary for the
proper administration of this Plan. All such authorizations, elections,
designations and other information shall be in form approved by the Committee.
The Plan Administration Committee shall not be obligated to determine the
accuracy or authenticity of any information provided by any Participant or
beneficiary under this Plan and any payment or other distribution of benefits
based thereon shall be binding on such person, or on anyone claiming by,
through or under such person, and shall completely discharge any liability
under this Plan to the extent of any payment made.
9.6 Headings. Headings of sections and paragraphs of this Plan
are inserted for convenience of reference only and shall not constitute a part
of this Plan.
9.7 Applicable Law. This Plan shall be interpreted, construed and
enforced in accordance with the laws of the State of Washington, except insofar
as state law has been preempted by ERISA.
9.8 Validity. In the event any provision of this Plan is held
invalid, void or unenforceable, the same shall not affect in any respect
whatsoever, the remainder of this Plan.
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<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
(1997)
This Employment Agreement (the "Agreement") is between WASHINGTON
MUTUAL, INC., a Washington corporation ("Washington Mutual") and KERRY K.
KILLINGER ("Employee").
Employee has many years of experience in the financial services
business, and has been employed as an officer of Washington Mutual and/or an
affiliate since March 1976. Because of Employee's importance to Washington
Mutual and the value to be derived from Employee's continued employment, it is
the desire of Washington Mutual and Employee to set forth certain terms and
conditions relating to Employee's employment as an inducement for Employee
continuing his employment for so long as Washington Mutual desires to employ
Employee.
Therefore, the parties agree as follows:
1. Employment - Term. Washington Mutual agrees to, and does
hereby, employ Employee, and Employee agrees to, and does hereby, accept such
employment. Employee's employment and this Agreement both shall remain in
effect until Employee's employment and this Agreement are simultaneously
terminated in accordance with the terms hereof.
2. Duties. Employee shall perform such duties as the Board of
Directors of Washington Mutual (the "Board") may from time to time reasonably
direct consistent with this paragraph. (As used herein "Board" shall include
the board of directors or other successor body performing their function in the
event of a merger, consolidation, etc., as described in paragraph 12 below.)
Employee shall initially have the titles of Chairman, President and Chief
Executive Officer. Employee's titles may be changed from time to time as the
Board may determine, provided that Employee shall at all times retain the title
of either Chief Executive Officer or President unless he agrees otherwise.
Employee's duties shall include primary responsibility for the business
strategies of Washington Mutual and other duties customarily performed by a
chief executive officer or president.
3. Compensation. During Employee's employment under this
Agreement, Employee shall receive base salary compensation in the amount
determined by the Directors' Compensation and Stock Option Committee (the
"Compensation Committee"), payable semi-monthly or in such manner as is
consistent with Washington Mutual's policy relating to salaried employees. In
addition, Employee is entitled to participate in Washington Mutual's Bonus and
Incentive Plan for Executive and Senior Management as adopted by the
Compensation Committee, under which Employee may receive, subject to the terms
of the Plan, a bonus based on Washington Mutual's achievement of specified
financial goals. Employee may also be awarded stock options and/or restricted
stock, as determined by the Compensation Committee. Employee's compensation
shall be reviewed by the Compensation Committee annually and, if in their
discretion it appears appropriate, such compensation shall be adjusted provided
that: (a) there may be no reduction without Employee's consent including no
reduction in the level of bonus, stock options and
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<PAGE> 2
restricted stock available to Employee; and (b) Washington Mutual has no
implied obligation to raise Employee's compensation.
4. Other Benefits. Subject to the respective eligibility
requirements and other terms and provisions of the applicable benefit or
insurance plans (including relevant waiting periods), Employee shall be
enrolled as a participant in all employee benefit plans (including retirement
and insurance plans) available to other officers of Washington Mutual, as the
same may from time to time be adopted or amended. Employee shall also be
entitled to receive such other perquisites as the Board may from time to time
deem appropriate.
5. Performance of Duties. Employee agrees that during his
employment with Washington Mutual: (a) Employee will faithfully perform the
duties of such office or offices as he may occupy, which duties shall be such
as may be assigned to him by the Board; (b) Employee will devote to the
performance of his duties all such time and attention as the Board shall
reasonably require, taking, however, from time to time such reasonable
vacations as are consistent with his duties and Washington Mutual policy; and
(c) Employee will not, without the express consent of the Board, become
actively associated with or engaged in any business or activity during the term
of this Agreement other than that of Washington Mutual (excepting of course
customary family and personal activities which may include management of
personal investments so long as it does not entail active involvement in a
business enterprise) and Employee will do nothing inconsistent with his duties
to Washington Mutual.
6. Termination.
(a) The Board may terminate Employee at any time in its
sole discretion. Except as expressly provided in Sections 6(c), 6(f) and 12
below, upon termination Washington Mutual shall have no liability to pay any
further compensation or any other benefit or sum whatsoever to Employee.
(b) Termination of Employee's employment hereunder for
"cause" shall mean termination because (i) Employee engages in abusive use of
alcohol or other drugs on a continuing or recurring basis, (ii) Employee is
convicted of any felony or of a misdemeanor involving moral turpitude
(including forgery, fraud, theft or embezzlement), or is convicted or enters
into a pretrial diversion or similar program in connection with the prosecution
for an offense involving dishonesty, breach of trust or money laundering, or
(iii) Employee has engaged in dishonesty, fraud, destruction or theft of
property of Washington Mutual or an affiliate, physical attack to a fellow
employee, willful malfeasance or gross negligence in the performance of his
duties, or misconduct materially injurious to Washington Mutual or an
affiliate. In addition, on or after January 1, 2015, and provided the
termination is not done upon or within three years after a Change in Control,
"cause" shall include a reasonable, good-faith determination by the Board that
Employee has failed to properly perform or fulfill the duties of his office.
(c) If (i) Employee's employment is terminated at any
time for any reason other than for cause (as defined above), (ii) Employee is
terminated for any reason upon or within three
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<PAGE> 3
years after a Change in Control (as defined in Section 12 below) or (iii)
Employee resigns for "good cause" (as defined in Section 12 below) upon or
within three years after a Change in Control, Employee shall be entitled to
receive, within five business days after the effective date of such termination
or resignation, from Washington Mutual or its successor, an amount equal to
three times Employee's annual Washington Mutual compensation. In addition,
upon such an event:
(i) all stock options held by Employee shall become
immediately exercisable notwithstanding any provisions in the grant of such
options regarding vesting, and
(ii) the lapse of the restrictions on Employee's
restricted stock shall automatically be accelerated; provided that the
provision in this subsection (ii) shall be effective only if (1) the
shareholders vote to authorize the Compensation Committee to accelerate the
vesting of restricted stock without regard to the vesting schedules contained
in the Washington Mutual, Inc. Restricted Stock Plan (whether to submit this
issue to a vote of the shareholders is in Washington Mutual's discretion), and
(2) the Compensation Committee then approves the acceleration; and provided
further that the Compensation Committee may exclude any particular grant(s) of
restricted stock from the acceleration provided for in this subsection (ii),
either at the time it approves the acceleration or in connection with making
any particular grant of restricted stock.
(d) For purposes of Section 6(c), Employee's "annual
compensation" shall include all items of compensation other than the value of
stock options and/or restricted stock granted to Employee. Employee's "annual
compensation" shall include the greater of (i) the total of Employee's salary
and target bonus for the calendar year in which the termination occurs (if
established before the termination) or (ii) Employee's salary and actual bonus
for the prior calendar year (annualized if Employee was not employed by
Washington Mutual for the entire previous calendar year). Employee's "annual
compensation" shall also include the amount of the contributions made or
anticipated to have been made on Employee's behalf to Washington Mutual's
benefit plans for the calendar year in which the termination occurs, including
without limitation contributions to pension plans and cafeteria plan.
(e) Notwithstanding the foregoing, if any payment
described in Section 6(c), together with any other payments or transfers of
property, would constitute a "parachute payment" under Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor statute then in
effect, the aggregate payments by Washington Mutual or its successor pursuant
to Section 6(c) shall be reduced to an amount that, when combined with any
other payments or transfers of property taken into account under Section 280G,
is one dollar less than the smallest sum that would be considered to be a
"parachute payment." The foregoing notwithstanding, the reduction provided for
in this paragraph shall be made only if it increases the amount received by
Employee net of federal income, FICA and golden parachute excise taxes.
(f) Upon termination, Employee's rights under Washington
Mutual's employee pension plans and employee welfare benefit plans (including
medical coverage and insurance plans) shall be determined under the terms of
the plans themselves.
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<PAGE> 4
7. Continuation of Medical Insurance. If Employee's employment
by Washington Mutual terminates for any reason (including early retirement)
other than gross misconduct, Employee shall be entitled to continue to
participate in Washington Mutual's self-funded group medical plan, at
Employee's expense, to the extent provided in the plan and under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
8. Death or Disability. If Employee should die or become
disabled at any time during his employment hereunder this Agreement shall
terminate and neither Employee nor anyone claiming by, through or under him
shall be entitled to any further compensation or other sum under this Agreement
(other than payments made by insurers under policies of life and disability
insurance and any sums which may become available under any employee benefit
plan). For purposes of this Agreement, Employee shall be considered disabled
if, and only if, Employee has been unable to perform the essential functions of
his job for a continuous period of 180 days, provided that after the 180 day
period Washington Mutual shall grant additional unpaid leave, without
terminating this Agreement or Employee's employment, to the extent required by
law.
9. Determination of Disability. If there should be any dispute
between the parties as to Employee's physical or mental disability at any time,
such question shall be settled by the opinion of an impartial reputable
physician agreed upon for the purpose by the parties or their representatives
or, failing agreement within ten days of a written request therefor by either
party to the other, then one designated by the then President of the Washington
State Medical Association. The certificate of any such physician as to the
matter in dispute shall be final and binding on the parties.
10. Confidentiality. Employee agrees that information not
generally known to the public to which Employee has been or will be exposed as
a result of Employee's employment by Washington Mutual is confidential
information that belongs to Washington Mutual. This includes information
developed by Employee, alone or with others, or entrusted to Washington Mutual
by its customers or others. Washington Mutual's confidential information
includes, without limitation, information relating to Washington Mutual's trade
secrets, know-how, procedures, purchasing, accounting, marketing, sales,
customers, clients, employees, business strategies and acquisition strategies.
Employee will hold Washington Mutual's confidential information in strict
confidence and will not disclose or use it except as authorized by Washington
Mutual and for Washington Mutual's benefit.
11. Possession of Materials. Employee agrees that upon conclusion
of employment or request by Washington Mutual, Employee shall turn over to
Washington Mutual all documents, files, office supplies and any other material
or work product in Employee's possession or control that were created pursuant
to or derived from Employee's services for Washington Mutual.
12. Change in Control. For purposes of this Agreement, "Change in
Control" shall mean:
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<PAGE> 5
(a) The acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934 and the rules of the Securities and Exchange
Commission thereunder as in effect on the date of this Agreement), other than
Washington Mutual, a Subsidiary or any employee benefit plan of Washington
Mutual or its Subsidiaries, of shares representing more than 25% of (i) the
common stock of Washington Mutual, (ii) the aggregate voting power of
Washington Mutual's voting securities or (iii) the total market value of
Washington Mutual's voting securities;
(b) During any period of 25 consecutive calendar months,
a majority of the Board of Directors of Washington Mutual (the "Board") ceasing
to be composed of individuals (i) who were members of the Board on the first
day of such period, (ii) whose election or nomination to the Board was approved
by individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of the Board or (iii) whose election
or nomination to the Board was approved by individuals referred to in clauses
(i) and (ii) above constituting at the time of such election or nomination at
least a majority of the Board;
(c) The good-faith determination by the Board that any
Person or group (other than a Subsidiary or any employee benefit plan of
Washington Mutual or its Subsidiaries) has acquired direct or indirect
possession of the power to direct or cause to direct the management or policies
of Washington Mutual, whether through the ability to exercise voting power, by
contract or otherwise;
(d) The merger, consolidation, share exchange or similar
transaction between Washington Mutual and another Person (other than a
Subsidiary) other than a merger in which Washington Mutual is the surviving
corporation; or
(e) The sale or transfer (in one transaction or a series
of related transactions) of all or substantially all of Washington Mutual's
assets to another Person (other than a Subsidiary) whether assisted or
unassisted, voluntary or involuntary.
For purposes of the above definition of Change in Control:
(f) "Person" shall mean any individual, corporation,
company, voluntary association, partnership, limited liability company, joint
venture, trust, unincorporated organization or government (or any agency,
instrumentality or political subdivision thereof); and
(g) "Subsidiary" shall mean a corporation that is wholly
owned by Washington Mutual, either directly or through one or more corporations
which are wholly owned by Washington Mutual.
In the event of a Change in Control, this Agreement shall bind, and
run to the benefit of, the successor to Washington Mutual resulting from the
Change in Control.
If, upon or within three years after a Change in Control (i) Employee
shall be terminated for any reason or (ii) Employee shall resign for "good
cause," Employee shall be entitled to the
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<PAGE> 6
same payments hereunder as would be provided were Employee terminated by
Washington Mutual, or any successor to Washington Mutual, other than for cause
(as defined above).
For purposes of this Agreement, "good cause" for Employee to resign
shall mean:
(h) The assignment of duties to Employee which (i) are
materially different from Employee's duties immediately prior to the Change in
Control, or (ii) result in Employee having significantly less authority and/or
responsibility than he had prior to the Change in Control, without his express
written consent;
(i) The removal of Employee from the position held
immediately prior to the Change in Control, except where such removal is for
cause (as defined above) or by reason of Employee's disability;
(j) A reduction of Employee's base salary as in effect on
the date of the Change in Control or as the same may be increased from time to
time thereafter, or a failure by Washington Mutual to increase such base salary
each year after such Change in Control by an amount which at least equals, on a
percentage basis, the percentage increase, if any, in the cost of living as set
forth in the Consumer Price Index (United States City Average for All Urban
Consumers) - All Items (Reference Base 1982 = 100) over the preceding year;
(k) A reduction in the overall level of Employee's total
compensation below the average total compensation for the 24 months immediately
preceding the Change in Control; or
(l) Any change in Employee's duties which would require
him to relocate out of the Seattle area, without Employee's express written
consent.
13. Arbitration. Any dispute arising out of or relating to this
Agreement or Employee's employment shall be submitted to binding arbitration
(instead of being decided in court by a judge or jury) as follows:
(a) Each party shall select one neutral arbitrator and
the two arbitrators shall together select a third neutral arbitrator. If
either party fails to promptly select an arbitrator, or if the two
party-selected arbitrators do not promptly select the third arbitrator, the
missing arbitrator(s) shall be selected by the Presiding Judge of the King
County Superior Court. Each of the arbitrators shall be either a present or
former senior executive or board member of a banking, financial or insurance
company doing business in the State of Washington or a member of the Washington
Bar with at least ten years experience in banking, financial or corporate law.
(b) The arbitration shall proceed in Seattle under
Washington law. To the extent not inconsistent with this Agreement, the
arbitrators shall follow the American Arbitration Association ("AAA")
Employment Dispute Resolution Rules effective on November 1, 1993, provided
that the arbitration shall not be filed with or administered by the AAA or any
other arbitration administrator. The arbitration shall be commenced by serving
a written demand for
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<PAGE> 7
arbitration on the other party, either personally or by both regular first
class mail and certified mail, return receipt requested.
(c) All pre-hearing matters shall be decided by the third
arbitrator. Discovery shall be permitted only upon order of the third
arbitrator after a showing of good cause (it being the intent of the parties to
limit discovery to that which is reasonably necessary for preparation and
presentation of this case).
(d) In making the decision and award, the arbitrators
shall apply applicable substantive law. On issues of state law, the
substantive law (not including choice of law rules) of the state of Washington
shall control. The arbitrators may award injunctive relief or any other remedy
that would have been available in court. If a court, applying applicable
substantive law, would be authorized to award punitive or exemplary damages,
the arbitrators shall have the same power, but the arbitrators otherwise shall
not award punitive or exemplary damages. All statutes of limitations that
would apply in court shall apply in the arbitration. Questions about whether a
dispute must be arbitrated shall be determined by the arbitrators. The
arbitrators may require the losing party to pay some or all of the costs of the
arbitration and the prevailing party's reasonable attorneys' fees.
(e) Because of the interstate nature of Washington
Mutual's business, this arbitration agreement is governed by the Federal
Arbitration Act, 9 U.S.C. Section 1 et seq. (the "FAA"). The provisions of
the FAA (and to the extent not preempted by the FAA, the provisions of
Washington's arbitration statute, Chapter 7.04 RCW) are incorporated into this
Agreement to the extent not inconsistent with the other terms of this
Agreement.
(f) The decision of the arbitrators shall be binding upon
the parties and shall not be subject to judicial review, absent fraud or
collusion involving the arbitrators, and judgment may be entered upon the award
in the King County Superior Court if the same is not paid within thirty (30)
days after the written decision of the arbitrators has been delivered to the
parties.
(g) The disputes that must be submitted to arbitration
under this Agreement include, but are not limited to, pay disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes,
and include disputes with (i) Washington Mutual's direct and indirect
subsidiaries and (ii) the employees and agents of Washington Mutual and of its
direct and indirect subsidiaries so long as the employee or agent with whom the
Employee has the dispute is also bound by or consents to this agreement to
arbitrate.
(h) Either party may request a court to issue such
temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after
arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of arbitration. No such request shall be a waiver
of the right to submit any dispute to arbitration.
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<PAGE> 8
14. Miscellaneous.
(a) This Agreement is the entire agreement between the
parties and may not be modified or abrogated orally or by course of dealing,
but only by another instrument in writing duly executed by the parties. This
Agreement replaces and supersedes all prior agreements between the parties on
these subjects, including without limitation that certain Employment Agreement
dated as of January 1, 1994 between Employee, Washington Mutual Savings Bank
and Washington Mutual, Inc.
(b) This Agreement has been drafted in contemplation of
and shall be construed in accordance with and governed by Washington law.
Jurisdiction and venue of any action in connection with this Agreement shall be
had exclusively in the Superior Court for King County, Washington or the U.S.
District Court in Seattle.
(c) In the event of any litigation arising out of this
Agreement the losing party agrees to pay the prevailing party's reasonable
attorneys' fees and costs including those incurred on appeal.
(d) Employee acknowledges that this Agreement has been
drafted by counsel for Washington Mutual, and that Employee has not relied upon
such counsel with respect to this Agreement.
(e) If a court of competent jurisdiction or governmental
authority declares any term or provision hereof invalid, unenforceable or
unacceptable, the remaining terms and provisions hereof shall be unimpaired and
the invalid, unenforceable or unacceptable term or provision shall be replaced
by a term or provision that is valid, enforceable and acceptable and that comes
closest to expressing the intention of the invalid, unenforceable or
unacceptable term or provision.
(f) Employee may not assign, pledge or encumber his
interest in this Agreement or any part thereof without the prior written
consent of Washington Mutual.
DATED for reference purposes the 1st day of January 1997 but effective
as of January 1, 1995.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By____________________________________
S. Liane Wilson
Its Executive Vice President
EMPLOYEE: ______________________________________
Kerry K. Killinger
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EXHIBIT 10.12
EMPLOYMENT AGREEMENT
(1997)
This Employment Agreement (the "Agreement") is between WASHINGTON
MUTUAL, INC., a Washington corporation ("Washington Mutual") and ____
____________ ("Employee").
Employee has many years of experience in the financial services
business, and has been employed as an officer of Washington Mutual and/or an
affiliate since ________________. Because of Employee's importance to
Washington Mutual and the value to be derived from Employee's continued
employment, it is the desire of Washington Mutual and Employee to set forth
certain terms and conditions relating to Employee's employment as an inducement
for Employee continuing his or her employment for so long as Washington Mutual
desires to employ Employee.
Therefore, the parties agree as follows:
1. Employment. Washington Mutual agrees to, and does hereby,
employ Employee, and Employee agrees to, and does hereby, accept such
employment. Notwithstanding the foregoing, any other provision in this
Agreement or any prior written or oral agreement or understanding between
Washington Mutual and Employee, Employee's employment hereunder shall be at
will and may be terminated at any time by Washington Mutual without any
liability whatsoever to Washington Mutual except for the payment of such
amounts and the providing of such benefits as are expressly set forth in
Sections 6 and 12.
2. Duties. Employee shall perform such duties as the Chairman,
the President or the Board of Directors of Washington Mutual (the "Board") may
from time to time direct. (As used herein "Board" shall include the board of
directors or other successor body performing their function in the event of a
merger, consolidation, etc., as described in paragraph 12 below.) Employee
shall initially have the title of _______ _____________ with duties principally
in the area of _______________________, but this may be changed from time to
time as the Chairman, the President or the Board may determine.
3. Compensation. During Employee's employment under this
Agreement, Employee shall receive base salary compensation in the amount
determined by the Directors' Compensation and Stock Option Committee (the
"Compensation Committee"), payable semi-monthly or in such manner as is
consistent with Washington Mutual's policy relating to salaried employees. In
addition, Employee is entitled to participate in Washington Mutual's Bonus and
Incentive Plan for Executive and Senior Management as adopted by the
Compensation Committee, under which Employee may receive, subject to the terms
of the Plan, a bonus based on Washington Mutual's achievement of specified
financial goals. Employee may also be awarded stock options and/or restricted
stock, as determined by the Compensation Committee. Employee's compensation
shall be reviewed by the Compensation Committee annually and, in the sole
discretion of the Compensation Committee, such compensation may be adjusted
either upward or downward.
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<PAGE> 2
4. Other Benefits. Subject to the respective eligibility
requirements and other terms and provisions of the applicable benefit or
insurance plans (including relevant waiting periods), Employee shall be
enrolled as a participant in all employee benefit plans (including retirement
and insurance plans) available to other officers of Washington Mutual, as the
same may from time to time be adopted or amended. Employee shall also be
entitled to receive such other perquisites as the Chairman, the President or
the Board may from time to time deem appropriate.
5. Performance of Duties. Employee agrees that during his or her
employment with Washington Mutual: (a) Employee will faithfully perform the
duties of such office or offices as he or she may occupy, which duties shall be
such as may be assigned to him or her by the Chairman, the President or the
Board; (b) Employee will devote to the performance of his or her duties all
such time and attention as the Chairman, the President or the Board shall
reasonably require, taking, however, from time to time such reasonable
vacations as are consistent with his or her duties and Washington Mutual
policy; and (c) Employee will not, without the express consent of the Chairman
or the Board, become actively associated with or engaged in any business or
activity during the term of this Agreement other than that of Washington Mutual
(excepting of course customary family and personal activities which may include
management of personal investments so long as it does not entail active
involvement in a business enterprise) and Employee will do nothing inconsistent
with his or her duties to Washington Mutual.
6. Termination.
(a) Washington Mutual may terminate Employee at any time
in its sole discretion. Except as expressly provided in (b) and (c) below,
upon termination Washington Mutual shall have no liability to pay any further
compensation or any other benefit or sum whatsoever to Employee.
(b) Upon termination, Employee's rights under Washington
Mutual's employee pension plans and employee welfare benefit plans (including
medical coverage and insurance plans) shall be determined under the terms of
the plans themselves.
(c) In the event that (i) Employee is terminated for any
reason upon or within three years after a Change in Control (as defined in
Section 12 below) or (ii) Employee resigns for "good cause" (as defined in
Section 12 below) upon or within three years after a Change in Control, then
(but in no other circumstances) Employee shall be entitled to receive, within
five business days after the effective date of such termination or resignation,
from Washington Mutual or its successor, an amount equal to three times
Employee's annual Washington Mutual compensation. In addition, upon such an
event:
(i) all stock options held by Employee shall become
immediately exercisable notwithstanding any provisions in the grant of such
options regarding vesting, and
(ii) the lapse of the restrictions on Employee's
restricted stock shall automatically be accelerated; provided that the
provision in this subsection (ii) shall be effective
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<PAGE> 3
only if (1) the shareholders vote to authorize the Compensation Committee to
accelerate the vesting of restricted stock without regard to the vesting
schedules contained in the Washington Mutual, Inc. Restricted Stock Plan
(whether to submit this issue to a vote of the shareholders is in Washington
Mutual's discretion), and (2) the Compensation Committee then approves the
acceleration; and provided further that the Compensation Committee may exclude
any particular grant(s) of restricted stock from the acceleration provided for
in this subsection (ii), either at the time it approves the acceleration or in
connection with making any particular grant of restricted stock.
(d) For purposes of Section 6(c), Employee's "annual
compensation" shall include all items of compensation other than the value of
stock options and/or restricted stock granted to Employee. Employee's "annual
compensation" shall include the greater of (i) the total of Employee's salary
and target bonus for the calendar year in which the termination occurs (if
established before the termination) or (ii) Employee's salary and actual bonus
for the prior calendar year (annualized if Employee was not employed by
Washington Mutual for the entire previous calendar year). Employee's "annual
compensation" shall also include the amount of the contributions made or
anticipated to have been made on Employee's behalf to Washington Mutual's
benefit plans for the calendar year in which the termination occurs, including
without limitation contributions to pension plans and cafeteria plan.
(e) Notwithstanding the foregoing, if any payment
described in Section 6(c), together with any other payments or transfers of
property, would constitute a "parachute payment" under Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor statute then in
effect, the aggregate payments by Washington Mutual or its successor pursuant
to Section 6(c) shall be reduced to an amount that, when combined with any
other payments or transfers of property taken into account under Section 280G,
is one dollar less than the smallest sum that would be considered to be a
"parachute payment." The foregoing notwithstanding, the reduction provided for
in this paragraph shall be made only if it increases the amount received by
Employee net of federal income, FICA and golden parachute excise taxes.
7. Continuation of Medical Insurance. If Employee's employment
by Washington Mutual terminates for any reason (including early retirement)
other than gross misconduct, Employee shall be entitled to continue to
participate in Washington Mutual's self-funded group medical plan, at
Employee's expense, to the extent provided in the plan and under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
8. Death or Disability. If Employee should die or become
disabled at any time during his or her employment hereunder this Agreement
shall terminate and neither Employee nor anyone claiming by, through or under
him or her shall be entitled to any further compensation or other sum under
this Agreement (other than payments made by insurers under policies of life and
disability insurance and any sums which may become available under any employee
benefit plan).
9. Determination of Disability. If there should be any dispute
between the parties as to Employee's physical or mental disability at any time,
such question shall be settled by the
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<PAGE> 4
opinion of an impartial reputable physician agreed upon for the purpose by the
parties or their representatives or, failing agreement within ten days of a
written request therefor by either party to the other, then one designated by
the then President of the Washington State Medical Association. The
certificate of any such physician as to the matter in dispute shall be final
and binding on the parties.
10. Confidentiality. Employee agrees that information not
generally known to the public to which Employee has been or will be exposed as
a result of Employee's employment by Washington Mutual is confidential
information that belongs to Washington Mutual. This includes information
developed by Employee, alone or with others, or entrusted to Washington Mutual
by its customers or others. Washington Mutual's confidential information
includes, without limitation, information relating to Washington Mutual's trade
secrets, know-how, procedures, purchasing, accounting, marketing, sales,
customers, clients, employees, business strategies and acquisition strategies.
Employee will hold Washington Mutual's confidential information in strict
confidence and will not disclose or use it except as authorized by Washington
Mutual and for Washington Mutual's benefit.
11. Possession of Materials. Employee agrees that upon conclusion
of employment or request by Washington Mutual, Employee shall turn over to
Washington Mutual all documents, files, office supplies and any other material
or work product in Employee's possession or control that were created pursuant
to or derived from Employee's services for Washington Mutual.
12. Change in Control. For purposes of this Agreement, "Change in
Control" shall mean:
(a) The acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934 and the rules of the Securities and Exchange
Commission thereunder as in effect on the date of this Agreement), other than
Washington Mutual, a Subsidiary or any employee benefit plan of Washington
Mutual or its Subsidiaries, of shares representing more than 25% of (i) the
common stock of Washington Mutual, (ii) the aggregate voting power of
Washington Mutual's voting securities or (iii) the total market value of
Washington Mutual's voting securities;
(b) During any period of 25 consecutive calendar months,
a majority of the Board of Directors of Washington Mutual (the "Board") ceasing
to be composed of individuals (i) who were members of the Board on the first
day of such period, (ii) whose election or nomination to the Board was approved
by individuals referred to in clause (i) above constituting at the time of such
election or nomination at least a majority of the Board or (iii) whose election
or nomination to the Board was approved by individuals referred to in clauses
(i) and (ii) above constituting at the time of such election or nomination at
least a majority of the Board;
(c) The good-faith determination by the Board that any
Person or group (other than a Subsidiary or any employee benefit plan of
Washington Mutual or its Subsidiaries) has acquired direct or indirect
possession of the power to direct or cause to direct the management
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<PAGE> 5
or policies of Washington Mutual, whether through the ability to exercise
voting power, by contract or otherwise;
(d) The merger, consolidation, share exchange or similar
transaction between Washington Mutual and another Person (other than a
Subsidiary) other than a merger in which Washington Mutual is the surviving
corporation; or
(e) The sale or transfer (in one transaction or a series
of related transactions) of all or substantially all of Washington Mutual's
assets to another Person (other than a Subsidiary) whether assisted or
unassisted, voluntary or involuntary.
For purposes of the above definition of Change in Control:
(f) "Person" shall mean any individual, corporation,
company, voluntary association, partnership, limited liability company, joint
venture, trust, unincorporated organization or government (or any agency,
instrumentality or political subdivision thereof); and
(g) "Subsidiary" shall mean a corporation that is wholly
owned by Washington Mutual, either directly or through one or more corporations
which are wholly owned by Washington Mutual.
In the event of a Change in Control, this Agreement shall bind, and
run to the benefit of, the successor to Washington Mutual resulting from the
Change in Control.
If, upon or within three years after a Change in Control (i) Employee
shall be terminated for any reason or (ii) Employee shall resign for "good
cause," Employee shall be entitled to the separation payments described in
Section 6(c) above, subject to Section 6(e) above.
For purposes of this Agreement, "good cause" for Employee to resign
shall mean:
(h) The assignment of duties to Employee which (i) are
materially different from Employee's duties immediately prior to the Change in
Control, or (ii) result in Employee having significantly less authority and/or
responsibility than he or she had prior to the Change in Control, without his
or her express written consent;
(i) The removal of Employee from the position held
immediately prior to the Change in Control, except where such removal is for
cause (as defined below) or by reason of Employee's disability;
(j) A reduction of Employee's base salary as in effect on
the date of the Change in Control or as the same may be increased from time to
time thereafter;
(k) A reduction in the overall level of Employee's total
compensation below the average total compensation paid by Washington Mutual to
Employee for the 24 months immediately preceding the Change in Control; or
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<PAGE> 6
(l) Any change in Employee's duties which would require
him or her to relocate out of the Seattle area, without Employee's express
written consent.
For purposes of Section 12(i) of this Agreement, a removal of Employee
from his or her position will be considered to be for "cause" if, but only if,
the removal is because (i) Employee engages in abusive use of alcohol or other
drugs on a continuing or recurring basis, (ii) Employee is convicted of any
felony or of a misdemeanor involving moral turpitude (including forgery, fraud,
theft or embezzlement), or is convicted or enters into a pretrial diversion or
similar program in connection with the prosecution for an offense involving
dishonesty, breach of trust or money laundering, or (iii) Employee has engaged
in dishonesty, fraud, destruction or theft of property of Washington Mutual or
an affiliate, physical attack to a fellow employee, willful malfeasance or
gross negligence in the performance of his or her duties, or misconduct
materially injurious to Washington Mutual or an affiliate.
13. Title. Although it is the intention of the parties that
during the term of this Agreement Employee shall be an executive employee of
Washington Mutual with the title and duties described in Section 2 above, it is
specifically understood that the employment and the nature and situs of
services to be rendered shall be subject to the authority of the Chairman, the
President or the Board to change the same from time to time and at any time and
to provide for the operation of Washington Mutual as specified by applicable
banking laws and regulations.
14. Arbitration. Any dispute arising out of or relating to this
Agreement or Employee's employment shall be submitted to binding arbitration
(instead of being decided in court by a judge or jury) as follows:
(a) Each party shall select one neutral arbitrator and
the two arbitrators shall together select a third neutral arbitrator. If
either party fails to promptly select an arbitrator, or if the two
party-selected arbitrators do not promptly select the third arbitrator, the
missing arbitrator(s) shall be selected by the Presiding Judge of the King
County Superior Court. Each of the arbitrators shall be either a present or
former senior executive or board member of a banking, financial or insurance
company doing business in the State of Washington or a member of the Washington
Bar with at least ten years experience in banking, financial or corporate law.
(b) The arbitration shall proceed in Seattle under
Washington law. To the extent not inconsistent with this Agreement, the
arbitrators shall follow the American Arbitration Association ("AAA")
Employment Dispute Resolution Rules effective on November 1, 1993, provided
that the arbitration shall not be filed with or administered by the AAA or any
other arbitration administrator. The arbitration shall be commenced by serving
a written demand for arbitration on the other party, either personally or by
both regular first class mail and certified mail, return receipt requested.
(c) All pre-hearing matters shall be decided by the third
arbitrator. Discovery shall be permitted only upon order of the third
arbitrator after a showing of good cause (it being the intent of the parties to
limit discovery to that which is reasonably necessary for preparation and
presentation of this case).
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<PAGE> 7
(d) In making the decision and award, the arbitrators
shall apply applicable substantive law. On issues of state law, the
substantive law (not including choice of law rules) of the state of Washington
shall control. The arbitrators may award injunctive relief or any other remedy
that would have been available in court. If a court, applying applicable
substantive law, would be authorized to award punitive or exemplary damages,
the arbitrators shall have the same power, but the arbitrators otherwise shall
not award punitive or exemplary damages. All statutes of limitations that
would apply in court shall apply in the arbitration. Questions about whether a
dispute must be arbitrated shall be determined by the arbitrators. The
arbitrators may require the losing party to pay some or all of the costs of the
arbitration and the prevailing party's reasonable attorneys' fees.
(e) Because of the interstate nature of Washington
Mutual's business, this arbitration agreement is governed by the Federal
Arbitration Act, 9 U.S.C. Section 1 et seq. (the "FAA"). The provisions of
the FAA (and to the extent not preempted by the FAA, the provisions of
Washington's arbitration statute, Chapter 7.04 RCW) are incorporated into this
Agreement to the extent not inconsistent with the other terms of this
Agreement.
(f) The decision of the arbitrators shall be binding upon
the parties and shall not be subject to judicial review, absent fraud or
collusion involving the arbitrators, and judgment may be entered upon the award
in the King County Superior Court if the same is not paid within thirty (30)
days after the written decision of the arbitrators has been delivered to the
parties.
(g) The disputes that must be submitted to arbitration
under this Agreement include, but are not limited to, pay disputes, wrongful
termination disputes and discrimination, harassment or civil rights disputes,
and include disputes with (i) Washington Mutual's direct and indirect
subsidiaries and (ii) the employees and agents of Washington Mutual and of its
direct and indirect subsidiaries so long as the employee or agent with whom the
Employee has the dispute is also bound by or consents to this agreement to
arbitrate.
(h) Either party may request a court to issue such
temporary or interim relief (including temporary restraining orders and
preliminary injunctions) as may be appropriate, either before or after
arbitration is commenced. The temporary or interim relief shall remain in
effect pending the outcome of arbitration. No such request shall be a waiver
of the right to submit any dispute to arbitration.
15. Miscellaneous.
(a) This Agreement is the entire agreement between the
parties and may not be modified or abrogated orally or by course of dealing,
but only by another instrument in writing duly executed by the parties. This
Agreement replaces and supersedes all prior agreements between the parties on
these subjects, including without limitation that certain Employment Agreement
dated as of January 1, 1994 between Employee, Washington Mutual Savings Bank
and Washington Mutual, Inc.
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<PAGE> 8
(b) This Agreement has been drafted in contemplation of
and shall be construed in accordance with and governed by Washington law.
Jurisdiction and venue of any action in connection with this Agreement shall be
had exclusively in the Superior Court for King County, Washington or the U.S.
District Court in Seattle.
(c) In the event of any litigation arising out of this
Agreement the losing party agrees to pay the prevailing party's reasonable
attorneys' fees and costs including those incurred on appeal.
(d) Employee acknowledges that this Agreement has been
drafted by counsel for Washington Mutual, and that Employee has not relied upon
such counsel with respect to this Agreement.
(e) If a court of competent jurisdiction or governmental
authority declares any term or provision hereof invalid, unenforceable or
unacceptable, the remaining terms and provisions hereof shall be unimpaired and
the invalid, unenforceable or unacceptable term or provision shall be replaced
by a term or provision that is valid, enforceable and acceptable and that comes
closest to expressing the intention of the invalid, unenforceable or
unacceptable term or provision.
(f) Employee may not assign, pledge or encumber his
interest in this Agreement or any part thereof without the prior written
consent of Washington Mutual.
DATED for reference purposes the 1st day of January 1997 but effective
as of January 1, 1995.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By____________________________________
Kerry K. Killinger
Its Chairman
EMPLOYEE: ______________________________________
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[CONFORMED COPY]
EXHIBIT 10.17
************************************************************
WASHINGTON MUTUAL, INC.
_____________________________
364-DAY CREDIT AGREEMENT
Dated as of December 10, 1996
______________________________
THE CHASE MANHATTAN BANK,
as Administrative Agent
************************************************************
<PAGE> 2
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
<TABLE>
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Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.03 Classes and Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2. Commitments, Loans, Notes and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.01 Syndicated Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.02 Borrowings of Syndicated Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.03 Money Market Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.04 Changes of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.05 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.06 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.07 Several Obligations; Remedies Independent . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.08 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.09 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.10 Extension of Commitment Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3. Payments of Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.01 Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.02 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4. Payments; Pro Rata Treatment; Computations; Etc. . . . . . . . . . . . . . . . . . . . . . . . . 28
4.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.02 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.03 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.04 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.05 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.06 Non-Receipt of Funds by the Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 31
4.07 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5. Yield Protection, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.02 Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.04 Treatment of Affected Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.06 U.S. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.07 Replacement of Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.01 Initial Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.02 Initial and Subsequent Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
(I)
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<TABLE>
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Section 7. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.02 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.03 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.05 Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.07 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.08 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.09 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.10 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.11 Material Agreements and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.13 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.14 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.01 Financial Statements Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.02 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.03 Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.04 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.05 Prohibition of Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.06 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.07 Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.08 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.09 Adequate Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.10 Certain Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10. The Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.01 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.02 Reliance by Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.04 Rights as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.05 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.06 Non-Reliance on Administrative Agent and Other Banks . . . . . . . . . . . . . . . . . . . 64
10.07 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.08 Resignation or Removal of Administrative Agent . . . . . . . . . . . . . . . . . . . . . . 65
Section 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.03 Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.06 Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.07 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.08 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
(II)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
11.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.10 Governing Law; Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . 71
11.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
11.12 Treatment of Certain Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Subsidiaries
SCHEDULE III - Litigation
EXHIBIT A-1 - Form of Syndicated Note
EXHIBIT A-2 - Form of Money Market Note
EXHIBIT B - Form of Opinion of Counsel to the Company
EXHIBIT C - Form of Opinion of Special New York
Counsel to Chase
EXHIBIT D - Form of Money Market Quote Request
EXHIBIT E - Form of Money Market Quote
EXHIBIT F - Form of Confidentiality Agreement
EXHIBIT G - Form of Assignment and Acceptance
(III)
<PAGE> 5
CREDIT AGREEMENT dated as of December 10, 1996, between:
WASHINGTON MUTUAL, INC., a corporation duly organized and validly existing
under the laws of the State of Washington (the "Company"); each of the lenders
that is a signatory hereto identified under the caption "BANKS" on the
signature pages hereto and each lender that becomes a "Bank" after the date
hereof pursuant to Section 11.06(b) hereof (individually, a "Bank" and,
collectively, the "Banks"); and THE CHASE MANHATTAN BANK, a New York banking
association, as agent for the Banks (in such capacity, together with its
successors in such capacity, the "Administrative Agent").
The Company has requested that the Banks make loans to it in
an aggregate principal amount not exceeding $100,000,000 at any one time
outstanding and the Banks are prepared to make such loans upon the terms and
conditions hereof. Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein,
the following terms shall have the following meanings (all terms
defined in this Section 1.01 or in other provisions of this Agreement in the
singular to have the same meanings when used in the plural and vice versa):
"Acquisition" shall mean any transaction, or any series of
related transactions, consummated after the date of this Agreement, by which
the Company and/or one or more of its Subsidiaries (in one transaction or as
the most recent transaction in a series of related transactions) (i) acquires
any going business or all or substantially all of the assets of any firm or
corporation (or division or operating unit thereof), whether through purchase
of assets, merger or otherwise, (ii) directly or indirectly acquires control of
at least a majority (in number of votes) of the securities of a corporation
which have ordinary voting power for the election of directors or (iii)
directly or indirectly acquires control of an ownership interest in any
partnership or joint venture (including a joint venture in corporate form).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in a form supplied by the Administrative Agent.
Credit Agreement
<PAGE> 6
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"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the highest of (a) the Federal Funds Rate for such day plus 1/2
of 1%, (b) the Prime Rate for such day and (c) the Base CD Rate plus 1%. Each
change in any interest rate provided for herein based upon the Alternate Base
Rate resulting from a change in the Alternate Base Rate shall take effect at
the time of such change in the Alternate Base Rate.
"Alternate Base Rate Loans" shall mean Syndicated Loans that
bear interest at rates based upon the Alternate Base Rate.
"American Savings" shall mean American Savings Bank, a California savings bank.
"Applicable Facility Fee Rate" and "Applicable Margin" shall
mean, during any period when any Rating Group set forth below is in effect,
with respect to any facility fee payable hereunder or any Type of Syndicated
Loan outstanding hereunder, the percentage set forth below opposite such fee or
Type of Syndicated Loan for such Rating Group:
<TABLE>
<CAPTION>
Rating Rating Rating
Fee or Loan Group Group Group
I II III
<S> <C> <C> <C>
Facility Fee .0750% .1000% .1250%
Eurodollar
Loans .2750% .3000% .3250%
Alternate Base Rate
Loans 0.0% 0.0% 0.0%
</TABLE>
For the purposes of this Agreement, any change in the Applicable Facility Fee
Rate or Applicable Margin by reason of a change in the Moody's Rating or the
Standard & Poor's Rating shall become effective on the date of announcement or
publication by the respective Rating Agency of a change in such Rating or, in
the absence of such announcement or publication, on the effective date of such
changed rating.
"Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk
Credit Agreement
<PAGE> 7
- 3 -
classification) within the meaning of 12 C.F.R. Part 327 (or any successor
provision) to the Federal Deposit Insurance Corporation for insurance by such
Corporation of time deposits made in dollars at the offices of such member in
the United States; provided that if, as a result of any change in any law, rule
or regulation, it is no longer possible to determine the Assessment Rate as
aforesaid, then the Assessment Rate shall be such annual rate as shall be
determined by the Administrative Agent to be representative of the cost of such
insurance to the Banks.
"Asset Securitization" shall mean a public or private transfer
of installment receivables, credit card receivables, lease receivables or any
other type of secured or unsecured financial assets which transfer is recorded
as a sale according to generally accepted accounting principles as of the date
of such transfer.
"Bank Regulatory Authority" shall mean the Board of Governors
of the Federal Reserve System, the Comptroller of the Currency, the Federal
Deposit Insurance Corporation and all other relevant bank regulatory
authorities (including, without limitation, relevant state bank regulatory
authorities).
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of
1978, as amended from time to time.
"Base CD Rate" means the sum of (a) the Three-Month Secondary
CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Basle Accord" shall mean the proposals for risk-based capital
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended,
modified and supplemented and in effect from time to time or any replacement
thereof.
"Business Day" shall mean any day (a) on which commercial
banks are not authorized or required to close in New York City and (b) if such
day relates to the giving of notices or quotes in connection with a LIBOR
Auction or to a borrowing of, a payment or prepayment of principal of or
interest on, or an Interest Period for, a Eurodollar Loan or a LIBOR Market
Loan or a notice by the Company with respect to any such borrowing, payment,
prepayment or Interest Period, that is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
Credit Agreement
<PAGE> 8
- 4 -
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Change in Control" shall mean (a) the acquisition of
ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules
of the Securities and Exchange Commission thereunder as in effect on the date
hereof), of shares representing more than 25% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Company;
(b) during any period of 25 consecutive calendar months, a majority of the
Board of Directors of the Company ceasing to be composed of individuals (i) who
were members of said Board on the first day of such period, (ii) whose election
or nomination to said Board was approved by individuals referred to in clause
(i) above constituting at the time of such election or nomination at least a
majority of said Board or (iii) whose election or nomination to said Board was
approved by individuals referred to in clauses (i) and (ii) above constituting
at the time of such election or nomination at least a majority of said Board;
or (c) the acquisition by any Person or group of direct or indirect possession
of the power to direct or cause to direct the management or policies of the
Company, whether through the ability to exercise voting power, by contract or
otherwise.
