<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WASHINGTON MUTUAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WASHINGTON 6036 91-1653725
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>
1201 THIRD AVENUE
SEATTLE, WASHINGTON 98101
(206) 461-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
FAY L. CHAPMAN
GENERAL COUNSEL
WASHINGTON MUTUAL, INC.
1201 THIRD AVENUE
SEATTLE, WASHINGTON 98101
(206) 461-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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DAVID R. WILSON ROBERT E. DEAN
HELLER EHRMAN WHITE & MCAULIFFE GIBSON, DUNN & CRUTCHER LLP
701 5TH AVENUE, SUITE 6100 4 PARK PLAZA
SEATTLE, WASHINGTON 98104 IRVINE, CALIFORNIA 92614
(206) 447-0900 (949) 451-3800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger described in the
proxy statement/prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(2) PER SHARE PRICE FEE(3)
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Common stock, no par value per share(1)... 11,130,944 $32.96 $366,863,346 $101,988
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(1) Also includes associated "rights" to purchase shares of common stock which
are not currently separable from the shares of common stock and are not
currently exercisable.
(2) Represents the estimated maximum number of shares of common stock to be
issued upon consummation of the merger described herein, including shares
issuable upon the exercise of outstanding options to acquire Long Beach
common stock which will be converted into options to acquire shares of
Washington Mutual common stock. The number of shares of Washington Mutual
common stock which will be exchanged for each share of Long Beach common
stock is calculated based on an assumed price of $35.625 for Washington
Mutual's common stock which is the average of high and low prices reported
on the New York Stock Exchange on June 16, 1999.
(3) The registration fee was computed pursuant to Rules 457(f) and 457(c) under
the Securities Act based on the average of the high and low sales prices of
common stock of Long Beach Financial Corporation, as reported by NASDAQ on
June 16, 1999 and the estimated maximum number of shares (25,583,218) that
may be exchanged for the securities being registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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[LOGO]
1100 TOWN AND COUNTRY ROAD, SUITE 1650
ORANGE, CALIFORNIA 92868
AUGUST , 1999
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Long Beach Financial Corporation to be held on Monday, September 13, 1999 at
10:00 a.m., Pacific Time, at the Westin South Coast Plaza Hotel, 686 Anton
Boulevard, Costa Mesa, California 92626.
At the special meeting, you will be asked to consider and vote on a proposal
to approve and adopt an agreement providing for the merger of Long Beach with
and into Washington Mutual, Inc. As a result of the merger, and subject to the
election and allocation provisions of the merger agreement described in this
proxy statement/prospectus, each share of Long Beach common stock will be
converted into the right to receive:
- a number of shares of Washington Mutual common stock determined by
dividing (a) $15.50 by (b) the average of the daily closing prices for
Washington Mutual common stock on the New York Stock Exchange for the five
trading days beginning on the eighth trading day before the effective date
of the merger; or
- cash in the amount of $15.50.
You may indicate a preference to receive either cash or stock in the merger
by completing the enclosed preference form. ALL HOLDERS OF LONG BEACH COMMON
STOCK WHO DO NOT SELECT A PREFERENCE TO RECEIVE EITHER CASH OR STOCK WILL HAVE
THEIR SHARES CONVERTED INTO WASHINGTON MUTUAL COMMON STOCK. IF YOU WOULD LIKE TO
RECEIVE CASH IN EXCHANGE FOR SOME OR ALL OF YOUR SHARES OF LONG BEACH STOCK, YOU
MUST RETURN A PREFERENCE FORM, TOGETHER WITH YOUR LONG BEACH STOCK CERTIFICATES,
TO THE EXCHANGE AGENT ON OR BEFORE SEPTEMBER 10, 1999. Washington Mutual common
stock is listed on the New York Stock Exchange under the symbol "WM." Long Beach
common stock is listed on The Nasdaq National Market under the symbol "LBFC."
The Long Beach board of directors has unanimously approved the merger
agreement and the transactions contemplated in the merger agreement, and
believes that the merger is in the best interests of Long Beach and its
stockholders. Long Beach's financial advisor, Friedman, Billings, Ramsey & Co.,
has delivered to the Long Beach board of directors its written opinion, dated
May 18, 1999, that states that the merger is fair to the Long Beach stockholders
from a financial point of view. This opinion has been confirmed by delivery of
an opinion dated the date of this proxy statement/prospectus. A copy of this
opinion is attached as Appendix B to this proxy statement/prospectus and should
be read in its entirety. The Long Beach board of directors recommends that all
stockholders vote "FOR" the merger proposal described in this proxy
statement/prospectus.
Long Beach stockholders are urged to read carefully the accompanying notice
of special meeting and proxy statement/ prospectus, which contain important
information about the merger and the transactions contemplated in the merger
agreement.
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, OR WHETHER YOU PLAN TO ATTEND
THE MEETING, IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT
THE MEETING. A FAILURE TO VOTE HAS THE SAME EFFECT AS A VOTE AGAINST THE
PROPOSED MERGER. PLEASE READ THE ENCLOSED MATERIALS CAREFULLY AND COMPLETE,
SIGN, AND RETURN THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED AS
SOON AS POSSIBLE.
On behalf of the Long Beach board of directors, I thank you for your support
and again urge you to vote "FOR" adoption of the merger agreement and approval
of the transactions contemplated in the merger agreement.
Sincerely,
/s/ M. JACK MAYESH
M. Jack Mayesh
Chairman of the Board of Directors
and Chief Executive Officer
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
The date of this proxy statement/prospectus is August , 1999.
<PAGE> 3
THIS PROXY STATEMENT/PROSPECTUS WAS FIRST MAILED TO LONG BEACH STOCKHOLDERS
ON OR ABOUT AUGUST , 1999. THIS PROXY STATEMENT/PROSPECTUS INCORPORATES
IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT WASHINGTON MUTUAL AND LONG
BEACH THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT. YOU MAY REQUEST A
FREE COPY OF THIS INFORMATION BY WRITING OR TELEPHONING THE APPROPRIATE PARTY AT
THE ADDRESS SET FORTH BELOW:
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WASHINGTON MUTUAL, INC. LONG BEACH FINANCIAL CORPORATION
1201 THIRD AVENUE 1100 TOWN & COUNTRY ROAD, SUITE 1650
SEATTLE, WASHINGTON 98101 ORANGE, CALIFORNIA 92868
ATTENTION: INVESTOR RELATIONS ATTENTION: INVESTOR RELATIONS
(206) 461-3187, (714) 835-5743
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY, YOU MUST REQUEST THE INFORMATION BY
SEPTEMBER 1, 1999.
<PAGE> 4
LONG BEACH FINANCIAL CORPORATION
1100 Town And Country Road, Suite 1650
Orange, California 92868
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 13, 1999
-------------------------
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Long Beach
Financial Corporation will be held on Monday, September 13, 1999 at 10:00 a.m.,
Pacific Time, at the Westin South Coast Plaza Hotel, 686 Anton Boulevard, Costa
Mesa, California 92626 for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of May 18, 1999, between Long Beach and
Washington Mutual, Inc., providing for the merger of Long Beach with and
into Washington Mutual. The merger agreement is attached as Appendix A
to the enclosed proxy statement/prospectus.
2. To transact any other business as may properly come before the special
meeting or any adjournments or postponements of the meeting.
Only holders of record of Long Beach common stock at the close of business
on August 9, 1999 are entitled to receive notice of, and to vote at, the special
meeting or any adjournments or postponements of the meeting. We cannot complete
the merger unless holders of a majority of the outstanding shares of Long Beach
common stock vote to approve and adopt the merger agreement and the transactions
contemplated by the merger agreement. Holders of Long Beach common stock have no
appraisal rights under Delaware law in connection with the merger.
THE LONG BEACH BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE PROPOSED MERGER.
By Order of the Board of Directors,
/s/ JAMES J. SULLIVAN
James J. Sullivan
Senior Vice President,
General Counsel and Secretary
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 2
SELECTED UNAUDITED COMPARATIVE PER SHARE DATA............... 7
MARKET PRICE AND DIVIDEND INFORMATION....................... 8
SELECTED HISTORICAL FINANCIAL DATA OF WASHINGTON MUTUAL..... 10
SELECTED HISTORICAL FINANCIAL DATA OF LONG BEACH............ 12
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........ 13
THE LONG BEACH SPECIAL MEETING.............................. 15
THE MERGER.................................................. 17
General................................................... 17
The Merger Consideration.................................. 17
Background of the Merger.................................. 18
Reasons of Long Beach for the Merger...................... 21
Opinion of Long Beach's Financial Advisor................. 22
Reasons of Washington Mutual for the Merger............... 28
Effective Time of the Merger.............................. 28
Exchange of Certificates.................................. 28
Fractional Shares......................................... 29
Certain Federal Income Tax Consequences................... 30
Management and Operations of Washington Mutual following
the Merger............................................. 32
Post-Merger Compensation and Benefits..................... 33
Interests of Certain Persons in the Merger................ 34
Representations and Warranties in the Merger Agreement.... 36
Conditions to the Completion of the Merger................ 37
Regulatory Approvals Required............................. 39
Amendment and Waiver of the Merger Agreement.............. 39
Termination of the Merger Agreement....................... 40
Termination Fee........................................... 41
The Option Agreement...................................... 41
Conduct of Business Pending the Merger and Other
Agreements............................................. 43
Expenses and Fees......................................... 46
Accounting Treatment...................................... 46
Stock Exchange Listing of Washington Mutual Common
Stock.................................................. 46
Resale of Washington Mutual Stock Received by Long Beach
Stockholders........................................... 46
No Appraisal Rights....................................... 46
INFORMATION ABOUT WASHINGTON MUTUAL....................... 47
INFORMATION ABOUT LONG BEACH.............................. 48
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS OF LONG BEACH;
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 50
COMPARISON OF RIGHTS OF WASHINGTON MUTUAL AND LONG BEACH
STOCKHOLDERS.............................................. 52
Capital Stock............................................. 52
Board of Directors........................................ 52
Monetary Liability of Directors........................... 52
Interested Stockholders................................... 53
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PAGE
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Removal of Directors and Filling Vacancies on the Board of
Directors.............................................. 53
Washington Mutual Rights Plan............................. 54
Long Beach Rights Plan.................................... 54
CERTAIN DIFFERENCES BETWEEN WASHINGTON AND DELAWARE
CORPORATE LAWS............................................ 56
Amendment of Articles/Certificates of Incorporation....... 56
Right to Call Special Meeting of Stockholders............. 56
Indemnification of Officers, Directors and Employees...... 57
Provisions Affecting Control Share Acquisitions and
Business Combinations.................................. 57
Mergers, Sales of Assets and Other Transactions........... 59
Action Without a Meeting.................................. 60
Class Voting.............................................. 60
Transactions with Officers or Directors................... 60
Dissenters' Rights........................................ 61
Dividends................................................. 61
LEGAL MATTERS............................................... 63
EXPERTS..................................................... 63
WHERE YOU CAN FIND MORE INFORMATION......................... 63
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 64
</TABLE>
Appendix A Agreement and Plan of Merger
Appendix B Opinion of Friedman, Billings, Ramsey & Co., Inc.
Appendix C Stock Option Agreement
ii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to approve the merger agreement that provides for the
merger of Long Beach with and into Washington Mutual and to approve the
transactions contemplated by that agreement.
Q: WHAT DO I NEED TO DO NOW?
A: After you read and consider the information in this document, mark your proxy
card either "FOR" or "AGAINST" the merger and then mail your signed and dated
proxy card in the enclosed return envelope as soon as possible, so that your
shares may be represented at the special meeting to vote on the merger. You
should return your proxy card whether or not you plan to attend the special
meeting. If you attend the special meeting, you may revoke your proxy at any
time before it is voted and vote in person.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted at the
meeting. You can do this in one of the following three ways:
- delivering written notice of revocation to Long Beach's corporate
secretary;
- completing and submitting a later-dated proxy card; or
- attending the special meeting and voting in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker may vote your shares only if you provide instructions on how to
vote. Please tell your broker how you would like him or her to vote your shares.
If you do not tell your broker how to vote, your shares will not be voted by
your broker. This will have the same effect as a "no" vote on the merger.
Q: IF I DO NOT ELECT TO RECEIVE CASH, SHOULD I SEND IN MY STOCK CERTIFICATES
NOW?
A: No. If the merger is completed, Washington Mutual will send you written
instructions for exchanging your stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We hope to
complete it on or about October 1, 1999, assuming all governmental approvals
have been received by that date.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have questions, please call Morrow & Co., Inc. at (800) 662-5200,
attention: Katie Edwards.
1
<PAGE> 8
SUMMARY
This summary only highlights selected information from this proxy
statement/prospectus and does not contain all of the information that may be
important to you. You should read this entire proxy statement/prospectus and its
appendices and the documents to which it refers before you decide how to vote
with respect to the merger. For a description of the documents to which this
proxy statement/prospectus refers, see "Where You Can Find More Information" on
page .
This proxy statement/prospectus and the documents incorporated herein by
reference contain forward-looking statements regarding Washington Mutual, Long
Beach and the combined company after the merger. The actual results of these
companies could differ materially from those forward-looking statements as a
result of certain factors. These factors include the risk factors set forth in
Washington Mutual's and Long Beach's Annual Reports on Form 10-K for the year
ended December 31, 1998 which are incorporated into this proxy
statement/prospectus by reference. See "Incorporation of Certain Documents by
Reference" on page .
THE PARTIES TO THE MERGER (SEE PAGE 47)
WASHINGTON MUTUAL, INC.
1201 THIRD AVENUE
SEATTLE, WASHINGTON 98101
(206) 461-2000
Washington Mutual is a financial services company providing mortgage
banking, consumer banking, commercial banking, financial services and products,
and consumer finance products to consumers and small to mid-sized businesses.
Washington Mutual operates principally in California, Washington, Oregon,
Florida, Texas and Utah, and has operations in 31 other states and the District
of Columbia. At March 31, 1999, Washington Mutual had consolidated assets of
$174.30 billion, deposits of $84.18 billion and stockholders' equity of $9.61
billion. Based on assets, Washington Mutual was the largest savings institution
and the eighth largest banking company in the United States.
LONG BEACH FINANCIAL CORPORATION
1100 TOWN AND COUNTRY ROAD, SUITE 1650
ORANGE, CALIFORNIA 92868
(714) 835-5743
Long Beach is a specialty finance company engaged in the business of
originating, purchasing, selling and servicing subprime residential mortgage
loans secured by one-to four-family residences. Long Beach originates loans
primarily through approximately 12,500 independent mortgage loan brokers that
generate loans in all 50 states. Long Beach historically has sold substantially
all of its loan originations in the secondary market through loan sales in which
Long Beach disposes of its entire interest in the loan (except for related
servicing rights). For the year ended December 31, 1998, Long Beach originated
$2.6 billion in loans. At March 31, 1999, Long Beach had total assets of $356
million and stockholders' equity of $106 million.
2
<PAGE> 9
THE LONG BEACH SPECIAL MEETING (SEE PAGE 15)
The Long Beach special meeting of stockholders will be held on Monday,
September 13, 1999 at 10:00 a.m., Pacific Time, at the Westin South Coast Plaza
Hotel, 686 Anton Boulevard, Costa Mesa, California 92626.
You can vote at the special meeting if you owned Long Beach common stock at
the close of business on August 9, 1999. On the record date, there were
22,616,818 shares of Long Beach common stock entitled to vote at the special
meeting. You can cast one vote for each share of Long Beach common stock you
owned at that time.
To adopt the merger agreement, the holders of a majority of shares of Long
Beach common stock entitled to vote at the meeting must affirmatively vote in
favor of it. At the record date, Long Beach's directors and executive officers
beneficially owned 136,865 shares, which represents less than one percent of the
voting power of the Long Beach common stock. The directors and executive
officers of Long Beach have indicated that they intend to vote the Long Beach
stock owned by them "for" adoption of the merger agreement.
THE MERGER AND RELATED TRANSACTIONS
THE MERGER AGREEMENT IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS
APPENDIX A. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT CAREFULLY, AS IT IS
THE LEGAL DOCUMENT THAT GOVERNS THE MERGER OF LONG BEACH AND WASHINGTON MUTUAL.
WHAT LONG BEACH STOCKHOLDERS WILL RECEIVE (SEE PAGE 17)
At the effective time of the merger, and subject to the election and
allocation provisions of the merger agreement described in this proxy
statement/prospectus, each outstanding share of Long Beach common stock will
convert into the right to receive:
- a number of shares of Washington Mutual common stock determined by
dividing: (a) $15.50 by (b) the average of the daily closing prices for
Washington Mutual common stock on the New York Stock Exchange for the
five trading days beginning on the eighth trading day before the
effective date of the merger; or
- cash in the amount of $15.50.
HOW LONG BEACH STOCKHOLDERS CAN ELECT CASH OR STOCK (SEE PAGE 17)
Long Beach stockholders may indicate a preference to receive either cash,
stock or a combination of cash and stock in the merger by completing the
enclosed preference form. ALL HOLDERS OF LONG BEACH COMMON STOCK WHO DO NOT
SELECT A PREFERENCE TO RECEIVE EITHER CASH OR STOCK WILL RECEIVE WASHINGTON
MUTUAL COMMON STOCK. A PREFERENCE FORM IS ENCLOSED WITH THIS PROXY
STATEMENT/PROSPECTUS AND MUST BE RETURNED TO THE EXCHANGE AGENT ON OR BEFORE
SEPTEMBER 10, 1999 TO RECEIVE CASH IN THE MERGER. IF YOU ONLY WISH TO RECEIVE
STOCK IN THE MERGER, YOU DO NOT NEED TO IN SEND A PREFERENCE FORM.
LIMITATIONS ON THE AMOUNT OF CASH PAYABLE TO LONG BEACH STOCKHOLDERS (SEE PAGE
18)
The merger agreement requires that at least 52% of the total merger
consideration be paid in Washington Mutual common stock. Therefore, if holders
of more than 48% of the outstanding shares of Long Beach common stock elect to
receive cash, each share for which a cash election has been made will be
converted, on a pro rata basis, into the right to receive a combination of cash
and Washington Mutual common stock to the extent necessary to ensure that no
more than 48% of the total merger consideration is paid in cash.
CONVERSION OF LONG BEACH STOCK OPTIONS (SEE PAGE 18)
Options to purchase Long Beach common stock will automatically be converted
into options to purchase shares of Washington Mutual common stock. The number of
shares of Washington Mutual common stock subject to
3
<PAGE> 10
these converted options and the exercise price per share of these converted
options will be adjusted to give effect to the ratio for the exchange of
Washington Mutual common stock for Long Beach common stock in the merger.
LONG BEACH'S REASONS FOR THE MERGER (SEE PAGE 21)
In approving the merger, the Long Beach board of directors considered a
number of factors. These factors included the total consideration to be paid to
Long Beach stockholders, the future prospects of Washington Mutual and the
structure of the transaction, including the ability of Long Beach stockholders
to elect stock or cash consideration.
RECOMMENDATION OF LONG BEACH'S BOARD OF DIRECTORS (SEE PAGE 16)
The Long Beach board of directors unanimously approved the merger
agreement. The Long Beach board of directors believes that the proposed merger
is fair to you and in your best interests and unanimously recommends that you
vote "FOR" approval of the merger and the merger agreement.
OPINION OF LONG BEACH'S FINANCIAL ADVISOR (SEE PAGE 22)
Friedman, Billings, Ramsey & Co., Inc. was retained by Long Beach to act as
its financial advisor in connection with the merger. Friedman, Billings has
delivered to the Long Beach board of directors a written opinion stating that
the consideration to be received by Long Beach stockholders in the merger is
fair from a financial point of view. The full text of the Friedman, Billings
opinion, which sets forth certain assumptions and limitations, is attached as
Appendix B to this proxy statement/prospectus.
INTERESTS OF LONG BEACH'S EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER (SEE
PAGE 34)
In considering the recommendation of Long Beach's board of directors to
approve the merger you should be aware that executive officers and directors of
Long Beach may have employment and other compensation agreements or plans that
give them interests in the merger that are somewhat different from, or in
addition to, your interests.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 30)
The merger is intended to qualify as a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986. Accordingly, no gain or loss
will be recognized by Long Beach stockholders who receive only Washington Mutual
common stock in exchange for Long Beach common stock, except with respect to any
cash received in lieu of a fractional share interest in Washington Mutual common
stock.
Long Beach stockholders who receive at least some cash in exchange for
their shares of Long Beach common stock will generally be taxed on the amount of
gain realized but not in excess of the amount of cash received.
There will be no federal income tax consequences to the stockholders of
Washington Mutual as a result of consummation of the merger.
Consummation of the merger is conditioned upon, among other things, the
receipt by Washington Mutual and Long Beach of an opinion from Foster Pepper &
Shefelman PLLC that the merger will qualify as a reorganization within the
meaning of section 368 of the Internal Revenue Code.
All stockholders should carefully read the discussion of the material
federal income tax consequences of the merger under "The Merger -- Certain
Federal Income Tax Consequences" and are urged to consult with their own tax
advisors as to the federal, state, local and foreign tax consequences of the
merger in their particular circumstances.
CONDITIONS TO THE MERGER (SEE PAGE 37)
Completion of the merger depends on a number of conditions being satisfied,
including the following:
- the Long Beach stockholders must have approved the merger;
4
<PAGE> 11
- we must have received all required regulatory approvals and all statutory
waiting periods must have expired;
- there must be no statute, rule, regulation, order, injunction or decree
in existence which prohibits or restricts the merger;
- no stop order suspending the effectiveness of the registration statement
of which this proxy statement/prospectus is a part, shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC;
- the shares of Washington Mutual common stock to be issued in the merger
must be authorized for listing on the New York Stock Exchange; and
- we must have received a legal opinion that the merger will qualify as a
reorganization under federal income tax laws.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 40)
Washington Mutual and Long Beach may terminate the merger agreement by
mutual consent. The merger agreement may also be terminated unilaterally by
either Washington Mutual or Long Beach if:
- any governmental authority whose approval is required for the merger
makes a final decision not to approve the merger;
- the merger does not occur on or before December 31, 1999, or March 31,
2000 if the failure is solely due to the failure to obtain the required
regulatory approvals;
- either party breaches any of its representations, warranties, covenants
or agreements in the merger agreement under certain circumstances; or
- the Long Beach stockholders do not approve the merger at their special
meeting.
In addition, Washington Mutual may terminate the merger agreement if:
- Long Beach's board of directors withdraws, modifies or changes in a way
adverse to Washington Mutual its recommendation of the merger to the Long
Beach stockholders;
- any person acquires beneficial ownership of 25% or more of the then
outstanding shares of Long Beach common stock;
- Long Beach enters into an agreement for, or Long Beach's board of
directors recommends that the Long Beach stockholders approve or accept,
a different merger, consolidation, acquisition or similar transaction; or
- a third party begins a tender offer or exchange offer for 25% or more of
the Long Beach common stock and Long Beach's board of directors
recommends that the Long Beach stockholders tender their shares in to
approve the merger offer or otherwise fails to recommend that the Long
Beach stockholders reject the offer.
In addition, Long Beach may terminate the merger agreement if any person
makes a "superior proposal" before the Long Beach stockholders.
TERMINATION FEE (SEE PAGE 41)
The merger agreement requires Long Beach to pay a $15 million termination
fee to Washington Mutual if the merger agreement terminates under certain
circumstances.
STOCK OPTION AGREEMENT (SEE PAGE 41)
Long Beach and Washington Mutual have entered into an option agreement that
permits Washington Mutual under certain circumstances to purchase shares of Long
Beach common stock representing 19.9% of the total number of outstanding shares
of Long Beach common stock at a price of $12.3125 per share. Washington Mutual's
total profit under the option agreement is limited to $15 million before taxes.
5
<PAGE> 12
REGULATORY APPROVALS REQUIRED FOR THE MERGER (SEE PAGE 39)
Washington Mutual and Long Beach have identified 13 jurisdictions in which
prior regulatory approval is required and 32 additional jurisdictions in which a
prior notice is required. In addition, the merger may not be completed until the
waiting period under the Hart-Scott-Rodino Act of 1976 has expired or been
terminated. Washington Mutual and Long Beach have each filed applications under
the Hart-Scott-Rodino Act.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE 46)
The merger will be accounted for by Washington Mutual as a purchase in
accordance with generally accepted accounting principles. This means that the
assets, including intangible assets, and liabilities of Long Beach will be
recorded at their fair values as of the closing date of the merger. Any excess
of the merger consideration over the fair values of Long Beach's assets and
liabilities will be recorded as goodwill and amortized over a twenty year
period. Accordingly, income (or loss) of Long Beach prior to the effective time
of the merger will not be included in Washington Mutual's income statement.
NO APPRAISAL OR DISSENTERS' RIGHTS (SEE PAGE 46)
Under Delaware law, holders of Long Beach common stock will have no
appraisal rights in connection with the merger.
6
<PAGE> 13
SELECTED UNAUDITED COMPARATIVE PER SHARE DATA
The following table shows certain per common share data of Washington
Mutual common stock and Long Beach common stock on an historical basis and a pro
forma basis reflecting the merger. This information is only a summary and you
should read it in conjunction with the financial information appearing elsewhere
in this proxy statement/prospectus and the documents incorporated by reference.
The per share pro forma data in the following table is presented for comparative
purposes only and is not necessarily indicative of the combined financial
position or results of operations in the future or what the combined financial
position or results of operations would have been had the merger been completed
during the periods or as of the date for which this pro forma table is
presented.
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED AT OR FOR THE YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
------------------ ------------------------
<S> <C> <C>
WASHINGTON MUTUAL COMMON STOCK
Book value per share
Historical.................................. $16.50 $16.07
Pro forma................................... 16.83 16.41
Cash dividends per share(1)
Historical.................................. 0.23 0.82
Pro forma................................... 0.23 0.82
Net income per basic share
Historical.................................. 0.76 2.61
Pro forma................................... 0.76 2.59
Net income per diluted share
Historical.................................. 0.76 2.56
Pro forma................................... 0.75 2.54
LONG BEACH COMMON STOCK
Book value per share
Historical.................................. 4.69 4.41
Pro forma equivalent(2)..................... 7.35 7.16
Cash dividends per share
Historical.................................. -- --
Pro forma equivalent(2)..................... 0.10 0.36
Net income per basic share
Historical.................................. 0.29 1.27
Pro forma equivalent(2)..................... 0.33 1.13
Net income per diluted share
Historical.................................. 0.28 1.22
Pro forma equivalent(2)..................... 0.33 1.11
</TABLE>
- -------------------------
(1) Cash dividends paid by Washington Mutual without giving effect to
restatements for Washington Mutual's prior business combinations.
(2) The Long Beach pro forma equivalent per share amounts are calculated by
multiplying the Washington Mutual pro forma combined per share amounts by
the exchange ratio of 0.4366. This exchange ratio is based upon a Washington
Mutual common stock price of $35.50, the closing price on June 16, 1999.
7
<PAGE> 14
MARKET PRICE AND DIVIDEND INFORMATION
The table below sets forth, for the periods indicated, historical high and
low closing sales price information for Washington Mutual common stock and Long
Beach common stock. Washington Mutual common stock trades on the New York Stock
Exchange under the symbol "WM." Long Beach common stock trades on The Nasdaq
National Market under the symbol "LBFC."
<TABLE>
<CAPTION>
WASHINGTON
MUTUAL LONG BEACH
COMMON STOCK COMMON STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
1997
First Quarter............................................ $39.25 $28.50 $ -- $ --
Second Quarter........................................... 41.80 30.25 8.88 6.50
Third Quarter............................................ 46.83 39.25 13.56 8.75
Fourth Quarter........................................... 48.25 40.20 15.06 9.88
1998
First Quarter............................................ 49.95 36.75 13.31 9.88
Second Quarter........................................... 50.92 40.94 14.13 10.25
Third Quarter............................................ 46.06 31.13 11.19 6.69
Fourth Quarter........................................... 41.25 28.50 8.13 4.63
1999
First Quarter............................................ 45.25 38.44 10.56 7.44
Second Quarter (through June 16, 1999)................... 44.94 35.50 14.41 9.81
</TABLE>
RECENT CLOSING PRICES
The following table sets forth the closing sale price per share of
Washington Mutual common stock and Long Beach common stock as of May 18, 1999
(the last full trading day before the public announcement of the merger) and
August , 1999 (the last full trading day for which it was practicable to
obtain such information prior to the mailing of this proxy
statement/prospectus). The value of the Washington Mutual shares to be exchanged
for each share of Long Beach common stock is fixed at $15.50. Accordingly, the
pro forma equivalent per share price of Long Beach common stock on each of these
dates was $15.50.
<TABLE>
<CAPTION>
WASHINGTON
MUTUAL LONG BEACH
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
May 18, 1999............................................... $39.00 $12.31
August , 1999............................................
</TABLE>
Stockholders are urged to obtain current market quotations for Washington
Mutual common stock and Long Beach common stock. The number of shares of
Washington Mutual common stock to be issued in exchange for a share of Long
Beach common stock is based on the average trading price of Washington Mutual
common stock over a five trading day period ending three trading days before the
closing date of the merger. Accordingly, as of the closing date, the market
value of the shares of Washington Mutual common stock issued in exchange for
each share of Long Beach common stock in the merger may be greater or less than
$15.50 per share. See "The Merger -- The Merger Consideration -- Conversion of
Long Beach Common Stock."
8
<PAGE> 15
DIVIDEND INFORMATION
Long Beach has never declared or paid cash dividends on shares of Long
Beach common stock. Long Beach does not anticipate declaring any cash dividends
in the foreseeable future.
The following table sets forth cash dividends paid by Washington Mutual per
share of common stock.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
First Quarter............................................... $0.230 $0.193 $0.167
Second Quarter.............................................. 0.240 0.200 0.173
Third Quarter............................................... 0.207 0.180
Fourth Quarter.............................................. 0.220 0.187
</TABLE>
9
<PAGE> 16
SELECTED HISTORICAL FINANCIAL DATA OF WASHINGTON MUTUAL
Washington Mutual is providing the following information to aid you in your
analysis of the financial aspects of the merger. Washington Mutual derived the
information for the years ended, and as of, December 31, 1994 through December
31, 1998 from its historical audited financial statements for these fiscal
years. Washington Mutual derived the financial information for the three months
ended March 31, 1998 and March 31, 1999 and as of March 31, 1999 from its
unaudited financial statements that include, in the opinion of management, all
normal and recurring adjustments that management considers necessary for a fair
statement of the results. The operating results for the three months ended March
31, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. This information is only a summary and you
should read it in conjunction with Washington Mutual's consolidated financial
statements and notes thereto contained in Washington Mutual's 1998 annual report
on Form 10-K which has been incorporated into this proxy statement/prospectus by
reference. This financial information has been restated to account for the
mergers with H.F. Ahmanson & Company in 1998, Great Western Financial
Corporation in 1997 and Keystone Holdings, Inc. in 1996 as if the respective
companies had been combined for all prior periods presented. Prior to the merger
with Washington Mutual, Ahmanson acquired Coast Savings Financial, Inc. in a
transaction accounted for by the purchase method. As a result, Coast's financial
information has been included only from the date of its acquisition, February
13, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------------- ----------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------ ------------ ----------- ----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............ $ 2,854,118 $ 2,727,236 $11,221,468 $10,202,531 $ 9,892,290 $ 9,860,408 $ 8,020,040
Interest expense........... 1,726,923 1,666,934 6,929,743 6,287,038 6,027,177 6,306,724 4,416,088
------------ ------------ ----------- ----------- ------------ ------------ ------------
Net interest income........ 1,127,195 1,060,302 4,291,725 3,915,493 3,865,113 3,553,684 3,603,952
Provision for loan
losses.................... 41,700 49,975 161,968 246,642 498,568 344,624 490,449
Other income............... 352,144 264,362 1,524,148 996,162 833,696 1,253,463 930,170
Other expense.............. 729,867 674,745 3,284,448 3,126,744 3,609,606 2,790,267 2,863,146
------------ ------------ ----------- ----------- ------------ ------------ ------------
Income before income taxes,
cumulative effect of
accounting changes, and
minority interest......... 707,772 599,944 2,369,457 1,538,269 590,635 1,672,256 1,180,527
Income taxes............... 263,654 229,170 882,525 653,151 201,707 654,593 437,668
Cumulative effect of change
in tax accounting
method.................... -- -- -- -- -- (234,742) --
Minority interest in
earnings of consolidated
subsidiaries.............. -- -- -- -- 13,570 15,793 13,992
------------ ------------ ----------- ----------- ------------ ------------ ------------
Net income................. $ 444,118 $ 370,774 $ 1,486,932 $ 885,118 $ 375,358 $ 767,128 $ 728,867
============ ============ =========== =========== ============ ============ ============
Net income attributable to
common stock.............. $ 444,118 $ 362,050 $ 1,470,990 $ 830,087 $ 291,723 $ 673,099 $ 634,838
============ ============ =========== =========== ============ ============ ============
Net income per common
share:(1)
Basic..................... $ 0.76 $ 0.66 $ 2.61 $ 1.56 $ 0.55 $ 1.23 $ 1.19
Diluted................... 0.76 0.64 2.56 1.52 0.54 1.21 1.17
Average diluted common
shares used to calculate
earnings per share:(1).... 584,580,183 569,332,196 578,562,305 556,759,023 539,058,104 585,045,390 574,540,459
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Assets.............................. $174,295,052 $165,493,281 $143,522,398 $137,328,541 $137,142,972 $133,426,346
Available-for-sale securities....... 41,999,697 32,917,053 19,817,226 25,431,464 31,181,617 10,255,552
Held-to-maturity securities......... 14,801,912 14,129,482 17,207,854 9,605,367 10,967,204 21,505,700
Loans............................... 108,044,190 108,370,906 97,624,348 92,943,126 85,335,568 89,852,632
Deposits............................ 84,179,626 85,492,141 83,429,433 87,509,358 88,019,469 92,758,147
Borrowings.......................... 74,295,962 65,200,489 49,976,377 40,014,735 38,261,697 31,053,312
Stockholders' equity................ 9,609,526 9,344,400 7,601,085 7,426,137 8,421,102 7,303,223
</TABLE>
10
<PAGE> 17
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
Cash dividends paid per common share:
Pre-business combination(1)(2)............................ $ 0.23 $ 0.19 $ 0.82 $ 0.71 $ 0.60 $ 0.51 $ 0.47
Post-business combination(1)(3)........................... 0.23 0.17 0.73 0.66 0.65 0.51 0.52
Common stock dividend payout ratio(1)(3).................... 29.77% 25.68% 29.32% 40.61% 94.12% 37.26% 40.24%
Return on average assets.................................... 1.08 0.99 0.96 0.63 0.28 0.56 0.58
Return on average stockholders' equity...................... 18.72 18.10 16.62 11.73 4.70 10.02 10.00
Return on average common stockholders' equity............... 18.72 18.28 16.67 11.95 3.95 10.14 10.12
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of stockholders' equity to total assets..... 5.51% 5.65% 5.30% 5.41% 6.14% 5.47%
Diluted book value per common share............... $16.50(4) $16.07(4) $13.23(4)(5) $12.52(4)(5) $13.31(5) $11.37(5)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Number of diluted common
shares outstanding at
end of period........... 594,566,383(4) 581,408,525(4) 550,689,721(4)(5) 554,811,012(4)(5) 583,622,187(5) 584,757,465(5)
</TABLE>
- -------------------------
(1) Net income per common share, average number of common shares and cash
dividends paid per common share for the periods presented have been adjusted
for a 3-for-2 stock split on June 1, 1998.
(2) Amounts paid by Washington Mutual without giving effect to restatements for
Washington Mutual's prior business combinations.
(3) Based on dividends paid and earnings of Washington Mutual after restatement
of financial statements for significant transactions accounted for as
poolings of interests.
(4) 12,000,000 shares of common stock issued to an escrow for the benefit of the
general and limited partners of Keystone Holdings and the FDIC as manager of
the FSLIC Resolution Fund and their transferees were not included.
(5) Net of outstanding treasury shares and including potential conversion of
outstanding convertible preferred stock.
11
<PAGE> 18
SELECTED HISTORICAL FINANCIAL DATA OF LONG BEACH
Long Beach is providing the following historical selected financial data to
assist you in your analysis of the merger. Long Beach derived the financial
information for the years ended and as of December 31, 1994 through December 31,
1998 from its historical audited financial statements for these fiscal years.
Long Beach derived the financial information for the three months ended March
31, 1998 and March 31, 1999 and as of March 31, 1999 from its unaudited
financial statements that include, in the opinion of management, all normal and
recurring adjustments that management considers necessary for a fair statement
of the results. The operating results for the three months ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
Prior to May 1997, Long Beach operated as the wholesale lending division of
a company now known as Ameriquest Mortgage Company. In May 1997, Ameriquest
reorganized its business by transferring to Long Beach cash of approximately $38
million and certain assets, liabilities and personnel of the wholesale lending
division. After the reorganization, Ameriquest sold in an initial public
offering all 25 million shares of Long Beach's outstanding common stock at a
price of $6.50 per share. The reorganization has been accounted for in a manner
similar to a pooling of interests, and therefore, the historical cost basis of
the assets and liabilities transferred to Long Beach was carried over from
Ameriquest.
Because the reorganization was accounted for in a manner similar to a
pooling of interests: (i) for the year ended December 31, 1997, the combined
results of operations represent the wholesale lending division of Ameriquest
from January 1, 1997 through May 1, 1997 and the results of Long Beach from May
2, 1997 through December 31, 1997; and (ii) for the years ended prior to January
1, 1997, the results of operations relate solely to the wholesale lending
division of Ameriquest.
The financial data, up to the date of the reorganization, reflect key
assumptions regarding the allocation of certain revenue and expense items and
certain assets and liabilities, many of which could be material. The financial
data listed below for periods prior to Long Beach's initial public offering may
not necessarily be indicative of the conditions that would have existed if Long
Beach had operated as an independent entity.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----------- ----------- ---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................. $ 33,915 $ 25,861 $ 132,650 $ 92,666 $ 51,160 $ 31,873 $ 22,364
Expenses................................. 23,039 16,537 82,618 50,833 35,188 21,912 22,328
Net earnings............................. $ 6,471 $ 5,410 $ 30,019 $ 24,644 $ 9,392 $ 5,792 $ 22
Basic earnings per share:
Net earnings........................... $ 0.29 $ 0.22 $ 1.27 $ 0.99 n/m n/m n/m
Average number of common shares........ 22,608,685 24,498,375 23,706 24,976 n/m n/m n/m
Diluted earnings per share:
Net earnings........................... $ 0.28 $ 0.21 $ 1.22 $ 0.96 n/m n/m n/m
Average number of common shares........ 23,316,289 25,673,508 24,613 25,653 n/m n/m n/m
Return on average assets................. 10.42% 13.82% 12.94% n/m n/m n/m n/m
Return on average equity................. 25.21% 23.83% 32.15% n/m n/m n/m n/m
Loans originated and purchased........... $ 752,254 $ 491,058 $2,575,965 $1,685,742 $1,058,122 $592,542 $565,547
Loan sales............................... 742,004 482,444 2,521,606 1,679,522 1,029,789 580,366 562,054
G&A as a % of originations............... 2.69% 2.95% 2.82% 2.72% 3.29% 3.70% 3.95%
Gain on sale as a % of loans sold........ 4.30% 4.96% 4.87% 5.28% 4.92% 5.46% 3.86%
Net earnings as a % of production........ 0.86% 0.89% 1.17% 1.46% 0.89% 0.98% 0.00%
</TABLE>
- -------------------------
n/m -- Not meaningful as this includes periods prior to the initial public
offering.
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------------------------------
1999 1998 1997 1996 1995 1994
--------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Cash and cash equivalents................................... $ 32,741 $ 24,941 $ 38,782 $ -- $ -- $ --
Loans held for sale......................................... 61,496 59,148 17,241 49,580 21,342 10,364
Capitalized mortgage servicing rights....................... 12,744 9,806 3,054 -- -- --
Deferred income taxes....................................... 31,923 32,523 34,400 2,120 882 --
Total assets................................................ 356,132 328,595 248,088 79,750 24,778 12,529
Warehouse financing facility................................ 230,896 211,787 146,271 72,829 20,613 11,483
Total liabilities........................................... 250,020 228,969 157,343 78,613 23,046 13,391
Stockholders' and divisional equity (deficit)............... 106,112 99,626 90,745 1,137 1,732 (862)
OPERATING DATA:
States in which loans were originated....................... 50 50 48 43 35 27
Account Executives at year end.............................. 325 327 232 120 64 79
Book value per share at year-end............................ $ 4.69 $ 4.41 $ 3.67 n/m n/m n/m
Equity to Asset Ratio at year-end........................... 29.80% 30.32% 36.58% n/m n/m n/m
</TABLE>
12
<PAGE> 19
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth unaudited pro forma combined financial data
that gives effect to the merger, accounted for as a purchase as if it had been
consummated as of January 1, 1998 for the income statement information and March
31, 1999 for the balance sheet information. This information is presented for
informational purposes and is not necessarily indicative of the financial
position or the results of operations of the combined company that actually
would have occurred had the merger been consummated as of the dates or for the
periods presented. This information is also not necessarily indicative of the
future financial position or future results of operations of the combined
company.
This information should be read in conjunction with, and is qualified in
its entirety by reference to, the historical consolidated financial statements
and the related notes of Washington Mutual and Long Beach incorporated by
reference in this proxy statement/prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
WASHINGTON MUTUAL ------------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net interest income......................................... $ 1,127,195 $ 4,291,725
Provision for loan losses................................... 41,700 161,968
Other income (expense), net................................. (377,723) (1,760,300)
Income taxes................................................ 263,654 882,525
------------ ------------
Net income.................................................. $ 444,118 $ 1,486,932
============ ============
Net income attributable to common stock..................... $ 444,118 $ 1,470,990
============ ============
Net income per common share:
Basic..................................................... $ 0.76 $ 2.61
Diluted................................................... 0.76 2.56
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
LONG BEACH ------------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net interest income......................................... $ 1,120 $ 6,787
Provision for loan losses................................... 1,762 5,247
Other income (expense), net 11,518 48,492
------------ ------------
Income before income taxes.................................. 10,876 50,032
Income taxes................................................ 4,405 20,013
------------ ------------
Net income.................................................. $ 6,471 $ 30,019
============ ============
Net income attributable to common stock..................... $ 6,471 $ 30,019
============ ============
Net income per common share:
Basic..................................................... $ 0.29 $ 1.27
Diluted................................................... 0.28 1.22
</TABLE>
13
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
PRO FORMA COMBINED ------------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net interest income......................................... $ 1,128,315 $ 4,298,512
Provision for loan losses................................... 43,462 167,215
Other income (expense), net................................. (369,689)(1) (1,725,745)(1)
Income taxes................................................ 268,059 902,538
------------ ------------
Net income.................................................. $ 447,105 $ 1,503,014
============ ============
Net income attributable to common stock..................... $ 447,105 $ 1,487,072
============ ============
Net income per common share:
Basic..................................................... $ 0.76 $ 2.59
Diluted................................................... 0.75 2.54
Average number of shares used to calculate net income per
common share:
Basic..................................................... 591,810,692 574,770,736
Diluted................................................... 594,760,075 589,308,552
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------------------------------------
PRO FORMA ADJUSTMENTS PRO FORMA
WASHINGTON ---------------------- INCLUDING
MUTUAL LONG BEACH DEBIT CREDIT LONG BEACH
------------ ---------- -------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets................................ $174,295,052 $356,132 $261,314(2) $ $174,912,498
Loans................................. 108,044,190 61,496 108,105,686
Deposits.............................. 84,179,626 -- 84,179,626
Borrowings............................ 74,295,962 230,896 74,526,858
Stockholders' equity.................. 9,609,526 106,112 106,112(3) 358,905(4) 9,968,431
Loans originated during the three
months ended March 31, 1999......... 11,855,806 752,254 12,608,060
Nonperforming assets.................. 1,183,085 24,120 1,207,205
Reserve for loan losses............... 1,069,719 4,400 1,074,119
Stockholders' equity as a percentage
of total assets..................... 5.51% 29.80% 5.70%
Nonperforming assets as a percentage
of total assets..................... 0.68 6.77 0.69
Reserve for loan losses as a
percentage of:
Nonaccrual loans.................... 119 20 117
Nonperforming assets................ 90 18 89
</TABLE>
- -------------------------
(1) Includes amortization of pro forma goodwill of $3.5 million for the three
months ended March 31, 1999 and $13.9 million for the year ended December
31, 1998.
(2) Pro forma goodwill, net of amortization of $17.4 million. Amortization
period assumed to be 20 years.
(3) Elimination of Long Beach's stockholders' equity.
(4) Value of common stock issued and options converted to effect the merger, net
of amortization of pro forma goodwill.
14
<PAGE> 21
THE LONG BEACH SPECIAL MEETING
GENERAL
This proxy statement/prospectus is being provided to Long Beach
stockholders in connection with the solicitation of proxies by the Long Beach
board of directors for use at the special meeting to be held on Monday,
September 13, 1999 at 10:00 a.m., Pacific Time, at the Westin South Coast Plaza
Hotel, 686 Anton Boulevard, Costa Mesa, California 92626, and at any
adjournments or postponements of the meeting. This proxy statement/prospectus
and the accompanying form of proxy are first being mailed to record holders of
Long Beach common stock on or about August , 1999.