"Chase" shall mean The Chase Manhattan Bank.
"Class" shall have the meaning assigned to such term in
Section 1.03 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commitment" shall mean, as to each Bank, the obligation of
such Bank to make Syndicated Loans pursuant to Section 2.01 hereof in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount set opposite the name of such Bank on the signature pages hereof
under the caption "Commitment" or, in the case of a Person that becomes a Bank
pursuant to an assignment permitted under Section 11.06(b) hereof, as specified
in the respective instrument of assignment pursuant to which such assignment is
effected (as the same may be
Credit Agreement
<PAGE> 9
- 5 -
reduced at any time or from time to time pursuant to Section 2.04 hereof).
"Commitment Termination Date" shall mean the date 364 days
after the date hereof, as the same may be extended pursuant to Section 2.10
hereof; provided that, if such date is not a Business Day, the Commitment
Termination Date shall be the next preceding Business Day.
"Consolidated Assets" shall mean, at any date, the amount at
which the assets of the Company and its Subsidiaries are or should be shown on
a consolidated statement of financial position prepared in accordance with GAAP
as at such date.
"Consolidated Equity" shall mean, at any date, the amount of
stockholders' equity of the Company and its Subsidiaries determined on a
consolidated basis without duplication in accordance with GAAP at such date.
"Consolidated Reserves" shall mean, at any date, the amount of
loan loss reserves held by the Company and its Subsidiaries at such date
determined on a consolidated basis without duplication in accordance with GAAP.
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Double Leverage Ratio" shall mean, at any date, the ratio of
(a) the sum of (i) the aggregate book value of the Investments of the Company
in the capital notes and stock of its Subsidiaries plus (ii) the aggregate book
value of intangibles (including, without limitation, purchased mortgage
servicing rights and purchased credit card relationships) of the Company at
such date to (b) Consolidated Equity at such date.
"Environmental Laws" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water,
Credit Agreement
<PAGE> 10
- 6 -
wetlands, land or subsurface strata, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or toxic or hazardous
substances or wastes.
"Equity Rights" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or
business that is a member of any group of organizations (i) described in
Section 414(b) or (c) of the Code of which the Company is a member and (ii)
solely for purposes of potential liability under Section 302(c)(11) of ERISA
and Section 412(c)(11) of the Code and the lien created under Section 302(f) of
ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the
Code of which the Company is a member.
"Eurodollar Loans" shall mean Syndicated Loans that bear
interest at rates based on rates referred to in the definition of "Fixed Base
Rate" in this Section 1.01.
"Event of Default" shall have the meaning assigned to such
term in Section 9 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on
Credit Agreement
<PAGE> 11
- 7 -
such Business Day on such transactions as determined by the Administrative
Agent.
"Fee Letter" shall mean the fee letter dated as of November 4,
1996 between the Company and the Administrative Agent.
"Fixed Base Rate" shall mean, with respect to any Fixed Rate
Loan for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) reported at 10:00 a.m., London time on
the date two Business Days prior to the first day of such Interest Period on
Telerate Access Service Page 3750 (British Bankers Association Settlement Rate)
as the London Interbank Offered Rate for Dollar deposits having a term
comparable to such Interest Period and in an amount equal to the amount of such
Fixed Rate Loan (or, if said Page shall cease to be publicly available or if
the information contained on said Page, in the sole judgment of the
Administrative Agent, shall cease to accurately reflect such London Interbank
Offered Rate, the Fixed Base Rate for such Loans shall mean the rate reported
by any publicly available source of similar market data selected by the
Administrative Agent that, in the sole judgment of the Administrative Agent,
accurately reflects such London Interbank Offered Rate).
"Fixed Rate Loans" shall mean Eurodollar Loans and, for the
purposes of the definition of "Fixed Base Rate" in this Section 1.01 and in
Section 5 hereof, LIBOR Market Loans.
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in accordance with the last
sentence of Section 1.02(a) hereof, are to be used in making the calculations
for purposes of determining compliance with this Agreement.
"Guarantee" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a creditor
against loss, and including, without limitation, causing a bank or other
financial institution to issue a letter of credit or other
Credit Agreement
<PAGE> 12
- 8 -
similar instrument for the benefit of another Person, but excluding
endorsements for collection or deposit in the ordinary course of business. The
terms "Guarantee" and "Guaranteed" used as a verb shall have a correlative
meaning.
"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business so long as such
trade accounts payable are payable within 90 days of the date the respective
goods are delivered or the respective services are rendered; (c) Indebtedness
of others secured by a Lien on the Property of such Person, whether or not the
respective indebtedness so secured has been assumed by such Person; (d)
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such Person; and (f)
Guarantees by such Person of Indebtedness of others.
"Information Memorandum" shall mean the Confidential
Information Memorandum dated as of November 1996 and the Supplementary
Information dated as of November 1996, in each case regarding the Company and
this financing.
"Insured Subsidiary" shall mean any insured depositary
institution (as defined in 12 U.S.C. Section 1813(c) (or any successor
provision), as amended, re-enacted or redesignated from time to time, that is
controlled (within the meaning of 12 U.S.C. Section 1841 (or any successor
provision), as amended, re-enacted or redesignated from time to time) by the
Company.
Credit Agreement
<PAGE> 13
- 9 -
"Interest Period" shall mean:
(a) with respect to any Eurodollar Loan, each period
commencing on the date such Eurodollar Loan is made and ending on the
numerically corresponding day in the first, second, third or sixth
calendar month thereafter, or, any other period to which all the Banks
have consented, as the Company may select as provided in Section 4.05
hereof, except that each Interest Period that commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate
subsequent calendar month;
(b) with respect to any Alternate Base Rate Loan, each
period commencing on the date such Alternate Base Rate Loan is made
and ending on the Commitment Termination Date;
(c) with respect to any Set Rate Loan, the period commencing
on the date such Set Rate Loan is made and ending on any Business Day
no fewer than 7 days thereafter, as the Company may select as provided
in Section 2.03(b) hereof; and
(d) with respect to any LIBOR Market Loan, the period
commencing on the date such LIBOR Market Loan is made and ending on
the numerically corresponding day in such subsequent month, as the
Company may select as provided in Section 2.03(b) hereof, except that
each Interest Period that commences on the last Business Day of a
calendar month (or any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall
end on the last Business Day of the appropriate subsequent calendar
month.
Notwithstanding the foregoing: (i) if any Interest Period for
any Syndicated Loan or Money Market Loan would otherwise end after the
Commitment Termination Date, such Interest Period shall not be available
hereunder for such period; (ii) each Interest Period that would otherwise end
on a day that is not a Business Day shall end on the next succeeding Business
Day (or, in the case of an Interest Period for a Eurodollar Loan or a LIBOR
Market Loan, if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii) no Interest
Period for any Loan (other than a Set Rate Loan) shall have a duration of less
than one month and, if the Interest Period for any Eurodollar or
Credit Agreement
<PAGE> 14
- 10 -
LIBOR Market Loan would otherwise be a shorter period, such Loan shall not be
available hereunder for such period.
"Interest Rate Protection Agreement" shall mean, for any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person); (c) the entering into of
any Guarantee of, or other contingent obligation with respect to, Indebtedness
or other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person; or (d) the entering
into of any Interest Rate Protection Agreement.
"LIBO Margin" shall have the meaning assigned to such term in
Section 2.03(c)(ii)(C) hereof.
"LIBOR Auction" shall mean a solicitation of Money Market
Quotes setting forth LIBO Margins based on the Fixed Base Rate pursuant to
Section 2.03 hereof.
"LIBOR Market Loans" shall mean Money Market Loans the
interest rates on which are determined on the basis of Fixed Base Rates
pursuant to a LIBOR Auction.
"Lien" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such Property. For purposes of this Agreement, a Person shall be deemed to
own subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement (other than an operating lease)
relating to such Property.
Credit Agreement
<PAGE> 15
- 11 -
"Loans" shall mean Syndicated Loans and Money Market Loans.
"Majority Banks" shall mean Banks having more than 50% of the
aggregate amount of the Commitments or, if the Commitments shall have
terminated, Banks holding more than 50% of the aggregate unpaid principal
amount of the Loans.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the Property, business, operations or financial condition of the Company
and its Subsidiaries taken as a whole, (b) the ability of the Company to
perform its obligations hereunder and under the Notes, (c) the validity or
enforceability of this Agreement or of the Notes, (d) the rights and remedies
of the Banks and the Administrative Agent hereunder and under the Notes or (e)
the timely payment of the principal of or interest on the Loans or other
amounts payable in connection therewith.
"Money Market Borrowing" shall have the meaning assigned to
such term in Section 2.03(b) hereof.
"Money Market Loan Limit" shall have the meaning assigned to
such term in Section 2.03(c)(ii) hereof.
"Money Market Loans" shall mean the loans provided for by
Section 2.03 hereof.
"Money Market Notes" shall mean the promissory notes provided
for by Section 2.08(b) hereof and all promissory notes delivered in
substitution or exchange therefor, in each case as the same shall be modified
and supplemented and in effect from time to time.
"Money Market Quote" shall mean an offer in accordance with
Section 2.03(c) hereof by a Bank to make a Money Market Loan with one single
specified interest rate.
"Money Market Quote Request" shall have the meaning assigned
to such term in Section 2.03(b) hereof.
"Moody's" shall mean Moody's Investors Service, Inc. or any
successor thereto.
"Moody's Rating" shall mean, as of any date of determination
thereof, the rating most recently published by Moody's relating to the
unsecured, unguaranteed senior long-term debt securities of the Company then
outstanding.
Credit Agreement
<PAGE> 16
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"Multiemployer Plan" shall mean a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions have been made by the
Company or any ERISA Affiliate and that is covered by Title IV of ERISA.
"Non-Material Subsidiaries" shall mean, as at any date,
Subsidiaries of the Company the total assets of which, in the aggregate, do not
exceed one percent (1%) of the Consolidated Assets of the Company and all of
its Subsidiaries, as at such date.
"Non-Performing Assets" shall mean, as at any date, the sum,
for the Company and its Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP) of the following: (a) non-accrual
loans plus (b) accruing loans past due 90 days or more plus (c) restructured
loans and leases plus (d) other real estate owned plus (e) without duplication
for amounts included as other real estate owned, property acquired pursuant to
in substance foreclosures.
"Notes" shall mean the Syndicated Notes and the Money Market
Notes.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, limited liability company, joint venture,
trust, unincorporated organization or government (or any agency,
instrumentality or political subdivision thereof).
"Plan" shall mean an employee benefit or other plan
established or maintained by the Company or any ERISA Affiliate and that is
covered by Title IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean a rate per annum equal to 2%
plus the Alternate Base Rate as in effect from time to time, provided that,
with respect to principal of a Eurodollar Loan or a Money Market Loan that
shall become due (whether at stated maturity, by acceleration or otherwise) on
a day other than the last day of the Interest Period therefor, the
"Post-Default Rate" shall be, for the period from and including such due date
to but excluding the last day of such Interest Period, 2% plus the interest
rate for such Loan as provided in
Credit Agreement
<PAGE> 17
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Section 3.02 hereof and, thereafter, the rate provided for above in this
definition.
"Prime Rate" shall mean the rate of interest from time to time
announced by Chase at its principal office as its prime commercial lending
rate.
"Property" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Quarterly Dates" shall mean the last Business Day of each
March, June, September and December, the first of which shall be the first such
day after the date hereof.
"Rating" shall mean the Moody's Rating or the Standard &
Poor's Rating.
"Rating Agency" shall mean either Moody's or Standard &
Poor's.
"Rating Group" shall mean any of Rating Group I, Rating Group
II and Rating Group III.
"Rating Group I" shall mean (a) no Event of Default has
occurred and is continuing and (b) the Moody's Rating is at or above A3 or the
Standard & Poor's Rating is at or above A-; "Rating Group II" shall mean (a) no
Event of Default has occurred and is continuing, (b) the Moody's Rating is at
or above Baa1 or the Standard & Poor's Rating is at or above BBB+ and (c)
Rating Group I is not in effect; "Rating Group III" shall mean neither Rating
Group I nor Rating Group II is in effect; provided that (A) if the Moody's
Rating and the Standard & Poor's Rating fall into different Rating levels and
one of such Ratings is no more than one Rating level lower than the other of
such Ratings, then the applicable Rating Group shall be based upon the higher
of such Ratings and (B) if the Moody's Rating and the Standard & Poor's Rating
fall into different Rating levels and one of such Ratings is two Rating levels
lower than the other of such Ratings, then the applicable Rating Group shall be
based upon a hypothetical Rating that would fall into the Rating level that is
one lower than the Rating level into which the higher of such Ratings falls.
"Regulations A, D, G, U and X" shall mean, respectively,
Regulations A, D, G, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as
Credit Agreement
<PAGE> 18
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the same may be modified and supplemented and in effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any
change after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Bank under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Repurchase Arrangements" shall mean repurchase and reverse
repurchase arrangements with respect to securities and financial instruments.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto.
"Set Rate" shall have the meaning assigned to such term in
Section 2.03(c)(ii)(D) hereof.
"Set Rate Auction" shall mean a solicitation of Money Market
Quotes setting forth Set Rates pursuant to Section 2.03 hereof.
"Set Rate Loans" shall mean Money Market Loans the interest
rates on which are determined on the basis of Set Rates pursuant to a Set Rate
Auction.
"Standard & Poor's" shall mean Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc., or any successor
thereto.
"Standard and Poor's Rating" shall mean, as of any date of
determination thereof, the rating most recently published by Standard & Poor's
relating to the unsecured, unguaranteed senior long term debt securities of the
Company then outstanding.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board of Governors of the Federal Reserve
System to which the Administrative Agent is subject, for new
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negotiable nonpersonal time deposits in dollars of over $100,000 with
maturities approximately equal to three months. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change
in any reserve percentage.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries of such Person.
"Syndicated Loans" shall mean the loans provided for by
Section 2.01 hereof, which may be Alternate Base Rate Loans and/or Eurodollar
Loans.
"Syndicated Notes" shall mean the promissory notes provided
for by Section 2.08(a) hereof and all promissory notes delivered in
substitution or exchange thereof, in each case as the same shall be modified
and supplemented and in effect from time to time.
"Tangible Net Worth" shall mean, as at any date, the sum for
the Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) total stockholders' equity; minus
(b) the sum of the following: cost of treasury shares and
the book value of all assets that should be classified as intangibles
(without duplication of deductions in respect of items already
deducted in arriving at total stockholders' equity) but in any event
including goodwill, minority interests, research and development
costs, trademarks, trade names, copyrights, patents and franchises,
unamortized debt discount and expense, all reserves and any write-up
in the book value of assets resulting from a revaluation thereof
subsequent to December 31, 1995.
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"Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next
preceding Business Day) by the Board of Governors of the Federal Reserve System
through the public information telephone line of the Federal Reserve Bank of
New York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the week
following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York
City received at approximately 10:00 a.m., New York City time, on such day (or,
if such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"Type" shall have the meaning assigned to such term in Section
1.03 hereof.
"Wholly-Owned Subsidiary" shall mean, with respect to any
Person, any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly-Owned Subsidiaries of such
Person or by such Person and one or more Wholly-Owned Subsidiaries of such
Person.
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1.02 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered
to the Banks hereunder shall (unless otherwise disclosed to the Banks in
writing at the time of delivery thereof in the manner described in subsection
(b) below) be prepared, in accordance with generally accepted accounting
principles applied on a basis consistent with those used in the preparation of
the latest financial statements furnished to the Banks hereunder (which, prior
to the delivery of the first financial statements under Section 8.01 hereof,
shall mean the audited financial statements as at December 31, 1995 referred to
in Section 7.02 hereof). All calculations made for the purposes of determining
compliance with this Agreement shall (except as otherwise expressly provided
herein) be made by application of generally accepted accounting principles
applied on a basis consistent with those used in the preparation of the latest
annual or quarterly financial statements furnished to the Banks pursuant to
Section 8.01 hereof (or, prior to the delivery of the first financial
statements under Section 8.01 hereof, used in the preparation of the audited
financial statements as at December 31, 1995 referred to in Section 7.02
hereof) unless (i) the Company shall have objected to determining such
compliance on such basis at the time of delivery of such financial statements
or (ii) the Majority Banks shall so object in writing within 30 days after
delivery of such financial statements, in either of which events such
calculations shall be made on a basis consistent with those used in the
preparation of the latest financial statements as to which such objection shall
not have been made (which, if objection is made in respect of the first
financial statements delivered under Section 8.01 hereof, shall mean the
audited financial statements referred to in Section 7.02 hereof).
(b) The Company shall deliver to the Banks at the same time
as the delivery of any annual or quarterly financial statement under Section
8.01 hereof (i) a description in reasonable detail of any material variation
between the application of accounting principles employed in the preparation of
such statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as
to which no objection has been made in accordance with the last sentence of
subsection (a) above
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and (ii) reasonable estimates of the difference between such statements arising
as a consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 8 hereof, the Company will
not, and will not permit any of its Subsidiaries to, change the last day of its
fiscal year from December 31, or the last days of the first three fiscal
quarters in each of its fiscal years from March 31, June 30 and September 30,
respectively.
1.03 Classes and Types of Loans. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan refers
to whether such Loan is a Money Market Loan or a Syndicated Loan,
each of which constitutes a Class. The "Type" of a Loan refers to whether such
Loan is a Alternate Base Rate Loan, a Eurodollar Loan, a Set Rate Loan or a
LIBOR Market Loan, each of which constitutes a Type. Loans may be identified
by both Class and Type.
Section 2. Commitments, Loans,Notes and Prepayments.
2.01 Syndicated Loans. Each Bank severally agrees, on the
terms and conditions of this Agreement, to make loans to the Company in
Dollars during the period from and including the date hereof
to but not including the Commitment Termination Date in an aggregate principal
amount at any one time outstanding up to but not exceeding the amount of the
Commitment of such Bank as in effect from time to time, provided that the
aggregate principal amount of all Syndicated Loans, together with the aggregate
principal amount of all Money Market Loans, at one time outstanding shall not
exceed the aggregate amount of the Commitments at such time. Subject to the
terms and conditions of this Agreement, during such period the Company may
borrow, repay and reborrow the amount of the Commitments by means of Alternate
Base Rate Loans and Eurodollar Loans; provided that no more than three separate
Interest Periods in respect of Eurodollar Loans from each Bank may be
outstanding at any one time.
2.02 Borrowings of Syndicated Loans. The Company shall give
the Administrative Agent notice of each borrowing hereunder as provided in
Section 4.05 hereof. Not later than 1:00 p.m. New York time on
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the date specified for each borrowing of Syndicated Loans hereunder, each Bank
shall make available the amount of the Syndicated Loan or Loans to be made by
it on such date to the Administrative Agent, at an account in New York
designated by the Administrative Agent, in immediately available funds, for
account of the Company. The amount so received by the Administrative Agent
shall, subject to the terms and conditions of this Agreement, be made available
to the Company by depositing the same, in immediately available funds, in an
account of the Company designated by the Company.
2.03 Money Market Loans.
(a) In addition to borrowings of Syndicated Loans, at any
time prior to the Commitment Termination Date the Company may, as set forth in
this Section 2.03, request the Banks to make offers to make Money Market Loans
to the Company in Dollars. The Banks may, but shall have no obligation to,
make such offers and the Company may, but shall have no obligation to, accept
any such offers in the manner set forth in this Section 2.03. Money Market
Loans may be LIBOR Market Loans or Set Rate Loans (each a "Type" of Money
Market Loan), provided that:
(i) there may be no more than fifteen different Interest
Periods for both Syndicated Loans and Money Market Loans outstanding
at the same time (for which purpose Interest Periods described in
different lettered clauses of the definition of the term "Interest
Period" shall be deemed to be different Interest Periods even if they
are coterminous); and
(ii) the aggregate principal amount of all Money Market
Loans, together with the aggregate principal amount of all Syndicated
Loans, at any one time outstanding shall not exceed the aggregate
amount of the Commitments at such time.
(b) When the Company wishes to request offers to make Money
Market Loans, it shall give the Administrative Agent (which shall promptly
notify the Banks) notice (a "Money Market Quote Request") so as to be received
no later than 11:00 a.m. New York time on (x) the fourth Business Day prior to
the date of borrowing proposed therein, in the case of a LIBOR Auction or (y)
the Business Day next preceding the date of borrowing proposed therein, in the
case of a Set Rate Auction (or, in any such case, such other time and date as
the Company and the Administrative Agent, with the consent of the Majority
Banks, may
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agree). The Company may request offers to make Money Market Loans for up to
three different Interest Periods in a single notice (for which purpose Interest
Periods in different lettered clauses of the definition of the term "Interest
Period" shall be deemed to be different Interest Periods even if they are
coterminous); provided that the request for each separate Interest Period shall
be deemed to be a separate Money Market Quote Request for a separate borrowing
(a "Money Market Borrowing"). Each such notice shall be substantially in the
form of Exhibit D hereto and shall specify as to each Money Market Borrowing:
(i) the proposed date of such borrowing, which shall be a
Business Day;
(ii) the aggregate amount of such Money Market Borrowing,
which shall be at least $10,000,000 (or a larger multiple of
$1,000,000) but shall not cause the limits specified in Section
2.03(a) hereof to be violated;
(iii) the duration of the Interest Period applicable thereto;
(iv) whether the Money Market Quotes requested for a
particular Interest Period are seeking quotes for LIBOR Market Loans
or Set Rate Loans; and
(v) if the Money Market Quotes requested are seeking quotes
for Set Rate Loans, the date on which the Money Market Quotes are to
be submitted if it is before the proposed date of borrowing (the
proposed date of such borrowing or, if the date on which such Money
Market Quotes are to be submitted is before the proposed date of
borrowing, such submission date is called the "Quotation Date").
Except as otherwise provided in this Section 2.03(b), no Money Market Quote
Request shall be given within five Business Days (or such other number of days
as the Company and the Administrative Agent, with the consent of the Majority
Banks, may agree) of any other Money Market Quote Request.
(c) (i) Each Bank may submit one or more Money Market
Quotes, each constituting an offer to make a Money Market Loan in
response to any Money Market Quote Request; provided that, if the
Company's request under Section 2.03(b) hereof specified more than one
Interest Period, such Bank may make a single submission containing one
or more Money Market
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Quotes for each such Interest Period. Each Money Market Quote must be
submitted to the Administrative Agent not later than (x) 2:00 p.m. New
York time on the fourth Business Day prior to the proposed date of
borrowing, in the case of a LIBOR Auction or (y) 10:00 a.m. New York
time on the Quotation Date, in the case of a Set Rate Auction (or, in
any such case, such other time and date as the Company and the
Administrative Agent, with the consent of the Majority Banks, may
agree); provided that any Money Market Quote may be submitted by Chase
(or its lending office) only if Chase (or such lending office)
notifies the Company of the terms of the offer contained therein not
later than (x) 1:00 p.m. New York time on the fourth Business Day
prior to the proposed date of borrowing, in the case of a LIBOR
Auction or (y) 9:45 a.m. New York time on the Quotation Date, in the
case of a Set Rate Auction. Subject to Sections 5.02(b), 5.03, 6.02
and 9 hereof, any Money Market Quote so made shall be irrevocable
except with the consent of the Administrative Agent given on the
instructions of the Company.
(ii) Each Money Market Quote shall be substantially in the
form of Exhibit E hereto and shall specify:
(A) the proposed date of borrowing and the Interest
Period therefor;
(B) the principal amount of the Money Market Loan
for which each such offer is being made, which principal
amount shall be at least $5,000,000 (or a larger multiple of
$1,000,000); provided that the aggregate principal amount of
all Money Market Loans for which a Bank submits Money Market
Quotes (x) may be greater or less than the Commitment of such
Bank but (y) may not exceed the principal amount of the Money
Market Borrowing for a particular Interest Period for which
offers were requested;
(C) in the case of a LIBOR Auction, the margin above
or below the applicable Fixed Base Rate (the "LIBO Margin")
offered for each such Money Market Loan, expressed as a
percentage (rounded upwards, if necessary, to the nearest
1/10,000th of 1%) to be added to or subtracted from the
applicable Fixed Base Rate;
(D) in the case of a Set Rate Auction, the rate of
interest per annum (rounded upwards, if necessary,
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to the nearest 1/10,000th of 1%) offered for each such Money
Market Loan (the "Set Rate"); and
(E) the identity of the quoting Bank.
Unless otherwise agreed by the Administrative Agent and the Company,
no Money Market Quote shall contain qualifying, conditional or similar
language or propose terms other than or in addition to those set forth
in the applicable Money Market Quote Request and, in particular, no
Money Market Quote may be conditioned upon acceptance by the Company
of all (or some specified minimum) of the principal amount of the
Money Market Loan for which such Money Market Quote is being made,
provided that the submission by any Bank containing more than one
Money Market Quote may be conditioned on the Company not accepting
offers contained in such submission that would result in such Bank
making Money Market Loans pursuant thereto in excess of a specified
aggregate amount (the "Money Market Loan Limit").
(d) The Administrative Agent shall (x) in the case of a Set
Rate Auction, as promptly as practicable after the Money Market Quote is
submitted (but in any event not later than 10:15 a.m. New York time on the
Quotation Date) or (y) in the case of a LIBOR Auction, by 4:00 p.m. New York
time on the day a Money Market Quote is submitted, notify the Company of the
terms (i) of any Money Market Quote submitted by a Bank that is in accordance
with Section 2.03(c) hereof and (ii) of any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request.
Any such subsequent Money Market Quote shall be disregarded by the
Administrative Agent unless such subsequent Money Market Quote is submitted
solely to correct a manifest error in such former Money Market Quote. The
Administrative Agent's notice to the Company shall specify (A) the aggregate
principal amount of the Money Market Borrowing for which offers have been
received and (B) the respective principal amounts and LIBO Margins or Set
Rates, as the case may be, so offered by each Bank (identifying the Bank that
made each Money Market Quote).
(e) Not later than 11:00 a.m. New York time on (x) the third
Business Day prior to the proposed date of borrowing, in the case of a LIBOR
Auction or (y) the Quotation Date, in the case of a Set Rate Auction (or, in
any such case, such other time and date as the Company and the Administrative
Agent, with the consent of the Majority Banks, may agree), the Company shall
notify the Administrative Agent of its acceptance or
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nonacceptance of the offers so notified to it pursuant to Section 2.03(d)
hereof (which notice shall specify the aggregate principal amount of offers
from each Bank for each Interest Period that are accepted, it being understood
that the failure of the Company to give such notice by such time shall
constitute nonacceptance) and the Administrative Agent shall promptly notify
each affected Bank. The notice from the Administrative Agent shall also
specify the aggregate principal amount of offers for each Interest Period that
were accepted and the lowest and highest LIBO Margins and Set Rates that were
accepted for each Interest Period. The Company may accept any Money Market
Quote in whole or in part (provided that any Money Market Quote accepted in
part shall be at least $5,000,000 or a larger multiple of $1,000,000); provided
that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the
related Money Market Quote Request;
(ii) the aggregate principal amount of each Money Market
Borrowing shall be at least $10,000,000 (or a larger multiple of
$1,000,000) but shall not cause the limits specified in Section
2.03(a) hereof to be violated;
(iii) acceptance of offers may, subject to clause (v) below,
be made only in ascending order of LIBO Margins or Set Rates, as the
case may be, in each case beginning with the lowest rate so offered;
(iv) the Company may not accept any offer where the
Administrative Agent has advised the Company that such offer fails to
comply with Section 2.03(c)(ii) hereof or otherwise fails to comply
with the requirements of this Agreement (including, without
limitation, Section 2.03(a) hereof);
(v) the aggregate principal amount of each Money Market
Borrowing from any Bank may not exceed any applicable Money Market
Loan Limit of such Bank.
If offers are made by two or more Banks with the same LIBO Margins or Set
Rates, as the case may be, for a greater aggregate principal amount than the
amount in respect of which offers are accepted for the related Interest Period,
the principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Company among such Banks as nearly as
possible (in amounts of at least $5,000,000 or larger multiples of $1,000,000)
in proportion to the aggregate principal amount of such offers. Determinations
by the Company of the amounts of
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Money Market Loans shall be conclusive in the absence of manifest error.
(f) Any Bank whose offer to make any Money Market Loan has
been accepted in accordance with the terms and conditions of this Section 2.03
shall, not later than 1:00 p.m. New York time on the date specified for the
making of such Loan, make the amount of such Loan available to the
Administrative Agent at an account in New York designated by the Administrative
Agent in immediately available funds, for account of the Company. The amount
so received by the Administrative Agent shall, subject to the terms and
conditions of this Agreement, be made available to the Company on such date by
depositing the same, in immediately available funds, in an account of the
Company maintained with Chase at the Principal Office designated by the
Company.
(g) Except for the purpose and to the extent expressly stated
in Sections 2.04(b) and 2.05 hereof, the amount of any Money Market Loan made
by any Bank shall not constitute a utilization of such Bank's Commitment.
2.04 Changes of Commitments.
(a) The aggregate amount of the Commitments shall be
automatically reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time
to time (i) so long as no Syndicated Loans or Money Market Loans are
outstanding, to terminate the Commitments and (ii) to reduce the aggregate
unused amount of the Commitments (for which purpose use of the Commitments
shall be deemed to include the aggregate principal amount of all Money Market
Loans); provided that (x) the Company shall give notice of each such
termination or reduction as provided in Section 4.05 hereof and (y) each
partial reduction shall be in a multiple of $10,000,000.
(c) The Commitments once terminated or reduced may not be
reinstated.
2.05 Facility Fee. The Company shall pay to the
Administrative Agent for account of each Bank a facility fee on the
daily average amount of such Bank's Commitment (whether or not utilized),
for the period from and including the date hereof to but not including the
earlier of the date such Commitment is terminated and the
Commitment Termination
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Date, at a rate per annum equal to the Applicable Facility Fee Rate. Accrued
facility fee shall be payable on each Quarterly Date in arrears and on the
earlier of the date the Commitments are terminated and the Commitment
Termination Date.
2.06 Lending Offices. The Loans of each Type made by each
Bank shall be made and maintained at such Bank's
lending office for Loans of such Type.
2.07 Several Obligations; Remedies Independent. The failure
of any Bank to make any Loan to be made by it on the
date specified therefor shall not relieve any other Bank of its
obligation to make its Loan on such date, but neither any Bank nor the
Administrative Agent shall be responsible for the failure of any other Bank to
make a Loan to be made by such other Bank, and (except as otherwise provided in
Section 4.06 hereof) no Bank shall have any obligation to the Administrative
Agent or any other Bank for the failure by such Bank to make any Loan required
to be made by such Bank. The amounts payable by the Company at any time
hereunder and under the Notes to each Bank shall be a separate and independent
debt and each Bank shall be entitled to protect and enforce its rights arising
out of this Agreement and the Notes, and it shall not be necessary for any
other Bank or the Administrative Agent to consent to, or be joined as an
additional party in, any proceedings for such purposes.
2.08 Notes.
(a) The Syndicated Loans made by each Bank shall be evidenced
by a single promissory note of the Company substantially in the form of Exhibit
A-1 hereto, dated the date hereof, payable to such Bank in a principal amount
equal to the amount of its Commitment as originally in effect and otherwise
duly completed.
(b) The Money Market Loans made by any Bank shall be
evidenced by a single promissory note of the Company substantially in the form
of Exhibit A-2 hereto, dated the date hereof, payable to such Bank and
otherwise duly completed.
(c) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan of each Class made by each Bank to
the Company, and each payment made on account of the principal thereof, shall
be recorded by such Bank on its books and, prior to any transfer of the Note
evidencing the Loans of such Class held by it, endorsed by such Bank on the
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schedule attached to such Note or any continuation thereof; provided that the
failure of such Bank to make any such recordation or endorsement shall not
affect the obligations of the Company to make a payment when due of any amount
owing hereunder or under such Note in respect of such Loans.
(d) No Bank shall be entitled to have its Notes substituted
or exchanged for any reason, or subdivided for promissory notes of lesser
denominations, except in connection with a permitted assignment of all or any
portion of such Bank's Commitment, Loans and Notes pursuant to Section 11.06
hereof (and, if requested by any Bank, the Company agrees to so exchange any
Note).
2.09 Prepayments. Subject to Sections 4.04 and 5.05
hereof, the Company shall have the right to prepay Syndicated Loans
at any time or from time to time, provided that the Company
shall give the Administrative Agent notice of each such prepayment as provided
in Section 4.05 hereof (and, upon the date specified in any such notice of
prepayment, the amount to be prepaid shall become due and payable hereunder).
Money Market Loans may not be prepaid without the consent of the Bank holding
such Loan.
2.10 Extension of Commitment Termination Date.
(a) The Company may, by notice to the Administrative Agent
(which shall promptly notify the Banks) not less than 60 days and not more than
90 days prior to the Commitment Termination Date then in effect hereunder (the
"Existing Commitment Termination Date"), request that the Banks extend the
Commitment Termination Date for an additional 360 days from the Consent Date
(as defined below). Each Bank, acting in its sole discretion, shall, by notice
to the Company and the Administrative Agent given on the date and only the date
(herein, the "Consent Date") that is 30 days prior to the Existing Commitment
Termination Date (except that, if such date is not a Business Day, such notice
shall be given on the next succeeding Business Day), advise the Company whether
or not such Bank agrees to such extension; provided that each Bank that
determines not to extend the Commitment Termination Date (a "Non-extending
Bank") shall notify the Administrative Agent (which shall notify the Banks) of
such fact promptly after such determination (but in any event no later than the
Consent Date) and any Bank that does not advise the Company on or before the
Consent Date shall be deemed
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to be a Non-extending Bank. The election of any Bank to agree to such
extension shall not obligate any other Bank to so agree.
(b) If (and only if) the total of the Commitments of the
Banks that have agreed so to extend the Commitment Termination Date shall be at
least 66-2/3% of the aggregate amount of the Commitments in effect immediately
prior to the Consent Date, the Company shall have the right on or before the
Existing Commitment Termination Date to replace each Non-extending Bank with,
and otherwise add to this Agreement, one or more other banks (which may include
any Bank, each prior to the Existing Commitment Termination Date an "Additional
Commitment Bank") with the approval of the Administrative Agent (which approval
shall not be unreasonably withheld), each of which Additional Commitment Banks
shall have entered into an agreement in form and substance satisfactory to the
Company and the Administrative Agent pursuant to which such Additional
Commitment Bank shall, effective as of the Existing Commitment Termination
Date, undertake a Commitment (and, if any such Additional Commitment Bank is
already a Bank, its Commitment shall be in addition to such Bank's Commitment
hereunder on such date).
(c) If (and only if) the total of the Commitments of the
Banks that have agreed so to extend the Commitment Termination Date shall be at
least 66-2/3% of the aggregate amount of the Commitments in effect immediately
prior to the Consent Date, then, effective as of the Existing Commitment
Termination Date, the Existing Commitment Termination Date shall be extended to
the date falling 360 days after the Consent Date (except that, if such date is
not a Business Day, such Commitment Termination Date as so extended shall be
the next preceding Business Day) and each Additional Commitment Bank shall
thereupon become a "Bank" for all purposes of this Agreement.
Notwithstanding the foregoing, the extension of the Existing
Commitment Termination Date shall not be effective with respect to any Bank
unless:
(i) no Default shall have occurred and be continuing on each
of the date of the notice requesting such extension, on the Consent
Date and on the Existing Commitment Termination Date;
(ii) each of the representations and warranties made by the
Company in Section 7 hereof shall be true and complete on and as of
each of the date of the notice requesting such extension, the Consent
Date and the Existing
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Commitment Termination Date with the same force and effect as if made
on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such
specific date); and
(iii) each Non-extending Bank shall have been paid in full by
the Company all amounts owing to such Bank hereunder on or before the
Existing Termination Date.
Even if the Existing Commitment Termination Date is extended as aforesaid, the
Commitment of each Non-extending Bank shall terminate on the Existing
Commitment Termination Date.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans.
(a) The Company hereby promises to pay the Administrative
Agent for account of each Bank the principal amount of each of such Bank's
Syndicated Loans, and each Syndicated Loan shall mature, on the last day of the
Interest Period for such Syndicated Loan.
(b) The Company hereby promises to pay to the Administrative
Agent for account of each Bank that makes any Money Market Loan the principal
amount of such Money Market Loan, and such Money Market Loan shall mature, on
the last day of the Interest Period for such Money Market Loan.
3.02 Interest. The Company hereby promises to pay to
the Administrative Agent for account of each Bank interest on the
unpaid principal amount of each Loan made by such Bank for the
period from and including the date of such Loan to but excluding the date such
Loan shall be paid in full, at the following rates per annum:
(a) during such periods as such Loan is a Alternate Base Rate
Loan, the Alternate Base Rate (as in effect from time to time) plusthe
Applicable Margin plus, 0.05% per annum at any time when Loans
outstanding shall exceed 50% of the Commitments;
(b) during such periods as such Loan is a Eurodollar Loan,
for each Interest Period relating thereto, the Fixed Base Rate for
such Loan for such Interest Period plus the
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Applicable Margin, plus, 0.05% per annum at any time when Loans
outstanding shall exceed 50% of the Commitments;
(c) if such Loan is a LIBOR Market Loan, the Fixed Base Rate
for such Loan for the Interest Period therefor plus (or minus) the
LIBO Margin quoted by the Bank making such Loan in accordance with
Section 2.03 hereof; and
(d) if such Loan is a Set Rate Loan, the Set Rate for such
Loan for the Interest Period therefor quoted by the Bank making such
Loan in accordance with Section 2.03 hereof.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Bank interest at the applicable
Post-Default Rate on any principal of any Loan made by such Bank and on any
other amount payable by the Company hereunder or under the Notes held by such
Bank to or for account of such Bank, that shall not be paid in full when due
(whether at stated maturity, by acceleration or otherwise), for the period from
and including the due date thereof to but excluding the date the same is paid
in full. Accrued interest on each Loan shall be payable (i) in the case of a
Alternate Base Rate Loan on the Quarterly Dates in arrears, (ii) in the case of
a Eurodollar Loan or a Money Market Loan, on the last day of each Interest
Period therefor and, if such Interest Period is longer than 90 days (in the
case of a Set Rate Loan) or three months (in the case of a Eurodollar Loan or a
LIBOR Market Loan), at 90-day or three-month intervals, respectively, following
the first day of such Interest Period, and (iii) in the case of any Loan, upon
the payment or prepayment thereof (but only on the principal amount so paid or
prepaid), except that interest payable at the Post-Default Rate shall be
payable from time to time on demand. Promptly after the determination of any
interest rate provided for herein or any change therein, the Administrative
Agent shall give notice thereof to the Banks to which such interest is payable
and to the Company.
Credit Agreement
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Section 4. Payments; Pro Rata
Treatment; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Company
under this Agreement and the Notes and the Fee Letter, shall be made in
Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Administrative Agent at an account in New York designated
by the Administrative Agent, not later than 1:00 p.m. New York time on the
date on which such payment shall become due (each such payment made after such
time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) The Company shall, at the time of making each payment
under this Agreement or any Note for account of any Bank, specify to the
Administrative Agent (which shall so notify the intended recipient(s) thereof)
the Loans or other amounts payable by the Company hereunder to which such
payment is to be applied (and in the event that the Company fails to so
specify, or if an Event of Default has occurred and is continuing, the
Administrative Agent may distribute such payment to the Banks for application
in such manner as it or the Majority Banks, subject to Section 4.02 hereof, may
determine to be appropriate).
(c) Each payment received by the Administrative Agent under
this Agreement or any Note for account of any Bank shall be paid by the
Administrative Agent promptly to such Bank, in immediately available funds, for
account of such Bank's lending office for the Loan or other obligation in
respect of which such payment is made.
(d) If the due date of any payment under this Agreement or
any Note would otherwise fall on a day that is not a Business Day, such date
shall be extended to the next succeeding Business Day, and interest shall be
payable for any principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent
otherwise provided herein: (a) each borrowing of Syndicated
Loans from the Banks under Section 2.01 hereof shall be made from the Banks,
each payment of facility fee under Section 2.05 hereof shall be made for
account of the Banks, and each termination or reduction of the amount of the
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Commitments under Section 2.04 hereof shall be applied to the respective
Commitments of the Banks, pro rata according to the amounts of their respective
Commitments; (b) except as otherwise provided in Section 5.04 hereof,
Eurodollar Loans having the same Interest Period shall be allocated pro rata
among the Banks according to the amounts of their respective Commitments; (c)
each payment or prepayment of principal of Syndicated Loans by the Company
shall be made for account of the Banks pro rata in accordance with the
respective unpaid principal amounts of the Syndicated Loans held by them; and
(d) each payment of interest on Syndicated Loans by the Company shall be made
for account of the Banks pro rata in accordance with the amounts of interest on
such Loans then due and payable to the respective Banks.
4.03 Computations. Interest on Money Market Loans,
Eurodollar Loans and facility fee shall be computed on the
basis of a year of 360 days and actual days elapsed (including the first day
but excluding the last day) occurring in the period for which payable and
interest on Alternate Base Rate Loans shall be computed on the basis of a year
of 365 or 366 days, as the case may be, and actual days elapsed (including the
first date but excluding the last day) occurring in the period for which
payable. Notwithstanding the foregoing, for each day the Alternate Base Rate
is calculated by reference to the Federal Funds Rate, the interest on Alternate
Base Rate Loans shall be computed on the basis of a year of 360 days and actual
days elapsed.
4.04 Minimum Amounts. Each borrowing of Syndicated
Loans shall be in an aggregate amount at least equal to
$5,000,000 (in the case of Alternate Base Rate Loans) and $10,000,000 (in the
case of Eurodollar Loans) or larger multiples of $1,000,000 in excess thereof;
and each prepayment of principal of Syndicated Loans shall be in an aggregate
amount at least equal to $5,000,000 or larger multiples of $1,000,000
(borrowings or prepayments of Loans of different Types or, in the case of
Eurodollar Loans, having different Interest Periods, at the same time hereunder
to be deemed separate borrowings and prepayments for purposes of the foregoing,
one for each Type or Interest Period).
4.05 Certain Notices. Except as otherwise provided
in Section 2.03 hereof with respect to Money Market Loans,
notices by the Company to the Administrative Agent of terminations or
reductions of the Commitments and of borrowings and optional prepayments of
Loans, of Types of Loans and of the duration of Interest Periods shall
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be irrevocable and shall be effective only if received by the Administrative
Agent not later than 10:00 a.m. New York time on the number of Business Days
prior to the date of the relevant termination, reduction, borrowing or
prepayment or the first day of such Interest Period specified below:
<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
------ ----------
<S> <C>
Termination or reduction
of Commitments 3
Borrowing of Alternate
Base Rate Loans same day
Prepayment of Alternate Base
Rate Loans 1
Borrowing and duration of
Interest Period for, and
prepayment of, Eurodollar Loans 3
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing or
optional prepayment shall specify the Loans to be borrowed or prepaid and the
amount (subject to Section 4.04 hereof) and Type of each Loan to be borrowed or
prepaid and the date of borrowing or optional prepayment (which shall be a
Business Day). Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. The
Administrative Agent shall promptly notify the Banks of the contents of each
such notice.
4.06 Non-Receipt of Funds by the Administrative Agent.
Unless the Administrative Agent shall have been notified
by a Bank or the Company (the "Payor") prior to the date on which the Payor is
to make payment to the Administrative Agent of (in the case of a Bank) the
proceeds of a Loan to be made by such Bank hereunder or (in the case of the
Company) a payment to the Administrative Agent for account of one or more of
the Banks hereunder (such payment being herein called the "Required Payment"),
which notice shall be effective upon receipt, that the Payor does not intend to
make the Required Payment to the Administrative Agent, the Administrative Agent
may assume that the Required Payment has been made and may, in reliance upon
such assumption (but shall not be required to),
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make the amount thereof available to the intended recipient(s) on such date;
and, if the Payor has not in fact made the Required Payment to the
Administrative Agent, the recipient(s) of such payment shall, on demand, repay
to the Administrative Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date (the
"Advance Date") such amount was so made available by the Administrative Agent
until the date the Administrative Agent recovers such amount at a rate per
annum equal to the Federal Funds Rate for such day and, if such recipient(s)
shall fail promptly to make such payment, the Administrative Agent shall be
entitled to recover such amount, on demand, from the Payor, together with
interest as aforesaid, provided that if neither the recipient(s) nor the Payor
shall return the Required Payment to the Administrative Agent within three
Business Days of the Advance Date, then, retroactively to the Advance Date, the
Payor and the recipient(s) shall each be obligated to pay interest on the
Required Payment as follows:
(i) if the Required Payment shall represent a payment to be
made by the Company to the Banks, the Company and the recipient(s)
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment at the Post-Default Rate
(without duplication of the obligation of the Company under Section
3.02 hereof to pay interest on the Required Payment at the
Post-Default Rate), it being understood that the return by the
recipient(s) of the Required Payment to the Administrative Agent shall
not limit such obligation of the Company under said Section 3.02 to
pay interest at the Post-Default Rate in respect of the Required
Payment and
(ii) if the Required Payment shall represent proceeds of a
Loan to be made by the Banks to the Company, the Payor and the Company
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment pursuant to whichever of
the rates specified in Section 3.02 hereof is applicable to the Type
of such Loan, it being understood that the return by the Company of
the Required Payment to the Administrative Agent shall not limit any
claim the Company may have against the Payor in respect of such
Required Payment.
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4.07 Sharing of Payments, Etc.
(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option (to the fullest
extent permitted by law), to set off and apply any deposit (general or special,
time or demand, provisional or final), or other indebtedness, held by it for
the credit or account of the Company at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such Bank's
Loans or any other amount payable to such Bank hereunder, that is not paid when
due (regardless of whether such deposit or other indebtedness are then due to
the Company), in which case it shall promptly notify the Company and the
Administrative Agent thereof, provided that such Bank's failure to give such
notice shall not affect the validity thereof.
(b) If any Bank shall obtain from the Company payment of any
principal of or interest on any Loan of any Class owing to it or payment of any
other amount under this Agreement through the exercise of any right of set-off,
banker's lien or counterclaim or similar right or otherwise (other than from
the Administrative Agent as provided herein), and, as a result of such payment,
such Bank shall have received a greater percentage of the principal of or
interest on the Loans of such Class or such other amounts then due hereunder by
the Company to such Bank than the percentage received by any other Bank, it
shall promptly purchase from such other Banks participations in (or, if and to
the extent specified by such Bank, direct interests in) the Loans of such Class
or such other amounts, respectively, owing to such other Banks (or in interest
due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Banks shall share the benefit of such excess payment (net of any expenses that
may be incurred by such Bank in obtaining or preserving such excess payment)
pro rata in accordance with the unpaid principal of and/or interest on the
Loans of such Class or such other amounts, respectively, owing to each of the
Banks. To such end all the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored.
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights
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of set-off, banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Bank were a direct holder of Loans or other
amounts (as the case may be) owing to such Bank in the amount of such
participation.
(d) Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Company. If, under any applicable
bankruptcy, insolvency or other similar law, any Bank receives a secured claim
in lieu of a set-off to which this Section 4.07 applies, such Bank shall, to
the extent practicable, exercise its rights in respect of such secured claim in
a manner consistent with the rights of the Banks entitled under this Section
4.07 to share in the benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) The Company shall pay directly to each Bank from time to
time such amounts as such Bank may reasonably determine to be necessary to
compensate such Bank for any costs that such Bank determines are attributable
to its making or maintaining of any Fixed Rate Loans or its obligation to make
any Fixed Rate Loans hereunder, or any reduction in any amount receivable by
such Bank hereunder in respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change that:
(i) shall subject any Bank (or its lending office for any of
such Loans) to any tax, duty or other charge in respect of such Loans
or its Notes or changes the basis of taxation of any amounts payable
to such Bank under this Agreement or its Notes in respect of any of
such Loans (excluding changes in the rate of tax on the overall net
income or gross receipts of such Bank or of such lending office by the
jurisdiction in which such Bank has its principal office or such
lending office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than, in the case of any Bank for any
period as to which the Company is required to pay
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any amount under paragraph (d) below, the reserves against
"Eurocurrency liabilities" under Regulation D therein referred to)
relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, such Bank (including, without
limitation, any of such Loans or any deposits referred to in the
definition of "Fixed Base Rate" in Section 1.01 hereof), or any
commitment of such Bank (including, without limitation, the Commitment
of such Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or
its Notes (or any of such extensions of credit or liabilities) or its
Commitment.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Administrative
Agent), suspend the obligation of such Bank thereafter to make Eurodollar Loans
until the Regulatory Change giving rise to such request ceases to be in effect
(in which case the provisions of Section 5.04 hereof shall be applicable),
provided that such suspension shall not affect the right of such Bank to
receive the compensation so requested.
(b) Without limiting the effect of the foregoing provisions
of this Section 5.01 (but without duplication), the Company shall pay directly
to each Bank from time to time on request such amounts as such Bank may
reasonably determine to be necessary to compensate such Bank (or, without
duplication, the bank holding company of which such Bank is a subsidiary) for
any costs that it determines are attributable to the maintenance by such Bank
(or any lending office or such bank holding company), pursuant to any law or
regulation or any interpretation, directive or request (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or
other requirement (whether or not having the force of law and whether or not
the failure to comply therewith would be unlawful) hereafter issued by any
government or governmental or supervisory authority implementing at the
national level the Basle Accord, of capital in respect of its Commitment or
Loans (such compensation to include, without limitation, an amount equal to any
reduction of the rate of return on assets or equity of such Bank (or any
lending office or such bank holding company) to a level below that which such
Bank (or any lending office or such bank holding company) could have achieved
but for such law, regulation, interpretation, directive or request).
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(c) Each Bank shall notify the Company of any event occurring
after the date hereof entitling such Bank to compensation under paragraph (a)
or (b) of this Section 5.01 as promptly as practicable, but in any event within
60 days, after such Bank obtains actual knowledge thereof; provided that (i) if
any Bank fails to give such notice within 60 days after it obtains actual
knowledge of such an event, such Bank shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 60 days prior to the date that such Bank does
give such notice and (ii) each Bank will designate a different lending office
for the Loans of such Bank affected by such event if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Bank, be disadvantageous to such Bank. Each Bank will
furnish to the Company a certificate setting forth in reasonably specific
detail the basis and amount of each request by such Bank for compensation under
paragraph (a) or (b) of this Section 5.01. Determinations and allocations by
any Bank for purposes of this Section 5.01 of the effect of any Regulatory
Change pursuant to paragraph (a) of this Section 5.01, or of the effect of
capital maintained pursuant to paragraph (b) of this Section 5.01, on its costs
or rate of return of maintaining Loans or its obligation to make Loans, or on
amounts receivable by it in respect of Loans, and of the amounts required to
compensate such Bank under this Section 5.01, shall be conclusive, provided
that such determinations and allocations are made on a reasonable basis.
(d) Without limiting the effect of the foregoing, the Company
shall pay to each Bank on the last day of each Interest Period so long as such
Bank is maintaining reserves against "Eurocurrency liabilities" under
Regulation D (or, unless the provisions of paragraph (b) above are applicable,
so long as such Bank is, by reason of any Regulatory Change, maintaining
reserves against any other category of liabilities that includes deposits by
reference to which the interest rate on Eurodollar Loans or LIBOR Market Loans
is determined as provided in this Agreement or against any category of
extensions of credit or other assets of such Bank that includes any Eurodollar
Loans or LIBOR Market Loans) an additional amount (reasonably determined by
such Bank and notified to the Company through the Administrative Agent) equal
to the product of the following for each Eurodollar Loan or LIBOR Market Loan
for each day during such Interest Period:
(i) the principal amount of such Eurodollar Loan or LIBOR
Market Loan outstanding on such day; and
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(ii) the remainder of (x) a fraction the numerator of which
is the rate (expressed as a decimal) at which interest accrues on such
Eurodollar Loan or LIBOR Market Loan for such Interest Period as
provided in this Agreement (less the Applicable Margin) and the
denominator of which is one minus the effective rate (expressed as a
decimal) at which such reserve requirements are imposed on such Bank
on such day minus (y) such numerator; and
(iii) 1/360.
5.02 Limitation on Types of Loans. Anything herein
to the contrary notwithstanding, if, on or prior to the
determination of any Fixed Base Rate for any Interest Period:
(a) the Administrative Agent determines, which determination
shall be conclusive, that quotations of interest rates for the
relevant deposits referred to in the definition of "Fixed Base Rate"
in Section 1.01 hereof are not being provided in the relevant amounts
or for the relevant maturities for purposes of determining rates of
interest for either Type of Fixed Rate Loans as provided herein; or
(b) the Majority Banks determine (or any Bank that has
outstanding a Money Market Quote with respect to a LIBOR Market Loan
determines), which determination shall be conclusive, and notify (or
notifies, as the case may be) the Administrative Agent that the
relevant rates of interest referred to in the definition of "Fixed
Base Rate" in Section 1.01 hereof upon the basis of which the rate of
interest for Eurodollar Loans (or LIBOR Market Loans, as the case may
be) for such Interest Period is to be determined are not likely
adequately to cover the cost to such Banks (or to such quoting Bank)
of making or maintaining Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Company and each Bank prompt
notice thereof and, so long as such condition remains in effect, the Banks (or
such quoting Bank) shall be under no obligation to make additional Eurodollar
Loans.
5.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful
for any Bank or its lending office to honor its obligation to make Eurodollar
Loans or LIBOR Market
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Loans hereunder (and, in the sole opinion of such Bank, the designation of a
different lending office would either not avoid such unlawfulness or would be
disadvantageous to such Bank), then such Bank shall promptly notify the Company
thereof (with a copy to the Administrative Agent) and such Bank's obligation to
make Eurodollar Loans shall be suspended until such time as such Bank may again
make Eurodollar Loans (in which case the provisions of Section 5.04 hereof
shall be applicable), and such Bank shall no longer be obligated to make any
LIBOR Market Loan that it has offered to make.
5.04 Treatment of Affected Loans.
If the obligation of any Bank to make a Eurodollar Loan shall be suspended
pursuant to Section 5.01 or 5.03 hereof, such Bank's Eurodollar Loans shall be
made instead as Alternate Base Rate Loans and, if such Bank has Eurodollar
Loans outstanding, each such Eurodollar Loan shall be converted to an Alternate
Base Rate Loan on such date prior to the last day of the Interest Period for
such Eurodollar Loan as such Bank may specify to the Company with a copy to the
Administrative Agent, and to the extent that such Bank's Eurodollar Loans have
been so converted, all payments and prepayments of principal that would
otherwise be applied to such Bank's Eurodollar Loans shall be applied instead
to its Alternate Base Rate Loans.
5.05 Compensation. The Company shall pay to the
Administrative Agent for account of each Bank, upon the
request of such Bank through the Administrative Agent, such amount or amounts
as shall be sufficient (in the reasonable opinion of such Bank) to compensate
it for any loss, cost or expense that such Bank determines is attributable to:
(a) any payment or prepayment of a Fixed Rate Loan or a Set
Rate Loan made by such Bank for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 9
hereof) on a date other than the last day of the Interest Period for
such Loan; or
(b) any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Section 6 hereof to be satisfied) to borrow a Fixed Rate
Loan or a Set Rate Loan (with respect to which, in the case of a Money
Market Loan, the Company has accepted a Money Market Quote) from such
Bank on the date for such borrowing specified in the relevant notice
of borrowing given pursuant to Section 2.02 or 2.03(b) hereof;
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provided, however, that such Bank shall have delivered to the Company a
certificate as to the amount of such loss, cost or expense, which certificate
shall be conclusive, provided that the determination of such compensation is
made on a reasonable basis.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
not borrowed for the period from the date of such payment, prepayment or
failure to borrow to the last day of the then current Interest Period for such
Loan (or, in the case of a failure to borrow, the Interest Period for such Loan
that would have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein over (ii) the
amount of interest that otherwise would have accrued on such principal amount
at a rate per annum equal to the interest component of the amount such Bank
would have bid in the London interbank market (if such Loan is a Eurodollar
Loan or a LIBOR Market Loan) or the United States secondary certificate of
deposit market (if such Loan is a Set Rate Loan) for Dollar deposits of leading
banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such Bank), or if such
Bank shall cease to make such bids, the equivalent rate, as reasonably
determined by such Bank, derived from Telerate Access Service Page 3750
(British Bankers Association Settlement Rate) or other publicly available
source as described in the definition of "Fixed Base Rate" in Section 1.01
hereof).
5.06 U.S. Taxes.
(a) The Company agrees to pay to each Bank that is not a U.S.
Person such additional amounts as are necessary in order that the net payment
of any amount due to such non-U.S. Person hereunder after deduction for or
withholding in respect of any U.S. Taxes imposed with respect to such payment
(or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will
not be less than the amount stated herein to be then due and payable, provided
that the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Bank hereunder unless such Bank is,
on the date hereof (or on the date it becomes a Bank hereunder as
provided in Section 11.06(b) hereof) and on the date of any change in
the lending office of such
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Bank, either entitled to submit a Form 1001 (relating to such Bank and
entitling it to a complete exemption from withholding on all interest
to be received by it hereunder in respect of the Loans) or Form 4224
(relating to all interest to be received by such Bank hereunder in
respect of the Loans); provided that it being understood that, if
thereafter as a result of any change in law or regulation such Bank
becomes unable to submit the Form previously submitted, the foregoing
obligation to pay such additional amounts shall apply; or
(ii) to any U.S. Taxes imposed solely by reason of the
failure by such non-U.S. Person to comply with applicable
certification, information, documentation or other reporting
requirements concerning the nationality, residence, identity or
connections with the United States of America of such non-U.S. Person
if such compliance is required by statute or regulation of the United
States of America as a precondition to relief or exemption from such
U.S. Taxes.
For the purposes of this Section 5.06(a), (A) "U.S. Person" shall mean a
citizen, national or resident of the United States of America, a corporation,
partnership or other entity created or organized in or under any laws of the
United States of America or any State thereof, or any estate or trust that is
subject to Federal income taxation regardless of the source of its income, (B)
"U.S. Taxes" shall mean any present or future tax, assessment or other charge
or levy imposed by or on behalf of the United States of America or any taxing
authority thereof or therein, (C) "Form 1001" shall mean Form 1001 (Ownership,
Exemption, or Reduced Rate Certificate) of the Department of the Treasury of
the United States of America and (D) "Form 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates). Each of the Forms referred to in the foregoing
clauses (C) and (D) shall include such successor and related forms as may from
time to time be adopted by the relevant taxing authorities of the United States
of America to document a claim to which such Form relates.
(b) Within 30 days after paying any amount to the
Administrative Agent or any Bank from which it is required by law to make any
deduction or withholding, and within 30 days after it is required by law to
remit such deduction or withholding to any
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relevant taxing or other authority, the Company shall deliver to the
Administrative Agent for delivery to such non-U.S. Person evidence satisfactory
to such Person of such deduction, withholding or payment (as the case may be).
5.07 Replacement of Banks. If any Bank requests
compensation pursuant to Section 5.01 or 5.06 hereof, or any
Bank's obligation to make Eurodollar Loans shall be suspended pursuant to
Section 5.01 or 5.03 hereof (any such Bank requesting such compensation, or
whose obligations are so suspended, being herein called a "Requesting Bank"),
the Company, upon three Business Days notice, may require that such Requesting
Bank transfer all of its right, title and interest under this Agreement and
such Requesting Bank's Notes to any bank or other financial institution (a
"Proposed Bank") identified by the Company that is satisfactory to the
Administrative Agent in its reasonable determination (i) if such Proposed Bank
agrees to assume all of the obligations of such Requesting Bank hereunder, and
to purchase all of such Requesting Bank's Loans hereunder for consideration
equal to the aggregate outstanding principal amount of such Requesting Bank's
Loans, together with interest thereon to the date of such purchase, and
satisfactory arrangements are made for payment to such Requesting Bank of all
other amounts payable hereunder to such Requesting Bank on or prior to the date
of such transfer (including any fees accrued hereunder and any amounts that
would be payable under Section 5.05 hereof as if all of such Requesting Bank's
Loans were being prepaid in full on such date) and (ii) if such Requesting Bank
has requested compensation pursuant to Section 5.01 or 5.06 hereof, such
Proposed Bank's aggregate requested compensation, if any, pursuant to said
Section 5.01 or 5.06 with respect to such Requesting Bank's Loans is lower than
that of the Requesting Bank. Subject to the provisions of Section 11.06(b)
hereof, such Proposed Bank shall be a "Bank" for all purposes hereunder,
provided that no such Proposed Bank shall as a result of such purchase hold
more than 25% of the aggregate amount of the Commitments. Without prejudice to
the survival of any other agreement of the Company hereunder the agreements of
the Company contained in Sections 5.01, 5.06 and 11.03 hereof (without
duplication of any payments made to such Requesting Bank by the Company or the
Proposed Bank) shall survive for the benefit of such Requesting Bank under this
Section 5.07 with respect to the time prior to such replacement.
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Section 6. Conditions Precedent.
6.01 Initial Loan. The obligation of any
Bank to make its initial Loan hereunder is subject to the
conditions precedent that the Administrative Agent shall have received the
following documents (with, in the case of clauses (a), (b), (c) and (d) below,
sufficient copies for each Bank), each of which shall be satisfactory to the
Administrative Agent (and to the extent specified below, to each Bank) in form
and substance:
(a) Corporate Documents. Certified copies of the charter and
by-laws (or equivalent documents) of the Company and of all corporate
authority for the Company (including, without limitation, board of
director resolutions and evidence of the incumbency, including
specimen signatures, of officers) with respect to the execution,
delivery and performance of this Agreement and the Notes and each
other document to be delivered by the Company from time to time in
connection herewith and the Loans hereunder (and the Administrative
Agent and each Bank may conclusively rely on such certificate until it
receives notice in writing from the Company to the contrary).
(b) Officer's Certificate. A certificate of a senior officer
of the Company, dated the date hereof, to the effect set forth in the
first sentence of Section 6.02 hereof.
(c) Opinion of Counsel to the Company. An opinion, dated the
date hereof, of Foster Pepper & Shefelman, counsel to the Company,
substantially in the form of Exhibit B hereto and covering such other
matters as the Administrative Agent or any Bank may reasonably request
(and the Company hereby instructs such counsel to deliver such opinion
to the Banks and the Administrative Agent).
(d) Opinion of Special New York Counsel to Chase. An
opinion, dated the date hereof, of Milbank, Tweed, Hadley & McCloy,
special New York counsel to Chase, substantially in the form of
Exhibit C hereto (and Chase hereby instructs such counsel to deliver
such opinion to the Banks).
(e) Notes. The Notes, duly completed and executed for each
Bank.
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(f) Other Documents. Such other documents as the
Administrative Agent or any Bank or special New York counsel to Chase
may reasonably request.
The obligation of any Bank to make its initial Loan hereunder is also subject
to the payment by the Company of such fees as the Company shall have agreed to
pay or deliver to any Bank or the Administrative Agent in connection herewith,
including, without limitation, the reasonable fees and expenses of Milbank,
Tweed, Hadley & McCloy, special New York counsel to Chase, in connection with
the negotiation, preparation, execution and delivery of this Agreement and the
Notes and the making of the Loans hereunder (to the extent that statements for
such fees and expenses have been delivered to the Company).
6.02 Initial and Subsequent Loans. The obligation
of any Bank to make any Loan (including any Money Market
Loan and such Bank's initial Syndicated Loan) to the Company upon the occasion
of each borrowing hereunder is subject to the further conditions precedent
that, both immediately prior to the making of such Loan and also after giving
effect thereto and to the intended use thereof:
(a) no Default shall have occurred and be continuing; and
(b) the representations and warranties made by the Company in
Section 7 hereof (except, in the case of any borrowing that does not
increase the total principal amount of the Loans outstanding of any
Bank, the representations and warranties in Sections 7.03, 7.07 or
7.12 hereof) shall be true and complete on and as of the date of the
making of such Loan with the same force and effect as if made on and
as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such
specific date).
Each notice of borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Company otherwise notifies
the Administrative Agent prior to the date of such borrowing, as of the date of
such borrowing).
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Section 7. Representations and Warranties.
The Company represents and warrants to the Administrative Agent
and the Banks that:
7.01 Corporate Existence. Each of the Company and
its Subsidiaries (except Non-Material Subsidiaries): (a) is
a corporation, partnership or other entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization; (b)
has all requisite corporate or other power, and has all material governmental
licenses, authorizations, consents and approvals, necessary to own its assets
and carry on its business as now being or as proposed to be conducted, except
where the failure to have any such license authorization, consent or approval
would not have a Material Adverse Effect; and (c) is qualified to do business
and is in good standing in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and where failure
so to qualify could (either individually or in the aggregate) have a Material
Adverse Effect.
7.02 Financial Condition.
(a) The Company has heretofore furnished to each of the Banks
the consolidated statement of financial position of the Company and its
Subsidiaries as at December 31, 1995 and the related consolidated statements of
income, stockholders' equity and cash flows of the Company and its Subsidiaries
for the fiscal year ended on said date, with the opinion thereon of Deloitte &
Touche LLP, and the unaudited consolidated statement of financial position of
the Company and its Subsidiaries as at September 30, 1996 and the related
consolidated statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for the nine-month period ended on such date. All
such financial statements present fairly, in all material respects, the
consolidated financial position of the Company and its Subsidiaries as at said
dates, and the consolidated results of operations for the fiscal year and
nine-month period ended on said dates (subject, in the case of such financial
statements as at September 30, 1996, to normal year-end audit adjustments), all
in accordance with generally accepted accounting principles and practices
applied on a consistent basis. From December 31, 1995 until the date of this
Agreement, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects taken as a whole of the
Company
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and its Subsidiaries from that set forth in said financial statements as at
said date.
(b) The Company has heretofore furnished to each of the Banks
the "Reports of Condition and Income" (report no. FFIEC 032) of each Insured
Subsidiary as at September 30, 1996 for the three fiscal quarters ended on said
date. Such report presents fairly, in all material respects, the financial
condition of such Insured Subsidiary as at said date and the results of its
operations for the nine-month period ended on said date, all in accordance with
regulatory accounting principles prescribed by Federal Financial Institutions
Examination Council.
(c) The Company has heretofore furnished to each of the Banks
the Statements of Condition and Operations (Office of Thrift Supervision Form
1313) for each Insured Subsidiary as of September 1996. Such statements
present fairly, in all material respects, the financial condition of each such
Insured Subsidiary as of September 1996 and the results of its operations for
the nine-month period ended on said date, all in accordance with Office of
Thrift Supervision instructions.
(d) The Company has heretofore furnished to each of the Banks
the consolidated balance sheet of Keystone Holdings, Inc., a Texas corporation
("Keystone") and its Subsidiaries as at December 31, 1995 and the related
consolidated statements of earnings, stockholder's equity and cash flows of
Keystone and its Subsidiaries for the fiscal year ended on said date, with the
opinion thereon of KPMG Peat Marwick LLP, and the unaudited condensed balance
sheet of Keystone and its Subsidiaries as at June 30, 1996 and the related
condensed consolidated statements of earnings, stockholder's equity and cash
flows of Keystone and its Subsidiaries for the six-month period ended on such
date. All such financial statements present fairly, in all material respects,
the consolidated financial position of Keystone and its Subsidiaries as at said
dates, and the consolidated results of operations for the fiscal year and
six-month period ended on said dates (subject in the case of such financial
statements as at June 30, 1996, to normal year-end audit adjustments), all in
accordance with generally accepted accounting principles and practices applied
on a consistent basis. From December 31, 1995 until the date of this
Agreement, there has been no material adverse change in the consolidated
financial position, operations, business or prospects taken as a whole of
Keystone and its Subsidiaries from that set forth in said financial statements
as at said date.
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7.03 Litigation. Except as disclosed to
the Banks in Schedule III hereto, there are no legal or arbitral
proceedings, or any proceedings by or before any governmental or regulatory
authority or agency, now pending or (to the knowledge of the Company)
threatened against the Company or any of its Subsidiaries that are reasonably
likely (either individually or in the aggregate) to have a Material Adverse
Effect.
7.04 No Breach. None of the execution and
delivery of this Agreement and the Notes, the consummation of the
transactions herein contemplated or compliance with the terms and provisions
hereof will conflict with or result in a breach of, or require any consent
under, the charter or by-laws of the Company, or any applicable law or
regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency, or any agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which any of them or any of
their Property is bound or to which any of them is subject, or constitute a
default under any such agreement or instrument.
7.05 Action. The Company has all necessary corporate
power, authority and legal right to execute, deliver and
perform its obligations under this Agreement and the Notes; the execution,
delivery and performance by the Company of this Agreement and the Notes have
been duly authorized by all necessary corporate action on its part (including,
without limitation, any required shareholder approvals); and this Agreement has
been duly and validly executed and delivered by the Company and constitutes,
and each of the Notes when executed and delivered for value will constitute,
its legal, valid and binding obligation, enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
applicability affecting the enforcement of creditors' rights and (b) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
7.06 Approvals. No authorizations,
approvals or consents of, and no filings or registrations with,
any governmental or regulatory authority or agency, or any securities exchange,
are necessary for the execution, delivery or performance by the Company of this
Agreement or the Notes or for the legality, validity or enforceability hereof
or thereof.
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7.07 ERISA. Each Plan, and, to the knowledge
of the Company, each Multiemployer Plan, is in compliance in all
respects with, and has been administered in all material respects in compliance
with, the applicable provisions of ERISA, the Code and any other Federal or
State law (except where failure so to comply would not have a Material Adverse
Effect), and no event or condition has occurred and is continuing as to which
the Company would be under an obligation to furnish a report to the Banks under
Section 8.01(g) hereof.
7.08 Taxes. The Company and its Subsidiaries
are members of an affiliated group of corporations filing
consolidated returns for Federal income tax purposes, of which the Company is
the "common parent" (within the meaning of Section 1504 of the Code) of such
group. The Company and its Subsidiaries have filed all Federal income tax
returns and all other material tax returns that are required to be filed by
them and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company or any of its Subsidiaries, except for any
such tax being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained. The charges, accruals and
reserves on the books of the Company and its Subsidiaries in respect of taxes
and other governmental charges are, in the opinion of the Company, adequate.
7.09 Investment Company Act. Neither the
Company nor any of its Subsidiaries is an "investment company", or
a company "controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
7.10 Public Utility Holding Company Act.
Neither the Company nor any of its Subsidiaries is a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
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7.11 Material Agreements and Liens.
(a) Part A of Schedule I hereto is a complete and correct
list of each credit agreement, loan agreement, indenture, purchase agreement,
guarantee, letter of credit or other arrangement providing for or otherwise
relating to any Indebtedness or any extension of credit (or commitment for any
extension of credit) to, or guarantee by, the Company or any of its
Subsidiaries (excluding Repurchase Arrangements, deposits, annuities or Federal
funds transactions, each entered into by the Company or a Subsidiary in the
ordinary course of its business, and Interest Rate Protection Agreements or
borrowings from the Federal Home Loan Bank), outstanding on the date of this
Agreement the aggregate principal or face amount of which equals or exceeds (or
may equal or exceed) $10,000,000, and the aggregate principal or face amount
outstanding or that may become outstanding under each such arrangement is
correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct
list of each Lien securing Indebtedness of any Person outstanding on the date
of this Agreement (excluding Repurchase Arrangements, deposits, annuities or
Federal funds transactions, each entered into by the Company or a Subsidiary in
the ordinary course of its Business, and Interest Rate Protection Agreements or
borrowings from the Federal Home Loan Bank) the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $10,000,000 and
covering any Property of the Company or any of its Subsidiaries, and the
aggregate Indebtedness secured (or that may be secured) by each such Lien and
the Property covered by each such Lien is correctly described in Part B of said
Schedule I.
7.12 Environmental Matters. Each of the Company
and its Subsidiaries has obtained all environmental, health and
safety permits, licenses and other authorizations required under all
Environmental Laws to carry on its business as now being or as proposed to be
conducted, except to the extent failure to have any such permit, license or
authorization would not (either individually or in the aggregate) have a
Material Adverse Effect.
7.13 Subsidiaries. Set forth in Schedule II
hereto is a complete and correct list of all of the Subsidiaries of
the Company as of the date of this Agreement together with, for each such
Subsidiary, (i) the
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jurisdiction of organization of such Subsidiary, (ii) each Person holding
ownership interests in such Subsidiary and (iii) the nature of the ownership
interests held by each such Person and the percentage of ownership of such
Subsidiary represented by such ownership interests. Except as disclosed in
Schedule II hereto, (x) each of the Company and its Subsidiaries owns, free and
clear of Liens, and has the unencumbered right to vote, all outstanding
ownership interests in each Person shown to be held by it in Schedule II
hereto, (y) all of the issued and outstanding capital stock of each such Person
organized as a corporation is validly issued, fully paid and nonassessable and
(z) there are no outstanding Equity Rights with respect to such Person.
7.14 True and Complete Disclosure.
The information, reports, financial statements, exhibits and
schedules furnished in writing by or on behalf of the Company to the
Administrative Agent or any Bank in connection with the negotiation,
preparation or delivery of this Agreement or included herein or delivered
pursuant hereto, when taken as a whole (together with the Information
Memorandum) do not, as of the date of this Agreement, contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which
they were made, not misleading. All written information furnished after the
date of this Agreement by the Company and its Subsidiaries to the
Administrative Agent and the Banks in connection with this Agreement and the
transactions contemplated hereby will be true, complete and accurate in every
material respect, or (in the case of projections) made in good faith and based
on estimates believed by management to be reasonable, on the date as of which
such information is stated or certified. There is no fact known to the Company
that could have a Material Adverse Effect that has not been disclosed herein or
in a report, financial statement, exhibit, schedule, disclosure letter or other
writing furnished to the Banks for use in connection with the transactions
contemplated hereby.
Section 8. Covenants of the Company. The Company covenants
and agrees with the Banks and the Administrative
Agent that, so long as any Commitment or Loan is outstanding and
until payment in full of all amounts payable by the Company hereunder:
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8.01 Financial Statements Etc. The Company shall deliver
to each of the Banks:
(a) as soon as available and in any event within 60 days
after the end of each quarterly fiscal period of each fiscal year of
the Company, consolidated statements of income, stockholders' equity
and cash flows of the Company and its Subsidiaries for such period and
for the period from the beginning of the respective fiscal year to the
end of such period, and the related consolidated statements of
financial position of the Company and its Subsidiaries as at the end
of such period, setting forth in each case in comparative form the
corresponding consolidated figures for the corresponding periods in
the preceding fiscal year (except that, in the case of statements of
financial position, such comparison shall be to the last day of the
prior fiscal year), accompanied by a certificate of a senior financial
officer of the Company, which certificate shall state that said
consolidated financial statements present fairly, in all material
respects, the consolidated financial position and results of
operations of the Company and its Subsidiaries, in accordance with
generally accepted accounting principles, consistently applied, as at
the end of, and for, such period (subject to normal year-end audit
adjustments) (it being understood that delivery to the Bank of the
Company's Report on Form 10-Q filed with the SEC shall satisfy the
financial statement requirements of this Section 8.01(a) so long as
the information required to be contained in such Report is
substantially the same as that required under this Section 8.01(a));
(b) as soon as available and in any event within 105 days
after the end of each fiscal year of the Company, consolidated
statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal year and the related
consolidated statements of financial position of the Company and its
Subsidiaries as at the end of such fiscal year, setting forth in each
case in comparative form the corresponding consolidated figures for
the preceding fiscal year, and accompanied by an opinion thereon of
Deloitte & Touche, LLP or independent certified public accountants of
recognized national standing, which opinion shall state that said
consolidated financial statements present fairly, in all material
respects, the consolidated financial position and results of
operations of the Company and its Subsidiaries as at the end of, and
for,
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such fiscal year in accordance with generally accepted accounting
principles, and a statement of such accountants to the effect that, in
making the examination necessary for their opinion, nothing came to
their attention that caused them to believe that the Company was not
in compliance with Section 8.10 hereof, insofar as such Section
relates to accounting matters (it being understood that delivery to
the Bank of the Company's Report on Form 10-K filed with the SEC shall
satisfy the financial statement requirements of this Section 8.01(b)
so long as the information required to be contained in such Report is
substantially the same as that required under this Section 8.01(b));
(c) promptly upon their becoming available, and in any event
within 60 days after the end of each quarterly fiscal period of each
fiscal year of the Company, the "Reports of Condition and Income"
(report no. FFIEC 032, or any successor form thereto) of each Insured
Subsidiary as is required to file such report, all such reports
prepared in accordance with regulatory accounting principles
prescribed by the Federal Financial Institutions Examination Council;
(d) promptly upon their becoming available, and in any event
within 60 days after the end of each quarterly fiscal period the
Statements of Condition and Operations, including all supporting
schedules (Office of Thrift Supervision Form 1313, or any successor
form thereto) for each Insured Subsidiary that is required to file
such statements, all such statements prepared in accordance with
Office of Thrift Supervision instructions.
(e) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with the Securities and Exchange Commission
(or any governmental agency substituted therefor) or any national
securities exchange or the Office of Thrift Supervision;
(f) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed;
(g) within ten days after the Company knows or has reason to
believe that any of the events or conditions specified below with
respect to any Plan or Multiemployer Plan has occurred or exists, a
statement signed by a senior financial officer of the Company setting
forth details
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respecting such event or condition and the action, if any, that the
Company or its ERISA Affiliate proposes to take with respect thereto
(and a copy of any report or notice required to be filed with or given
to the PBGC by the Company or an ERISA Affiliate with respect to such
event or condition):
(i) any reportable event, as defined in Section
4043(c) of ERISA and the regulations issued thereunder, with
respect to a Plan, that is required to be reported to the PBGC
and as to which the PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event (provided that
a failure to meet the minimum funding standard of Section 412
of the Code or Section 302 of ERISA, including, without
limitation, the failure to make on or before its due date a
required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code); and any request for a waiver
under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of
a notice of intent to terminate any Plan or any action taken
by the Company or an ERISA Affiliate to terminate any Plan;
(iii) the institution by the PBGC of proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by the Company
or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
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(v) the institution of a proceeding by a fiduciary
of any Multiemployer Plan against the Company or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is
not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, would result in the loss of tax-exempt status of the
trust of which such Plan is a part if the Company or an ERISA
Affiliate fails to timely provide security to the Plan in
accordance with the provisions of said Sections;
(h) promptly after the Company knows or has reason to believe
that any Default has occurred, a notice of such Default describing the
same in reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that the Company
has taken or proposes to take with respect thereto; and
(i) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company
or any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) as any Bank or the Administrative Agent may
reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with Sections 8.06(g), 8.09 and 8.10 hereof as of the
end of the respective quarterly fiscal period or fiscal year.
8.02 Litigation. The Company will promptly
give to each Bank notice of all legal or arbitral proceedings,
and of all proceedings by or before any governmental or regulatory authority or
agency, and any material development in respect of such legal or other
proceedings, affecting the Company or any of its Subsidiaries, except
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proceedings that are not (either individually or in the aggregate) reasonably
likely to have a Material Adverse Effect.
8.03 Existence, Etc. The Company will, and will
cause each of its Subsidiaries to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (provided that
nothing in this Section 8.03 shall (i) with respect to the Company or
any Significant Subsidiary (as defined in Section 8.05 hereof),
prohibit any transaction expressly permitted under Section 8.05 hereof
or (ii) with respect to any Subsidiary (other than a Significant
Subsidiary), prohibit such Subsidiary from entering into any merger or
consolidation or amalgamation or from liquidating, winding up or
dissolving, itself (or suffering any liquidation or dissolution) or
prohibit a Disposition (as defined in Section 8.05 hereof) by or of
such Subsidiary);
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory
authorities if failure to comply with such requirements could (either
individually or in the aggregate) have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto
(or in the case of any Person that becomes a Subsidiary after the date
hereof by Acquisition promptly upon becoming aware of penalties
attaching thereto), except for any such tax, assessment, charge or
levy the payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves are being
maintained;
(d) maintain all of its material Properties used or useful in
its business in good working order and condition, ordinary wear and
tear excepted;
(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied; and
(f) permit representatives of any Bank or the Administrative
Agent, during normal business hours, to
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examine, copy and make extracts from its books and records (subject to
Section 11.12 hereof), to inspect any of its Properties, and to
discuss its business and affairs with its officers, all to the extent
reasonably requested by such Bank or the Administrative Agent (as the
case may be).
8.04 Insurance. The Company will, and will
cause each of its Subsidiaries to, maintain insurance with
financially sound and reputable insurance companies, and with respect to
Property and risks of a character usually maintained by corporations engaged in
the same or similar business similarly situated, against loss, damage and
liability of the kinds and in the amounts customarily maintained by such
corporations.
8.05 Prohibition of Fundamental Changes.
The Company will not, nor will it permit any of its Significant
Subsidiaries to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution).
The Company will not, nor will it permit any of its
Significant Subsidiaries to, convey, sell, lease, transfer or otherwise dispose
of (a "Disposition"), in one transaction or a series of transactions, all or
substantially all of its Property, whether now owned or hereafter acquired (for
which purpose, the Disposition of all or substantially all of the capital stock
of a Significant Subsidiary of the Company shall be deemed to be the
Disposition by such Significant Subsidiary of all or substantially all of the
Property of such Significant Subsidiary).
Notwithstanding the foregoing provisions of this Section 8.05:
(a) any Significant Subsidiary of the Company may be merged
or consolidated with or into: (i) the Company if the Company shall be
the continuing or surviving corporation or (ii) any other Subsidiary
of the Company; provided that (x) if any such transaction shall be
between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned
Subsidiary shall be the continuing or surviving corporation;
(b) any Significant Subsidiary of the Company may make a
Disposition of any or all of its Property (upon voluntary
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liquidation or otherwise) to the Company or a Wholly-Owned Subsidiary
of the Company; and
(c) the Company or any Significant Subsidiary of the Company
may merge or consolidate with any other Person if (i) in the case of a
merger or consolidation of the Company, the Company is the surviving
corporation and, in any other case, the surviving corporation is,
after giving effect to such merger or consolidation, a Wholly-Owned
Subsidiary of the Company and (ii) after giving effect thereto no
Default would exist hereunder.
For purposes of this Section 8.05, "Significant Subsidiary" shall mean, at any
time, any Subsidiary of the Company if, at such time, such Subsidiary would
qualify as a "significant subsidiary" of the Company under Regulation S-X of
the SEC as in effect on the date hereof.
8.06 Limitation on Liens. The Company will not
create, incur, assume or suffer to exist any Lien upon any of
its Property, whether now owned or hereafter acquired, except:
(a) Liens in existence on the date hereof and listed in Part
B of Schedule I hereto;
(b) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if, unless the amount thereof is
not material with respect to it or its financial condition, adequate
reserves with respect thereto are maintained on the books of the
Company or the affected Subsidiaries, as the case may be, in
accordance with GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or
that are being contested in good faith and by appropriate proceedings
and Liens securing judgments but only to the extent for an amount and
for a period not resulting in an Event of Default under Section 9(m)
hereof;
(d) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
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(e) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that, in the aggregate, are not material in amount, and that
do not in any case materially detract from the value of the Property
subject thereto or interfere with the ordinary conduct of the business
of the Company or any of its Subsidiaries;
(g) Liens upon real and/or tangible personal Property
acquired after the date hereof (by purchase, construction or
otherwise) by the Company each of which Liens either (A) existed on
such Property before the time of its acquisition and was not created
in anticipation thereof or (B) was created solely for the purpose of
securing Indebtedness representing, or incurred to finance, refinance
or refund, the cost (including the cost of construction) of such
Property; provided that (i) no such Lien shall extend to or cover any
Property of the Company or such Subsidiary other than the Property so
acquired and improvements thereon and (ii) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed 80% of
the fair market value (as determined in good faith by a senior
financial officer of the Company) of such Property at the time it was
acquired (by purchase, construction or otherwise);
(h) Liens arising out of Repurchase Arrangements;
(i) Liens arising out of or securing Interest Rate
Protection Agreements; and
(j) Liens arising out of Asset Securitizations.
8.07 Lines of Business. The Company will not,
nor will it permit any of its Subsidiaries to, engage to any
substantial extent in any line or lines of business activity other than (a) the
business of owning and operating a depository institution (as defined in 12
U.S.C. Section 1461(b)(1)(A)), a consumer finance company, a mortgage company,
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an insurance company, a trust company, an investment advisor or a securities
broker-dealer, (b) the business of providing other financial services or (c)
any business that may be engaged in by a Washington state chartered savings
bank (as defined in RCW 32.04.020) or a Federal savings association (as defined
in 12 U.S.C. Section 1462(5)) or a Subsidiary of any of them.
8.08 Use of Proceeds. The Company will use
the proceeds of the Loans hereunder solely for general
corporate purposes, including commercial paper back-up (in compliance with all
applicable legal and regulatory requirements, including, without limitation,
Regulations G, U and X and the Securities Act of 1933 and the Securities
Exchange Act of 1934 and the regulations thereunder); provided that, without
the consent of each Bank, the Company may not use the proceeds of any of the
Loans hereunder to finance or refinance, directly or indirectly, an Acquisition
of any Person (or the acquisition of (i) more than 50% of the publicly traded
stock (of any class) of any Person or (ii) any of the publicly traded stock (of
any class) of any Person after the Company or any of its Subsidiaries shall
have been required to file a Schedule 13D under the Securities Exchange Act of
1934, as amended, with respect to such stock) unless such Acquisition (or
acquisition) has been approved by the board of directors of such Person or
officers thereof duly authorized to do so; provided further that neither the
Administrative Agent nor any Bank shall have any responsibility as to the use
of any of such proceeds.
8.09 Adequate Capitalization. The Company shall
assure that each Insured Subsidiary shall be adequately
capitalized at all times. For purposes of this Section 8.09, "adequately
capitalized" shall have the meaning assigned such term by Section 38 of the
Federal Deposit Insurance Act, as amended or any successor act thereto.
8.10 Certain Financial Covenants.
(a) Double Leverage Ratio. The Company will not permit
at any time its Double Leverage Ratio to be greater than 1.25 to 1.00.
(b) Ratio of Consolidated Equity to Consolidated Assets.
The Company will not permit at any time its ratio of Consolidated
Equity to Consolidated Assets to be less than 0.05 to 1.00.
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(c) Minimum Tangible Net Worth. The Company will not
permit at any time its Tangible Net Worth to be less than the Base
Minimum Tangible Net Worth plus the sum of 50% of the net income of
the Company and its Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP and for which purpose any
net loss shall be deemed to be a net income of zero) for each fiscal
quarter of the Company ending after the date as of which the Base
Minimum Tangible Net Worth is determined as set forth below. For
purposes of this Section 8.10(c), "Base Minimum Tangible Net Worth"
shall mean $1,151,250,000, which amount was determined as of September
30, 1996; provided that if the Company shall acquire American Savings,
"Base Minimum Tangible Net Worth" shall mean 75% of the Tangible Net
Worth of the Company and its Subsidiaries determined as of, and after
giving effect to, the Acquisition of American Savings.
(d) Maximum Non-Performing Assets. The Company will not
permit at any time its Non-Performing Assets to constitute more than
4% of the Company's Consolidated Assets.
(e) Minimum Equity and Reserves. The Company will not
permit at any time its Consolidated Equity plus Consolidated Reserves
to be less than 300% of its Non-Performing Assets.