MATTERS TO BE CONSIDERED
The purpose of the special meeting is to consider and vote on a proposal to
approve and adopt the merger agreement, dated May 18, 1999, by and between Long
Beach and Washington Mutual, providing for the merger of Long Beach with and
into Washington Mutual. Long Beach stockholders may also be asked to vote on a
proposal to adjourn or postpone the special meeting to allow more time for the
solicitation of additional votes to approve the merger agreement if the
secretary of the meeting determines that there are not sufficient votes to
approve the merger agreement.
PROXIES
Long Beach stockholders should fill out and send back the accompanying form
of proxy if they may be unable to attend the special meeting in person. Long
Beach stockholders may revoke their proxies at any time before they are
exercised by:
- delivering written notice of revocation to Long Beach's corporate
secretary;
- completing and submitting a later-dated proxy card; or
- attending the special meeting and voting in person.
Written notices of revocation and other communications with respect to the
solicitation or revocation of proxies should be addressed to Long Beach
Financial Corporation, 1100 Town and Country Road, Suite 1650, Orange,
California 92868, Attention: General Counsel. All shares represented by valid
proxies received and not revoked before they are exercised will be voted in the
manner specified in the proxies. If no specification is made, the proxies will
be voted for approval of the merger agreement. No proxy that is voted against
the merger agreement will be voted for any adjournment or postponement of the
special meeting for the purpose of soliciting more proxies. However, if a
stockholder abstains from voting on the adoption of the merger agreement and
makes no specification on an adjournment or postponement for the purpose of
soliciting more proxies, then the proxies may be voted for the adjournment or
postponement.
SOLICITATION OF PROXIES
Long Beach will bear the entire cost of soliciting proxies, except that
Long Beach and Washington Mutual will share equally the amount of filing fees,
printing costs and other expenses incurred in connection with the cost of
filing, printing and distributing this proxy statement/prospectus and related
materials. In addition to solicitation by mail, the directors, officers, and
employees of Long Beach may, without additional compensation, solicit proxies
from Long Beach stockholders by telephone, facsimile, or other electronic means
or in person. Long Beach will make arrangements with brokerage houses and other
custodians, nominees and fiduciaries to send the proxy materials to the
beneficial owners of
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Long Beach common stock held of record by these persons. Long Beach will
reimburse these custodians, nominees, and fiduciaries for their reasonable
expenses in connection with the solicitation of proxies. Morrow & Co., Inc., a
proxy solicitation firm, will assist Long Beach in soliciting proxies and will
be paid a fee of approximately $6,000 plus out-of-pocket expenses.
VOTES REQUIRED
The Long Beach board of directors has fixed August 9, 1999 as the record
date for determining the Long Beach stockholders entitled to notice of and to
vote at the Long Beach special meeting. Therefore, only stockholders of record
at the close of business on the record date will receive this notice and be able
to vote at the Long Beach special meeting. At the close of business on the
record date, there were 22,616,818 shares of Long Beach common stock outstanding
held by approximately record holders. A majority of these shares
must be present at the special meeting, either in person or by proxy, in order
for there to be a quorum at the special meeting. There must be a quorum in order
for the vote on the merger proposal to occur. Each share of outstanding Long
Beach common stock entitles its holder to one vote.
Shares of Long Beach common stock present in person at the Long Beach
special meeting but not voting, and shares for which Long Beach has received
proxies but with respect to which holders of these shares have abstained, will
be counted as present at the special meeting for purposes of determining whether
a quorum exists. Brokers who hold shares in nominee or "street" name for
customers who are the beneficial owners of the shares may not give a proxy to
vote shares held for these customers without specific instructions from them.
However, broker non-votes will be counted as present at the special meeting for
purposes of determining whether a quorum exists.
Under Delaware law, a majority of the outstanding shares of Long Beach
common stock entitled to vote at the Long Beach special meeting must vote "for"
the merger proposal in order for it to be adopted by Long Beach. BECAUSE
APPROVAL OF THE MERGER PROPOSAL REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE OUTSTANDING SHARES OF LONG BEACH COMMON STOCK ENTITLED TO VOTE AT THE
SPECIAL MEETING, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS
VOTING AGAINST THE MERGER PROPOSAL. THEREFORE, THE LONG BEACH BOARD OF DIRECTORS
URGES ITS STOCKHOLDERS TO COMPLETE, DATE, AND SIGN THE ACCOMPANYING PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE-PAID ENVELOPE.
As of the record date, Long Beach's directors and executive officers
beneficially owned 136,865 shares of Long Beach common stock which entitles them
to exercise less than one percent of the voting power of the Long Beach common
stock entitled to vote at the special meeting. Long Beach expects that each of
these directors and executive officers will vote his or her shares in favor of
the merger proposal.
RECOMMENDATION OF THE LONG BEACH BOARD OF DIRECTORS
The Long Beach board of directors has unanimously approved the merger
agreement and the transactions contemplated in the merger agreement. The Long
Beach board of directors believes that the merger is in the best interests of
Long Beach and its stockholders. The Long Beach board of directors recommends
that all stockholders vote "FOR" the merger proposal.
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THE MERGER
This section describes material aspects of the proposed merger including
the merger agreement. While we believe that this description covers the material
terms of the merger and the related transactions, this summary may not contain
all of the information that is important to you. You should read the merger
agreement and other documents we refer to carefully for a more complete
understanding of the merger.
GENERAL
The merger agreement provides for the merger of Long Beach with and into
Washington Mutual. At the effective time of the merger, the separate corporate
existence of Long Beach will terminate and the surviving corporation of the
merger will be Washington Mutual. As a result of the merger, Long Beach Mortgage
Company, a wholly-owned subsidiary of Long Beach, will become a wholly-owned
subsidiary of Washington Mutual.
THE MERGER CONSIDERATION
Conversion of Long Beach Common Stock. At the effective time of the merger,
each share of Long Beach common stock, other than shares held in Long Beach's
treasury, together with the "rights" attached to these shares, will
automatically convert, subject to the election and allocation provisions of the
merger agreement discussed below, into the right to receive:
- a number of shares of Washington Mutual common stock determined by
dividing: (a) $15.50 by (b) the average of the daily closing prices for
Washington Mutual common stock on the New York Stock Exchange for the
five trading days beginning on the eighth trading day before the
effective date of the merger; or
- cash in the amount of $15.50.
Since the closing date is three trading days after the date the exchange
ratio will be established, the market value of the shares of Washington Mutual
common stock issued in exchange for each share of Long Beach common stock may be
greater or less than $15.50 on the closing date of the merger.
Preference Procedures. A preference form is enclosed with this proxy
statement/ prospectus. Each preference form permits the holder to indicate an
irrevocable and binding preference (subject to the allocation and proration
procedures described below in "-- Allocation and Proration") to receive
Washington Mutual common stock, cash in the amount of $15.50 per share or a
combination of cash and stock with respect to the holder's shares of Long Beach
common stock.
The deadline for submitting preference forms will be 5:00 p.m. Pacific
Time, on September 10, 1999. Any shares of Long Beach common stock with respect
to which the holder has not submitted an effective, properly completed
preference form by the preference deadline will be converted into Washington
Mutual common stock. ACCORDINGLY, YOU DO NOT NEED TO SUBMIT A PREFERENCE FORM OR
YOUR LONG BEACH STOCK CERTIFICATES TO ELECT TO RECEIVE WASHINGTON MUTUAL COMMON
STOCK IN THE MERGER.
Preferences are properly made only if the exchange agent actually receives
a properly completed preference form by the preference deadline. A preference
form will be deemed properly completed only if accompanied by one or more
certificates (or affidavits and indemnification or bond regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates) representing all shares of Long Beach common stock covered by
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the preference form. Once submitted, each preference form will be irrevocable
and binding upon the stockholder submitting the form and no changes will be
permitted.
The exchange agent will have reasonable discretion to determine whether any
preference has been properly or timely made and to disregard immaterial defects
in preference forms. Any good faith decision by the exchange agent regarding
such matters will be conclusive and binding. Neither Long Beach, Washington
Mutual nor the exchange agent will be under any obligation to notify any person
of any defect in a preference form.
Allocation and Proration. The merger agreement requires that at least 52%
of the aggregate merger consideration consist of shares of Washington Mutual
common stock. Therefore, the aggregate number of shares covered by elections to
receive cash may not exceed 48% of the total outstanding shares of Long Beach
common stock. Since the aggregate cash component of the merger consideration is
limited, a Long Beach stockholder may not receive the exact consideration
elected on his or her preference form. If holders of more than 48% of the
outstanding shares of Long Beach common stock elect to receive cash, each share
of Long Beach common stock for which a cash election is made will be converted
into the right to receive (a) a pro-rated portion of the $15.50 per share cash
consideration such that the aggregate cash payments do not exceed the maximum
permissible cash consideration and (b) the balance of the merger consideration
in Washington Mutual common stock.
Treasury Stock and Shares Held by Washington Mutual or Long Beach. Each
outstanding share of Long Beach common stock held in Long Beach's treasury or
owned directly or indirectly by Washington Mutual or Long Beach or their
subsidiaries (other than shares held in a fiduciary or nominee capacity and
beneficially owned by third parties and shares held in respect of a previous
debt) will be canceled at the effective time of the merger without the payment
of any consideration.
Conversion of Long Beach Common Stock Options. At the effective time of the
merger, each outstanding and unexercised option (vested or unvested) to purchase
shares of Long Beach common stock will be converted automatically into a
fully-vested option to purchase shares of Washington Mutual common stock. The
number of shares of Washington Mutual common stock subject to a converted option
will be equal to the product of (a) the number of shares of Long Beach common
stock subject to the original option, multiplied by (b) the number of shares of
Washington Mutual common stock received for each share of Long Beach common
stock in the merger, rounded down to the nearest share. The exercise price per
share of Washington Mutual common stock under each option will be equal to the
quotient of (a) the exercise price per share under the Long Beach option,
divided by (b) the number of shares of Washington Mutual common stock received
for each share of Long Beach common stock in the merger (rounded up to the
nearest cent). Except to the number of shares and the exercise price, each
converted option will have the same terms as the Long Beach stock option from
which it was converted. See "-- Interests of Certain Persons in the Merger."
BACKGROUND OF THE MERGER
The management and board of directors of Long Beach determined during the
third quarter of 1998 that pursuing a strategic alliance with a partner could
potentially help it to achieve a number of Long Beach's objectives, including:
- expanding its business through acquisitions and continued internal
growth;
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- mitigating price volatility of Long Beach's loans in the capital markets
through the ability to hold loans in portfolio until optimum cash sale
execution can be achieved or indefinitely if adequate capital levels are
made available;
- diversifying Long Beach's products and providing cross selling
opportunities into its borrower base;
- reducing its cost of funds; and
- improving operational efficiency.
In October 1998, management began having discussions with representatives
of Friedman, Billings, Ramsey & Co., Inc. in order to assess the likelihood of
finding a strategic partner who could fulfill Long Beach's objectives through a
strategic alliance. Pursuant to a letter agreement dated October 27, 1998, Long
Beach engaged Friedman, Billings to act as its financial advisor in connection
with an analysis of Long Beach's strategic opportunities. During November and
December 1998, Friedman, Billings prepared a confidential offering memorandum
with detailed operating and financial information regarding Long Beach. During
this period, Friedman, Billings contacted a number of companies to assess their
interest in opportunities in Long Beach's business sector. Subsequently,
Friedman, Billings negotiated and executed confidentiality agreements on behalf
of Long Beach with those institutions that were interested in further exploring
a strategic alliance, which could include among other things, the purchase of
Long Beach. Long Beach and/or Friedman, Billings had substantive discussions
concerning a strategic partnership with eight parties.
After being contacted by Friedman, Billings in late 1998, Washington Mutual
expressed a high level of interest in Long Beach and communicated to Friedman,
Billings the desire to negotiate a transaction that would preempt a broader
process of bidding by other parties. In consultation with the Long Beach board
of directors, management, Friedman, Billings and Long Beach's legal counsel
discussed this opportunity and decided to give Washington Mutual the opportunity
to submit a preemptive bid, without any commitment on the part of Long Beach.
Following this determination, Washington Mutual was provided detailed operating
and financial information regarding Long Beach and several meetings between
representatives of Washington Mutual, management of Long Beach and Friedman,
Billings occurred. On January 6, 1999, Washington Mutual submitted a term sheet
to representatives of Friedman, Billings and Long Beach's management that
contained a price lower than $15.50 per share. On January 13, 1999, Long Beach's
board of directors met with representatives of Friedman, Billings and Long
Beach's legal counsel to discuss the Washington Mutual offer. At that time,
based primarily on the pricing level proposed in the Washington Mutual offer the
Long Beach board decided not to pursue the proposal.
During the remainder of the first quarter of 1999, representatives of
Friedman, Billings continued to have discussions and exchange financial and
other relevant information with a number of potential strategic partners of Long
Beach. On February 23, 1999, Friedman, Billings received a written indication of
interest from a party other than Washington Mutual regarding the potential
purchase of Long Beach at a price range of $13 to $15 per share, subject to full
due diligence and negotiation of a definitive purchase agreement. In March 1999,
Washington Mutual re-initiated contact with Friedman, Billings regarding its
interest in pursuing the potential purchase of Long Beach at a significantly
higher pricing level than its initial offer. During late March and April 1999,
management and representatives of Friedman, Billings held lengthy discussions
with Washington Mutual, the
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other party that had submitted the February 23rd indication of interest and a
third party. These discussions focused on determining the most advantageous
pricing, transaction structure and strategic fit for Long Beach and its
stockholders. During April 1999, Washington Mutual and the party that had
submitted the indication of interest conducted due diligence visits at the
offices of Long Beach's legal counsel and Long Beach's headquarters, during
which they reviewed financial, operational and legal information on Long Beach.
On April 28, 1999, management and Friedman, Billings received a written
proposal from Washington Mutual offering to purchase Long Beach at a price of
$15.00 per share, subject to negotiation of a definitive agreement. On April 30,
1999, management and Friedman, Billings received a written proposal from the
other party that had conducted on-site due diligence to purchase Long Beach at a
price of $14.50 per share, subject to additional due diligence and negotiation
of a definitive agreement. On May 6, 1999, management, the board of directors
and representatives of Friedman, Billings and its legal counsel convened to
discuss and compare the acquisition offers. During that meeting, the board
authorized management and Friedman, Billings to continue discussions with both
parties to determine whether a definitive agreement could be negotiated and the
most advantageous terms to Long Beach's stockholders. On May 12, 1999, the party
other than Washington Mutual submitted a final written proposal to management to
purchase Long Beach at a price of $15.60 per share payable in cash or stock,
with a maximum of 50% stock in certain cases, subject to negotiation of a
definitive agreement. After further discussions among management, its legal
counsel and Friedman, Billings, as well as further negotiations with both
bidders separately, management decided that the proposed transaction with
Washington Mutual would be the best for Long Beach and its stockholders,
notwithstanding the nominally lower price per share. This conclusion was based
on the more favorable Washington Mutual deal structure, which permits Long Beach
stockholders to receive up to 100% stock at their election in all cases, an
assessment of the business and prospects of both bidders and their respective
common stocks, and the Long Beach board's conclusion that a transaction with
Washington Mutual was more likely to be finalized on acceptable terms and closed
in a timely manner. Through further negotiations, Washington Mutual and Long
Beach management agreed, subject to Long Beach and Washington Mutual board
approvals, to a sale transaction whereby Washington Mutual would pay a fixed
price of $15.50 per share which would be payable at the election of the holder
in cash or Washington Mutual common stock with no limitation on the maximum
amount of stock consideration. Through May 18, 1999, representatives of Long
Beach, Friedman, Billings and Long Beach's legal counsel, working with
representatives of Washington Mutual and its legal counsel, finalized
negotiations and drafted of the merger agreement.
On May 18, 1999, at a special meeting of the Long Beach board of directors,
management, and representatives of Friedman, Billings and Long Beach's legal
counsel discussed in detail the proposed transaction with Washington Mutual and
the proposed merger agreement previously furnished to the members of the board
of directors. Representatives of Long Beach's legal counsel discussed the merger
agreement and the duties of Long Beach's board of directors to its stockholders.
Friedman, Billings presented a financial analysis of the transaction and its
opinion that the transaction was fair from a financial point of view to Long
Beach's stockholders. Various factors were considered in reaching a conclusion
including, among other things, the total consideration to Long Beach
stockholders and the potential long term value and liquidity of Washington
Mutual common stock. Long Beach's board then determined that the proposed
transaction with
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Washington Mutual was in the best interests of its stockholders and unanimously
approved and adopted the merger agreement.
On May 18, 1999, Washington Mutual also held a special meeting of its board
of directors. Members of Washington Mutual's management team and its legal
counsel also attended. Washington Mutual's management and legal counsel
explained the terms of the merger agreement and the option agreement, as well as
the reasons for and potential benefits of the merger to the board. After a
discussion of the merger agreement and the contemplated merger, the Washington
Mutual board then approved, by the unanimous vote of all the directors present,
the merger agreement and the merger.
REASONS OF LONG BEACH FOR THE MERGER
The terms of the merger agreement, including the consideration to be paid
to Long Beach stockholders, were the result of arm's length negotiations between
representatives of Long Beach and Washington Mutual. The Long Beach board has
determined that the terms of the merger agreement are fair to and in the best
interests of the Long Beach stockholders. In reaching this determination, the
Long Beach board consulted with its financial advisor, Friedman, Billings, with
respect to, among other things, the fairness from a financial point of view of
the consideration to be received by the Long Beach stockholders in the merger.
The Long Beach board also considered advice received from Long Beach's legal
counsel concerning various legal and regulatory matters relevant to its
consideration of the proposed transaction.
In reaching its determination to approve the merger agreement, the Long
Beach board considered the following factors:
(i) Fairness of Consideration. The Long Beach board considered the
relationship of the fixed price per share to be received by Long Beach
stockholders to the per share market value, earnings and tangible book value of
Long Beach's common stock. In its consideration of these factors, the Long Beach
board received detailed presentations from Friedman, Billings regarding current
and historical trading prices for the stocks of Long Beach, Washington Mutual,
certain bank and thrift institutions and other mortgage companies. In addition,
the Long Beach board received information and analyses regarding the
consideration paid in comparable acquisition transactions. The board also
considered the potential long term value and liquidity of Washington Mutual
common stock which is actively traded on the New York Stock Exchange. The board
further considered Friedman, Billings's oral and written opinions that the per
share consideration to be received by Long Beach stockholders is fair to such
stockholders from a financial point of view.
(ii) Structure and Tax-Free Nature of Transaction. The Long Beach board
considered the terms of the merger agreement and the general structure of the
transaction. In particular, the Long Beach board focussed on the ability of Long
Beach stockholders to elect stock or cash consideration, without a limitation on
the percentage of stock received, and the general tax-free nature of the
transaction to Long Beach's stockholders who elect to receive only Washington
Mutual stock. The Long Beach board further considered the opportunity this
structure would provide Long Beach stockholders to continue to participate in
the business of the combined entity or to sell their shares at some future time.
(iii) Long Beach's Future Prospects as an Independent Company. The Long
Beach board considered Long Beach's prospects for growth, expansion of the
products and services it offers, and possible acquisition opportunities. The
Long Beach board considered
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management's view that Long Beach would have to expand its products and services
while simultaneously seeking acquisition opportunities if it wished to sustain
its growth trend and that such strategies could entail significant risk. The
Long Beach board also considered the increasingly competitive and consolidating
environment in which Long Beach operates, the likelihood that new entrants could
adversely affect pricing, and Long Beach's relative size and market share in the
nationwide non-conforming mortgage market.
(iv) Benefits of the Combination. The Long Beach board considered the
financial condition and profitability of Washington Mutual and its extensive
line of products and services. The Long Beach board believes that the
combination with Washington Mutual will give Long Beach the potential to return
some of its loan production to portfolio and to reduce its cost of funds. The
board also believes that Washington Mutual's emphasis on consumers will allow
Long Beach to expand the products and services made available to Long Beach's
borrowers. The Long Beach board further considered the reputation, business
practices and employee benefits of Washington Mutual and their positive effects
of Long Beach's employees.
The above summary of the information and factors considered by the Long
Beach board is not intended to be exhaustive, but is believed to include the
material factors considered by the Long Beach board. In reaching its
determination to approve and recommend the merger, the Long Beach board did not
assign any relative or specific weights to the foregoing factors. In addition,
individual members of the Long Beach board may have had differing views
regarding one or more of the subjects summarized above and may have had
different views as to the weights to be accorded to each in reaching their
individual decisions.
For the reasons set forth above, the Long Beach board has approved the
merger agreement as being advisable and in the best interests of Long Beach
stockholders. The Long Beach board recommends that Long Beach stockholders vote
for the approval of the merger agreement at the stockholder meeting.
OPINION OF LONG BEACH'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of October 27, 1998, Friedman,
Billings was retained by Long Beach to act as its financial advisor in
connection with an analysis of Long Beach's strategic opportunities. At the
meeting of the Long Beach board held on May 18, 1999, Friedman, Billings
delivered its oral opinion to the Long Beach board to the effect that as of such
date, a fixed price of $15.50 per share of Long Beach common stock, payable at
the election of the holder in cash or Washington Mutual common stock, subject to
certain terms and conditions set forth in the merger agreement, was fair, from a
financial point of view, to the holders of Long Beach common stock. Friedman,
Billings confirmed its opinion in writing immediately following the May 18, 1999
Long Beach board meeting and has reconfirmed its May 18, 1999 opinion by
delivery of its written opinion (the "Friedman, Billings Opinion") to the Long
Beach board, dated the date of this proxy statement/prospectus, stating that as
of the date hereof, based on the matters set forth in such opinion and pursuant
to the merger agreement, the fixed price to be received by the holders of shares
of Long Beach common stock is fair to such holders from a financial point of
view.
THE FULL TEXT OF THE FRIEDMAN, BILLINGS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE
REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT AND IS
INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE. THE DESCRIPTION
OF THE FRIEDMAN, BILLINGS OPINION SET
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FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX B. LONG
BEACH'S STOCKHOLDERS ARE URGED TO READ THE FRIEDMAN, BILLINGS OPINION IN ITS
ENTIRETY. FRIEDMAN, BILLINGS' OPINION IS ADDRESSED ONLY TO LONG BEACH'S BOARD OF
DIRECTORS AND DIRECTED ONLY TO THE FIXED PRICE TO BE RECEIVED IN THE MERGER BY
THE HOLDERS OF LONG BEACH'S COMMON STOCK, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING.
Friedman, Billings is a nationally recognized investment banking firm and
was selected by Long Beach based on the firm's reputation and experience in
investment banking in general, its recognized expertise in the valuation of
specialty finance businesses and its familiarity with Long Beach. Friedman,
Billings, as part of its investment banking business, is frequently engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
In connection with rendering the opinions dated May 18, 1999 and the date
hereof, Friedman, Billings, among other things:
- reviewed the Washington Mutual Annual Report to Stockholders for the
fiscal years ended December 31, 1997 and 1998 and the Washington Mutual
Annual Reports on Form 10-K filed with the SEC for the fiscal years ended
December 31, 1997 and 1998; reviewed the Washington Mutual Annual Proxy
Statement dated March 23, 1999; reviewed the Washington Mutual Quarterly
Reports on Form 10-Q filed with the SEC for the fiscal quarters ended
March 31, 1999, September 30, 1998 and June 30, 1998;
- reviewed the Long Beach Annual Report to Stockholders for the fiscal
years ended December 31, 1997 and 1998 and the Long Beach Annual Report
on Form 10-K filed with the SEC for the fiscal years ended December 31,
1997 and 1998; reviewed the Long Beach Annual Proxy Statement dated April
28, 1999; reviewed the Long Beach Quarterly Reports on Form 10-Q filed
with the SEC for the quarters ended March 31, 1999, September 30, 1998,
and June 30, 1998;
- reviewed and discussed the unaudited financial statements of Long Beach
for the four months ended April 30, 1999 with the management of Long
Beach;
- reviewed the reported market prices and trading activity for Washington
Mutual common stock for the period January 1, 1997 through May 17, 1999;
- discussed the financial condition, results of operations, earnings
projections, business and prospects of Long Beach with the management of
Long Beach;
- compared the results of operations and financial condition of Long Beach
and Washington Mutual with those of certain publicly-traded financial
services organizations (or their holding companies) that Friedman,
Billings deemed to be reasonably comparable to Long Beach or Washington
Mutual, as the case may be;
- reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions that Friedman, Billings deemed to be
reasonably comparable to the merger;
- reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions entered into by Washington Mutual;
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- reviewed the potential pro forma impact of the merger to Long Beach
stockholders that elect to receive Washington Mutual common stock;
- reviewed a copy of the merger agreement; and
- performed such other financial analyses and reviewed and analyzed such
other information as Friedman, Billings deemed appropriate, including an
assessment of general economic, market and monetary conditions.
In connection with rendering the Friedman, Billings Opinion, as set forth
herein, Friedman, Billings assumed and relied upon, without independent
verification, the accuracy and completeness of all the financial information,
analyses and other information reviewed by and discussed with it, and did not
make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities of Washington Mutual, Long Beach
or any of their respective subsidiaries, or the collectability of any of these
assets (relying, where relevant, on the analyses and estimates of Washington
Mutual and Long Beach). With respect to the financial projections reviewed with
Long Beach's management, Friedman, Billings assumed that they reflect the best
currently available estimates and judgments of the Long Beach management of the
future financial performance of Long Beach, and that such performance will be
achieved. Friedman, Billings also assumed that there has been no material change
in Washington Mutual's or Long Beach's assets, financial condition, results of
operations, business or prospects since the date of the last financial
statements noted above. Finally, Friedman, Billings assumed without independent
verification that the aggregate consolidated allowances for loan losses for Long
Beach and Washington Mutual were adequate to cover these losses, and that the
conditions precedent in the Merger Agreement are not waived.
The forecasts and projections furnished to Friedman, Billings for Long
Beach were prepared by the management of Long Beach. As a matter of policy, Long
Beach does not publicly disclose internal management forecasts, projections or
estimates of the type furnished to Friedman, Billings in connection with its
analysis of the merger, and such forecasts, projections and estimates were not
prepared with a view towards public disclosure. These forecasts, projections and
estimates were based on numerous variables and assumptions which are inherently
uncertain and which may not be within the control of management including,
without limitation, general economic, regulatory and competitive conditions.
Accordingly, actual results could vary materially from those set forth in such
forecasts, projections and estimates.
The Long Beach board imposed no limitations on Friedman, Billings with
respect to the investigation made or procedures followed by Friedman, Billings
in rendering the Friedman, Billings Opinion. In connection with rendering its
fairness opinion to the Long Beach board, Friedman, Billings performed a variety
of financial analyses. The following is a summary of the material financial
analyses performed by Friedman, Billings, but does not purport to be a complete
description of Friedman, Billings's analyses or presentations at the May 6, 1999
and May 18, 1999 meetings of the Long Beach board. Friedman, Billings believes
that its analyses must be considered as a whole and that selecting portions of
these analyses and the factors considered, without considering all factors and
analyses, could create an incomplete view of the analyses and the processes
underlying the Friedman, Billings Opinion. The preparation of a fairness opinion
is a complex process involving subjective judgments and is not necessarily
susceptible to partial analyses or summary description. In its analyses,
Friedman, Billings made numerous assumptions with respect to industry
performance, business and economic conditions and various other matters, many of
which are beyond the control of Long Beach and Washington Mutual.
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Any estimates contained in Friedman, Billings's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates. Estimates of values of companies do not purport
to be appraisals or necessarily reflect the prices at which the companies or
their securities may actually be sold.
SUMMARY OF TERMS OF PROPOSED TRANSACTIONS. Friedman, Billings reviewed the
terms of the proposed merger, including the per share fixed price, the
flexibility provided to Long Beach stockholders in determining the form of
consideration, and the percentage of premium to Long Beach's market price at May
18, 1999. Based on the merger agreement, the consideration to be received by
Long Beach stockholders will be a fixed price of $15.50 per share of Long Beach
common stock, payable at the election of the holder in cash or Washington Mutual
common stock. As of May 18, 1999, the per share fixed price represented a
percentage premium to the current market price per share of $12.313 for Long
Beach common stock (the closing price for such stock on May 18, 1998) of 25.9%.
Based on a price of $15.50 per share of Long Beach common stock as per the
merger agreement dated May 18, 1999, the purchase price represented a multiple
of:
- 11.92x Long Beach's earnings per share for the twelve months ended March
31, 1999;
- 11.83x analyst consensus estimates of Long Beach's 1999 earnings per
share;
- 9.75x analyst consensus estimates of Long Beach's 2000 earnings per
share;
- 3.30x of Long Beach's book value per share as of March 31, 1999; and
- 12.5% of Long Beach's first quarter 1999 mortgage originations
annualized.
COMPARABLE PUBLIC COMPANY ANALYSIS. Based on publicly available
information, Friedman, Billings analyzed the trading multiples of a comparison
group of thirteen publicly traded non-conforming home equity and mortgage
companies, using current pricing information and analyst consensus earnings
estimates as of May 18, 1999 and financial data as of March 31, 1999. The
results of this analysis are reflective of an industry that has been under
significant downward pressure during the latest twelve month period. Of the
thirteen companies in the sample, as of May 18, 1999, every company was trading
significantly below its 52-week high, with a median of 75% below such 52-week
high. Friedman, Billings also analyzed trading multiples of 1998 earnings per
share, 1999 analyst consensus estimated earnings per share, 2000 analyst
consensus estimated earnings per share, and book value per share as of March 31,
1999. Friedman, Billings's analysis indicated median trading multiples for the
thirteen company sample of 4.9x 1998 earnings, 4.7x 1999 earnings estimates,
3.8x 2000 earnings estimates and 90% of book value. Long Beach, clearly the
highest performing company in the sector on May 18, 1999, was trading at 6%
below its 52-week high, 10.1x 1998 earnings, 9.4x 1999 analyst consensus
earnings estimates, 7.7x 2000 analyst consensus earnings estimates and at 260%
of book value. The per share purchase price agreed upon by Washington Mutual and
Long Beach pursuant to the merger agreement is very favorable relative to
pricing levels of comparable public companies in the non-conforming home equity
and mortgage industry.
COMPARABLE TRANSACTIONS ANALYSIS. Friedman, Billings reviewed certain
information relating to transactions announced between January 1, 1997 and May
18, 1999, involving the acquisition of subprime mortgage companies. The universe
of comparable transactions announced since January 1, 1997 consisted of three
(3) transactions. In conjunction with its analysis, Friedman, Billings reviewed
valuation multiples based on price to tangible book value, price to latest
twelve months reported earnings per share, price to current year
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<PAGE> 32
consensus estimated earnings per share, and price to latest twelve months
reported origination volume. Friedman, Billings compared the median multiples in
the proposed Washington Mutual acquisition of Long Beach to the comparable
transactions multiples. Friedman, Billings computed the foregoing ratios for the
merger based on the aggregate transaction value of approximately $375 million at
announcement of the merger. Friedman, Billings's computations yielded the
following median multiples at announcement for the comparable transactions, as
compared with the following indicated multiples for Long Beach at announcement
of the merger: (i) median price to tangible book value multiples of 377%,
compared with 402% for the merger; (ii) median price to latest twelve months
earnings multiples of 11.98x, compared with 12.07x for the merger; (iii) median
price to 1999 consensus estimated earnings of 12.04x, compared with 12.66x for
the merger; and (iv) price to latest twelve months reported origination volume
of 6.66%, compared with 12.5% for the merger.
No other company or transaction used in a comparable company or comparable
transaction analysis as a comparison is identical to Long Beach or the merger.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which Long Beach
and the merger are being compared.
PREMIUM PAID ANALYSIS. Friedman, Billings using all of the transactions of
financial services companies by banks and thrifts since January 1, 1999 to
analyze pricing information and the premiums paid compared to the seller's stock
price at one month to the date, one week to the day, and one day prior to the
announcement of the acquisition. The analysis was based on 116 transactions
announced since January 1, 1999. The figures produced (i) a median premium to
the seller's stock price one month to the date prior to announcement of 19.62%;
(ii) a median premium to the seller's stock price one week to the date prior to
announcement of 14.82%; and (iii) a median premium to the seller's stock price
one day prior to announcement of 11.38%. The pricing of the Washington Mutual
and Long Beach transaction described herein represented premiums to Long Beach's
stock price one month prior, one week prior, and one day prior of 40%, 24% and
26%, respectively, which compare favorably to the premiums paid for all other
financial services companies during 1999.
DISCOUNTED EARNINGS STREAM AND TERMINAL VALUE ANALYSIS. Using a discounted
earnings stream and terminal value analysis, Friedman, Billings estimated the
future stream of earnings flows that Long Beach could be expected to produce
through the year 2003, under various circumstances, assuming Long Beach
performed in accordance with the earnings forecasts of Long Beach management. To
approximate the terminal value of Long Beach common stock at the end of a
five-year period (December 31, 2003), Friedman, Billings applied price to
earnings multiples ranging from 5.0x to 10.0x, and applied cash gain on sale
assumptions regarding the sale of Long Beach originated loans in the secondary
market ranging from 4.00% to 4.25%. The net income streams and terminal values
were then discounted to present values using a discount rate ranging from 25% to
15%. When a discount rate range of 25% to 15% and terminal earnings multiple
range of 5.0x to 10x, respectively, were applied to the 4.00% cash gain on sale
earnings stream scenario, the analysis indicated a reference range between $7.70
and $15.78 per share of Long Beach common stock. When a discount rate range of
25% to 15% and terminal earnings multiple range of 5.0x to 10x, respectively,
were applied to the 4.25% cash gain on sale earnings stream scenario, the
analysis indicated a reference range between $8.74 and $17.89 per share of Long
Beach common stock.
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<PAGE> 33
PRO FORMA MERGER ANALYSIS. Friedman, Billings performed pro forma merger
analyses that combined Long Beach's and Washington Mutual's current and
projected income statements and balance sheets based on earnings forecasts of
Long Beach and Washington Mutual, respectively. Assumptions and analyses of the
accounting treatment, acquisition adjustments, operating efficiencies and other
adjustments were made to arrive at a base case pro forma analysis to determine
the effect of the merger on Washington Mutual. Friedman, Billings noted that,
based on the per share purchase price, the form of consideration (in light of
Washington Mutual's share repurchase program currently in effect), and the net
impact of merger related charges and other one-time expenses, the impact of the
merger on Washington Mutual's projected earnings per share and tangible book
value per share did not appear to be material. The actual results achieved by
the combined company will vary from the projected results and such variations
may be material.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. In preparing its
presentation, Friedman, Billings used publicly available information to compare
selected financial and market trading information, including book value,
tangible book value, earnings, asset quality ratios, loan loss reserve levels,
profitability and capital adequacy, for Washington Mutual and selected other
publicly traded banks and thrifts located across the United States. This peer
group consisted of all publicly traded banks and thrifts with total assets
greater than or equal to $25 billion located in the United States. Friedman,
Billings reviewed the historical financial information for Washington Mutual and
the peer group between January 1, 1995 and March 31, 1999. According to the
analysis, Washington Mutual compared favorably to the peer group medians when
looking at tangible book value per share, return on average equity, and
efficiency ratio.
In connection with rendering the Friedman, Billings Opinion, Friedman,
Billings confirmed the appropriateness of its reliance on the analyses used to
render its May 18, 1999 opinion by performing procedures to update certain of
such analyses and by reviewing the assumptions upon which such analyses were
based and the factors considered in connection therewith. The Friedman, Billings
Opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to it as of, the date of such
opinion. Events occurring after the date of the Friedman, Billings Opinion could
materially affect the assumptions used in preparing such opinion.
Pursuant to its agreement with Friedman, Billings, Long Beach retained
Friedman, Billings to act as its independent financial advisor in connection
with the merger. In the event the merger is completed, Long Beach will pay
Friedman, Billings a success fee equal to one percent (1.00%) of the fair market
value of the aggregate consideration received by Long Beach's stockholders as of
the closing of the merger. Long Beach's success fee shall be due to Friedman,
Billings in immediately available funds at the closing of the merger. For
purposes of calculating the fair market value of the aggregate consideration,
any outstanding stock options or other stock based employee plans shall be
deemed fully accelerated to the extent not extinguished in the merger with an
appropriate reduction to fair market value for the exercise or base price of
outstanding stock options. Long Beach also has agreed to reimburse Friedman,
Billings for its reasonable out-of-pocket expenses in connection with its
engagement and to indemnify Friedman, Billings and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons against certain expenses and liabilities, including liabilities under
applicable securities laws.
Friedman, Billings has advised Long Beach that, in the ordinary course of
its business as a full-service securities firm, Friedman, Billings may, subject
to certain restrictions,
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<PAGE> 34
actively trade the equity securities of Long Beach and/or Washington Mutual for
its own account or for the accounts of its customers, and, accordingly, may at
any time hold a long or short position in such securities.
REASONS OF WASHINGTON MUTUAL FOR THE MERGER
Washington Mutual's board of directors believes that the merger will expand
Washington Mutual's presence in the specialty residential mortgage market.
Washington Mutual's board of directors also believes that the merger represents
an extension of its strategy to become a leading consumer-oriented financial
services institution. In particular, its board of directors feels that
Washington Mutual will benefit by Long Beach's position in the subprime mortgage
market.
In reaching its conclusions, the Washington Mutual board considered, among
other things: (a) information concerning the financial performance and
condition, business operations, capital levels, and asset quality of Long Beach
and projected results and prospects of Washington Mutual and Long Beach on a
combined basis; (b) Long Beach's origination capacity and management team; (c)
the terms of the merger agreement, including the mutual covenants and conditions
and the circumstances under which Washington Mutual would receive a termination
fee; (d) the likelihood of obtaining the regulatory approvals required to
consummate the merger; and (e) the effect of the merger on the depositors,
employees, customers and communities served by Washington Mutual.
EFFECTIVE TIME OF THE MERGER
The merger will become effective on the date and time set forth in the
certificate of merger filed with the Secretary of State of the State of Delaware
and the articles of merger filed with the Secretary of State of the State of
Washington. The parties will file the articles and certificate of merger on the
first business day following the later of (a) the fifth business day after the
last of the conditions to closing the merger has been satisfied or (b) 17 days
after the deadline for Long Beach stockholders to submit preference forms, or
any other date as Washington Mutual and Long Beach may agree in writing. The
merger agreement may be terminated by either party if, among other reasons, the
merger is not completed on or before December 31, 1999, which date will be
extended to March 31, 2000 if the failure is solely due to the failure to obtain
the requisite regulatory approvals. See "-- Conditions to the Completion of the
Merger" and "-- Termination of the Merger Agreement" below.
EXCHANGE OF CERTIFICATES
By the effective time of the merger, Washington Mutual will deposit with an
exchange agent, for exchange under the terms of the merger agreement (a) the
Washington Mutual stock certificates issuable and (b) the cash (including cash
payable in lieu of fractional shares of Washington Mutual common stock) payable
to Long Beach stockholders in the merger.
As soon as practicable after the effective time of the merger, the exchange
agent will mail a form of transmittal letter to those Long Beach stockholders
who have not previously delivered all of their Long Beach stock certificates.
The form of transmittal letter will contain instructions for the surrender of
their certificates in exchange for the merger consideration and will specify
that delivery will be effected and risk of loss will pass only upon delivery of
the certificates to the exchange agent.
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<PAGE> 35
After the effective time of the merger, Long Beach stockholders who have
submitted a completed and executed letter of transmittal and surrendered all
certificates representing shares of Long Beach common stock, will receive (a) a
certificate representing the number of shares of Washington Mutual common stock
and (b) a check representing the amount of cash (including cash payable in
respect of fractional shares) which the holder is entitled to receive under the
merger agreement. No interest will be payable or accrue on the cash.
A PREFERENCE FORM AND LONG BEACH COMMON STOCK CERTIFICATES DO NOT NEED TO
BE RETURNED WITH THE ENCLOSED PROXY CARD IF YOU WISH TO RECEIVE ONLY WASHINGTON
MUTUAL COMMON STOCK IN THE MERGER. ANY CERTIFICATES NOT RETURNED WITH THE PROXY
CARD SHOULD BE FORWARDED TO THE EXCHANGE AGENT WITH A TRANSMITTAL FORM, WHICH
WILL BE PROVIDED TO HOLDERS FOLLOWING THE EFFECTIVE TIME OF THE MERGER.
No dividends or other distributions declared with respect to Washington
Mutual common stock with a record date after the effective time of the merger
will be paid to the holder of any Long Beach stock certificate until the Long
Beach certificate has been surrendered for exchange. Holders of Long Beach stock
certificates who have elected to receive Washington Mutual common stock will be
paid the amount of dividends or other distributions with a record date after the
effective time of the merger after they surrender their Long Beach certificates
but will not be paid interest on any dividends or distributions.
Any portion of the certificates and cash delivered to the exchange agent
which remains unclaimed after twelve months will be paid to Washington Mutual
upon its request. Thereafter, former Long Beach stockholders who have not yet
complied with the procedure to exchange their Long Beach stock certificates for
Washington Mutual stock certificates or cash will be able only to look to
Washington Mutual for payment or delivery of certificates. None of Washington
Mutual, Long Beach, the exchange agent, or any other person will be liable to
any former holder of Long Beach common stock for any amount properly delivered
to a public official under applicable abandoned property, escheat or similar
laws.
If a Long Beach stock certificate has been lost, stolen or destroyed, the
exchange agent will issue the shares of Washington Mutual common stock or cash
issuable in exchange for that certificate upon receipt of an affidavit as to the
loss, theft or destruction and, if required by Washington Mutual, the posting of
a bond in an amount that Washington Mutual may determine is reasonably
necessary.
For a description of the differences between the rights of the holders of
Washington Mutual common stock and Long Beach common stock, see "Comparison of
Rights of Washington Mutual and Long Beach Stockholders."
FRACTIONAL SHARES
No fractional shares of Washington Mutual common stock will be issued to
any holder of Long Beach common stock upon consummation of the merger. In lieu
of each fractional share that would otherwise be issued, Washington Mutual will
pay cash in an amount equal to the fraction multiplied by the average of the
closing sale prices of Washington Mutual common stock on the New York Stock
Exchange for the five trading days ending three trading days before the
effective time of the merger. No interest will be paid or accrued on the cash
payable in lieu of fractional shares. No holder will be entitled to dividends,
voting rights or any other rights as a stockholder in respect of any fractional
share of Washington Mutual common stock that they otherwise would have been
entitled to receive. To determine any fractional share interests all shares of
Long Beach common
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<PAGE> 36
stock owned by any Long Beach stockholder will be combined so as to calculate
the maximum number of shares of Washington Mutual common stock issuable to that
Long Beach stockholder.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER TO THE WASHINGTON MUTUAL AND LONG BEACH STOCKHOLDERS. THIS SUMMARY
DOES NOT ADDRESS ALL THE TAX CONSEQUENCES OF THE MERGER. EACH HOLDER'S
INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES OF THE MERGER TO SUCH
HOLDER. THIS SUMMARY MAY NOT APPLY TO CERTAIN CLASSES OF TAXPAYERS, INCLUDING,
WITHOUT LIMITATION, NON-RESIDENT ALIENS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, FINANCIAL INSTITUTIONS, DEALERS IN SECURITIES, TRADERS IN
SECURITIES THAT ELECT TO MARK TO MARKET, PERSONS WHO ACQUIRED OR ACQUIRE SHARES
PURSUANT TO THE EXERCISE OF DIRECTOR OR EMPLOYEE STOCK OPTIONS OR RIGHTS OR
OTHERWISE AS COMPENSATION AND PERSONS WHO HOLD SHARES IN A HEDGING TRANSACTION
OR AS PART OF A STRADDLE OR CONVERSION TRANSACTION. IN ADDITION, NO INFORMATION
IS PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER TO HOLDERS
UNDER APPLICABLE FOREIGN, STATE OR LOCAL LAWS. CONSEQUENTLY, EACH HOLDER IS
URGED TO CONSULT ITS OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO SUCH HOLDER.
Washington Mutual Stockholders
There will be no federal income tax consequences to Washington Mutual
stockholders as a result of the consummation of the merger.
Long Beach Stockholders
The merger is expected to qualify as a "reorganization" within the meaning
of Section 368 of the Internal Revenue Code of 1986. Consummation of the merger
is conditioned upon, among other things, receipt by Long Beach and Washington
Mutual of an opinion from Foster Pepper & Shefelman PLLC, counsel to Washington
Mutual, dated as of the effective date of the merger substantially to the effect
that the merger will qualify as a "reorganization" for federal income tax
purposes and that the resulting tax consequences will be as discussed below.
Such opinion is conditioned upon the continued accuracy of certain factual
representations made by Long Beach and Washington Mutual. Such opinion will not,
however, be binding upon the Internal Revenue Service or the courts. No ruling
from the Internal Revenue Service will be applied for with respect to the
federal income tax consequences of the merger. Accordingly, there can be no
assurance that the Internal Revenue Service will agree with the conclusions set
forth in this proxy statement/prospectus.