Section 9. Events of Default. If one or more
of the following events (herein called "Events of Default") shall
occur and be continuing:
(a) The Company shall: (i) default in the payment of any
principal of any Loan when due (whether at stated maturity or at
mandatory or optional prepayment); or (ii) default in the payment of
any interest on any Loan, any fee or any other amount payable by it
hereunder when due and such default shall have continued unremedied
for three or more Business Days; or
(b) The Company or any of its Subsidiaries shall default in
the payment when due of any principal of or interest on any of its
other Indebtedness aggregating $25,000,000 or more; or any event
specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or to permit the holder or holders
of such Indebtedness (or a trustee or agent on
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behalf of such holder or holders) to cause, such Indebtedness to
become due, or to be prepaid in full (whether by redemption, purchase,
offer to purchase or otherwise), prior to its stated maturity or to
have the interest rate thereon reset to a level so that securities
evidencing such Indebtedness trade at a level specified in relation to
the par value thereof; or the Company shall default in the payment
when due of any amount aggregating $25,000,000 or more under any
Interest Rate Protection Agreement; or any event specified in any
Interest Rate Protection Agreement shall occur if the effect of such
event is to cause, or to permit, termination or liquidation payment or
payments aggregating $25,000,000 or more to become due; or
(c) Any representation, warranty or certification made or
deemed made herein (or in any modification or supplement hereto) by
the Company, or any certificate furnished to any Bank or the
Administrative Agent pursuant to the provisions hereof, shall prove to
have been false or misleading as of the time made or furnished in any
material respect; or
(d) The Company shall default in the performance of any of
its obligations under any of Sections 8.01(h), 8.05, 8.06, 8.08, 8.09
or 8.10 hereof; or the Company shall default in the performance of any
of its other obligations in this Agreement and such default shall
continue unremedied for a period of thirty or more days after notice
thereof to the Company by the Administrative Agent or any Bank
(through the Administrative Agent); or
(e) The Company or any of its Subsidiaries (other than a
Non-Material Subsidiary) shall admit in writing its inability to, or
be generally unable to, pay its debts as such debts become due; or
(f) The Company or any of its Subsidiaries (other than a
Non-Material Subsidiary) shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator of itself or of all or a substantial
part of its Property, (ii) make a general assignment for the benefit
of its creditors, (iii) commence a voluntary case under the Bankruptcy
Code, (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment
of debts, (v) fail to controvert in a timely and appropriate
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manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or (vi) take any
corporate action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Company or any of its Subsidiaries
(other than a Non-Material Subsidiary), in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Company or
such Subsidiary or of all or any substantial part of its Property or
(iii) similar relief in respect of the Company or such Subsidiary
under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding
or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 or more days; or
an order for relief against the Company or such Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or
(h) The Company or any of its Subsidiaries and any Bank
Regulatory Authority shall enter into any supervisory agreement,
consent order or any agreement (in writing or otherwise) affecting in
any material respect the management, business, Properties, condition
(financial or otherwise) or operations, present or prospective, of the
Company and its Subsidiaries taken as a whole; or any Bank Regulatory
Authority shall issue a cease and desist order to or in respect of the
Company or any of its Subsidiaries; or
(i) Any Insured Subsidiary shall cease accepting deposits or
making loans on the instruction of any Federal, state or other
regulatory body with authority to give such instruction other than
pursuant to an instruction generally applicable to banks organized
under the jurisdiction of organization of such Insured Subsidiary; or
(j) Any Bank Regulatory Authority shall notify any Insured
Subsidiary that such Insured Subsidiary's capital stock has become
impaired; or any Insured Subsidiary shall cease to be an insured bank
under the Federal Deposit Insurance Act, as amended, and the rules and
regulations promulgated thereunder; or
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(k) Any Insured Subsidiary shall be required (whether or not
the time allowed by the appropriate Bank Regulatory Authority for the
submission of such plan has been established or elapsed) to submit a
capital restoration plan of the type referred to in 12 U.S.C. Section
1831o(b)(2)(C), as amended, re-enacted or redesignated from time to
time; or
(l) The Company shall Guarantee in writing (voluntarily or
otherwise) the capital of any Insured Subsidiary as part of or in
connection with any agreement or arrangement with any Bank Regulatory
Authority; or
(m) A final judgment or judgments for the payment of money of
$25,000,000 or more in the aggregate (exclusive of judgment amounts
fully covered by insurance where the insurer has admitted liability in
respect of such judgment) or of $75,000,000 or more in the aggregate
(regardless of insurance coverage) shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction
against the Company or any of its Subsidiaries and the same shall not
be discharged or paid (or provision shall not be made for such
discharge or payment), or a stay of execution thereof shall not be
procured, within 30 days from the date of entry thereof and the
Company or the relevant Subsidiary shall not, within said period of 30
days, or such longer period during which execution of the same shall
have been stayed, appeal therefrom and cause the execution thereof to
be stayed during such appeal; or
(n) An event or condition specified in Section 8.01(g) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, the Company or any ERISA Affiliate shall
incur or in the opinion of the Majority Banks shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or the
PBGC (or any combination of the foregoing) that, in the determination
of the Majority Banks, would (either individually or in the aggregate)
have a Material Adverse Effect; or
(o) A Change in Control shall occur;
THEREUPON: (1) in the case of an Event of Default other than one referred to
in clause (f) or (g) of this Section 9 with respect to the Company, (A) the
Administrative Agent may and, upon request of the Majority Banks, will, by
notice to the Company,
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terminate the Commitments and they shall thereupon terminate, and (B) the
Administrative Agent may and, upon request of the Banks holding more than 50%
of the aggregate unpaid principal amount of the Loans shall, by notice to the
Company declare the principal amount then outstanding of, and the accrued
interest on, the Loans and all other amounts payable by the Company hereunder
and under the Notes (including, without limitation, any amounts payable under
Section 5.05 hereof) to be forthwith due and payable, whereupon such amounts
shall be immediately due and payable without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Company; and (2) in the case of the occurrence of an Event of Default referred
to in clause (f) or (g) of this Section 9 with respect to the Company, the
Commitments shall automatically be terminated and the principal amount then
outstanding of, and the accrued interest on, the Loans and all other amounts
payable by the Company hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.05 hereof) shall automatically
become immediately due and payable without presentment, demand, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Company.
Section 10. The Administrative Agent.
10.01 Appointment, Powers and Immunities.
Each Bank hereby appoints and authorizes the Administrative Agent
to act as its agent hereunder with such powers as are specifically delegated to
the Administrative Agent by the terms of this Agreement, together with such
other powers as are reasonably incidental thereto. The Administrative Agent
(which term as used in this sentence and in Section 10.05 and the first
sentence of Section 10.06 hereof shall include reference to its affiliates and
its own and its affiliates' officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those
expressly set forth in this Agreement, and shall not by reason of this
Agreement be a trustee for any Bank;
(b) shall not be responsible to the Banks for any recitals,
statements, representations or warranties contained in this Agreement,
or in any certificate or other document referred to or provided for
in, or received by any of them under, this Agreement, or for the
value, validity, effectiveness, genuineness, enforceability or
sufficiency of
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this Agreement, any Note or any other document referred to or provided
for herein or for any failure by the Company or any other Person to
perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder; and
(d) shall not be responsible for any action taken or omitted
to be taken by it hereunder or under any other document or instrument
referred to or provided for herein or in connection herewith, except
for its own gross negligence or willful misconduct.
The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee of a Note as the holder thereof for all purposes
hereof unless and until a notice of the assignment or transfer thereof shall
have been filed with the Administrative Agent, together with the consent of the
Company to such assignment or transfer (to the extent required by Section
11.06(b) hereof).
10.02 Reliance by Administrative Agent.
The Administrative Agent shall be entitled to rely upon any
certification, notice or other communication (including, without limitation,
any thereof by telephone, telecopy, telegram or cable) reasonably believed by
it to be genuine and correct and to have been signed or sent by or on behalf of
the proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Administrative Agent.
As to any matters not expressly provided for by this Agreement, the
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions given by the
Majority Banks, and such instructions of the Majority Banks and any action
taken or failure to act pursuant thereto shall be binding on all of the Banks.
10.03 Defaults. The Administrative Agent
shall not be deemed to have knowledge or notice of the
occurrence of a Default unless the Administrative Agent has received notice
from a Bank or the Company specifying such Default and stating that such notice
is a "Notice of Default". In the event that the Administrative Agent receives
such a notice of the occurrence of a Default, the Administrative
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Agent shall give prompt notice thereof to the Banks. The Administrative Agent
shall (subject to Section 10.07 hereof) take such action with respect to such
Default as shall be directed by the Majority Banks, provided that, unless and
until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default as it shall deem
advisable in the best interest of the Banks except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only
with the consent or upon the authorization of the Majority Banks or all of the
Banks.
10.04 Rights as a Bank. With respect to
its Commitment and the Loans made by it, Chase (and any successor
acting as Administrative Agent) in its capacity as a Bank hereunder shall have
the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not acting as the Administrative Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Administrative Agent in its individual capacity. Chase (and any successor
acting as Administrative Agent) and its affiliates may (without having to
account therefor to any Bank) accept deposits from, lend money to, make
investments in and generally engage in any kind of banking, trust or other
business with the Company (and any of its Subsidiaries or affiliates) as if it
were not acting as the Administrative Agent, and Chase (and any such successor)
and its affiliates may accept fees and other consideration from the Company for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks.
10.05 Indemnification. The Banks agree to indemnify
the Administrative Agent (to the extent not reimbursed under
Section 11.03 hereof, but without limiting the obligations of the Company under
said Section 11.03) ratably in accordance with their respective Commitments,
for any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the
Administrative Agent (including by any Bank) arising out of or by reason of any
investigation in or in any way relating to or arising out of this Agreement or
any other documents contemplated by or referred to herein or the transactions
contemplated hereby (including, without limitation, the costs and expenses that
the Company is obligated to pay under Section 11.03 hereof, but excluding,
unless a Default has
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occurred and is continuing, normal administrative costs and expenses incident
to the performance of its agency duties hereunder) or the enforcement of any of
the terms hereof or of any such other documents, provided that no Bank shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified.
10.06 Non-Reliance on Administrative
Agent and Other Banks. Each Bank agrees that it has,
independently and without reliance on the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Company and its Subsidiaries and decision
to enter into this Agreement and that it will, independently and without
reliance upon the Administrative Agent or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by the Company of this Agreement
or any other document referred to or provided for herein or to inspect the
Properties or books of the Company or any of its Subsidiaries. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs, financial
condition or business of the Company or any of its Subsidiaries (or any of
their affiliates) that may come into the possession of the Administrative Agent
or any of its affiliates.
10.07 Failure to Act. Except for action
expressly required of the Administrative Agent hereunder, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall receive further assurances to its
satisfaction from the Banks of their indemnification obligations under Section
10.05 hereof against any and all liability and expense that may be incurred by
it by reason of taking or continuing to take any such action.
10.08 Resignation or Removal of Administrative
Agent. Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent may resign at
any time by giving notice thereof to the Banks and the Company, and the
Administrative Agent may be removed at any time with or without cause by the
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Majority Banks. Upon any such resignation or removal, the Majority Banks shall
have the right to appoint a successor Administrative Agent, after consultation
with the Company (unless an Event of Default shall have occurred and is
continuing). If no successor Administrative Agent shall have been so appointed
by the Majority Banks and shall have accepted such appointment within 30 days
after the retiring Administrative Agent's giving of notice of resignation or
the Majority Banks' removal of the retiring Administrative Agent, then the
retiring Administrative Agent may, on behalf of the Banks, after consultation
with the Company (unless an Event of Default shall have occurred and is
continuing) appoint a successor Administrative Agent, that shall be a bank that
has an office in New York, New York. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder. After any retiring Administrative
Agent's resignation or removal hereunder as Administrative Agent, the
provisions of this Section 10 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Administrative Agent.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of
the Administrative Agent or any Bank to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power or
privilege under this Agreement or any Note shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
this Agreement or any Note preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
The Company irrevocably waives, to the fullest extent
permitted by applicable law, any claim that any action or proceeding commenced
by the Administrative Agent or any Bank relating in any way to this Agreement
should be dismissed or stayed by reason, or pending the resolution, of any
action or proceeding commenced by the Company relating in any way to this
Agreement whether or not commenced earlier. To the fullest extent permitted by
applicable law, the Company shall take all
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measures necessary for any such action or proceeding commenced by the
Administrative Agent or any Bank to proceed to judgment prior to the entry of
judgment in any such action or proceeding commenced by the Company.
11.02 Notices. All notices, requests and
other communications provided for herein (including, without
limitation, any modifications of, or waivers, requests or consents under, this
Agreement) shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by telecopy, or
with respect to notices given pursuant to Section 2.03 hereof, by telephone,
confirmed in writing by telecopier by the close of business on the day the
notice is given, as follows:
(a) if to the Company, to it at Washington Mutual, Inc., 1201
3rd Avenue, Seattle, Washington 98101, Attention of Douglas G.
Wisdorf (Telecopy No. 206-554-5954);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York,
New York 10081, Attention of Laura Rebecca (Telecopy No. (212)
552-7490), with a copy to The Chase Manhattan Bank, 270 Park Avenue,
New York, New York 10017, Attention of George C. Johnson (Telecopy No.
(212) 270-1789);
(c) if to any other Bank, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. Except
as otherwise provided in this Agreement, all notices and other communications
given to any party hereto in accordance with the provisions of this Agreement
shall be deemed to have been given on the date of receipt.
11.03 Expenses, Etc. The Company agrees to pay
or reimburse each of the Banks and the Administrative Agent for:
(a) all reasonable out-of-pocket costs and expenses of the Administrative Agent
(including, without limitation, the reasonable fees and expenses of Milbank,
Tweed, Hadley & McCloy, special New York counsel to Chase) in connection with
(i) the negotiation, preparation, execution and delivery of this Agreement and
the Notes and the making of the Loans hereunder and (ii) the negotiation or
preparation of any
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modification, supplement or waiver of any of the terms of this Agreement or any
of the Notes (whether or not consummated); (b) all reasonable out-of-pocket
costs and expenses of the Banks and the Administrative Agent (including,
without limitation, the reasonable fees and expenses of legal counsel and
allocated costs of in-house counsel) in connection with (i) any Default and any
enforcement or collection proceedings resulting therefrom, including, without
limitation, all manner of participation in or other involvement with (x)
bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation
proceedings, (y) judicial or regulatory proceedings and (z) workout,
restructuring or other negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is consummated) and (ii) the
enforcement of this Section 11.03; and (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the Notes or any other
document referred to herein.
The Company hereby agrees to indemnify the Administrative
Agent and each Bank and their respective directors, officers, employees,
attorneys and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them
(including, without limitation, any and all losses, liabilities, claims,
damages or expenses incurred by the Administrative Agent to any Bank, whether
or not the Administrative Agent or any Bank is a party thereto) arising out of
or by reason of any investigation or litigation or other proceedings (including
any threatened investigation or litigation or other proceedings) relating to
the Loans hereunder or any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the Loans hereunder, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
11.04 Amendments, Etc. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement
may be modified or supplemented only by an instrument in writing signed by the
Company and the Majority Banks, or by the Company and the Administrative Agent
acting with the consent of the Majority Banks, and any provision of this
Agreement may be waived by the Majority Banks or by the Administrative Agent
acting with the consent of the Majority
Credit Agreement
<PAGE> 75
- 71 -
Banks; provided that: (a) except as provided in Section 2.10 hereof, no
modification, supplement or waiver shall, unless by an instrument signed by all
of the Banks or by the Administrative Agent acting with the consent of all of
the Banks: (i) increase or extend the term of the Commitments, or extend the
time or waive any requirement for the reduction or termination of the
Commitments, (ii) extend the date fixed for the payment of principal of or
interest on any Loan or any fee hereunder, (iii) reduce the amount of any such
payment of principal, (iv) reduce the rate at which interest is payable thereon
or any fee is payable hereunder, (v) alter the rights or obligations of the
Company to prepay Loans, (vi) alter the manner in which payments or prepayments
of principal, interest or other amounts hereunder shall be applied as between
the Banks or Types or Classes of Loans, (vii) alter the terms of this Section
11.04, (viii) modify the definition of the term "Majority Banks" or modify in
any other manner the number or percentage of the Banks required to make any
determinations or waive any rights hereunder or to modify any provision hereof,
or (ix) waive any of the conditions precedent set forth in Section 6.01 hereof;
and (b) any modification or supplement of Section 10 hereof, or of any of the
rights or duties of the Administrative Agent hereunder, shall require the
consent of the Administrative Agent.
11.05 Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
11.06 Assignments and Participations.
(a) The Company may not assign any of its rights or
obligations hereunder or under the Notes without the prior consent of all of
the Banks and the Administrative Agent.
(b) Each Bank may assign any of its Loans, its Notes, and its
Commitment (but only with the consent of the Company and the Administrative
Agent, each of which consents will not be unreasonably withheld); provided that
(i) no such consent by the Company or the Administrative
Agent shall be required in the case of any assignment to another Bank
or an affiliate of a Bank;
(ii) except to the extent the Company and the Administrative
Agent shall otherwise consent, any such
Credit Agreement
<PAGE> 76
- 72 -
partial assignment (other than to another Bank) shall be in an amount
at least equal to $5,000,000;
(iii) each such assignment by a Bank of its Loans, Note or
Commitment shall be made in such manner so that the same portion of
its Loans, Note and Commitment is assigned to the respective assignee;
(iv) each such assignment shall be effected by an Assignment
and Acceptance in the form of Exhibit G hereto; and
(v) each assignee, if it shall not be a Bank, shall deliver
to the Administrative Agent an Administrative Questionnaire.
Upon execution and delivery by the assignor and the assignee to the Company and
the Administrative Agent (if applicable) of such Assignment and Acceptance, and
upon consent thereto by the Company and the Administrative Agent to the extent
required above and the delivery to the Administrative Agent of the assignee's
completed Administrative Questionnaire, the assignee shall have, to the extent
of such assignment (unless otherwise consented to by the Company and the
Administrative Agent), the obligations, rights and benefits of a Bank hereunder
holding the Commitment and Loans (or portions thereof) assigned to it and
specified in such Assignment and Acceptance (in addition to the Commitment and
Loans, if any, theretofore held by such assignee) and the assigning Bank shall,
to the extent of such assignment, be released from the Commitment (or portion
thereof) so assigned. Upon each such assignment the assigning Bank shall pay
the Administrative Agent an assignment fee of $3,000.
(c) A Bank may sell or agree to sell to one or more other
Persons (each a "Participant") a participation in all or any part of any Loans
held by it, or in its Commitment, provided that such Participant shall not have
any rights or obligations under this Agreement or any Note (the Participant's
rights against such Bank in respect of such participation to be those set forth
in the agreements executed by such Bank in favor of the Participant). All
amounts payable by the Company to any Bank under Section 5 hereof in respect of
Loans held by it, and its Commitment, shall be determined as if such Bank had
not sold or agreed to sell any participations in such Loans and Commitment, and
as if such Bank were funding each of such Loan and Commitment in the same way
that it is funding the portion of such Loan and Commitment in which no
participations have been sold. In no event shall a Bank that sells a
participation agree with the
Credit Agreement
<PAGE> 77
- 73 -
Participant to take or refrain from taking any action hereunder except that
such Bank may agree with the Participant that it will not, without the consent
of the Participant, agree to (i) increase or extend the term of such Bank's
Commitment, (ii) extend the date fixed for the payment of principal of or
interest on the related Loan or Loans or any portion of any fee hereunder
payable to the Participant, (iii) reduce the amount of any such payment of
principal, (iv) reduce the rate at which interest is payable thereon, or any
fee hereunder payable to the Participant, to a level below the rate at which
the Participant is entitled to receive such interest or fee or (v) consent to
any modification, supplement or waiver hereof to the extent that the same,
under Section 11.04 hereof, requires the consent of each Bank.
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.06, any Bank may
(without notice to the Company, the Administrative Agent or any other Bank and
without payment of any fee) (i) assign and pledge all or any portion of its
Loans and its Notes to any Federal Reserve Bank as collateral security pursuant
to Regulation A and any Operating Circular issued by such Federal Reserve Bank
and (ii) assign all or any portion of its rights under this Agreement and its
Loans and its Notes to an affiliate. No such assignment to a Federal Reserve
Bank shall release the assigning Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning the Company
or any of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 11.12(b) hereof.
(f) Anything in this Section 11.06 to the contrary
notwithstanding, no Bank may assign or participate any interest in any Loan
held by it hereunder to the Company or any of its affiliates or Subsidiaries
without the prior consent of each Bank.
11.07 Survival. The obligations of the Company
under Sections 5.01, 5.05, 5.06 and 11.03 hereof, and the
obligations of the Banks under Section 10.05 hereof, shall survive the
repayment of the Loans and the termination of the Commitments and, in the case
of any Bank that may assign any interest in its Commitment or Loans hereunder,
shall survive the making of such assignment, notwithstanding that such
assigning Bank may cease to be a "Bank"
Credit Agreement
<PAGE> 78
- 74 -
hereunder. In addition, each representation and warranty made, or deemed to be
made by a notice of any Loan, herein or pursuant hereto shall survive the
making of such representation and warranty, and no Bank shall be deemed to have
waived, by reason of making any Loan, any Default that may arise by reason of
such representation or warranty proving to have been false or misleading,
notwithstanding that such Bank or the Administrative Agent may have had notice
or knowledge or reason to believe that such representation or warranty was
false or misleading at the time such Loan was made.
11.08 Captions. The table of contents and
captions and section headings appearing herein are included solely
for convenience of reference and are not intended to affect the interpretation
of any provision of this Agreement.
11.09 Counterparts. This Agreement may
be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and any of the parties
hereto may execute this Agreement by signing any such counterpart.
11.10 Governing Law; Submission to Jurisdiction.
This Agreement and the Notes shall be governed by, and
construed in accordance with, the law of the State of New York. The Company
hereby submits to the nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of the Supreme Court of the
State of New York sitting in New York County (including its Appellate
Division), and of any other appellate court in the State of New York, for the
purposes of all legal proceedings arising out of or relating to this Agreement
or the transactions contemplated hereby. The Company hereby irrevocably
waives, to the fullest extent permitted by applicable law, any objection that
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such
a court has been brought in an inconvenient forum.
11.11 Waiver of Jury Trial. EACH OF THE COMPANY,
THE ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Credit Agreement
<PAGE> 79
- 75 -
11.12 Treatment of Certain Information; Confidentiality.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries or
affiliates of such Bank and the Company hereby authorizes each Bank to share
any information delivered to such Bank by the Company and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of such Bank to
enter into this Agreement, to any such subsidiary or affiliate, it being
understood that any such subsidiary or affiliate receiving such information
shall be bound by the provisions of paragraph (b) below as if it were a Bank
hereunder. Such authorization shall survive the repayment of the Loans and the
termination of the Commitments.
(b) Each Bank and the Administrative Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential
information of the same nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Company pursuant to
this Agreement that is identified by the Company as being confidential at the
time the same is delivered to the Banks or the Administrative Agent, provided
that nothing herein shall limit the disclosure of any such information (i)
after such information shall have become public (other than through a violation
of this Section 11.12), (ii) to the extent required by statute, rule,
regulation or judicial process, (iii) to counsel for any of the Banks or the
Administrative Agent, (iv) to bank examiners (or any other regulatory authority
having jurisdiction over any Bank or the Administrative Agent), or to auditors
or accountants, (v) to the Administrative Agent or any other Bank (or to Chase
Securities, Inc.), (vi) in connection with any litigation to which any one or
more of the Banks or the Administrative Agent is a party, or in connection with
the enforcement of rights or remedies hereunder, (vii) to a subsidiary or
affiliate of such Bank as provided in paragraph (a) above or (viii) to any
assignee or participant (or prospective assignee or participant) so long as
such assignee or participant (or prospective assignee or participant) first
executes and delivers to the respective Bank a Confidentiality Agreement
substantially in the form of Exhibit F hereto (or executes and delivers to such
Bank and the Company an
Credit Agreement
<PAGE> 80
- 76 -
acknowledgement to the effect that it is bound by the provisions of this
Section 11.12(b), which acknowledgement may be included as part of the
respective assignment or participation agreement pursuant to which such
assignee or participant acquires an interest in the Loans hereunder); provided,
further, that in no event shall any Bank or the Administrative Agent be
obligated or required to return any materials furnished by the Company. The
obligations of each Bank under this Section 11.12 shall supersede and replace
the obligations of such Bank under the confidentiality letter in respect of
this financing signed and delivered by such Bank to the Company prior to the
date hereof; in addition, the obligations of any assignee that has executed a
Confidentiality Agreement in the form of Exhibit F hereto shall be superseded
by this Section 11.12 upon the date upon which such assignee becomes a Bank
hereunder pursuant to Section 11.06(b) hereof.
Credit Agreement
<PAGE> 81
- 77 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
WASHINGTON MUTUAL, INC.
By /s/ William A. Longbrake
----------------------------------
Title: Executive Vice President
and Chief Financial Officer
Credit Agreement
<PAGE> 82
- 78 -
BANKS
Commitment THE CHASE MANHATTAN BANK
$12,500,000
By /s/ George C. Johnson
------------------------------------
Title: Vice President
Commitment BANK OF AMERICA NATIONAL TRUST
$12,500,000 AND SAVINGS ASSOCIATION
By /s/ Paolo Foggini
------------------------------------
Title: Vice President
Commitment CREDIT LYONNAIS
$12,500,000 SAN FRANCISCO BRANCH
By /s/ Edward W. Leong
------------------------------------
Title: Vice President
By
------------------------------------
Title:
By
------------------------------------
Title:
Commitment THE FIRST NATIONAL BANK OF CHICAGO
$12,500,000
By /s/ Robert C. English
------------------------------------
Title: Authorized Agent
Commitment THE BANK OF TOKYO-MITSUBISHI,
$10,000,000 LTD., SEATTLE BRANCH
By /s/ David Purcell
-----------------------------------
Title: Vice President
Credit Agreement
<PAGE> 83
- 79 -
Commitment MELLON BANK, N.A.
$10,000,000
By /s/ Dean Pace
------------------------------------
Title: Vice President
Commitment THE BANK OF NEW YORK
$8,750,000
By /s/ David Dobbins
------------------------------------
Title: Vice President
Commitment U.S. BANK OF WASHINGTON,
$8,750,000 NATIONAL ASSOCIATION
By /s/ Steven A. Lundstrom
------------------------------------
Title: Vice President
Commitment THE DAI-ICHI KANGYO BANK,
$6,250,000 LIMITED, SAN FRANCISCO AGENCY
By /s/ Takuo Yoshida
------------------------------------
Title: General Manager & Agent
Commitment KEY BANK OF WASHINGTON
$6,250,000
By /s/ Kathleen Johanson
------------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ George Johnson
------------------------------------
Title: Vice President
Credit Agreement
<PAGE> 84
- 80 -
SCHEDULE I
Material Agreements and Liens
Part A - Material Agreements
1. Senior Notes. The Company issued senior unsecured notes under
an Indenture dated August 25, 1995 between the Company and Harris
Trust and Savings Bank, as trustee. The notes bear interest at 7.25%
and are limited to $150,000,000 in aggregate principal amount
outstanding. The notes are due on August 15, 2005 and may not be
redeemed prior to maturity.
2. City of Tampa Note. The Company assumed through acquisition
of Pacific First Federal Savings Bank, a federally chartered
association ("Pacific First"), a $75,000,000 note payable to the City
of Tampa, Florida (the "Note"). The Note is subject to periodic
principal withdrawals and has a current outstanding principal balance
of $71,716,667. The Note bears interest at 8.16% and matures on
October 1, 1998.
Part B - Liens
1. Mortgage Pass-Through Securities. The Company is successor to
Pacific First Bank, A Federal Savings Bank, which was successor to
Pacific First. Pacific First is the named Pledgor under a certain
Collateral Pledge and Maintenance Agreement dated June 23, 1988 (the
"Pledge Agreement") among First Florida Bank, N.A., as trustee on
behalf of the holders of the City of Tampa Capital Improvement Program
Revenue Bonds, as Pledgee; Chemical Bank, as Collateral Agent for
Pledgee and Pacific First. The Bank of New York Trust Company of
Florida, N.A. is the current successor to the rights and obligations
of First Florida Bank, N.A. under the Pledge Agreement.
In accord with Section 3.02(b) of the Pledge Agreement, the
Pledgee maintains, as collateral for the Company's obligations under
the Note payable to the City of Tampa, a first priority and perfected
security interest in certain mortgage pass-through securities owned by
the Company. Under the terms of the Pledge Agreement, these securities
may be substituted from time to time with certain additional
<PAGE> 85
- 81 -
collateral. Such additional collateral must meet or exceed specific
value requirements provided for in the Pledge Agreement.
<PAGE> 86
- 83 -
SCHEDULE II
Subsidiaries
See attached.
<PAGE> 87
Description of Subsidiaries SCHEDULE II
Page 1
LISTING OF SUBSIDIARIES OF WMI
<TABLE>
<CAPTION>
ERROR! BOOKMARK NOT DEFINED.NAME NAME OF STATE OF PERCENT OF
IMMEDIATE PARENT INCORPORATION AFFILIATE
OWNERSHIP*
<S> <C> <C> <C>
Benefit Service Corporation*** WM Financial, Inc. Washington 100%
Composite Research & Management Co.*** Washington Mutual, Inc. Washington 100%
Empire Life Insurance Co. WM Life Insurance Co. Nebraska 100%
(domesticated
Washington 12-12-
89)
GNW Land Company** *** Seacoast Management, Washington 100%
Inc.
Mill Maple Properties, Inc.*** Washington Mutual Bank Oregon 100%
Murphey Favre, Inc.*** Washington Mutual, Inc. Washington 100%
Murphey Favre Housing Managers, Inc.*** Murphey Favre Washington 100%
Properties, Inc.
Murphey Favre Insurance Services, Inc.*** Murphey Favre, Inc. Idaho 100%
Murphey Favre Properties, Inc.*** WM Financial, Inc. Washington 100%
Murphey Favre Securities Services, Inc.*** Murphey Favre, Inc. Washington 100%
Olympus Development Company*** Washington Mutual Bank Utah 100%
fsb
2425 Service Corporation*** Washington Mutual Bank Utah 100%
fsb
Pacific First Insurance, Inc.*** Washington Mutual Bank Washington 100%
Pioneer Properties, Inc.*** Washington Mutual Bank Washington 100%
</TABLE>
* Inactive or dormant subsidiary
** All ownership is in form common stock
*** Non-Material Subsidiary
<PAGE> 88
Description of Subsidiaries SCHEDULE II
Page 2
<TABLE>
<S> <C> <C> <C>
Preston Properties California, Inc.*** Preston Ridge Financial Washington 100%
Services Corp.
Preston Ridge Financial Services Washington Mutual Bank Washington 100%
Corporation***
SS Service Corporation*** Washington Mutual Bank Washington 100%
Seacoast Management, Inc.*** Washington Mutual Bank Washington 100%
WM Enterprises & Holdings, Inc.*** Washington Mutual Bank Washington 100%
WM Financial, Inc.*** Washington Mutual Bank Washington 100%
WM Life Insurance Co. Washington Mutual, Inc. Arizona 100%
Washington Mutual Bank Washington Mutual, Inc. Washington 100%
Washington Mutual Bank fsb Washington Mutual, Inc. Federally 100%
Chartered
Washington Mutual Financial Services, Washington Mutual Bank Oregon 100%
Inc.*** fsb
Washington Mutual Insurance Brokerage Washington Mutual Bank Montana 100%
Services, Inc.*** fsb
Washington Mutual Insurance Services, Washington Mutual Bank Washington 100%
Inc.*** fsb
Washington Mutual Insurance Services of Washington Mutual Bank Idaho 100%
Idaho, Inc.*** fsb
Western Aero, Ltd.*** Washington Mutual Bank Oregon 100%
Western Credit Services Co.*** Washington Mutual Bank Oregon 100%
Western Service Co.*** Washington Mutual Bank Oregon 100%
</TABLE>
* Inactive or dormant subsidiary
** All ownership is in form common stock
*** Non-Material Subsidiary
<PAGE> 89
SCHEDULE III
Litigation
None.
SCHEDULE III
<PAGE> 90
EXHIBIT A-1
[Form of Syndicated Note]
PROMISSORY NOTE
$_______________
December 10, 1996
New York, New York
FOR VALUE RECEIVED, WASHINGTON MUTUAL, INC., a Washington
corporation (the "Company"), hereby promises to pay to __________________ (the
"Bank"), for account of its respective lending offices provided for by the
Credit Agreement referred to below, at the principal office of The Chase
Manhattan Bank at 270 Park Avenue, New York, New York 10017, the principal sum
of _______________ Dollars (or such lesser amount as shall equal the aggregate
unpaid principal amount of the Syndicated Loans made by the Bank to the Company
under the Credit Agreement), in lawful money of the United States of America
and in immediately available funds, on the dates and in the principal amounts
provided in the Credit Agreement, and to pay interest on the unpaid principal
amount of each such Syndicated Loan, at such office, in like money and funds,
for the period commencing on the date of such Syndicated Loan until such
Syndicated Loan shall be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Syndicated Loan made by the Bank to the Company,
and each payment made on account of the principal thereof, shall be recorded by
the Bank on its books and, prior to any transfer of this Note, endorsed by the
Bank on the schedule attached hereto or any continuation thereof, provided that
the failure of the Bank to make any such recordation or endorsement shall not
affect the obligations of the Company to make a payment when due of any amount
owing under the Credit Agreement or hereunder in respect of the Syndicated
Loans made by the Bank.
This Note is one of the Syndicated Notes referred to in the
364-Day Credit Agreement dated as of December 10, 1996 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") between
the Company, the lenders party thereto (including the Bank) and The Chase
Manhattan Bank, as Administrative Agent, and evidences Syndicated Loans made by
the Bank thereunder. Terms used but not defined in this Note have the
respective meanings assigned to them in the Credit Agreement.
Syndicated Note
<PAGE> 91
- 2 -
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Loans upon the terms and conditions specified therein.
Except as permitted by Section 11.06 of the Credit Agreement,
this Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
WASHINGTON MUTUAL, INC.
By_________________________
Title:
Syndicated Note
<PAGE> 92
- 3 -
SCHEDULE OF SYNDICATED LOANS
This Note evidences Syndicated Loans made under the
within-described Credit Agreement to the Company, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the durations set forth below, subject to
the payments and prepayments of principal set forth below:
<TABLE>
<CAPTION>
Prin-
cipal Duration Amount Unpaid
Amount Type of Paid Prin-
Date of of Interest Interest or cipal Notation
Made Loan Loan Rate Period Prepaid Amount Made by
- --------- ------ ---- -------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Syndicated Note
<PAGE> 93
EXHIBIT A-2
[Form of Money Market Note]
PROMISSORY NOTE
December 10, 1996
New York, New York
FOR VALUE RECEIVED, WASHINGTON MUTUAL, INC., a Washington
corporation (the "Company"), hereby promises to pay to __________________ (the
"Bank"), for account of its respective lending offices provided for by the
Credit Agreement referred to below, at the principal office of The Chase
Manhattan Bank at 270 Park Avenue, New York, New York 10017, the aggregate
unpaid principal amount of the Money Market Loans made by the Bank to the
Company under the Credit Agreement, in lawful money of the United States of
America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Money Market Loan, at such office, in like money
and funds, for the period commencing on the date of such Money Market Loan
until such Money Market Loan shall be paid in full, at the rates per annum and
on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and maturity date of
each Money Market Loan made by the Bank to the Company, and each payment made
on account of the principal thereof, shall be recorded by the Bank on its books
and, prior to any transfer of this Note, endorsed by the Bank on the schedule
attached hereto or any continuation thereof, provided that the failure of the
Bank to make any such recordation or endorsement shall not affect the
obligations of the Company to make a payment when due of any amount owing under
the Credit Agreement or hereunder in respect of the Money Market Loans made by
the Bank.
This Note is one of the Money Market Notes referred to in the
364-Day Credit Agreement dated as of December 10, 1996 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") between
the Company, the lenders party thereto (including the Bank) and The Chase
Manhattan Bank, as Administrative Agent, and evidences Money Market Loans made
by the Bank thereunder. Terms used but not defined in this Note have the
respective meanings assigned to them in the Credit Agreement.
Money Market Note
<PAGE> 94
- 2 -
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Money Market Loans upon the terms and conditions specified therein.
Except as permitted by Section 11.06 of the Credit Agreement,
this Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
WASHINGTON MUTUAL, INC.
By_________________________
Title:
Money Market Note
<PAGE> 95
- 3 -
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described
Credit Agreement to the Company, on the dates, in the principal amounts, of the
Types, bearing interest at the rates and maturing on the dates set forth below,
subject to the payments and prepayments of principal set forth below:
<TABLE>
<CAPTION>
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- ---- --------- ---- -------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
Money Market Note
<PAGE> 96
EXHIBIT B
[Form of Opinion of Counsel to the Company]
__________, 199_
To the Banks party to the
Credit Agreement referred to
below and The Chase
Manhattan Bank, as Administrative Agent
Ladies and Gentlemen:
We have acted as counsel to Washington Mutual, Inc. (the
"Company") in connection with (i) the 364-Day Credit Agreement (the "Credit
Agreement") dated as of December 10, 1996, between the Company, the lenders
party thereto and The Chase Manhattan Bank, as Administrative Agent, providing
for loans to be made by said lenders to the Company in an aggregate principal
amount not exceeding $100,000,000 and (ii) the instruments and other documents
referred to in the next following paragraph. Terms used herein without
definition have the meanings assigned to them in the Credit Agreement. This
opinion letter is being delivered pursuant to Section 6.01(c) of the Credit
Agreement.
In rendering the opinions expressed below, we have examined
the following agreements, instruments and other documents:
(a) the Credit Agreement;
(b) the Notes executed and delivered on the date hereof;
and
(c) such records of the Company and such other documents
as we have deemed necessary as a basis for the
opinions expressed below.
The Credit Agreement and such Notes are collectively referred to as the "Credit
Documents".
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with authentic original documents of all documents submitted to
us as copies. When relevant facts were not independently established, we have
relied upon statements of governmental officials and upon representations
Opinion of Counsel to the Company
<PAGE> 97
- 2 -
made in or pursuant to the Credit Documents and certificates of appropriate
representatives of the Company.
In rendering the opinions expressed below, we have assumed,
with respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to the
Company):
(i) such documents have been duly authorized by, have
been duly executed and delivered by, and constitute
legal, valid, binding and enforceable obligations of,
all of the parties to such documents;
(ii) all signatories to such documents have been duly
authorized and all signatories have the legal
capacity to execute and deliver such documents; and
(iii) all of the parties to such documents are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver
and perform such documents.
For purposes of this letter, when we render an opinion "to our
knowledge" or as to which we have "knowledge," we have based such opinion on
(i) inquiries of the attorneys in our firm who routinely work on matters
related to the Company and (ii) inquiries of representatives of the Company
whom we reasonably believe to have knowledge about the subject matter of the
inquiries.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Washington. Each Subsidiary
of the Company listed in Annex I hereto is a corporation duly
organized and validly existing under the laws of the respective state
indicated opposite its name in Annex I hereto.
Opinion of Counsel to the Company
<PAGE> 98
- 3 -
2. The Company has all requisite corporate power to execute
and deliver, and to perform its obligations under, the Credit
Documents. The Company has all requisite corporate power to borrow
under the Credit Agreement.
3. The execution, delivery and performance by the Company of
each Credit Document, and the borrowings by the Company under the
Credit Agreement, have been duly authorized by all necessary corporate
action on the part of the Company.
4. Each Credit Document has been duly executed and delivered
by the Company.
5. If the Credit Documents were stated to be governed by and
construed in accordance with the law of the State of Washington, or if
a court of the State of Washington were to apply the law of the State
of Washington to the Credit Documents, each Credit Document would
constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or transfer or other similar laws
relating to or affecting the rights of creditors generally and except
as the enforceability of the Credit Documents is subject to the
application of general principles of equity (regardless of whether
considered in a proceeding in equity or at law), including, without
limitation, (a) the possible unavailability of specific performance,
injunctive relief or any other equitable remedy and (b) concepts of
materiality, reasonableness, good faith and fair dealing.
6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency
of the United States of America or the State of Washington is required
on the part of the Company for the execution, delivery or performance
by the Company of any of the Credit Documents or for the borrowings by
the Company under the Credit Agreement.
7. The execution, delivery and performance by the Company of,
and the consummation by the Company of the
Opinion of Counsel to the Company
<PAGE> 99
- 4 -
transactions contemplated by, the Credit Documents do not and will not
(a) violate any provision of its Articles of Incorporation or by-laws,
(b) violate any applicable law, rule or regulation, (c) violate any
order, writ, injunction or decree of any court or governmental
authority or agency or any arbitral award applicable to the Company or
any of its Subsidiaries of which we have knowledge or (d) result in a
breach of, constitute a default under, require any consent under, or
result in the acceleration or required prepayment of any indebtedness
pursuant to the terms of, any agreement or instrument of which we have
knowledge to which the Company or any of its Subsidiaries is a party
or by which any of them is bound or to which any of them is subject.
8. Except as set forth in Schedule III to the Credit
Agreement, we have no knowledge of any legal or arbitral proceedings,
or any proceedings by or before any governmental or regulatory
authority or agency, pending or threatened against the Company or any
of its Subsidiaries or any of their respective Properties that are
reasonably likely (either individually or in the aggregate) to have a
Material Adverse Effect.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 11.03 of the Credit
Agreement may be limited by laws limiting the enforceability of
provisions exculpating or exempting a party, or requiring
indemnification of a party for, liability for its own action or
inaction, to the extent the action or inaction involves negligence,
recklessness, willful misconduct or unlawful conduct.
(B) The enforceability of provisions in the Credit Documents
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
Washington) that limit the interest, fees or other charges such Bank
may impose, (ii) Section 4.07(c) of the Credit Agreement, (iii) the
second paragraph of
Opinion of Counsel to the Company
<PAGE> 100
- 5 -
Section 11.01 of the Credit Agreement, (iv) the first sentence of
Section 11.10, (v) the second sentence of Section 11.10 of the Credit
Agreement, insofar as such sentence relates to the subject matter
jurisdiction of the United States District Court for the Southern
District of New York to adjudicate any controversy related to any of
the Credit Documents, (vi) the waiver of inconvenient forum set forth
in Section 11.10 of the Credit Agreement, (vii) Section 11.11 of the
Credit Agreement and (viii) the enforceability of provisions in the
Credit Documents that purport to establish evidentiary standards.
(D) The courts of the State of Washington will consider
extrinsic evidence of circumstances surrounding the making of the
Credit Documents to ascertain the intent of the parties in using the
language employed in the Credit Documents, regardless of whether or
not the language used in the Credit Documents is plain and unambiguous
on its face, and may incorporate additional or supplementary terms
into the Credit Documents.
(E) We call to your attention that, under Washington law,
where a provision of contract permits one party to the contract to
recover attorneys' fees, such provision will be construed to permit
the prevailing party in any action to enforce the contract to recover
its reasonable attorneys' fees.
(F) We have assumed that any compensation owed pursuant to
Section 5.05 of the Credit Agreement is reasonable in amount,
reflecting compensation for actual economic loss. We also not that in
McCausland v. Bankers Life Insurance, 110 Wn.2d 716, 757 P.2d 941
(1988) and in Rodgers v. Rainier National Bank, 111 Wn.2d 232, 757
P.2d 976 (1988), the Washington Supreme Court indicated that, at least
under certain circumstances, a lender may lose the right to a
prepayment fee by accelerating the debt.
(G) Our opinion in paragraphs 6 and 7(b) above is not
intended to address the issue as to whether any filing or
registrations would be required under applicable securities laws in
connection with the sale, assignment or other transfer by a Bank of
any Loan or Note or any interest or participation therein.
Opinion of Counsel to the Company
<PAGE> 101
- 6 -
(H) We note that, under Washington law, if a Bank is deemed
to be transacting business as a foreign corporation in the State of
Washington without being qualified to do so, it will not be entitled
to commence a proceeding in the courts in this state with respect to
the Credit Documents unless it qualifies to transact business as a
foreign corporation under the Washington Business Corporation Act and
under Title 30 of the Revised Code of Washington (Banks and Trust
Companies), to the extent such Title is applicable to such Bank. We
further note, however, that no Bank will be subject to the requirement
to qualify to transact business as a foreign corporation solely by
reason of the execution, delivery, performance or enforcement of the
Credit Documents.
The foregoing opinions are limited to matters involving the
Federal laws of the United States and the law of the State of Washington, and
we do not express any opinion as to the laws of any other jurisdiction.
At the request of our clients, this opinion letter is,
pursuant to Section 6.01(c) of the Credit Agreement, provided to you by us in
our capacity as counsel to the Company and may not be relied upon by any Person
for any purpose other than in connection with the transactions contemplated by
the Credit Agreement without, in each instance, our prior written consent.
Very truly yours,
Opinion of Counsel to the Company
<PAGE> 102
EXHIBIT C
[Form of Opinion of Special New York Counsel to Chase]
December 10, 1996
To the Banks party to the
Credit Agreement referred to
below and The Chase
Manhattan Bank, as Administrative Agent
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase
Manhattan Bank ("Chase") in connection with (i) the 364-Day Credit Agreement
dated as of December 10, 1996 (the "Credit Agreement") between Washington
Mutual, Inc. (the "Company"), the lenders party thereto and Chase, as
Administrative Agent, providing for loans to be made by said lenders to the
Company in an aggregate principal amount not exceeding $100,000,000 and (ii)
the instruments referred to in the next following paragraph. Terms defined in
the Credit Agreement are used herein as defined therein. This opinion letter
is being delivered pursuant to Section 6.01(d) of the Credit Agreement.
In rendering the opinions expressed below, we have examined
the following agreements and instruments:
(a) the Credit Agreement; and
(b) the Notes executed and delivered on the date hereof.
The Credit Agreement and such Notes are collectively referred to as the "Credit
Documents".
In our examination, we have assumed the authenticity of all
documents submitted to us as originals and the conformity with authentic
original documents of all documents submitted to us as copies. When relevant
facts were not independently established, we have relied upon representations
made in or pursuant to the Credit Documents.
In rendering the opinions expressed below, we have assumed,
with respect to all of the Credit Documents, that:
Opinion of Special Counsel to Chase
<PAGE> 103
- 2 -
(i) each of the Credit Documents has been duly authorized
by, has been duly executed and delivered by, and
(except to the extent set forth in the opinions below
as to the Company) constitutes legal, valid, binding
and enforceable obligations of, all of the parties
thereto;
(ii) all signatories to the Credit Documents have been
duly authorized; and
(iii) all of the parties to the Credit Documents are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver
and perform the Credit Documents.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that each of the Credit Documents
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
transfer or other similar laws relating to or affecting the rights of creditors
generally and except as the enforceability of the Credit Documents is subject
to the application of general principles of equity (regardless of whether
considered in a proceeding in equity or at law), including, without limitation,
(a) the possible unavailability of specific performance, injunctive relief or
any other equitable remedy and (b) concepts of materiality, reasonableness,
good faith and fair dealing.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 11.03 of the Credit
Agreement may be limited by laws limiting the enforceability of
provisions exculpating or exempting a party, or requiring
indemnification of a party for, liability for its own action or
inaction, to the extent the action or inaction involves gross
negligence, recklessness, willful misconduct or unlawful conduct.
Opinion of Special Counsel to Chase
<PAGE> 104
- 3 -
(B) The enforceability of provisions in the Credit Documents
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
New York) that limit the interest, fees or other charges such Bank may
impose, (ii) Section 4.07(c) of the Credit Agreement, (iii) the second
sentence of Section 11.01 of the Credit Agreement, (iv) the second
sentence of Section 11.10 of the Credit Agreement, insofar as such
sentence relates to the subject matter jurisdiction of the United
States District Court for the Southern District of New York to
adjudicate any controversy related to any of the Credit Documents and
(v) the waiver of inconvenient forum set forth in Section 11.10 of the
Credit Agreement with respect to proceedings in the United States
District Court for the Southern District of New York.
The foregoing opinions are limited to matters involving the
Federal laws of the United States and the law of the State of New York, and we
do not express any opinion as to the laws of any other jurisdiction.
At the request of our client, this opinion letter is, pursuant
to Section 6.01(d) of the Credit Agreement, provided to you by us in our
capacity as special New York counsel to Chase and may not be relied upon by any
Person for any purpose other than in connection with the transactions
contemplated by the Credit Agreement without, in each instance, our prior
written consent.
Very truly yours,
CDP/TDB
Opinion of Special Counsel to Chase
<PAGE> 105
EXHIBIT D
[Form of Money Market Quote Request]
[Date]
To: The Chase Manhattan Bank, as Administrative Agent
From: Washington Mutual, Inc.
Re: Money Market Quote Request
Pursuant to Section 2.03 of the 364-Day Credit Agreement dated as of
December 10, 1996 (the "Credit Agreement") between Washington Mutual, Inc., the
lenders party thereto and The Chase Manhattan Bank, as Administrative Agent, we
hereby give notice that we request Money Market Quotes for the following
proposed Money Market Borrowing(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date[*1] Amount[*2] Type[*3] Period[*4]
- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C>
</TABLE>
Terms used herein have the meanings assigned to them in the Credit
Agreement.
WASHINGTON MUTUAL, INC.
By_________________________
Title:
__________________________
* All numbered footnotes appear on the last page of this Exhibit.
Money Market Quote Request
<PAGE> 106
- 2 -
__________________________
[1] For use if a Set Rate in a Set Rate Auction is requested to be
submitted before the Borrowing Date.
[2] Each amount must be $10,000,000 or a larger multiple of $1,000,000.
[3] Insert either "LIBO Margin" (in the case of LIBOR Market Loans) or
"Set Rate" (in the case of Set Rate Loans).
[4] A whole number of months, in the case of a LIBOR Market Loan or, in
the case of a Set Rate Loan, a period of not less than 7 days after
the making of such Set Rate Loan and ending on a Business Day.
Money Market Quote Request
<PAGE> 107
EXHIBIT E
[Form of Money Market Quote]
To: The Chase Manhattan Bank, as Administrative Agent
Attention:
Re: Money Market Quote to
Washington Mutual, Inc. (the "Company")
This Money Market Quote is given in accordance with Section
2.03(c) of the 364-Day Credit Agreement dated as of December 10, 1996 (the
"Credit Agreement") between Washington Mutual, Inc., the lenders party thereto
and The Chase Manhattan Bank, as Administrative Agent. Terms defined in the
Credit Agreement are used herein as defined therein.
In response to the Company's invitation dated __________,
199_, we hereby make the following Money Market Quote(s) on the following
terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Money Market Loan(s) in the
following principal amount[s], for the following Interest Period(s)
and at the following rate(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date[*1] Amount[*2] Type[*3] Period[*4] Rate[*5]
- --------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
provided that the Company may not accept offers that would result in the
undersigned making Money Market Loans pursuant hereto in excess of $___________
in the aggregate (the "Money Market Loan Limit").
__________________________
* All numbered footnotes appear on the last page of this Exhibit.
Money Market Quote
<PAGE> 108
- 2 -
We understand and agree that the offer(s) set forth above,
subject to the satisfaction of the applicable conditions set forth in the
Credit Agreement, irrevocably obligate(s) us to make the Money Market Loan(s)
for which any offer(s) (is/are) accepted, in whole or in part (subject to the
third sentence of Section 2.03(e) of the Credit Agreement and any Money Market
Loan Limit specified above).
Very truly yours,
[NAME OF BANK]
By_________________________
Authorized Officer
Dated: __________, ____
__________________________
[1] As specified in the related Money Market Quote Request.
[2] The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $5,000,000
(or a larger multiple of $1,000,000).
[3] Indicate "LIBO Margin" (in the case of LIBOR Market Loans) or "Set
Rate" (in the case of Set Rate Loans).
[4] A whole number of months, in the case of a LIBOR Market Loan or, in
the case of a Set Rate Loan, a period of not less than 7 days after
the making of such Set Rate Loan and ending on a Business Day, as
specified in the related Money Market Quote Request.
[5] For a LIBOR Market Loan, specify margin over or under the London
interbank offered rate determined for the applicable Interest Period.
Specify percentage (rounded to the nearest 1/10,000 of 1%) and specify
whether "PLUS" or "MINUS". For a Set Rate Loan, specify rate of
interest per annum (rounded to the nearest 1/10,000 of 1%).
Money Market Quote
<PAGE> 109
EXHIBIT F
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: 364-Day Credit Agreement dated as of December 10,
1996 (the "Credit Agreement"), between Washington
Mutual, Inc. (the "Company"), the lenders party
thereto and The Chase Manhattan Bank, as
Administrative Agent.
Dear Ladies and Gentlemen:
As a Bank party to the Credit Agreement, we have agreed with
the Company pursuant to Section 11.12 of the Credit Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all
non-public information identified by the Company as being confidential at the
time the same is delivered to us pursuant to the Credit Agreement.
As provided in said Section 11.12, we are permitted to provide
you, as a prospective [holder of a participation in the Loans (as defined in
the Credit Agreement)] [assignee Bank], with certain of such non-public
information subject to the execution and delivery by you, prior to receiving
such non-public information, of a Confidentiality Agreement in this form. Such
information will not be made available to you until your execution and return
to us of this Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on
behalf of yourself and each of your affiliates, directors, officers, employees
and representatives and for the benefit of us and the Company) that (A) such
information will not be used by you except in connection with the proposed
[participation][assignment] mentioned above and (B) you shall use reasonable
precautions, in accordance with your customary
Confidentiality Agreement
<PAGE> 110
- 2 -
procedures for handling confidential information and in accordance with safe
and sound banking practices, to keep such information confidential, provided
that nothing herein shall limit the disclosure of any such information (i)
after such information shall have become public (other than through a violation
of Section 11.12 of the Credit Agreement), (ii) to the extent required by
statute, rule, regulation or judicial process, (iii) to your counsel or to
counsel for any of the Banks or the Administrative Agent, (iv) to bank
examiners (or any other regulatory authority having jurisdiction over any Bank
or the Administrative Agent), or to auditors or accountants, (v) to the
Administrative Agent or any other Bank (or to Chase Securities, Inc.), (vi) in
connection with any litigation to which you or any one or more of the Banks or
the Administrative Agent are a party, or in connection with the enforcement of
rights or remedies under the Credit Agreement, (vii) to a subsidiary or
affiliate of yours as provided in Section 11.12(a) of the Credit Agreement or
(viii) to any assignee or participant (or prospective assignee or participant)
so long as such assignee or participant (or prospective assignee or
participant) first executes and delivers to you a Confidentiality Agreement
substantially in the form hereof and that in no event shall you be obligated to
return any materials furnished to you pursuant to this Confidentiality
Agreement.
If you are a prospective assignee, your obligations under this
Confidentiality Agreement shall be superseded by Section 11.12 of the Credit
Agreement on the date upon which you become a Bank under the Credit Agreement
pursuant to Section 11.06(b) thereof.
Confidentiality Agreement
<PAGE> 111
- 3 -
Please indicate your agreement to the foregoing by signing as
provided below the enclosed copy of this Confidentiality Agreement and
returning the same to us.
Very truly yours,
[INSERT NAME OF BANK]
By_________________________
The foregoing is agreed to
as of the date of this letter.
[INSERT NAME OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
By_________________________
Confidentiality Agreement
<PAGE> 112
EXHIBIT G
[Form of Assignment and Acceptance]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the 364-Day Credit Agreement, dated as of
December 10, 1996 (as modified and supplemented and in effect from time to
time, the "Credit Agreement"), between Washington Mutual, Inc., a Washington
corporation (the "Company"), the lenders named therein, and The Chase Manhattan
Bank, as agent for such lenders (in such capacity, the "Administrative Agent").
Terms defined in the Credit Agreement are used herein as defined therein.
_____________________________ (the "Assignor") and ______________________ (the
"Assignee") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the
Assignee without recourse to the Assignor, and the Assignee hereby irrevocably
purchases and assumes from the Assignor without recourse to the Assignor, as of
the Effective Date as set forth in Schedule 1 hereto (the "Effective Date"), an
interest (the "Assigned Interest") in and to the Assignor's rights and
obligations under the Credit Agreement with respect to those credit facilities
contained in the Credit Agreement as are set forth on Schedule 1 (individually,
an "Assigned Facility"; collectively, the "Assigned Facilities"), in a
principal amount and percentage for each Assigned Facility as set forth on
Schedule 1.
2. The Assignor (i) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or any other
instrument or document furnished pursuant thereto, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto, other
than that it is the beneficial owner of the interest being assigned by it
hereunder and that it has not created any adverse claim upon the interest being
assigned by it hereunder and that such interest is free and clear of any such
adverse claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company, any of
its Subsidiaries or any other obligation or the performance or observance by
the Company, any of its Subsidiaries or any other obligor of any of their
respective obligations under the Credit Agreement or any other instrument or
document furnished pursuant hereto or
Notice of Assignment
<PAGE> 113
- 2 -
thereto; and (iii) attaches the Note(s) held by it evidencing the Assigned
Facilities and requests that the Administrative Agent exchange such Note(s) for
a new Note or Notes payable to the Assignor (if the Assignor has retained any
interest in the Assigned Facility) and a new Note or Notes payable to the
Assignee in the respective amounts which reflect the assignment being made
hereby (and after giving effect to any other assignments which have become
effective on the Effective Date).
3. The Assignee (i) represents and warrants that it is
legally authorized to enter into this Assignment and Acceptance; (ii) confirms
that it has received a copy of the Credit Agreement, together with copies of
the financial statements referred to in Section 7.02 thereof, the financial
statements delivered pursuant to Section 8.01 thereof, if any, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (iii)
agrees that it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement or
any other instrument or document furnished pursuant hereto or thereto; (iv)
appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers and discretion
under the Credit Agreement or any other instrument or document furnished
pursuant hereto or thereto as are delegated to the Administrative Agent by the
terms thereof, together with such powers as are incidental thereto; and (v)
agrees that it will be bound by the provisions of the Credit Agreement and will
perform in accordance with its terms all the obligations which by the terms of
the Credit Agreement are required to be performed by it as a Bank.
4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Administrative Agent for acceptance by the
Administrative Agent pursuant to Section 11.06(b) of the Credit Agreement,
effective as of the Effective Date (which date shall not, unless otherwise
agreed to by the Administrative Agent, be earlier than five Business Days after
the date of such acceptance by the Administrative Agent).
Notice of Assignment
<PAGE> 114
- 3 -
5. Upon such acceptance, from and after the Effective Date,
the Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignee which accrue subsequent to the Effective Date.
6. From and after the Effective Date, (i) the Assignee shall
be a party to the Credit Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Bank thereunder
and shall be bound by the provisions thereof and (ii) the Assignor shall, to
the extent provided in this Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Credit Agreement except as
provided in Section 11.07 of the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and
construed in accordance with the law of the State of New York.
8. This Assignment and Acceptance may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Assignment
and Acceptance by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed as of the date first above written by
their respective duly authorized officers on Schedule 1 hereto.
Notice of Assignment
<PAGE> 115
Schedule 1 to
Assignment and Acceptance
relating to the 364-Day Credit Agreement,
dated as of December 10, 1996
between Washington Mutual, Inc.,
the lenders named therein and
The Chase Manhattan Bank, as administrative agent for the Banks
(in such capacity, the "Administrative Agent")
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
<TABLE>
<CAPTION>
Credit Principal Percentage
Facility Assigned Amount Assigned Assigned
----------------- --------------- --------
<S> <C> <C>
</TABLE>
[ASSIGNEE] [ASSIGNOR]
By:___________________________ By:__________________________
Title: Title:
[Agreed and] Accepted:
THE CHASE MANHATTAN BANK
By:___________________________
Title:
[Agreed:
WASHINGTON MUTUAL, INC.
By:___________________________
Notice of Assignment
<PAGE> 116
- 2 -
Title:]
Notice of Assignment
<PAGE> 1
EXHIBIT 10.18
[CONFORMED COPY]
************************************************************
WASHINGTON MUTUAL, INC.
-----------------------------
FOUR-YEAR CREDIT AGREEMENT
Dated as of December 10, 1996
------------------------------
THE CHASE MANHATTAN BANK,
as Administrative Agent
************************************************************
<PAGE> 2
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to which
it is attached but is inserted for convenience of reference only.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions and Accounting Matters.................................................................. 1
1.01 Certain Defined Terms............................................................................ 1
1.02 Accounting Terms and Determinations.............................................................. 16
1.03 Classes and Types of Loans....................................................................... 17
Section 2. Commitments, Loans, Notes and Prepayments........................................................... 17
2.01 Syndicated Loans................................................................................. 17
2.02 Borrowings of Syndicated Loans................................................................... 18
2.03 Money Market Loans............................................................................... 18
2.04 Changes of Commitments........................................................................... 23
2.05 Facility Fee..................................................................................... 24
2.06 Lending Offices.................................................................................. 24
2.07 Several Obligations; Remedies Independent........................................................ 24
2.08 Notes............................................................................................ 24
2.09 Prepayments...................................................................................... 25
2.10 Extension of Commitment Termination Date......................................................... 25
Section 3. Payments of Principal and Interest.................................................................. 27
3.01 Repayment of Loans............................................................................... 27
3.02 Interest......................................................................................... 27
Section 4. Payments; Pro Rata Treatment; Computations; Etc..................................................... 29
4.01 Payments......................................................................................... 29
4.02 Pro Rata Treatment............................................................................... 29
4.03 Computations..................................................................................... 30
4.04 Minimum Amounts.................................................................................. 30
4.05 Certain Notices.................................................................................. 30
4.06 Non-Receipt of Funds by the Administrative Agent................................................. 31
4.07 Sharing of Payments, Etc......................................................................... 32
Section 5. Yield Protection, Etc............................................................................... 34
5.01 Additional Costs................................................................................. 34
5.02 Limitation on Types of Loans..................................................................... 36
5.03 Illegality....................................................................................... 37
5.04 Treatment of Affected Loans...................................................................... 37
5.05 Compensation..................................................................................... 38
5.06 U.S. Taxes....................................................................................... 39
5.07 Replacement of Banks............................................................................. 40
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6. Conditions Precedent................................................................................ 41
6.01 Initial Loan..................................................................................... 41
6.02 Initial and Subsequent Loans..................................................................... 42
Section 7. Representations and Warranties...................................................................... 43
7.01 Corporate Existence.............................................................................. 43
7.02 Financial Condition.............................................................................. 43
7.03 Litigation....................................................................................... 45
7.04 No Breach........................................................................................ 45
7.05 Action........................................................................................... 45
7.06 Approvals........................................................................................ 46
7.07 ERISA............................................................................................ 46
7.08 Taxes............................................................................................ 46
7.09 Investment Company Act........................................................................... 46
7.10 Public Utility Holding Company Act............................................................... 46
7.11 Material Agreements and Liens.................................................................... 47
7.12 Environmental Matters............................................................................ 47
7.13 Subsidiaries..................................................................................... 47
7.14 True and Complete Disclosure..................................................................... 48
Section 8. Covenants of the Company............................................................................ 48
8.01 Financial Statements Etc......................................................................... 48
8.02 Litigation....................................................................................... 52
8.03 Existence, Etc................................................................................... 52
8.04 Insurance........................................................................................ 53
8.05 Prohibition of Fundamental Changes............................................................... 54
8.06 Limitation on Liens.............................................................................. 55
8.07 Lines of Business................................................................................ 56
8.08 Use of Proceeds.................................................................................. 56
8.09 Adequate Capitalization.......................................................................... 57
8.10 Certain Financial Covenants...................................................................... 57
Section 9. Events of Default................................................................................... 58
Section 10. The Administrative Agent........................................................................... 62
10.01 Appointment, Powers and Immunities.............................................................. 62
10.02 Reliance by Administrative Agent................................................................ 63
10.03 Defaults........................................................................................ 63
10.04 Rights as a Bank................................................................................ 63
10.05 Indemnification................................................................................. 64
10.06 Non-Reliance on Administrative Agent and Other Banks............................................ 64
10.07 Failure to Act.................................................................................. 65
10.08 Resignation or Removal of Administrative Agent.................................................. 65
Section 11. Miscellaneous...................................................................................... 66
11.01 Waiver.......................................................................................... 66
11.02 Notices......................................................................................... 66
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.03 Expenses, Etc................................................................................... 67
11.04 Amendments, Etc................................................................................. 68
11.05 Successors and Assigns.......................................................................... 68
11.06 Assignments and Participations.................................................................. 69
11.07 Survival........................................................................................ 71
11.08 Captions........................................................................................ 71
11.09 Counterparts.................................................................................... 71
11.10 Governing Law; Submission to Jurisdiction....................................................... 71
11.11 Waiver of Jury Trial............................................................................ 72
11.12 Treatment of Certain Information; Confidentiality............................................... 72
</TABLE>
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Subsidiaries
SCHEDULE III - Litigation
EXHIBIT A-1 - Form of Syndicated Note
EXHIBIT A-2 - Form of Money Market Note
EXHIBIT B - Form of Opinion of Counsel to the Company
EXHIBIT C - Form of Opinion of Special New York Counsel to Chase
EXHIBIT D - Form of Money Market Quote Request EXHIBIT E - Form of Money
Market Quote
EXHIBIT F - Form of Confidentiality Agreement EXHIBIT G - Form of Assignment
and Acceptance
(iii)
<PAGE> 5
CREDIT AGREEMENT dated as of December 10, 1996, between:
WASHINGTON MUTUAL, INC., a corporation duly organized and validly existing under
the laws of the State of Washington (the "Company"); each of the lenders that is
a signatory hereto identified under the caption "BANKS" on the signature pages
hereto and each lender that becomes a "Bank" after the date hereof pursuant to
Section 11.06(b) hereof (individually, a "Bank" and, collectively, the "Banks");
and THE CHASE MANHATTAN BANK, a New York banking association, as agent for the
Banks (in such capacity, together with its successors in such capacity, the
"Administrative Agent").
The Company has requested that the Banks make loans to it in
an aggregate principal amount not exceeding $100,000,000 at any one time
outstanding and the Banks are prepared to make such loans upon the terms and
conditions hereof. Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.01
or in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Acquisition" shall mean any transaction, or any series of
related transactions, consummated after the date of this Agreement, by which the
Company and/or one or more of its Subsidiaries (in one transaction or as the
most recent transaction in a series of related transactions) (i) acquires any
going business or all or substantially all of the assets of any firm or
corporation (or division or operating unit thereof), whether through purchase of
assets, merger or otherwise, (ii) directly or indirectly acquires control of at
least a majority (in number of votes) of the securities of a corporation which
have ordinary voting power for the election of directors or (iii) directly or
indirectly acquires control of an ownership interest in any partnership or joint
venture (including a joint venture in corporate form).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in a form supplied by the Administrative Agent.
<PAGE> 6
- 2 -
"Alternate Base Rate" shall mean, for any day, a rate per
annum equal to the highest of (a) the Federal Funds Rate for such day plus 1/2
of 1%, (b) the Prime Rate for such day and (c) the Base CD Rate plus 1%. Each
change in any interest rate provided for herein based upon the Alternate Base
Rate resulting from a change in the Alternate Base Rate shall take effect at the
time of such change in the Alternate Base Rate.
"Alternate Base Rate Loans" shall mean Syndicated Loans that
bear interest at rates based upon the Alternate Base Rate.
"American Savings" shall mean American Savings Bank, a
California savings bank.
"Applicable Facility Fee Rate" and "Applicable Margin" shall
mean, during any period when any Rating Group set forth below is in effect, with
respect to any facility fee payable hereunder or any Type of Syndicated Loan
outstanding hereunder, the percentage set forth below opposite such fee or Type
of Syndicated Loan for such Rating Group:
<TABLE>
<CAPTION>
==================================================================================================================
Fee or Loan Rating Rating Rating Rating Rating
Group Group Group Group Group
I II III IV V
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Facility
Fee .090% .100% .125% .150% .250%
- ------------------------------------------------------------------------------------------------------------------
Eurodollar
Loans .210% .250% .275% .300% .500%
- ------------------------------------------------------------------------------------------------------------------
Alternate
Base Rate 0.0% 0.0% 0.0% 0.0% 0.0%
Loans
==================================================================================================================
</TABLE>
For the purposes of this Agreement, any change in the Applicable Facility Fee
Rate or Applicable Margin by reason of a change in the Moody's Rating or the
Standard & Poor's Rating shall become effective on the date of announcement or
publication by the respective Rating Agency of a change in such Rating or, in
the absence of such announcement or publication, on the effective date of such
changed rating.
"Assessment Rate" means, for any day, the annual assessment
rate in effect on such day that is payable by a member
<PAGE> 7
- 3 -
of the Bank Insurance Fund classified as "well-capitalized" and within
supervisory subgroup "B" (or a comparable successor risk classification) within
the meaning of 12 C.F.R. Part 327 (or any successor provision) to the Federal
Deposit Insurance Corporation for insurance by such Corporation of time deposits
made in dollars at the offices of such member in the United States; provided
that if, as a result of any change in any law, rule or regulation, it is no
longer possible to determine the Assessment Rate as aforesaid, then the
Assessment Rate shall be such annual rate as shall be determined by the
Administrative Agent to be representative of the cost of such insurance to the
Banks.
"Asset Securitization" shall mean a public or private transfer
of installment receivables, credit card receivables, lease receivables or any
other type of secured or unsecured financial assets which transfer is recorded
as a sale according to generally accepted accounting principles as of the date
of such transfer.
"Bank Regulatory Authority" shall mean the Board of Governors
of the Federal Reserve System, the Comptroller of the Currency, the Federal
Deposit Insurance Corporation and all other relevant bank regulatory authorities
(including, without limitation, relevant state bank regulatory authorities).
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of
1978, as amended from time to time.
"Base CD Rate" means the sum of (a) the Three-Month Secondary
CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Basle Accord" shall mean the proposals for risk-based capital
framework described by the Basle Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
"Business Day" shall mean any day (a) on which commercial
banks are not authorized or required to close in New York City and (b) if such
day relates to the giving of notices or quotes in connection with a LIBOR
Auction or to a borrowing of, a payment or prepayment of principal of or
interest on, or an Interest Period for, a Eurodollar Loan or a LIBOR Market Loan
or
<PAGE> 8
- 4 -
a notice by the Company with respect to any such borrowing, payment, prepayment
or Interest Period, that is also a day on which dealings in Dollar deposits are
carried out in the London interbank market.
"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Change in Control" shall mean (a) the acquisition of
ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules
of the Securities and Exchange Commission thereunder as in effect on the date
hereof), of shares representing more than 25% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Company;
(b) during any period of 25 consecutive calendar months, a majority of the Board
of Directors of the Company ceasing to be composed of individuals (i) who were
members of said Board on the first day of such period, (ii) whose election or
nomination to said Board was approved by individuals referred to in clause (i)
above constituting at the time of such election or nomination at least a
majority of said Board or (iii) whose election or nomination to said Board was
approved by individuals referred to in clauses (i) and (ii) above constituting
at the time of such election or nomination at least a majority of said Board; or
(c) the acquisition by any Person or group of direct or indirect possession of
the power to direct or cause to direct the management or policies of the
Company, whether through the ability to exercise voting power, by contract or
otherwise.
"Chase" shall mean The Chase Manhattan Bank.
"Class" shall have the meaning assigned to such term in
Section 1.03 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
<PAGE> 9
- 5 -
"Commitment" shall mean, as to each Bank, the obligation of
such Bank to make Syndicated Loans pursuant to Section 2.01 hereof in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount set opposite the name of such Bank on the signature pages hereof
under the caption "Commitment" or, in the case of a Person that becomes a Bank
pursuant to an assignment permitted under Section 11.06(b) hereof, as specified
in the respective instrument of assignment pursuant to which such assignment is
effected (as the same may be reduced at any time or from time to time pursuant
to Section 2.04 hereof).
"Commitment Termination Date" shall mean the date one day
prior to the date four years after the date hereof, as the same may be extended
pursuant to Section 2.10 hereof; provided that, if such date is not a Business
Day, the Commitment Termination Date shall be the next preceding Business Day.
"Consolidated Assets" shall mean, at any date, the amount at
which the assets of the Company and its Subsidiaries are or should be shown on a
consolidated statement of financial position prepared in accordance with GAAP as
at such date.
"Consolidated Equity" shall mean, at any date, the amount of
stockholders' equity of the Company and its Subsidiaries determined on a
consolidated basis without duplication in accordance with GAAP at such date.
"Consolidated Reserves" shall mean, at any date, the amount of
loan loss reserves held by the Company and its Subsidiaries at such date
determined on a consolidated basis without duplication in accordance with GAAP.
"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States
of America.
"Double Leverage Ratio" shall mean, at any date, the ratio of
(a) the sum of (i) the aggregate book value of the Investments of the Company in
the capital notes and stock of its Subsidiaries plus (ii) the aggregate book
value of intangibles (including, without limitation, purchased mortgage
servicing
<PAGE> 10
- 6 -
rights and purchased credit card relationships) of the Company at such date to
(b) Consolidated Equity at such date.
"Environmental Laws" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or toxic or
hazardous substances or wastes.
"Equity Rights" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or
business that is a member of any group of organizations (i) described in Section
414(b) or (c) of the Code of which the Company is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Company is a member.
"Eurodollar Loans" shall mean Syndicated Loans that bear
interest at rates based on rates referred to in the definition of "Fixed Base
Rate" in this Section 1.01.
"Event of Default" shall have the meaning assigned to such
term in Section 9 hereof.
<PAGE> 11
- 7 -
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.
"Fee Letter" shall mean the fee letter dated as of November 4,
1996 between the Company and the Administrative Agent.
"Fixed Base Rate" shall mean, with respect to any Fixed Rate
Loan for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) reported at 10:00 a.m., London time on the
date two Business Days prior to the first day of such Interest Period on
Telerate Access Service Page 3750 (British Bankers Association Settlement Rate)
as the London Interbank Offered Rate for Dollar deposits having a term
comparable to such Interest Period and in an amount equal to the amount of such
Fixed Rate Loan (or, if said Page shall cease to be publicly available or if the
information contained on said Page, in the sole judgment of the Administrative
Agent, shall cease to accurately reflect such London Interbank Offered Rate, the
Fixed Base Rate for such Loans shall mean the rate reported by any publicly
available source of similar market data selected by the Administrative Agent
that, in the sole judgment of the Administrative Agent, accurately reflects such
London Interbank Offered Rate).
"Fixed Rate Loans" shall mean Eurodollar Loans and, for the
purposes of the definition of "Fixed Base Rate" in this Section 1.01 and in
Section 5 hereof, LIBOR Market Loans.
"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in
<PAGE> 12
- 8 -
accordance with the last sentence of Section 1.02(a) hereof, are to be used in
making the calculations for purposes of determining compliance with this
Agreement.
"Guarantee" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the payment or
maintenance of, or otherwise to be or become contingently liable under or with
respect to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the payment of dividends or other
distributions upon the stock or equity interests of any Person, or an agreement
to purchase, sell or lease (as lessee or lessor) Property, products, materials,
supplies or services primarily for the purpose of enabling a debtor to make
payment of such debtor's obligations or an agreement to assure a creditor
against loss, and including, without limitation, causing a bank or other
financial institution to issue a letter of credit or other similar instrument
for the benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.
"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and accrued
expenses incurred, in the ordinary course of business so long as such trade
accounts payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Guarantees by such Person of
Indebtedness of others.
"Information Memorandum" shall mean the Confidential
Information Memorandum dated as of November 1996 and the
<PAGE> 13
- 9 -
Supplementary Information dated as of November 1996, in each case regarding the
Company and this financing.
"Insured Subsidiary" shall mean any insured depositary
institution (as defined in 12 U.S.C. ss.1813(c) (or any successor provision), as
amended, re-enacted or redesignated from time to time, that is controlled
(within the meaning of 12 U.S.C. ss.1841 (or any successor provision), as
amended, re-enacted or redesignated from time to time) by the Company.
"Interest Period" shall mean:
(a) with respect to any Eurodollar Loan, each period
commencing on the date such Eurodollar Loan is made and ending on the
numerically corresponding day in the first, second, third or sixth
calendar month thereafter, or, any other period to which all the Banks
have consented, as the Company may select as provided in Section 4.05
hereof, except that each Interest Period that commences on the last
Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent
calendar month;
(b) with respect to any Alternate Base Rate Loan, each period
commencing on the date such Alternate Base Rate Loan is made and ending
on the Commitment Termination Date;
(c) with respect to any Set Rate Loan, the period commencing
on the date such Set Rate Loan is made and ending on any Business Day
no fewer than 7 days thereafter, as the Company may select as provided
in Section 2.03(b) hereof; and
(d) with respect to any LIBOR Market Loan, the period
commencing on the date such LIBOR Market Loan is made and ending on the
numerically corresponding day in such subsequent month, as the Company
may select as provided in Section 2.03(b) hereof, except that each
Interest Period that commences on the last Business Day of a calendar
month (or any day for which there is no numerically corresponding day
in the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month.
<PAGE> 14
- 10 -
Notwithstanding the foregoing: (i) if any Interest Period for
any Syndicated Loan or Money Market Loan would otherwise end after the
Commitment Termination Date, such Interest Period shall not be available
hereunder for such period; (ii) each Interest Period that would otherwise end on
a day that is not a Business Day shall end on the next succeeding Business Day
(or, in the case of an Interest Period for a Eurodollar Loan or a LIBOR Market
Loan, if such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day); and (iii) no Interest Period for any
Loan (other than a Set Rate Loan) shall have a duration of less than one month
and, if the Interest Period for any Eurodollar or LIBOR Market Loan would
otherwise be a shorter period, such Loan shall not be available hereunder for
such period.
"Interest Rate Protection Agreement" shall mean, for any
Person, an interest rate swap, cap or collar agreement or similar arrangement
between such Person and one or more financial institutions providing for the
transfer or mitigation of interest risks either generally or under specific
contingencies.
"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person); (c) the entering into of any
Guarantee of, or other contingent obligation with respect to, Indebtedness or
other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person; or (d) the entering
into of any Interest Rate Protection Agreement.
"LIBO Margin" shall have the meaning assigned to such term in
Section 2.03(c)(ii)(C) hereof.
"LIBOR Auction" shall mean a solicitation of Money Market
Quotes setting forth LIBO Margins based on the Fixed Base Rate pursuant to
Section 2.03 hereof.
<PAGE> 15
- 11 -
"LIBOR Market Loans" shall mean Money Market Loans the
interest rates on which are determined on the basis of Fixed Base Rates pursuant
to a LIBOR Auction.
"Lien" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect of
such Property. For purposes of this Agreement, a Person shall be deemed to own
subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement (other than an operating lease)
relating to such Property.
"Loans" shall mean Syndicated Loans and Money Market Loans.
"Majority Banks" shall mean Banks having more than 50% of the
aggregate amount of the Commitments or, if the Commitments shall have
terminated, Banks holding more than 50% of the aggregate unpaid principal amount
of the Loans.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the Property, business, operations or financial condition of the Company
and its Subsidiaries taken as a whole, (b) the ability of the Company to perform
its obligations hereunder and under the Notes, (c) the validity or
enforceability of this Agreement or of the Notes, (d) the rights and remedies of
the Banks and the Administrative Agent hereunder and under the Notes or (e) the
timely payment of the principal of or interest on the Loans or other amounts
payable in connection therewith.
"Money Market Borrowing" shall have the meaning assigned to
such term in Section 2.03(b) hereof.
"Money Market Loan Limit" shall have the meaning assigned to
such term in Section 2.03(c)(ii) hereof.
"Money Market Loans" shall mean the loans provided for by
Section 2.03 hereof.
"Money Market Notes" shall mean the promissory notes provided
for by Section 2.08(b) hereof and all promissory notes delivered in substitution
or exchange therefor, in each case as
<PAGE> 16
- 12 -
the same shall be modified and supplemented and in effect from time to time.
"Money Market Quote" shall mean an offer in accordance with
Section 2.03(c) hereof by a Bank to make a Money Market Loan with one single
specified interest rate.
"Money Market Quote Request" shall have the meaning assigned
to such term in Section 2.03(b) hereof.
"Moody's" shall mean Moody's Investors Service, Inc. or any
successor thereto.
"Moody's Rating" shall mean, as of any date of determination
thereof, the rating most recently published by Moody's relating to the
unsecured, unguaranteed senior long-term debt securities of the Company then
outstanding.
"Multiemployer Plan" shall mean a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions have been made by the
Company or any ERISA Affiliate and that is covered by Title IV of ERISA.
"Non-Material Subsidiaries" shall mean, as at any date,
Subsidiaries of the Company the total assets of which, in the aggregate, do not
exceed one percent (1%) of the Consolidated Assets of the Company and all of its
Subsidiaries, as at such date.
"Non-Performing Assets" shall mean, as at any date, the sum,
for the Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) of the following: (a) non-accrual loans
plus (b) accruing loans past due 90 days or more plus (c) restructured loans and
leases plus (d) other real estate owned plus (e) without duplication for amounts
included as other real estate owned, property acquired pursuant to in substance
foreclosures.
"Notes" shall mean the Syndicated Notes and the Money Market
Notes.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
<PAGE> 17
- 13 -
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, limited liability company, joint venture,
trust, unincorporated organization or government (or any agency, instrumentality
or political subdivision thereof).
"Plan" shall mean an employee benefit or other plan
established or maintained by the Company or any ERISA Affiliate and that is
covered by Title IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean a rate per annum equal to 2%
plus the Alternate Base Rate as in effect from time to time, provided that, with
respect to principal of a Eurodollar Loan or a Money Market Loan that shall
become due (whether at stated maturity, by acceleration or otherwise) on a day
other than the last day of the Interest Period therefor, the "Post-Default Rate"
shall be, for the period from and including such due date to but excluding the
last day of such Interest Period, 2% plus the interest rate for such Loan as
provided in Section 3.02 hereof and, thereafter, the rate provided for above in
this definition.
"Prime Rate" shall mean the rate of interest from time to time
announced by Chase at its principal office as its prime commercial lending rate.
"Property" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Quarterly Dates" shall mean the last Business Day of each
March, June, September and December, the first of which shall be the first such
day after the date hereof.
"Rating" shall mean the Moody's Rating or the Standard &
Poor's Rating.
"Rating Agency" shall mean either Moody's or Standard &
Poor's.
"Rating Group" shall mean any of Rating Group I, Rating Group
II, Rating Group III, Rating Group IV and Rating Group V.
<PAGE> 18
- 14 -
"Rating Group I" shall mean (a) no Event of Default has
occurred and is continuing and (b) the Moody's Rating is at or above A1 and the
Standard & Poor's Rating is at or above A+; "Rating Group II" shall mean (a) no
Event of Default has occurred and is continuing, (b) the Moody's Rating is at or
above A3 and the Standard & Poor's Rating is at or above A- and (c) Rating Group
I is not in effect; "Rating Group III" shall mean (a) no Event of Default has
occurred and is continuing, (b) the Moody's Rating is at or above Baa1 and the
Standard & Poor's Rating is at or above BBB+ and (c) neither Rating Group I nor
Rating Group II is in effect; "Rating Group IV" shall mean (a) no Event of
Default has occurred and is continuing, (b) the Moody's Rating is at or above
Baa2 and the Standard & Poor's Rating is at or above BBB and (c) none of Rating
Group I, Rating Group II or Rating Group III is in effect; and "Rating Group V"
shall mean that none of Rating Group I, Rating Group II, Rating Group III or
Rating Group IV is in effect; provided that (A) if the Moody's Rating and the
Standard & Poor's Rating fall into different Rating levels and one of such
Ratings is no more than one Rating level lower than the other of such Ratings,
then the applicable Rating Group shall be based upon the higher of such Ratings
and (B) if the Moody's Rating and the Standard & Poor's Rating fall into
different Rating levels and one of such Ratings is two Rating levels lower than
the other of such Ratings, then the applicable Rating Group shall be based upon
a hypothetical Rating that would fall into the Rating level that is one lower
than the Rating level into which the higher of such Ratings falls.
"Regulations A, D, G, U and X" shall mean, respectively,
Regulations A, D, G, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any
change after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Bank under any Federal, state or foreign law or regulations
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
<PAGE> 19
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"Repurchase Arrangements" shall mean repurchase and reverse
repurchase arrangements with respect to securities and financial instruments.
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Set Rate" shall have the meaning assigned to such term in
Section 2.03(c)(ii)(D) hereof.
"Set Rate Auction" shall mean a solicitation of Money Market
Quotes setting forth Set Rates pursuant to Section 2.03 hereof.
"Set Rate Loans" shall mean Money Market Loans the interest
rates on which are determined on the basis of Set Rates pursuant to a Set Rate
Auction.
"Standard & Poor's" shall mean Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc., or any successor
thereto.
"Standard and Poor's Rating" shall mean, as of any date of
determination thereof, the rating most recently published by Standard & Poor's
relating to the unsecured, unguaranteed senior long term debt securities of the
Company then outstanding.
"Statutory Reserve Rate" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves) expressed
as a decimal established by the Board of Governors of the Federal Reserve System
to which the Administrative Agent is subject, for new negotiable nonpersonal
time deposits in dollars of over $100,000 with maturities approximately equal to
three months. The Statutory Reserve Rate shall be adjusted automatically on and
as of the effective date of any change in any reserve percentage.
"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
<PAGE> 20
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(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Syndicated Loans" shall mean the loans provided for by
Section 2.01 hereof, which may be Alternate Base Rate Loans and/or Eurodollar
Loans.
"Syndicated Notes" shall mean the promissory notes provided
for by Section 2.08(a) hereof and all promissory notes delivered in substitution
or exchange thereof, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Tangible Net Worth" shall mean, as at any date, the sum for
the Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following:
(a) total stockholders' equity; minus
(b) the sum of the following: cost of treasury shares and the
book value of all assets that should be classified as intangibles
(without duplication of deductions in respect of items already deducted
in arriving at total stockholders' equity) but in any event including
goodwill, minority interests, research and development costs,
trademarks, trade names, copyrights, patents and franchises,
unamortized debt discount and expense, all reserves and any write-up in
the book value of assets resulting from a revaluation thereof
subsequent to December 31, 1995.
"Three-Month Secondary CD Rate" means, for any day, the
secondary market rate for three-month certificates of deposit reported as being
in effect on such day (or, if such day is not a Business Day, the next preceding
Business Day) by the Board of Governors of the Federal Reserve System through
the public information telephone line of the Federal Reserve Bank of New York
(which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day) or, if such rate is not so
<PAGE> 21
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reported on such day or such next preceding Business Day, the average of the
secondary market quotations for three-month certificates of deposit of major
money center banks in New York City received at approximately 10:00 a.m., New
York City time, on such day (or, if such day is not a Business Day, on the next
preceding Business Day) by the Administrative Agent from three negotiable
certificate of deposit dealers of recognized standing selected by it.
"Type" shall have the meaning assigned to such term in Section
1.03 hereof.
"Wholly-Owned Subsidiary" shall mean, with respect to any
Person, any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or indirectly owned or
controlled by such Person or one or more Wholly-Owned Subsidiaries of such
Person or by such Person and one or more Wholly-Owned Subsidiaries of such
Person.
<PAGE> 22
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1.02 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered to
the Banks hereunder shall (unless otherwise disclosed to the Banks in writing at
the time of delivery thereof in the manner described in subsection (b) below) be
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Banks hereunder (which, prior to the delivery of the
first financial statements under Section 8.01 hereof, shall mean the audited
financial statements as at December 31, 1995 referred to in Section 7.02
hereof). All calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided herein) be made by
application of generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the latest annual or quarterly
financial statements furnished to the Banks pursuant to Section 8.01 hereof (or,
prior to the delivery of the first financial statements under Section 8.01
hereof, used in the preparation of the audited financial statements as at
December 31, 1995 referred to in Section 7.02 hereof) unless (i) the Company
shall have objected to determining such compliance on such basis at the time of
delivery of such financial statements or (ii) the Majority Banks shall so object
in writing within 30 days after delivery of such financial statements, in either
of which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements as to which such
objection shall not have been made (which, if objection is made in respect of
the first financial statements delivered under Section 8.01 hereof, shall mean
the audited financial statements referred to in Section 7.02 hereof).
(b) The Company shall deliver to the Banks at the same time as
the delivery of any annual or quarterly financial statement under Section 8.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been
<PAGE> 23
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made in accordance with the last sentence of subsection (a) above and (ii)
reasonable estimates of the difference between such statements arising as a
consequence thereof.
(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 8 hereof, the Company will
not, and will not permit any of its Subsidiaries to, change the last day of its
fiscal year from December 31, or the last days of the first three fiscal
quarters in each of its fiscal years from March 31, June 30 and September 30,
respectively.
1.03 Classes and Types of Loans. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan refers to whether
such Loan is a Money Market Loan or a Syndicated Loan, each of which constitutes
a Class. The "Type" of a Loan refers to whether such Loan is a Alternate Base
Rate Loan, a Eurodollar Loan, a Set Rate Loan or a LIBOR Market Loan, each of
which constitutes a Type. Loans may be identified by both Class and Type.
Section 2. Commitments, Loans, Notes and Prepayments.
2.01 Syndicated Loans. Each Bank severally agrees, on the
terms and conditions of this Agreement, to make loans to the Company in Dollars
during the period from and including the date hereof to but not including the
Commitment Termination Date in an aggregate principal amount at any one time
outstanding up to but not exceeding the amount of the Commitment of such Bank as
in effect from time to time, provided that the aggregate principal amount of all
Syndicated Loans, together with the aggregate principal amount of all Money
Market Loans, at one time outstanding shall not exceed the aggregate amount of
the Commitments at such time. Subject to the terms and conditions of this
Agreement, during such period the Company may borrow, repay and reborrow the
amount of the Commitments by means of Alternate Base Rate Loans and Eurodollar
Loans; provided that no more than three separate Interest Periods in respect of
Eurodollar Loans from each Bank may be outstanding at any one time.
2.02 Borrowings of Syndicated Loans. The Company shall give
the Administrative Agent notice of each borrowing hereunder as provided in
Section 4.05 hereof. Not later than
<PAGE> 24
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1:00 p.m. New York time on the date specified for each borrowing of Syndicated
Loans hereunder, each Bank shall make available the amount of the Syndicated
Loan or Loans to be made by it on such date to the Administrative Agent, at an
account in New York designated by the Administrative Agent, in immediately
available funds, for account of the Company. The amount so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Company by depositing the same, in
immediately available funds, in an account of the Company designated by the
Company.