Gain or loss will be not be recognized by a holder of Long Beach common
stock who exchanges such stock solely for Washington Mutual common stock
pursuant to the merger (except with respect to cash received in lieu of a
fractional share interest in Washington Mutual common stock). The aggregate tax
basis of the Washington Mutual common stock received in the merger by such
holder will equal the aggregate tax basis of the Long Beach common stock
surrendered in exchange therefor, reduced by the amount of tax basis of the Long
Beach common stock allocable to any fractional share of Washington Mutual common
stock in lieu of which cash is received. The holding period of the Washington
Mutual common stock received by a Long Beach stockholder in the merger will
include the period during which the Long Beach common stock surrendered in
exchange therefor was held if such Long Beach common stock surrendered in
exchange therefor is held as a capital asset at the effective time of the
Merger.
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<PAGE> 37
A Long Beach stockholder who receives cash in lieu of a fractional share of
Washington Mutual common stock will be treated as receiving a distribution in
redemption of such share interest. In general, such distribution in redemption
will be treated as a payment in exchange for such fractional share interest,
subject to the provisions and limitations of Internal Revenue Code section 302
(which in certain circumstances could result in the receipt of cash being
treated as a dividend). If treated as a payment in exchange for such fractional
share interest, gain or loss will be measured by the difference between the tax
basis allocable to the fractional share and the amount of cash received
therefor. Such gain or loss will be a capital gain or loss if the Long Beach
common stock is held as a capital asset at the effective time of the merger.
Such capital gain or loss will be treated as long-term capital gain or loss if
the Long Beach common stock for which the fractional share interest is deemed
received is held for more than one year at the effective time of the merger.
A Long Beach stockholder who owns no Washington Mutual stock, either
actually or constructively pursuant to Internal Revenue Code section 318, and
who receives solely cash in exchange for all of such stockholder's shares of
Long Beach common stock in the merger will recognize a gain or loss for federal
income tax purposes equal to the difference between the cash received and such
stockholder's tax basis in the Long Beach stock surrendered in exchange
therefor, subject to the provisions and limitations of Internal Revenue Code
section 302 (which in certain circumstances could result in the receipt of cash
being treated as a dividend). If such Long Beach stockholder, at the effective
time of the merger, held the Long Beach common stock as a capital asset, such
gain or loss will be capital gain or loss and will be long-term capital gain or
loss if the Long Beach stockholder's holding period at the time is more than one
year. The Internal Revenue Code contains limitations on the extent to which
taxpayers may deduct capital losses.
If a Long Beach stockholder receives both Washington Mutual common stock
and cash consideration in exchange for such stockholder's Long Beach common
stock, any gain realized on the Long Beach common stock surrendered in the
merger will be recognized, but not in excess of the amount of cash received.
Subject to the provisions of Internal Revenue Code sections 302 and 318 (which
in certain circumstances could result in the cash received being treated as a
dividend), such gain will be capital gain for a stockholder that holds the Long
Beach common stock as a capital asset at the effective time of the merger. A
Long Beach stockholder who owns different blocks of Long Beach common stock,
each with a different tax basis, must compute gain or loss separately for each
such block of Long Beach common stock and no netting of gain or loss is allowed.
If a Long Beach stockholder realizes a loss in such an exchange, the loss cannot
be recognized by such stockholder.
The aggregate tax basis of the Washington Mutual common stock received by a
Long Beach stockholder who receives at least some Washington Mutual common stock
and some cash in the merger will equal the aggregate tax basis of such
stockholder's Long Beach common stock surrendered in exchange therefor, (a)
reduced by the basis of such stockholder's Long Beach common stock allocable to
any fractional share of Washington Mutual common stock in lieu of which cash is
received and by the amount of any cash received other than cash received in lieu
of a fractional share, and (b) increased by the amount of cash treated as a
dividend, if any, and by the amount of any gain recognized due to the receipt of
cash other than cash received in lieu of a fractional share. The holding period
for the Washington Mutual common stock received by such a Long Beach stockholder
in the merger will include the period during which such stockholder held the
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Long Beach common stock surrendered in exchange therefor, if such Long Beach
common stock was held as a capital asset at the effective time of the merger.
Backup Withholding
The cash payments, if any, due holders of Long Beach common stock (other
than certain exempt entities and persons) pursuant to the merger will be subject
to a 31% backup withholding tax by the exchange agent under federal income tax
law unless certain requirements are met. Generally, the exchange agent will be
required to deduct and withhold the tax if (i) the stockholder fails to furnish
a taxpayer identification number to the exchange agent or fails to certify under
penalty of perjury that such tax identification number is correct, (ii) the IRS
notifies the exchange agent that the stockholder has failed to report interest,
dividends or original issue discount in the past, or (iii) there has been a
failure by the stockholder to certify under penalty of perjury that such
stockholder is not subject to the 31% backup withholding tax. Any amounts
withheld by the exchange agent in collection of the 31% backup withholding tax
will generally be allowed as a credit against the federal income tax liability
of the stockholder from whom such tax was withheld. The tax identification
number of an individual stockholder is the stockholder's social security number.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF THE FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO STOCKHOLDERS OF LONG BEACH UNDER CURRENTLY
EXISTING FEDERAL INCOME TAX LAWS, WITHOUT CONSIDERATION OF THE PARTICULAR FACTS
AND CIRCUMSTANCES OF EACH STOCKHOLDER'S SITUATION. EACH STOCKHOLDER OF LONG
BEACH IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR WITH REGARD
TO THE EFFECT OF THE MERGER ON SUCH STOCKHOLDER'S OWN SITUATION, INCLUDING ANY
ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE MERGER
AND/OR ANY SALE THEREAFTER OF WASHINGTON MUTUAL COMMON STOCK RECEIVED IN THE
MERGER.
MANAGEMENT AND OPERATIONS OF WASHINGTON MUTUAL FOLLOWING THE MERGER
The merger agreement provides for the merger of Long Beach with and into
Washington Mutual, with Washington Mutual as the surviving corporation. The
separate existence of Long Beach will cease upon completion of the merger and
Long Beach stockholders will become stockholders of Washington Mutual.
At the effective time of the merger, unless otherwise requested by
Washington Mutual, directors of Long Beach will resign from the Long Beach
board. Information regarding the existing Washington Mutual board is set forth
in Washington Mutual's annual report on Form 10-K for the year ended December
31, 1998 and information regarding the existing Long Beach board is set forth in
Long Beach's annual report on Form 10-K for the year ended December 31, 1998,
which are incorporated into this proxy statement/prospectus by reference. See
"Incorporation of Certain Documents by Reference."
Long Beach's primary operating subsidiary, Long Beach Mortgage Company,
will retain its brand name. In addition, it is expected that Long Beach Mortgage
Company will operate with its current management team and employee group as a
separate subsidiary, within the umbrella of Washington Mutual's $3 billion-asset
consumer finance group. It is anticipated that Washington Mutual will continue
Long Beach's practice of selling all of its loans in the secondary market.
Washington Mutual will reevaluate this policy from time to time based on market
conditions and cost of funds.
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POST-MERGER COMPENSATION AND BENEFITS
Employment Agreements
In connection with the merger, Washington Mutual has entered into
employment agreements with M. Jack Mayesh, Edward Resendez, Frank J. Curry,
William K. Komperda, James H. Leonetti, James J. Sullivan and Elizabeth A. Wood,
each of whom is a current executive of Long Beach. These individuals will be
employed as executives of Long Beach Mortgage Company, which will be a
wholly-owned subsidiary of Washington Mutual after the merger in the following
positions:
<TABLE>
<S> <C>
M. Jack Mayesh Chief Executive Officer
Edward Resendez President
Frank J. Curry Executive Vice President and Chief Operating Officer
William K. Komperda Executive Vice President, Capital Markets and
Strategic Planning
James H. Leonetti Senior Vice President and Chief Financial Officer
James J. Sullivan Senior Vice President, General Counsel and Secretary
Elizabeth A. Wood Senior Vice President of Organizational Development
and Human Resources
</TABLE>
Messrs. Mayesh, Resendez, Curry and Komperda will each receive annual base
salary of $280,000 plus an annual target bonus equal to 50% of their base salary
in effect on the last day of the year for which the bonus is payable. Mr.
Leonetti will receive an annual base salary of $205,000 plus an annual target
bonus equal to 40% of his base salary in effect on the last day of the year for
which the bonus is payable. Mr. Sullivan will receive an annual base salary of
$200,000 plus an annual target bonus equal to 40% of his base salary in effect
on the last day of the year for which the bonus is payable. Ms. Wood will
receive an annual base salary of $150,000 plus an annual target bonus equal to
30% of her base salary in effect on the last day of the year for which the bonus
is payable. In addition, each of these executives will receive an additional
pro-rated bonus for services rendered in 1999 before the effective time of the
merger. See "-- Interests of Certain Persons in the Merger."
In addition to the base salary and target bonuses, each of these executive
will be awarded (a) restricted stock that vests in full after three years of
continued employment and (b) options to purchase Washington Mutual common stock
at an exercise price equal to the fair market value of Washington Mutual common
stock on the date of grant, which vest in three equal annual installments. They
will also be eligible for future grants of stock options beginning in the year
2000 as similarly situated Washington Mutual employees. Each of Messrs. Mayesh,
Resendez, Curry and Komperda will be awarded restricted stock with a value of
$300,000 and options to purchase 20,000 shares of common stock. Messrs. Leonetti
and Sullivan will be awarded $50,000 worth of restricted stock and options to
purchase 12,000 shares of common stock, and Ms. Wood will be awarded $42,500
worth of restricted stock and options to purchase 8,000 shares of common stock.
Each of these employment agreements has a term of two years. If any of
these employees is terminated without "cause" (as defined in the employment
agreements) or voluntarily resigns for "good cause" (as defined in the
employment agreements) he or she will be paid his or her annual base salary and
target bonus for the balance of their employment agreement. In addition, if any
of these employees is terminated for any reason or voluntarily resigns for "good
cause" within two years following a "change of control" (as defined in the
employment agreements), their options and restricted stock will immediately vest
and he or she will be paid a lump sum equal to either (a) two times the
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annual base salary and target bonus in the case of Messrs. Mayesh, Resendez,
Curry and Komperda, or (b) one and a half times the annual base salary and
target bonus in the case of Messrs. Leonetti and Sullivan and Ms. Wood.
Each of these executives was a party to an employment agreement with Long
Beach that provides for compensation upon a "change of control" of Long Beach,
which compensation would become payable in connection with the merger. See
"-- Interests of Certain Persons in the Merger -- Long Beach Employment
Agreements."
Employee Benefit Plans
Pursuant to the merger agreement, Washington Mutual has agreed from and
after the effective time of the merger to
- comply with the Long Beach compensation and benefit plans in accordance
with their terms;
- provide employees of Long Beach or any of its subsidiaries who remain as
employees of Washington Mutual credit for years of service with Long
Beach or any of its subsidiaries (and their predecessors) prior to the
effective time of the merger for the purpose of eligibility and vesting;
and
- cause any and all pre-existing condition limitations (to the extent such
limitations did not apply to pre-existing conditions under comparable
Long Beach compensation and benefit plans) and eligibility waiting
periods under group health plans of Washington Mutual to be waived with
respect to former employees of Long Beach who remain as employees of
Washington Mutual (and their eligible dependents) and who become
participants in these group health plans.
However, Washington Mutual and its subsidiaries will be entitled to amend,
modify or terminate any Long Beach compensation and benefit plans, or other
contracts, arrangements, commitments or understandings, in a manner consistent
with their terms and applicable law.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some members of Long Beach management and the Long Beach board of directors
have interests in the merger that are in addition to their interests as Long
Beach stockholders generally. The Long Beach board of directors was aware of
these interests and considered them in approving the merger agreement.
Indemnification; Directors' and Officers' Insurance. The merger agreement
provides that, after the merger, Washington Mutual will, as and to the extent
permitted by law and by the charter documents of Long Beach and its
subsidiaries, indemnify persons who were directors, officers or employees of
Long Beach and its subsidiaries before the merger who suffer liabilities or
losses from any threatened or actual claim or proceeding based on the merger
agreement or on the fact that the person was a director, officer or employee of
Long Beach. The merger agreement further provides that Washington Mutual will
cause the officers and directors of Long Beach immediately before the merger to
be covered for at least six years after the merger by Washington Mutual's
directors' and officers' liability insurance policy or a similar policy.
However, Washington Mutual will not be required to expend in any one year more
than 200% of the annual premiums paid by Long Beach as of May 18, 1999. In
addition, Washington Mutual has agreed to honor all provisions of the charter
documents of Long Beach and its subsidiaries in effect on May 18, 1999 regarding
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the indemnification of directors, officers or employees for matters occurring on
or prior to the effective time of the merger.
Long Beach Stock Options. All unvested options to purchase Long Beach
common stock will vest automatically at the effective time of the merger under
the terms of the merger agreement and the Long Beach stock incentive plan. As of
June 16, 1999, Long Beach's executive officers held unvested stock options to
purchase the following shares:
<TABLE>
<CAPTION>
OFFICER NUMBER OF SHARES
------- ----------------
<S> <C>
M. Jack Mayesh......................................... 300,000
Edward Resendez........................................ 300,000
Frank J. Curry......................................... 300,000
William K. Komperda.................................... 310,000
James H. Leonetti...................................... 60,000
James J. Sullivan...................................... 60,000
Elizabeth A. Wood...................................... 45,000
</TABLE>
In addition, as of June 16, 1999, the three non-employee directors held unvested
stock options to purchase an aggregate of 50,000 shares. The merger agreement
provides that all options to acquire Long Beach common stock outstanding at the
effective time of the merger will be assumed by Washington Mutual. Each stock
option will thereafter constitute an option to acquire shares of Washington
Mutual common stock as set forth above under "-- The Merger
Consideration -- Conversion of Long Beach Common Stock Options."
Long Beach Employment Agreements. Each of the seven Long Beach executive
officers is a party to an employment agreement that provides for compensation
upon a "change of control" of Long Beach. This compensation would become payable
in connection with the merger. To satisfy Long Beach's obligations under these
agreements in connection with the merger, Washington Mutual has agreed to pay
each of the Long Beach executive officers the following lump sum amounts:
<TABLE>
<S> <C>
M. Jack Mayesh.............................................. $962,500
Edward Resendez............................................. $962,500
Frank J. Curry.............................................. $962,500
William K. Komperda......................................... $962,500
James H. Leonetti........................................... $358,750
James J. Sullivan........................................... $300,000
Elizabeth A. Wood........................................... $240,000
</TABLE>
If any compensation payments or benefits received by a Long Beach executive
officer, such as the above-mentioned "change of control" payments or the
acceleration of stock options, constitute a "parachute payment" under Section
280G of the Internal Revenue Code, an amendment to the executive officer's
employment agreement dated May 8, 1999 would entitle him or her to receive the
additional amount necessary to make the executive officer whole with respect to
any resulting excise tax.
In addition to the above "change of control" payments, the Long Beach
executive officers are entitled to a pro-rated bonus for services rendered
before the closing date of the merger equal to 100% of the executive's annual
base salary for Messrs. Mayesh, Resendez, Curry and Komperda, 75% of annual base
salary for Mr. Leonetti, 50% of annual base salary for Mr. Sullivan and 60% of
annual base salary for Ms. Wood, pro-rated from January 1, 1999 to the closing
date of the merger.
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<PAGE> 42
New Employment Agreements with Washington Mutual. In connection with the
merger, each of the seven Long Beach executive officers has entered into
employment agreements with Washington Mutual. These individuals will be employed
as executives of Long Beach Mortgage Company, which will be a wholly owned
subsidiary of Washington Mutual after the merger, and will serve in the
following capacities:
<TABLE>
<S> <C>
M. Jack Mayesh.................... Chief Executive Officer
Edward Resendez................... President
Frank J. Curry.................... Executive Vice President and Chief
Operating Officer
William K. Komperda............... Executive Vice President, Capital
Markets and Strategic Planning
James H. Leonetti................. Senior Vice President and Chief
Financial Officer
James J. Sullivan................. Senior Vice President, General
Counsel and Secretary
Elizabeth A. Wood................. Senior Vice President of
Organizational Development and
Human Resources
</TABLE>
The terms of each officer's employment agreement with Washington Mutual are
described above under "-- Post-Merger Compensation and Benefits -- Employment
Agreements."
REPRESENTATIONS AND WARRANTIES IN THE MERGER AGREEMENT
In the merger agreement, Washington Mutual and Long Beach each make
representations and warranties to the other regarding, among other things:
- its corporate organization and existence;
- its capitalization;
- its corporate power and authority to carry on its business and to enter
into the merger agreement;
- its due authorization, execution and delivery of the merger agreement and
related agreements;
- required governmental and third party approvals;
- that neither the merger agreement nor the transactions contemplated in
the merger agreement violate its charter, bylaws, applicable law or
certain material agreements;
- the timely filing and payment of required fees in connection with
material regulatory reports;
- its financial statements and filings with the SEC;
- the absence of certain material legal proceedings or regulatory actions;
- the absence of certain materially adverse changes in its business;
- its compliance with applicable law;
- its agreements or understandings with, or the existence of any order
issued by, regulatory agencies;
- any broker's fees payable in connection with the merger; and
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<PAGE> 43
- the completeness and accuracy and compliance as to form of this proxy
statement/prospectus, the related registration statement and any other
governmental filing in connection with the merger.
In addition, Long Beach has made certain other representations and
warranties to Washington Mutual regarding, among other things:
- its subsidiaries;
- the conduct of its business since December 31, 1998;
- the filing and accuracy of all tax returns and payment or provision for
all taxes;
- its employee benefit plans and related matters;
- its material contracts;
- the absence of any undisclosed liabilities;
- its real and personal property;
- its insurance coverage;
- certain environmental matters;
- the opinion of its financial advisor;
- its intellectual property;
- the loans reflected as assets on its books and records;
- year 2000 compliance of its software and hardware;
- labor matters; and
- that neither the merger agreement, the merger, the option agreement nor
the exercise of the option (as described in "-- The Option Agreement"
below) results in the grant of any rights to any person under the Long
Beach rights plan (as described in "Comparison of Rights of Washington
Mutual and Long Beach Stockholders -- Long Beach Rights Plan" below) or
causes the application of certain anti-takeover provisions of Delaware
law.
CONDITIONS TO THE COMPLETION OF THE MERGER
Washington Mutual's and Long Beach's obligations to effect the merger are
subject to among other things, satisfaction of the following conditions by the
effective time of the merger:
- the merger shall have been approved by the requisite affirmative vote of
the Long Beach stockholders;
- all regulatory approvals required to complete the transactions
contemplated by the merger agreement shall have been obtained and shall
remain in full force and effect and all statutory waiting periods shall
have expired;
- no order, injunction or decree issued by any court or agency or other
legal restraint or prohibition preventing the completion of the merger or
any of the transactions contemplated by the merger agreement shall be in
effect;
- no statute, rule, regulation, order, injunction or decree shall have been
enacted that prohibits, restricts or makes illegal the completion of the
merger;
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<PAGE> 44
- no stop order suspending the effectiveness of the registration statement
of which this proxy statement/prospectus is a part shall have been
issued, and no proceedings for that purpose shall have been initiated or
threatened by the SEC;
- the shares of Washington Mutual common stock to be issued in the merger
shall have been authorized for listing on the New York Stock Exchange,
subject to official notice of issuance; and
- Washington Mutual and Long Beach shall each have received an opinion,
dated as of the effective date of the merger, from Foster Pepper &
Shefelman PLLC, in a form and substance reasonably satisfactory to
Washington Mutual and Long Beach, with respect to federal income tax
laws.
Washington Mutual's obligation to effect the merger is also subject to,
among other things, the satisfaction or waiver by Washington Mutual, at or prior
to the effective time of the merger, of the following conditions:
- the representations and warranties of Long Beach set forth in the merger
agreement shall be true and correct in all respects as of the date of the
merger agreement and as of the closing date of the merger (subject to
certain exceptions);
- Long Beach shall have performed in all material respects all obligations
required to be performed by it under the merger agreement;
- the "rights" issued under the Long Beach rights plan (as described in
"Comparison of Rights of Washington Mutual and Long Beach
Stockholders -- Long Beach Rights Plan" below) shall not have become
nonredeemable, exercisable, distributed or triggered;
- none of the regulatory approvals required to consummate the merger shall
contain any restriction, term or condition which would be reasonably
expected to have a material adverse effect on Long Beach or Washington
Mutual or prevent Washington Mutual from realizing substantially all of
the contemplated benefits of the merger;
- Washington Mutual shall have received resignations from each director of
Long Beach and each of its subsidiaries requested by it;
- each of the employment agreements entered into between Washington Mutual
and certain Long Beach executives (as described in "-- Post-Merger
Compensation and Benefits" above) shall be in full force and effect and
there shall have been no default by any employee under their employment
agreement; and
- each of the noncompetition agreements entered into between Washington
Mutual and certain Long Beach executives shall be in full force and
effect and there shall have been no default by any party under any of
those agreements.
Long Beach's obligation to effect the merger is also subject to, among
other things, the satisfaction or waiver by Long Beach, at or prior to the
effective time of the merger, of the following conditions:
- the representations and warranties of Washington Mutual set forth in the
merger agreement shall be true and correct in all respects as of the date
of the merger agreement and as of the closing date of the merger (subject
to certain exceptions); and
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<PAGE> 45
- Washington Mutual shall have performed in all material respects all
obligations required to be performed by it under the merger agreement.
REGULATORY APPROVALS REQUIRED
Under the merger agreement, the obligations of both Washington Mutual and
Long Beach to complete the merger are conditioned upon the receipt of all
required regulatory approvals and the expiration of all statutory waiting
periods. Washington Mutual and Long Beach have agreed to use their reasonable
best efforts to obtain these regulatory approvals.
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the statutory waiting period under this
Act must have expired or been terminated before the merger can be consummated.
In addition, Washington Mutual and Long Beach have identified 13 jurisdictions
in which they must receive prior regulatory approval and an additional 32
jurisdictions in which they must file notice prior to the completion of the
merger. Washington Mutual and Long Beach have filed the HSR application and
other applications and notices seeking the requisite state agency approvals. To
date, neither Washington Mutual nor Long Beach has received any approvals or
notices of disapproval. It is possible that these approvals may not be granted,
may be granted at a later date than expected, or may be granted subject to
unfavorable conditions. In addition, it is possible that the U.S. Department of
Justice or the Attorney General of the State of California or any other state
may challenge the merger.
Washington Mutual and Long Beach are not aware of any other significant
governmental approvals that are required for consummation of the merger except
as described above. Should any other approval or action be required, it is
presently contemplated that this approval would be sought, although it is
possible it may not be obtainable.
AMENDMENT AND WAIVER OF THE MERGER AGREEMENT
The merger agreement may be amended by Washington Mutual and Long Beach at
any time before or after approval by the Long Beach stockholders unless an
amendment after stockholder approval reduces or changes the form of
consideration to be delivered to the Long Beach stockholders. Any amendment to
the merger agreement must be in writing and signed on behalf of both Washington
Mutual and Long Beach.
At any time prior to the effective time of the merger, Washington Mutual
and Long Beach may:
- extend the time for performance of any of the other party's obligations,
- waive any inaccuracies contained in the representations and warranties in
the merger agreement or any document delivered pursuant to the merger
agreement, and
- waive compliance with any of the agreements or conditions contained in
the merger agreement.
Any agreement to an extension or waiver must be in a writing signed on
behalf of the party agreeing to the extension or waiver.
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<PAGE> 46
TERMINATION OF THE MERGER AGREEMENT
Washington Mutual and Long Beach may terminate the merger agreement by
mutual consent. The merger agreement may also be terminated unilaterally by
either Washington Mutual or Long Beach:
- if the approval of any governmental authority required for the completion
of the merger is denied by final nonappealable action or any governmental
authority enjoins the merger;
- if the merger does not occur on or before December 31, 1999, which date
will be extended to March 31, 2000 if the failure is solely due to the
failure to obtain the requisite regulatory approvals;
- in certain events involving a material breach by the other party of any
of its representations, warranties, covenants or agreements in the merger
agreement; or
- if the requisite approval of the Long Beach stockholders is not obtained
at their special meeting.
Washington Mutual may terminate the merger agreement if:
- Long Beach's board of directors shall have withdrawn, modified or changed
in a manner adverse to Washington Mutual, its recommendation that the
Long Beach stockholders vote to approve the merger agreement;
- there is a "change in control" of Long Beach (defined as the acquisition
of 30% of the voting power of Long Beach's capital stock) prior to the
Long Beach stockholders meeting;
- any person acquires beneficial ownership of 25% or more of the then
outstanding shares of Long Beach common stock, or Long Beach or any of
its significant subsidiaries shall have entered into an agreement to
engage in, or Long Beach's board of directors shall have recommended that
the Long Beach stockholders approve or accept (a) a merger or
consolidation, or any similar transaction, involving Long Beach or a
significant subsidiary of Long Beach, (b) a purchase, lease or other
acquisition or assumption of all or a substantial portion of the assets
or deposits of Long Beach or any significant subsidiary of Long Beach or
(c) a purchase or other acquisition of securities representing 25% or
more of the voting power of Long Beach (any such event being referred to
herein as a "subsequent triggering event"); or
- a tender offer or exchange offer for 25% or more of the Long Beach common
stock is commenced and Long Beach's board of directors recommends that
the Long Beach stockholders tender their shares in this offer or
otherwise fails to recommend that the Long Beach stockholders reject the
offer.
Long Beach may terminate the merger agreement if, prior to approval of the
merger by the Long Beach stockholders, a "superior proposal" is made. A
"superior proposal" will exist if:
- any unaffiliated third person or entity makes any inquiry, proposal or
offer relating to (a) any tender or exchange offer, or proposal for a
merger, consolidation or other business combination involving Long Beach
or any of its subsidiaries or (b) the acquisition of 25% or more of the
voting stock or equity, or a substantial portion of the assets, of Long
Beach or any of its subsidiaries;
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<PAGE> 47
- any required financing for the proposal is either committed or reasonably
capable of being obtained on a timely basis;
- Long Beach's board of directors determines the proposal represents
superior value to the holders of Long Beach common stock; and
- Long Beach's board of directors determines that failure to terminate the
merger agreement in order to accept the proposal would constitute a
breach of fiduciary duty.
However, Long Beach's board of directors may not terminate the merger
agreement to pursue a superior proposal unless it has given Washington Mutual 10
business days prior written notice of its intention and offered Washington
Mutual the opportunity to amend the terms of the merger agreement. Long Beach
must also simultaneously upon termination of the merger agreement pay Washington
Mutual a $15 million termination fee and enter into a definitive agreement to
consummate the superior proposal. See "--Termination Fee" below.
TERMINATION FEE
The merger agreement requires Long Beach to pay a $15 million termination
fee to Washington Mutual if the merger agreement is terminated by Washington
Mutual upon any of the following events:
- withdrawal, modification or change by the Long Beach board of its
recommendation to Long Beach stockholders to approve the merger;
- a "change in control" (as defined "-- Termination of the Merger
Agreement" above) of Long Beach;
- a third party tender or exchange offer for 25% or more of the outstanding
shares of Long Beach common stock which is recommended or not rejected by
the Long Beach board;
- willful breach by Long Beach of any representation, warranty, covenant or
other agreement in the merger agreement, if an alternative proposal to
acquire Long Beach has been made known to Long Beach or any of its
subsidiaries or has been publicly disclosed; or
- a "subsequent triggering event" (as defined in "-- Termination of the
Merger Agreement" above).
Long Beach must also pay this fee if either Washington Mutual or Long Beach
terminates the merger agreement because the Long Beach stockholders fail to
approve the merger if an alternative proposal to acquire Long Beach or an
intention to make such a proposal had been publicly disclosed at the time of
such failure. In addition, Long Beach must pay the $15 million fee if it
terminates the merger agreement because of a "superior proposal" (as defined in
"-- Termination of the Merger Agreement" above). If Long Beach fails to timely
pay the $15 million termination fee, Long Beach shall pay the costs and expenses
incurred by Washington Mutual taken to collect such payment, together with
interest.
THE OPTION AGREEMENT
Long Beach and Washington Mutual have entered into an option agreement.
Under the option agreement, Long Beach granted to Washington Mutual an option to
purchase
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<PAGE> 48
up to 4,477,500 shares of Long Beach common stock (approximately 19.9% of the
issued and outstanding shares) at a price of $12.3125 per share. A copy of the
option agreement is attached to this proxy statement/prospectus as Appendix C
and is incorporated by reference.
The option may be exercised in whole or in part if both an "initial
triggering event" (as defined below) and a "subsequent triggering event" (as
defined above in "-- Termination of the Merger Agreement") occur prior to
termination of Washington Mutual's ability to exercise the option. Under the
option agreement, an "initial triggering event" will occur if:
- Long Beach or any of its significant subsidiaries shall have entered into
an agreement with a third party to engage in, or the Long Beach board
shall have recommended that the Long Beach stockholders approve or accept
a third party's offer to engage in (a) a merger or consolidation, or any
similar transaction, involving Long Beach or a significant subsidiary of
Long Beach, (b) a purchase, lease or other acquisition or assumption of
all or a substantial portion of the assets or deposits of Long Beach or
any significant subsidiary of Long Beach, or (c) a purchase or other
acquisition of securities representing 10% or more of the voting power of
Long Beach (any such event being referred to herein as an "acquisition
transaction");
- Long Beach or any of its subsidiaries shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose an "acquisition transaction";
- Long Beach's board shall have withdrawn, modified or changed in a way
adverse to Washington Mutual its recommendation that Long Beach
stockholders approve the merger;
- Any person shall have acquired beneficial ownership of 10% or more of the
outstanding shares of Long Beach common stock;
- The Long Beach stockholders fail to approve the merger agreement after
any person shall have made a bona fide proposal to Long Beach to engage
in an acquisition transaction;
- Long Beach shall have willfully breached any covenant, obligation,
representation or warranty in the merger agreement, which would entitle
Washington Mutual to terminate the merger agreement after an overture is
made by a third party to Long Beach or the Long Beach stockholders to
engage in an acquisition transaction;
- Any person shall have filed an application or notice with any federal or
state bank regulatory authority for approval to engage in an acquisition
transaction; or
- Any person shall have commenced or publicly announced its intention to
commence a tender offer or exchange offer for securities representing 10%
or more of the voting power of Long Beach.
Washington Mutual's ability to exercise the option will terminate upon (a)
the effective time of the merger; (b) subject to certain exceptions, termination
of the merger agreement in accordance with its terms prior to the occurrence of
an initial triggering event; (c) 12 months after any termination of the merger
agreement that follows an initial triggering event or is done by Washington
Mutual because of a breach by Long Beach of any of its representations,
warranties, covenants or agreements in the merger agreement (subject to certain
extensions stated in the option agreement); or (d) delivery of a written
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<PAGE> 49
request for payment of termination fees under the merger agreement which are
subsequently paid.
Generally, the total profit that Washington Mutual can make pursuant to the
option agreement is limited to $15 million before taxes. In addition, Washington
Mutual is not entitled to exercise its option if it has made a request for
payment of termination fees, and is not entitled to receive termination fees if
it has exercised all or any part of the option.
Washington Mutual and Long Beach believe the termination fees and option
described above are customary and typical for transactions such as the proposed
merger. These agreements are intended, among other things, to increase the
likelihood that the merger will be completed on the terms set forth in the
merger agreement and, if the merger is not completed under certain circumstances
involving an acquisition or potential acquisition of Long Beach by a third
party, to compensate Washington Mutual for its efforts undertaken, expenses
incurred and business opportunities lost in connection with the proposed merger.
These agreements may have the effect of discouraging offers by third parties to
acquire Long Beach prior to the merger, even if these persons were prepared to
pay consideration to Long Beach stockholders that has a higher current market
price than the shares of Washington Mutual common stock to be received by the
holders of Long Beach common stock under the merger agreement.
CONDUCT OF BUSINESS PENDING THE MERGER AND OTHER AGREEMENTS
Except as expressly contemplated or permitted by the merger agreement or a
specified disclosure schedule, or required by applicable law, Long Beach has
agreed to, and to cause each of its subsidiaries to, before the effective time
of the merger:
- conduct its business in the ordinary and usual course consistent with
past practices;
- use its reasonable best efforts to maintain and preserve intact its
business organization, employees and relationships and retain the
services of its officers and key employees; and
- refrain from taking any action reasonably expected to affect its ability
to obtain any governmental approvals necessary to consummate the merger.
In addition, except as expressly contemplated or permitted by the merger
agreement or a specified disclosure schedule, or required by applicable law,
Long Beach has agreed that it and its subsidiaries will not, without the prior
written consent of Washington Mutual, among other things:
- issue any additional shares of Long Beach capital stock (except upon the
exercise of stock options outstanding as of the date of the merger
agreement) or grant any stock appreciation rights or rights to acquire
its capital stock;
- adjust, split, combine, reclassify, redeem, purchase or otherwise acquire
any capital stock or declare or pay dividends except in the ordinary and
usual course of business consistent with past practices;
- incur any indebtedness for borrowed money other than certain permitted
indebtedness;
- subject to certain exceptions, increase compensation or fringe benefits
of any of its employees, pay any pension or retirement allowance not
required under an existing plan or agreement, or enter into or modify any
employee benefit plans or employment agreements;
- sell, transfer, mortgage or encumber or otherwise dispose of any of its
properties or assets or cancel, release or assign any indebtedness to any
person except for nonmaterial transactions in the ordinary course of
business consistent with past practice;
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<PAGE> 50
- make any acquisition or investment in, or make any property transfers to,
or material purchases of any property or assets of, any other entity
(other than a wholly owned subsidiary);
- amend its certificate of incorporation, bylaws or similar governing
documents or its stockholder rights plan, or redeem or agree to redeem
its stockholder "rights";
- enter into, renew or terminate any contract or agreement, other than
loans made in the ordinary course of business, that calls for aggregate
annual payments of $200,000 or more and which is not either terminable at
will on 60 days or less notice without payment of a penalty in excess of
$50,000 or with a term of less than one year;
- make any material change in any of its leases or contracts other than
certain renewals of contracts or leases for a term of one year or less
without material adverse changes to their terms;
- make any changes in its accounting methods unless required under
generally accepted accounting principles, law, rule or regulation, as
concurred by its independent public accountants;
- settle any litigation except in the ordinary course of business;
- make or acquire loans or issue commitments for any loans except in the
ordinary course of business consistent with past practice or agree to
guarantee the obligation of other persons;
- take any action intended or reasonably expected to result in any of its
representations or warranties being or becoming untrue in any material
respect, any closing condition not being satisfied, or in a violation of
any provision of the merger agreement, except as required by applicable
law;
- subject to certain exceptions, make capital expenditures in excess of
specified amounts;
- foreclose on or otherwise acquire any real property other than 1-to-4
family residential properties in the ordinary course of business;
- subject to certain exceptions, open, relocate or close any branch or loan
production office or make any application therefor;
- materially change its investment securities portfolio policy or the
manner in which its portfolio is classified or reported, except in the
ordinary course of business consistent with past practice;
- make any material change in its policies and practices with respect to
underwriting, pricing, originating, acquiring, selling, servicing, or
buying or selling rights to service loans;
- make any material changes with respect to its policies and practices with
respect to hedging its loan positions or commitments;
- enter into any securitization of loans;
- engage or participate in any material transaction or incur or sustain any
material obligation not in the ordinary course of business; or
- agree to or make any commitment to take any of the foregoing actions.
Long Beach has also agreed to amend its 401(k) plan to remove the
availability of participant loans.
In addition, except as expressly contemplated or permitted by the merger
agreement or required by applicable law, Washington Mutual has agreed that it
will not, without the prior written consent of Long Beach, amend its articles of
incorporation or bylaws in a
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<PAGE> 51
manner that would materially and adversely affect the economic benefits of the
merger to holders of Long Beach common stock, or agree to or make any commitment
to take such action, other than the amendments to its articles of incorporation
approved at its annual meeting of stockholders on April 20, 1999.
In the merger agreement, Long Beach has agreed not to authorize or permit
any of its officers, directors, employees, representatives or agents to solicit
or encourage any inquiries or proposals, participate in any discussions or
negotiations regarding, or provide any confidential information to any person
relating to, or otherwise facilitate any effort or attempt to make or implement,
any "takeover proposal" (as defined below). However, at any time before the Long
Beach stockholders vote to approve the merger agreement, Long Beach may provide
third parties with nonpublic information and participate in discussions and
negotiations with any third party relating to a takeover proposal that it has
not solicited after the date of the merger agreement if it complies with certain
limitations. In particular, Long Beach may only respond to an inquiry or
proposal if its board of directors has determined in its reasonable good faith
judgment based on advice of outside counsel and financial advisors that failure
to do so would breach its fiduciary duties under applicable law. Long Beach will
advise Washington Mutual immediately of any such inquiry or proposal. Long Beach
may not furnish any nonpublic information to any third party except pursuant to
the terms of a confidentiality agreement containing terms substantially
identical to the terms the confidentiality agreement between Long Beach and
Washington Mutual. The merger agreement defines a "takeover proposal" as any
inquiry, proposal or offer relating to any tender or exchange offer, or proposal
for a merger, consolidation or other business combination involving Long Beach,
or the acquisition in any manner of 25% or more of the voting stock or equity,
or a substantial portion of the assets, of Long Beach or any of its
subsidiaries, other than the transactions contemplated by the merger agreement.
Washington Mutual and Long Beach have also agreed to cooperate with each
other and to use their reasonable best efforts to promptly prepare all necessary
documentation, to effect all filings, and to obtain and comply with the terms or
conditions of, all permits, consents, approvals and authorizations of all third
parties and governmental entities necessary or advisable to consummate the
transactions contemplated by the merger agreement. Washington Mutual and Long
Beach have agreed subject to the restrictions set forth in the merger agreement,
to furnish to the other party all information concerning themselves and their
subsidiaries, directors, officers and stockholders and such other matters as may
be necessary in furtherance of the merger upon request and to permit reasonable
access to their properties, books, contracts and records. Washington Mutual and
Long Beach have also agreed, subject to the terms and conditions of the merger
agreement, to use their reasonable best efforts to take, or cause to be taken,
all actions necessary, proper or advisable to comply promptly with all legal
requirements which may be imposed or which are necessary or advisable to
complete and make the merger effective. Washington Mutual has further agreed to
use its reasonable best efforts to cause the shares of Washington Mutual common
stock to be issued in the merger to be approved for listing on the New York
Stock Exchange, subject to official notice of issuance.
Washington Mutual also will be obligated to indemnify the officers,
directors and employees of Long Beach and its subsidiaries for any liabilities
incurred in connection with any matters existing or occurring at or prior to the
effective time of the merger or related to the merger agreement and to provide
directors' and officers' liability insurance with respect to such matters for
six years. See "-- Interests of Certain Persons in the Merger."
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<PAGE> 52
EXPENSES AND FEES
Except for any termination fee that may become payable as discussed in "--
Termination Fees" above, all legal and other costs and expenses incurred in
connection with the merger agreement and related transactions will be borne by
the party incurring such costs and expenses unless otherwise specified in the
merger agreement.
ACCOUNTING TREATMENT
The merger will be accounted for by Washington Mutual as a purchase in
accordance with generally accepted accounting principles. The reported results
of operations of Washington Mutual will include the results of Long Beach from
and after the closing date of the merger. The assets, including intangible
assets, and liabilities of Long Beach will be recorded at their fair values as
of the closing date of the merger. Any excess of the purchase consideration over
the fair values of the assets and liabilities of Long Beach will be recorded as
goodwill and amortized over a twenty year period.
STOCK EXCHANGE LISTING OF WASHINGTON MUTUAL COMMON STOCK
The merger agreement requires Washington Mutual to use its best efforts to
cause the shares of Washington Mutual common stock to be issued in the merger to
be approved for listing on the New York Stock Exchange, subject to official
notice of issuance, before the effective time of the merger.
RESALE OF WASHINGTON MUTUAL STOCK RECEIVED BY LONG BEACH STOCKHOLDERS
The shares of Washington Mutual common stock to be issued to Long Beach
stockholders upon consummation of the merger have been registered under the
Securities Act and may be traded freely without restriction by those
stockholders who are not deemed to be "affiliates" of Long Beach or Washington
Mutual, as that term is defined in rules promulgated under the Securities Act.
Shares of Washington Mutual common stock received by those Long Beach
stockholders who are deemed to be "affiliates" of Long Beach at the time of the
Long Beach stockholders meeting with respect to the merger may be resold without
registration under the Securities Act only as permitted by Rule 145 under the
Securities Act or as otherwise permitted under the Securities Act.
NO APPRAISAL RIGHTS
Under Delaware law, Long Beach stockholders will not be entitled to any
appraisal or dissenters' rights in connection with the merger.
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<PAGE> 53
INFORMATION ABOUT WASHINGTON MUTUAL
Washington Mutual is a financial services company committed to serving
consumers and small to mid-sized businesses. At March 31, 1999, it had
stockholders' equity of $9.61 billion. Based on consolidated assets of $174.30
billion at March 31, 1999, Washington Mutual was the largest savings institution
and the eighth largest banking company in the United States.
Washington Mutual operates principally in California, Washington, Oregon,
Florida, Texas and Utah, and has operations in 31 other states and the District
of Columbia. Through its subsidiaries, Washington Mutual engages in the
following activities:
- MORTGAGE BANKING. Washington Mutual conducts mortgage banking through its
banking subsidiaries, Washington Mutual Bank, FA, Washington Mutual Bank, and
Washington Mutual Bank fsb. The principal activities conducted by Washington
Mutual's mortgage banking operations are the origination of single-family
residential mortgages and residential construction loans and the associated loan
servicing activities. For the year ended December 31, 1998, this group
originated $41.87 billion of single-family residential mortgage loans (excluding
residential construction loans). At March 31, 1999, Washington Mutual had a
servicing portfolio of $158.59 billion of single-family residential mortgage
loans and residential construction loans, including $52.35 billion of loans
serviced for others.
- CONSUMER BANKING. The consumer banking business includes the sale of all
consumer deposit products, including checking accounts, money market accounts
and time deposits, and the associated servicing activities as well as the
origination of consumer loans through Washington Mutual's consumer financial
centers. These consumer loan products include second equity mortgage loans and
lines of credit, manufactured housing loans, automobile, boat and recreational
vehicle loans and education loans. Washington Mutual conducts consumer banking
in eight states through over 1,000 financial centers. The consumer banking group
also has approximately 1,200 full time equivalent employees in its telephone
banking centers. At March 31, 1999, Washington Mutual had $84.18 billion in
deposits and a consumer loan portfolio of $5.42 billion.
- COMMERCIAL BANKING. This business line is comprised of Washington
Mutual's commercial real estate group and Western Bank, a separately named
division of Washington Mutual Bank. This business segment offers commercial
business loans and commercial real estate loans, comprised of multi-family
residential loans and loans for nonresidential real estate. The Western Bank
division operates primarily in Washington and Oregon and commenced operations in
California as of the beginning of 1999 under the name WM Business Bank. The
commercial banking group provides personalized commercial banking services to
small to mid-sized businesses and makes available multi-family shelter-based
lending, commercial construction financing and other commercial real estate
loans. For the year ended December 31, 1998, Western Bank had average commercial
business loans outstanding of $1.49 billion. At March 31, 1999, Washington
Mutual had $18.05 billion of commercial real estate and commercial business
loans in its portfolio, of which $14.51 billion was secured by liens on
apartment buildings.
- FINANCIAL SERVICES. The financial services business consists of WM
Financial Services, Inc., a licensed broker-dealer; WM Advisors, Inc., the
investment adviser to the WM Group of Funds; WM Funds Distributor, Inc., the
distributor of the WM Group of Funds; and Washington Mutual Insurance Services,
Inc. Through its broker-dealer,
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WM Financial Services, Washington Mutual offers a wide range of investment
products to its customers, including mutual funds, variable and fixed annuities
and general securities.
The WM Group of Funds is a proprietary mutual fund complex formed through
the consolidation of the Composite Funds, Sierra Trust Funds and The Griffin
Funds. At March 31, 1999, the WM Group of Funds consisted of 18 mutual funds, 18
variable annuities and five managed asset funds. At that date, it had 352,710
accounts and $6.03 billion in assets under management.
Washington Mutual Insurance Services, Inc. supports the mortgage lending
process by offering customers property and casualty insurance products. The
group also offers insurance products to existing mortgage and deposit customers,
which include mortgage life and accidental death and dismemberment, property and
casualty, and life insurance.
- CONSUMER FINANCE. Washington Mutual conducts its consumer finance
business through Aristar, Inc. and its subsidiaries. Through those companies,
Washington Mutual makes direct consumer installment loans and real estate
secured loans and purchases retail installment contracts from local retail
establishments through a network of over 500 branch offices located in 24
states, primarily in the southeastern United States. Aristar also accepts
deposits in Colorado and Utah through its industrial bank subsidiary. Aristar
generally conducts its business under the names Blazer Financial, City Finance
and First Community Industrial Bank. At March 31, 1999, Aristar had assets of
$2.81 billion and deposits of $198.0 million.