2.03 Money Market Loans.
(a) In addition to borrowings of Syndicated Loans, at any time
prior to the Commitment Termination Date the Company may, as set forth in this
Section 2.03, request the Banks to make offers to make Money Market Loans to the
Company in Dollars. The Banks may, but shall have no obligation to, make such
offers and the Company may, but shall have no obligation to, accept any such
offers in the manner set forth in this Section 2.03. Money Market Loans may be
LIBOR Market Loans or Set Rate Loans (each a "Type" of Money Market Loan),
provided that:
(i) there may be no more than fifteen different Interest
Periods for both Syndicated Loans and Money Market Loans outstanding at
the same time (for which purpose Interest Periods described in
different lettered clauses of the definition of the term "Interest
Period" shall be deemed to be different Interest Periods even if they
are coterminous); and
(ii) the aggregate principal amount of all Money Market Loans,
together with the aggregate principal amount of all Syndicated Loans,
at any one time outstanding shall not exceed the aggregate amount of
the Commitments at such time.
(b) When the Company wishes to request offers to make Money
Market Loans, it shall give the Administrative Agent (which shall promptly
notify the Banks) notice (a "Money Market Quote Request") so as to be received
no later than 11:00 a.m. New York time on (x) the fourth Business Day prior to
the date of borrowing proposed therein, in the case of a LIBOR Auction or (y)
the Business Day next preceding the date of borrowing proposed therein, in the
case of a Set Rate Auction (or, in any
<PAGE> 25
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such case, such other time and date as the Company and the Administrative Agent,
with the consent of the Majority Banks, may agree). The Company may request
offers to make Money Market Loans for up to three different Interest Periods in
a single notice (for which purpose Interest Periods in different lettered
clauses of the definition of the term "Interest Period" shall be deemed to be
different Interest Periods even if they are coterminous); provided that the
request for each separate Interest Period shall be deemed to be a separate Money
Market Quote Request for a separate borrowing (a "Money Market Borrowing"). Each
such notice shall be substantially in the form of Exhibit D hereto and shall
specify as to each Money Market Borrowing:
(i) the proposed date of such borrowing, which shall be a
Business Day;
(ii) the aggregate amount of such Money Market Borrowing,
which shall be at least $10,000,000 (or a larger multiple of
$1,000,000) but shall not cause the limits specified in Section 2.03(a)
hereof to be violated;
(iii) the duration of the Interest Period applicable thereto;
(iv) whether the Money Market Quotes requested for a
particular Interest Period are seeking quotes for LIBOR Market Loans or
Set Rate Loans; and
(v) if the Money Market Quotes requested are seeking quotes
for Set Rate Loans, the date on which the Money Market Quotes are to be
submitted if it is before the proposed date of borrowing (the proposed
date of such borrowing or, if the date on which such Money Market
Quotes are to be submitted is before the proposed date of borrowing,
such submission date is called the "Quotation Date").
Except as otherwise provided in this Section 2.03(b), no Money Market Quote
Request shall be given within five Business Days (or such other number of days
as the Company and the Administrative Agent, with the consent of the Majority
Banks, may agree) of any other Money Market Quote Request.
<PAGE> 26
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(c) (i) Each Bank may submit one or more Money Market Quotes,
each constituting an offer to make a Money Market Loan in response to
any Money Market Quote Request; provided that, if the Company's request
under Section 2.03(b) hereof specified more than one Interest Period,
such Bank may make a single submission containing one or more Money
Market Quotes for each such Interest Period. Each Money Market Quote
must be submitted to the Administrative Agent not later than (x) 2:00
p.m. New York time on the fourth Business Day prior to the proposed
date of borrowing, in the case of a LIBOR Auction or (y) 10:00 a.m. New
York time on the Quotation Date, in the case of a Set Rate Auction (or,
in any such case, such other time and date as the Company and the
Administrative Agent, with the consent of the Majority Banks, may
agree); provided that any Money Market Quote may be submitted by Chase
(or its lending office) only if Chase (or such lending office) notifies
the Company of the terms of the offer contained therein not later than
(x) 1:00 p.m. New York time on the fourth Business Day prior to the
proposed date of borrowing, in the case of a LIBOR Auction or (y) 9:45
a.m. New York time on the Quotation Date, in the case of a Set Rate
Auction. Subject to Sections 5.02(b), 5.03, 6.02 and 9 hereof, any
Money Market Quote so made shall be irrevocable except with the consent
of the Administrative Agent given on the instructions of the Company.
(ii) Each Money Market Quote shall be substantially in the
form of Exhibit E hereto and shall specify:
(A) the proposed date of borrowing and the Interest
Period therefor;
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount
shall be at least $5,000,000 (or a larger multiple of
$1,000,000); provided that the aggregate principal amount of
all Money Market Loans for which a Bank submits Money Market
Quotes (x) may be greater or less than the Commitment of such
Bank but (y) may not exceed the principal amount of the Money
Market Borrowing for a particular Interest Period for which
offers were requested;
<PAGE> 27
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(C) in the case of a LIBOR Auction, the margin above
or below the applicable Fixed Base Rate (the "LIBO Margin")
offered for each such Money Market Loan, expressed as a
percentage (rounded upwards, if necessary, to the nearest
1/10,000th of 1%) to be added to or subtracted from the
applicable Fixed Base Rate;
(D) in the case of a Set Rate Auction, the rate of
interest per annum (rounded upwards, if necessary, to the
nearest 1/10,000th of 1%) offered for each such Money Market
Loan (the "Set Rate"); and
(E) the identity of the quoting Bank.
Unless otherwise agreed by the Administrative Agent and the Company, no
Money Market Quote shall contain qualifying, conditional or similar
language or propose terms other than or in addition to those set forth
in the applicable Money Market Quote Request and, in particular, no
Money Market Quote may be conditioned upon acceptance by the Company of
all (or some specified minimum) of the principal amount of the Money
Market Loan for which such Money Market Quote is being made, provided
that the submission by any Bank containing more than one Money Market
Quote may be conditioned on the Company not accepting offers contained
in such submission that would result in such Bank making Money Market
Loans pursuant thereto in excess of a specified aggregate amount (the
"Money Market Loan Limit").
(d) The Administrative Agent shall (x) in the case of a Set
Rate Auction, as promptly as practicable after the Money Market Quote is
submitted (but in any event not later than 10:15 a.m. New York time on the
Quotation Date) or (y) in the case of a LIBOR Auction, by 4:00 p.m. New York
time on the day a Money Market Quote is submitted, notify the Company of the
terms (i) of any Money Market Quote submitted by a Bank that is in accordance
with Section 2.03(c) hereof and (ii) of any Money Market Quote that amends,
modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Administrative
Agent unless such subsequent Money Market Quote is submitted solely to correct a
manifest error in such former Money Market Quote. The Administrative Agent's
notice to the Company shall specify (A) the aggregate principal amount of the
Money
<PAGE> 28
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Market Borrowing for which offers have been received and (B) the respective
principal amounts and LIBO Margins or Set Rates, as the case may be, so offered
by each Bank (identifying the Bank that made each Money Market Quote).
(e) Not later than 11:00 a.m. New York time on (x) the third
Business Day prior to the proposed date of borrowing, in the case of a LIBOR
Auction or (y) the Quotation Date, in the case of a Set Rate Auction (or, in any
such case, such other time and date as the Company and the Administrative Agent,
with the consent of the Majority Banks, may agree), the Company shall notify the
Administrative Agent of its acceptance or nonacceptance of the offers so
notified to it pursuant to Section 2.03(d) hereof (which notice shall specify
the aggregate principal amount of offers from each Bank for each Interest Period
that are accepted, it being understood that the failure of the Company to give
such notice by such time shall constitute nonacceptance) and the Administrative
Agent shall promptly notify each affected Bank. The notice from the
Administrative Agent shall also specify the aggregate principal amount of offers
for each Interest Period that were accepted and the lowest and highest LIBO
Margins and Set Rates that were accepted for each Interest Period. The Company
may accept any Money Market Quote in whole or in part (provided that any Money
Market Quote accepted in part shall be at least $5,000,000 or a larger multiple
of $1,000,000); provided that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the related
Money Market Quote Request;
(ii) the aggregate principal amount of each Money Market
Borrowing shall be at least $10,000,000 (or a larger multiple of
$1,000,000) but shall not cause the limits specified in Section 2.03(a)
hereof to be violated;
(iii) acceptance of offers may, subject to clause (v) below,
be made only in ascending order of LIBO Margins or Set Rates, as the
case may be, in each case beginning with the lowest rate so offered;
(iv) the Company may not accept any offer where the
Administrative Agent has advised the Company that such offer fails to
comply with Section 2.03(c)(ii) hereof or otherwise
<PAGE> 29
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fails to comply with the requirements of this Agreement (including,
without limitation, Section 2.03(a) hereof);
(v) the aggregate principal amount of each Money Market
Borrowing from any Bank may not exceed any applicable Money Market Loan
Limit of such Bank.
If offers are made by two or more Banks with the same LIBO Margins or Set Rates,
as the case may be, for a greater aggregate principal amount than the amount in
respect of which offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Company among such Banks as nearly as
possible (in amounts of at least $5,000,000 or larger multiples of $1,000,000)
in proportion to the aggregate principal amount of such offers. Determinations
by the Company of the amounts of Money Market Loans shall be conclusive in the
absence of manifest error.
(f) Any Bank whose offer to make any Money Market Loan has
been accepted in accordance with the terms and conditions of this Section 2.03
shall, not later than 1:00 p.m. New York time on the date specified for the
making of such Loan, make the amount of such Loan available to the
Administrative Agent at an account in New York designated by the Administrative
Agent in immediately available funds, for account of the Company. The amount so
received by the Administrative Agent shall, subject to the terms and conditions
of this Agreement, be made available to the Company on such date by depositing
the same, in immediately available funds, in an account of the Company
maintained with Chase at the Principal Office designated by the Company.
(g) Except for the purpose and to the extent expressly stated
in Sections 2.04(b) and 2.05 hereof, the amount of any Money Market Loan made by
any Bank shall not constitute a utilization of such Bank's Commitment.
2.04 Changes of Commitments.
(a) The aggregate amount of the Commitments shall be
automatically reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time
to time (i) so long as no Syndicated Loans or Money Market Loans are
outstanding, to terminate the Commitments and
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(ii) to reduce the aggregate unused amount of the Commitments (for which purpose
use of the Commitments shall be deemed to include the aggregate principal amount
of all Money Market Loans); provided that (x) the Company shall give notice of
each such termination or reduction as provided in Section 4.05 hereof and (y)
each partial reduction shall be in a multiple of $10,000,000.
(c) The Commitments once terminated or reduced may not be
reinstated.
2.05 Facility Fee. The Company shall pay to the Administrative
Agent for account of each Bank a facility fee on the daily average amount of
such Bank's Commitment (whether or not utilized), for the period from and
including the date hereof to but not including the earlier of the date such
Commitment is terminated and the Commitment Termination Date, at a rate per
annum equal to the Applicable Facility Fee Rate. Accrued facility fee shall be
payable on each Quarterly Date in arrears and on the earlier of the date the
Commitments are terminated and the Commitment Termination Date.
2.06 Lending Offices. The Loans of each Type made by each Bank
shall be made and maintained at such Bank's lending office for Loans of such
Type.
2.07 Several Obligations; Remedies Independent. The failure of
any Bank to make any Loan to be made by it on the date specified therefor shall
not relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Administrative Agent shall be responsible for the
failure of any other Bank to make a Loan to be made by such other Bank, and
(except as otherwise provided in Section 4.06 hereof) no Bank shall have any
obligation to the Administrative Agent or any other Bank for the failure by such
Bank to make any Loan required to be made by such Bank. The amounts payable by
the Company at any time hereunder and under the Notes to each Bank shall be a
separate and independent debt and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement and the Notes, and it shall not
be necessary for any other Bank or the Administrative Agent to consent to, or be
joined as an additional party in, any proceedings for such purposes.
<PAGE> 31
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2.08 Notes.
(a) The Syndicated Loans made by each Bank shall be evidenced
by a single promissory note of the Company substantially in the form of Exhibit
A-1 hereto, dated the date hereof, payable to such Bank in a principal amount
equal to the amount of its Commitment as originally in effect and otherwise duly
completed.
(b) The Money Market Loans made by any Bank shall be evidenced
by a single promissory note of the Company substantially in the form of Exhibit
A-2 hereto, dated the date hereof, payable to such Bank and otherwise duly
completed.
(c) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan of each Class made by each Bank to
the Company, and each payment made on account of the principal thereof, shall be
recorded by such Bank on its books and, prior to any transfer of the Note
evidencing the Loans of such Class held by it, endorsed by such Bank on the
schedule attached to such Note or any continuation thereof; provided that the
failure of such Bank to make any such recordation or endorsement shall not
affect the obligations of the Company to make a payment when due of any amount
owing hereunder or under such Note in respect of such Loans.
(d) No Bank shall be entitled to have its Notes substituted or
exchanged for any reason, or subdivided for promissory notes of lesser
denominations, except in connection with a permitted assignment of all or any
portion of such Bank's Commitment, Loans and Notes pursuant to Section 11.06
hereof (and, if requested by any Bank, the Company agrees to so exchange any
Note).
2.09 Prepayments. Subject to Sections 4.04 and 5.05 hereof,
the Company shall have the right to prepay Syndicated Loans at any time or from
time to time, provided that the Company shall give the Administrative Agent
notice of each such prepayment as provided in Section 4.05 hereof (and, upon the
date specified in any such notice of prepayment, the amount to be prepaid shall
become due and payable hereunder). Money Market Loans may not be prepaid without
the consent of the Bank holding such Loan.
<PAGE> 32
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2.10 Extension of Commitment Termination Date.
(a) The Company may, by notice to the Administrative Agent
(which shall promptly notify the Banks) not less than 60 and not more than 90
days prior to each of the first and second anniversaries of the date of this
Agreement (a "Relevant Anniversary Date"), request that the Banks extend the
Commitment Termination Date (the "Existing Commitment Termination Date") for one
year after such Existing Commitment Termination Date). Each Bank, acting in its
sole discretion, shall, by notice to the Company and the Administrative Agent
given not later than the date (herein, the "Consent Date") that is 30 days
immediately after the date of such request (except that, if such date is not a
Business Day, such notice shall be given on the next succeeding Business Day),
advise the Company whether or not such Bank agrees to such extension; provided
that each Bank that determines not to extend the Commitment Termination Date (a
"Non-extending Bank") shall notify the Administrative Agent (which shall notify
the Banks) of such fact promptly after such determination (but in any event no
later than the Consent Date) and any Bank that does not advise the Company on or
before the Consent Date shall be deemed to be a Non-extending Bank. The election
of any Bank to agree to such extension shall not obligate any other Bank to so
agree.
(b) If (and only if) the total of the Commitments of the Banks
that have agreed so to extend the Commitment Termination Date shall be at least
66-2/3% of the aggregate amount of the Commitments in effect immediately prior
to the Consent Date, the Company shall have the right on or before the Relevant
Anniversary Date to replace each such Non-extending Bank with, and otherwise add
to this Agreement, one or more other banks (which may include any Bank, each
prior to the Relevant Anniversary Date an "Additional Commitment Bank") with the
approval of the Administrative Agent (which approval shall not be unreasonably
withheld), each of which Additional Commitment Banks shall have entered into an
agreement in form and substance satisfactory to the Company and the
Administrative Agent pursuant to which such Additional Commitment Bank shall,
effective as of the Relevant Anniversary Date, undertake a Commitment (and, if
any such Additional Commitment Bank is already a Bank, its Commitment shall be
in addition to such Bank's Commitment hereunder on such date).
(c) If (and only if) the total of the Commitments of the Banks
that have agreed so to extend the Commitment
<PAGE> 33
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Termination Date together with the additional Commitments of the Additional
Commitment Banks that will become effective on the Relevant Anniversary Date
shall aggregate 100% of the aggregate amount of the Commitments in effect
immediately prior to the Consent Date, then effective as of the Relevant
Anniversary Date, the Existing Commitment Termination Date shall be extended to
the date falling one year after the Existing Commitment Termination Date (except
that, if such date is not a Business Day, such Commitment Termination Date as so
extended shall be the next preceding Business Day) and each Additional
Commitment Bank shall thereupon become a "Bank" for all purposes of this
Agreement.
Notwithstanding the foregoing, the extension of the Existing
Commitment Termination Date shall not be effective with respect to any Bank
unless:
(i) no Default shall have occurred and be continuing
on each of the date of the notice requesting such extension, on the
Consent Date and on the Relevant Anniversary Date;
(ii) each of the representations and warranties made
by the Company in Section 7 hereof shall be true and complete on and as
of each of the date of the notice requesting such extension, the
Consent Date and the Relevant Anniversary Date with the same force and
effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date); and
(iii) each Non-extending Bank shall have been paid in
full by the Company all amounts owing to such Bank hereunder on or
before the Relevant Anniversary Date.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans.
(a) The Company hereby promises to pay the Administrative
Agent for account of each Bank the principal amount of each of such Bank's
Syndicated Loans, and each Syndicated Loan shall mature, on the last day of the
Interest Period for such Syndicated Loan.
<PAGE> 34
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(b) The Company hereby promises to pay to the Administrative
Agent for account of each Bank that makes any Money Market Loan the principal
amount of such Money Market Loan, and such Money Market Loan shall mature, on
the last day of the Interest Period for such Money Market Loan.
3.02 Interest. The Company hereby promises to pay to the
Administrative Agent for account of each Bank interest on the unpaid principal
amount of each Loan made by such Bank for the period from and including the date
of such Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(a) during such periods as such Loan is a Alternate Base Rate
Loan, the Alternate Base Rate (as in effect from time to time) plus the
Applicable Margin plus 0.10% per annum at any time when Rating Group V
is in effect (or 0.05% per annum at any time when any other Rating
Group is in effect) and the Loans outstanding shall exceed 50% of the
Commitments;
(b) during such periods as such Loan is a Eurodollar Loan, for
each Interest Period relating thereto, the Fixed Base Rate for such
Loan for such Interest Period plus the Applicable Margin, plus 0.10%
per annum at any time when Rating Group V is in effect (or 0.05% per
annum at any time when any other Rating Group is in effect) and the
Loans outstanding shall exceed 50% of the Commitments;
(c) if such Loan is a LIBOR Market Loan, the Fixed Base Rate
for such Loan for the Interest Period therefor plus (or minus) the LIBO
Margin quoted by the Bank making such Loan in accordance with Section
2.03 hereof; and
(d) if such Loan is a Set Rate Loan, the Set Rate for such
Loan for the Interest Period therefor quoted by the Bank making such
Loan in accordance with Section 2.03 hereof.
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Bank interest at the applicable
Post-Default Rate on any principal of any Loan made by such Bank and on any
other amount payable by the Company hereunder or under the Notes held by such
Bank to or for account of such Bank, that shall not be paid in full when due
(whether at
<PAGE> 35
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stated maturity, by acceleration or otherwise), for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable (i) in the case of a
Alternate Base Rate Loan on the Quarterly Dates in arrears, (ii) in the case of
a Eurodollar Loan or a Money Market Loan, on the last day of each Interest
Period therefor and, if such Interest Period is longer than 90 days (in the case
of a Set Rate Loan) or three months (in the case of a Eurodollar Loan or a LIBOR
Market Loan), at 90-day or three-month intervals, respectively, following the
first day of such Interest Period, and (iii) in the case of any Loan, upon the
payment or prepayment thereof (but only on the principal amount so paid or
prepaid), except that interest payable at the Post-Default Rate shall be payable
from time to time on demand. Promptly after the determination of any interest
rate provided for herein or any change therein, the Administrative Agent shall
give notice thereof to the Banks to which such interest is payable and to the
Company.
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Company
under this Agreement and the Notes and the Fee Letter, shall be made in Dollars,
in immediately available funds, without deduction, set-off or counterclaim, to
the Administrative Agent at an account in New York designated by the
Administrative Agent, not later than 1:00 p.m. New York time on the date on
which such payment shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day).
(b) The Company shall, at the time of making each payment
under this Agreement or any Note for account of any Bank, specify to the
Administrative Agent (which shall so notify the intended recipient(s) thereof)
the Loans or other amounts payable by the Company hereunder to which such
payment is to be applied (and in the event that the Company fails to so specify,
or if an Event of Default has occurred and is continuing, the Administrative
Agent may distribute such payment to the Banks for
<PAGE> 36
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application in such manner as it or the Majority Banks, subject to Section 4.02
hereof, may determine to be appropriate).
(c) Each payment received by the Administrative Agent under
this Agreement or any Note for account of any Bank shall be paid by the
Administrative Agent promptly to such Bank, in immediately available funds, for
account of such Bank's lending office for the Loan or other obligation in
respect of which such payment is made.
(d) If the due date of any payment under this Agreement or any
Note would otherwise fall on a day that is not a Business Day, such date shall
be extended to the next succeeding Business Day, and interest shall be payable
for any principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each borrowing of Syndicated Loans from the Banks under
Section 2.01 hereof shall be made from the Banks, each payment of facility fee
under Section 2.05 hereof shall be made for account of the Banks, and each
termination or reduction of the amount of the Commitments under Section 2.04
hereof shall be applied to the respective Commitments of the Banks, pro rata
according to the amounts of their respective Commitments; (b) except as
otherwise provided in Section 5.04 hereof, Eurodollar Loans having the same
Interest Period shall be allocated pro rata among the Banks according to the
amounts of their respective Commitments; (c) each payment or prepayment of
principal of Syndicated Loans by the Company shall be made for account of the
Banks pro rata in accordance with the respective unpaid principal amounts of the
Syndicated Loans held by them; and (d) each payment of interest on Syndicated
Loans by the Company shall be made for account of the Banks pro rata in
accordance with the amounts of interest on such Loans then due and payable to
the respective Banks.
4.03 Computations. Interest on Money Market Loans, Eurodollar
Loans and facility fee shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable and interest on Alternate Base Rate
Loans shall be computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed (including the first date but excluding the last
day) occurring in the period for which payable. Notwithstanding the foregoing,
for each day the
<PAGE> 37
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Alternate Base Rate is calculated by reference to the Federal Funds Rate, the
interest on Alternate Base Rate Loans shall be computed on the basis of a year
of 360 days and actual days elapsed.
4.04 Minimum Amounts. Each borrowing of Syndicated Loans shall
be in an aggregate amount at least equal to $5,000,000 (in the case of Alternate
Base Rate Loans) and $10,000,000 (in the case of Eurodollar Loans) or larger
multiples of $1,000,000 in excess thereof; and each prepayment of principal of
Syndicated Loans shall be in an aggregate amount at least equal to $5,000,000 or
larger multiples of $1,000,000 (borrowings or prepayments of Loans of different
Types or, in the case of Eurodollar Loans, having different Interest Periods, at
the same time hereunder to be deemed separate borrowings and prepayments for
purposes of the foregoing, one for each Type or Interest Period).
4.05 Certain Notices. Except as otherwise provided in Section
2.03 hereof with respect to Money Market Loans, notices by the Company to the
Administrative Agent of terminations or reductions of the Commitments and of
borrowings and optional prepayments of Loans, of Types of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the Administrative Agent not later than 10:00 a.m. New York time on
the number of Business Days prior to the date of the relevant termination,
reduction, borrowing or prepayment or the first day of such Interest Period
specified below:
<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
------ ----------
<S> <C>
Termination or reduction
of Commitments 3
Borrowing of Alternate
Base Rate Loans same day
Prepayment of Alternate Base
Rate Loans 1
Borrowing and duration of
Interest Period for, and
prepayment of, Eurodollar Loans 3
</TABLE>
<PAGE> 38
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Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing or
optional prepayment shall specify the Loans to be borrowed or prepaid and the
amount (subject to Section 4.04 hereof) and Type of each Loan to be borrowed or
prepaid and the date of borrowing or optional prepayment (which shall be a
Business Day). Each such notice of the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. The Administrative
Agent shall promptly notify the Banks of the contents of each such notice.
4.06 Non-Receipt of Funds by the Administrative Agent. Unless
the Administrative Agent shall have been notified by a Bank or the Company (the
"Payor") prior to the date on which the Payor is to make payment to the
Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be
made by such Bank hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Banks hereunder (such
payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date; and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available by
the Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such day and, if
such recipient(s) shall fail promptly to make such payment, the Administrative
Agent shall be entitled to recover such amount, on demand, from the Payor,
together with interest as aforesaid, provided that if neither the recipient(s)
nor the Payor shall return the Required Payment to the Administrative Agent
within three Business Days of the Advance Date, then, retroactively to the
Advance Date, the Payor and the recipient(s) shall each be obligated to pay
interest on the Required Payment as follows:
<PAGE> 39
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(i) if the Required Payment shall represent a payment to be
made by the Company to the Banks, the Company and the recipient(s)
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment at the Post-Default Rate
(without duplication of the obligation of the Company under Section
3.02 hereof to pay interest on the Required Payment at the Post-Default
Rate), it being understood that the return by the recipient(s) of the
Required Payment to the Administrative Agent shall not limit such
obligation of the Company under said Section 3.02 to pay interest at
the Post-Default Rate in respect of the Required Payment and
(ii) if the Required Payment shall represent proceeds of a
Loan to be made by the Banks to the Company, the Payor and the Company
shall each be obligated retroactively to the Advance Date to pay
interest in respect of the Required Payment pursuant to whichever of
the rates specified in Section 3.02 hereof is applicable to the Type of
such Loan, it being understood that the return by the Company of the
Required Payment to the Administrative Agent shall not limit any claim
the Company may have against the Payor in respect of such Required
Payment.
4.07 Sharing of Payments, Etc.
(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Bank may
otherwise have, each Bank shall be entitled, at its option (to the fullest
extent permitted by law), to set off and apply any deposit (general or special,
time or demand, provisional or final), or other indebtedness, held by it for the
credit or account of the Company at any of its offices, in Dollars or in any
other currency, against any principal of or interest on any of such Bank's Loans
or any other amount payable to such Bank hereunder, that is not paid when due
(regardless of whether such deposit or other indebtedness are then due to the
Company), in which case it shall promptly notify the Company and the
Administrative Agent thereof, provided that such Bank's failure to give such
notice shall not affect the validity thereof.
(b) If any Bank shall obtain from the Company payment of any
principal of or interest on any Loan of any Class owing to it or payment of any
other amount under this Agreement through
<PAGE> 40
- 36 -
the exercise of any right of set-off, banker's lien or counterclaim or similar
right or otherwise (other than from the Administrative Agent as provided
herein), and, as a result of such payment, such Bank shall have received a
greater percentage of the principal of or interest on the Loans of such Class or
such other amounts then due hereunder by the Company to such Bank than the
percentage received by any other Bank, it shall promptly purchase from such
other Banks participations in (or, if and to the extent specified by such Bank,
direct interests in) the Loans of such Class or such other amounts,
respectively, owing to such other Banks (or in interest due thereon, as the case
may be) in such amounts, and make such other adjustments from time to time as
shall be equitable, to the end that all the Banks shall share the benefit of
such excess payment (net of any expenses that may be incurred by such Bank in
obtaining or preserving such excess payment) pro rata in accordance with the
unpaid principal of and/or interest on the Loans of such Class or such other
amounts, respectively, owing to each of the Banks. To such end all the Banks
shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Company. If, under any applicable bankruptcy,
insolvency or other similar law, any Bank receives a secured claim in lieu of a
set-off to which this Section 4.07 applies, such Bank shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Banks entitled under this Section 4.07 to
share in the benefits of any recovery on such secured claim.
<PAGE> 41
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Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) The Company shall pay directly to each Bank from time to
time such amounts as such Bank may reasonably determine to be necessary to
compensate such Bank for any costs that such Bank determines are attributable to
its making or maintaining of any Fixed Rate Loans or its obligation to make any
Fixed Rate Loans hereunder, or any reduction in any amount receivable by such
Bank hereunder in respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change that:
(i) shall subject any Bank (or its lending office for any of
such Loans) to any tax, duty or other charge in respect of such Loans
or its Notes or changes the basis of taxation of any amounts payable to
such Bank under this Agreement or its Notes in respect of any of such
Loans (excluding changes in the rate of tax on the overall net income
or gross receipts of such Bank or of such lending office by the
jurisdiction in which such Bank has its principal office or such
lending office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than, in the case of any Bank for any
period as to which the Company is required to pay any amount under
paragraph (d) below, the reserves against "Eurocurrency liabilities"
under Regulation D therein referred to) relating to any extensions of
credit or other assets of, or any deposits with or other liabilities
of, such Bank (including, without limitation, any of such Loans or any
deposits referred to in the definition of "Fixed Base Rate" in Section
1.01 hereof), or any commitment of such Bank (including, without
limitation, the Commitment of such Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or
its Notes (or any of such extensions of credit or liabilities) or its
Commitment.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a
<PAGE> 42
- 38 -
copy to the Administrative Agent), suspend the obligation of such Bank
thereafter to make Eurodollar Loans until the Regulatory Change giving rise to
such request ceases to be in effect (in which case the provisions of Section
5.04 hereof shall be applicable), provided that such suspension shall not affect
the right of such Bank to receive the compensation so requested.
(b) Without limiting the effect of the foregoing provisions of
this Section 5.01 (but without duplication), the Company shall pay directly to
each Bank from time to time on request such amounts as such Bank may reasonably
determine to be necessary to compensate such Bank (or, without duplication, the
bank holding company of which such Bank is a subsidiary) for any costs that it
determines are attributable to the maintenance by such Bank (or any lending
office or such bank holding company), pursuant to any law or regulation or any
interpretation, directive or request (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) of any court or
governmental or monetary authority (i) following any Regulatory Change or (ii)
implementing any risk-based capital guideline or other requirement (whether or
not having the force of law and whether or not the failure to comply therewith
would be unlawful) hereafter issued by any government or governmental or
supervisory authority implementing at the national level the Basle Accord, of
capital in respect of its Commitment or Loans (such compensation to include,
without limitation, an amount equal to any reduction of the rate of return on
assets or equity of such Bank (or any lending office or such bank holding
company) to a level below that which such Bank (or any lending office or such
bank holding company) could have achieved but for such law, regulation,
interpretation, directive or request).
(c) Each Bank shall notify the Company of any event occurring
after the date hereof entitling such Bank to compensation under paragraph (a) or
(b) of this Section 5.01 as promptly as practicable, but in any event within 60
days, after such Bank obtains actual knowledge thereof; provided that (i) if any
Bank fails to give such notice within 60 days after it obtains actual knowledge
of such an event, such Bank shall, with respect to compensation payable pursuant
to this Section 5.01 in respect of any costs resulting from such event, only be
entitled to payment under this Section 5.01 for costs incurred from and after
the date 60 days prior to the date that such Bank does give such notice and (ii)
each Bank will designate a different lending office for the Loans of such
Bank affected by such event if such
<PAGE> 43
- 39 -
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole opinion of such Bank, be disadvantageous to such Bank.
Each Bank will furnish to the Company a certificate setting forth in reasonably
specific detail the basis and amount of each request by such Bank for
compensation under paragraph (a) or (b) of this Section 5.01. Determinations and
allocations by any Bank for purposes of this Section 5.01 of the effect of any
Regulatory Change pursuant to paragraph (a) of this Section 5.01, or of the
effect of capital maintained pursuant to paragraph (b) of this Section 5.01, on
its costs or rate of return of maintaining Loans or its obligation to make
Loans, or on amounts receivable by it in respect of Loans, and of the amounts
required to compensate such Bank under this Section 5.01, shall be conclusive,
provided that such determinations and allocations are made on a reasonable
basis.
(d) Without limiting the effect of the foregoing, the Company
shall pay to each Bank on the last day of each Interest Period so long as such
Bank is maintaining reserves against "Eurocurrency liabilities" under Regulation
D (or, unless the provisions of paragraph (b) above are applicable, so long as
such Bank is, by reason of any Regulatory Change, maintaining reserves against
any other category of liabilities that includes deposits by reference to which
the interest rate on Eurodollar Loans or LIBOR Market Loans is determined as
provided in this Agreement or against any category of extensions of credit or
other assets of such Bank that includes any Eurodollar Loans or LIBOR Market
Loans) an additional amount (reasonably determined by such Bank and notified to
the Company through the Administrative Agent) equal to the product of the
following for each Eurodollar Loan or LIBOR Market Loan for each day during such
Interest Period:
(i) the principal amount of such Eurodollar Loan or LIBOR
Market Loan outstanding on such day; and
(ii) the remainder of (x) a fraction the numerator of which is
the rate (expressed as a decimal) at which interest accrues on such
Eurodollar Loan or LIBOR Market Loan for such Interest Period as
provided in this Agreement (less the Applicable Margin) and the
denominator of which is one minus the effective rate (expressed as a
decimal) at which such reserve requirements are imposed on such Bank on
such day minus (y) such numerator; and
(iii) 1/360.
<PAGE> 44
- 40 -
5.02 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any Fixed Base
Rate for any Interest Period:
(a) the Administrative Agent determines, which determination
shall be conclusive, that quotations of interest rates for the relevant
deposits referred to in the definition of "Fixed Base Rate" in Section
1.01 hereof are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest for
either Type of Fixed Rate Loans as provided herein; or
(b) the Majority Banks determine (or any Bank that has
outstanding a Money Market Quote with respect to a LIBOR Market Loan
determines), which determination shall be conclusive, and notify (or
notifies, as the case may be) the Administrative Agent that the
relevant rates of interest referred to in the definition of "Fixed Base
Rate" in Section 1.01 hereof upon the basis of which the rate of
interest for Eurodollar Loans (or LIBOR Market Loans, as the case may
be) for such Interest Period is to be determined are not likely
adequately to cover the cost to such Banks (or to such quoting Bank) of
making or maintaining Eurodollar Loans for such Interest Period;
then the Administrative Agent shall give the Company and each Bank prompt notice
thereof and, so long as such condition remains in effect, the Banks (or such
quoting Bank) shall be under no obligation to make additional Eurodollar Loans.
5.03 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its lending
office to honor its obligation to make Eurodollar Loans or LIBOR Market Loans
hereunder (and, in the sole opinion of such Bank, the designation of a different
lending office would either not avoid such unlawfulness or would be
disadvantageous to such Bank), then such Bank shall promptly notify the Company
thereof (with a copy to the Administrative Agent) and such Bank's obligation to
make Eurodollar Loans shall be suspended until such time as such Bank may again
make Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall
be applicable), and such Bank shall no longer be
<PAGE> 45
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obligated to make any LIBOR Market Loan that it has offered to make.
5.04 Treatment of Affected Loans. If the obligation of any
Bank to make a Eurodollar Loan shall be suspended pursuant to Section 5.01 or
5.03 hereof, such Bank's Eurodollar Loans shall be made instead as Alternate
Base Rate Loans and, if such Bank has Eurodollar Loans outstanding, each such
Eurodollar Loan shall be converted to an Alternate Base Rate Loan on such date
prior to the last day of the Interest Period for such Eurodollar Loan as such
Bank may specify to the Company with a copy to the Administrative Agent, and to
the extent that such Bank's Eurodollar Loans have been so converted, all
payments and prepayments of principal that would otherwise be applied to such
Bank's Eurodollar Loans shall be applied instead to its Alternate Base Rate
Loans.
5.05 Compensation. The Company shall pay to the Administrative
Agent for account of each Bank, upon the request of such Bank through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost or expense
that such Bank determines is attributable to:
(a) any payment or prepayment of a Fixed Rate Loan or a Set
Rate Loan made by such Bank for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 9 hereof)
on a date other than the last day of the Interest Period for such Loan;
or
(b) any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Section 6 hereof to be satisfied) to borrow a Fixed Rate
Loan or a Set Rate Loan (with respect to which, in the case of a Money
Market Loan, the Company has accepted a Money Market Quote) from such
Bank on the date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 or 2.03(b) hereof;
provided, however, that such Bank shall have delivered to the Company a
certificate as to the amount of such loss, cost or expense, which certificate
shall be conclusive, provided that the determination of such compensation is
made on a reasonable basis.
<PAGE> 46
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Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid or
not borrowed for the period from the date of such payment, prepayment or failure
to borrow to the last day of the then current Interest Period for such Loan (or,
in the case of a failure to borrow, the Interest Period for such Loan that would
have commenced on the date specified for such borrowing) at the applicable rate
of interest for such Loan provided for herein over (ii) the amount of interest
that otherwise would have accrued on such principal amount at a rate per annum
equal to the interest component of the amount such Bank would have bid in the
London interbank market (if such Loan is a Eurodollar Loan or a LIBOR Market
Loan) or the United States secondary certificate of deposit market (if such Loan
is a Set Rate Loan) for Dollar deposits of leading banks in amounts comparable
to such principal amount and with maturities comparable to such period (as
reasonably determined by such Bank), or if such Bank shall cease to make such
bids, the equivalent rate, as reasonably determined by such Bank, derived from
Telerate Access Service Page 3750 (British Bankers Association Settlement Rate)
or other publicly available source as described in the definition of "Fixed Base
Rate" in Section 1.01 hereof).
5.06 U.S. Taxes.
(a) The Company agrees to pay to each Bank that is not a U.S.
Person such additional amounts as are necessary in order that the net payment of
any amount due to such non-U.S. Person hereunder after deduction for or
withholding in respect of any U.S. Taxes imposed with respect to such payment
(or in lieu thereof, payment of such U.S. Taxes by such non-U.S. Person), will
not be less than the amount stated herein to be then due and payable, provided
that the foregoing obligation to pay such additional amounts shall not apply:
(i) to any payment to any Bank hereunder unless such Bank is,
on the date hereof (or on the date it becomes a Bank hereunder as
provided in Section 11.06(b) hereof) and on the date of any change in
the lending office of such Bank, either entitled to submit a Form 1001
(relating to such Bank and entitling it to a complete exemption from
withholding on all interest to be received by it hereunder in respect
of the Loans) or Form 4224 (relating to all
<PAGE> 47
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interest to be received by such Bank hereunder in respect of the
Loans); provided that it being understood that, if thereafter as a
result of any change in law or regulation such Bank becomes unable to
submit the Form previously submitted, the foregoing obligation to pay
such additional amounts shall apply; or
(ii) to any U.S. Taxes imposed solely by reason of the failure
by such non-U.S. Person to comply with applicable certification,
information, documentation or other reporting requirements concerning
the nationality, residence, identity or connections with the United
States of America of such non-U.S. Person if such compliance is
required by statute or regulation of the United States of America as a
precondition to relief or exemption from such U.S. Taxes.
For the purposes of this Section 5.06(a), (A) "U.S. Person" shall mean a
citizen, national or resident of the United States of America, a corporation,
partnership or other entity created or organized in or under any laws of the
United States of America or any State thereof, or any estate or trust that is
subject to Federal income taxation regardless of the source of its income, (B)
"U.S. Taxes" shall mean any present or future tax, assessment or other charge or
levy imposed by or on behalf of the United States of America or any taxing
authority thereof or therein, (C) "Form 1001" shall mean Form 1001 (Ownership,
Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the
United States of America and (D) "Form 4224" shall mean Form 4224 (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States) of the Department of the Treasury of the
United States of America (or in relation to either such Form such successor and
related forms as may from time to time be adopted by the relevant taxing
authorities of the United States of America to document a claim to which such
Form relates). Each of the Forms referred to in the foregoing clauses (C) and
(D) shall include such successor and related forms as may from time to time be
adopted by the relevant taxing authorities of the United States of America to
document a claim to which such Form relates.
(b) Within 30 days after paying any amount to the
Administrative Agent or any Bank from which it is required by law to make any
deduction or withholding, and within 30 days after it is required by law to
remit such deduction or withholding to any relevant taxing or other authority,
the Company shall deliver to
<PAGE> 48
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the Administrative Agent for delivery to such non-U.S. Person evidence
satisfactory to such Person of such deduction, withholding or payment (as the
case may be).
5.07 Replacement of Banks. If any Bank requests compensation
pursuant to Section 5.01 or 5.06 hereof, or any Bank's obligation to make
Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof (any
such Bank requesting such compensation, or whose obligations are so suspended,
being herein called a "Requesting Bank"), the Company, upon three Business Days
notice, may require that such Requesting Bank transfer all of its right, title
and interest under this Agreement and such Requesting Bank's Notes to any bank
or other financial institution (a "Proposed Bank") identified by the Company
that is satisfactory to the Administrative Agent in its reasonable determination
(i) if such Proposed Bank agrees to assume all of the obligations of such
Requesting Bank hereunder, and to purchase all of such Requesting Bank's Loans
hereunder for consideration equal to the aggregate outstanding principal amount
of such Requesting Bank's Loans, together with interest thereon to the date of
such purchase, and satisfactory arrangements are made for payment to such
Requesting Bank of all other amounts payable hereunder to such Requesting Bank
on or prior to the date of such transfer (including any fees accrued hereunder
and any amounts that would be payable under Section 5.05 hereof as if all of
such Requesting Bank's Loans were being prepaid in full on such date) and (ii)
if such Requesting Bank has requested compensation pursuant to Section 5.01 or
5.06 hereof, such Proposed Bank's aggregate requested compensation, if any,
pursuant to said Section 5.01 or 5.06 with respect to such Requesting Bank's
Loans is lower than that of the Requesting Bank. Subject to the provisions of
Section 11.06(b) hereof, such Proposed Bank shall be a "Bank" for all purposes
hereunder, provided that no such Proposed Bank shall as a result of such
purchase hold more than 25% of the aggregate amount of the Commitments. Without
prejudice to the survival of any other agreement of the Company hereunder the
agreements of the Company contained in Sections 5.01, 5.06 and 11.03 hereof
(without duplication of any payments made to such Requesting Bank by the Company
or the Proposed Bank) shall survive for the benefit of such Requesting Bank
under this Section 5.07 with respect to the time prior to such replacement.
<PAGE> 49
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Section 6. Conditions Precedent.
6.01 Initial Loan. The obligation of any Bank to make its
initial Loan hereunder is subject to the conditions precedent that the
Administrative Agent shall have received the following documents (with, in the
case of clauses (a), (b), (c) and (d) below, sufficient copies for each Bank),
each of which shall be satisfactory to the Administrative Agent (and to the
extent specified below, to each Bank) in form and substance:
(a) Corporate Documents. Certified copies of the charter and
by-laws (or equivalent documents) of the Company and of all corporate
authority for the Company (including, without limitation, board of
director resolutions and evidence of the incumbency, including specimen
signatures, of officers) with respect to the execution, delivery and
performance of this Agreement and the Notes and each other document to
be delivered by the Company from time to time in connection herewith
and the Loans hereunder (and the Administrative Agent and each Bank may
conclusively rely on such certificate until it receives notice in
writing from the Company to the contrary).
(b) Officer's Certificate. A certificate of a senior officer
of the Company, dated the date hereof, to the effect set forth in the
first sentence of Section 6.02 hereof.
(c) Opinion of Counsel to the Company. An opinion, dated the
date hereof, of Foster Pepper & Shefelman, counsel to the Company,
substantially in the form of Exhibit B hereto and covering such other
matters as the Administrative Agent or any Bank may reasonably request
(and the Company hereby instructs such counsel to deliver such opinion
to the Banks and the Administrative Agent).
(d) Opinion of Special New York Counsel to Chase. An opinion,
dated the date hereof, of Milbank, Tweed, Hadley & McCloy, special New
York counsel to Chase, substantially in the form of Exhibit C hereto
(and Chase hereby instructs such counsel to deliver such opinion to the
Banks).
(e) Notes. The Notes, duly completed and executed for each
Bank.
<PAGE> 50
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(f) Other Documents. Such other documents as the
Administrative Agent or any Bank or special New York counsel to Chase
may reasonably request.
The obligation of any Bank to make its initial Loan hereunder is also subject to
the payment by the Company of such fees as the Company shall have agreed to pay
or deliver to any Bank or the Administrative Agent in connection herewith,
including, without limitation, the reasonable fees and expenses of Milbank,
Tweed, Hadley & McCloy, special New York counsel to Chase, in connection with
the negotiation, preparation, execution and delivery of this Agreement and the
Notes and the making of the Loans hereunder (to the extent that statements for
such fees and expenses have been delivered to the Company).
6.02 Initial and Subsequent Loans. The obligation of any Bank
to make any Loan (including any Money Market Loan and such Bank's initial
Syndicated Loan) to the Company upon the occasion of each borrowing hereunder is
subject to the further conditions precedent that, both immediately prior to the
making of such Loan and also after giving effect thereto and to the intended use
thereof:
(a) no Default shall have occurred and be continuing; and
(b) the representations and warranties made by the Company in
Section 7 hereof (except, in the case of any borrowing that does not
increase the total principal amount of the Loans outstanding of any
Bank, the representations and warranties in Sections 7.03, 7.07 or 7.12
hereof) shall be true and complete on and as of the date of the making
of such Loan with the same force and effect as if made on and as of
such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific
date).
Each notice of borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the preceding sentence
(both as of the date of such notice and, unless the Company otherwise notifies
the Administrative Agent prior to the date of such borrowing, as of the date of
such borrowing).
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Section 7. Representations and Warranties. The Company
represents and warrants to the Administrative Agent and the Banks that:
7.01 Corporate Existence. Each of the Company and its
Subsidiaries (except Non-Material Subsidiaries): (a) is a corporation,
partnership or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization; (b) has all
requisite corporate or other power, and has all material governmental licenses,
authorizations, consents and approvals, necessary to own its assets and carry on
its business as now being or as proposed to be conducted, except where the
failure to have any such license authorization, consent or approval would not
have a Material Adverse Effect; and (c) is qualified to do business and is in
good standing in all jurisdictions in which the nature of the business conducted
by it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) have a Material Adverse Effect.
7.02 Financial Condition.
(a) The Company has heretofore furnished to each of the Banks
the consolidated statement of financial position of the Company and its
Subsidiaries as at December 31, 1995 and the related consolidated statements of
income, stockholders' equity and cash flows of the Company and its Subsidiaries
for the fiscal year ended on said date, with the opinion thereon of Deloitte &
Touche LLP, and the unaudited consolidated statement of financial position of
the Company and its Subsidiaries as at September 30, 1996 and the related
consolidated statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for the nine-month period ended on such date. All
such financial statements present fairly, in all material respects, the
consolidated financial position of the Company and its Subsidiaries as at said
dates, and the consolidated results of operations for the fiscal year and
nine-month period ended on said dates (subject, in the case of such financial
statements as at September 30, 1996, to normal year-end audit adjustments), all
in accordance with generally accepted accounting principles and practices
applied on a consistent basis. From December 31, 1995 until the date of this
Agreement, there has been no material adverse change in the consolidated
financial condition, operations, business or prospects taken as a whole of the
Company
<PAGE> 52
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and its Subsidiaries from that set forth in said financial statements as at said
date.
(b) The Company has heretofore furnished to each of the Banks
the "Reports of Condition and Income" (report no. FFIEC 032) of each Insured
Subsidiary as at September 30, 1996 for the three fiscal quarters ended on said
date. Such report presents fairly, in all material respects, the financial
condition of such Insured Subsidiary as at said date and the results of its
operations for the nine-month period ended on said date, all in accordance with
regulatory accounting principles prescribed by Federal Financial Institutions
Examination Council.
(c) The Company has heretofore furnished to each of the Banks
the Statements of Condition and Operations (Office of Thrift Supervision Form
1313) for each Insured Subsidiary as of September 1996. Such statements present
fairly, in all material respects, the financial condition of each such Insured
Subsidiary as of September 1996 and the results of its operations for the
nine-month period ended on said date, all in accordance with Office of Thrift
Supervision instructions.
(d) The Company has heretofore furnished to each of the Banks
the consolidated balance sheet of Keystone Holdings, Inc., a Texas corporation
("Keystone") and its Subsidiaries as at December 31, 1995 and the related
consolidated statements of earnings, stockholder's equity and cash flows of
Keystone and its Subsidiaries for the fiscal year ended on said date, with the
opinion thereon of KPMG Peat Marwick LLP, and the unaudited condensed balance
sheet of Keystone and its Subsidiaries as at June 30, 1996 and the related
condensed consolidated statements of earnings, stockholder's equity and cash
flows of Keystone and its Subsidiaries for the six-month period ended on such
date. All such financial statements present fairly, in all material respects,
the consolidated financial position of Keystone and its Subsidiaries as at said
dates, and the consolidated results of operations for the fiscal year and
six-month period ended on said dates (subject in the case of such financial
statements as at June 30, 1996, to normal year-end audit adjustments), all in
accordance with generally accepted accounting principles and practices applied
on a consistent basis. From December 31, 1995 until the date of this Agreement,
there has been no material adverse change in the consolidated financial
position, operations, business or prospects taken as a whole of Keystone
<PAGE> 53
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and its Subsidiaries from that set forth in said financial statements as at said
date.
7.03 Litigation. Except as disclosed to the Banks in Schedule
III hereto, there are no legal or arbitral proceedings, or any proceedings by or
before any governmental or regulatory authority or agency, now pending or (to
the knowledge of the Company) threatened against the Company or any of its
Subsidiaries that are reasonably likely (either individually or in the
aggregate) to have a Material Adverse Effect.
7.04 No Breach. None of the execution and delivery of this
Agreement and the Notes, the consummation of the transactions herein
contemplated or compliance with the terms and provisions hereof will conflict
with or result in a breach of, or require any consent under, the charter or
by-laws of the Company, or any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their Property is bound or to which any
of them is subject, or constitute a default under any such agreement or
instrument.
7.05 Action. The Company has all necessary corporate power,
authority and legal right to execute, deliver and perform its obligations under
this Agreement and the Notes; the execution, delivery and performance by the
Company of this Agreement and the Notes have been duly authorized by all
necessary corporate action on its part (including, without limitation, any
required shareholder approvals); and this Agreement has been duly and validly
executed and delivered by the Company and constitutes, and each of the Notes
when executed and delivered for value will constitute, its legal, valid and
binding obligation, enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' rights and (b) the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
7.06 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency, or any securities exchange, are necessary for the execution, delivery
or
<PAGE> 54
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performance by the Company of this Agreement or the Notes or for the legality,
validity or enforceability hereof or thereof.
7.07 ERISA. Each Plan, and, to the knowledge of the Company,
each Multiemployer Plan, is in compliance in all respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law (except where
failure so to comply would not have a Material Adverse Effect), and no event or
condition has occurred and is continuing as to which the Company would be under
an obligation to furnish a report to the Banks under Section 8.01(g) hereof.
7.08 Taxes. The Company and its Subsidiaries are members of an
affiliated group of corporations filing consolidated returns for Federal income
tax purposes, of which the Company is the "common parent" (within the meaning of
Section 1504 of the Code) of such group. The Company and its Subsidiaries have
filed all Federal income tax returns and all other material tax returns that are
required to be filed by them and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company or any of its
Subsidiaries, except for any such tax being contested in good faith and by
proper proceedings and against which adequate reserves are being maintained. The
charges, accruals and reserves on the books of the Company and its Subsidiaries
in respect of taxes and other governmental charges are, in the opinion of the
Company, adequate.
7.09 Investment Company Act. Neither the Company nor any of
its Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
7.10 Public Utility Holding Company Act. Neither the Company
nor any of its Subsidiaries is a "holding company", or an "affiliate" of a
"holding company" or a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
<PAGE> 55
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7.11 Material Agreements and Liens.
(a) Part A of Schedule I hereto is a complete and correct list
of each credit agreement, loan agreement, indenture, purchase agreement,
guarantee, letter of credit or other arrangement providing for or otherwise
relating to any Indebtedness or any extension of credit (or commitment for any
extension of credit) to, or guarantee by, the Company or any of its Subsidiaries
(excluding Repurchase Arrangements, deposits, annuities or Federal funds
transactions, each entered into by the Company or a Subsidiary in the ordinary
course of its business, and Interest Rate Protection Agreements or borrowings
from the Federal Home Loan Bank), outstanding on the date of this Agreement the
aggregate principal or face amount of which equals or exceeds (or may equal or
exceed) $10,000,000, and the aggregate principal or face amount outstanding or
that may become outstanding under each such arrangement is correctly described
in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and correct list
of each Lien securing Indebtedness of any Person outstanding on the date of this
Agreement (excluding Repurchase Arrangements, deposits, annuities or Federal
funds transactions, each entered into by the Company or a Subsidiary in the
ordinary course of its Business, and Interest Rate Protection Agreements or
borrowings from the Federal Home Loan Bank) the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $10,000,000 and
covering any Property of the Company or any of its Subsidiaries, and the
aggregate Indebtedness secured (or that may be secured) by each such Lien and
the Property covered by each such Lien is correctly described in Part B of said
Schedule I.
7.12 Environmental Matters. Each of the Company and its
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws to carry on its
business as now being or as proposed to be conducted, except to the extent
failure to have any such permit, license or authorization would not (either
individually or in the aggregate) have a Material Adverse Effect.
7.13 Subsidiaries. Set forth in Schedule II hereto is a
complete and correct list of all of the Subsidiaries of the Company as of the
date of this Agreement together with, for each
<PAGE> 56
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such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii)
each Person holding ownership interests in such Subsidiary and (iii) the nature
of the ownership interests held by each such Person and the percentage of
ownership of such Subsidiary represented by such ownership interests. Except as
disclosed in Schedule II hereto, (x) each of the Company and its Subsidiaries
owns, free and clear of Liens, and has the unencumbered right to vote, all
outstanding ownership interests in each Person shown to be held by it in
Schedule II hereto, (y) all of the issued and outstanding capital stock of each
such Person organized as a corporation is validly issued, fully paid and
nonassessable and (z) there are no outstanding Equity Rights with respect to
such Person.
7.14 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Company to the Administrative Agent or any Bank in connection with
the negotiation, preparation or delivery of this Agreement or included herein or
delivered pursuant hereto, when taken as a whole (together with the Information
Memorandum) do not, as of the date of this Agreement, contain any untrue
statement of material fact or omit to state any material fact necessary to make
the statements herein or therein, in light of the circumstances under which they
were made, not misleading. All written information furnished after the date of
this Agreement by the Company and its Subsidiaries to the Administrative Agent
and the Banks in connection with this Agreement and the transactions
contemplated hereby will be true, complete and accurate in every material
respect, or (in the case of projections) made in good faith and based on
estimates believed by management to be reasonable, on the date as of which such
information is stated or certified. There is no fact known to the Company that
could have a Material Adverse Effect that has not been disclosed herein or in a
report, financial statement, exhibit, schedule, disclosure letter or other
writing furnished to the Banks for use in connection with the transactions
contemplated hereby.
Section 8. Covenants of the Company. The Company covenants and
agrees with the Banks and the Administrative Agent that, so long as any
Commitment or Loan is outstanding and until payment in full of all amounts
payable by the Company hereunder:
<PAGE> 57
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8.01 Financial Statements Etc. The Company shall deliver to
each of the Banks:
(a) as soon as available and in any event within 60 days after
the end of each quarterly fiscal period of each fiscal year of the
Company, consolidated statements of income, stockholders' equity and
cash flows of the Company and its Subsidiaries for such period and for
the period from the beginning of the respective fiscal year to the end
of such period, and the related consolidated statements of financial
position of the Company and its Subsidiaries as at the end of such
period, setting forth in each case in comparative form the
corresponding consolidated figures for the corresponding periods in the
preceding fiscal year (except that, in the case of statements of
financial position, such comparison shall be to the last day of the
prior fiscal year), accompanied by a certificate of a senior financial
officer of the Company, which certificate shall state that said
consolidated financial statements present fairly, in all material
respects, the consolidated financial position and results of operations
of the Company and its Subsidiaries, in accordance with generally
accepted accounting principles, consistently applied, as at the end of,
and for, such period (subject to normal year-end audit adjustments) (it
being understood that delivery to the Bank of the Company's Report on
Form 10-Q filed with the SEC shall satisfy the financial statement
requirements of this Section 8.01(a) so long as the information
required to be contained in such Report is substantially the same as
that required under this Section 8.01(a));
(b) as soon as available and in any event within 105 days
after the end of each fiscal year of the Company, consolidated
statements of income, stockholders' equity and cash flows of the
Company and its Subsidiaries for such fiscal year and the related
consolidated statements of financial position of the Company and its
Subsidiaries as at the end of such fiscal year, setting forth in each
case in comparative form the corresponding consolidated figures for the
preceding fiscal year, and accompanied by an opinion thereon of
Deloitte & Touche, LLP or independent certified public accountants of
recognized national standing, which opinion shall state that said
consolidated financial statements present fairly, in all material
respects, the
<PAGE> 58
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consolidated financial position and results of operations of the
Company and its Subsidiaries as at the end of, and for, such fiscal
year in accordance with generally accepted accounting principles, and a
statement of such accountants to the effect that, in making the
examination necessary for their opinion, nothing came to their
attention that caused them to believe that the Company was not in
compliance with Section 8.10 hereof, insofar as such Section relates to
accounting matters (it being understood that delivery to the Bank of
the Company's Report on Form 10-K filed with the SEC shall satisfy the
financial statement requirements of this Section 8.01(b) so long as the
information required to be contained in such Report is substantially
the same as that required under this Section 8.01(b));
(c) promptly upon their becoming available, and in any event
within 60 days after the end of each quarterly fiscal period of each
fiscal year of the Company, the "Reports of Condition and Income"
(report no. FFIEC 032, or any successor form thereto) of each Insured
Subsidiary as is required to file such report, all such reports
prepared in accordance with regulatory accounting principles prescribed
by the Federal Financial Institutions Examination Council;
(d) promptly upon their becoming available, and in any event
within 60 days after the end of each quarterly fiscal period the
Statements of Condition and Operations, including all supporting
schedules (Office of Thrift Supervision Form 1313, or any successor
form thereto) for each Insured Subsidiary that is required to file such
statements, all such statements prepared in accordance with Office of
Thrift Supervision instructions.
(e) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with the Securities and Exchange Commission
(or any governmental agency substituted therefor) or any national
securities exchange or the Office of Thrift Supervision;
(f) promptly upon the mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed;
<PAGE> 59
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(g) within ten days after the Company knows or has reason to
believe that any of the events or conditions specified below with
respect to any Plan or Multiemployer Plan has occurred or exists, a
statement signed by a senior financial officer of the Company setting
forth details respecting such event or condition and the action, if
any, that the Company or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be
filed with or given to the PBGC by the Company or an ERISA Affiliate
with respect to such event or condition):
(i) any reportable event, as defined in Section
4043(c) of ERISA and the regulations issued thereunder, with
respect to a Plan, that is required to be reported to the PBGC
and as to which the PBGC has not by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event (provided that
a failure to meet the minimum funding standard of Section 412
of the Code or Section 302 of ERISA, including, without
limitation, the failure to make on or before its due date a
required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, shall be a reportable event
regardless of the issuance of any waivers in accordance with
Section 412(d) of the Code); and any request for a waiver
under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of
a notice of intent to terminate any Plan or any action taken
by the Company or an ERISA Affiliate to terminate any Plan;
(iii) the institution by the PBGC of proceedings
under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA Affiliate that
results in liability under Section 4201
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or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the
receipt by the Company or any ERISA Affiliate of notice from a
Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA or that it intends
to terminate or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against the Company or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is
not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, would result in the loss of tax-exempt status of the
trust of which such Plan is a part if the Company or an ERISA
Affiliate fails to timely provide security to the Plan in
accordance with the provisions of said Sections;
(h) promptly after the Company knows or has reason to believe
that any Default has occurred, a notice of such Default describing the
same in reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that the Company
has taken or proposes to take with respect thereto; and
(i) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company
or any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) as any Bank or the Administrative Agent may
reasonably request.
The Company will furnish to each Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of a
senior financial officer of the Company (i) to the effect that no Default has
occurred and is continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and (ii) setting
forth in reasonable detail the computations necessary to determine whether the
Company is in compliance with
<PAGE> 61
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Sections 8.06(g), 8.09 and 8.10 hereof as of the end of the respective quarterly
fiscal period or fiscal year.
8.02 Litigation. The Company will promptly give to each Bank
notice of all legal or arbitral proceedings, and of all proceedings by or before
any governmental or regulatory authority or agency, and any material development
in respect of such legal or other proceedings, affecting the Company or any of
its Subsidiaries, except proceedings that are not (either individually or in the
aggregate) reasonably likely to have a Material Adverse Effect.
8.03 Existence, Etc. The Company will, and will cause each of
its Subsidiaries to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (provided that
nothing in this Section 8.03 shall (i) with respect to the Company or
any Significant Subsidiary (as defined in Section 8.05 hereof),
prohibit any transaction expressly permitted under Section 8.05 hereof
or (ii) with respect to any Subsidiary (other than a Significant
Subsidiary), prohibit such Subsidiary from entering into any merger or
consolidation or amalgamation or from liquidating, winding up or
dissolving, itself (or suffering any liquidation or dissolution) or
prohibit a Disposition (as defined in Section 8.05 hereof) by or of
such Subsidiary);
(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities
if failure to comply with such requirements could (either individually
or in the aggregate) have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach thereto (or
in the case of any Person that becomes a Subsidiary after the date
hereof by Acquisition promptly upon becoming aware of penalties
attaching thereto), except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained;
<PAGE> 62
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(d) maintain all of its material Properties used or useful in
its business in good working order and condition, ordinary wear and
tear excepted;
(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied; and
(f) permit representatives of any Bank or the Administrative
Agent, during normal business hours, to examine, copy and make extracts
from its books and records (subject to Section 11.12 hereof), to
inspect any of its Properties, and to discuss its business and affairs
with its officers, all to the extent reasonably requested by such Bank
or the Administrative Agent (as the case may be).
8.04 Insurance. The Company will, and will cause each of its
Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies, and with respect to Property and risks of a character
usually maintained by corporations engaged in the same or similar business
similarly situated, against loss, damage and liability of the kinds and in the
amounts customarily maintained by such corporations.
8.05 Prohibition of Fundamental Changes. The Company will not,
nor will it permit any of its Significant Subsidiaries to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution).
The Company will not, nor will it permit any of its
Significant Subsidiaries to, convey, sell, lease, transfer or otherwise dispose
of (a "Disposition"), in one transaction or a series of transactions, all or
substantially all of its Property, whether now owned or hereafter acquired (for
which purpose, the Disposition of all or substantially all of the capital stock
of a Significant Subsidiary of the Company shall be deemed to be the Disposition
by such Significant Subsidiary of all or substantially all of the Property of
such Significant Subsidiary).
Notwithstanding the foregoing provisions of this Section 8.05:
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(a) any Significant Subsidiary of the Company may be merged or
consolidated with or into: (i) the Company if the Company shall be the
continuing or surviving corporation or (ii) any other Subsidiary of the
Company; provided that (x) if any such transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary
shall be the continuing or surviving corporation;
(b) any Significant Subsidiary of the Company may make a
Disposition of any or all of its Property (upon voluntary liquidation
or otherwise) to the Company or a Wholly-Owned Subsidiary of the
Company; and
(c) the Company or any Significant Subsidiary of the Company
may merge or consolidate with any other Person if (i) in the case of a
merger or consolidation of the Company, the Company is the surviving
corporation and, in any other case, the surviving corporation is, after
giving effect to such merger or consolidation, a Wholly-Owned
Subsidiary of the Company and (ii) after giving effect thereto no
Default would exist hereunder.
For purposes of this Section 8.05, "Significant Subsidiary" shall mean, at any
time, any Subsidiary of the Company if, at such time, such Subsidiary would
qualify as a "significant subsidiary" of the Company under Regulation S-X of the
SEC as in effect on the date hereof.
8.06 Limitation on Liens. The Company will not create, incur,
assume or suffer to exist any Lien upon any of its Property, whether now owned
or hereafter acquired, except:
(a) Liens in existence on the date hereof and listed in Part B
of Schedule I hereto;
(b) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or that are being contested in good
faith and by appropriate proceedings if, unless the amount thereof is
not material with respect to it or its financial condition, adequate
reserves with respect thereto are maintained on the books of the
Company or the affected Subsidiaries, as the case may be, in accordance
with GAAP;
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(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business that are not overdue for a period of more than 30 days or that
are being contested in good faith and by appropriate proceedings and
Liens securing judgments but only to the extent for an amount and for a
period not resulting in an Event of Default under Section 9(m) hereof;
(d) pledges or deposits under worker's compensation,
unemployment insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and
encumbrances consisting of zoning restrictions, easements, licenses,
restrictions on the use of Property or minor imperfections in title
thereto that, in the aggregate, are not material in amount, and that do
not in any case materially detract from the value of the Property
subject thereto or interfere with the ordinary conduct of the business
of the Company or any of its Subsidiaries;
(g) Liens upon real and/or tangible personal Property acquired
after the date hereof (by purchase, construction or otherwise) by the
Company each of which Liens either (A) existed on such Property before
the time of its acquisition and was not created in anticipation thereof
or (B) was created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost
(including the cost of construction) of such Property; provided that
(i) no such Lien shall extend to or cover any Property of the Company
or such Subsidiary other than the Property so acquired and improvements
thereon and (ii) the principal amount of Indebtedness secured by any
such Lien shall at no time exceed 80% of the fair market value (as
determined in good faith by a senior financial officer of the Company)
of such Property at the time it was acquired (by purchase, construction
or otherwise);
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(h) Liens arising out of Repurchase Arrangements;
(i) Liens arising out of or securing Interest Rate
Protection Agreements; and
(j) Liens arising out of Asset Securitizations.
8.07 Lines of Business. The Company will not, nor will it
permit any of its Subsidiaries to, engage to any substantial extent in any line
or lines of business activity other than (a) the business of owning and
operating a depository institution (as defined in 12 U.S.C.
Section.1461(b)(1)(A)), a consumer finance company, a mortgage company, an
insurance company, a trust company, an investment advisor or a securities
broker-dealer, (b) the business of providing other financial services or (c) any
business that may be engaged in by a Washington state chartered savings bank (as
defined in RCW 32.04.020) or a Federal savings association (as defined in 12
U.S.C. Section.1462(5)) or a Subsidiary of any of them.
8.08 Use of Proceeds. The Company will use the proceeds of the
Loans hereunder solely for general corporate purposes, including commercial
paper back-up (in compliance with all applicable legal and regulatory
requirements, including, without limitation, Regulations G, U and X and the
Securities Act of 1933 and the Securities Exchange Act of 1934 and the
regulations thereunder); provided that, without the consent of each Bank, the
Company may not use the proceeds of any of the Loans hereunder to finance or
refinance, directly or indirectly, an Acquisition of any Person (or the
acquisition of (i) more than 50% of the publicly traded stock (of any class) of
any Person or (ii) any of the publicly traded stock (of any class) of any Person
after the Company or any of its Subsidiaries shall have been required to file a
Schedule 13D under the Securities Exchange Act of 1934, as amended, with respect
to such stock) unless such Acquisition (or acquisition) has been approved by the
board of directors of such Person or officers thereof duly authorized to do so;
provided further that neither the Administrative Agent nor any Bank shall have
any responsibility as to the use of any of such proceeds.
8.09 Adequate Capitalization. The Company shall assure that
each Insured Subsidiary shall be adequately capitalized at all times. For
purposes of this Section 8.09,
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"adequately capitalized" shall have the meaning assigned such term by Section 38
of the Federal Deposit Insurance Act, as amended or any successor act thereto.
8.10 Certain Financial Covenants.
(a) Double Leverage Ratio. The Company will not permit at any
time its Double Leverage Ratio to be greater than 1.25 to 1.00.
(b) Ratio of Consolidated Equity to Consolidated Assets. The
Company will not permit at any time its ratio of Consolidated Equity to
Consolidated Assets to be less than 0.05 to 1.00.
(c) Minimum Tangible Net Worth. The Company will not permit at
any time its Tangible Net Worth to be less than the Base Minimum
Tangible Net Worth plus the sum of 50% of the net income of the Company
and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP and for which purpose any net loss
shall be deemed to be a net income of zero) for each fiscal quarter of
the Company ending after the date as of which the Base Minimum Tangible
Net Worth is determined as set forth below. For purposes of this
Section 8.10(c), "Base Minimum Tangible Net Worth" shall mean
$1,151,250,000, which amount was determined as of September 30, 1996;
provided that if the Company shall acquire American Savings, "Base
Minimum Tangible Net Worth" shall mean 75% of the Tangible Net Worth of
the Company and its Subsidiaries determined as of, and after giving
effect to, the Acquisition of American Savings.
(d) Maximum Non-Performing Assets. The Company will not permit
at any time its Non-Performing Assets to constitute more than 4% of the
Company's Consolidated Assets.
(e) Minimum Equity and Reserves. The Company will not permit
at any time its Consolidated Equity plus Consolidated Reserves to be
less than 300% of its Non-Performing Assets.
Section 9. Events of Default. If one or more of the following
events (herein called "Events of Default") shall occur and be continuing:
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(a) The Company shall: (i) default in the payment of any
principal of any Loan when due (whether at stated maturity or at
mandatory or optional prepayment); or (ii) default in the payment of
any interest on any Loan, any fee or any other amount payable by it
hereunder when due and such default shall have continued unremedied for
three or more Business Days; or
(b) The Company or any of its Subsidiaries shall default in
the payment when due of any principal of or interest on any of its
other Indebtedness aggregating $25,000,000 or more; or any event
specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or to permit the holder or holders of
such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in
full (whether by redemption, purchase, offer to purchase or otherwise),
prior to its stated maturity or to have the interest rate thereon reset
to a level so that securities evidencing such Indebtedness trade at a
level specified in relation to the par value thereof; or the Company
shall default in the payment when due of any amount aggregating
$25,000,000 or more under any Interest Rate Protection Agreement; or
any event specified in any Interest Rate Protection Agreement shall
occur if the effect of such event is to cause, or to permit,
termination or liquidation payment or payments aggregating $25,000,000
or more to become due; or
(c) Any representation, warranty or certification made or
deemed made herein (or in any modification or supplement hereto) by the
Company, or any certificate furnished to any Bank or the Administrative
Agent pursuant to the provisions hereof, shall prove to have been false
or misleading as of the time made or furnished in any material respect;
or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 8.01(h), 8.05, 8.06, 8.08, 8.09 or
8.10 hereof; or the Company shall default in the performance of any of
its other obligations in this Agreement and such default shall continue
unremedied for a period of thirty or more days after notice thereof to
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the Company by the Administrative Agent or any Bank (through the
Administrative Agent); or
(e) The Company or any of its Subsidiaries (other than a
Non-Material Subsidiary) shall admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due; or
(f) The Company or any of its Subsidiaries (other than a
Non-Material Subsidiary) shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, examiner or liquidator of itself or of all or a substantial
part of its Property, (ii) make a general assignment for the benefit of
its creditors, (iii) commence a voluntary case under the Bankruptcy
Code, (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment
of debts, (v) fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (vi) take any corporate
action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Company or any of its Subsidiaries (other
than a Non-Material Subsidiary), in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation, dissolution,
arrangement or winding-up, or the composition or readjustment of its
debts, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of the Company or such Subsidiary or
of all or any substantial part of its Property or (iii) similar relief
in respect of the Company or such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 or more days; or an order for relief against the
Company or such Subsidiary shall be entered in an involuntary case
under the Bankruptcy Code; or
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(h) The Company or any of its Subsidiaries and any Bank
Regulatory Authority shall enter into any supervisory agreement,
consent order or any agreement (in writing or otherwise) affecting in
any material respect the management, business, Properties, condition
(financial or otherwise) or operations, present or prospective, of the
Company and its Subsidiaries taken as a whole; or any Bank Regulatory
Authority shall issue a cease and desist order to or in respect of the
Company or any of its Subsidiaries; or
(i) Any Insured Subsidiary shall cease accepting deposits or
making loans on the instruction of any Federal, state or other
regulatory body with authority to give such instruction other than
pursuant to an instruction generally applicable to banks organized
under the jurisdiction of organization of such Insured Subsidiary; or
(j) Any Bank Regulatory Authority shall notify any Insured
Subsidiary that such Insured Subsidiary's capital stock has become
impaired; or any Insured Subsidiary shall cease to be an insured bank
under the Federal Deposit Insurance Act, as amended, and the rules and
regulations promulgated thereunder; or
(k) Any Insured Subsidiary shall be required (whether or not
the time allowed by the appropriate Bank Regulatory Authority for the
submission of such plan has been established or elapsed) to submit a
capital restoration plan of the type referred to in 12 U.S.C.
Section 1831o(b)(2)(C), as amended, re-enacted or redesignated from
time to time; or
(l) The Company shall Guarantee in writing (voluntarily or
otherwise) the capital of any Insured Subsidiary as part of or in
connection with any agreement or arrangement with any Bank Regulatory
Authority; or
(m) A final judgment or judgments for the payment of money of
$25,000,000 or more in the aggregate (exclusive of judgment amounts
fully covered by insurance where the insurer has admitted liability in
respect of such judgment) or of $75,000,000 or more in the aggregate
(regardless of insurance coverage) shall be rendered by one or more
courts, administrative tribunals or other bodies having jurisdiction
against the Company or any of its Subsidiaries and the same shall not
be discharged or paid (or provision shall not be
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made for such discharge or payment), or a stay of execution thereof
shall not be procured, within 30 days from the date of entry thereof
and the Company or the relevant Subsidiary shall not, within said
period of 30 days, or such longer period during which execution of the
same shall have been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
(n) An event or condition specified in Section 8.01(g) hereof
shall occur or exist with respect to any Plan or Multiemployer Plan
and, as a result of such event or condition, together with all other
such events or conditions, the Company or any ERISA Affiliate shall
incur or in the opinion of the Majority Banks shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan or the PBGC
(or any combination of the foregoing) that, in the determination of the
Majority Banks, would (either individually or in the aggregate) have a
Material Adverse Effect; or
(o) A Change in Control shall occur;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (f) or (g) of this Section 9 with respect to the Company, (A) the
Administrative Agent may and, upon request of the Majority Banks, will, by
notice to the Company, terminate the Commitments and they shall thereupon
terminate, and (B) the Administrative Agent may and, upon request of the Banks
holding more than 50% of the aggregate unpaid principal amount of the Loans
shall, by notice to the Company declare the principal amount then outstanding
of, and the accrued interest on, the Loans and all other amounts payable by the
Company hereunder and under the Notes (including, without limitation, any
amounts payable under Section 5.05 hereof) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company; and (2) in the case of the occurrence of
an Event of Default referred to in clause (f) or (g) of this Section 9 with
respect to the Company, the Commitments shall automatically be terminated and
the principal amount then outstanding of, and the accrued interest on, the Loans
and all other amounts payable by the Company hereunder and under the Notes
(including, without limitation, any amounts payable under Section 5.05 hereof)
shall automatically become immediately due and payable without
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presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company.
Section 10. The Administrative Agent.
10.01 Appointment, Powers and Immunities. Each Bank hereby
appoints and authorizes the Administrative Agent to act as its agent hereunder
with such powers as are specifically delegated to the Administrative Agent by
the terms of this Agreement, together with such other powers as are reasonably
incidental thereto. The Administrative Agent (which term as used in this
sentence and in Section 10.05 and the first sentence of Section 10.06 hereof
shall include reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents):
(a) shall have no duties or responsibilities except those
expressly set forth in this Agreement, and shall not by reason of this
Agreement be a trustee for any Bank;
(b) shall not be responsible to the Banks for any recitals,
statements, representations or warranties contained in this Agreement,
or in any certificate or other document referred to or provided for in,
or received by any of them under, this Agreement, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement, any Note or any other document referred to or provided
for herein or for any failure by the Company or any other Person to
perform any of its obligations hereunder or thereunder;
(c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder; and
(d) shall not be responsible for any action taken or omitted
to be taken by it hereunder or under any other document or instrument
referred to or provided for herein or in connection herewith, except
for its own gross negligence or willful misconduct.
The Administrative Agent may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. The Administrative Agent may
deem and treat the payee of
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a Note as the holder thereof for all purposes hereof unless and until a notice
of the assignment or transfer thereof shall have been filed with the
Administrative Agent, together with the consent of the Company to such
assignment or transfer (to the extent required by Section 11.06(b) hereof).
10.02 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely upon any certification, notice or other
communication (including, without limitation, any thereof by telephone,
telecopy, telegram or cable) reasonably believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel, independent accountants and
other experts selected by the Administrative Agent. As to any matters not
expressly provided for by this Agreement, the Administrative Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions given by the Majority Banks, and such instructions
of the Majority Banks and any action taken or failure to act pursuant thereto
shall be binding on all of the Banks.
10.03 Defaults. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of a Default unless the
Administrative Agent has received notice from a Bank or the Company specifying
such Default and stating that such notice is a "Notice of Default". In the event
that the Administrative Agent receives such a notice of the occurrence of a
Default, the Administrative Agent shall give prompt notice thereof to the Banks.
The Administrative Agent shall (subject to Section 10.07 hereof) take such
action with respect to such Default as shall be directed by the Majority Banks,
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default as it shall deem advisable in the best interest of the Banks except to
the extent that this Agreement expressly requires that such action be taken, or
not be taken, only with the consent or upon the authorization of the Majority
Banks or all of the Banks.
10.04 Rights as a Bank. With respect to its Commitment and the
Loans made by it, Chase (and any successor acting as Administrative Agent) in
its capacity as a Bank hereunder shall have the same rights and powers hereunder
as any
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other Bank and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Bank" or "Banks" shall, unless the context
otherwise indicates, include the Administrative Agent in its individual
capacity. Chase (and any successor acting as Administrative Agent) and its
affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to, make investments in and generally engage in any kind of
banking, trust or other business with the Company (and any of its Subsidiaries
or affiliates) as if it were not acting as the Administrative Agent, and Chase
(and any such successor) and its affiliates may accept fees and other
consideration from the Company for services in connection with this Agreement or
otherwise without having to account for the same to the Banks.
10.05 Indemnification. The Banks agree to indemnify the
Administrative Agent (to the extent not reimbursed under Section 11.03 hereof,
but without limiting the obligations of the Company under said Section 11.03)
ratably in accordance with their respective Commitments, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Administrative Agent (including
by any Bank) arising out of or by reason of any investigation in or in any way
relating to or arising out of this Agreement or any other documents contemplated
by or referred to herein or the transactions contemplated hereby (including,
without limitation, the costs and expenses that the Company is obligated to pay
under Section 11.03 hereof, but excluding, unless a Default has occurred and is
continuing, normal administrative costs and expenses incident to the performance
of its agency duties hereunder) or the enforcement of any of the terms hereof or
of any such other documents, provided that no Bank shall be liable for any of
the foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.
10.06 Non-Reliance on Administrative Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance on the
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and its Subsidiaries and decision to enter into this Agreement and that
it will, independently and without reliance upon the Administrative Agent or any
other Bank, and based on such documents and information as
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it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement. The
Administrative Agent shall not be required to keep itself informed as to the
performance or observance by the Company of this Agreement or any other document
referred to or provided for herein or to inspect the Properties or books of the
Company or any of its Subsidiaries. Except for notices, reports and other
documents and information expressly required to be furnished to the Banks by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Company or any of
its Subsidiaries (or any of their affiliates) that may come into the possession
of the Administrative Agent or any of its affiliates.
10.07 Failure to Act. Except for action expressly required of
the Administrative Agent hereunder, the Administrative Agent shall in all cases
be fully justified in failing or refusing to act hereunder unless it shall
receive further assurances to its satisfaction from the Banks of their
indemnification obligations under Section 10.05 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
10.08 Resignation or Removal of Administrative Agent. Subject
to the appointment and acceptance of a successor Administrative Agent as
provided below, the Administrative Agent may resign at any time by giving notice
thereof to the Banks and the Company, and the Administrative Agent may be
removed at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Administrative Agent, after consultation with the Company (unless an
Event of Default shall have occurred and is continuing). If no successor
Administrative Agent shall have been so appointed by the Majority Banks and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Majority Banks'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Banks, after consultation with the Company (unless
an Event of Default shall have occurred and is continuing) appoint a successor
Administrative Agent, that shall be a bank that has an office in New York, New
York. Upon the acceptance of any appointment as Administrative Agent hereunder
by a successor
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Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Section 10 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Administrative
Agent or any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this Agreement or
any Note shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under this Agreement or any Note
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
The Company irrevocably waives, to the fullest extent
permitted by applicable law, any claim that any action or proceeding commenced
by the Administrative Agent or any Bank relating in any way to this Agreement
should be dismissed or stayed by reason, or pending the resolution, of any
action or proceeding commenced by the Company relating in any way to this
Agreement whether or not commenced earlier. To the fullest extent permitted by
applicable law, the Company shall take all measures necessary for any such
action or proceeding commenced by the Administrative Agent or any Bank to
proceed to judgment prior to the entry of judgment in any such action or
proceeding commenced by the Company.
11.02 Notices. All notices, requests and other communications
provided for herein (including, without limitation, any modifications of, or
waivers, requests or consents under, this Agreement) shall be in writing and
shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, or with respect to notices given pursuant
to Section 2.03 hereof, by telephone,
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confirmed in writing by telecopier by the close of business on the day the
notice is given, as follows:
(a) if to the Company, to it at Washington Mutual, Inc., 1201
3rd Avenue, Seattle, Washington 98101, Attention of Douglas G. Wisdorf
(Telecopy No. 206-554-5954);
(b) if to the Administrative Agent, to The Chase Manhattan
Bank, Agent Bank Services Group, 1 Chase Manhattan Plaza, New York, New
York 10081, Attention of Laura Rebecca (Telecopy No. (212) 552-7490),
with a copy to The Chase Manhattan Bank, 270 Park Avenue, New York, New
York 10017, Attention of George C. Johnson (Telecopy No. (212)
270-1789);
(c) if to any other Bank, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. Except as
otherwise provided in this Agreement, all notices and other communications given
to any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.
11.03 Expenses, Etc. The Company agrees to pay or reimburse
each of the Banks and the Administrative Agent for: (a) all reasonable
out-of-pocket costs and expenses of the Administrative Agent (including, without
limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy,
special New York counsel to Chase) in connection with (i) the negotiation,
preparation, execution and delivery of this Agreement and the Notes and the
making of the Loans hereunder and (ii) the negotiation or preparation of any
modification, supplement or waiver of any of the terms of this Agreement or any
of the Notes (whether or not consummated); (b) all reasonable out-of-pocket
costs and expenses of the Banks and the Administrative Agent (including, without
limitation, the reasonable fees and expenses of legal counsel and allocated
costs of in-house counsel) in connection with (i) any Default and any
enforcement or collection proceedings resulting therefrom, including, without
limitation, all manner of participation in or other involvement with (x)
bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation
proceedings, (y) judicial
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or regulatory proceedings and (z) workout, restructuring or other negotiations
or proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (ii) the enforcement of this Section
11.03; and (c) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue authority in
respect of this Agreement or any of the Notes or any other document referred to
herein.
The Company hereby agrees to indemnify the Administrative
Agent and each Bank and their respective directors, officers, employees,
attorneys and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any of them
(including, without limitation, any and all losses, liabilities, claims, damages
or expenses incurred by the Administrative Agent to any Bank, whether or not the
Administrative Agent or any Bank is a party thereto) arising out of or by reason
of any investigation or litigation or other proceedings (including any
threatened investigation or litigation or other proceedings) relating to the
Loans hereunder or any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the Loans hereunder, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other proceedings (but
excluding any such losses, liabilities, claims, damages or expenses incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
11.04 Amendments, Etc. Except as otherwise expressly provided
in this Agreement, any provision of this Agreement may be modified or
supplemented only by an instrument in writing signed by the Company and the
Majority Banks, or by the Company and the Administrative Agent acting with the
consent of the Majority Banks, and any provision of this Agreement may be waived
by the Majority Banks or by the Administrative Agent acting with the consent of
the Majority Banks; provided that: (a) except as provided in Section 2.10
hereof, no modification, supplement or waiver shall, unless by an instrument
signed by all of the Banks or by the Administrative Agent acting with the
consent of all of the Banks: (i) increase or extend the term of the Commitments,
or extend the time or waive any requirement for the reduction or termination of
the Commitments, (ii) extend the date fixed for the payment of principal of or
interest on any Loan or any fee hereunder, (iii) reduce the amount of any such
payment of
<PAGE> 78
- 74 -
principal, (iv) reduce the rate at which interest is payable thereon or any fee
is payable hereunder, (v) alter the rights or obligations of the Company to
prepay Loans, (vi) alter the manner in which payments or prepayments of
principal, interest or other amounts hereunder shall be applied as between the
Banks or Types or Classes of Loans, (vii) alter the terms of this Section 11.04,
(viii) modify the definition of the term "Majority Banks" or modify in any other
manner the number or percentage of the Banks required to make any determinations
or waive any rights hereunder or to modify any provision hereof, or (ix) waive
any of the conditions precedent set forth in Section 6.01 hereof; and (b) any
modification or supplement of Section 10 hereof, or of any of the rights or
duties of the Administrative Agent hereunder, shall require the consent of the
Administrative Agent.
11.05 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Assignments and Participations.
(a) The Company may not assign any of its rights or
obligations hereunder or under the Notes without the prior consent of all of the
Banks and the Administrative Agent.
(b) Each Bank may assign any of its Loans, its Notes, and its
Commitment (but only with the consent of the Company and the Administrative
Agent, each of which consents will not be unreasonably withheld); provided that
(i) no such consent by the Company or the Administrative Agent
shall be required in the case of any assignment to another Bank or an
affiliate of a Bank;
(ii) except to the extent the Company and the Administrative
Agent shall otherwise consent, any such partial assignment (other than
to another Bank) shall be in an amount at least equal to $5,000,000;
(iii) each such assignment by a Bank of its Loans, Note or
Commitment shall be made in such manner so that the same portion of its
Loans, Note and Commitment is assigned to the respective assignee;
<PAGE> 79
- 75 -
(iv) each such assignment shall be effected by an Assignment
and Acceptance in the form of Exhibit G hereto; and
(v) each assignee, if it shall not be a Bank, shall deliver to
the Administrative Agent an Administrative Questionnaire.
Upon execution and delivery by the assignor and the assignee to the Company and
the Administrative Agent (if applicable) of such Assignment and Acceptance, and
upon consent thereto by the Company and the Administrative Agent to the extent
required above and the delivery to the Administrative Agent of the assignee's
completed Administrative Questionnaire, the assignee shall have, to the extent
of such assignment (unless otherwise consented to by the Company and the
Administrative Agent), the obligations, rights and benefits of a Bank hereunder
holding the Commitment and Loans (or portions thereof) assigned to it and
specified in such Assignment and Acceptance (in addition to the Commitment and
Loans, if any, theretofore held by such assignee) and the assigning Bank shall,
to the extent of such assignment, be released from the Commitment (or portion
thereof) so assigned. Upon each such assignment the assigning Bank shall pay the
Administrative Agent an assignment fee of $3,000.
(c) A Bank may sell or agree to sell to one or more other
Persons (each a "Participant") a participation in all or any part of any Loans
held by it, or in its Commitment, provided that such Participant shall not have
any rights or obligations under this Agreement or any Note (the Participant's
rights against such Bank in respect of such participation to be those set forth
in the agreements executed by such Bank in favor of the Participant). All
amounts payable by the Company to any Bank under Section 5 hereof in respect of
Loans held by it, and its Commitment, shall be determined as if such Bank had
not sold or agreed to sell any participations in such Loans and Commitment, and
as if such Bank were funding each of such Loan and Commitment in the same way
that it is funding the portion of such Loan and Commitment in which no
participations have been sold. In no event shall a Bank that sells a
participation agree with the Participant to take or refrain from taking any
action hereunder except that such Bank may agree with the Participant that it
will not, without the consent of the Participant, agree to (i) increase or
extend the term of such Bank's Commitment, (ii) extend the date fixed for the
payment of principal of or
<PAGE> 80
- 76 -
interest on the related Loan or Loans or any portion of any fee hereunder
payable to the Participant, (iii) reduce the amount of any such payment of
principal, (iv) reduce the rate at which interest is payable thereon, or any fee
hereunder payable to the Participant, to a level below the rate at which the
Participant is entitled to receive such interest or fee or (v) consent to any
modification, supplement or waiver hereof to the extent that the same, under
Section 11.04 hereof, requires the consent of each Bank.
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 11.06, any Bank may
(without notice to the Company, the Administrative Agent or any other Bank and
without payment of any fee) (i) assign and pledge all or any portion of its
Loans and its Notes to any Federal Reserve Bank as collateral security pursuant
to Regulation A and any Operating Circular issued by such Federal Reserve Bank
and (ii) assign all or any portion of its rights under this Agreement and its
Loans and its Notes to an affiliate. No such assignment to a Federal Reserve
Bank shall release the assigning Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning the Company
or any of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 11.12(b) hereof.
(f) Anything in this Section 11.06 to the contrary
notwithstanding, no Bank may assign or participate any interest in any Loan held
by it hereunder to the Company or any of its affiliates or Subsidiaries without
the prior consent of each Bank.