INFORMATION ABOUT LONG BEACH
Long Beach, through its subsidiary, Long Beach Mortgage Company, is a
specialty finance company engaged in the business of originating, purchasing and
selling subprime residential mortgage loans secured by one-to-four family
residences. Long Beach's core borrower base consists of individuals who do not
qualify for traditional "A" credit because their credit histories, debt to
income ratios or other factors cause them not to conform to standard agency
lending criteria. Long Beach's primary operating strategy has been to originate,
purchase and sell loans on a basis that exposes Long Beach to less default and
prepayment risk than is normally inherent in a mortgage lender's business. A key
element in this strategy has been Long Beach's sales of its loans for cash to
institutional purchasers at a premium above the outstanding principal balance of
the loans. As a result, Long Beach has historically generated positive cash flow
and substantially reduced the risk of holding residual interests in the loans
sold by Long Beach.
Long Beach sources loans through approximately 12,500 independent mortgage
loan brokers that generate loans in all 50 states. The large number of brokers
reflects Long Beach's strategy of utilizing a diverse group of small brokers to
avoid becoming dependent on a few primary producers. In 1998, Long Beach's
single largest wholesale producing broker was responsible for less than 1% of
Long Beach's wholesale originations during the year. Long Beach maintains a
close working relationship with brokers through its sales force of approximately
325 account executives located in 72 offices. Having account executives
geographically close to the independent brokers enables Long Beach to deliver a
high level of customer service to the brokers with whom Long Beach does
business. The primary elements of Long Beach's customer service are actively
assisting the broker in identifying the appropriate product for the borrower,
applying lending criteria in a consistent manner, promptly processing loan
applications and providing any other assistance that the brokers may require to
complete the loan transaction. A high level of
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customer service, together with the account executive's processing team's
knowledge of the local market and Long Beach's products, is a key part of Long
Beach's origination strategy.
Long Beach originates loans through wholesale and retail channels of
production. The wholesale channel is comprised of broker-sourced production and
production from correspondents. Through the retail production channel Long Beach
directly interacts with the customer through direct mail, telemarketing, the
internet and other sources.
Long Beach historically has followed a strategy of selling substantially
all of its loan originations in the secondary market through loan sales in which
Long Beach disposes of its entire economic interests in the loan except for the
related servicing rights, which it has generally retained, for a cash price that
represents a premium over the principal balance of the loans sold. Cash from
loan sales has been used by Long Beach to repay borrowings previously made under
its warehouse financing facility. These loan sales have been an important factor
in generating Long Beach's historical earnings and creating consistent positive
cash flow to further its operations.
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<PAGE> 56
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS OF LONG BEACH
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of June 16, 1999, the number and percentage
of outstanding shares of Long Beach common stock beneficially owned by each
person known to Long Beach to be the beneficial owner of more than five percent
of the outstanding Long Beach common stock, by each director and executive
officer of Long Beach, and by all directors and executive officers of Long Beach
as a group. The number of shares beneficially owned is deemed to include shares
of Long Beach common stock as to which the beneficial owner has either
investment or voting power. Unless otherwise indicated, and except for voting
and investment powers held jointly with a person's spouse, the persons and
entities named in the table have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OF BENEFICIAL OWNERSHIP(2) PERCENT OF COMMON STOCK
- --------------------------------------- -------------------------- -----------------------
<S> <C> <C>
Neumeier Investment Counsel LLC...... 2,081,100(3) 9.20%
26435 Carmel Rancho Blvd
Carmel, CA 93923
Thomson Horstmann & Bryant, Inc...... 2,304,150(4) 10.19%
Park 80 West, Plaza Two
Saddle Brook, NJ 07663
Franklin Resources, Inc.............. 1,994,100(5) 8.82%
777 Mariners Island Boulevard
San Mateo, California 94404
FMR Corp............................. 1,845,600(6) 8.16%
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc.............. 1,207,855(7) 5.34%
One Post Office Square
Boston, MA 02109
M. Jack Mayesh....................... 269,230(8) 1.18%
David S. Engelman.................... 23,134(9) *
Richard A. Kraemer................... 33,334(9) *
C. Stephen Mansfield................. 18,334(9) *
Edward Resendez...................... 218,450(8) *
Frank J. Curry....................... 215,385(8) *
William K. Komperda.................. 200,000(10) *
James H. Leonetti.................... 41,000(11) *
All directors and executive officers as
a group (10 persons)............... 1,091,867(12) 4.63%
</TABLE>
- -------------------------
* Less than 1%
(1) Unless otherwise indicated, the address of each stockholder is care of Long
Beach Financial Corporation, 1100 Town and Country Road, Suite 1650,
Orange, California 92868.
(2) Calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act of
1934, as amended. Shares not outstanding that are subject to options
exercisable by the holder thereof within 60 days of June 16, 1999 are
deemed outstanding for the purposes of calculating the number and
percentage owned by such stockholder, but not deemed outstanding for the
purpose of calculating the percentage owned by each
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<PAGE> 57
other stockholder listed. Unless otherwise noted, all shares listed as
beneficially owned by a stockholder are actually outstanding.
(3) Information is based solely on filings made by Neumeier Investment Counsel
LLC, pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended, in which it disclosed that it had sole voting power over 1,240,000
shares and sole disposition power over 2,081,100 shares.
(4) Information is based solely on filings made by Thomson Horstmann & Bryant,
Inc., pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended, in which it disclosed that it had sole voting power over 1,516,900
shares, shared voting power over 40,600 shares and sole disposition power
over 2,304,150 shares.
(5) Information is based solely on filings made by Franklin Resources, Inc.
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended.
(6) Information is based solely on filings made by FMR Corp., pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended, in which it
disclosed that it had sole voting power over 789,500 shares.
(7) Information is based solely on filings made by Putnam Investments, Inc.,
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended,
in which it disclosed that it had sole voting power over 356,355, shared
voting power over none of the shares and disposition power over none of the
shares.
(8) Includes 200,000 shares subject to options that are exercisable within 60
days.
(9) Includes 18,334 shares subject to options that are exercisable within 60
days.
(10) Includes 190,000 shares subject to options that are exercisable within 60
days.
(11) Includes 40,000 shares subject to options that are exercisable within 60
days.
(12) Includes 955,002 shares subject to options that are exercisable within 60
days.
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COMPARISON OF RIGHTS OF WASHINGTON MUTUAL
AND LONG BEACH STOCKHOLDERS
Washington Mutual is incorporated under the laws of the State of Washington
and Long Beach is incorporated under the laws of the State of Delaware. The
rights of Long Beach stockholders are governed by the Delaware General
Corporation Law, Long Beach's amended and restated certificate of incorporation
and Long Beach's bylaws. Once the Long Beach stockholders who elect to receive
stock in the merger become Washington Mutual stockholders, their rights will be
governed by the Washington Business Corporation Act, Washington Mutual's
articles of incorporation, and Washington Mutual's bylaws. The following
discussion summarizes certain material differences between the rights of holders
of Long Beach common stock and Washington Mutual common stock, resulting from
the differences in their governing documents and Washington and Delaware law.
The following summary is not a complete summary and is qualified in its
entirety by reference to the governing corporate documents of Washington Mutual
and Long Beach and applicable law. See "Incorporation of Certain Documents by
Reference."
CAPITAL STOCK
Washington Mutual's articles of incorporation currently authorize
1,600,000,000 shares of common stock and 10,000,000 shares of preferred stock.
Long Beach's certificate of incorporation currently authorizes 150,000,000
shares of common stock and 25,000,000 shares of preferred stock.
BOARD OF DIRECTORS
Washington Mutual's articles of incorporation provide that the number of
directors comprising the Washington Mutual board of directors will be the number
stated in Washington Mutual's bylaws, provided that the number of directors
shall not be less than five. Washington Mutual's board of directors can amend
the bylaws to change the number of directors without stockholder approval.
Washington Mutual's bylaws currently provide that the Washington Mutual board of
directors shall consist of eighteen directors. Washington Mutual's board of
directors is divided into three classes of as equal a number of directors as
possible. The term of office of each different class is three years, each term
expiring in a different year.
Long Beach's certificate of incorporation provides that the number of
directors comprising the Long Beach board of directors will be the number stated
in Long Beach's bylaws. Long Beach's bylaws provide that the board of directors
shall consist of not less than five and not more than nine members. The bylaws
currently fix the number of directors at five. Long Beach's board of directors
can amend the bylaws to change the number of directors without stockholder
approval. Long Beach's bylaws provide for a board of directors divided into
three classes, with approximately one-third of the directors elected annually
for a three-year term.
MONETARY LIABILITY OF DIRECTORS
Washington Mutual's articles of incorporation and Long Beach's certificate
of incorporation each provide for the elimination of personal monetary liability
of directors to the fullest extent permissible under the laws of Washington and
Delaware, respectively. The provision in Washington Mutual's articles of
incorporation and the provision in Long
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Beach's certificate of incorporation incorporate future amendments to Washington
and Delaware law, respectively, regarding the elimination of such liability.
INTERESTED STOCKHOLDERS
Washington Mutual's articles of incorporation prohibit, except under
certain circumstances, Washington Mutual (or any subsidiary of Washington
Mutual) from engaging in certain significant business transactions with a "major
stockholder." A "major stockholder" is a person who, without the prior approval
of the Washington Mutual board of directors, acquires beneficial ownership of
five percent or more of Washington Mutual's outstanding voting stock. Prohibited
transactions include, among others:
- any merger with, disposition of assets to, acquisition by Washington
Mutual of the assets of, issuance of securities of Washington Mutual to,
or acquisition by Washington Mutual of securities of, a major
stockholder;
- any reclassification of the voting stock of Washington Mutual or of any
subsidiary beneficially owned by a major stockholder; or
- any partial or complete liquidation, spin off, split off or split up of
Washington Mutual or any subsidiary.
The above prohibitions do not apply, in general, if the specific
transaction is approved by:
- Washington Mutual's board of directors prior to the major stockholder
involved having become a major stockholder;
- a vote of at least 80% of the "continuing directors" (defined as those
members of Washington Mutual's board prior to the involvement of the
major stockholder);
- a majority of the "continuing directors" if the major stockholder
obtained unanimous board approval to become a major stockholder.
- a vote of 95% of the outstanding shares of Washington Mutual voting stock
other than shares held by the major stockholder; or
- a majority vote of the shares of voting stock and the shares of voting
stock owned by shareholders other than by any major stockholder if
certain other conditions are met.
Washington Mutual's articles of incorporation also provide that during the
time a major stockholder exists, Washington Mutual may voluntarily dissolve only
upon the unanimous consent of the Washington Mutual stockholders or an
affirmative vote of at least two-thirds of Washington Mutual's board of
directors and the holders of at least two-thirds of the shares entitled to vote
on such a dissolution and of each class of shares entitled to vote on such a
dissolution as a class, if any.
The Long Beach certificate of incorporation does not contain a similar
provision.
REMOVAL OF DIRECTORS AND FILLING VACANCIES ON THE BOARD OF DIRECTORS
Washington Mutual's articles of incorporation provide that directors may
only be removed for "good cause," which is not defined. Under Washington
Mutual's bylaws a director may be removed by the vote of the holders of a
majority of the shares entitled to vote at an election of the director whose
removal is sought. Washington Mutual's bylaws also provide that a vacancy on
Washington Mutual's board arising through resignation,
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removal or death of an existing director, or by reason of an authorized increase
in the number of directors, may be filled by the affirmative vote of four-fifths
of the remaining directors, though less than a quorum.
Under Delaware law, a director of a corporation with a classified board may
be removed only for cause, unless the certificate of incorporation specifies
otherwise. The Long Beach certificate of incorporation is silent on this issue,
and Long Beach has a classified board. The Long Beach bylaws provide that any
vacancy, whether arising through death, resignation, removal, disqualification,
an increase in the number of directors, or any other reason, may be filled by a
majority vote of the remaining directors, though less than a quorum. Neither the
Long Beach certificate of incorporation nor the Long Beach bylaws provide for
vacancies or newly-created directorships to be filled by stockholder vote.
WASHINGTON MUTUAL RIGHTS PLAN
Washington Mutual has adopted a stockholder rights plan which provides that
one right to purchase an additional share of Washington Mutual common stock is
attached to each outstanding share of Washington Mutual common stock. These
rights have certain anti-takeover effects and are intended to discourage
coercive or unfair takeover tactics and to encourage any potential acquiror to
negotiate a price fair to all stockholders. These rights may cause substantial
dilution to an acquiring party that attempts to acquire Washington Mutual on
terms not approved by Washington Mutual's board of directors, but they will not
interfere with any merger or other business combination that is approved by
Washington Mutual's board.
The Washington Mutual rights are not exercisable until the tenth day after
a party acquires beneficial ownership of 20% or more of the outstanding shares
of Washington Mutual common stock or commences or publicly announces for the
first time a tender offer to do so. Each Washington Mutual right entitles the
holder to purchase one share of Washington Mutual common stock for an exercise
price that is currently $17.78 per share. In the event, among certain other
specified events, that an acquiring party thereafter gains control of 30% or
more of the outstanding shares of Washington Mutual common stock, any Washington
Mutual rights held by that party will be void and, for the next 60 days, all
other holders of Washington Mutual rights are entitled to receive that number of
shares of Washington Mutual common stock having a market value of two times the
exercise price of the Washington Mutual right. The Washington Mutual rights,
which expire on October 26, 2000, may be redeemed by Washington Mutual for
$0.0044 per right prior to becoming exercisable. Until a Washington Mutual right
is exercised, the holder of that right will have no rights as a stockholder of
Washington Mutual, including, without limitation, the right to vote or receive
dividends.
LONG BEACH RIGHTS PLAN
On October 28, 1997, the Long Beach board of directors declared a dividend
distribution of one preferred stock purchase right to holders of Long Beach
common stock outstanding on November 21, 1997, under the Long Beach Rights
Agreement, dated November 10, 1997, between Long Beach and American Stock
Transfer & Trust Company, as rights agent (as amended, the "Long Beach Rights
Plan").
Like Washington Mutual's rights plan, the Long Beach Rights Plan also has
certain anti-takeover effects because the rights may cause substantial dilution
to an acquiring party that attempts to acquire Long Beach on terms or in a
manner not approved by the Long Beach board of directors. In the event that any
person or group acquires beneficial
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ownership of 15% or more of the outstanding shares of Long Beach common stock,
then ten days later each right, other than a right beneficially owned by the
acquiring person or its affiliates, will become exercisable to purchase at the
exercise price a number of shares of Long Beach common stock having a market
value of two times the exercise price. In addition, if at any time after the
above mentioned ten-day period Long Beach is acquired in a merger or
consolidation or at least 50% of its assets or earning power is sold, then each
right, other than a right beneficially owned by the acquiring person or its
affiliates, will become exercisable to purchase at the exercise price a number
of shares of the acquiring company's common stock having a market value of two
times the exercise price. As with Washington Mutual's rights plan, the Long
Beach rights should not interfere with any merger or other business combination
that is approved by the Long Beach board of directors. Long Beach may redeem the
rights for $.005 per right so long as the rights have not become exercisable.
The Long Beach rights expire on November 9, 2007.
Unless and until the Long Beach rights become exercisable, the rights trade
only with shares of Long Beach common stock and are represented by the stock
certificates representing Long Beach common stock. If the rights become
exercisable, separate certificates representing the Long Beach rights will be
delivered to the holders of Long Beach common stock at that time, and the rights
will then trade separately from the shares of Long Beach common stock. On May
18, 1999, Long Beach amended its rights plan to ensure that the execution and
performance of the merger agreement and the transactions contemplated by the
merger agreement, including the execution and performance of the Stock Option
Agreement between Long Beach and Washington Mutual, would not trigger any rights
under the Long Beach Rights Plan.
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CERTAIN DIFFERENCES BETWEEN WASHINGTON
AND DELAWARE CORPORATE LAWS
The Washington Business Corporation Act (WBCA) governs the rights of
current Washington Mutual stockholders and will govern the rights of former Long
Beach stockholders who become stockholders of Washington Mutual upon completion
of the merger. The Delaware General Corporation Law (DGCL) governs the rights of
current Long Beach stockholders. The WBCA differs from the DGCL in many
respects. The following discussion summarizes some significant differences
between the provisions of the WBCA and the DGCL that could materially affect the
rights of Long Beach stockholders.
AMENDMENT OF ARTICLES/CERTIFICATE OF INCORPORATION
Under the WBCA, the board of directors must generally recommend to the
stockholders amendments to a corporation's articles of incorporation, unless the
board of directors (a) determines that because of a conflict of interest or
other special circumstances it should not make a recommendation to the
stockholders and (b) communicates the basis for its determination to the
stockholders with the amendment. Under the WBCA, amendments to a corporation's
articles of incorporation must generally be approved by a majority of all the
votes entitled to be cast by any voting group entitled to vote unless another
proportion is specified in the articles of incorporation, by the board of
directors as a condition to its recommendation or by the WBCA. Subject to some
exceptions, Washington Mutual's articles of incorporation require the
affirmative vote of the stockholders representing at least a majority of
Washington Mutual's issued capital stock at any regular meeting or special
meeting duly called for that purpose to effect an amendment. An amendment to the
provision related to business combinations with a major stockholder described in
"Comparison of Rights of Washington Mutual and Long Beach
Stockholders -- Interested Stockholders" above requires the affirmative vote of
95% of the outstanding voting stock held by shareholders other than the major
shareholder.
Under the DGCL, amendments to a corporation's certificate of incorporation
require the approval of stockholders holding a majority of the outstanding
shares entitled to vote on the amendment. If a class vote on the amendment is
required by the DGCL, a majority of the outstanding stock of class is required,
unless a greater proportion is specified in the certificate of incorporation or
by other provisions of the DGCL. The Long Beach certificate of incorporation
corresponds with Delaware law except that it requires the affirmative vote of
the holders of at least 66 2/3% of the total voting power of all outstanding
shares entitled to vote in order to amend the provision of the Long Beach
certificate of incorporation relating to the processes and votes required for
amending the certificate of incorporation and the bylaws.
RIGHT TO CALL SPECIAL MEETING OF STOCKHOLDERS
The WBCA provides that a special meeting of stockholders of a corporation
may be called by its board of directors, by holders of at least 10% of all the
votes entitled to be cast on any issue proposed to be considered at the special
meeting, or by other persons authorized to do so by the articles of
incorporation or bylaws of the corporation. However, the WBCA allows a
corporation's articles of incorporation to limit or deny entirely the right of
stockholders to call a special meeting. Washington Mutual's articles of
incorporation provide that Washington Mutual's board of directors or any person
authorized by Washington Mutual's bylaws may call a special meeting. However,
authority to call a special meeting is limited to holders of at least 25% of all
the votes entitled to be
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cast on any issue to be considered at the proposed meeting. Washington Mutual's
bylaws permit a special meeting to be called by Washington Mutual's board of
directors, the chairman of the Washington Mutual board or upon the written
request of any director.
Under the DGCL, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. The Long Beach bylaws permit only the board of
directors and the chairman of the board to call a special meeting of the
stockholders
INDEMNIFICATION OF OFFICERS, DIRECTORS AND EMPLOYEES
The WBCA authorizes corporations to indemnify a director, officer or
employee made a party to a proceeding, or advance or reimburse expenses incurred
in a proceeding, under most circumstances. A corporation may not indemnify
officers, directors or employees for: (a) intentional misconduct or a knowing
violation of the law; (b) conduct finally adjudged to be an unlawful
distribution; or (c) any transaction in which that director, officer or employee
personally and improperly received a benefit in money, property or services. The
WBCA's legislative history suggests that a corporation may indemnify its
directors, officers and employees for amounts paid in settlement of derivative
actions, provided that the director's, officer's or employee's conduct does not
fall within one of the categories set forth above. Washington Mutual's articles
of incorporation provide that Washington Mutual shall indemnify its directors to
the fullest extent permitted by the WBCA.
Under the DGCL, a corporation may indemnify directors, officers and other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if the director, officer or employee acted in good faith and
in a manner the director, officer or employee reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to a
criminal action or proceeding, if the director, officer or employee had no
reasonable cause to believe that his or her conduct was unlawful. The Long Beach
bylaws provide for the indemnification of its directors and officers to the
fullest extent authorized by the DGCL.
PROVISIONS AFFECTING CONTROL SHARE ACQUISITIONS AND BUSINESS COMBINATIONS
The WBCA prohibits a "target corporation," (as defined below) with certain
exceptions, from engaging in certain "significant business transactions" (as
defined below) with a person or group of persons that beneficially own 10% or
more of the voting securities of a target corporation (an "acquiring person")
for a period of five years after the acquiring person acquired their securities,
unless the transaction or acquisition of shares is approved by a majority of the
members of the target corporation's board of directors before the date of the
acquisition. A "significant business transaction" includes, among other
transactions:
- a merger or consolidation with the acquiring person;
- sales or other dispositions of assets, in one or more transactions having
an aggregate market value equal to five percent or more of all assets or
outstanding shares of the target corporation or representing five percent
or more of the earning power or net income of the target corporation to
or with the acquiring person;
- the issuance or redemption of stock to or from the acquiring person;
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- termination of five percent or more of the employees of the target
corporation employed in Washington State as a result of the acquiring
person's acquisition of 10% or more of the shares over the five-year
period following the share acquisition by the acquiring person; or
- allowing the acquiring person to receive any benefit from the
corporation, other than proportionately as a stockholder.
"Target corporations" include all domestic corporations with securities
registered under the Exchange Act. Washington Mutual is, therefore, subject to
the statute. A corporation may not "opt out" of this statute.
Section 203 of the DGCL prohibits a Delaware corporation from engaging in a
"business combination" (as defined below) with an "interested stockholder" (as
defined below) for three years following the time that this person becomes an
interested stockholder. With certain exceptions, an "interested stockholder" is
a person or group that owns 15% or more of the corporation's outstanding voting
stock (including any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the person has voting rights
only), or is an affiliate or associate of the corporation and was the owner of
15% or more of the voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include:
- mergers with or caused by the interested stockholder;
- sales or other dispositions to the interested stockholder (except
proportionately with the corporation's other stockholders) of assets of
the corporation or a subsidiary equal to 10% or more of the aggregate
market value of the corporation's consolidated assets or its outstanding
stock;
- the issuance or transfer by the corporation or a subsidiary of stock of
the corporation or the subsidiary to the interested stockholder (except
for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series
of the corporation's or such subsidiary's stock); or
- receipt by the interested stockholder (except proportionately as a
stockholder), directly or indirectly, of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the
corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if:
- prior to the time at which a stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction that resulted in the person becoming an
interested stockholder;
- the interested stockholder owns 85% of the corporation's voting stock
upon completion of the transaction that made him or her an interested
stockholder (excluding from the 85% calculation shares owned by directors
who are also officers of the target corporation and shares held by
employee stock plans that do not permit employees to decide
confidentially whether to accept a tender or exchange offer); or
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- at or subsequent to such time this person becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by 66 2/3% of the voting stock not
owned by the interested stockholder.
Section 203 does not apply if the business combination is proposed before
the completion or abandonment, and subsequent to the earlier of the public
announcement or the notice required under Section 203, of a proposed transaction
that:
- constitutes certain (x) mergers or consolidations, (y) sales or other
transfers of assets having an aggregate market value equal to 50% or more
of the aggregate market value of all of the assets of the corporation
determined on a consolidated basis or the aggregate market value of all
the outstanding stock of the corporation or (z) proposed tender or
exchange offers for 50% or more of the corporation's outstanding voting
stock;
- is with or by a person who was either not an interested stockholder
during the last three years or who became an interested stockholder with
the approval of the corporation's board of directors or under certain
other circumstances; and
- is approved or not opposed by a majority of the board members elected
prior to any person becoming an interested stockholder during the
previous three years (or their chosen successors).
A Delaware corporation may elect to "opt out" of, and not be governed by,
Section 203 through a provision in either its original certificate of
incorporation or its bylaws, or an amendment to its original certificate or
bylaws that was approved by majority stockholder vote. With a limited exception,
this amendment would not become effective until 12 months following its
adoption. Long Beach has not opted out of Section 203.
MERGERS, SALES OF ASSETS AND OTHER TRANSACTIONS
Under the WBCA, a merger or share exchange of a corporation must be
approved by the affirmative vote of a majority of directors when a quorum is
present, and by each voting group entitled to vote separately on the plan by
two-thirds of all votes entitled to be cast on the plan by that voting group,
unless a different percentage is specified in the articles of incorporation.
Washington Mutual's articles of incorporation reduce this percentage to a
majority of all votes entitled to be cast by each voting group if two-thirds of
the directors vote to recommend the transaction to the stockholders.
The WBCA also provides that, in general, a corporation may sell, lease,
exchange or otherwise dispose of all, or substantially all, of its property,
other than in the usual and regular course of business, if the board of
directors recommends the proposed transaction to the stockholders and the
stockholders approve the transaction by two-thirds of all the votes entitled to
be cast, unless a different percentage is specified in the articles of
incorporation. Washington Mutual's articles of incorporation reduce this
percentage to a majority of all votes entitled to be cast by each voting group
if two-thirds of the directors vote to recommend the transaction to the
stockholders.
Under the DGCL, a merger, consolidation or sale of all, or substantially
all, of the assets of a corporation must be approved by the board of directors
and by a majority (unless the certificate of incorporation requires a higher
percentage) of outstanding stock of the corporation entitled to vote, provided
that no vote of stockholders of a constituent corporation surviving a merger is
required (unless the corporation provides otherwise in its certificate of
incorporation) if (a) the merger agreement does not amend the surviving
corporation's certificate of incorporation, (b) each share of stock of the
surviving
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corporation outstanding immediately before the merger is to be an identical
outstanding or treasury share of the surviving corporation after the merger, and
(c) the number of shares to be issued by the surviving corporation in the merger
does not exceed twenty percent of the shares outstanding immediately before the
merger. The Long Beach certificate does not require a higher percentage.
Therefore, under Delaware law, a majority of the holders of Long Beach common
stock must approve this merger.
ACTION WITHOUT A MEETING
Under the WBCA, stockholder action that may be taken at a stockholders'
meeting may be taken without a meeting if written consents describing the action
are signed by all stockholders entitled to vote on that matter.
Under the DGCL, unless otherwise provided in a corporation's certificate of
incorporation, any action that may be taken at a meeting of stockholders may be
taken without a meeting, without prior notice and without a vote if the holders
of outstanding stock, having not less than the minimum number of votes that
would be necessary to authorize such action, consent in writing. The Long Beach
certificate and bylaws specifically prohibit stockholder action by written
consent unless the action has been previously approved by the board of
directors.
CLASS VOTING
Under the WBCA, a corporation's articles of incorporation may authorize one
or more classes of shares that have special, conditional or limited voting
rights, including the right to vote on certain matters as a group. The articles
of incorporation may not limit the rights of holders of a class to vote as a
group with respect to certain amendments to the articles of incorporation and
certain extraordinary transactions that adversely affect the rights of holders
of that class.
The DGCL generally does not require class voting, except for amendments to
the certificate of incorporation that change the number of authorized shares or
the par value of shares of a specific class or that adversely affect such class
of shares.
TRANSACTIONS WITH OFFICERS OR DIRECTORS
The WBCA sets forth a safe harbor for transactions between a corporation
and one or more of its directors. A conflicting interest transaction may not be
enjoined, set aside or give rise to damages if:
- it is approved by a majority of the "qualified directors" on the board or
a duly empowered committee (but no fewer than two);
- it is approved by the affirmative vote of the majority of all "qualified
shares" after notice and disclosure to the stockholders; or
- at the time of commitment, the transaction is established to have been
fair to the corporation.
For purposes of this provision, a "qualified director" is one who does not
have either: (a) a conflicting interest respecting the transaction or (b) a
familial, financial, professional or employment relationship with a second
director who has a conflicting interest respecting the transaction, which
relationship would, in the circumstances, reasonably be expected to exert an
influence on the first director's judgment when voting on the transaction.
"Qualified shares" are defined generally as shares other than those beneficially
owned, or
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the voting of which is controlled, by a director (or an affiliate of a director)
who has a conflicting interest respecting the transaction.
Under the DGCL, certain contracts or transactions in which one or more of a
corporation's directors has an interest are not void or voidable because of such
interest provided that some conditions, such as obtaining the required approval
and fulfilling the requirements of good faith and full disclosure, are met.
Under the DGCL, either (a) the stockholders or the board of directors must
approve any such contract or transaction after full disclosure of the material
facts or (b) the contract or transaction must have been "fair" as to the
corporation at the time it was approved. If board approval is sought, the
contract or transaction must be approved by a majority of disinterested
directors, even though less than a majority of a quorum.
DISSENTERS' RIGHTS
Under the WBCA, a stockholder is entitled to dissent from and, upon
perfection of the stockholder's appraisal right, to obtain the fair value of his
or her shares in the event of certain corporate actions, including certain
mergers, share exchanges, sales of substantially all assets of the corporation,
and amendments to the corporation's articles of incorporation that materially
reduce the number of shares owned by a stockholder to a fraction of a share
which is to be acquired with cash. However, stockholders generally will not have
such dissenters' rights if stockholder approval is not required to effect the
corporate action.
Under the DGCL, a stockholder of a corporation participating in certain
major corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which the stockholder may receive cash in the
amount of the fair market value of his or her shares in lieu of the
consideration he or she would otherwise receive in the transaction. Unless a
corporation's certificate of incorporation provides otherwise, these appraisal
rights are not available
- with respect to the sale, lease or exchange of all or substantially all
of the assets of the corporation,
- with respect to a merger or consolidation by the corporation the shares
of which are either listed on a national securities exchange or Nasdaq or
are held of record by more than 2,000 holders if the terms of the merger
or consolidation allow the stockholders to receive only shares of the
surviving corporation or shares of any other corporation that are either
listed on a national securities exchange or on Nasdaq or held of record
by more than 2,000 holders, plus cash in lieu of fractional shares, or
- to stockholders of the corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the
merger because the merger agreement does not amend the existing
certificate of incorporation, each share of the surviving corporation
outstanding prior to the merger is an identical outstanding or treasury
share after the merger, and the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if some other conditions
are met.
DIVIDENDS
Under the WBCA, a corporation may make a distribution in cash or in
property to its stockholders upon the authorization of its board of directors
unless, after giving effect to this distribution, (a) the corporation would not
be able to pay its debts as they become
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due in the usual course of business or (b) the corporation's total assets would
be less than the sum of its total liabilities plus, unless the articles of
incorporation permit otherwise, the amount that would be needed if the
corporation were to be dissolved at the time of the distribution to satisfy the
preferential rights of stockholders whose preferential rights are superior to
those receiving the distribution.
The DGCL permits a corporation to declare and pay dividends out of
statutory surplus or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, the DGCL generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation.
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LEGAL MATTERS
The validity of the shares of Washington Mutual common stock which will be
issued in connection with the merger and certain legal matters in connection
with the Merger will be passed upon for Washington Mutual by Heller Ehrman White
& McAuliffe, Seattle, Washington.
EXPERTS
The consolidated financial statements of Washington Mutual as of December
31, 1998 and 1997, and for each of the years in the three-year period ended
December 31, 1998, incorporated by reference in this proxy statement/prospectus,
which is included in this Registration Statement of Washington Mutual on Form
S-4, from Washington Mutual's Annual Report on Form 10-K for the year ended
December 31, 1998, have been audited by Deloitte & Touche LLP, independent
auditors as stated in their report which is incorporated herein by reference.
Insofar as the report of Deloitte & Touche LLP relates to the amounts included
for: (a) H.F. Ahmanson & Company and its subsidiaries for 1997 and 1996, it is
based solely on the report of KPMG LLP, independent auditors; and (b) Great
Western Financial Corporation and subsidiaries for 1996, it is based solely on
the report of PricewaterhouseCoopers LLP, independent auditors; such reports
being incorporated by reference herein, and have been so incorporated in
reliance upon the reports of such firms given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Long Beach Financial Corporation
as of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998 incorporated by reference in this proxy
statement/prospectus, which is included in this Registration Statement on Form
S-4, from Long Beach's Annual Report on Form 10-K for the year ended December
31, 1998, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is incorporated by reference herein, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Both Washington Mutual and Long Beach file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy these reports and other information at the
public reference facilities maintained by the SEC at:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of these documents by mail from the public
reference room of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. In
addition, Washington Mutual and Long Beach file reports and other information
with the SEC electronically, and the SEC maintains a web site located at
http://www.sec.gov containing this information. Washington Mutual's common stock
is listed on the New York Stock Exchange and Washington Mutual's reports and
other information may also be inspected at the offices of the New York Stock
Exchange at
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20 Broad Street, New York, New York 10005. Long Beach's common stock is quoted
on the Nasdaq National Market and Long Beach's reports and other information may
also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
Washington Mutual has filed a registration statement on Form S-4 to
register with the SEC up to 25,583,218 shares of Washington Mutual common stock
that may be issued in the merger. This proxy statement/prospectus is a part of
that registration statement. As permitted by the SEC rules, this proxy
statement/prospectus does not contain all of the information included in the
registration statement or in the exhibits or schedules to the registration
statement. You may read and copy the registration statement, including any
amendments, schedules and exhibits at the addresses set forth above. Statements
contained in this proxy statement/prospectus as to the contents of any contract
or other document referred to in this document include all material terms of the
contracts or other documents but are not necessarily complete. In each case, you
should refer to the copy of the applicable contract or other document filed as
an exhibit to the registration statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Washington Mutual and Long Beach to incorporate certain
information into this proxy statement/prospectus by reference to other
information that has been filed with the SEC. The information incorporated by
reference is deemed to be part of this proxy statement/prospectus, except for
any information that is superseded by information in this proxy
statement/prospectus. The documents that are incorporated by reference contain
important information about the companies and you should read this proxy
statement/prospectus together with any documents incorporated by reference.
This proxy statement/prospectus incorporates by reference the following
documents that have previously been filed with the SEC by Washington Mutual
(File No. 0-25188):
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- Current Report on Form 8-K dated April 23, 1999;
- Current Report on Form 8-K dated May 21, 1999; and
- the description of Washington Mutual capital stock contained in Item 5 of
Current Report on Form 8-K dated November 29, 1994, and any amendment or
report filed for the purpose of updating this description.
This proxy statement/prospectus also incorporates by reference the
following documents that have previously been filed with the SEC by Long Beach
(File No. 1-12889):
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- Current Report on Form 8-K dated May 24, 1999; and
- the description of Long Beach capital stock set forth in Long Beach's
registration statement on Form 8-A filed on April 15, 1997, and any
amendment or report filed for the purpose of updating this description.
In addition, Washington Mutual and Long Beach are incorporating by
reference any documents they may file under the Exchange Act after the date of
this proxy statement/ prospectus and prior to the date of the special meeting of
Long Beach stockholders.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
WASHINGTON MUTUAL, INC.
AND
LONG BEACH FINANCIAL CORPORATION
Dated as of May 18, 1999
<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
1 DEFINITIONS....................................................... A-1
1.1 Defined Terms.............................................. A-1
1.2 Other Definitional Provisions.............................. A-3
2 THE MERGER........................................................ A-3
2.1 The Merger................................................. A-3
2.2 Effective Time............................................. A-3
2.3 Effects of the Merger...................................... A-3
2.4 Closing of the Merger...................................... A-3
2.5 Conversion of Long Beach Common Stock...................... A-3
2.6 Merger Consideration....................................... A-4
2.7 Preference Procedures...................................... A-5
2.8 Washington Mutual Common Stock; Washington Mutual Preferred
Stock...................................................... A-6
2.9 Options.................................................... A-6
2.10 Articles of Incorporation.................................. A-7
2.11 Bylaws..................................................... A-7
2.12 Board of Directors......................................... A-7
2.13 Tax Consequences........................................... A-7
2.14 Reservation of Right to Revise Transaction Structure....... A-7
2.15 Stock Option Agreement..................................... A-7
3 EXCHANGE OF SHARES................................................ A-7
3.1 Washington Mutual to Make Shares Available................. A-7
3.2 Exchange of Shares......................................... A-8
4 REPRESENTATIONS AND WARRANTIES OF LONG BEACH...................... A-9
4.1 Corporate Organization..................................... A-9
4.2 Capitalization............................................. A-10
4.3 Authority; No Violation.................................... A-11
4.4 Consents and Approvals..................................... A-12
4.5 Reports.................................................... A-12
4.6 Financial Statements....................................... A-13
4.7 Broker's Fees.............................................. A-13
4.8 Absence of Certain Changes or Events....................... A-13
4.9 Legal Proceedings.......................................... A-14
4.10 Taxes...................................................... A-14
4.11 Employees; Employee Benefit Plans.......................... A-15
4.12 SEC Reports................................................ A-17
4.13 Compliance with Applicable Law............................. A-17
4.14 Certain Contracts.......................................... A-17
4.15 Agreements with Regulatory Agencies........................ A-18
4.16 Undisclosed Liabilities.................................... A-18
4.17 Rights Agreement; Anti-takeover Provisions................. A-18
4.18 Long Beach Information..................................... A-18
4.19 Title to Property.......................................... A-19
4.20 Insurance.................................................. A-19
4.21 Environmental Liability.................................... A-20
4.22 Opinion of Financial Advisor............................... A-20
4.23 Patents, Trademarks, Etc................................... A-20
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
4.24 Loan Matters............................................... A-20
4.25 Year 2000 Compliance....................................... A-21
4.26 Labor Matters.............................................. A-21
5 REPRESENTATIONS AND WARRANTIES OF WASHINGTON MUTUAL...............
A-22
5.1 Corporate Organization..................................... A-22
5.2 Capitalization............................................. A-22
5.3 Authority; No Violation.................................... A-23
5.4 Consents and Approvals..................................... A-23
5.5 Reports.................................................... A-24
5.6 Financial Statements....................................... A-24
5.7 Broker's Fees.............................................. A-25
5.8 Absence of Certain Changes or Events....................... A-25
5.9 Legal Proceedings.......................................... A-25
5.10 SEC Reports................................................ A-25
5.11 Compliance with Applicable Law............................. A-25
5.12 Agreements with Regulatory Agencies........................ A-26
5.13 Washington Mutual Information.............................. A-26
6 COVENANTS RELATING TO CONDUCT OF BUSINESS......................... A-26
6.1 Conduct of Businesses Prior to the Effective Time.......... A-26
6.2 Long Beach Forbearances.................................... A-26
6.3 No Fundamental Washington Mutual Changes................... A-29
7 ADDITIONAL AGREEMENTS............................................. A-29
7.1 Regulatory Matters......................................... A-29
7.2 Access to Information...................................... A-30
7.3 Stockholder Approval....................................... A-31
7.4 Legal Conditions to Merger................................. A-31
7.5 Affiliates................................................. A-32
7.6 Stock Exchange Listing..................................... A-32
7.7 Employees; Employee Benefit Plans.......................... A-32
7.8 Indemnification; Directors' and Officers' Insurance........ A-32
7.9 Additional Agreements...................................... A-34
7.10 Advice of Changes.......................................... A-34
7.11 Subsequent Interim and Annual Financial Statements......... A-34
8 CONDITIONS PRECEDENT.............................................. A-35
8.1 Conditions to Each Party's Obligation to Effect the
Merger..................................................... A-35
8.2 Conditions to Obligations of Washington Mutual............. A-36
8.3 Conditions to Obligations of Long Beach.................... A-37
9 TERMINATION AND AMENDMENT......................................... A-37
9.1 Termination................................................ A-37
9.2 Effect of Termination...................................... A-39
9.3 Amendment.................................................. A-40
9.4 Extension; Waiver.......................................... A-40
10 GENERAL PROVISIONS................................................ A-40
10.1 Nonsurvival of Representations, Warranties and
Agreements................................................. A-40
10.2 Expenses................................................... A-40
10.3 Notices.................................................... A-41
10.4 Interpretation............................................. A-41
10.5 Counterparts............................................... A-42
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
10.6 Entire Agreement........................................... A-42
10.7 Governing Law.............................................. A-42
10.8 Severability............................................... A-42
10.9 Publicity.................................................. A-42
10.10 Assignment; Third Party Beneficiaries...................... A-42
EXHIBITS
Exhibit 2.15 -- Stock Option Agreement
ANNEXES
Annex A -- Form of Tax Opinion
Annex B -- Employment Agreements under Section 8.2(f)
Annex C -- Noncompetition Agreements under Section 8.2(g)
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of May 18, 1999 (as amended,
supplemented or otherwise modified from time to time, this "Agreement"), is
entered into by and between WASHINGTON MUTUAL, INC., a Washington corporation
("Washington Mutual") and LONG BEACH FINANCIAL CORPORATION, a Delaware
corporation ("Long Beach").
The respective Boards of Directors of each of Washington Mutual and Long
Beach have determined that it is in the best interests of their respective
companies and the stockholders to consummate the business combination
transaction provided for herein. It is the intention of the parties to this
Agreement that the business combination contemplated hereby be treated as a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
Therefore, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
1. DEFINITIONS
1.1 Defined Terms. The following terms shall have the meanings defined for
such terms in the Sections set forth below:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Agreement................................................... Preamble
Articles of Merger.......................................... 2.2
Business Day................................................ 2.4
Cash Fraction............................................... 2.7(e)
Cash Preference Amount...................................... 2.7(e)
Cash Preference Shares...................................... 2.7(a)
Certificate of Merger....................................... 2.2
Change of Control........................................... 9.1(h)
Claims...................................................... 7.8(a)
Closing..................................................... 2.4
Closing Date................................................ 2.4
Code........................................................ Preamble
Common Certificates......................................... 2.5(b)
Confidentiality Agreement................................... 7.2(b)
Delaware Secretary.......................................... 2.2
DGCL........................................................ 2.1
DPC Shares.................................................. 2.5(c)
Effective Date.............................................. 2.2
Effective Time.............................................. 2.2
Environmental Laws.......................................... 4.21
ERISA....................................................... 4.11(a)
ERISA Affiliate............................................. 4.11(a)
Exchange Act................................................ 4.6
Exchange Agent.............................................. 3.1
Exchange Fund............................................... 3.1
Exchange Ratio.............................................. 2.9
GAAP........................................................ 4.1
</TABLE>
A-1
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Governmental Entity......................................... 4.4
HSR Act..................................................... 4.4
HUD......................................................... 4.24(f)
Indemnified Parties......................................... 7.8(a)
Injunction.................................................. 8.1(e)
Liens....................................................... 4.2(b)
Loans....................................................... 4.24(a)
Long Beach.................................................. Preamble
Long Beach Common Stock..................................... 2.5(a)
Long Beach Contract......................................... 4.14(a)
Long Beach Disclosure Schedule.............................. 4.2(a)
Long Beach Option........................................... 2.9
Long Beach Preferred Stock.................................. 4.2(a)
Long Beach Reports.......................................... 4.12
Long Beach Rights........................................... 2.5(a)
Long Beach Rights Agreement................................. 2.5(a)
Long Beach Stock Option Plan................................ 2.9
Mailing Date................................................ 2.7(a)
Market Value................................................ 2.6(b)
Material Adverse Effect (Long Beach)........................ 4.1(a)
Material Adverse Effect (Washington Mutual)................. 5.1(a)
Merger...................................................... 2.1
Merger Consideration........................................ 2.6(a)
NYSE........................................................ 2.6(b)
No Preference Shares........................................ 2.7(b)
PBGC........................................................ 4.11(c)
Plans....................................................... 4.11(a)
Preference Deadline......................................... 2.7(b)
Preference Form............................................. 2.7(a)
Proxy Statement/Prospectus.................................. 4.4
Regulatory Agreement........................................ 4.15
REO......................................................... 4.19(a)
Representatives............................................. 6.2(f)
Requisite Regulatory Approvals.............................. 8.1(c)
S-4......................................................... 4.4
SEC......................................................... 4.4
Securities Act.............................................. 4.12
Stock Option Agreement...................................... 2.15
Stock Preference Shares..................................... 2.7(a)
Subsidiary.................................................. 2.5(a)
Superior Proposal........................................... 9.1(h)
Surviving Company........................................... 2.1
Takeover Proposal........................................... 6.2(f)
Tax Returns................................................. 4.10(c)
Taxes....................................................... 4.10(b)
Trust Account Shares........................................ 2.5(c)
Washington Mutual........................................... Preamble
Washington Mutual Common Stock.............................. 2.5(c)
Washington Mutual Disclosure Schedule....................... 5.2
</TABLE>
A-2
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<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Washington Mutual Preferred Stock........................... 5.2
Washington Mutual Regulatory Agreement...................... 5.12
Washington Mutual Reports................................... 5.10
Washington Mutual Rights Agreement.......................... 5.2
Washington Secretary........................................ 2.2
WBCA........................................................ 2.1
</TABLE>
1.2 Other Definitional Provisions. The meanings given to terms defined
herein shall be equally applicable to both the singular and plural forms of such
terms.
2. THE MERGER
2.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the Washington Business Corporation Act (the "WBCA") and the
Delaware General Corporation Law (the "DGCL") at the Effective Time (as defined
in Section 2.2 hereof), Long Beach shall merge (the "Merger") with and into
Washington Mutual. Washington Mutual shall be the surviving corporation
(hereinafter sometimes called the "Surviving Company") in the Merger, and shall
continue its corporate existence under the laws of the State of Washington. The
name of the Surviving Company shall be Washington Mutual, Inc. Upon consummation
of the merger, the separate corporate existence of Long Beach shall terminate.
2.2 Effective Time. The Merger shall become effective as set forth in the
articles of merger (the "Articles of Merger") which shall be filed with the
Secretary of State of the State of Washington (the "Washington Secretary") and
in the certificate of merger (the "Certificate of Merger") which shall be filed
with the Secretary of State of the State of Delaware (the "Delaware Secretary"),
on the Closing Date (as defined in Section 2.4(b) hereof). The term "Effective
Time" shall mean the date (the "Effective Date") and time when the Merger
becomes effective, as set forth in the Articles of Merger and the Certificate of
Merger.
2.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Chapter 11 of the WBCA and Section 252 of
the DGCL.
2.4 Closing of the Merger. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") will take place at 9:00
a.m. Pacific time, on a date to be specified by the parties, which shall be the
first Business Day following the later of (i) the date which is at least five
Business Days after the satisfaction or waiver (subject to applicable law) of
the latest to occur of the conditions set forth in Section 8 hereof, other than
conditions which by their terms are to be satisfied at Closing or (ii) 17
Business Days after the Preference Deadline (as defined in Section 2.7(b)), or
such other date or time as the parties may mutually agree (the "Closing Date").
For purposes of this Agreement, a "Business Day" shall mean any day that is not
a Saturday, a Sunday or other day on which the office of the Washington
Secretary or the Delaware Secretary is closed.
2.5 Conversion of Long Beach Common Stock. At the Effective Time, without
any action on the part of Washington Mutual, Long Beach or the holder of any of
the shares of common stock of Long Beach, the Merger shall be effected in
accordance with the following terms:
(a) Each share of the common stock, par value $.001 per share, of Long
Beach (the "Long Beach Common Stock") issued and outstanding immediately prior
to the
A-3
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Effective Time (other than shares of Long Beach Common Stock held (x) in Long
Beach's treasury or (y) directly or indirectly by Washington Mutual or any of
its Subsidiaries (as defined below) (except for Trust Account Shares and DPC
Shares, as such terms are defined below)), together with the rights (the "Long
Beach Rights") attached thereto issued pursuant to the Rights Agreement, dated
as of November 10, 1997 (as amended and supplemented, the "Long Beach Rights
Agreement"), between Long Beach and American Stock Transfer & Trust Company, as
Rights Agent, shall be converted into the right to receive the Merger
Consideration as provided below, without interest thereon. For purposes of this
Agreement, "Subsidiary" means, with respect to any person, any corporation,
partnership, joint venture, limited liability company or other entity controlled
by such person directly or indirectly through one or more intermediaries.
(b) All of the shares of Long Beach Common Stock (and related Long Beach
Rights) converted into the right to receive the Merger Consideration pursuant to
this Section 2 shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist as of the Effective Time, and each
certificate (each a "Common Certificate") previously representing any such
shares (and related Long Beach Rights) shall thereafter represent solely the
right to receive the Merger Consideration. Common Certificates previously
representing shares of Long Beach Common Stock (and related Long Beach Rights)
shall be exchanged for the Merger Consideration upon the surrender of such
Common Certificates in accordance with Section 3.2 hereof, without any interest
thereon.
(c) At the Effective Time, all shares of Long Beach Common Stock that
are owned by Long Beach as treasury stock and all shares of Long Beach Common
Stock that are owned directly or indirectly by Washington Mutual or Long Beach
or any of their respective Subsidiaries (other than shares of Long Beach Common
Stock held directly or indirectly in trust accounts, managed accounts and the
like or otherwise held in a fiduciary or nominee capacity that are beneficially
owned by third parties (any such shares, and shares of common stock, no par
value per share, of Washington Mutual ("Washington Mutual Common Stock") which
are similarly held, whether held directly or indirectly by Washington Mutual or
Long Beach or any of their respective Subsidiaries, as the case may be, being
referred to herein as "Trust Account Shares") and other than any shares of Long
Beach Common Stock held by Washington Mutual or Long Beach or any of their
respective Subsidiaries in respect of a debt previously contracted (any such
shares of Long Beach Common Stock, and shares of Washington Mutual Common Stock
which are similarly held, whether held directly or indirectly by Washington
Mutual or Long Beach or any of their respective Subsidiaries, being referred to
herein as "DPC Shares")) shall be cancelled and shall cease to exist and no
Merger Consideration shall be delivered in exchange therefor.
(d) The holders of Long Beach Common Stock shall not be entitled to
appraisal rights under the DGCL in connection with the Merger.
2.6 Merger Consideration.
(a) For purposes of this Agreement, the "Merger Consideration" shall be
$15.50 per share.
(b) For purposes of this Agreement, "Market Value" means, with respect
to Washington Mutual Common Stock, the average of the daily closing prices for
such security on the New York Stock Exchange ("NYSE") (or such principal
exchange or market on which such security may then be listed or may trade) for
the five consecutive
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trading days commencing on the eighth trading day prior to the Effective Date.
During such five trading days, and for the two trading days before the first
such trading day, Washington Mutual and its Subsidiaries and affiliates shall
suspend all repurchases of Washington Mutual Common Stock, whether pursuant to a
previously authorized stock repurchase program or otherwise.
(c) If prior to the Effective Time the outstanding shares of Long Beach
Common Stock shall, with the prior written consent of Washington Mutual required
by Section 6.2, have been increased, decreased, changed into or exchanged for a
different number or kind of shares or securities as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other similar change in Long Beach Common Stock's
capitalization, then an appropriate and proportionate adjustment shall be made
to the Merger Consideration.
2.7 Preference Procedures.
(a) A preference form in such form as Washington Mutual and Long Beach
have mutually agreed ("Preference Form") will be mailed 30 days prior to the
anticipated Effective Time or on such other date as Washington Mutual and Long
Beach may mutually agree (the "Mailing Date") to each holder of record of Long
Beach Common Stock as of five Business Days prior to the Mailing Date. Each
Preference Form shall permit the holder through appropriate and customary
documentation and instructions to indicate an irrevocable and binding preference
to receive only Washington Mutual Common Stock with respect to all or a portion
of such holder's Long Beach Common Stock ("Stock Preference Shares") or to
receive the Merger Consideration in cash for all or a portion of such holder's
Long Beach Common Stock ("Cash Preference Shares").
(b) Any Long Beach Common Stock with respect to which the holder (or the
beneficial owner, as the case may be) does not submit to the Exchange Agent (as
defined in Section 3.1), an effective, properly completed Preference Form, on or
before 5:00 p.m., Pacific Time on the 20th day following the Mailing Date (or
such other time and date as Washington Mutual and Long Beach may mutually agree)
(the "Preference Deadline") shall be referred to herein as "No Preference
Shares." Any such preference shall be deemed properly completed only if the
Exchange Agent actually received a properly completed and duly executed
Preference Form and the certificates (or customary affidavits and
indemnification or bond regarding the loss or destruction of such certificates
or the guaranteed delivery of such certificates) evidencing the shares of Long
Beach Common Stock covered by such preference by the Preference Deadline. Once
submitted to the Escrow Agent, each Preference Form shall be irrevocable and
binding upon the person submitting such Preference Form and no changes shall be
permitted thereto. Subject to the terms of this Agreement and of the Preference
Form, the Exchange Agent will have reasonable discretion to determine whether
any expression of a preference has been properly or timely made and to disregard
immaterial defects in the Preference Forms, and any good faith decisions of the
Exchange Agent regarding such matters shall be binding and conclusive. Neither
Long Beach, Washington Mutual nor the Exchange Agent is under any obligation to
notify any person of any defect in a Preference Form.
(c) All No Preference Shares shall be deemed to constitute Stock
Preference Shares for the purpose of determining the form (cash or Washington
Mutual Common Stock) of Merger Consideration to be paid. At the Effective Time,
each Stock Preference Share will be converted into the right to receive that
number of shares of Washington Mutual Common Stock equal to the Exchange Ratio.
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(d) With respect to Stock Preference Shares, Washington Mutual and Long
Beach shall cause the Exchange Agent to convert all Stock Preference Shares into
the right to receive Washington Mutual Common Stock.
(e) If the product of the aggregate number of Cash Preference Shares and
the Merger Consideration exceeds the product of (x) the Merger Consideration and
(y) 48% and (z) the total outstanding shares of Long Beach Common Stock as of
the Effective Time (the "Cash Preference Amount"), all Stock Preference Shares
and all No Preference Shares shall be converted into the right to receive
Washington Mutual Common Stock as specified in Section 2.7(c) above, and the
Cash Preference Shares shall be converted into the right to receive Washington
Mutual Common Stock and cash in the following manner:
each Cash Preference Share shall be converted into the right to receive (A)
an amount in cash, without interest, equal to the product of (1) the Merger
Consideration and (2) a fraction (the "Cash Fraction"), the numerator of
which shall be the Cash Preference Amount and the denominator of which
shall be the product of the total number of Cash Preference Shares and the
Merger Consideration, and (B) a number of shares of Washington Mutual
Common Stock equal to the product of (1) the Exchange Ratio and (2) a
fraction equal to one minus the Cash Fraction.
If the product of the aggregate number of Cash Preference Shares and the
Merger Consideration does not exceed the Cash Preference Amount, then each Cash
Preference Share shall be converted into the right to receive $15.50 in cash.
2.8 Washington Mutual Common Stock; Washington Mutual Preferred Stock. At
and after the Effective Time, each share of Washington Mutual Common Stock and
each share of any preferred stock of Washington Mutual issued and outstanding
immediately prior to the Effective Time shall remain an issued and outstanding
share of common stock or preferred stock, as the case may be, of Washington
Mutual and shall not be affected by the Merger.
2.9 Options. At the Effective Time, each option (vested or unvested)
granted by Long Beach to purchase shares of Long Beach Common Stock (each a
"Long Beach Option") which is outstanding and unexercised immediately prior
thereto shall cease to represent a right to acquire shares of Long Beach Common
Stock and shall be converted automatically into a fully vested option to
purchase shares of Washington Mutual Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of the Long Beach's 1997 Stock Incentive Plan, as amended to date (the "Long
Beach Stock Option Plan"), and the agreements evidencing grants thereunder):
(a) the number of shares of Washington Mutual Common Stock to be subject
to the new option shall be equal to the product of the number of shares of Long
Beach Common Stock subject to the original option and the Exchange Ratio,
provided that any fractional shares of Washington Mutual Common Stock resulting
from such multiplication shall be rounded down to the nearest share; and
(b) the exercise price per share of Washington Mutual Common Stock under
the new option shall be equal to the exercise price per share of Long Beach
Common Stock under the original option divided by the Exchange Ratio, provided
that such exercise price shall be rounded up to the nearest cent.
"Exchange Ratio" shall mean the quotient determined by dividing the Merger
Consideration by the Market Value of the Washington Mutual Common Stock.
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In the case of any options which are "incentive stock options" (as defined
in Section 422 of the Code), the exercise price, the number of shares
purchasable pursuant to such options and the terms and conditions of exercise of
such options shall be determined in order to comply with Section 424(a) of the
Code. The duration and other terms of the new option shall be the same (other
than as to vesting) as the original option except that all references to Long
Beach shall be deemed to be references to Washington Mutual.
2.10 Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of Washington Mutual, as in effect at the Effective Time, shall be
the Articles of Incorporation of the Surviving Company, until thereafter amended
in accordance with applicable law.
2.11 Bylaws. At the Effective Time, the Bylaws of Washington Mutual, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Company until thereafter amended in accordance with applicable law.
2.12 Board of Directors. The directors of Washington Mutual immediately
prior to the Effective Time shall continue to be the directors of the Surviving
Company, each to hold office in accordance with the Articles of Incorporation
and Bylaws of the Surviving Company, until their respective successors are duly
elected or appointed (as the case may be) and qualified.
2.13 Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" as that term is used in
Section 354 of the Code.
2.14 Reservation of Right to Revise Transaction Structure. Washington
Mutual may at any time change the method of effecting the business combination
contemplated by this Agreement if and to the extent that it deems such change to
be desirable, including, without limitation, to provide for a merger of Long
Beach with and into a Subsidiary of Washington Mutual in which such Subsidiary
is the surviving corporation, provided, however, that no such change shall (A)
alter or change the amount or kind of Merger Consideration to be received by
holders of Long Beach Common Stock, or (B) materially and adversely affect (in
the opinion of Washington Mutual's outside tax counsel and Long Beach's outside
tax counsel) the anticipated tax consequences of the Merger to the holders of
Long Beach Common Stock.
2.15 Stock Option Agreement. As an inducement to Washington Mutual to
continue to pursue the transactions contemplated by this Agreement, Long Beach
will grant to Washington Mutual an option pursuant to the Stock Option
Agreement, substantially in the form of Exhibit 2.15 hereto (the "Stock Option
Agreement").
3. EXCHANGE OF SHARES
3.1 Washington Mutual to Make Shares Available. At or prior to the
Effective Time, Washington Mutual shall deposit, or shall cause to be deposited,
with a bank or trust company of recognized standing, or Washington Mutual's
transfer agent (the "Exchange Agent"), for the benefit of the holders of Common
Certificates, for exchange in accordance with this Section 3, certificates
representing the shares of Washington Mutual Common Stock and cash, including an
estimated amount of cash that may be payable in lieu of any fractional shares
(such cash, including the cash payable in lieu of fractional shares of
Washington Mutual Common Stock, and certificates for shares of Washington Mutual
Common Stock, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund") to be issued pursuant to
Section 2.5
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and paid pursuant to Section 3.2(a) in exchange for outstanding shares of Long
Beach Common Stock.
3.2 Exchange of Shares.
(a) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of a Common Certificate or Certificates a
form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Common Certificates shall pass, only
upon delivery of the Common Certificates to the Exchange Agent) and instructions
for use in effecting the surrender of the Common Certificates in exchange for
the Merger Consideration, into which the shares of Long Beach Common Stock
represented by such Common Certificate or Certificates shall have been converted
pursuant to this Agreement. Upon proper surrender of a Common Certificate for
exchange and cancellation to the Exchange Agent, together with such properly
completed letter of transmittal, duly executed, the holder of such Common
Certificate shall be entitled to receive in exchange therefor, as applicable,
(i) a certificate representing that number of shares of Washington Mutual Common
Stock to which such holder of Long Beach Common Stock shall have become entitled
pursuant to the provisions of Section 2 hereof, and (ii) a check representing
the amount of cash (if any) (including cash payable in lieu of fractional shares
of Washington Mutual Common Stock, if any) which such holder has the right to
receive in respect of the Common Certificate surrendered pursuant to the
provisions of this Section 3, and the Common Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on the cash
(including cash payable in lieu of fractional shares).
(b) No dividends or other distributions with a record date after the
Effective Time with respect to Washington Mutual Common Stock shall be paid to
the holder of any unsurrendered Common Certificate entitled to receive shares of
Washington Mutual Common Stock hereunder until the holder thereof shall
surrender such Common Certificate in accordance with this Section 3. After the
surrender of a Common Certificate in accordance with this Section 3, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Washington Mutual Common Stock represented by
such Common Certificate.
(c) If any certificate representing shares of Washington Mutual Common
Stock is to be issued in the name of or cash is to be paid to a person other
than the registered holder of the Common Certificate surrendered in exchange
therefor, it shall be a condition of the issuance thereof that the Common
Certificate so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper form for transfer,
and that the person requesting such exchange shall pay to the Exchange Agent in
advance any transfer or other taxes required by reason of the issuance of a
certificate representing shares of Washington Mutual Common Stock in the name of
and payment of cash to any person other than the registered holder of the Common
Certificate surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Long Beach of the shares of Long Beach Common Stock
which were issued and outstanding immediately prior to the Effective Time. If,
after the Effective Time, Common Certificates representing such shares are
presented for transfer to the Exchange Agent, they shall be cancelled and
exchanged for certificates representing shares of Washington Mutual Common Stock
and payment of cash as provided in this Section 3.
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(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Washington Mutual Common
Stock shall be issued upon the surrender for exchange of Common Certificates, no
dividend or distribution with respect to Washington Mutual Common Stock shall be
payable on or with respect to any fractional share, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a stockholder of Washington Mutual. In lieu of the issuance of any such
fractional share, Washington Mutual shall pay to each former holder of Long
Beach Common Stock who otherwise would be entitled to receive such fractional
share an amount in cash determined by multiplying (i) the Market Value of
Washington Mutual Common Stock as of the date on which the Effective Time occurs
by (ii) the fraction of a share of Washington Mutual Common Stock to which such
holder would otherwise be entitled to receive pursuant to Section 2.5 hereto.
For purposes of determining any such fractional share interests, all shares of
Long Beach Common Stock owned by any Long Beach stockholder shall be combined so
as to calculate the maximum number of shares of Washington Mutual Common Stock
issuable to such holder of Long Beach Common Stock.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Long Beach for twelve months after the Effective Time shall be
paid, at the request of Washington Mutual, to Washington Mutual. Any
stockholders of Long Beach who have not theretofore complied with this Section 3
shall thereafter look only to Washington Mutual for payment of the shares of
Washington Mutual Common Stock, cash (including cash in lieu of any fractional
shares) and unpaid dividends and distributions on the Washington Mutual Common
Stock deliverable in respect of each share of Long Beach Common Stock held by
such stockholder at the Effective Time as determined pursuant to this Agreement,
in each case, without any interest thereon. Notwithstanding anything to the
contrary contained herein, none of Washington Mutual, Long Beach, the Exchange
Agent or any other person shall be liable to any former holder of shares of Long
Beach Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Common Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Common Certificate to be lost, stolen or destroyed and, if required by
Washington Mutual, the posting by such person of a bond in such amount as
Washington Mutual may determine is reasonably necessary as indemnity against any
claim that may be made against it with respect to such Common Stock Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Common Certificate the shares of Washington Mutual Common Stock and cash
(including cash in lieu of fractional shares) deliverable in respect thereof
pursuant to this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF LONG BEACH
Long Beach hereby represents and warrants to Washington Mutual as follows:
4.1 Corporate Organization.
(a) Long Beach is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Long Beach has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification
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necessary, except where the failure to be so licensed or qualified would not
have nor reasonably be expected to have a Material Adverse Effect (as defined
below) on Long Beach. As used in this Agreement, the term "Material Adverse
Effect" means, with respect to Long Beach, a material adverse effect on the
business, results of operations, financial condition or prospects of Long Beach
and its Subsidiaries taken as a whole or a material adverse effect on Long
Beach's ability to consummate the transactions contemplated hereby on a timely
basis; provided, however, that a Material Adverse Effect on Long Beach shall not
be deemed to have occurred as a result of (i) any changes in laws, regulations
or United States generally accepted accounting principles ("GAAP") or (ii) any
changes in general economic conditions affecting mortgage banking businesses or
their holding companies generally. The copies of the Certificate of
Incorporation and Bylaws of Long Beach which have previously been made available
to Washington Mutual are true, complete and correct copies of such documents as
in effect as of the date of this Agreement.
(b) Each Subsidiary of Long Beach (i) is duly organized and validly
existing as a corporation or partnership under the laws of its jurisdiction of
organization, (ii) is duly licensed or qualified to do business and is in good
standing in all jurisdictions (whether federal, state, local or foreign) where
its ownership or leasing of property or the conduct of its business requires it
to be so licensed or qualified and in which the failure to be so qualified would
have or reasonably be expected to have, either individually or in the aggregate,
a Material Adverse Effect on Long Beach, and (iii) has all requisite corporate
power and authority to own or lease its properties and assets and to carry on
its business as now conducted.
4.2 Capitalization.
(a) The authorized capital stock of Long Beach consists of 150,000,000
shares of Long Beach Common Stock and 25,000,000 shares of preferred stock, par
value $.001 per share (the "Long Beach Preferred Stock"). At the close of
business on May 14, 1999, there were 22,609,618 shares of Long Beach Common
Stock outstanding, no shares of Long Beach Preferred Stock outstanding and
2,400,982 shares of Long Beach Common Stock held in Long Beach's treasury. As of
May 14, 1999, no shares of Long Beach Common Stock or Long Beach Preferred Stock
were reserved for issuance, except for 3,750,000 shares of Long Beach Common
Stock reserved for issuance upon the exercise of stock options pursuant to the
Long Beach Stock Option Plan (including 750,000 shares in the Long Beach Stock
Option Plan that are subject to stockholder approval) and 4,477,500 shares of
Long Beach Common Stock reserved for issuance upon exercise of the Option (as
defined in the Stock Option Agreement). All of the issued and outstanding shares
of Long Beach Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of this Agreement,
except (i) as set forth in Section 4.2(a) of the disclosure schedule of Long
Beach delivered to Washington Mutual concurrently herewith (the "Long Beach
Disclosure Schedule"), (ii) as provided in the Long Beach Rights Agreement (a
true and correct copy of which, including all amendments thereto, has been made
available to Washington Mutual), (iii) the Option and (iv) as set forth
elsewhere in this Section 4.2(a), Long Beach does not have and is not bound by
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of Long Beach Common Stock or Long Beach Preferred Stock or any other equity
securities of Long Beach or any securities representing the right to purchase or
otherwise receive any shares of Long Beach Common Stock or Long Beach Preferred
Stock. Except as set forth
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in Section 4.2(a) of the Long Beach Disclosure Schedule, since May 14, 1999,
Long Beach has not issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock, other than
the exercise of employee stock options granted prior to such date and as
disclosed in Section 4.2(a) of the Long Beach Disclosure Schedule.
(b) Section 4.2(b) of the Long Beach Disclosure Schedule lists the name,
jurisdiction of incorporation, authorized and outstanding shares of capital
stock and record and beneficial owners of such capital stock for each Subsidiary
of Long Beach. Except as set forth in Section 4.2(b) of the Long Beach
Disclosure Schedule, Long Beach owns, directly or indirectly, all of the issued
and outstanding shares of capital stock of or all other equity interests in each
of Long Beach's Subsidiaries, free and clear of any liens, charges,
encumbrances, adverse rights or claims and security interests whatsoever
("Liens"), and all of such shares are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. Neither Long Beach nor any
Subsidiary thereof has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase, sale or issuance of any shares of capital stock or any other equity
security of any Subsidiary of Long Beach or any securities representing the
right to purchase or otherwise receive any shares of capital stock or any other
equity security of any such Subsidiary.
(c) Except as disclosed in Section 4.2(c) of the Long Beach Disclosure
Schedule and for the ownership of Long Beach's Subsidiaries, neither Long Beach
nor any of its Subsidiaries beneficially owns or controls, directly or
indirectly, any shares of stock or other equity interest in any depository
institution (as defined in 12 U.S.C. sec.1813(c)), corporation, firm,
partnership, joint venture or other entity.
4.3 Authority; No Violation.
(a) Long Beach has full corporate power and authority to execute and
deliver this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Stock Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly approved
by the Board of Directors of Long Beach. The Board of Directors of Long Beach
has directed that the agreement of merger (within the meaning of Section 252 of
the DGCL) contained in this Agreement and the transactions contemplated hereby
be submitted to Long Beach's stockholders for approval at a meeting of such
stockholders and, except for the adoption of such agreement of merger by the
affirmative vote of the holders of a majority of the voting power represented by
the outstanding shares of Long Beach Common Stock, no other corporate
proceedings on the part of Long Beach are necessary to approve this Agreement or
the Stock Option Agreement or to consummate the transactions contemplated hereby
and thereby. This Agreement and the Stock Option Agreement have been duly and
validly executed and delivered by Long Beach and (assuming due authorization,
execution and delivery by Washington Mutual) each constitutes a valid and
binding obligation of Long Beach, enforceable against Long Beach in accordance
with its terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 4.3(b) of the Long Beach Disclosure
Schedule, neither the execution and delivery of this Agreement or the Stock
Option
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Agreement by Long Beach nor the consummation by Long Beach of the transactions
contemplated hereby or thereby, nor compliance by Long Beach with any of the
terms or provisions hereof or thereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Long Beach or any of the similar
governing documents of any of its Subsidiaries or (ii) assuming that the
consents and approvals referred to in Section 4.4 are duly obtained, (x) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Long Beach or any of its Subsidiaries or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of Long Beach or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Long Beach
or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except (in the case of
clause (y) above) for such violations, conflicts, breaches or defaults which,
either individually or in the aggregate, will not have and would not reasonably
be expected to have a Material Adverse Effect on Long Beach.
4.4 Consents and Approvals. Except for (i) approval of the listing of
Washington Mutual Common Stock to be issued in the Merger on NYSE, (ii) the
filing with the Securities and Exchange Commission (the "SEC") of a proxy
statement in definitive form relating to the meeting of Long Beach's
stockholders to be held to vote on approval of this Agreement and the Merger
(the "Proxy Statement/Prospectus") and the filing and declaration of
effectiveness of the registration statement on Form S-4 (the "S-4") in which the
Proxy Statement/Prospectus will be included as a prospectus and any filings or
approvals under applicable state securities laws, (iii) the filing of the
Articles of Merger with the Washington Secretary pursuant to the WBCA and the
Certificate of Merger with the Delaware Secretary pursuant to the DGCL, (iv) the
adoption of the agreement of merger (within the meaning of Section 252 of the
DGCL) contained in this Agreement by the requisite votes of the stockholders of
Long Beach, (v) the applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (vi) the consents and
approvals set forth in Section 4.4 of the Long Beach Disclosure Schedule, and
(viii) the consents and approvals of third parties which are not Governmental
Entities (as defined below), the failure of which to obtain will not have and
would not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect, no consents or approvals of, or filings or
registrations with, any court, administrative agency or commission or other
governmental authority or instrumentality or self-regulatory organization (each
a "Governmental Entity") or with any third party are necessary in connection
with (A) the execution and delivery by Long Beach of this Agreement and (B) the
consummation by Long Beach of the Merger and the other transactions contemplated
hereby.
4.5 Reports. Long Beach and each of its Subsidiaries have timely filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
May 2, 1997 with any Governmental Entity and have paid all fees and assessments
due and payable in connection therewith. Except for normal examinations
conducted by a Governmental Entity in the regular course of the business of Long
Beach and its Subsidiaries or as set forth in Section 4.5 of the Long Beach
Disclosure Schedule, no Governmental Entity has
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initiated any proceeding or, to the best knowledge of Long Beach, threatened an
investigation into the business or operations of Long Beach or any of its
Subsidiaries since May 2, 1997. Except as set forth in Section 4.5 of the Long
Beach Disclosure Schedule, there is no material unresolved violation, criticism
or exception by any Governmental Entity with respect to any report or statement
relating to any examinations of Long Beach or any of its Subsidiaries.
4.6 Financial Statements. Long Beach has previously made available to
Washington Mutual copies of (a) the consolidated balance sheets of Long Beach
and its Subsidiaries, as of December 31, for the fiscal years 1997 and 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the fiscal years 1996 through 1998, inclusive, as reported in Long
Beach's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
filed with the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in each case accompanied by the audit report of Deloitte &
Touche LLP, independent auditors with respect to Long Beach, and (b) the
unaudited consolidated balance sheets of Long Beach and its Subsidiaries as of
March 31, 1998 and March 31, 1999 and the related unaudited consolidated
statements of operations, stockholders, equity and cash flows for the
three-month periods then ended, as reported in Long Beach's Quarterly Report on
Form 10-Q for the period ended March 31, 1999 filed with the SEC under the
Exchange Act. Each of the financial statements referred to in this Section 4.6
(including the related notes, where applicable) fairly present, and the
financial statements referred to in Section 7.11 hereof (including the related
notes, where applicable) will fairly present (subject, in the case of the
unaudited statements, to normal recurring adjustments, none of which are
expected to be material in nature or amount), the results of the consolidated
operations and changes in stockholders' equity and consolidated financial
position of Long Beach and its Subsidiaries for the respective fiscal periods or
as of the respective dates therein set forth. Each of such financial statements
(including the related notes, where applicable) complies, and the financial
statements referred to in Section 7.11 hereof (including the related notes,
where applicable) will comply, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto and each of such financial statements (including the
related notes, where applicable) has been, and the financial statements referred
to in Section 7.11 (including the related notes, where applicable) will be,
prepared in accordance with GAAP consistently applied during the periods
involved, except in each case as indicated in such statements or in the notes
thereto or, in the case of unaudited statements, as permitted by Form 10-Q. The
books and records of Long Beach and its Subsidiaries have been, and are being,
maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
4.7 Broker's Fees. Except as set forth in Section 4.7 of the Long Beach
Disclosure Schedule, neither Long Beach nor any Subsidiary thereof nor any of
their respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement. Copies
of all agreements with each broker or finder listed in Section 4.7 of the Long
Beach Disclosure Schedule have previously been furnished to Washington Mutual.
4.8 Absence of Certain Changes or Events.
(a) Except as publicly disclosed in the Long Beach Reports (as defined
in Section 4.12) filed prior to the date hereof, or as set forth in Section
4.8(a) of the Long
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Beach Disclosure Schedule, since December 31, 1998, no event has occurred which
has had or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Long Beach.
(b) Except as publicly disclosed in the Long Beach Reports filed prior
to the date hereof, or as set forth in Section 4.8(b) of the Long Beach
Disclosure Schedule, since December 31, 1998, Long Beach and its Subsidiaries
have carried on their respective businesses in all material respects in the
ordinary course of business, and neither Long Beach nor any of its Subsidiaries
has (i) except for normal increases in the ordinary course of business
consistent with past practice and except as required by applicable law,
increased the wages, salaries, compensation, pension or other fringe benefits or
perquisites payable to any officer or director, other than persons newly hired
for or promoted to such position, from the amount thereof in effect as of
December 31, 1998, or granted any severance or termination pay, entered into any
contract to make or grant any severance or termination pay, or paid any bonus,
in each case to any such officer or director, other than pursuant to preexisting
agreements, arrangements or bonus plans, or (ii) suffered any strike, work
stoppage, slow-down or other labor disturbance.
4.9 Legal Proceedings.
(a) Except as set forth in Section 4.9(a) of the Long Beach Disclosure
Schedule, neither Long Beach nor any of its Subsidiaries is a party to any, and
there are no pending or, to the best of Long Beach's knowledge, threatened
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against Long Beach or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement as to which there is a significant
possibility of an adverse determination and which, if adversely determined,
would, individually or in the aggregate, have or reasonably be expected to have
a Material Adverse Effect on Long Beach.
(b) Except as set forth in Section 4.9(b) of the Long Beach Disclosure
Schedule, there is no injunction, order, judgment, decree or regulatory
restriction specifically imposed upon Long Beach, any of its Subsidiaries or the
assets of Long Beach or any of its Subsidiaries which has had, or would
reasonably be expected to have, a Material Adverse Effect on Long Beach or the
Surviving Company.
4.10 Taxes.
(a) Except as set forth in Section 4.10(a) of the Long Beach Disclosure
Schedule: (x) each of Long Beach and its Subsidiaries has (i) duly and timely
filed (including pursuant to applicable extensions granted without penalty) all
material Tax Returns (as hereinafter defined) required to be filed at or prior
to the Effective Time, and such Tax Returns are true, correct and complete in
all material respects, and (ii) paid in full or made adequate provision in the
financial statements of Long Beach (in accordance with GAAP) for all Taxes (as
hereinafter defined) related to such Tax Returns; (y) no material deficiencies
for any Taxes have been proposed, asserted or assessed against or with respect
to Long Beach or any of its Subsidiaries; and (z) there are no material Liens
for Taxes upon the assets of either Long Beach or its Subsidiaries except for
statutory liens for current Taxes not yet due.
(b) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to income, excise, property, sales,
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transfer, franchise, payroll, withholding, social security or other similar
taxes, including any interest or penalties attributable thereto.
(c) For purposes of this Agreement, "Tax Return" shall mean any return,
report, information return or other document (including any related or
supporting information) with respect to Taxes, including without limitation all
information returns relating to Taxes of third parties.
(d) Neither Long Beach nor any of its Subsidiaries has filed a consent
to the application of Section 341(f) of the Code.
4.11 Employees; Employee Benefit Plans.
(a) Section 4.11(a) of the Long Beach Disclosure Schedule sets forth a
true and complete list of each material employee benefit plan, arrangement or
agreement and any amendments or modifications thereof (including, without
limitation, all stock purchase, stock option, severance, employment,
change-in-control, health/welfare and Section 125 plans, fringe benefit, bonus,
incentive, deferred compensation and other agreements, programs, policies and
arrangements, whether or not subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) that is maintained as of the date of this
Agreement (the "Plans") by Long Beach or any of its Subsidiaries or by any trade
or business, whether or not incorporated (an "ERISA Affiliate"), all of which
together with Long Beach would be deemed a "single employer' within the meaning
of Section 4001 of ERISA.
(b) Long Beach has previously made available to Washington Mutual true
and complete copies of each of the Plans and all related documents, including
but not limited to (i) the actuarial reports for each Plan (if applicable) for
each of the last two years, and (ii) the most recent determination letter from
the Internal Revenue Service (if applicable) for each Plan.
(c) Except as set forth in Section 4.11(c) of the Long Beach Disclosure
Schedule, (i) each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not limited
to ERISA and the Code, (ii) each of the Plans intended to be "qualified" within
the meaning of Section 401(a) of the Code has been determined to be so qualified
by the Internal Revenue Service or will be submitted for such determination
within the applicable remedial amendment period, (iii) with respect to each Plan
which is subject to Title IV of ERISA, the present value of accrued benefits
under such Plan, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared by such Plan's actuary with respect
to such Plan, did not, as of its latest valuation date, exceed the then current
value of the assets of such Plan allocable to such accrued benefits, (iv) no
Plan provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of Long
Beach, its Subsidiaries or any ERISA Affiliate beyond their retirement or other
termination of service, other than (w) coverage mandated by applicable law, (x)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits
accrued as liabilities on the books of Long Beach, its Subsidiaries or the ERISA
Affiliates or (z) benefits the full cost of which is borne by the current or
former employee (or his beneficiary), (v) to the best knowledge of Long Beach no
liability under Title IV of ERISA has been incurred by Long Beach, its
Subsidiaries or any ERISA Affiliate that has not been satisfied in full (other
than payment of premiums not yet due to the Pension Benefit Guaranty Corporation
(the "PBGC")), and no
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condition exists that presents a material risk to Long Beach, its Subsidiaries
or any ERISA Affiliate of incurring a material liability thereunder, (vi) no
Plan is a "multi-employer pension plan," as such term is defined in Section
3(37) of ERISA, (vii) to the best knowledge of Long Beach all contributions or
other amounts payable by Long Beach or its Subsidiaries as of the Effective Time
with respect to each Plan in respect of current or prior plan years have been
paid or accrued in accordance with GAAP and Section 412 of the Code, (viii) to
the best knowledge of Long Beach neither Long Beach, its Subsidiaries nor any
ERISA Affiliate has engaged in a transaction in connection with which Long
Beach, its Subsidiaries or any ERISA Affiliate could be subject to either a
material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a
material tax imposed pursuant to Section 4975 or 4976 of the Code, and (ix) to
the best knowledge of Long Beach there are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or against any
of the Plans or any trusts related thereto which would, individually or in the
aggregate, have or be reasonably expected to have a Material Adverse Effect on
Long Beach.
(d) Except as set forth in Section 4.11(d) of the Long Beach Disclosure
Schedule, no Plan exists which provides for or could result in the payment to
any Long Beach employee of any money or other property or rights or accelerate
the vesting or payment of such amounts or rights to any Long Beach employee as a
result of the transactions contemplated by this Agreement, including the Merger,
whether or not such payment or acceleration would constitute a parachute payment
within the meaning of Code Section 280G. Except as set forth in Section 4.11(d)
of the Long Beach Disclosure Schedule, since December 31, 1998, neither Long
Beach nor any of its Subsidiaries has taken any action that would result in the
payment of any amounts, or the accelerated vesting of any rights or benefits,
under any Plan set forth in Section 4.11(d) of the Long Beach Disclosure
Schedule.
(e) To the best knowledge of Long Beach, (i) except as set forth in
Section 4.11(e) of the Long Beach Disclosure Schedule, neither Long Beach nor
any of its Subsidiaries is a party to or is bound by any contract, arrangement
or understanding (whether written or oral) with respect to the employment or
compensation of any (x) consultants receiving in excess of $50,000 annually and
(y) employees, and (ii) except as provided under the Plans set forth in Sections
4.11(d) and (e) of the Long Beach Disclosure Schedule and other agreements or
arrangements set forth in Sections 4.11(d) and (e) of the Long Beach Disclosure
Schedule, consummation of the transactions contemplated by this Agreement will
not (either alone or upon the occurrence of any additional acts or events)
result in any payment (whether of severance pay or otherwise) becoming due from
Long Beach or any Subsidiary to any officer or employee thereof. Long Beach has
previously delivered or made available to Washington Mutual true and complete
copies of all consulting agreements calling for payments in excess of $50,000
annually and employment and deferred compensation agreements (or forms thereof)
that are in writing to which Long Beach or any of its Subsidiaries is a party.
(f) Except as set forth in Section 4.11(f) of the Long Beach Disclosure
Schedule, no current employee of Long Beach or any of its Subsidiaries received
aggregate remuneration (bonus, salary and commission) in excess of $200,000 for
1998 or would reasonably be expected to receive aggregate remuneration
(excluding severance or other payments which, pursuant to an agreement or
arrangement set forth in Section 4.11(e) of the Long Beach Disclosure Schedule,
are made as a result of consummation of the transactions contemplated by this
Agreement, either alone or upon the occurrence of any additional acts or events)
in excess of $200,000 in 1999.
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4.12 SEC Reports. Long Beach has previously made available to Washington
Mutual an accurate and complete copy of each final registration statement,
prospectus, report, schedule and definitive proxy statement filed since January
1, 1997 and prior to the date hereof by Long Beach or any of its Subsidiaries
with the SEC pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act (the "Long Beach Reports"), and no such registration
statement, prospectus, report, schedule or proxy statement contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they were made, not misleading. Long Beach and its
Subsidiaries have timely filed all Long Beach Reports and other documents
required to be filed by them under the Securities Act and the Exchange Act, and,
as of their respective dates, all Long Beach Reports complied in all material
respects with the published rules and regulations of the SEC with respect
thereto.
4.13 Compliance with Applicable Law. Except as disclosed in Section 4.13
of the Long Beach Disclosure Schedule, Long Beach and each of its Subsidiaries
hold, and have at all times held, all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in violation in
any material respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to Long
Beach or any of its Subsidiaries, except where the failure to hold such license,
franchise, permit or authorization or such noncompliance or violation would not,
individually or in the aggregate, have or reasonably be expected to have a
Material Adverse Effect on Long Beach, and neither Long Beach nor any of its
Subsidiaries knows of, or has received notice of, any violations of any of the
above which, individually or in the aggregate, would have or would reasonably be
expected to have a Material Adverse Effect on Long Beach. Set forth in Section
4.13 of the Long Beach Disclosure Schedule is a list of all states where Long
Beach or any of its Subsidiaries holds a consumer finance company, consumer
credit company, mortgage company, banking or similar license or charter,
together with a description of the license or charter held.
4.14 Certain Contracts.
(a) Except as publicly disclosed in the Long Beach Reports filed prior
to the date hereof or as set forth in Section 4.14(a) of the Long Beach
Disclosure Schedule, neither Long Beach nor any of its Subsidiaries is a party
to or is bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) which is a material contract (as defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after the date of this
Agreement, (ii) which limits the freedom of Long Beach or any of its
Subsidiaries to compete in any line of business, in any geographic area or with
any person, or (iii) with or to a labor union or guild (including any collective
bargaining agreement). Each contract, arrangement, commitment or understanding
of the type described in this Section 4.14(a), whether or not publicly disclosed
in the Long Beach Reports filed prior to the date hereof or set forth in Section
4.14(a) of the Long Beach Disclosure Schedule, is referred to herein as a "Long
Beach Contract," and neither Long Beach nor any of its Subsidiaries knows of, or
has received notice of, any violation of the above by any of the other parties
thereto which, individually or in the aggregate, would have or would reasonably
be expected to have a Material Adverse Effect on Long Beach. Long Beach has made
available all contracts which involved payments by Long Beach or any of its
Subsidiaries in fiscal year 1998 of more than $500,000 or which could reasonably
be expected to involve payments during fiscal year 1999 of more than $500,000.
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(b) Except as set forth in Section 4.14(b) of the Long Beach Disclosure
Schedule, each Long Beach Contract is valid and binding and in full force and
effect, (ii) Long Beach and each of its Subsidiaries has in all material
respects performed all obligations required to be performed by it to date under
each Long Beach Contract, and (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, would constitute a
material default on the part of Long Beach or any of its Subsidiaries under any
such Long Beach Contract, except, in each case, where such invalidity, failure
to be binding, failure to so perform or default, individually or in the
aggregate, would not have or reasonably be expected to have a Material Adverse
Effect on Long Beach.
4.15 Agreements with Regulatory Agencies. Except as set forth in Section
4.15 of the Long Beach Disclosure Schedule, neither Long Beach nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has adopted any
board resolutions at the request of (each, whether or not set forth in Section
4.15 of the Long Beach Disclosure Schedule, a "Regulatory Agreement"), any
Governmental Entity that restricts the conduct of its business or that in any
manner relates to its capital adequacy, its credit policies, its management or
its business, nor has Long Beach or any of its Subsidiaries been advised by any
Governmental Entity that it is considering issuing or requesting any Regulatory
Agreement. Long Beach is in full compliance with the settlement agreement dated
September 5, 1996 between Long Beach's predecessor and the United States
Department of Justice.
4.16 Undisclosed Liabilities. Except (i) for those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of Long
Beach included in the Long Beach Form 10-K for the year ended December 31, 1998
or (ii) for liabilities incurred in the ordinary course of business consistent
with past practice since December 31, 1998, neither Long Beach nor any of its
Subsidiaries has incurred any liability of any nature whatsoever (whether
absolute, accrued or contingent or otherwise and whether due or to become due)
that, either alone or when combined with all the liabilities not described in
clause (i) or (ii), has had, or would be reasonably expected to have, a Material
Adverse Effect on Long Beach.
4.17 Rights Agreement; Anti-takeover Provisions. Long Beach has taken all
necessary action so that the entering into of this Agreement, the consummation
of the transactions contemplated hereby, the entering into of the Stock Option
Agreement and the exercise of the Option (as defined therein) do not and will
not result in the grant of any rights to any person under the Long Beach Rights
Agreement or enable or require the Long Beach Rights to be exercised,
distributed or triggered. The Board of Directors of Long Beach has taken all
necessary action so that the provisions of Section 203 of the DGCL (and any
applicable provisions of the takeover laws of any other state) do not and will
not apply to this Agreement, the Merger or the transactions contemplated hereby,
the Stock Option Agreement or the exercise of the Option.
4.18 Long Beach Information. The information relating to Long Beach and
its Subsidiaries to be provided by Long Beach for inclusion in the Proxy
Statement/ Prospectus and the S-4, or in any other document filed with any other
Governmental Entity in connection herewith, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they are made,
not misleading. The Proxy Statement/Prospectus (except for such portions thereof
as relate only to Washington Mutual or any of its
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Subsidiaries) will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
4.19 Title to Property.
(a) Real Property. Section 4.19(a) of the Long Beach Disclosure Schedule
contains a description of all interests in real property (other than real
property security interests received in the ordinary course of business or real
property acquired through foreclosure or deed in lieu thereof of other
realization proceedings ("REO")), whether owned, leased or otherwise claimed,
including a list of all leases of real property, in which Long Beach or any
Subsidiary thereof has or claims in interest as of the date of this Agreement
and any guarantees of any such leases by any of such parties. True and complete
copies of such leases have previously been delivered or made available to
Washington Mutual, together with all amendments, modifications, agreements or
other writings related thereto which are in the possession of Long Beach or any
Subsidiary thereof. Except as disclosed on Section 4.19(a) of the Long Beach
Disclosure Schedule, to the best knowledge of Long Beach, each such lease is
valid and binding as between Long Beach or a Subsidiary thereof and the other
party or parties thereto, and the occupant is a tenant or possessor in good
standing thereunder, free of any default or breach whatsoever (except as
otherwise disclosed on Section 4.19(a) of the Long Beach Disclosure Schedule)
and quietly enjoys the premises provided for therein. Except as disclosed on
Section 4.19(a) of the Long Beach Disclosure Schedule, Long Beach and its
Subsidiaries have owner's policies of title insurance insuring them to be the
owners of all real property owned by them on the date of this Agreement, free
and clear of all mortgages, liens, pledges, charges or encumbrances of any
nature whatsoever, except liens for current taxes not yet due and payable and
other standard exceptions commonly found in title policies in the jurisdiction
where such real property is located, and such encumbrances and imperfections of
title, if any, as do not materially detract from the value of the properties and
do not materially interfere with the present or proposed use of such properties
or otherwise materially impair such operations. All real property and fixtures
material to the business, operations of financial condition of Long Beach and
its Subsidiaries are in substantially good condition and repair.
(b) Personal Property. Long Beach and its Subsidiaries have good, valid
and marketable title to all tangible personal property owned by them on the date
hereof, free and clear of all liens, pledges, charges or encumbrances of any
nature whatsoever except as publicly disclosed in the Long Beach Reports filed
prior to the date hereof or as disclosed on Section 4.19(b) of the Long Beach
Disclosure Schedule. With respect to personal property used in the business of
Long Beach and its Subsidiaries which is leased rather than owned, neither Long
Beach nor any Subsidiary thereof is in default under the terms of any such lease
the loss of which would have a Material Adverse Effect on Long Beach.