11.07 Survival. The obligations of the Company under Sections
5.01, 5.05, 5.06 and 11.03 hereof, and the obligations of the Banks under
Section 10.05 hereof, shall survive the repayment of the Loans and the
termination of the Commitments and, in the case of any Bank that may assign any
interest in its Commitment or Loans hereunder, shall survive the making of such
assignment, notwithstanding that such assigning Bank may cease to be a "Bank"
hereunder. In addition, each representation and warranty made, or deemed to be
made by a notice of any Loan, herein or pursuant hereto shall survive the making
of such representation and warranty, and no Bank shall be deemed to have
<PAGE> 81
- 77 -
waived, by reason of making any Loan, any Default that may arise by reason of
such representation or warranty proving to have been false or misleading,
notwithstanding that such Bank or the Administrative Agent may have had notice
or knowledge or reason to believe that such representation or warranty was false
or misleading at the time such Loan was made.
11.08 Captions. The table of contents and captions and section
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.09 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
11.10 Governing Law; Submission to Jurisdiction. This
Agreement and the Notes shall be governed by, and construed in accordance with,
the law of the State of New York. The Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
New York and of the Supreme Court of the State of New York sitting in New York
County (including its Appellate Division), and of any other appellate court in
the State of New York, for the purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby. The
Company hereby irrevocably waives, to the fullest extent permitted by applicable
law, any objection that it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
11.11 Waiver of Jury Trial. EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE> 82
- 78 -
11.12 Treatment of Certain Information; Confidentiality.
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates
of such Bank and the Company hereby authorizes each Bank to share any
information delivered to such Bank by the Company and its Subsidiaries pursuant
to this Agreement, or in connection with the decision of such Bank to enter into
this Agreement, to any such subsidiary or affiliate, it being understood that
any such subsidiary or affiliate receiving such information shall be bound by
the provisions of paragraph (b) below as if it were a Bank hereunder. Such
authorization shall survive the repayment of the Loans and the termination of
the Commitments.
(b) Each Bank and the Administrative Agent agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
of the same nature and in accordance with safe and sound banking practices, any
non-public information supplied to it by the Company pursuant to this Agreement
that is identified by the Company as being confidential at the time the same is
delivered to the Banks or the Administrative Agent, provided that nothing herein
shall limit the disclosure of any such information (i) after such information
shall have become public (other than through a violation of this Section 11.12),
(ii) to the extent required by statute, rule, regulation or judicial process,
(iii) to counsel for any of the Banks or the Administrative Agent, (iv) to bank
examiners (or any other regulatory authority having jurisdiction over any Bank
or the Administrative Agent), or to auditors or accountants, (v) to the
Administrative Agent or any other Bank (or to Chase Securities, Inc.), (vi) in
connection with any litigation to which any one or more of the Banks or the
Administrative Agent is a party, or in connection with the enforcement of rights
or remedies hereunder, (vii) to a subsidiary or affiliate of such Bank as
provided in paragraph (a) above or (viii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to the
respective Bank a
<PAGE> 83
- 79 -
Confidentiality Agreement substantially in the form of Exhibit F hereto (or
executes and delivers to such Bank and the Company an acknowledgement to the
effect that it is bound by the provisions of this Section 11.12(b), which
acknowledgement may be included as part of the respective assignment or
participation agreement pursuant to which such assignee or participant acquires
an interest in the Loans hereunder); provided, further, that in no event shall
any Bank or the Administrative Agent be obligated or required to return any
materials furnished by the Company. The obligations of each Bank under this
Section 11.12 shall supersede and replace the obligations of such Bank under the
confidentiality letter in respect of this financing signed and delivered by such
Bank to the Company prior to the date hereof; in addition, the obligations of
any assignee that has executed a Confidentiality Agreement in the form of
Exhibit F hereto shall be superseded by this Section 11.12 upon the date upon
which such assignee becomes a Bank hereunder pursuant to Section 11.06(b)
hereof.
<PAGE> 84
- 80 -
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
WASHINGTON MUTUAL, INC.
By /s/ William A. Longbrake
--------------------------------
Title: Executive Vice President
and Chief Financial Officer
<PAGE> 85
- 81 -
BANKS
Commitment THE CHASE MANHATTAN BANK
$12,500,000
By /s/ George C. Johnson
--------------------------------
Title: Vice President
Commitment BANK OF AMERICA NATIONAL TRUST
$12,500,000 AND SAVINGS ASSOCIATION
By /s/ Paolo Foggini
--------------------------------
Title: Vice President
Commitment CREDIT LYONNAIS
$12,500,000 SAN FRANCISCO BRANCH
By /s/ Edward W. Leong
--------------------------------
Title: Vice President
By
--------------------------------
Title:
By
--------------------------------
Title:
Commitment THE FIRST NATIONAL BANK OF CHICAGO
$12,500,000
By /s/ Robert C. English
--------------------------------
Title: Authorized Agent
Commitment THE BANK OF TOKYO-MITSUBISHI,
$10,000,000 LTD., SEATTLE BRANCH
<PAGE> 86
- 82 -
By /s/ David M. Purcell
--------------------------------
Title: Vice President
Commitment MELLON BANK, N.A.
$10,000,000
By /s/ Dean Pace
--------------------------------
Title: Vice President
Commitment THE BANK OF NEW YORK
$8,750,000
By /s/ David Dobbins
--------------------------------
Title: Vice President
Commitment U.S. BANK OF WASHINGTON,
$8,750,000 NATIONAL ASSOCIATION
By /s/ Steven A. Lundstrom
--------------------------------
Title: Vice President
Commitment THE DAI-ICHI KANGYO BANK,
$6,250,000 LIMITED, SAN FRANCISCO AGENCY
By /s/ Takuo Yoshida
--------------------------------
Title: General Manager & Agent
Commitment KEY BANK OF WASHINGTON
$6,250,000
By /s/ Kathleen J. Johanson
--------------------------------
Title: Vice President
<PAGE> 87
- 83 -
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ George C. Johnson
--------------------------------
Title: Vice President
<PAGE> 88
SCHEDULE I
Material Agreements and Liens
Part A - Material Agreements
1. Senior Notes. The Company issued senior unsecured notes under an
Indenture dated August 25, 1995 between the Company and Harris Trust
and Savings Bank, as trustee. The notes bear interest at 7.25% and are
limited to $150,000,000 in aggregate principal amount outstanding. The
notes are due on August 15, 2005 and may not be redeemed prior to
maturity.
2. City of Tampa Note. The Company assumed through acquisition of
Pacific First Federal Savings Bank, a federally chartered association
("Pacific First"), a $75,000,000 note payable to the City of Tampa,
Florida (the "Note"). The Note is subject to periodic principal
withdrawals and has a current outstanding principal balance of
$71,716,667. The Note bears interest at 8.16% and matures on October 1,
1998.
Part B - Liens
1. Mortgage Pass-Through Securities. The Company is successor to
Pacific First Bank, A Federal Savings Bank, which was successor to
Pacific First. Pacific First is the named Pledgor under a certain
Collateral Pledge and Maintenance Agreement dated June 23, 1988 (the
"Pledge Agreement") among First Florida Bank, N.A., as trustee on
behalf of the holders of the City of Tampa Capital Improvement Program
Revenue Bonds, as Pledgee; Chemical Bank, as Collateral Agent for
Pledgee and Pacific First. The Bank of New York Trust Company of
Florida, N.A. is the current successor to the rights and obligations of
First Florida Bank, N.A. under the Pledge Agreement.
In accord with Section 3.02(b) of the Pledge Agreement, the
Pledgee maintains, as collateral for the Company's obligations under
the Note payable to the City of Tampa, a first priority and perfected
security interest in certain mortgage pass-through securities owned by
the Company. Under the terms of the Pledge Agreement, these securities
may be substituted from time to time with certain additional
collateral. Such additional collateral must meet or exceed
<PAGE> 89
specific value requirements provided for in the Pledge Agreement.
<PAGE> 90
SCHEDULE II
Subsidiaries
See attached.
<PAGE> 91
Description of Subsidiaries SCHEDULE II
Page 1
LISTING OF SUBSIDIARIES OF WMI
<TABLE>
<CAPTION>
============================================================================================================================
NAME NAME OF STATE OF PERCENT OF
IMMEDIATE PARENT INCORPORATION AFFILIATE
OWNERSHIP*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefit Service Corporation*** WM Financial, Inc. Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Composite Research & Management Co.*** Washington Mutual, Inc. Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Empire Life Insurance Co. WM Life Insurance Co. Nebraska 100%
(domesticated
Washington 12-12-89)
- ----------------------------------------------------------------------------------------------------------------------------
GNW Land Company** *** Seacoast Management, Inc. Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Mill Maple Properties, Inc.*** Washington Mutual Bank Oregon 100%
- ----------------------------------------------------------------------------------------------------------------------------
Murphey Favre, Inc.*** Washington Mutual, Inc. Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Murphey Favre Housing Managers, Inc.*** Murphey Favre Washington 100%
Properties, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Murphey Favre Insurance Services, Inc.*** Murphey Favre, Inc. Idaho 100%
- ----------------------------------------------------------------------------------------------------------------------------
Murphey Favre Properties, Inc.*** WM Financial, Inc. Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Murphey Favre Securities Services, Inc.*** Murphey Favre, Inc. Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Olympus Development Company*** Washington Mutual Bank Utah 100%
fsb
- ----------------------------------------------------------------------------------------------------------------------------
2425 Service Corporation*** Washington Mutual Bank Utah 100%
fsb
- ----------------------------------------------------------------------------------------------------------------------------
Pacific First Insurance, Inc.*** Washington Mutual Bank Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Pioneer Properties, Inc.*** Washington Mutual Bank Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Preston Properties California, Inc.*** Preston Ridge Financial Washington 100%
Services Corp.
============================================================================================================================
</TABLE>
* Inactive on dormant subsidiary
** All ownership is in form common stock
*** Non-Material Subsidiary
<PAGE> 92
Description of Subsidiaries SCHEDULE II
Page 2
<TABLE>
<CAPTION>
============================================================================================================================
NAME NAME OF STATE OF PERCENT OF
IMMEDIATE PARENT INCORPORATION AFFILIATE
OWNERSHIP*
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preston Ridge Financial Services Corporation*** Washington Mutual Bank Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
SS Service Corporation*** Washington Mutual Bank Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Seacoast Management, Inc.*** Washington Mutual Bank Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
WM Enterprises & Holdings, Inc.*** Washington Mutual Bank Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
WM Financial, Inc.*** Washington Mutual Bank Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
WM Life Insurance Co. Washington Mutual, Inc. Arizona 100%
- ----------------------------------------------------------------------------------------------------------------------------
Washington Mutual Bank Washington Mutual, Inc. Washington 100%
- ----------------------------------------------------------------------------------------------------------------------------
Washington Mutual Bank fsb Washington Mutual, Inc. Federally Chartered 100%
- ----------------------------------------------------------------------------------------------------------------------------
Washington Mutual Financial Services, Inc.*** Washington Mutual Bank Oregon 100%
fsb
- ----------------------------------------------------------------------------------------------------------------------------
Washington Mutual Insurance Brokerage Services, Washington Mutual Bank Montana 100%
Inc.*** fsb
- ----------------------------------------------------------------------------------------------------------------------------
Washington Mutual Insurance Services, Inc.*** Washington Mutual Bank Washington 100%
fsb
- ----------------------------------------------------------------------------------------------------------------------------
Washington Mutual Insurance Services of Idaho, Washington Mutual Bank Idaho 100%
Inc.*** fsb
- ----------------------------------------------------------------------------------------------------------------------------
Western Aero, Ltd.*** Washington Mutual Bank Oregon 100%
- ----------------------------------------------------------------------------------------------------------------------------
Western Credit Services Co.*** Washington Mutual Bank Oregon 100%
- ----------------------------------------------------------------------------------------------------------------------------
Western Service Co.*** Washington Mutual Bank Oregon 100%
============================================================================================================================
</TABLE>
* Inactive on dormant subsidiary
** All ownership is in form common stock
*** Non-Material Subsidiary
<PAGE> 93
SCHEDULE III
Litigation
None.
<PAGE> 94
EXHIBIT A-1
[Form of Syndicated Note]
PROMISSORY NOTE
$_______________ December 10, 1996
New York, New York
FOR VALUE RECEIVED, WASHINGTON MUTUAL, INC., a Washington
corporation (the "Company"), hereby promises to pay to __________________ (the
"Bank"), for account of its respective lending offices provided for by the
Credit Agreement referred to below, at the principal office of The Chase
Manhattan Bank at 270 Park Avenue, New York, New York 10017, the principal sum
of _______________ Dollars (or such lesser amount as shall equal the aggregate
unpaid principal amount of the Syndicated Loans made by the Bank to the Company
under the Credit Agreement), in lawful money of the United States of America and
in immediately available funds, on the dates and in the principal amounts
provided in the Credit Agreement, and to pay interest on the unpaid principal
amount of each such Syndicated Loan, at such office, in like money and funds,
for the period commencing on the date of such Syndicated Loan until such
Syndicated Loan shall be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Syndicated Loan made by the Bank to the Company,
and each payment made on account of the principal thereof, shall be recorded by
the Bank on its books and, prior to any transfer of this Note, endorsed by the
Bank on the schedule attached hereto or any continuation thereof, provided that
the failure of the Bank to make any such recordation or endorsement shall not
affect the obligations of the Company to make a payment when due of any amount
owing under the Credit Agreement or hereunder in respect of the Syndicated Loans
made by the Bank.
This Note is one of the Syndicated Notes referred to in the
Four-Year Credit Agreement dated as of December 10, 1996 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") between
the Company, the lenders party thereto (including the Bank) and The Chase
Manhattan Bank, as
<PAGE> 95
-2-
Administrative Agent, and evidences Syndicated Loans made by the Bank
thereunder. Terms used but not defined in this Note have the respective meanings
assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Loans upon the terms and conditions specified therein.
Except as permitted by Section 11.06 of the Credit Agreement,
this Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
WASHINGTON MUTUAL, INC.
By_________________________
Title:
<PAGE> 96
-3-
SCHEDULE OF SYNDICATED LOANS
This Note evidences Syndicated Loans made under the
within-described Credit Agreement to the Company, on the dates, in the principal
amounts, of the Types, bearing interest at the rates and having Interest Periods
(if applicable) of the durations set forth below, subject to the payments and
prepayments of principal set forth below:
Prin-
cipal Duration Amount Unpaid
Amount Type of Paid Prin-
Date of of Interest Interest or cipal Notation
Made Loan Loan Rate Period Prepaid Amount Made by
---- ---- ---- ---- ------ ------- ------ -------
<PAGE> 97
EXHIBIT A-2
[Form of Money Market Note]
PROMISSORY NOTE
December 10, 1996
New York, New York
FOR VALUE RECEIVED, WASHINGTON MUTUAL, INC., a Washington
corporation (the "Company"), hereby promises to pay to __________________ (the
"Bank"), for account of its respective lending offices provided for by the
Credit Agreement referred to below, at the principal office of The Chase
Manhattan Bank at 270 Park Avenue, New York, New York 10017, the aggregate
unpaid principal amount of the Money Market Loans made by the Bank to the
Company under the Credit Agreement, in lawful money of the United States of
America and in immediately available funds, on the dates and in the principal
amounts provided in the Credit Agreement, and to pay interest on the unpaid
principal amount of each such Money Market Loan, at such office, in like money
and funds, for the period commencing on the date of such Money Market Loan until
such Money Market Loan shall be paid in full, at the rates per annum and on the
dates provided in the Credit Agreement.
The date, amount, Type, interest rate and maturity date of
each Money Market Loan made by the Bank to the Company, and each payment made on
account of the principal thereof, shall be recorded by the Bank on its books
and, prior to any transfer of this Note, endorsed by the Bank on the schedule
attached hereto or any continuation thereof, provided that the failure of the
Bank to make any such recordation or endorsement shall not affect the
obligations of the Company to make a payment when due of any amount owing under
the Credit Agreement or hereunder in respect of the Money Market Loans made by
the Bank.
This Note is one of the Money Market Notes referred to in the
Four-Year Credit Agreement dated as of December 10, 1996 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") between
the Company, the lenders party thereto (including the Bank) and The Chase
Manhattan Bank, as Administrative Agent, and evidences Money Market Loans made
by
<PAGE> 98
-2-
the Bank thereunder. Terms used but not defined in this Note have the respective
meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of the
maturity of this Note upon the occurrence of certain events and for prepayments
of Money Market Loans upon the terms and conditions specified therein.
Except as permitted by Section 11.06 of the Credit Agreement,
this Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance
with, the law of the State of New York.
WASHINGTON MUTUAL, INC.
By_________________________
Title:
<PAGE> 99
-3-
SCHEDULE OF LOANS
This Note evidences Loans made under the within-
described Credit Agreement to the Company, on the dates, in the principal
amounts, of the Types, bearing interest at the rates and maturing on the dates
set forth below, subject to the payments and prepayments of principal set forth
below:
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- ---- ---- ---- ---- ---- ------- ------ -------
<PAGE> 100
EXHIBIT B
[Form of Opinion of Counsel to the Company]
__________, 199_
To the Banks party to the
Credit Agreement referred to
below and The Chase
Manhattan Bank, as Administrative Agent
Ladies and Gentlemen:
We have acted as counsel to Washington Mutual, Inc. (the
"Company") in connection with (i) the Four-Year Credit Agreement (the "Credit
Agreement") dated as of December 10, 1996, between the Company, the lenders
party thereto and The Chase Manhattan Bank, as Administrative Agent, providing
for loans to be made by said lenders to the Company in an aggregate principal
amount not exceeding $100,000,000 and (ii) the instruments and other documents
referred to in the next following paragraph. Terms used herein without
definition have the meanings assigned to them in the Credit Agreement. This
opinion letter is being delivered pursuant to Section 6.01(c) of the Credit
Agreement.
In rendering the opinions expressed below, we have examined
the following agreements, instruments and other documents:
(a) the Credit Agreement;
(b) the Notes executed and delivered on the date hereof;
and
(c) such records of the Company and such other documents
as we have deemed necessary as a basis for the
opinions expressed below.
The Credit Agreement and such Notes are collectively referred to as the "Credit
Documents".
In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with authentic original documents
<PAGE> 101
- 2 -
of all documents submitted to us as copies. When relevant facts were not
independently established, we have relied upon statements of governmental
officials and upon representations made in or pursuant to the Credit Documents
and certificates of appropriate representatives of the Company.
In rendering the opinions expressed below, we have assumed,
with respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to the
Company):
(i) such documents have been duly authorized by, have
been duly executed and delivered by, and constitute
legal, valid, binding and enforceable obligations of,
all of the parties to such documents;
(ii) all signatories to such documents have been duly
authorized and all signatories have the legal
capacity to execute and deliver such documents; and
(iii) all of the parties to such documents are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver
and perform such documents.
For purposes of this letter, when we render an opinion "to our
knowledge" or as to which we have "knowledge," we have based such opinion on (i)
inquiries of the attorneys in our firm who routinely work on matters related to
the Company and (ii) inquiries of representatives of the Company whom we
reasonably believe to have knowledge about the subject matter of the inquiries.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that:
<PAGE> 102
- 3 -
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Washington. Each Subsidiary of
the Company listed in Annex I hereto is a corporation duly organized
and validly existing under the laws of the respective state indicated
opposite its name in Annex I hereto.
2. The Company has all requisite corporate power to execute
and deliver, and to perform its obligations under, the Credit
Documents. The Company has all requisite corporate power to borrow
under the Credit Agreement.
3. The execution, delivery and performance by the Company of
each Credit Document, and the borrowings by the Company under the
Credit Agreement, have been duly authorized by all necessary corporate
action on the part of the Company.
4. Each Credit Document has been duly executed and delivered
by the Company.
5. If the Credit Documents were stated to be governed by and
construed in accordance with the law of the State of Washington, or if
a court of the State of Washington were to apply the law of the State
of Washington to the Credit Documents, each Credit Document would
constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or transfer or other similar laws relating to or
affecting the rights of creditors generally and except as the
enforceability of the Credit Documents is subject to the application of
general principles of equity (regardless of whether considered in a
proceeding in equity or at law), including, without limitation, (a) the
possible unavailability of specific performance, injunctive relief or
any other equitable remedy and (b) concepts of materiality,
reasonableness, good faith and fair dealing.
<PAGE> 103
- 4 -
6. No authorization, approval or consent of, and no filing or
registration with, any governmental or regulatory authority or agency
of the United States of America or the State of Washington is required
on the part of the Company for the execution, delivery or performance
by the Company of any of the Credit Documents or for the borrowings by
the Company under the Credit Agreement.
7. The execution, delivery and performance by the Company of,
and the consummation by the Company of the transactions contemplated
by, the Credit Documents do not and will not (a) violate any provision
of its Articles of Incorporation or by-laws, (b) violate any applicable
law, rule or regulation, (c) violate any order, writ, injunction or
decree of any court or governmental authority or agency or any arbitral
award applicable to the Company or any of its Subsidiaries of which we
have knowledge or (d) result in a breach of, constitute a default
under, require any consent under, or result in the acceleration or
required prepayment of any indebtedness pursuant to the terms of, any
agreement or instrument of which we have knowledge to which the Company
or any of its Subsidiaries is a party or by which any of them is bound
or to which any of them is subject.
8. Except as set forth in Schedule III to the Credit
Agreement, we have no knowledge of any legal or arbitral proceedings,
or any proceedings by or before any governmental or regulatory
authority or agency, pending or threatened against the Company or any
of its Subsidiaries or any of their respective Properties that are
reasonably likely (either individually or in the aggregate) to have a
Material Adverse Effect.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 11.03 of the Credit
Agreement may be limited by laws limiting the enforceability of
provisions exculpating or exempting a party, or requiring
indemnification of a party for, liability for its own action or
inaction, to the extent the
<PAGE> 104
- 5 -
action or inaction involves negligence, recklessness, willful
misconduct or unlawful conduct.
(B) The enforceability of provisions in the Credit Documents
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
Washington) that limit the interest, fees or other charges such Bank
may impose, (ii) Section 4.07(c) of the Credit Agreement, (iii) the
second paragraph of Section 11.01 of the Credit Agreement, (iv) the
first sentence of Section 11.10, (v) the second sentence of Section
11.10 of the Credit Agreement, insofar as such sentence relates to the
subject matter jurisdiction of the United States District Court for the
Southern District of New York to adjudicate any controversy related to
any of the Credit Documents, (vi) the waiver of inconvenient forum set
forth in Section 11.10 of the Credit Agreement, (vii) Section 11.11 of
the Credit Agreement and (viii) the enforceability of provisions in the
Credit Documents that purport to establish evidentiary standards.
(D) The courts of the State of Washington will consider
extrinsic evidence of circumstances surrounding the making of the
Credit Documents to ascertain the intent of the parties in using the
language employed in the Credit Documents, regardless of whether or not
the language used in the Credit Documents is plain and unambiguous on
its face, and may incorporate additional or supplementary terms into
the Credit Documents.
(E) We call to your attention that, under Washington law,
where a provision of contract permits one party to the contract to
recover attorneys' fees, such provision will be construed to permit the
prevailing party in any action to enforce the contract to recover its
reasonable attorneys' fees.
<PAGE> 105
- 6 -
(F) We have assumed that any compensation owed pursuant to
Section 5.05 of the Credit Agreement is reasonable in amount,
reflecting compensation for actual economic loss. We also not that in
McCausland v. Bankers Life Insurance, 110 Wn.2d 716, 757 P.2d 941
(1988) and in Rodgers v. Rainier National Bank, 111 Wn.2d 232, 757 P.2d
976 (1988), the Washington Supreme Court indicated that, at least under
certain circumstances, a lender may lose the right to a prepayment fee
by accelerating the debt.
(G) Our opinion in paragraphs 6 and 7(b) above is not intended
to address the issue as to whether any filing or registrations would be
required under applicable securities laws in connection with the sale,
assignment or other transfer by a Bank of any Loan or Note or any
interest or participation therein.
(H) We note that, under Washington law, if a Bank is deemed to
be transacting business as a foreign corporation in the State of
Washington without being qualified to do so, it will not be entitled to
commence a proceeding in the courts in this state with respect to the
Credit Documents unless it qualifies to transact business as a foreign
corporation under the Washington Business Corporation Act and under
Title 30 of the Revised Code of Washington (Banks and Trust Companies),
to the extent such Title is applicable to such Bank. We further note,
however, that no Bank will be subject to the requirement to qualify to
transact business as a foreign corporation solely by reason of the
execution, delivery, performance or enforcement of the Credit
Documents.
The foregoing opinions are limited to matters involving the
Federal laws of the United States and the law of the State of Washington, and we
do not express any opinion as to the laws of any other jurisdiction.
<PAGE> 106
- 7 -
At the request of our clients, this opinion letter is,
pursuant to Section 6.01(c) of the Credit Agreement, provided to you by us in
our capacity as counsel to the Company and may not be relied upon by any Person
for any purpose other than in connection with the transactions contemplated by
the Credit Agreement without, in each instance, our prior written consent.
Very truly yours,
<PAGE> 107
EXHIBIT C
[Form of Opinion of Special New York Counsel to Chase]
December 10, 1996
To the Banks party to the
Credit Agreement referred to
below and The Chase
Manhattan Bank, as Administrative Agent
Ladies and Gentlemen:
We have acted as special New York counsel to The Chase
Manhattan Bank ("Chase") in connection with (i) the Four-Year Credit Agreement
dated as of December 10, 1996 (the "Credit Agreement") between Washington
Mutual, Inc. (the "Company"), the lenders party thereto and Chase, as
Administrative Agent, providing for loans to be made by said lenders to the
Company in an aggregate principal amount not exceeding $100,000,000 and (ii) the
instruments referred to in the next following paragraph. Terms defined in the
Credit Agreement are used herein as defined therein. This opinion letter is
being delivered pursuant to Section 6.01(d) of the Credit Agreement.
In rendering the opinions expressed below, we have examined
the following agreements and instruments:
(a) the Credit Agreement; and
(b) the Notes executed and delivered on the date hereof.
The Credit Agreement and such Notes are collectively referred to as the "Credit
Documents".
In our examination, we have assumed the authenticity of all
documents submitted to us as originals and the conformity with authentic
original documents of all documents submitted to us as copies. When relevant
facts were not independently established, we have relied upon representations
made in or pursuant to the Credit Documents.
<PAGE> 108
- 2 -
In rendering the opinions expressed below, we have assumed,
with respect to all of the Credit Documents, that:
(i) each of the Credit Documents has been duly authorized
by, has been duly executed and delivered by, and
(except to the extent set forth in the opinions below
as to the Company) constitutes legal, valid, binding
and enforceable obligations of, all of the parties
thereto;
(ii) all signatories to the Credit Documents have been
duly authorized; and
(iii) all of the parties to the Credit Documents are duly
organized and validly existing and have the power and
authority (corporate or other) to execute, deliver
and perform the Credit Documents.
Based upon and subject to the foregoing and subject also to
the comments and qualifications set forth below, and having considered such
questions of law as we have deemed necessary as a basis for the opinions
expressed below, we are of the opinion that each of the Credit Documents
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
transfer or other similar laws relating to or affecting the rights of creditors
generally and except as the enforceability of the Credit Documents is subject to
the application of general principles of equity (regardless of whether
considered in a proceeding in equity or at law), including, without limitation,
(a) the possible unavailability of specific performance, injunctive relief or
any other equitable remedy and (b) concepts of materiality, reasonableness, good
faith and fair dealing.
The foregoing opinions are subject to the following comments
and qualifications:
(A) The enforceability of Section 11.03 of the Credit
Agreement may be limited by laws limiting the enforceability
<PAGE> 109
- 3 -
of provisions exculpating or exempting a party, or requiring
indemnification of a party for, liability for its own action or
inaction, to the extent the action or inaction involves gross
negligence, recklessness, willful misconduct or unlawful conduct.
(B) The enforceability of provisions in the Credit Documents
to the effect that terms may not be waived or modified except in
writing may be limited under certain circumstances.
(C) We express no opinion as to (i) the effect of the laws of
any jurisdiction in which any Bank is located (other than the State of
New York) that limit the interest, fees or other charges such Bank may
impose, (ii) Section 4.07(c) of the Credit Agreement, (iii) the second
sentence of Section 11.01 of the Credit Agreement, (iv) the second
sentence of Section 11.10 of the Credit Agreement, insofar as such
sentence relates to the subject matter jurisdiction of the United
States District Court for the Southern District of New York to
adjudicate any controversy related to any of the Credit Documents and
(v) the waiver of inconvenient forum set forth in Section 11.10 of the
Credit Agreement with respect to proceedings in the United States
District Court for the Southern District of New York.
The foregoing opinions are limited to matters involving the
Federal laws of the United States and the law of the State of New York, and we
do not express any opinion as to the laws of any other jurisdiction.
<PAGE> 110
- 4 -
At the request of our client, this opinion letter is, pursuant
to Section 6.01(d) of the Credit Agreement, provided to you by us in our
capacity as special New York counsel to Chase and may not be relied upon by any
Person for any purpose other than in connection with the transactions
contemplated by the Credit Agreement without, in each instance, our prior
written consent.
Very truly yours,
CDP/TDB
<PAGE> 111
EXHIBIT D
[Form of Money Market Quote Request]
[Date]
To: The Chase Manhattan Bank, as Administrative Agent
From: Washington Mutual, Inc.
Re: Money Market Quote Request
Pursuant to Section 2.03 of the Four-Year Credit Agreement dated as of
December 10, 1996 (the "Credit Agreement") between Washington Mutual, Inc., the
lenders party thereto and The Chase Manhattan Bank, as Administrative Agent, we
hereby give notice that we request Money Market Quotes for the following
proposed Money Market Borrowing(s):
Borrowing Quotation Interest
Date Date[*1] Amount[*2] Type[*3] Period[*4]
---- -------- ---------- -------- ----------
Terms used herein have the meanings assigned to them in the Credit
Agreement.
WASHINGTON MUTUAL, INC.
By_________________________
Title:
- --------------------------
* All numbered footnotes appear on the last page of this Exhibit.
<PAGE> 112
- 2 -
- --------------------------
[1] For use if a Set Rate in a Set Rate Auction is requested to be
submitted before the Borrowing Date.
[2] Each amount must be $10,000,000 or a larger multiple of $1,000,000.
[3] Insert either "LIBO Margin" (in the case of LIBOR Market Loans) or "Set
Rate" (in the case of Set Rate Loans).
[4] A whole number of months, in the case of a LIBOR Market Loan or, in the
case of a Set Rate Loan, a period of not less than 7 days after the
making of such Set Rate Loan and ending on a Business Day.
<PAGE> 113
EXHIBIT E
[Form of Money Market Quote]
To: The Chase Manhattan Bank, as Administrative Agent
Attention:
Re: Money Market Quote to
Washington Mutual, Inc. (the "Company")
This Money Market Quote is given in accordance with Section
2.03(c) of the Four-Year Credit Agreement dated as of December 10, 1996 (the
"Credit Agreement") between Washington Mutual, Inc., the lenders party thereto
and The Chase Manhattan Bank, as Administrative Agent. Terms defined in the
Credit Agreement are used herein as defined therein.
In response to the Company's invitation dated __________,
199_, we hereby make the following Money Market Quote(s) on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Money Market Loan(s) in the
following principal amount[s], for the following Interest Period(s) and
at the following rate(s):
Borrowing Quotation Interest
Date Date[*1] Amount[*2] Type[*3] Period[*4] Rate[*5]
---- -------- ---------- -------- ---------- --------
provided that the Company may not accept offers that would result in the
undersigned making Money Market Loans pursuant hereto in excess of $___________
in the aggregate (the "Money Market Loan Limit").
- --------------------------
<PAGE> 114
- 2 -
* All numbered footnotes appear on the last page of this Exhibit.
<PAGE> 115
- 3 -
We understand and agree that the offer(s) set forth above,
subject to the satisfaction of the applicable conditions set forth in the Credit
Agreement, irrevocably obligate(s) us to make the Money Market Loan(s) for which
any offer(s) (is/are) accepted, in whole or in part (subject to the third
sentence of Section 2.03(e) of the Credit Agreement and any Money Market Loan
Limit specified above).
Very truly yours,
[NAME OF BANK]
By_________________________
Authorized Officer
Dated: __________, ____
- --------------------------
[1] As specified in the related Money Market Quote Request.
[2] The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $5,000,000
(or a larger multiple of $1,000,000).
[3] Indicate "LIBO Margin" (in the case of LIBOR Market Loans) or "Set
Rate" (in the case of Set Rate Loans).
[4] A whole number of months, in the case of a LIBOR Market Loan or, in the
case of a Set Rate Loan, a period of not less than 7 days after the
making of such Set Rate Loan and ending on a Business Day, as specified
in the related Money Market Quote Request.
[5] For a LIBOR Market Loan, specify margin over or under the London
interbank offered rate determined for the applicable Interest Period.
Specify percentage (rounded to the nearest 1/10,000 of 1%) and specify
whether "PLUS" or "MINUS". For
<PAGE> 116
- 4 -
a Set Rate Loan, specify rate of interest per annum (rounded to the
nearest 1/10,000 of 1%).
<PAGE> 117
EXHIBIT F
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Four-Year Credit Agreement dated as of December 10, 1996 (the
"Credit Agreement"), between Washington Mutual, Inc. (the
"Company"), the lenders party thereto and The Chase Manhattan
Bank, as Administrative Agent.
Dear Ladies and Gentlemen:
As a Bank party to the Credit Agreement, we have agreed with
the Company pursuant to Section 11.12 of the Credit Agreement to use reasonable
precautions to keep confidential, except as otherwise provided therein, all
non-public information identified by the Company as being confidential at the
time the same is delivered to us pursuant to the Credit Agreement.
As provided in said Section 11.12, we are permitted to provide
you, as a prospective [holder of a participation in the Loans (as defined in the
Credit Agreement)] [assignee Bank], with certain of such non-public information
subject to the execution and delivery by you, prior to receiving such non-public
information, of a Confidentiality Agreement in this form. Such information will
not be made available to you until your execution and return to us of this
Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on
behalf of yourself and each of your affiliates, directors, officers, employees
and representatives and for the benefit of us and the Company) that (A) such
information will not be used by you except in connection with the proposed
<PAGE> 118
- 2 -
[participation][assignment] mentioned above and (B) you shall use reasonable
precautions, in accordance with your customary procedures for handling
confidential information and in accordance with safe and sound banking
practices, to keep such information confidential, provided that nothing herein
shall limit the disclosure of any such information (i) after such information
shall have become public (other than through a violation of Section 11.12 of the
Credit Agreement), (ii) to the extent required by statute, rule, regulation or
judicial process, (iii) to your counsel or to counsel for any of the Banks or
the Administrative Agent, (iv) to bank examiners (or any other regulatory
authority having jurisdiction over any Bank or the Administrative Agent), or to
auditors or accountants, (v) to the Administrative Agent or any other Bank (or
to Chase Securities, Inc.), (vi) in connection with any litigation to which you
or any one or more of the Banks or the Administrative Agent are a party, or in
connection with the enforcement of rights or remedies under the Credit
Agreement, (vii) to a subsidiary or affiliate of yours as provided in Section
11.12(a) of the Credit Agreement or (viii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to you a
Confidentiality Agreement substantially in the form hereof and that in no event
shall you be obligated to return any materials furnished to you pursuant to this
Confidentiality Agreement.
If you are a prospective assignee, your obligations under this
Confidentiality Agreement shall be superseded by Section 11.12 of the Credit
Agreement on the date upon which you become a Bank under the Credit Agreement
pursuant to Section 11.06(b) thereof.
<PAGE> 119
- 3 -
Please indicate your agreement to the foregoing by signing as
provided below the enclosed copy of this Confidentiality Agreement and returning
the same to us.
Very truly yours,
[INSERT NAME OF BANK]
By_________________________
The foregoing is agreed to as of the date of this letter.
[INSERT NAME OF PROSPECTIVE
PARTICIPANT OR ASSIGNEE]
By_________________________
<PAGE> 120
EXHIBIT G
[Form of Assignment and Acceptance]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Four-Year Credit Agreement, dated as
of December 10, 1996 (as modified and supplemented and in effect from time to
time, the "Credit Agreement"), between Washington Mutual, Inc., a Washington
corporation (the "Company"), the lenders named therein, and The Chase Manhattan
Bank, as agent for such lenders (in such capacity, the "Administrative Agent").
Terms defined in the Credit Agreement are used herein as defined therein.
________________ (the "Assignor") and ________________ (the
"Assignee") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the
Assignee without recourse to the Assignor, and the Assignee hereby irrevocably
purchases and assumes from the Assignor without recourse to the Assignor, as of
the Effective Date as set forth in Schedule 1 hereto (the "Effective Date"), an
interest (the "Assigned Interest") in and to the Assignor's rights and
obligations under the Credit Agreement with respect to those credit facilities
contained in the Credit Agreement as are set forth on Schedule 1 (individually,
an "Assigned Facility"; collectively, the "Assigned Facilities"), in a principal
amount and percentage for each Assigned Facility as set forth on Schedule 1.
2. The Assignor (i) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or any other
instrument or document furnished pursuant thereto, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto, other
than that it is the beneficial owner of the interest being assigned by it
hereunder and that it has not created any adverse claim upon the interest being
assigned by it hereunder and that such interest is free and clear of any such
adverse claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company, any of
its Subsidiaries or any other obligation or the performance or observance by the
<PAGE> 121
- 2 -
Company, any of its Subsidiaries or any other obligor of any of their respective
obligations under the Credit Agreement or any other instrument or document
furnished pursuant hereto or thereto; and (iii) attaches the Note(s) held by it
evidencing the Assigned Facilities and requests that the Administrative Agent
exchange such Note(s) for a new Note or Notes payable to the Assignor (if the
Assignor has retained any interest in the Assigned Facility) and a new Note or
Notes payable to the Assignee in the respective amounts which reflect the
assignment being made hereby (and after giving effect to any other assignments
which have become effective on the Effective Date).
3. The Assignee (i) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (ii) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements referred to in Section 7.02 thereof, the financial
statements delivered pursuant to Section 8.01 thereof, if any, and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment and Acceptance; (iii) agrees
that it will, independently and without reliance upon the Assignor, the
Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement or
any other instrument or document furnished pursuant hereto or thereto; (iv)
appoints and authorizes the Administrative Agent to take such action as
administrative agent on its behalf and to exercise such powers and discretion
under the Credit Agreement or any other instrument or document furnished
pursuant hereto or thereto as are delegated to the Administrative Agent by the
terms thereof, together with such powers as are incidental thereto; and (v)
agrees that it will be bound by the provisions of the Credit Agreement and will
perform in accordance with its terms all the obligations which by the terms of
the Credit Agreement are required to be performed by it as a Bank.
4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Administrative Agent for acceptance by the
Administrative Agent pursuant to Section
<PAGE> 122
- 3 -
11.06(b) of the Credit Agreement, effective as of the Effective Date (which date
shall not, unless otherwise agreed to by the Administrative Agent, be earlier
than five Business Days after the date of such acceptance by the Administrative
Agent).
5. Upon such acceptance, from and after the Effective Date,
the Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignee which accrue subsequent to the Effective Date.
6. From and after the Effective Date, (i) the Assignee shall
be a party to the Credit Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Bank thereunder
and shall be bound by the provisions thereof and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement except as provided in
Section 11.07 of the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and
construed in accordance with the law of the State of New York.
8. This Assignment and Acceptance may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Assignment and
Acceptance by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed as of the date first above written by
their respective duly authorized officers on Schedule 1 hereto.
<PAGE> 123
Schedule 1 to
Assignment and Acceptance
relating to the Four-Year Credit Agreement,
dated as of December 10, 1996
between Washington Mutual, Inc.,
the lenders named therein and
The Chase Manhattan Bank, as administrative agent for the Banks
(in such capacity, the "Administrative Agent")
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Credit Principal Percentage
Facility Assigned Amount Assigned Assigned
----------------- --------------- --------
[ASSIGNEE] [ASSIGNOR]
By:___________________________ By:__________________________
Title: Title:
[Agreed and] Accepted:
THE CHASE MANHATTAN BANK
By:___________________________
Title:
[Agreed:
WASHINGTON MUTUAL, INC.
<PAGE> 124
- 2 -
By:___________________________
Title:]
<PAGE> 1
EXHIBIT 21
WASHINGTON MUTUAL, INC.
SUBSIDIARY LISTING
WASHINGTON MUTUAL BANK
Incorporated under the laws of the state of Washington
DBA: Washington Mutual Bank
Washington Mutual Savings Bank
Enterprise Bank
Western Bank
AMERICAN SAVINGS BANK, F.A.
Federally chartered under the laws of the United States
(Home office located in Stockton, California)
DBA: American Savings Bank, F.A.
American Savings Bank
WASHINGTON MUTUAL BANK FSB
Federally chartered under the laws of the United States
(Home office located in Lake Oswego, Oregon)
DBA: Washington Mutual Bank fsb
WM LIFE INSURANCE COMPANY
Incorporated under the laws of the state of Arizona
DBA: WM Life Insurance Company
ASB FINANCIAL SERVICES, INC.
Incorporated under the laws of the state of California
DBA: ASB Financial Services, Inc.
ASB Financial Services
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
- ------------------------------------------------------------------------------
We consent to the incorporation by reference in Registration Statement No.
33-86840 of Washington Mutual, Inc. on Form S-8 of our report dated February
14, 1997, appearing in the Annual Report on Form 10-K of Washington Mutual,
Inc. for the year ended December 31, 1996.
- -------------------------
DELOITTE & TOUCHE LLP
Seattle, Washington
March 6, 1997
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
- --------------------------------------------------------------------------------
We consent to the incorporation by reference in Amendment No. 2 to Registration
Statement No. 33-93850 of Washington Mutual, Inc. on Form S-3 of our report
dated February 14, 1997, appearing in the Annual Report on Form 10-K of
Washington Mutual, Inc. for the year ended December 31, 1996.
[DELOITTE & TOUCHE LLP SIGNATURE]
DELOITTE & TOUCHE LLP
Seattle, Washington
March 6, 1997
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated January 26, 1996, except as to Note
27 to the consolidated financial statements, which is as of February 8, 1996,
on the consolidated financial statements of Keystone Holdings, Inc. and
subsidiaries as of December 31, 1995; and for each of the years in the two-year
period ended December 31, 1995 incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Los Angeles, California
March 10, 1997
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in Amendment No. 2 to Registration
Statement No. 33-93850 of Washington Mutual, Inc. on Form S-3 and in
Registration Statement No. 33-86840 of Washington Mutual, Inc. on Form S-8 of
our report dated January 26, 1996, except as to Note 27 to the consolidated
financial statements, which is as of February 8, 1996, relating to the
consolidated balance sheet of Keystone Holdings, Inc. and subsidiaries as of
December 31, 1995, and the related consolidated statements of earnings,
stockholder's equity, and cash flows for each of the years in the two-year
period ended December 31, 1995, which report appears in the December 31, 1996,
annual report on Form 10-K of Washington Mutual, Inc. for the year ended
December 31, 1996.
KPMG Peat Marwick LLP
Los Angeles, California
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 829,216
<INT-BEARING-DEPOSITS> 1,847
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 1,647
<INVESTMENTS-HELD-FOR-SALE> 9,111,274
<INVESTMENTS-CARRYING> 2,860,347
<INVESTMENTS-MARKET> 2,922,552
<LOANS> 30,694,218
<ALLOWANCE> 363,442
<TOTAL-ASSETS> 44,551,925
<DEPOSITS> 24,080,141
<SHORT-TERM> 11,108,703
<LIABILITIES-OTHER> 389,908
<LONG-TERM> 6,575,285
0
113,695
<COMMON> 839,052
<OTHER-SE> 1,445,141
<TOTAL-LIABILITIES-AND-EQUITY> 44,551,925
<INTEREST-LOAN> 2,139,513
<INTEREST-INVEST> 1,003,410
<INTEREST-OTHER> 6,313
<INTEREST-TOTAL> 3,149,236
<INTEREST-DEPOSIT> 1,060,823
<INTEREST-EXPENSE> 1,958,229
<INTEREST-INCOME-NET> 1,191,007
<LOAN-LOSSES> 201,512
<SECURITIES-GAINS> (2,617)
<EXPENSE-OTHER> 1,025,304
<INCOME-PRETAX> 223,455
<INCOME-PRE-EXTRAORDINARY> 127,848
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,278
<EPS-PRIMARY> $0.85
<EPS-DILUTED> $0.85
<YIELD-ACTUAL> 7.64
<LOANS-NON> 225,968
<LOANS-PAST> 444
<LOANS-TROUBLED> 82,048
<LOANS-PROBLEM> 136,442
<ALLOWANCE-OPEN> 235,275
<CHARGE-OFFS> 112,287
<RECOVERIES> 8,413
<ALLOWANCE-CLOSE> 363,442
<ALLOWANCE-DOMESTIC> 78,339
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 285,103
</TABLE>