4.20 Insurance. Section 4.20 of the Long Beach Disclosure Schedule
contains a true and complete list and a brief description (including name of
insurer, agent, coverage and expiration date) of all insurance policies in force
on the date hereof with respect to the business and assets of the Long Beach and
its Subsidiaries (other than insurance policies under which Long Beach or any
Subsidiary thereof is named as a loss payee, insured or additional insured as a
result of its position as a secured lender on specific Loans and mortgage
insurance policies on specific Loans). Long Beach and its Subsidiaries are in
compliance with all of the material provisions of their insurance policies and
are not in default under any of the material terms thereof. Each such policy is
outstanding and in full force and effect and, except as set forth on Section
4.20 of the Long Beach Disclosure
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Schedule, Long Beach or the relevant Subsidiary thereof is the sole beneficiary
of such policies. All premiums and other payments due under any such policy have
been paid.
4.21 Environmental Liability. Except as set forth in Section 4.21 of the
Long Beach Disclosure Schedule, there are no legal, administrative, arbitral or
other proceedings, claims, actions, causes of action, private environmental
investigations or remediation activities or governmental investigations of any
nature seeking to impose, or that reasonably could be expected to result in the
imposition, on Long Beach or any of its Subsidiaries of any liability or
obligation arising under common law standards relating to environmental
protection, human health or safety, or under any local, state or federal
environmental statute, regulation or ordinance, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (collectively, the "Environmental Laws"), pending or, to the
knowledge of Long Beach, threatened against Long Beach or any of its
Subsidiaries, which liability or obligation would have or would reasonably be
expected to have a Material Adverse Effect on Long Beach. To the knowledge of
Long Beach, there is no reasonable basis for any such proceeding, claim, action
or governmental investigation that would impose any liability or obligation that
would have or would reasonably be expected to have a Material Adverse Effect on
Long Beach. To the knowledge of Long Beach, during or prior to the period of (i)
its or any of its Subsidiaries, ownership or operation of any of their
respective current properties, (ii) its or any of its Subsidiaries,
participation in the management of any property, or (iii) its or any of its
Subsidiaries' holding of a security interest or other interest in any property,
there were no releases or threatened releases of hazardous, toxic, radioactive
or dangerous materials or other materials regulated under Environmental Laws in,
on, under or affecting any such property which would reasonably be expected to
have a Material Adverse Effect on Long Beach. Neither Long Beach nor any of its
Subsidiaries is subject to any agreement, order, judgment, decree, letter or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any material liability or obligation pursuant to or under
any Environmental Law that would have or would reasonably be expected to have a
Material Adverse Effect on Long Beach.
4.22 Opinion of Financial Advisor. Long Beach has received the opinion of
Friedman, Billings, Ramsey & Co., Inc., dated May 18, 1999, to the effect that,
as of such date, the Merger Consideration is fair from a financial point of view
to the holders of Long Beach Common Stock.
4.23 Patents, Trademarks, Etc. Long Beach and each of its Subsidiaries
owns or possesses all legal rights to use all proprietary rights, including
without limitation all trademarks, trade names, service marks and copyrights,
that are material to the conduct of their existing businesses. Except for the
agreements listed on Section 4.23 of the Long Beach Disclosure Schedule, neither
Long Beach nor any of its Subsidiaries is bound by or a party to any options,
licenses or agreements of any kind with respect to any trademarks, service marks
or trade names which it claims to own. Neither Long Beach nor any of its
Subsidiaries has received any communications alleging that any of them has
violated or would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity.
4.24 Loan Matters
(a) All evidences of indebtedness ("Loans") reflected as assets on the
books and records of Long Beach and its Subsidiaries were, as of March 31, 1999
and will be as of the Closing Date, in all respects legal, valid and binding
obligations of the respective obligors named therein and no such indebtedness is
subject to any defenses which have
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been or may be asserted, except for defenses arising from applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
generally and general principles of equity.
(b) Each Loan outstanding at any time since May 2, 1997 and each
commitment to extend credit has been solicited and originated and is
administered and serviced in all material respects in accordance with the
relevant loan documents, Long Beach's underwriting standards and in material
compliance with all applicable requirements of federal, state and local laws,
regulations and rules.
(c) None of the agreements pursuant to which Long Beach or any
Subsidiary has sold Loans or pools of Loans or participations in Loans or pools
of Loans contain any obligation to repurchase such Loans or interests therein
solely on account of a payment default by the obligor on any such Loans (other
than a first payment default). Except as disclosed in Section 4.24(c) of the
Long Beach Disclosure Schedule, neither Long Beach nor any of its Subsidiaries
is in default under any such agreement or has received any notice alleging
default.
(d) All brokers and other third parties who originate or have originated
Loans since May 2, 1997 have all required licenses and approvals from all
jurisdictions requiring licenses and approvals and to the best knowledge of Long
Beach, have complied and are not in violation of any applicable law, regulation,
order, rule, policy or guideline of any Governmental Entity.
(e) Neither Long Beach nor any Long Beach Subsidiary has since May 2,
1997 entered into any agreement, arrangement or commitment to securitize Loans.
(f) Since May 2, 1997, the practices of Long Beach and its Subsidiaries
with respect to compensation paid to mortgage brokers comply with the policy
statement issued by Department of Housing and Urban Development ("HUD") in March
1999.
(g) Long Beach is an approved residential subprime loan servicer by
Standard & Poor's, is an approved FNMA seller/servicer and is licensed as a
non-supervised mortgagee by HUD.
4.25 Year 2000 Compliance. All computer hardware and software owned, used
or licensed by Long Beach or any of its Subsidiaries, including but not limited
to system and application programs, files, databases and computer services, the
failure or disfunctionality of which would individually or in the aggregate have
a Material Adverse Effect on Long Beach, is Year 2000 Compliant. "Year 2000
Compliant" means that such hardware and software will (a) correctly process date
data from at least January 1, 1900 through December 31, 2000 without error or
interruption due to date, (b) maintain functionality with respect to the input,
storing, processing or output of records or data containing dates falling on or
after January 1, 2000, and (c) be interoperable with other Year 2000 compliant
hardware or software owned, used or licensed by Long Beach or any of its
Subsidiaries which may deliver records to, receive records from or otherwise
interact with such hardware or software in the course of processing records or
data.
4.26 Labor Matters. Neither Long Beach nor any of its Subsidiaries is a
party to or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is Long
Beach or any of its Subsidiaries the subject of a proceeding asserting that it
or any such Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel Long Beach or
any such Subsidiary to bargain with any labor
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organization as to wages or conditions of employment, nor is there any strike or
other material labor dispute or disputes involving it or any of its Subsidiaries
pending, or to Long Beach's knowledge, threatened, nor is Long Beach aware of
any activity involving its or any of its Subsidiaries' employees seeking to
certify a collective bargaining unit or engaging in other organizational
activity.
5. REPRESENTATIONS AND WARRANTIES OF WASHINGTON MUTUAL
Washington Mutual hereby represents and warrants to Long Beach as follows:
5.1 Corporate Organization. Washington Mutual is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington. Washington Mutual has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as it is now
being conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have or reasonably be expected to have a
Material Adverse Effect (as defined below) on Washington Mutual. As used in this
Agreement, the term "Material Adverse Effect" means, with respect to Washington
Mutual, a material adverse effect on the business, results of operations,
financial condition or prospects of Washington Mutual and its Subsidiaries taken
as a whole or a material adverse effect on Washington Mutual's ability to
consummate the transactions contemplated hereby on a timely basis; provided,
however, that a Material Adverse Effect on Washington Mutual shall not be deemed
to have occurred as a result of (i) any changes in laws, regulations or GAAP or
(ii) any changes in general economic conditions affecting banks, savings
associations or their holding companies generally. The copies of the Articles of
Incorporation and Bylaws of Washington Mutual which have previously been made
available to Long Beach are true, complete and correct copies of such documents
as in effect as of the date of this Agreement.
5.2 Capitalization. The authorized capital stock of Washington Mutual
consists of 1,600,000,000 shares of Washington Mutual Common Stock and
10,000,000 shares of preferred stock, no par value ("Washington Mutual Preferred
Stock"). At the close of business on April 30, 1999, there were 594,850,100
shares of Washington Mutual Common Stock outstanding and no shares of Washington
Mutual Preferred Stock outstanding. As of April 30, 1999, no shares of
Washington Mutual Common Stock or Washington Mutual Preferred Stock were
reserved for issuance. All of the issued and outstanding shares of Washington
Mutual Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, except (i)
as set forth in Section 5.2(a) of the disclosure schedule of Washington Mutual
delivered to Long Beach concurrently herewith (the "Washington Mutual Disclosure
Schedule"), (ii) as provided in the Rights Agreement, dated as of October 16,
1990, between Washington Mutual and First Interstate Bank of Washington (as
amended and supplemented, the "Washington Mutual Rights Agreement"), and (iii)
as set forth elsewhere in this Section 5.2(a), Washington Mutual does not have
and is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Washington Mutual Common Stock or Washington Mutual Preferred
Stock or any other equity securities of Washington Mutual or any securities
representing the right to purchase or otherwise receive any shares of Washington
Mutual Common Stock or Washington Mutual Preferred Stock. The shares of
Washington
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Mutual Common Stock to be issued pursuant to the Merger will be duly authorized
and validly issued and, at the Effective Time, all such shares will be fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof.
5.3 Authority; No Violation.
(a) Washington Mutual has full corporate power and authority to execute
and deliver this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Stock Option Agreement and the consummation of the
transactions contemplated hereby (including the issuance of the Washington
Mutual Common Stock constituting Merger Consideration) and thereby have been
duly and validly approved by the Board of Directors of Washington Mutual and no
other corporate proceedings on the part of Washington Mutual are necessary to
approve this Agreement or the Stock Option Agreement or to consummate the
transactions contemplated hereby and thereby. This Agreement and the Stock
Option Agreement have been duly and validly executed and delivered by Washington
Mutual and (assuming due authorization, execution and delivery by Long Beach)
each constitutes a valid and binding obligation of Washington Mutual,
enforceable against Washington Mutual in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 5.3(b) of the Washington Mutual
Disclosure Schedule, neither the execution and delivery of this Agreement or the
Stock Option Agreement by Washington Mutual, nor the consummation by Washington
Mutual of the transactions contemplated hereby or thereby, nor compliance by
Washington Mutual with any of the terms or provisions hereof or thereof, will
(i) violate any provision of the Articles of Incorporation or Bylaws of
Washington Mutual or any of the similar governing documents of any of its
Subsidiaries or (ii) assuming that the consents and approvals referred to in
Section 5.4 are duly obtained, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Washington
Mutual or any of its Subsidiaries or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any Lien upon any of
the respective properties or assets of Washington Mutual or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Washington Mutual or any of its Subsidiaries
is a party, or by which they or any of their respective properties or assets may
be bound or affected, except (in the case of clause (y) above) for such
violations, conflicts, breaches or defaults which either individually or in the
aggregate will not have and would not reasonably be expected to have a Material
Adverse Effect on Washington Mutual.
5.4 Consents and Approvals. Except for (i) approval of the listing of the
Washington Mutual Common Stock to be issued in the Merger on the NYSE, (ii) the
filing with the SEC of the Proxy Statement/Prospectus and the filing and
declaration of effectiveness of the S-4, (iii) the filing of the Articles of
Merger with the Washington Secretary pursuant to the WBCA and the Certificate of
Merger with the Delaware Secretary pursuant to the DGCL, (iv) the adoption of
the agreement of merger (within
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the meaning of Section 252 of the DGCL) contained in this Agreement by the
requisite votes of the stockholders of Long Beach, (v) the applicable
requirements of the HSR Act, (vi) the consents and approvals set forth in
Section 5.4 of the Washington Mutual Disclosure Schedule, and (vii) the consents
and approvals of third parties which are not Governmental Entities, the failure
of which to obtain will not have and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect, no consents or
approvals of, or filings or registrations with, any Governmental Entity or any
third party are necessary in connection with (A) the execution and delivery by
Washington Mutual of this Agreement and (B) the consummation by Washington
Mutual of the Merger and the other transactions contemplated hereby.
5.5 Reports. Washington Mutual and each of its Subsidiaries have timely
filed all material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since January 1, 1997 with any Governmental Entities, and have paid all
fees and assessments due and payable in connection therewith. Except as set
forth in Section 5.5 of the Washington Mutual Disclosure Schedule and except for
normal examinations conducted by a Governmental Entity in the regular course of
the business of Washington Mutual and its Subsidiaries, no Governmental Entity
has initiated any proceeding or, to the best knowledge of Washington Mutual,
investigation into the business or operations of Washington Mutual or any of its
Subsidiaries since January 1, 1997. There is no material unresolved violation,
criticism, or exception by any Government Entity with respect to any report or
statement relating to any examinations of Washington Mutual or any of its
Subsidiaries.
5.6 Financial Statements. Washington Mutual has previously made available
to Long Beach copies of (a) the consolidated balance sheets of Washington Mutual
and its Subsidiaries, as of December 31, for the fiscal years 1997 and 1998, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the fiscal years 1996 through 1998, inclusive, as reported in
Washington Mutual's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 filed with the SEC under the Exchange Act, in each case
accompanied by the audit report of Deloitte & Touche, LLP, independent public
accountants with respect to Washington Mutual, and (b) the unaudited
consolidated balance sheets of Washington Mutual and its Subsidiaries as of
March 31, 1998 and March 31, 1999 and the related unaudited consolidated
statements of income, cash flows and changes in stockholders' equity for the
three-month periods then ended, as reported in Washington Mutual's Quarterly
Report on Form 10-Q for the period ended March 31, 1999 filed with the SEC under
the Exchange Act. Each of the financial statements referred to in this Section
5.6 (including the related notes, where applicable) fairly present, and the
financial statements referred to in Section 7.11 hereof (including the related
notes, where applicable) will fairly present (subject, in the case of the
unaudited statements, to normal recurring adjustments, none of which are
expected to be material in nature and amount), the results of the consolidated
operations and changes in stockholders' equity and consolidated financial
position of Washington Mutual and its Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth. Each of such financial
statements (including the related notes, where applicable) complies, and the
financial statements referred to in Section 7.11 hereof (including the related
notes, where applicable) will comply, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto; and each of such financial statements (including the
related notes, where applicable) has been, and the financial statements referred
to in Section 7.11 (including the related notes, where applicable) will be,
prepared in accordance with GAAP consistently applied during
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the periods involved, except in each case as indicated in such statements or in
the notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q. The books and records of Washington Mutual and its Subsidiaries have been,
and are being, maintained in all material respects in accordance with GAAP and
any other applicable legal and accounting requirements and reflect only actual
transactions.
5.7 Broker's Fees. Except as set forth in Section 5.7 of the Washington
Mutual Disclosure Schedule, neither Washington Mutual nor any Subsidiary thereof
nor any of their respective officers or directors has employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with any of the transactions contemplated by this Agreement.
5.8 Absence of Certain Changes or Events. Except as publicly disclosed in
Washington Mutual Reports (as defined in Section 5.10) filed prior to the date
hereof or as set forth in Section 5.8 of the Washington Mutual Disclosure
Schedule, since March 31, 1999, no event has occurred which has had or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Washington Mutual.
5.9 Legal Proceedings.
(a) Neither Washington Mutual nor any of its Subsidiaries is a party to
any, and there are no pending or, to the best of Washington Mutual's knowledge,
threatened legal, administrative, arbitral or other proceedings, claims, actions
or governmental or regulatory investigations of any nature against Washington
Mutual or any of its Subsidiaries or challenging the validity or propriety of
the transactions contemplated by this Agreement as to which there is a
significant possibility of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, have or reasonably be
expected to have a Material Adverse Effect on Washington Mutual.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Washington Mutual, any of its Subsidiaries or the
assets of Washington Mutual or any of its Subsidiaries which has had, or would
reasonably be expected to have, a Material Adverse Effect on Washington Mutual.
5.10 SEC Reports. Washington Mutual has previously made available to Long
Beach an accurate and complete copy of each final registration statement,
prospectus, report, schedule and definitive proxy statement filed since January
1, 1998 and prior to the date hereof by Washington Mutual with the SEC pursuant
to the Securities Act or the Exchange Act (the "Washington Mutual Reports"), and
no such registration statement, prospectus, report, schedule or proxy statement
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Washington Mutual has timely filed all Washington Mutual Reports and
other documents required to be filed by it under the Securities Act and the
Exchange Act, and, as of their respective dates, all Washington Mutual Reports
complied in all material respects with the published rules and regulations of
the SEC with respect thereto.
5.11 Compliance with Applicable Law. Except as disclosed in Section 5.11
of the Washington Mutual Disclosure Schedule, Washington Mutual and each of its
Subsidiaries hold, and have at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with and are
not in default in any material respect under any, applicable law, statute,
order, rule, regulation, policy and/or guideline of any
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Governmental Entity relating to Washington Mutual or any of its Subsidiaries,
except where the failure to hold such license, franchise, permit or
authorization or such noncompliance or default would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect on
Washington Mutual, and neither Washington Mutual nor any of its Subsidiaries
knows of, or has received notice of, any material violations of any of the above
which, individually or in the aggregate, would have or reasonably be expected to
have a Material Adverse Effect on Washington Mutual.
5.12 Agreements with Regulatory Agencies. Except as set forth in Section
5.12 of the Washington Mutual Disclosure Schedule, neither Washington Mutual nor
any of its Subsidiaries is subject to any cease-and-desist or other order issued
by, or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or has adopted any
board resolutions at the request of (each, whether or not set forth in Section
5.12 of the Washington Mutual Disclosure Schedule, a "Washington Mutual
Regulatory Agreement"), any Governmental Entity that restricts the conduct of
its business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has Washington Mutual or any of
its Subsidiaries been advised by any Governmental Entity that it is considering
issuing or requesting any Regulatory Agreement.
5.13 Washington Mutual Information. The information relating to Washington
Mutual and its Subsidiaries to be provided by Washington Mutual to be contained
in the Proxy Statement/Prospectus and the S-4, or in any other document filed
with any other Governmental Entity in connection herewith, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances in which they are
made, not misleading. The Proxy Statement/ Prospectus (except for such portions
thereof that relate only to Long Beach or any of its Subsidiaries) will comply
as to form in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder. The S-4 will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations thereunder.
6. COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Conduct of Businesses Prior to the Effective Time. Except as set forth
in Section 6.1 or 6.2 of the Long Beach Disclosure Schedule, as expressly
contemplated or permitted by this Agreement, or as required by applicable law,
rule or regulation, during the period from the date of this Agreement to the
Effective Time, Long Beach shall, and shall cause each of its Subsidiaries to,
(i) conduct its business in the usual, regular and ordinary course consistent
with past practice, (ii) use reasonable best efforts to maintain and preserve
intact its business organization, employees and advantageous business
relationships and retain the services of its officers and key employees and
(iii) take no action which would reasonably be expected to adversely affect or
delay its ability to obtain any approvals of any Governmental Entity required to
consummate the transactions contemplated hereby or to consummate the
transactions contemplated hereby.
6.2 Long Beach Forbearances. Except as set forth in Section 6.2 of the
Long Beach Disclosure Schedule, as expressly contemplated or permitted by this
Agreement, or as required by applicable law, rule or regulation, during the
period from the date of this
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Agreement to the Effective Time, Long Beach shall not, and shall not permit any
of its Subsidiaries to, without the prior written consent of Washington Mutual:
(a) adjust, split, combine or reclassify any capital stock; set any
record or payment dates for the payment of any dividends or distributions on its
capital stock except in the ordinary and usual course of business consistent
with past practice; make, declare or pay any dividend or make any other
distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital stock, or except
as otherwise permitted by this paragraph (a) grant any stock appreciation rights
or grant any individual, corporation, joint venture or other entity any right to
acquire any shares of its capital stock (except for dividends paid by any of the
wholly owned Subsidiaries of Long Beach to Long Beach or any of its wholly owned
Subsidiaries); or issue any additional shares of capital stock except pursuant
to the exercise of stock options outstanding as of the date hereof;
(b) incur any indebtedness for borrowed money, other than short-term
borrowings pursuant to warehouse and similar credit facilities in effect on the
date of this Agreement or any replacement facilities with commercially
reasonable terms as credit facilities existing as of the date hereof, or sell,
transfer, mortgage, encumber or otherwise dispose of any of its assets or
properties to any individual, corporation or other entity (other than a direct
wholly owned Subsidiary), or cancel, release or assign any indebtedness to any
such person or any claims held by any such person, in each case that is material
to such party, except (i) in the ordinary course of business consistent with
past practice or (ii) as expressly required by the terms of any contracts or
agreements in force at the date of this Agreement and set out in Section 6.2 of
the Long Beach Disclosure Schedule;
(c) make any acquisition or investment, whether by purchase or other
acquisition of stock or other equity interests, by merger, consolidation or
other business combination, or by contributions to capital, or make any property
transfers or material purchases of any property or assets, in or from any other
individual, corporation, joint venture or other entity other than a wholly owned
Subsidiary of Long Beach;
(d) enter into, renew or terminate any contract or agreement, other than
loans made in the ordinary course of business, that calls for aggregate annual
payments of $200,000 and which is not either (i) terminable at will on 60 days
or less notice without payment of a penalty in excess of $50,000 or (ii) has a
term of less than one year; or make any material change in any of its leases or
contracts, other than renewals of contracts or leases for a term of one year or
less without material adverse changes to the terms thereof;
(e) other than general salary increases consistent with past practices
for employees other than executive officers, increase in any material respect
the compensation or fringe benefits of any of its employees or pay any pension
or retirement allowance not required by any existing plan or agreement to any
such employees or become a party to, amend (other than amendments required by
law) or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement or employment agreement with or for the benefit of any
employee or accelerate the vesting of any stock options or other stock-based
compensation;
(f) authorize or permit any of its officers, directors, employees,
representatives or agents (collectively, "Representatives") to directly or
indirectly solicit, initiate or encourage
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any inquiries relating to or that may reasonably be expected to lead to, or the
making of any proposal which constitutes, a Takeover Proposal (as defined
below), or recommend or endorse any Takeover Proposal, or participate in any
discussions or negotiations, or provide third parties with any nonpublic
information, relating to any such Takeover Proposal or otherwise facilitate any
effort or attempt to make or implement a Takeover Proposal; provided, however,
that, at any time prior to the time its stockholders shall have voted to approve
this Agreement and the Merger, Long Beach may, and may authorize and permit its
Representatives to, provide third parties with nonpublic information and
participate in discussions and negotiations with any third party in response to
a Takeover Proposal which was not solicited subsequent to the date hereof, if
Long Beach's Board of Directors, based on the advice of its financial advisers
and outside counsel, has determined in its reasonable good faith judgment that
the failure to do so would constitute a breach of its fiduciary duties. Long
Beach shall (i) advise Washington Mutual orally (within one day) and in writing
(as promptly as practicable) of the receipt after the date hereof of any
Takeover Proposal by it or by any of its Subsidiaries or any of its
Representatives and (ii) unless its Board of Directors, based on the advice of
its financial advisers and outside counsel, has determined in its reasonable
good faith judgment that such action would constitute a breach of its fiduciary
duties, inform Washington Mutual orally and in writing, as promptly as
practicable after the receipt thereof, of the material terms and conditions of
any such Takeover Proposal (including the identity of the party making such
inquiry or proposal) and shall keep Washington Mutual informed of the status
(including any changes in the material terms and conditions) thereof. Long Beach
shall not furnish any nonpublic information to any other party pursuant to this
Section 6.2(f) except pursuant to the terms of a confidentiality agreement
containing terms substantially identical to the terms contained in the
Confidentiality Agreement (as defined in Section 7.2(b) hereof). Long Beach will
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of this Agreement with any parties
other than Washington Mutual with respect to any Takeover Proposal and require
the return (or if permitted by the terms of the applicable confidentiality
agreement, the certified destruction) of all confidential information previously
provided to such parties. As used in this Agreement, "Takeover Proposal" shall
mean any inquiry, proposal or offer relating to any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving
Long Beach or any of its Subsidiaries or the acquisition in any manner of 25% or
more of the voting stock or equity, or a substantial portion of the assets, of
Long Beach or any of its Subsidiaries, other than the transactions contemplated
by this Agreement;
(g) make any capital expenditures in excess of (A) $200,000 per project
or related series of projects or (B) $400,000 in the aggregate, other than
expenditures necessary to maintain existing assets in good repair;
(h) except in the ordinary course of business, make application for the
opening, relocation or closing of any, or open, relocate or close any, office or
loan production or servicing facility;
(i) make or acquire any loan or issue a commitment for any loan except
for loans and commitments that are made in the ordinary course of business
consistent with past practice, or agree to guarantee the obligations of any
other persons;
(j) except as otherwise expressly permitted elsewhere in this Section
6.2, engage or participate in any material transaction or incur or sustain any
material obligation not in the ordinary course of business;
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(k) except as otherwise expressly permitted hereby, foreclose upon or
otherwise acquire (whether by deed in lieu of foreclosure or otherwise) any real
property (other than 1-to-4 family residential properties in the ordinary course
of business);
(l) settle any claim, action or proceeding involving monetary damages,
except in the ordinary course of business consistent with past practice, or
agree or consent to the issuance of any injunction, decree, order or judgment
restricting its business or operations;
(m) amend its certificate of incorporation, bylaws or similar governing
documents or the Long Beach Rights Agreement, or redeem or agree to redeem the
Long Beach Rights;
(n) except in the ordinary course of business consistent with past
practice, materially change its investment securities portfolio policy, or the
manner in which the portfolio is classified or reported;
(o) make any material changes in its policies and practices with respect
to (i) underwriting, pricing, originating, acquiring, selling, servicing, or
buying or selling rights to service loans or (ii) hedging its loan positions or
commitments;
(p) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions to the Merger set forth in Section 8
not being satisfied or in a violation of any provision of this Agreement,
except, in every case, as may be required by applicable law;
(q) make any changes in its accounting methods, practices or policies,
except as may be required under law, rule, regulation or GAAP, in each case as
concurred in by Long Beach's independent public accountants;
(r) enter into any securitizations of any loans; or
(s) agree to, or make any commitment to, take any of the actions
prohibited by this Section 6.2.
6.3 No Fundamental Washington Mutual Changes. Except as expressly
contemplated or permitted by this Agreement and except for amendments to its
articles of incorporation approved at its annual meeting of shareholders held on
April 20, 1999, or as required by applicable law, rule or regulation, during the
period from the date of this Agreement to the Effective Time, Washington Mutual
shall not, without the prior written consent of Long Beach, amend its articles
of incorporation or bylaws in a manner that would materially and adversely
affect the economic benefits of the Merger to the holders of Long Beach Common
Stock, or agree to, or make any commitment to, take any such action.
7. ADDITIONAL AGREEMENTS
7.1 Regulatory Matters.
(a) Washington Mutual and Long Beach shall promptly prepare and file
with the SEC the Proxy Statement/Prospectus and the S-4, in which the Proxy
Statement/ Prospectus will be included as a prospectus. Each of Washington
Mutual and Long Beach shall use all reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such filing,
and Long Beach shall thereafter mail the Proxy Statement/Prospectus to its
stockholders.
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(b) Subject to the other provisions of this Agreement, the parties
hereto shall cooperate with each other and use reasonable best efforts to
promptly prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to consummate
the transactions contemplated by this Agreement (including without limitation
the Merger) and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such third parties and
Governmental Entities.
(c) Washington Mutual and Long Beach shall, upon request, furnish each
other with all information concerning themselves, their Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement/Prospectus, the S-4 or any
other statement, filing, notice or application made by or on behalf of
Washington Mutual, Long Beach or any of their respective Subsidiaries to any
Governmental Entity in connection with the merger and the other transactions
contemplated by this Agreement.
(d) Washington Mutual and Long Beach shall promptly advise each other
upon receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval (as defined in Section 8.1(c)
below) will not be obtained or that the receipt of any such approval will be
materially delayed.
7.2 Access to Information.
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, Long Beach shall, and shall cause each of its
Subsidiaries to, afford to the officers, employees, accountants, counsel and
other Representatives of Washington Mutual access, during normal business hours
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records, and to its officers, employees, accountants,
counsel and other representatives and, during such period, Long Beach shall, and
shall cause its Subsidiaries to, make available to Washington Mutual (i) a copy
of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of Federal
securities laws or Federal or state banking, mortgage lending, real estate or
consumer finance or protection laws (other than reports or documents which Long
Beach is not permitted to disclose under applicable law) and (ii) all other
information concerning its business, properties and personnel as such other
party may reasonably request. Neither Long Beach nor any of its Subsidiaries
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of its customers,
jeopardize the attorney-client privilege of the institution in possession or
control of such information or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) Washington Mutual shall hold all information furnished by Long Beach
or any of its Subsidiaries or representatives pursuant to Section 7.2(a) in
confidence to the extent required by, and in accordance with, the provisions of
the Confidentiality Agreement, dated November 3, 1998, between Washington Mutual
and Long Beach (the "Confidentiality Agreement").
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(c) During the 30-day period prior to the Closing and from time to time
after the date of this Agreement upon Long Beach's reasonable request, Long
Beach and its Representatives shall have a reasonable opportunity to conduct an
update of their due diligence review of Washington Mutual and its Subsidiaries.
In order to permit such due diligence update, upon reasonable notice and subject
to applicable laws relating to the exchange of information, Washington Mutual
shall afford Long Beach and its Representatives reasonable access, during normal
business hours during such 30-day period, to all its properties, books,
contracts and records relating to the assets, stock ownership, properties,
obligations, operations and liabilities of Washington Mutual and its
Subsidiaries in which Long Beach may have a reasonable interest. Washington
Mutual and its Subsidiaries shall not be required to provide access to or
disclose information where such access or disclosure would violate or prejudice
the rights of its customers, jeopardize the attorney-client privilege of
Washington Mutual or any of its Subsidiaries or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(d) No investigation by either of the parties or their respective
Representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
7.3 Stockholder Approval. Long Beach shall duly call, give notice of,
convene and hold a meeting of its stockholders to be held as soon as practicable
following the date hereof for the purpose of obtaining the requisite stockholder
approval required in connection with this Agreement and the Merger. Long Beach
shall, through its Board of Directors, recommend to its stockholders approval of
the Merger; provided, however, that this Section 7.3 shall not prohibit accurate
disclosure by Long Beach of information that is required in the Proxy
Statement/Prospectus or any other document required to be filed with the SEC
(including without limitation a disclosure statement on Schedule 14D-9) or
otherwise required by applicable law or regulation or the rules of The Nasdaq
Stock Market to be publicly disclosed.
7.4 Legal Conditions to Merger.
(a) Subject to the terms and conditions of this Agreement, each of
Washington Mutual and Long Beach shall, and shall cause its Subsidiaries to, use
their reasonable best efforts (i) to take, or cause to be taken, all actions
necessary, proper or advisable to comply promptly with all legal requirements
which may be imposed on such party or its Subsidiaries with respect to the
Merger and, subject to the conditions set forth in Section 8 hereof, to
consummate the transactions contemplated by this Agreement and (ii) to obtain
(and to cooperate with the other party to obtain) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity and any other
third party which is required to be obtained by Long Beach or Washington Mutual
or any of their respective Subsidiaries in connection with the Merger and the
other transactions contemplated by this Agreement.
(b) Subject to the terms and conditions of this Agreement, each of
Washington Mutual and Long Beach agrees to use reasonable best efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated
hereby, including, without limitation, using reasonable best efforts to (i)
modify or amend any contracts, plans or arrangements to which Washington
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Mutual or Long Beach is a party (to the extent permitted by the terms thereof)
if necessary in order to satisfy the conditions to closing set forth in Section
8 hereof, (ii) lift or rescind any injunction or restraining order or other
order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, and (iii) defend any litigation seeking to
enjoin, prevent or delay the consummation of the transactions contemplated
hereby or seeking material damages.
7.5 Affiliates. Long Beach shall use its reasonable best efforts to cause
each director, executive officer and other person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act) of Long Beach to deliver to
Washington Mutual, as soon as practicable after the date of this Agreement, and
in any event prior to the date of the stockholders meeting called by Long Beach
pursuant to Section 7.3 hereof, a written agreement, in the form and substance
reasonably satisfactory to Washington Mutual, relating to required transfer
restrictions on the Washington Mutual Common Stock received by them in the
Merger.
7.6 Stock Exchange Listing. Washington Mutual shall use its best efforts
to cause the shares of Washington Mutual Common Stock to be issued in the Merger
to be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Effective Time.
7.7 Employees; Employee Benefit Plans.
(a) Washington Mutual shall, from and after the Effective Time, (i)
comply with the Plans in accordance with their terms, (ii) provide former
employees of Long Beach and its Subsidiaries who remain as employees of
Washington Mutual or its Subsidiaries credit for years of service with Long
Beach or any of its Subsidiaries (and their predecessors) prior to the Effective
Time for the purpose of eligibility and vesting and (iii) cause any and all
pre-existing condition limitations (to the extent such limitations did not apply
to a pre-existing condition under comparable Plans) and eligibility waiting
periods under group health plans of Washington Mutual to be waived with respect
to former employees of Long Beach who remain as employees of Washington Mutual
or its Subsidiaries (and their eligible dependents) and who become participants
in such group health plans. Nothing in this Section 7.7 shall be interpreted as
preventing Washington Mutual or its Subsidiaries from amending, modifying or
terminating any Plans or other contracts, arrangements, commitments or
understandings, in a manner consistent with their terms and applicable law.
(b) Long Beach agrees to amend its 401(k) plan prior to the Effective
Time so that participant loans are no longer available.
(c) If it is necessary under the Skadden, Arps, Slate, Meagher & Flom
LLP, SEC No-Action Letter, Fed. Sec. L. Rep. (CCH) para. 77,515 (Jan. 12, 1999),
for Washington Mutual's Board of Directors to approve the Merger to permit the
acquisition of Washington Mutual Common Stock and options to purchase Washington
Mutual Common Stock by directors, officers or employees of Long Beach who become
directors or officers of Washington Mutual following the Effective Time to be
exempt from Section 16(b) of the Exchange Act pursuant to Rule 16b-3(d), then
Washington Mutual's Board of Directors shall adopt appropriate resolutions prior
to the Effective Time.
7.8 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, in the event of any threatened or
actual claim, action, suit, proceeding or investigation, whether civil, criminal
or administrative,
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including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Time, a
director, officer or employee of Long Beach or any of its Subsidiaries (the
"Indemnified Parties") is, or is threatened to be, made a party based in whole
or in part on, or arising in whole or in part out of, or pertaining to (i) the
fact that he is or was a director, officer or employee of Long Beach, any of its
Subsidiaries or any of their respective predecessors or was prior to the
Effective Time serving at the request of any such party as a director, officer,
employee, fiduciary or agent of another corporation, partnership, trust or other
enterprise or (ii) this Agreement, or any of the transactions contemplated
hereby and all actions taken by an Indemnified Party in connection herewith,
whether in any case asserted or arising before or after the Effective Time, the
parties hereto agree to cooperate and use their best efforts to defend against
and respond to such proceedings to the extent set forth in the next sentence. It
is understood and agreed that after the Effective Time, Washington Mutual shall
indemnify and hold harmless, as and to the fullest extent permitted by the
corporate governance documents of Long Beach or its Subsidiaries as of the date
hereof and by law, each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorneys' fees and
expenses in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Parry to the fullest extent permitted by law
upon receipt of an undertaking from such Indemnified Party to repay such
advanced expenses if it is finally and unappealably determined that such
Indemnified Party was not entitled to indemnification hereunder), judgments,
fines and amounts paid in settlement in connection with any such threatened or
actual claim, action, suit, proceeding or investigation, and in the event of any
such threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time) (collectively,
"Claims"), the Indemnified Parties may retain counsel reasonably satisfactory to
them after consultation with Washington Mutual; provided, however, that (1)
Washington Mutual shall have the right to assume the defense thereof and upon
such assumption Washington Mutual shall not be liable to any Indemnified Party
for any legal expenses of other counsel or any other expenses subsequently
incurred by any Indemnified Party in connection with the defense thereof, except
that if Washington Mutual elects not to assume such defense or counsel for the
Indemnified Parties reasonably advises the Indemnified Parties that there are or
may be (whether or not any have yet actually arisen) issues which raise
conflicts of interest between Washington Mutual and the Indemnified Parties, the
Indemnified Parties may retain counsel reasonably satisfactory to them, and
Washington Mutual shall pay the reasonable fees and expenses of such counsel for
the Indemnified Parties, (2) Washington Mutual shall be obligated pursuant to
this paragraph to pay for only one firm of counsel for all Indemnified Parties,
(3) Washington Mutual shall not be liable for any settlement effected without
its prior written consent (which consent shall not be unreasonably withheld) and
(4) Washington Mutual shall have no obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final and nonappealable, that
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by the corporate governance documents of Long Beach or its
Subsidiaries or applicable law. Any Indemnified Party wishing to claim
indemnification under this Section 7.8, upon learning of any such claim, action,
suit, proceeding or investigation, shall notify Washington Mutual thereof,
provided that the failure to so notify shall not affect the obligations of
Washington Mutual under this Section 7.8 except (and only) to the extent such
failure to notify materially prejudices Washington Mutual.
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(b) Without limiting any of the obligations under paragraph (a) of this
Section 7.8, Washington Mutual agrees that all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Parties as
provided in Long Beach's Certificate of Incorporation or Bylaws or in the
similar governing documents of any of Long Beach's Subsidiaries as in effect as
of the date of this Agreement with respect to matters occurring on or prior to
the Effective Time shall survive the Merger and shall continue in full force and
effect thereafter, without any amendment thereto; provided, however, that
nothing contained in this Section 7.8(b) shall be deemed to preclude the
liquidation, consolidation or merger of Long Beach or any Subsidiary thereof, in
which case all of such rights to indemnification and limitations on liability
shall be deemed to so survive and continue notwithstanding any such liquidation,
consolidation or merger and shall constitute rights which may be asserted
against Washington Mutual. Nothing contained in this Section 7.8(b) shall be
deemed to preclude any rights to indemnification or limitations on liability
provided in Long Beach's Certificate of Incorporation or Bylaws or the similar
governing documents of any of Washington Mutual's Subsidiaries with respect to
matters occurring subsequent to the Effective Time to the extent that the
provisions establishing such rights or limitations are not otherwise amended to
the contrary.
(c) Washington Mutual shall use its best efforts to cause the persons
serving as officers and directors of Long Beach immediately prior to the
Effective Time to be covered for a period of six (6) years from the Effective
Date by the directors' and officers' liability insurance policy maintained by
Long Beach (provided that Washington Mutual may substitute therefor policies of
at least the same coverage and amounts containing terms and conditions which are
not less advantageous to such directors and officers of Long Beach than the
terms and conditions of such existing policy and provided further that in no
event will Washington Mutual be required to expend in any one year an amount in
excess of 200% of the annual premiums currently paid by Long Beach for such
insurance) with respect to acts or omissions occurring prior to the Effective
Time which were committed by such officers and directors in their capacity as
such.
(d) The provisions of this Section 7.8 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
7.9 Additional Agreements. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement (including, without limitation, any merger between a Subsidiary of
Washington Mutual and a Subsidiary of Long Beach) or to vest the Surviving
Company with full title to all properties, assets, rights, approvals, immunities
and franchises of any of the parties to the Merger, the proper officers and
directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by
Washington Mutual.
7.10 Advice of Changes. Washington Mutual and Long Beach shall promptly
advise the other party of any change or event which, individually or in the
aggregate with other such changes or events, has a Material Adverse Effect on it
or which it believes would or would be reasonably likely to cause or constitute
a material breach of any of its representations, warranties or covenants
contained herein.
7.11 Subsequent Interim and Annual Financial Statements.
(a) As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter (other than the fourth quarter of a fiscal
year) or 90 days after the end of each fiscal year ending after the date of this
Agreement, each party will deliver
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to the other party its Quarterly Report on Form 10-Q or its Annual Report on
Form 10-K, as the case may be, as filed with the SEC under the Exchange Act.
(b) As soon as reasonably practicable and as soon as they are available,
but in no event more than 30 days, after the end of each calendar month ending
after the date of this Agreement, Long Beach shall furnish to Washington Mutual
(i) consolidated and consolidating financial statements (including balance
sheet, statement of operations and stockholders' equity) of Long Beach and each
of its Subsidiaries as of and for such month then ended, (ii) servicing reports
regarding cash flows, delinquencies and foreclosures on asset pools serviced or
master serviced by Long Beach or any of its Subsidiaries, and (iii) any internal
management reports relating to the foregoing. All information furnished by Long
Beach to Washington Mutual pursuant to this Section 7.11(b) shall be held in
confidence by Washington Mutual to the extent required by, and in accordance
with, the provisions of the Confidentiality Agreement.
8. CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. The agreement of merger contained in this
Agreement shall have been approved and adopted by the requisite affirmative vote
of the stockholders of Long Beach entitled to vote thereon.
(b) NYSE Listing. The shares of Washington Mutual Common Stock which
shall be issued to the stockholders of Long Beach upon consummation of the
Merger shall have been authorized for listing on the NYSE, subject to official
notice of issuance.
(c) Other Approvals. All regulatory approvals required to consummate the
transactions contemplated hereby shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof,
including under the HSR Act, shall have expired or been terminated (all such
approvals and the expiration or termination of all such waiting periods being
referred to herein as the "Requisite Regulatory Approvals").
(d) S-4 Effectiveness. The S-4 shall have become effective under the
Securities Act, no stop order suspending the effectiveness of the S-4 shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger or any of the other transactions contemplated by this Agreement shall be
in effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits or makes illegal the consummation of the Merger.
(f) Federal Tax Opinion. Washington Mutual and Long Beach shall have
received an opinion, dated as of the Effective Date, of Foster Pepper &
Shefelman PLLC in a form and substance reasonably satisfactory to Washington
Mutual and Long Beach with respect to federal income tax laws substantially to
the effect set forth in Annex A hereto.
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8.2 Conditions to Obligations of Washington Mutual. The obligations of
Washington Mutual to effect the Merger are also subject to the satisfaction or
waiver by Washington Mutual at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Long Beach set forth in this Agreement shall be true and correct in all
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date; provided, however, that for
purposes of determining the satisfaction of this condition, no effect shall be
given to any exception in such representations and warranties relating to
materiality or a Material Adverse Effect, and provided, further, that, for
purposes of this condition, such representations and warranties (other than the
representations and warranties contained in Section 4.2(a), which shall be true
and correct in all material respects) shall be deemed to be true and correct in
all respects unless the failure or failures of such representations and
warranties to be so true and correct, individually or in the aggregate, results
or would reasonably be expected to result in a Material Adverse Effect on Long
Beach and its Subsidiaries taken as a whole. Washington Mutual shall have
received a certificate signed on behalf of Long Beach by the Chief Executive
Officer and Chief Financial Officer of Long Beach to the foregoing effect.
(b) Performance of Obligations of Long Beach. Long Beach shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Washington Mutual
shall have received a certificate signed on behalf of Long Beach by the Chief
Executive Officer and the Chief Financial Officer of Long Beach to such effect.
(c) Long Beach Rights Agreement. The Long Beach Rights issued pursuant
to the Long Beach Rights Agreement shall not have become nonredeemable,
exercisable, distributed or triggered pursuant to the terms of such agreement.
(d) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the transactions contemplated by this Agreement, by any
Governmental Entity, in connection with the grant of a Requisite Regulatory
Approval or otherwise, which imposes any restriction or condition which would be
reasonably likely to have or result in a Material Adverse Effect on Long Beach,
the Surviving Company or Washington Mutual or prevent Washington Mutual from
realizing substantially all of the contemplated benefits of the transactions
contemplated by this Agreement.
(e) Director Resignations. Washington Mutual shall have received
resignations from each director of Long Beach and each of its Subsidiaries,
except to the extent otherwise requested by Washington Mutual.
(f) Employment Agreements. Each of the employment agreements entered
into at the date of this Agreement between Washington Mutual and the Long Beach
executives set forth on Annex B shall be in full force and effect and there
shall have been no default by any employee thereunder.
(g) Noncompetition Agreements. Each of the noncompetition agreements
entered into at the date of this Agreement between Washington Mutual and the
Long Beach executives set forth on Annex C shall be in full force and effect and
there shall have been no default by any employee thereunder.
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8.3 Conditions to Obligations of Long Beach. The obligation of Long Beach
to effect the Merger is also subject to the satisfaction or waiver by Long Beach
at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Washington Mutual set forth in this Agreement shall be true and correct in
all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date; provided, however, that for
purposes of determining the satisfaction of this condition, no effect shall be
given to any exception in such representations and warranties relating to
materiality or a Material Adverse Effect, and provided, further, that, for
purposes of this condition, such representations and warranties shall be deemed
to be true and correct in all respects unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, results or would reasonably be expected to result in a Material
Adverse Effect on Washington Mutual and its Subsidiaries taken as a whole. Long
Beach shall have received a certificate signed on behalf of Washington Mutual by
the chief Executive Officer and the Chief Financial Officer of Washington Mutual
to the foregoing effect.
(b) Performance of Obligations of Washington Mutual. Washington Mutual
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Long
Beach shall have received a certificate signed on behalf of Washington Mutual by
the Chief Executive Officer and the Chief Financial Officer of Washington Mutual
to such effect.
9. TERMINATION AND AMENDMENT
9.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time:
(a) by mutual consent of Washington Mutual and Long Beach in a written
instrument, if the Board of Directors of each so determines;
(b) by either Washington Mutual or Long Beach if (i) any Governmental
Entity which must grant a Requisite Regulatory Approval has denied approval of
the Merger and such denial has become final and nonappealable or (ii) any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement;
(c) by either Washington Mutual or Long Beach if the Effective Time
shall not have occurred on or before December 31, 1999, unless the failure of
the Effective Time to occur by such date shall be due to the failure of the
party seeking to terminate this Agreement to perform or observe the covenants
and agreements of such party set forth herein; provided, however, if the failure
of the Effective Time to occur by December 31, 1999 is solely due to the failure
to satisfy the condition set forth in Section 8.1(c), then the termination right
set forth in this Section 9.1(c) shall not be exercisable until March 31, 2000;
(d) by either Washington Mutual or Long Beach (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if the other party shall
have breached (i) any of the covenants or agreements made by such other party
herein or (ii) any of the representations or warranties made by such other party
herein, and in either case, such breach (x) is not cured within 30 days
following written notice to the party committing such breach, or
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which breach, by its nature, cannot be cured prior to the Closing and (y) would
entitle the non-breaching party not to consummate the transactions contemplated
hereby under Section 8 hereof;
(e) by either Washington Mutual or Long Beach if any approval of the
stockholders of Long Beach contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly held
meeting of stockholders or at any adjournment or postponement thereof;
(f) by the Board of Directors of Washington Mutual, if the Board of
Directors of Long Beach shall have withdrawn, modified or changed in a manner
adverse to Washington Mutual its approval or recommendation of this Agreement
and the transactions contemplated hereby or if a Change of Control (as defined
below) of Long Beach shall have occurred;
(g) by the Board of Directors of Washington Mutual if a tender offer or
exchange offer for 25% or more of the outstanding shares of Long Beach Common
Stock is commenced (other than by Washington Mutual or a Subsidiary thereof),
and the Board of Directors of Long Beach recommends that the stockholders of
Long Beach tender their shares in such tender or exchange offer or otherwise
fails to recommend that such stockholders reject such tender offer or exchange
offer within 10 Business Days after the commencement thereof (which, in the case
of an exchange offer, shall be the effective date of the registration statement
relating to such exchange offer);
(h) by the Board of Directors of Long Beach prior to the date on which
the stockholders of Long Beach shall have voted to approve this Agreement and
the Merger, if (i) any person or entity shall have made (and shall not have
withdrawn) a Takeover Proposal that is determined by the Long Beach Board of
Directors to constitute a Superior Proposal (as defined below), and (ii) the
Long Beach Board of Directors determines in its good faith reasonable judgment,
based upon the advice of outside counsel, that failure to terminate this
Agreement in order to accept the Superior Proposal would constitute a breach of
fiduciary duty; provided, however, that Long Beach may not terminate this
Agreement pursuant to this Section 9.1(h) unless it has given Washington Mutual
10 Business Days prior written notice of its intention to so terminate this
Agreement (which notice must specify all material terms and conditions of such
Superior Proposal and the identity of the person or persons (or entity or
entities, as the case may be) making such Superior Proposal) and has offered
Washington Mutual the opportunity to amend the terms and conditions of this
Agreement so that the failure of the Long Beach Board of Directors to terminate
this Agreement, as so amended, in order to accept the Superior Proposal would
not constitute a breach of fiduciary duty; and provided, further, that the Long
Beach Board of Directors may not terminate this Agreement pursuant to this
Section 9.1(h) unless simultaneously with such termination Long Beach pays to
Washington Mutual the amount specified in Section 9.2(b) and enters into a
definitive acquisition, merger or similar agreement to effect and consummate
such Superior Proposal with the person or entity making such Superior Proposal.
For purposes of this Agreement, (i) a "Superior Proposal" shall mean any
bona fide Takeover Proposal made by an unaffiliated third party that the Long
Beach Board of Directors determines in its good faith reasonable judgment (based
on the advice of an independent financial advisor) represents superior value to
the holders of Long Beach Common Stock than the transactions contemplated by
this Agreement and for which any required financing is either committed or is,
in the good faith reasonable judgment of Long Beach's Board of Directors (based
on the advice of such independent financial advisor),
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reasonably capable of being obtained on a timely basis by the person making such
Takeover Proposal; and (ii) a "Change of Control" shall mean the acquisition,
directly or indirectly, by any person or entity, together with its affiliates
(as defined in Rule 12b-2 under the Exchange Act), or any other group (as
defined in Section 13(d) of the Exchange Act), including through the formation
of any such group or the affiliation of any such persons or entities, of, or of
the right to acquire or direct the exercise of, 30% or more of the voting power
of the capital stock of Long Beach entitled to approve this Agreement and the
Merger or to elect directors of Long Beach; or
(i) by Washington Mutual if a Subsequent Triggering Event (as defined in
the Stock Option Agreement) has occurred.
9.2 Effect of Termination
(a) In the event of termination of this Agreement by either Washington
Mutual or Long Beach as provided in Section 9.1, this Agreement shall forthwith
become void and have no effect, and none of Washington Mutual, Long Beach, any
of their respective Subsidiaries or any of the officers or directors of any of
them shall have any liability of any nature whatsoever hereunder, or in
connection with the transactions contemplated hereby, except that (i) Sections
7.2(b), 9.2, and 10.2 shall survive any termination of this Agreement and (ii)
notwithstanding anything to the contrary contained in this Agreement, neither
Washington Mutual nor Long Beach shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
(b) If this Agreement is terminated (A) by Washington Mutual pursuant to
Section 9.1(f) or (g), (B) by Washington Mutual or Long Beach pursuant to
Section 9.1(e) because of a failure to obtain the required approval of the
stockholders of Long Beach after a Takeover Proposal for Long Beach shall have
been publicly disclosed, or any person or entity shall have publicly disclosed
an intention (whether or not conditional) to make a Takeover Proposal, (C) by
Long Beach pursuant to Section 9.1(h), (D) by Washington Mutual pursuant to
Section 9.1(i) or (E) by Washington Mutual pursuant to Section 9.1(d) if the
breach giving rise to such termination was willful and, at or prior to such
termination, a Takeover Proposal shall have been made known to Long Beach or any
of its Subsidiaries or shall have been publicly disclosed to Long Beach's
stockholders, or any person or entity shall have made known to Long Beach or any
of its Subsidiaries or otherwise publicly disclosed an intention (whether or not
conditional) to make a Takeover Proposal, and regardless of whether such
Takeover Proposal shall have been rejected by Long Beach or withdrawn prior to
the time of such termination, then in any such case Long Beach shall pay to
Washington Mutual a termination fee of $15 million. Washington Mutual shall not
be entitled to a termination fee if Washington Mutual has exercised all or any
part of the Option.
(c) Any termination fee that becomes payable pursuant to Section 9.1(b)
shall be paid by wire transfer of immediately available funds to an account
designated by Washington Mutual within one Business Day following the
termination of this Agreement, except that any termination fee that is payable
as a result of the termination of this Agreement pursuant to Section 9.1(h) or
Section 9.1(i) shall be paid simultaneously with such termination.
Notwithstanding the foregoing, in no event shall Long Beach be obligated to pay
any such fees to Washington Mutual if immediately prior to the termination
hereof Long Beach was entitled to terminate this Agreement pursuant to Section
9.1(d).
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(d) Long Beach and Washington Mutual agree that the agreements contained
in paragraphs (b) and (c) above are an integral part of the transactions
contemplated by this Agreement, that without such agreements Washington Mutual
would not have entered into this Agreement, and that such amounts do not
constitute a penalty. If Long Beach fails to pay Washington Mutual the amounts
due under paragraph (b) above within the time periods specified in paragraph (c)
above, Long Beach shall pay the costs and expenses (including legal fees and
expenses) incurred by Washington Mutual in connection with any action, including
the filing of any lawsuit, taken to collect payment of such amounts, together
with interest on the amount of any such unpaid amounts at the publicly announced
prime rate of The Chase Manhattan Bank from the date such amounts were required
to be paid.
9.3 Amendment. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of Long
Beach; provided, however, that after any approval of the transactions
contemplated by this Agreement by Long Beach's stockholders, there may not be,
without further approval of such stockholders, any amendment of this Agreement
which reduces the amount or changes the form of the consideration to be
delivered to the Long Beach stockholders hereunder other than as contemplated by
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
10. GENERAL PROVISIONS
10.1 Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein which by their terms apply in whole or in part after the Effective Time.
10.2 Expenses. Except as provided in Section 9.2 hereof, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense; provided,
however, that notwithstanding anything to the contrary contained in this
Agreement, neither Washington Mutual nor Long Beach shall be relieved or
released from any liabilities or damages arising out of its willful breach of
any provision of this Agreement.
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10.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Washington Mutual, to:
Washington Mutual, Inc.
1201 Third Avenue, 15th Floor
Seattle, WA 98101
Fax: (206) 461-5739
Attn: Craig Tall
and:
Washington Mutual, Inc.
1201 Third Avenue, 15th Floor
Seattle, WA 98101
Fax: (206) 461-5739
Attn: Fay L. Chapman
with a copy to:
Heller Ehrman White & McAuliffe
6100 Columbia Center
701 Fifth Avenue
Seattle, WA 98104
Fax: (206) 447-0849
Attn: Bernard L. Russell
(b) if to Long Beach, to:
Long Beach Financial Corporation
1100 Town & Country Road
Suite 1650
Orange, CA 92868
Fax: (714) 543-6847
Attn: M. Jack Mayesh
with a copy to:
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, CA 92614
Fax: (949) 451-4220
Attn: Robert E. Dean
10.4 Interpretation. The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Article and Section references are to this Agreement unless otherwise specified.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. No provision of this Agreement shall be
construed to require Long Beach,
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Washington Mutual or any of their respective Subsidiaries or affiliates to take
any action which would violate or conflict with any applicable law (whether
statutory or common), rule or regulation.
10.5 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
10.6 Entire Agreement. This Agreement (together with the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement.
10.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Washington, without regard to any
applicable conflicts of law.
10.8 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.9 Publicity. Washington Mutual and Long Beach shall consult with each
other before issuing any press release with respect to the Merger or this
Agreement and shall not issue any such press release or make any such public
statement without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party (but after prior consultation, to the extent
practicable in the circumstances) issue such press release or make such public
statement as may upon the advice of outside counsel be required by law or the
rules and regulations of the NYSE (in the case of Washington Mutual) or The
Nasdaq Stock Market (in the case of Long Beach). Without limiting the reach of
the preceding sentence, Washington Mutual and Long Beach shall cooperate to
develop all public announcement materials and (b) make appropriate management
available at presentations related to the transactions contemplated by this
Agreement as reasonably requested by the other party. In addition, Long Beach
and its Subsidiaries shall (a) consult with Washington Mutual regarding
communications with customers, shareholders, prospective investors and employees
related to the transactions contemplated hereby, (b) provide Washington Mutual
with shareholder lists of Long Beach and (c) allow and facilitate Washington
Mutual contact with shareholders of Long Beach and other prospective investors.
10.10 Assignment; Third Party Beneficiaries. Neither this Agreement nor
any of the rights, interests or obligations of any party hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and permitted
assigns. Except as otherwise specifically provided in Section 7.8 hereof, this
Agreement (including the documents and instruments referred to herein) is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
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IN WITNESS WHEREOF, Washington Mutual and Long Beach have caused this
Agreement to be executed by their respective officers hereunto duly authorized
as of the date first above written.
WASHINGTON MUTUAL, INC.
By: /s/ CRAIG E. TALL
-----------------------------------
Name: Craig E. Tall
Title: Executive Vice President
LONG BEACH FINANCIAL CORPORATION
By: /s/ M. JACK MAYESH
-----------------------------------
Name: M. Jack Mayesh
Title: Chairman and CEO
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ANNEX A
CONTENT OF TAX OPINION
The legal opinion to be delivered pursuant to Section 8.1(f) shall be
substantially to the effect that:
(i) The merger will qualify as a "reorganization" within the meaning of
Section 368(a) of the Code, and Washington Mutual and Long Beach will each be a
party to the reorganization under Section 368(b) of the Code.
(ii) No gain or loss will be recognized by a stockholder of Long Beach
who, pursuant to the Agreement, exchanges shares of Long Beach Common Stock
solely for shares of Washington Mutual Common Stock (except with respect to cash
received in lieu of a fractional share interest in Washington Mutual Common
Stock).
(iii) Each Long Beach stockholder who receives cash in lieu of a
fractional share of Washington Mutual Common Stock will be treated as receiving
a distribution in redemption of the fractional share interest, will be taxed on
the cash received in accordance with the provisions and limitations of Code
Section 302 (which in certain circumstances could result in the receipt of cash
being taxed as a dividend) and, in general, such distribution in redemption will
be recognized and treated as a payment in exchange for such fractional share
interest.
(iv) With respect to a Long Beach stockholder who exchanges shares of
Long Beach Common Stock partially for Washington Mutual Common Stock and
partially for cash, any gain realized on the Long Beach shares surrendered in
the Merger will be recognized but not in excess of the amount of cash received
(other than cash received in lieu of a fractional share); however, in certain
circumstances, the provisions and limitations of Code Section 302 could result
in the cash received being taxed in whole or part as a dividend. If a Long Beach
stockholder realizes a loss in such an exchange, the loss cannot be recognized
by the stockholder.
(v) A Long Beach stockholder who has different blocks of Long Beach
Common Stock, each with a different tax basis, must compute gain or loss
separately for each such block of Long Beach Common Stock and no netting of gain
or loss is allowed.
(vi) Gain or loss will be recognized with respect to each Long Beach
stockholder who holds Long Beach Common Stock and who exchanges such shares
solely for cash; however, the provisions and limitations of Code Section 302
could result in the cash received being taxed as a dividend in certain
circumstances.
(vii) Gain or loss recognized generally will be capital gain or loss if
the shares of Long Beach Common Stock were held by the Long Beach stockholder as
capital assets. For such stockholder, if the shares have been held for more than
one year the gain or loss will be long-term capital gain or loss. Whether or not
the character of any taxable gain or loss is material to a Long Beach
stockholder depends upon the particular circumstances of the stockholder.
(viii) The aggregate basis of the Washington Mutual Common Stock
received by a Long Beach stockholder who exchanges Long Beach Common Stock for
at least some Washington Mutual Common Stock will be the same as the aggregate
basis of the Long Beach Common Stock surrendered in exchange therefor, (a)
reduced by the basis allocable to any fractional share for which cash is
received and the amount of any cash payment received other than cash received in
lieu of a fractional share, and (b) increased
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by the amount treated as a dividend, if any, and the amount of gain recognized
due to the receipt of any such cash payment.
(ix) The holding period of the Washington Mutual Common Stock received
by a Long Beach stockholder will include the period during which the Long Beach
Common Stock surrendered in exchange therefor was held if such Long Beach Common
Stock surrendered in exchange therefor was held by such Long Beach stockholder
as a capital asset at the Effective Time.
(x) The discussion in the Proxy Statement/Prospectus regarding the
material federal income tax consequences of the Merger, to the extent it
constitutes summaries of legal matters or legal conclusions, is accurate in all
material respects.
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ANNEX B
EMPLOYMENT AGREEMENTS UNDER SECTION 8.2(f)
M. Jack Mayesh
Edward Resendez
Frank J. Curry
William K. Komperda
James J. Sullivan
James H. Leonetti
Elizabeth A. Wood
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ANNEX C
NONCOMPETITION AGREEMENTS UNDER SECTION 8.2(g)
M. Jack Mayesh
Edward Resendez
Frank J. Curry
William K. Komperda
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APPENDIX B
May 18, 1999
Board of Directors
Long Beach Financial Corporation
1100 Town & Country Road
Orange, CA 92868
Board of Directors:
You have requested that Friedman, Billings, Ramsey & Co., Inc. ("Friedman,
Billings") provide you with its opinion as to the fairness, from a financial
point of view, to the holders of common stock ("Stockholders") of Long Beach
Financial Corporation ("Long Beach" or the "Company") of the Consideration (as
hereinafter defined) to be received by them pursuant to the Agreement and Plan
of Merger by and between Long Beach and Washington Mutual, Inc. ("Washington
Mutual" or "Washington Mutual"), dated May 18, 1999 (the "Merger Agreement"),
pursuant to which Long Beach will be merged with and into Washington Mutual (the
"Merger"). The Merger Agreement provides, among other things, that Stockholders
of Long Beach will have the option to receive either Washington Mutual common
stock, cash or a combination thereof equal to a fixed price of $15.50 per Long
Beach share (the "Consideration"), subject to the limitation that a minimum of
52% of the aggregate Merger consideration will be in the form of Washington
Mutual common stock and certain other terms and conditions. Additionally, all
outstanding options to purchase shares of Long Beach common stock shall become
fully vested and converted into options to purchase Washington Mutual common
stock. The Merger Agreement will be considered at a meeting of the Stockholders
of Long Beach. The terms of the Merger are more fully set forth in the Merger
Agreement.
In delivering this opinion, Friedman, Billings has completed the following
tasks:
1. reviewed the Washington Mutual Annual Report to Stockholders for the fiscal
years ended December 31, 1997 and 1998 and the Washington Mutual Annual
Reports on Form 10-K filed with the Securities and Exchange Commission (the
"SEC") for the fiscal years ended December 31, 1997 and 1998; reviewed the
Washington Mutual Annual Proxy Statement dated March 23, 1999; reviewed the
Washington Mutual Quarterly Reports on Form 10-Q filed with the SEC for the
fiscal quarters ended March 31, 1999, September 30, 1998 and June 30, 1998;
2. reviewed the Long Beach Annual Report to Stockholders for the fiscal years
ended December 31, 1997 and 1998 and the Long Beach Annual Report on Form
10-K filed with the SEC for the fiscal years ended December 31, 1997 and
1998; reviewed the Long Beach Annual Proxy Statement dated April 28, 1999;
reviewed the Long Beach Quarterly Reports on Form 10-Q filed with the SEC
for the quarters ended March 31, 1999, September 30, 1998, and June 30,
1998;
3. reviewed and discussed the unaudited financial statements of Long Beach
for the four months ended April 30, 1999 with the management of Long
Beach;
4. reviewed the reported market prices and trading activity for Washington
Mutual common stock for the period January 1, 1997 through May 17,
1999;
5. discussed the financial condition, results of operations, earnings
projections, business and prospects of Long Beach with the management
of Long Beach;
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Board of Directors
Long Beach Financial Corporation
May 18, 1999
Page 2
6. compared the results of operations and financial condition of Long
Beach and Washington Mutual with those of certain publicly-traded
financial services organizations (or their holding companies) that
Friedman, Billings deemed to be reasonably comparable to Long Beach or
Washington Mutual, as the case may be;
7. reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions that Friedman, Billings deemed to be
reasonably comparable to the Merger;
8. reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions entered into by Washington Mutual;
9. reviewed the potential pro forma impact of the Merger to the
Stockholders that elect to receive Washington Mutual common stock;
10. reviewed a copy of the Merger Agreement; and
11. performed such other financial analyses and reviewed and analyzed such
other information as Friedman, Billings deemed appropriate, including
an assessment of general economic, market and monetary conditions.
In rendering this opinion, Friedman, Billings did not assume responsibility
for independently verifying, and did not independently verify, any financial or
other information concerning Long Beach and Washington Mutual furnished to it by
Long Beach or Washington Mutual, or the publicly-available financial and other
information regarding Long Beach, Washington Mutual and other financial services
organizations (or their holding companies). Friedman, Billings has assumed that
all such information is accurate and complete and has no reason to believe
otherwise. Friedman, Billings has further relied on the assurances of management
of Long Beach and Washington Mutual that they are not aware of any facts that
would make such financial or other information relating to such entities
inaccurate or misleading. With respect to financial forecasts for Long Beach
provided to Friedman, Billings by its management, Friedman, Billings has
assumed, for purposes of this opinion, that the forecasts have been reasonably
prepared on bases reflecting the best available estimates and judgments of such
management at the time of preparation as to the future financial performance of
Long Beach. Friedman, Billings has assumed that there has been no undisclosed
material change in Long Beach's assets, financial condition, results of
operations, business or prospects since March 31, 1999. Friedman, Billings did
not undertake an independent appraisal of the assets or liabilities of Long
Beach nor was Friedman, Billings furnished with any such appraisals. Friedman,
Billings is not an expert in the evaluation of allowances for loan losses, was
not requested to and did not review such allowances, and was not requested to
and did not review any individual credit files of Long Beach. Friedman,
Billings's conclusions and opinion are necessarily based upon economic, market
and other conditions and the information made available to Friedman, Billings as
of the date of this opinion. Friedman, Billings expresses no opinion on matters
of a legal, regulatory, tax or accounting nature related to the Merger.
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Board of Directors
Long Beach Financial Corporation
May 18, 1999
Page 3
Friedman, Billings, as part of its institutional brokerage, research and
investment banking practice, is regularly engaged in the valuation of securities
and the evaluation of transactions in connection with mergers and acquisitions
of specialty finance companies, commercial banks, savings institutions and
financial services holding companies, initial and secondary offerings and
mutual-to-stock conversions of savings institutions, as well as business
valuations for other corporate purposes for financial services organizations and
real estate related companies. Friedman, Billings has experience in, and
knowledge of, the valuation of specialty finance companies in California and the
rest of the United States.
Friedman, Billings has acted as a financial advisor to Long Beach in
connection with the Merger and will receive a fee for services rendered which is
contingent upon the consummation of the Merger. In the ordinary course of
Friedman, Billings's business, it may effect transactions in the securities of
Long Beach or Washington Mutual for its own account and/or for the accounts of
its customers and, accordingly, may at any time hold long or short positions in
such securities. From time to time, principals and/or employees of Friedman,
Billings may also have positions in such securities.
Based upon and subject to the foregoing, as well as any such other matters
as we consider relevant, it is Friedman, Billings's opinion, as of the date
hereof, that the Consideration is fair, from a financial point of view, to the
Stockholders of Long Beach.
This letter is solely for the information of the Board of Directors and
Stockholders of Long Beach and may not be relied upon by any other person or
used for any other purpose, reproduced, disseminated, quoted from or referred to
without Friedman, Billings's prior written consent; provided, however, this
letter may be referred to and reproduced in its entirety in proxy materials sent
to the Stockholders in connection with the solicitation of approval for the
Merger.
Very truly yours,
/s/ Friedman, Billings, Ramsey & Co.,
Inc.
--------------------------------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
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APPENDIX C
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated May 18,1999, between Long Beach Financial
Corporation, a Delaware corporation ("Issuer"), and Washington Mutual, Inc., a
Washington corporation ("Grantee").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Stock Option Agreement
(this "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. Grant of Option.
(a) Issuer hereby grants to Grantee an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to an aggregate of
4,477,500 fully paid and nonassessable shares of Issuer's Common Stock, par
value $.001 per share ("Common Stock"), at a price of $12.3125 per share (the
"Option Price"); provided, however, that in no event shall the number of shares
of Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Common Stock without giving effect to
any shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any shares of Common Stock are either (i) issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5 hereof) or (ii) redeemed, repurchased, retired or otherwise cease to
be outstanding after the date of this Agreement, the number of shares of Common
Stock subject to the Option shall be increased or decreased, as appropriate, so
that, after such issuance or such redemption, repurchase, retirement or other
action, such number equals 19.9% of the number of shares of Common Stock then
issued and outstanding without giving effect to any shares subject to or issued
pursuant to the Option. Nothing contained in this Section 1(b) or elsewhere in
this Agreement shall be deemed to authorize Issuer or Grantee to issue, redeem,
repurchase or retire shares in breach of any provision of the Merger Agreement.
2. Exercise of Option.
(a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined); provided, that
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the Holder shall have sent written notice of such exercise (as provided in
subsection (e) of this Section 2) within 90 days following such Subsequent
Triggering Event (or such longer period as provided in Section 10); provided
further, however, that if the Option cannot be exercised on any day because of
any injunction, order or similar restraint issued by a court of competent
jurisdiction, the period during which the Option may be exercised shall be
extended so that the Option shall expire no earlier than on the tenth business
day after such injunction, order or restraint shall have been dissolved or when
such injunction, order or restraint shall have become permanent and no longer
subject to appeal, as the case may be. Each of the following shall be an
"Exercise Termination Event": (i) the Effective Time (as defined in the Merger
Agreement); (ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Initial Triggering Event, except a termination by Grantee pursuant to Section
9.1(d) of the Merger Agreement (unless the breach by Issuer giving rise to such
right of termination is non-volitional); (iii) the passage of 12 months after
termination of the Merger Agreement if such termination follows the occurrence
of an Initial Triggering Event or is a termination by Grantee pursuant to
Section 9.1(d) of the Merger Agreement (unless the breach by Issuer giving rise
to such right of termination is non-volitional); provided, that if the Initial
Triggering Event continues or occurs beyond such termination and prior to the
passage of such 12-month period, the Exercise Termination Event shall be 12
months from the expiration of the Last Triggering Event (as hereinafter defined)
but in no event more than 18 months after such termination; or (iv) delivery of
a written request for payment of termination fees pursuant to Section 9.2 of the
Merger Agreement (provided that no such Exercise Termination Event shall be
deemed to have occurred unless such termination fees are paid in accordance with
such Section 9.2). For purposes of this Agreement, (A) "Holder" shall mean the
holder or holders of the Option and (B) "Last Triggering Event" shall mean the
last Initial Triggering Event to expire. Notwithstanding anything to the
contrary herein, (i) the Option may not be exercised at any time when Grantee
shall be in breach of any of its representations, warranties, covenants or
agreements contained in the Merger Agreement such that Issuer would be entitled
to terminate the Merger Agreement pursuant to Section 9.1(d) thereof and (ii)
this Agreement shall automatically terminate upon the termination of the Merger
Agreement pursuant to Section 9.1(d) thereof as a result of the breach by
Grantee of its representations, warranties, covenants or agreements contained in
the Merger Agreement.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer or any of its Significant Subsidiaries, as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (each an "Issuer Subsidiary"), without having received Grantee's
prior written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the rules and regulations thereunder) other than Grantee
or any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer shall have recommended that the stockholders of Issuer
approve or accept any Acquisition Transaction with any person other than Grantee
or a Subsidiary of Grantee. For purposes of this Agreement, "Acquisition
Transaction" shall mean (x) a merger or consolidation, or any similar
transaction, involving Issuer or any Issuer Subsidiary, (y) a purchase, lease or
other acquisition or assumption of all or a substantial portion of the assets or
deposits of Issuer or any Issuer Subsidiary, or (z) a purchase or other
acquisition
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(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of Issuer; provided,
however, that in no event shall any merger, consolidation, purchase or similar
transaction involving only Issuer and one or more of Issuer Subsidiaries or
involving only two or more of Issuer Subsidiaries, be deemed to be an
Acquisition Transaction, provided that any such transaction is not entered into
in violation of the terms of the Merger Agreement;
(ii) (A) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to engage
in an Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary, or (B) the Board of Directors of Issuer shall have failed to make
its recommendation that the stockholders of Issuer approve the transactions
contemplated by the Merger Agreement, or (C) the Board of Directors of Issuer
shall have publicly withdrawn or modified, or publicly announced its interest to
withdraw or modify, in any manner adverse to Grantee, its recommendation that
the stockholders of Issuer approve the transactions contemplated by the Merger
Agreement;
(iii) Any person, other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of its
business, shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 10% or more of the outstanding shares of Common Stock
(the term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iv) After any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction, the stockholder approval
required by Section 8.1(a) of the Merger Agreement is not obtained;
(v) After an overture is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction (whether such overture
becomes the subject of public disclosure or not), Issuer shall have willfully
breached any covenant or obligation contained in the Merger Agreement or
willfully breached any representation or warranty contained in the Merger
Agreement and such breach (x) would entitle Grantee to terminate the Merger
Agreement and (y) shall not have been cured prior to the Notice Date (as defined
below);
(vi) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Office of
Thrift Supervision ("OTS"), the Federal Reserve Board, or other federal or state
bank regulatory authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction; or
(vii) Any person other than Grantee or any Grantee Subsidiary
commences or publicly announces its intention to commence a tender offer or
exchange offer for securities representing 10% or more of the voting power of
Issuer.
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(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 25% or
more of the then outstanding shares of Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
Section 2(b)(i) hereof, except that the percentage referred to in subsection (z)
thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event of which it has
notice, it being understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of any regulatory or antitrust agency is required in
connection with such purchase, the Holder shall promptly file the required
notice or application for approval, shall promptly notify Issuer of such filing
and shall expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Agreement for an Option evidencing the rights of
the Holder thereof to purchase the balance of the shares purchasable hereunder,
and the Holder shall deliver to Issuer this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Long Beach Financial Corporation and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of such agreement is on file
at the principal office of Long Beach Financial Corporation and will be
provided to the holder hereof without charge upon receipt by Long Beach
Financial Corporation of a written request therefor."
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It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the Securities and Exchange Commission (the "SEC"), or an opinion of counsel,
in form and substance reasonably satisfactory to Issuer, to the effect that such
legend is not required for purposes of the 1933 Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of counsel, in form and substance reasonably satisfactory to Issuer; and (iii)
the legend shall be removed in its entirety if the conditions in the preceding
subsections (i) and (ii) are both satisfied. In addition, such certificates
shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Certain Issuer Actions. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. sec. 18a and regulations promulgated
thereunder and (y) in the event, under any federal or state law, prior approval
of or notice to any regulatory authority is necessary before the Option may be
exercised, cooperating fully with the Holder in preparing such applications or
notices and providing such information to such regulatory authority as they may
require) in order to permit the Holder to exercise the Option and Issuer duly
and effectively to issue shares of Common Stock pursuant hereto; and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
4. Exchange. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any Stock Option Agreements and related Options for which this
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Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
5. Adjustment of Shares. In addition to the adjustment in the number of
shares of Common Stock that are purchasable upon exercise of the Option pursuant
to Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions on or in respect of the Common
Stock that would be prohibited under the terms of the Merger Agreement, or the
like, the type and number of shares of Common Stock purchasable upon exercise
hereof and the Option Price shall be appropriately adjusted in such manner as
shall fully preserve the economic benefits provided hereunder and proper
provision shall be made in any agreement governing any such transaction to
provide for such proper adjustment and the full satisfaction of Issuer's
obligations hereunder.
6. Registration Rights. Upon the occurrence of a Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Issuer shall, at the
request of Grantee (whether on its own behalf or on behalf of any subsequent
holder of this Option (or part thereof) or any of the shares of Common Stock
issued pursuant hereto) deliver within six months of such Subsequent Triggering
Event (or such longer period as provided in Section 10), promptly prepare, file
and keep current a shelf registration statement under the 1933 Act covering this
Option and any shares issued and issuable pursuant to this Option and shall use
its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and thereafter to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee shall
have the right to demand two such registrations. The foregoing notwithstanding,
if, at the time of any request by Grantee for registration of the Option or
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Option
or Option Shares would interfere with the successful marketing of the shares of
Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then Issuer shall file a registration statement for the
balance as promptly as practicable and no reduction shall thereafter
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occur. Each such Holder shall provide all information reasonably requested by
Issuer for inclusion in any registration statement to be filed hereunder. If
requested by any such Holder in connection with such registration, Issuer shall
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in secondary offering underwriting agreements for Issuer.
Upon receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be entitled
to registration rights under this Section 6, in each case by promptly mailing
the same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall Issuer be obligated to effect more than two registrations
pursuant to this Section 6 by reason of the fact that there shall be more than
one Grantee as a result of any assignment or division of this Agreement.
7. Repurchase Right.
(a) (i) Following the occurrence of a Repurchase Event (as defined
below), and following a request of the Holder delivered prior to an Exercise
Termination Event, Issuer (or any successor thereto) shall repurchase the Option
from the Holder at a price (the "Option Repurchase Price") equal to the amount
by which (A) the Market/Offer Price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then be
exercised; and (ii) at the request of the owner of Option Shares from time to
time (the "Owner"), delivered within 90 days of such occurrence (or such longer
period as provided in Section 10), Issuer shall repurchase such number of the
Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the Market/Offer Price multiplied by
the number of Option Shares so designated.
The term "Market/Offer Price" shall mean the highest of (i) the price per
share of Common Stock at which a tender offer or exchange offer therefor has
been made, (ii) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Issuer, (iii) the highest closing price for
shares of Common Stock within the six-month period immediately preceding the
date the Holder gives notice of the required repurchase of the Option or the
Owner gives notice of the required repurchase of Option Shares, as the case
maybe, or (iv) in the event of a sale of all or a substantial portion of
Issuer's assets, the sum of the price paid in such sale for such assets and the
current market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to Issuer, divided by the
number of shares of Common Stock of Issuer outstanding at the time of such sale.
In determining the Market/Offer Price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to Issuer.
(b) The Holder or the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option or any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office,
this Agreement or certificates for Option Shares, as applicable, accompanied by
a written notice or notices stating that the Holder or the Owner, as the case
may be, elects to require Issuer to repurchase the Option and/or the Option
Shares in accordance with the provisions of this Section 7. As promptly as
practicable, and in any event within five business days after the surrender of
the Option and/or certificates representing Option Shares and the receipt of
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such notice or notices relating thereto, Issuer shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof that Issuer is not
then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at anytime after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 7 is prohibited
under applicable law or regulation or through commencement of regulatory
enforcement action from delivering to the Holder and/or the Owner, as
appropriate, the Option Repurchase Price and the Option Share Repurchase Price,
respectively, in full (and Issuer hereby undertakes to use its best efforts to
obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase), the
Holder or the Owner may revoke its notice of repurchase of the Option or the
Option Shares either in whole or to the extent of the prohibition, whereupon, in
the latter case, Issuer shall promptly (i) deliver to the Holder and/or the
Owner, as appropriate, that portion of the Option Repurchase Price or the Option
Share Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Holder, a new Agreement evidencing
the right of the Holder to purchase that number of shares of Common Stock
obtained by multiplying the number of shares of Common Stock for which the
surrendered Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, or (B) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other acquisition
of all or a substantial portion of the assets of Issuer, other than any such
transaction which would not constitute an Acquisition Transaction pursuant to
the provisos to the final sentence of Section 2(b)(i) hereof or (ii) upon the
acquisition by any person of beneficial ownership of 50% or more of the then
outstanding shares of Common Stock, provided that no such event shall constitute
a Repurchase Event unless a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event.
8. Substitute Option.
(a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
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equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or surviving
person, or (iii) the transferee of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer Price, as defined
in Section 7.
(4) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided that if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with respect to a share
of common stock issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement (after giving effect for
such purpose to the provisions of Section 9), which shall be applicable to the
Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing subsections, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than
19.9% of the shares of Substitute Common Stock outstanding prior to exercise but
for this subsection (e), the issuer of the Substitute Option (the "Substitute
Option Issuer") shall
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make a cash payment to the Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this subsection (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this subsection (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. Repurchase of Substitute Option.
(a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder") delivered prior to an Exercise Termination Event,
the Substitute Option Issuer shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share Owner, or both,
as the case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option or the Substitute Shares, as
applicable, pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and/or certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable, and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation or through commencement of regulatory enforcement
action from repurchasing the Substitute Option and/or the Substitute Shares in
part or in full, the Substitute Option Issuer following a request for repurchase
pursuant to this Section 9 shall immediately so notify the Substitute Option
Holder and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute
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Option Holder and/or the Substitute Share Owner, as appropriate, the portion of
the Substitute Option Repurchase Price and Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering, within five
business days after the date on which the Substitute Option Issuer is no longer
so prohibited; provided, however, that if the Substitute Option Issuer is at any
time after delivery of a notice of repurchase pursuant to subsection (b) of this
Section 9 prohibited under applicable law or regulation or through commencement
of regulatory enforcement action from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or the Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or the Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Shares it is then so prohibited from
repurchasing.
10. Extension of Certain Periods. The 90-day or six-month period, as the
case may be, for exercise of certain rights under each of Sections 2, 6, 7 and
14 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights (for so long as the Holder, Owner,
Substitute Option Holder or Substitute Share Owner, as the case may be, is using
its reasonable best efforts to obtain such regulatory approval) and for the
expiration of all statutory waiting periods; and (ii) to the extent necessary to
avoid liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer Representations and Warranties. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully
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paid, nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) Issuer has taken all action (including, if required, redeeming all
of the Rights or amending or terminating the Long Beach Rights Agreement) so
that the entering into of this Agreement, the acquisition of shares of Common
Stock hereunder and the other transactions contemplated hereby do not and will
not result in the grant of any rights to any person under the Long Beach Rights
Agreement or enable or require the Long Beach Rights to be exercised,
distributed or triggered.
12. Grantee Representations and Warranties. Grantee hereby represents and
warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents to herein, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the 1933 Act.
13. Limitation on Total Profit.
(a) Notwithstanding anything to the contrary contained herein, in no
event shall Grantee's Total Profit (as defined in subsection (c) of this Section
13) exceed $15 million.
(b) Notwithstanding anything to the contrary contained herein, the
Option may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined in subsection (d) of
this Section 13) of more than $15 million.
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant
to Section 7 hereof, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 7 hereof, less (y)
Grantee's purchase price for such Option Shares, (iii) (x) the net cash amounts
received by Grantee pursuant to the sale of Option Shares (or any other
securities into which such Option Shares shall be converted or exchanged) to any
unaffiliated party, less (y) Grantee's purchase price for such Option Shares,
(iv) any amounts received by Grantee on the transfer of the Option (or any
portion thereof) to any unaffiliated party, (v) any equivalent amount with
respect to the Substitute Option, including pursuant to Section 8(e); and (vi)
the amount of any termination fee actually received by Grantee pursuant to
Section 9.2 of the Merger Agreement. For purposes of this Section 13, references
to Grantee shall be deemed to include references to any affiliate of the
Grantee.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise the Option shall be
the Total Profit determined as of the date of such proposed exercise assuming
that the Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold
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for cash at the closing market price for the Common Stock as of the close of
business on the preceding trading day (less customary brokerage commissions).
14. Assignment. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within 90 days
following such Subsequent Triggering Event (or such longer period as provided in
Section 10); provided, however, that until the date 15 days following the date
on which the Federal Reserve Board or the OTS, as applicable, approves an
application by Grantee to acquire the shares of Common Stock subject to the
Option (if such approval is required by law), Grantee may not assign its rights
under the Option except in (i) a widely dispersed public distribution, (ii) a
private placement in which no one person acquires the right to purchase in
excess of 2% of the voting shares of Issuer, (iii) an assignment to a single
person (e.g., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Grantee's behalf, or (iv) any other
manner approved by the Federal Reserve Board or the OTS, as applicable.
15. Filings. Each of Grantee and Issuer will use its best efforts to make
all filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the New York Stock Exchange upon
official notice of issuance and applying to the Federal Reserve Board and/or the
OTS, as applicable, for approval to acquire the shares issuable hereunder, but
Grantee shall not be obligated to apply to state banking authorities for
approval to acquire the shares of Common Stock issuable hereunder until such
time, if ever, as it deems appropriate to do so.
16. Equitable Remedies. The parties hereto acknowledge that damages would
be an inadequate remedy for a breach of this Agreement by either party hereto
and that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief.
17. Validity. If any term, provision, covenant or restriction contained in
this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
C-13
<PAGE> 138
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
20. Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
21. Expenses. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
22. Entire Agreement. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided herein.
23. Capitalized Terms. Capitalized terms used in this Agreement and not
defined herein shall have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
LONG BEACH FINANCIAL CORPORATION
By: /s/ M. JACK MAYESH
-----------------------------------
Name: M. Jack Mayesh
Title: Chairman and CEO
WASHINGTON MUTUAL, INC.
By: /s/ CRAIG E. TALL
-----------------------------------
Name: Craig E. Tall
Title: Executive Vice President
C-14
<PAGE> 139
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 23B.08.320 of the Washington Business Corporation Act (the
"Corporation Act") provides that the articles of incorporation of a corporation
may contain provisions that eliminate or limit the personal liability of a
director to the shareholders for monetary damages for conduct as a director,
except in the case of acts or omissions involving certain types of conduct. At
Article XIII of its Restated Articles of Incorporation, the Registrant has
elected to eliminate the liability of directors to the Registrant to the extent
permitted by law. Thus, a director of the Registrant is not personally liable to
the Registrant or its stockholders for monetary damages for conduct as a
director, except for liability of the director (i) for acts or omissions that
involve intentional misconduct by the director or a knowing violation of law by
the director, (ii) for conduct violating Section 23B.08.310 of the Corporation
Act, or (iii) for any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled. If Washington law is amended to authorize corporate action
that further eliminates or limits the liability of directors, then the liability
of Washington Mutual directors will be eliminated or limited to the fullest
extent permitted by Washington law, as so amended.
Section 23B.08.560 of the Corporation Act provides that if authorized by
(i) the articles of incorporation, (ii) a bylaw adopted or ratified by the
stockholders, or (iii) a resolution adopted or ratified, before or after the
event, by the stockholders, a corporation will have the power to indemnify
directors made party to a proceeding, or to obligate itself to advance or
reimburse expenses incurred in a proceeding, without regard to the limitations
on indemnification contained in Sections 23B.08.510 through 23B.08.550 of the
Corporation Act, provided that no such indemnity shall indemnify any director
(i) for acts or omissions that involve intentional misconduct by the director or
a knowing violation of law by the director, (ii) for conduct violating Section
23B.08.310 of the Corporation Act, or (iii) for any transaction from which the
director will personally receive a benefit in money, property or services to
which the director is not legally entitled.
Pursuant to Article X of Washington Mutual's Restated Articles of
Incorporation and Article VIII of Washington Mutual's Bylaws, Washington Mutual
must, subject to certain exceptions, indemnify and defend its directors against
any expense, liability or loss arising from or in connection with any actual or
threatened action, suit or proceeding relating to service for or at the request
of Washington Mutual, including without limitation, liability under the
Securities Act. Washington Mutual is not permitted to indemnify a director from
or on account of acts or omissions of such director which are finally adjudged
to be intentional misconduct, or from or on account of conduct in violation of
RCW 23B.08.310, or a knowing violation of the law from or on account of any
transaction with respect to which it is finally adjudged that such director
received a benefit in money, property or services to which he or she was not
entitled. If Washington law is amended to authorize further indemnification of
directors, then Washington Mutual directors shall be indemnified to the fullest
extent permitted by Washington law, as so amended. Also, pursuant to Article
VIII of Washington Mutual's Bylaws, Washington Mutual may, by action of the
Washington Mutual Board, provide indemnification and pay expenses to officers,
employees and agents of Washington Mutual or another corporation, partnership,
joint venture, trust or other enterprise with the same scope and effect as above
described in relation to directors. Insofar as indemnification for liabilities
arising under the Securities Act may be
II-1
<PAGE> 140
permitted to directors, officers or persons controlling Washington Mutual
pursuant to the provisions described above, Washington Mutual has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger between the Registrant and Long
Beach, dated March 18, 1999. (Incorporated by reference to
Appendix A of the proxy statement/prospectus included in
this Registration Statement.) Registrant agrees to furnish
supplementally to the Commission upon request a copy of any
omitted schedule.
2.2 Form of Preference Form and Letter of Transmittal (to be
filed by amendment).
3.1* Restated Articles of Incorporation of the Registrant (filed
as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998 File No.
0-25188).
3.2* Bylaws of the Registrant (filed as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 File No. 0-25188).
4.2** Rights Agreement, dated October 16, 1990.
4.3** Amendment No. 1 to the Rights Agreement, dated October 31,
1994.
4.4** Supplement to Rights Agreement, dated November 29, 1994.
5.1 Opinion of Heller Ehrman White & McAuliffe (to be filed by
amendment).
8.1 Tax Opinion of Foster Pepper & Shefelman PLLC (to be filed
by amendment).
10.1 Employment Agreement, dated May 18, 1999, between the
Registrant and M. Jack Mayesh.
10.2 Employment Agreement, dated May 18, 1999, between the
Registrant and William K. Komperda.
10.3 Employment Agreement, dated May 18, 1999, between the
Registrant and Edward Resendez.
10.4 Employment Agreement, dated May 18, 1999, between the
Registrant and Frank J. Curry.
10.5 Employment Agreement, dated May 18, 1999, between the
Registrant and James A. Leonetti.
10.6 Employment Agreement, dated May 18, 1999, between the
Registrant and James J. Sullivan.
10.7 Employment Agreement, dated May 18, 1999, between the
Registrant and Elizabeth A. Wood.
10.8 Form of Shareholder's Non-Competition Agreement, dated May
18, 1999.
23.1 Consent of Deloitte & Touche LLP with respect to the
financial statements of Washington Mutual.
23.2 Consent of Deloitte & Touche LLP with respect to the
financial statements of Long Beach.
23.3 Consent of PricewaterhouseCoopers LLP with respect to the
financial statements of Great Western Financial Corporation.
23.4 Consent of KPMG LLP with respect to the financial statements
of H.F. Ahmanson & Company (to be filed by amendment).
23.5 Consent of Heller Ehrman White & McAuliffe (included in its
Opinion filed as Exhibit 5.1).
</TABLE>
II-2
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
23.6 Consent of Foster Pepper & Shefelman PLLC (included in its
Opinion filed as Exhibit 8.1).
23.7 Consent of Friedman, Billings, Ramsey & Co., Inc.
24.2 Powers of Attorney (included on the signature page of this
Registration Statement).
99.1 Form of Proxy Card of Long Beach (to be filed by amendment).
99.2 Stock Option Agreement between the registrant and Long
Beach, dated May 18, 1999 (incorporated by reference to
Appendix C of the proxy statement/prospectus included in
this Registration Statement).
</TABLE>
- -------------------------
* Incorporated by reference to Washington Mutual, Inc. Quarterly Report to the
Securities and Exchange Commission on Form 10-Q for the quarter ended
September 30, 1998 (File No. 0-25188).
** Incorporated by reference to Washington Mutual, Inc. Current Report on Form
8-K dated November 29, 1994 (File No. 0-25188).
ITEM 22. UNDERTAKINGS
The Undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 142
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
by a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington on June 15, 1999.
WASHINGTON MUTUAL, INC.
By: /s/ KERRY K. KILLINGER
-----------------------------------
Kerry K. Killinger
Title: Chairman, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby constitutes and
appoints Fay L. Chapman and Marc R. Kittner, and each of them severally, as his
or her true and lawful attorney-in-fact with full power of substitution to
execute in the name and on behalf of such person, individually and in each
capacity stated below, and to file, any and all amendments to this Registration
Statement, including any and all post-effective amendments.
Pursuant to the requirement of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated below on the 15th day of June, 1999.
<TABLE>
<S> <C>
/s/ KERRY K. KILLINGER /s/ WILLIAM A. LONGBRAKE
- ------------------------------------- -------------------------------------
Kerry K. Killinger William A. Longbrake
Chairman, President and Executive Vice President and
Chief Executive Officer; Director Chief Financial Officer
(Principal Executive Officer) (Principal Financial Officer)
/s/ PHILIP D. MATTHEWS /s/ RICHARD M. LEVY
- ------------------------------------- -------------------------------------
Philip D. Matthews Richard M. Levy
Director Senior Vice President and Controller
(Principal Accounting Officer)
/s/ DOUGLAS P. BEIGHLE /s/ WILLIAM P. GERBERDING
- ------------------------------------- -------------------------------------
Douglas P. Beighle William P. Gerberding
Director Director
/s/ DAVID BONDERMAN /s/ ENRIQUE HERNANDEZ, JR.
- ------------------------------------- -------------------------------------
David Bonderman Enrique Hernandez, Jr.
Director Director
/s/ MARY E. PUGH
- ------------------------------------- -------------------------------------
J. Taylor Crandall Mary E. Pugh
Director Director
</TABLE>
II-5
<PAGE> 144
<TABLE>
<S> <C>
/s/ ROGER H. EIGSTI /s/ MICHAEL K. MURPHY
- ------------------------------------- -------------------------------------
Roger H. Eigsti Michael K. Murphy
Director Director
/s/ JOHN W. ELLIS /s/ WILLIAM G. REED, JR.
- ------------------------------------- -------------------------------------
John W. Ellis William G. Reed, Jr.
Director Director
/s/ ANNE V. FARRELL /s/ JAMES H. STEVER
- ------------------------------------- -------------------------------------
Anne V. Farrell James H. Stever
Director Director
/s/ STEPHEN E. FRANK /s/ WILLIS B. WOOD, JR.
- ------------------------------------- -------------------------------------
Stephen E. Frank Willis B. Wood, Jr.
Director Director
/s/ ELIZABETH A. SANDERS /s/ WILLIAM D. SCHULTE
- ------------------------------------- -------------------------------------
Elizabeth A. Sanders William D. Schulte
Director Director
</TABLE>
II-6
<PAGE> 145
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger between the Registrant and Long
Beach, dated March 18, 1999. (Incorporated by reference to
Appendix A of the proxy statement/prospectus included in
this Registration Statement.) Registrant agrees to furnish
supplementally to the Commission upon request a copy of any
omitted schedule.
2.2 Form of Preference Form and Letter of Transmittal (to be
filed by amendment).
3.1* Restated Articles of Incorporation of the Registrant (filed
as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998 File No.
0-25188).
3.2* Bylaws of the Registrant (filed as an exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998 File No. 0-25188).
4.2** Rights Agreement, dated October 16, 1990.
4.3** Amendment No. 1 to the Rights Agreement, dated October 31,
1994.
4.4** Supplement to Rights Agreement, dated November 29, 1994.
5.1 Opinion of Heller Ehrman White & McAuliffe (to be filed by
amendment).
8.1 Tax Opinion of Foster Pepper & Shefelman PLLC (to be filed
by amendment).
10.1 Employment Agreement, dated May 18, 1999, between the
Registrant and M. Jack Mayesh.
10.2 Employment Agreement, dated May 18, 1999, between the
Registrant and William K. Komperda.
10.3 Employment Agreement, dated May 18, 1999, between the
Registrant and Edward Resendez.
10.4 Employment Agreement, dated May 18, 1999, between the
Registrant and Frank J. Curry.
10.5 Employment Agreement, dated May 18, 1999, between the
Registrant and James A. Leonetti.
10.6 Employment Agreement, dated May 18, 1999, between the
Registrant and James J. Sullivan.
10.7 Employment Agreement, dated May 18, 1999, between the
Registrant and Elizabeth A. Wood.
10.8 Form of Shareholder's Non-Competition Agreement, dated May
18, 1999.
23.1 Consent of Deloitte & Touche LLP with respect to the
financial statements of Washington Mutual.
23.2 Consent of Deloitte & Touche LLP with respect to the
financial statements of Long Beach.
23.3 Consent of PricewaterhouseCoopers LLP with respect to the
financial statements of Great Western Financial Corporation.
23.4 Consent of KPMG LLP with respect to the financial statements
of H.F. Ahmanson & Company (to be filed by amendment).
23.5 Consent of Heller Ehrman White & McAuliffe (included in its
Opinion filed as Exhibit 5.1).
23.6 Consent of Foster Pepper & Shefelman PLLC (included in its
Opinion filed as Exhibit 8.1).
23.7 Consent of Friedman, Billings, Ramsey & Co., Inc.
24.2 Powers of Attorney (included on the signature page of this
Registration Statement).
</TABLE>
II-7
<PAGE> 146
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
99.1 Form of Proxy Card of Long Beach (to be filed by amendment).
99.2 Stock Option Agreement between the registrant and Long
Beach, dated May 18, 1999 (incorporated by reference to
Appendix C of the proxy statement/prospectus included in
this Registration Statement).
</TABLE>
- -------------------------
* Incorporated by reference to Washington Mutual, Inc. Quarterly Report to the
Securities and Exchange Commission on Form 10-Q for the quarter ended
September 30, 1998 (File No. 0-25188).
** Incorporated by reference to Washington Mutual, Inc. Current Report on Form
8-K dated November 29, 1994 (File No. 0-25188).
II-8
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
(MAYESH)
This Employment Agreement (the "Agreement") is between Washington
Mutual, Inc. ("Washington Mutual"), and M. Jack Mayesh ("Employee").
Contemporaneously herewith, Washington Mutual and Long Beach Financial
Corporation ("Long Beach") have entered into an Agreement (the "Merger
Agreement") and Plan of Merger, pursuant to which Long Beach will merge with and
into Washington Mutual. At the effective time of such merger (the "Effective
Time"), Long Beach's wholly owned subsidiary, Long Beach Mortgage Company ("Long
Beach Mortgage"), will become a wholly owned subsidiary of Washington Mutual.
Washington Mutual and Employee desire that, as of the Effective Time, Employee
will be employed by Long Beach Mortgage under the terms set forth herein. The
parties therefore agree as follows:
1. Employment. Washington Mutual (through its subsidiary Long Beach
Mortgage after the Effective Time) hereby agrees to employ Employee, and
Employee hereby agrees to accept employment, on the terms in this Agreement;
provided, this Agreement shall be void without further action by the parties if
the Merger Agreement is terminated.
2. Position and Duties. Employee shall be employed in the capacity of
Chief Executive Officer of Long Beach Mortgage, and shall perform such duties as
are customary for such position as Washington Mutual may from time to time
direct.
3. Compensation & Benefits.
(a) Base Salary: Employee's base salary shall be two hundred and
eighty thousand dollars ($280,000) per year, payable in equal increments
pursuant to Washington Mutual's normal payroll schedule.
(b) Target Bonus: During the term of this Agreement Employee shall
be paid a target bonus of fifty percent (50%) of Employee's base salary in
effect on the last day of the calendar year to which the target bonus is
applicable, based on Employee's achievement of performance based criteria
established by Washington Mutual in the reasonable good faith exercise of its
discretion. In the calendar year of the Effective Date (defined herein), the
earned portion of the target bonus shall be paid pro rata for the number of
months of employment under this Agreement in such year. Thereafter, Employee
must be actively employed on the last day of the applicable calendar year to be
eligible to receive the earned portion of the target bonus. Target bonuses shall
be paid within the time frame established by Washington Mutual's policy.
<PAGE> 2
(c) 1999 Pro Rata Bonus: Employee shall be paid a pro rata bonus for
1999 in the amount of two hundred and sixty two thousand five hundred dollars
($262,500), subject to modification as stated herein. The stated amount of the
pro rata bonus assumes an Effective Time of September 30, 1999, and is
calculated pro rata based on an annualized bonus of three hundred and fifty
thousand dollars ($350,000); the pro rata bonus shall be adjusted accordingly to
the actual Effective Time, and shall be paid on the date of the Effective Time
(the "Effective Date").
(d) Additional Compensation for Services: As additional compensation
for the services Employee is to provide hereunder, Employee shall receive the
following:
(1) Restricted Stock: Employee shall be granted restricted stock
with a value of three hundred thousand dollars ($300,000), with the number of
shares to be equal to $300,000 divided by the closing price of Washington
Mutual's common stock on the Effective Date. Ownership of the referenced
restricted stock shall vest fully in Employee three years from the effective
date of this Agreement, contingent upon Employee being employed by Washington
Mutual on said vesting date. If prior to the vesting date Employee is terminated
with or without cause or voluntarily terminates his employment with or without
good cause, other than as provided for in connection with a Change of Control
(as defined herein), all rights to the restricted stock shall be forfeited.
Except as expressly stated herein, the restricted stock shall be subject to the
terms of the Washington Mutual, Inc. Restricted Stock Plan, as amended from time
to time.
(2) Stock Options: Employee shall be granted the option to
purchase 20,000 shares of the common stock of Washington Mutual at an exercise
price equal to the closing price of Washington Mutual's common stock on the
Effective Date. The option shares shall vest and become exercisable in three
equal annual installments on the first through third anniversaries of the
effective date of this Agreement. If prior to any vesting date Employee is
terminated with or without cause, or voluntarily terminates his employment with
or without good cause, other than as provided for in connection with a Change of
Control, all rights to the unvested option shares shall be forfeited. Except as
expressly stated herein, the stock options shall be subject to the terms of the
Washington Mutual, Inc. Stock Option Plan, as amended from time to time.
(3) Future Stock Options: Commencing in the year 2000 Employee
shall be eligible for stock option grants on the same basis as similarly
situated employees of Washington Mutual.
(4) Automobile Allowance: Employee shall be paid an annual
automobile allowance in the total sum of five thousand dollars ($5,000), which
sum shall be paid on a pro rata basis during each month of active employment.
2
<PAGE> 3
(e) Long Beach Change of Control Compensation: The parties
recognize that Employee is entitled to compensation from Long Beach in the event
of a change of control of Long Beach pursuant to a certain employment agreement
between Employee and Long Beach effective January 1, 1998, and that the merger
of Long Beach into Washington Mutual constitutes a change of control for such
purpose. In full satisfaction of Long Beach's obligations under said employment
agreement arising from a change in control (other than Long Beach's continuing
obligations under Section 3.7 of such employment agreement as amended as of May
18, 1999), Employee shall receive consideration of nine hundred and sixty two
thousand five hundred dollars ($962,500), which amount shall be paid in cash on
the Effective Date.
(f) Fringe Benefits: Employee shall receive fringe benefits,
such as health, disability and life insurance, comparable to those offered to
other similarly situated employees of Washington Mutual, as determined by
Washington Mutual from time to time.
(g) All compensation paid to Employee pursuant to this Agreement
shall be subject to lawfully required withholdings.
4. 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 Washington Mutual; (b) Employee will
devote to the performance of his or her duties all such time and attention as
Washington Mutual 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 Washington Mutual's
express consent, 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.
5. Term and Termination.
(a) This Agreement shall take effect upon the Effective Date.
(b) This Agreement shall have an initial term of two years from the
effective date, during which initial term the Employee can be terminated only
for cause.
(1) If during the initial two year term of this Agreement
Employee is terminated without "cause" or voluntarily terminates his employment
with "good cause" (as said terms are defined herein), (i) Employee will be paid
the base salary
3
<PAGE> 4
for the balance of the initial two year term, and (ii) Employee shall be paid
the target bonus for the balance of the term for which Employee has not
previously received a bonus.
(2) For the period of employment following the initial term of
two years from the effective date, Employee shall be employed at will and can be
terminated by Washington Mutual, or any parent, affiliate or subsidiary of
Washington Mutual by which Employee may then be employed, at any time, without
notice or cause. Employee's at will status following the initial two years after
the effective date of this Agreement can be changed only by a written agreement,
subsequent to this Agreement, signed by the President of Washington Mutual
expressly stating that Employee's employment can be terminated only for cause.
During the period Employee's status is at will, except as expressly provided in
this Agreement, upon termination of employment Washington Mutual shall have no
liability to pay any further compensation or any other benefit or sum whatsoever
to Employee.
(c) Upon termination of employment, Employee's rights under all
employee pension plans, employee welfare benefit plans, bonus plans and stock
option and restricted stock plans shall be determined under the terms of the
plans and grants themselves, except as otherwise specifically provided in this
Agreement.
(d) If (i) Employee's employment is terminated by Washington Mutual
for any reason upon or within two years after a Change in Control (as defined
below) or (ii) Employee resigns for "good cause" (as defined below) upon or
within two 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 two times Employee's annual compensation. In
addition, upon such an event:
(1) all stock options held by Employee, including those granted
herein, shall become immediately vested and exercisable notwithstanding any
provisions in the grant of such options regarding vesting, and
(2) the lapse of the restrictions on Employee's restricted stock
shall automatically be accelerated; provided that the provision in this
subsection (2) shall be effective only if the Compensation Committee has taken
action approving 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 (2), either at the time it approves
the acceleration or in connection with making any particular grant of restricted
stock.
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<PAGE> 5
(e) For purposes of Section 5(d), Employee's "annual compensation"
shall include all items of compensation provided by Washington Mutual other than
the value of stock options and/or restricted stock granted to Employee, and
excluding consideration paid to Employee on a nonrecurring basis arising from
the acquisition of Long Beach. 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 benefit plans for the calendar year in which the
termination occurs, including without limitation contributions to pension plans
and plans qualified under Section 125 of the Internal Revenue Code of 1986
(cafeteria plans).
(f) Notwithstanding the foregoing, if any payment described in
Section 5(d), 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 5(d) 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.
(g) For purposes of this Agreement, "Change in Control" shall mean:
(1) 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 or Long Beach Mortgage, (ii) the aggregate
voting power of Washington Mutual's or Long Beach Mortgage's voting securities
or (iii) the total market value of Washington Mutual's or Long Beach Mortgage's
voting securities;
(2) 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
5
<PAGE> 6
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;
(3) 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 a Subsidiary) 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;
(4) 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
(5) 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.
(h) For purposes of this Agreement:
(1) "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
(2) "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.
(i) For purposes of this Agreement, "good cause" for Employee to
resign shall mean:
(1) The assignment of duties to Employee, without his express
written consent, which (a) are materially different from Employee's duties as
provided herein, or (b) result in Employee having significantly less authority
and/or responsibility than provided herein;
(2) The removal (which shall include being placed on
administrative leave for more than thirty days) of Employee from the position
specified in Section 2 hereof unless with Employee's express written consent,
except where such removal is for cause (as defined below) or by reason of
Employee's disability;
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<PAGE> 7
(3) A reduction of Employee's base salary or target bonus as
provided herein, as the same may be increased from time to time thereafter;
(4) Following a Change in Control, 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, excluding nonrecurring payment of consideration arising from
the acquisition of Long Beach; or
(5) Any requirement to move Employee's principal place of
employment to a location more than a fifty mile radius from Long Beach's
existing executive offices in Orange, CA.
(j) For purposes 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 a
Subsidiary, physical attack on another employee, willful malfeasance or gross
negligence in the performance of his or her duties, or misconduct materially
injurious to Washington Mutual or a Subsidiary.
6. 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 or stock
plan).
7. 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, its Subsidiaries, and/or affiliates. This includes
information developed by Employee, alone or with others, or entrusted to
Washington Mutual, its Subsidiaries, and/or affiliates, by their respective
customers or others. Confidential Information includes, without limitation,
information relating to the trade secrets, know-how, procedures, purchasing,
accounting, marketing, sales, customers, clients, employees, business strategies
and acquisition strategies, agents and independent brokers, software programs,
and other information of Washington Mutual, its Subsidiaries, and/or
7
<PAGE> 8
affiliates. During and after the term of employment Employee will hold all such
Confidential Information in strict confidence and will not disclose or use it
except as authorized by Washington Mutual and for Washington Mutual's benefit.
8. 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 or its
Subsidiaries.
9. Non-solicitation. Employee agrees that during his employment with
Washington Mutual and for a period of eighteen (18) months after the termination
of his employment for any reason, Employee shall not without the express written
consent of Washington Mutual (i) directly or indirectly solicit, induce or
attempt to solicit or induce any employee of Washington Mutual, a Subsidiary, or
affiliate to discontinue his employment; (ii) usurp any opportunity of
Washington Mutual, a Subsidiary, or affiliate thereof, of which Employee became
aware during his tenure with Washington Mutual or which is made available to him
on the basis of the belief that Employee is still employed by Washington Mutual,
a Subsidiary or affiliate; (iii) directly or indirectly solicit, induce or
attempt to influence any person that is an account, customer, client of
Washington Mutual, a Subsidiary or affiliate to restrict, transfer or cancel the
business of any such account, customer, or client with Washington Mutual, a
Subsidiary or affiliate; or (iv) directly or indirectly solicit, induce or
attempt to influence any mortgage broker with whom Employee dealt or learned of
while employed by Long Beach Mortgage or Washington Mutual or a Subsidiary to
transfer or refer to another lender all or part of such mortgage broker's
business with or referrals to Washington Mutual or a Subsidiary.
10. Resolution of Disputes. Any dispute arising out of or relating to
this Agreement or Employee's employment (or termination of employment) shall be
submitted to and resolved by final and binding arbitration as provided in the
Binding Arbitration Agreement attached as Exhibit A, whether the claimant is
Employee or Washington Mutual. In any dispute in arbitration or court arising
out of or relating to this Agreement, the losing party shall pay the prevailing
party's reasonable attorneys' fees, costs and expenses.
11. 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 on these subjects that Employee may
have with Washington Mutual, or any Subsidiary of Washington Mutual. Employee
acknowledges
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<PAGE> 9
that Employee shall be entitled to change in control benefits, severance
benefits or other employment separation benefits only as specifically provided
in this Agreement (or, to the extent applicable according to its terms, as
provided in the Washington Mutual Severance Plan as in effect from time to
time), notwithstanding the terms of any other representation, policy, severance
plan, benefit plan or agreement.
(b) This Agreement has been drafted in contemplation of and shall
be construed in accordance with and governed by the law of the state of
Employee's principal place of employment with Washington Mutual.
(c) 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.
(d) If a court or arbitrator 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.
(e) Employee may not assign Employee's rights or delegate
Employee's duties under this Agreement.
(f) Washington Mutual may assign its rights and delegate its duties
under this Agreement to Washington Mutual or any Subsidiary of Washington Mutual
(the term "Washington Mutual" as used herein shall include such Subsidiary,
including, after the effective date, Long Beach Mortgage), or to any purchaser
of all or substantially all of Washington Mutual's assets. The transfer of
Employee's employment from Washington Mutual to any other Subsidiary of
Washington Mutual or to the purchaser of all or substantially all of the assets
of Washington Mutual shall not be considered a termination of employment, but
this Agreement shall run to the benefit of, and be binding upon, the new
employer. In the event of a Change in Control, as defined above, this Agreement
shall bind, and run to the benefit of, the successor to Washington Mutual
resulting from the Change in Control.
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<PAGE> 10
DATED effective as of the 18th day of May, 1999.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By /s/ Fay L. Chapman
---------------------------
Executive Vice President
EMPLOYEE: /s/ M. Jack Mayesh
---------------------------
M. Jack Mayesh
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<PAGE> 11
EXHIBIT A
BINDING ARBITRATION AGREEMENT
This Binding Arbitration Agreement is a part of, and incorporated
into, that certain Employment Agreement between the parties dated effective as
of the 18th day of May, 1999. I, the employee who is a party to the Employment
Agreement to which this Exhibit is attached, as well as Washington Mutual, agree
as follows:
1. Any and all disputes which involve or relate in any way to my
employment (or termination of employment) with Washington Mutual shall be
submitted to and resolved by final and binding arbitration.
2. Washington Mutual and I understand that by entering into this
Binding Arbitration Agreement, we are each waiving any right we may have to file
a lawsuit or other civil action or proceeding relating to my employment with
Washington Mutual, and are waiving any right we may have to resolve employment
disputes through trial by jury. We agree that arbitration shall be in lieu of
any and all lawsuits or other civil legal proceedings relating to my employment.
3. This Binding Arbitration Agreement is intended to cover all
civil claims which involve or relate in any way to my employment (or termination
of employment) with Washington Mutual, including, but not limited to, claims of
employment discrimination or harassment on the basis of race, sex, age,
religion, color, national origin, sexual orientation, disability and veteran
status (including claims under Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Americans with Disabilities Act, the
Employee Retirement Income Security Act "ERISA"), the Fair Labor Standards Act,
the Immigration Reform and Control Act and any other local, state or federal law
concerning employment or employment discrimination), claims based on violation
of public policy or statute, and claims against individuals or entities employed
by, acting on behalf of, or affiliated with Washington Mutual. However, ERISA
plan benefit issues and claims for workers compensation or for unemployment
compensation benefits are not covered by this Binding Arbitration Agreement. The
statutes of limitations otherwise applicable under law shall apply to all claims
made in the arbitration.
4. I understand and agree that despite anything in this Binding
Arbitration Agreement to the contrary, I am not waiving the right to file or
institute a complaint or charge with any government agency authorized to
investigate or resolve employment-related matters, including but not limited to
the United States Equal Employment Opportunity Commission, the Department of
Labor, the Occupational Safety and Health Commission, the National Labor
Relations Board, the Immigration and Naturalization
<PAGE> 12
Service, and any other comparable local, state or federal agency. I also
understand and agree that despite anything in this Binding Arbitration Agreement
to the contrary, 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 may remain in effect pending the
outcome of arbitration. No such request shall be a waiver of the right to submit
any dispute to arbitration.
5. This Binding Arbitration Agreement does not constitute an
employment contract, require discharge only for cause, or require any particular
corrective action or discharge procedures.
6. Arbitration under this Binding Arbitration Agreement shall be
conducted before a single arbitrator and shall take place within the state where
I am currently employed by Washington Mutual, or where I was so employed at the
time of termination.
7. In order to initiate arbitration, Washington Mutual or I must so
notify the other party in writing of their decision to initiate arbitration,
either by personal delivery or certified mail. The notification should include
the following information about the employee: name, home address, work address,
work and home phone number, and the following information about the occurrence:
date, location, nature of the claims or dispute, facts upon which the claims are
made, and remedy requested. Any notice of arbitration initiated by Washington
Mutual shall be sent to my last known residence address as reflected in my
personnel file at Washington Mutual. Notice of arbitration initiated by me shall
be sent to Washington Mutual's General Counsel. The General Counsel's address is
currently Washington Mutual, 1201 Third Avenue, WMT 1500, Seattle, Washington
98101.
8. Within thirty (30) days after receipt of notice of arbitration,
Washington Mutual and I will attempt to agree upon a mutually acceptable
arbitrator. If Washington Mutual and I are unable to agree upon an arbitrator,
we will submit the dispute to the American Arbitration Association ("AAA"). If
AAA is, for some reason, unable or unwilling to accept the matter, we will
submit the matter to a comparable arbitration service. The arbitration shall be
conducted in accordance with the laws of the state in which the arbitration is
conducted and the rules and requirements of the arbitration service being
utilized, to the extent that such rules and requirements do not conflict with
the terms of this Binding Arbitration Agreement.
9. At the request of either Washington Mutual or myself, the
arbitrator will schedule a pre-hearing conference to, among other things, agree
on procedural matters, obtain stipulations, and attempt to narrow the issues.
<PAGE> 13
10. During the arbitration process, Washington Mutual and I may
each make a written demand on the other for a list of witnesses, including
experts, to be called and/or copies of documents to be introduced at the
hearing. The demand must be served at least thirty (30) days prior to the
hearing. The list and copies of documents must be delivered within twenty-five
(25) days of service of the demand.
11. Either party shall be entitled to conduct a limited amount of
discovery prior to the arbitration hearing. Either party may take a maximum of
two (2) depositions. Either party may apply to the arbitrator for further
discovery. Such further discovery may, in the discretion of the arbitrator, be
awarded upon a showing of sufficient cause. If any documents to be produced or
requested for production contain or refer to matters which are private,
proprietary and/or confidential, the arbitrator shall make an appropriate
protective order prohibiting or limiting use and disclosure of such documents
and providing for return of documents produced after the arbitration is
concluded.
12. Either party may file a brief with the arbitrator. Each brief
must be served on the arbitrator and the other party at least five (5) working
days prior to the hearing, and if not timely served must be disregarded by the
arbitrator. The brief shall specify the facts the party intends to prove,
analyze the applicable law or policy, and specify the remedy sought, At the
close of the hearing, each party shall be given leave to file a post-hearing
brief. The time for filing the posthearing brief shall be set by the arbitrator.
13. I understand that, at my expense, I have the right to hire an
attorney to represent me in the arbitration, and Washington Mutual has that same
night. I also understand that all parties shall have the right to present
evidence at the arbitration, through testimony and documents, and to
cross-examine witnesses called by another party. Each party agrees to pay the
fees of any witnesses testifying at that party's request. Each party also agrees
to pay the cost of any stenographic record of the arbitration hearing should
that party request any such record. The requesting party must notify the other
of such arrangements at least two (2) working days in advance of the hearing.
14. Any postponement or cancellation fee imposed by the arbitration
service will be paid by the party requesting the postponement or cancellation.
During the time the arbitration proceedings are ongoing, Washington Mutual will
advance any required administrative or arbitrator's fees. Each party will pay
its own witness fees.
15. At the conclusion of the arbitration, each party agrees to
promptly pay any arbitration award against it.
16. We agree that the decision of the arbitrator shall be final and
binding on all parties and shall be the exclusive remedy of the parties. The
arbitrator shall issue a written and signed statement of the basis of his or her
decision, including findings of fact
<PAGE> 14
and conclusions of law. In making the decision and award, if any, the arbitrator
shall apply applicable substantive law. The arbitrator may only award any remedy
that would have been available in court. The decision and award, if any, shall
be consistent with the terms of this Binding Arbitration Agreement and shall
include an allocation of the costs of the arbitration proceeding between the
parties.
17. This Binding Arbitration Agreement may be enforced by a court
of competent jurisdiction through the filing of a petition to compel
arbitration, or otherwise, The decision and award of the arbitrator may also be
judicially enforced pursuant to applicable law.
18. Because of the interstate nature of Washington Mutual's
business, this Binding Arbitration Agreement is governed by the Federal
Arbitration Act, 9 U.S.C, Section l et seq. (the "FAA"). The provisions of the
FAA (and to the extent not preempted by the FAA, the provisions of the law of
the state of my principal place of employment with Washington Mutual that
generally apply to commercial arbitration agreements, such as provisions
granting stays of court actions pending arbitration) are incorporated into this
Binding Arbitration Agreement to the extent not inconsistent with the other
terms of this Binding Arbitration Agreement.
19. We agree that if any provision of this Binding Arbitration
Agreement is found to be unenforceable to any extent or in violation of any
statute, rule, regulation or common law, it will not affect the enforceability
of the remaining provisions and the court shall enforce the affected provision
and all remaining provisions to the fullest extent permitted by law.
20. This Binding Arbitration Agreement shall remain in fall force
and effect at all times during and subsequent to my employment with Washington
Mutual, or any successor in interest to Washington Mutual.
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
(KOMPERDA)
This Employment Agreement (the "Agreement") is between Washington
Mutual, Inc. ("Washington Mutual"), and William K. Komperda ("Employee").
Contemporaneously herewith, Washington Mutual and Long Beach Financial
Corporation ("Long Beach") have entered into an Agreement (the "Merger
Agreement") and Plan of Merger, pursuant to which Long Beach will merge with and
into Washington Mutual. At the effective time of such merger (the "Effective
Time"), Long Beach's wholly owned subsidiary, Long Beach Mortgage Company ("Long
Beach Mortgage"), will become a wholly owned subsidiary of Washington Mutual.
Washington Mutual and Employee desire that, as of the Effective Time, Employee
will be employed by Long Beach Mortgage under the terms set forth herein. The
parties therefore agree as follows:
1. Employment. Washington Mutual (through its subsidiary Long Beach
Mortgage after the Effective Time) hereby agrees to employ Employee, and
Employee hereby agrees to accept employment, on the terms in this Agreement;
provided, this Agreement shall be void without further action by the parties if
the Merger Agreement is terminated.
2. Position and Duties. Employee shall be employed in the capacity of
Executive Vice President, Capital Markets and Strategic Planning of Long Beach
Mortgage, and shall perform such duties as are customary for such position as
Washington Mutual may from time to time direct.
3. Compensation & Benefits.
(a) Base Salary: Employee's base salary shall be two hundred and
eighty thousand dollars ($280,000) per year, payable in equal increments
pursuant to Washington Mutual's normal payroll schedule.
(b) Target Bonus: During the term of this Agreement Employee shall
be paid a target bonus of fifty percent (50%) of Employee's base salary in
effect on the last day of the calendar year to which the target bonus is
applicable, based on Employee's achievement of performance based criteria
established by Washington Mutual in the reasonable good faith exercise of its
discretion. In the calendar year of the Effective Date (defined herein), the
earned portion of the target bonus shall be paid pro rata for the number of
months of employment under this Agreement in such year. Thereafter, Employee
must be actively employed on the last day of the applicable calendar year to be
eligible to receive the earned portion of the target bonus. Target bonuses shall
be paid within the time frame established by Washington Mutual's policy.
<PAGE> 2
(c) 1999 Pro Rata Bonus: Employee shall be paid a pro rata bonus for
1999 in the amount of two hundred and sixty two thousand five hundred dollars
($262,500), subject to modification as stated herein. The stated amount of the
pro rata bonus assumes an Effective Time of September 30, 1999, and is
calculated pro rata based on an annualized bonus of three hundred and fifty
thousand dollars ($350,000); the pro rata bonus shall be adjusted accordingly to
the actual Effective Time, and shall be paid on the date of the Effective Time
(the "Effective Date").
(d) Additional Compensation for Services: As additional compensation
for the services Employee is to provide hereunder, Employee shall receive the
following:
(1) Restricted Stock: Employee shall be granted restricted stock
with a value of three hundred thousand dollars ($300,000), with the number of
shares to be equal to $300,000 divided by the closing price of Washington
Mutual's common stock on the Effective Date. Ownership of the referenced
restricted stock shall vest fully in Employee three years from the effective
date of this Agreement, contingent upon Employee being employed by Washington
Mutual on said vesting date. If prior to the vesting date Employee is terminated
with or without cause or voluntarily terminates his employment with or without
good cause, other than as provided for in connection with a Change of Control
(as defined herein), all rights to the restricted stock shall be forfeited.
Except as expressly stated herein, the restricted stock shall be subject to the
terms of the Washington Mutual, Inc. Restricted Stock Plan, as amended from time
to time.
(2) Stock Options: Employee shall be granted the option to
purchase 20,000 shares of the common stock of Washington Mutual at an exercise
price equal to the closing price of Washington Mutual's common stock on the
Effective Date. The option shares shall vest and become exercisable in three
equal annual installments on the first through third anniversaries of the
effective date of this Agreement. If prior to any vesting date Employee is
terminated with or without cause, or voluntarily terminates his employment with
or without good cause, other than as provided for in connection with a Change of
Control, all rights to the unvested option shares shall be forfeited. Except as
expressly stated herein, the stock options shall be subject to the terms of the
Washington Mutual, Inc. Stock Option Plan, as amended from time to time.
(3) Future Stock Options: Commencing in the year 2000 Employee
shall be eligible for stock option grants on the same basis as similarly
situated employees of Washington Mutual.
(4) Automobile Allowance: Employee shall be paid an annual
automobile allowance in the total sum of five thousand dollars ($5,000), which
sum shall be paid on a pro rata basis during each month of active employment.
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<PAGE> 3
(e) Long Beach Change of Control Compensation: The parties recognize
that Employee is entitled to compensation from Long Beach in the event of a
change of control of Long Beach pursuant to a certain employment agreement
between Employee and Long Beach effective January 1, 1998, and that the merger
of Long Beach into Washington Mutual constitutes a change of control for such
purpose. In full satisfaction of Long Beach's obligations under said employment
agreement arising from a change in control (other than Long Beach's continuing
obligations under Section 3.7 of such employment agreement as amended as of May
18, 1999), Employee shall receive consideration of nine hundred and sixty two
thousand five hundred dollars ($962,500), which amount shall be paid in cash on
the Effective Date.
(f) Fringe Benefits: Employee shall receive fringe benefits, such as
health, disability and life insurance, comparable to those offered to other
similarly situated employees of Washington Mutual, as determined by Washington
Mutual from time to time.
(g) All compensation paid to Employee pursuant to this Agreement
shall be subject to lawfully required withholdings.
4. 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 Washington Mutual; (b) Employee will
devote to the performance of his or her duties all such time and attention as
Washington Mutual 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 Washington Mutual's
express consent, 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.
5. Term and Termination.
(a) This Agreement shall take effect upon the Effective Date.
(b) This Agreement shall have an initial term of two years from the
effective date, during which initial term the Employee can be terminated only
for cause.
(1) If during the initial two year term of this Agreement
Employee is terminated without "cause" or voluntarily terminates his employment
with "good cause" (as said terms are defined herein), (i) Employee will be paid
the base salary
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<PAGE> 4
for the balance of the initial two year term, and (ii) Employee shall be paid
the target bonus for the balance of the term for which Employee has not
previously received a bonus.
(2) For the period of employment following the initial term of
two years from the effective date, Employee shall be employed at will and can be
terminated by Washington Mutual, or any parent, affiliate or subsidiary of
Washington Mutual by which Employee may then be employed, at any time, without
notice or cause. Employee's at will status following the initial two years after
the effective date of this Agreement can be changed only by a written agreement,
subsequent to this Agreement, signed by the President of Washington Mutual
expressly stating that Employee's employment can be terminated only for cause.
During the period Employee's status is at will, except as expressly provided in
this Agreement, upon termination of employment Washington Mutual shall have no
liability to pay any further compensation or any other benefit or sum whatsoever
to Employee.
(c) Upon termination of employment, Employee's rights under all
employee pension plans, employee welfare benefit plans, bonus plans and stock
option and restricted stock plans shall be determined under the terms of the
plans and grants themselves, except as otherwise specifically provided in this
Agreement.
(d) If (i) Employee's employment is terminated by Washington Mutual
for any reason upon or within two years after a Change in Control (as defined
below) or (ii) Employee resigns for "good cause" (as defined below) upon or
within two 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 two times Employee's annual compensation. In
addition, upon such an event:
(1) all stock options held by Employee, including those granted
herein, shall become immediately vested and exercisable notwithstanding any
provisions in the grant of such options regarding vesting, and
(2) the lapse of the restrictions on Employee's restricted stock
shall automatically be accelerated; provided that the provision in this
subsection (2) shall be effective only if the Compensation Committee has taken
action approving 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 (2), either at the time it approves
the acceleration or in connection with making any particular grant of restricted
stock.
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<PAGE> 5
(e) For purposes of Section 5(d), Employee's "annual compensation"
shall include all items of compensation provided by Washington Mutual other than
the value of stock options and/or restricted stock granted to Employee, and
excluding consideration paid to Employee on a nonrecurring basis arising from
the acquisition of Long Beach. 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 benefit plans for the calendar year in which the
termination occurs, including without limitation contributions to pension plans
and plans qualified under Section 125 of the Internal Revenue Code of 1986
(cafeteria plans).
(f) Notwithstanding the foregoing, if any payment described in
Section 5(d), 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 5(d) 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.
(g) For purposes of this Agreement, "Change in Control" shall mean:
(1) 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 or Long Beach Mortgage, (ii) the aggregate
voting power of Washington Mutual's or Long Beach Mortgage's voting securities
or (iii) the total market value of Washington Mutual's or Long Beach Mortgage's
voting securities;
(2) 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
5
<PAGE> 6
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;
(3) 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 a Subsidiary) 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;
(4) 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
(5) 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.
(h) For purposes of this Agreement:
(1) "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
(2) "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.
(i) For purposes of this Agreement, "good cause" for Employee to
resign shall mean:
(1) The assignment of duties to Employee, without his express
written consent, which (a) are materially different from Employee's duties as
provided herein, or (b) result in Employee having significantly less authority
and/or responsibility than provided herein;
(2) The removal (which shall include being placed on
administrative leave for more than thirty days) of Employee from the position
specified in Section 2 hereof unless with Employee's express written consent,
except where such removal is for cause (as defined below) or by reason of
Employee's disability;
6
<PAGE> 7
(3) A reduction of Employee's base salary or target bonus as
provided herein, as the same may be increased from time to time thereafter;
(4) Following a Change in Control, 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, excluding nonrecurring payment of consideration arising from
the acquisition of Long Beach; or
(5) Any requirement to move Employee's principal place of
employment to a location more than a fifty mile radius from Long Beach's
existing executive offices in Orange, CA.
(j) For purposes 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 a
Subsidiary, physical attack on another employee, willful malfeasance or gross
negligence in the performance of his or her duties, or misconduct materially
injurious to Washington Mutual or a Subsidiary.
6. 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 or stock plan).
7. 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, its Subsidiaries, and/or affiliates. This
includes information developed by Employee, alone or with others, or entrusted
to Washington Mutual, its Subsidiaries, and/or affiliates, by their respective
customers or others. Confidential Information includes, without limitation,
information relating to the trade secrets, know-how, procedures, purchasing,
accounting, marketing, sales, customers, clients, employees, business strategies
and acquisition strategies, agents and independent brokers, software programs,
and other information of Washington Mutual, its Subsidiaries, and/or
7
<PAGE> 8
affiliates. During and after the term of employment Employee will hold all such
Confidential Information in strict confidence and will not disclose or use it
except as authorized by Washington Mutual and for Washington Mutual's benefit.
8. 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 or its
Subsidiaries.
9. Non-solicitation. Employee agrees that during his employment with
Washington Mutual and for a period of eighteen (18) months after the termination
of his employment for any reason, Employee shall not without the express written
consent of Washington Mutual (i) directly or indirectly solicit, induce or
attempt to solicit or induce any employee of Washington Mutual, a Subsidiary, or
affiliate to discontinue his employment; (ii) usurp any opportunity of
Washington Mutual, a Subsidiary, or affiliate thereof, of which Employee became
aware during his tenure with Washington Mutual or which is made available to him
on the basis of the belief that Employee is still employed by Washington Mutual,
a Subsidiary or affiliate; (iii) directly or indirectly solicit, induce or
attempt to influence any person that is an account, customer, client of
Washington Mutual, a Subsidiary or affiliate to restrict, transfer or cancel the
business of any such account, customer, or client with Washington Mutual, a
Subsidiary or affiliate; or (iv) directly or indirectly solicit, induce or
attempt to influence any mortgage broker with whom Employee dealt or learned of
while employed by Long Beach Mortgage or Washington Mutual or a Subsidiary to
transfer or refer to another lender all or part of such mortgage broker's
business with or referrals to Washington Mutual or a Subsidiary.
10. Resolution of Disputes. Any dispute arising out of or relating to
this Agreement or Employee's employment (or termination of employment) shall be
submitted to and resolved by final and binding arbitration as provided in the
Binding Arbitration Agreement attached as Exhibit A, whether the claimant is
Employee or Washington Mutual. In any dispute in arbitration or court arising
out of or relating to this Agreement, the losing party shall pay the prevailing
party's reasonable attorneys' fees, costs and expenses.
11. 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 on these subjects that Employee may
have with Washington Mutual, or any Subsidiary of Washington Mutual. Employee
acknowledges
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<PAGE> 9
that Employee shall be entitled to change in control benefits, severance
benefits or other employment separation benefits only as specifically provided
in this Agreement (or, to the extent applicable according to its terms, as
provided in the Washington Mutual Severance Plan as in effect from time to
time), notwithstanding the terms of any other representation, policy, severance
plan, benefit plan or agreement.
(b) This Agreement has been drafted in contemplation of and shall be
construed in accordance with and governed by the law of the state of Employee's
principal place of employment with Washington Mutual.
(c) 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.
(d) If a court or arbitrator 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.
(e) Employee may not assign Employee's rights or delegate Employee's
duties under this Agreement.
(f) Washington Mutual may assign its rights and delegate its duties
under this Agreement to Washington Mutual or any Subsidiary of Washington Mutual
(the term "Washington Mutual" as used herein shall include such Subsidiary,
including, after the effective date, Long Beach Mortgage), or to any purchaser
of all or substantially all of Washington Mutual's assets. The transfer of
Employee's employment from Washington Mutual to any other Subsidiary of
Washington Mutual or to the purchaser of all or substantially all of the assets
of Washington Mutual shall not be considered a termination of employment, but
this Agreement shall run to the benefit of, and be binding upon, the new
employer. In the event of a Change in Control, as defined above, this Agreement
shall bind, and run to the benefit of, the successor to Washington Mutual
resulting from the Change in Control.
9
<PAGE> 10
DATED effective as of the 18th day of May, 1999.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By /s/ Fay L. Chapman
---------------------------
Executive Vice President
EMPLOYEE: /s/ William K. Komperda
---------------------------
William K. Komperda
10
<PAGE> 11
EXHIBIT A
BINDING ARBITRATION AGREEMENT
This Binding Arbitration Agreement is a part of, and incorporated into,
that certain Employment Agreement between the parties dated effective as of the
18th day of May, 1999. I, the employee who is a party to the Employment
Agreement to which this Exhibit is attached, as well as Washington Mutual, agree
as follows:
1. Any and all disputes which involve or relate in any way to my
employment (or termination of employment) with Washington Mutual shall be
submitted to and resolved by final and binding arbitration.
2. Washington Mutual and I understand that by entering into this
Binding Arbitration Agreement, we are each waiving any right we may have to file
a lawsuit or other civil action or proceeding relating to my employment with
Washington Mutual, and are waiving any right we may have to resolve employment
disputes through trial by jury. We agree that arbitration shall be in lieu of
any and all lawsuits or other civil legal proceedings relating to my employment.
3. This Binding Arbitration Agreement is intended to cover all civil
claims which involve or relate in any way to my employment (or termination of
employment) with Washington Mutual, including, but not limited to, claims of
employment discrimination or harassment on the basis of race, sex, age,
religion, color, national origin, sexual orientation, disability and veteran
status (including claims under Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Americans with Disabilities Act, the
Employee Retirement Income Security Act "ERISA"), the Fair Labor Standards Act,
the Immigration Reform and Control Act and any other local, state or federal law
concerning employment or employment discrimination), claims based on violation
of public policy or statute, and claims against individuals or entities employed
by, acting on behalf of, or affiliated with Washington Mutual. However, ERISA
plan benefit issues and claims for workers compensation or for unemployment
compensation benefits are not covered by this Binding Arbitration Agreement. The
statutes of limitations otherwise applicable under law shall apply to all claims
made in the arbitration.
4. I understand and agree that despite anything in this Binding
Arbitration Agreement to the contrary, I am not waiving the right to file or
institute a complaint or charge with any government agency authorized to
investigate or resolve employment-related matters, including but not limited to
the United States Equal Employment Opportunity Commission, the Department of
Labor, the Occupational Safety and Health Commission, the National Labor
Relations Board, the Immigration and Naturalization
<PAGE> 12
Service, and any other comparable local, state or federal agency. I also
understand and agree that despite anything in this Binding Arbitration Agreement
to the contrary, 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 may remain in effect pending the
outcome of arbitration. No such request shall be a waiver of the right to submit
any dispute to arbitration.
5. This Binding Arbitration Agreement does not constitute an employment
contract, require discharge only for cause, or require any particular corrective
action or discharge procedures.
6. Arbitration under this Binding Arbitration Agreement shall be
conducted before a single arbitrator and shall take place within the state where
I am currently employed by Washington Mutual, or where I was so employed at the
time of termination.
7. In order to initiate arbitration, Washington Mutual or I must so
notify the other party in writing of their decision to initiate arbitration,
either by personal delivery or certified mail. The notification should include
the following information about the employee: name, home address, work address,
work and home phone number, and the following information about the occurrence:
date, location, nature of the claims or dispute, facts upon which the claims are
made, and remedy requested. Any notice of arbitration initiated by Washington
Mutual shall be sent to my last known residence address as reflected in my
personnel file at Washington Mutual. Notice of arbitration initiated by me shall
be sent to Washington Mutual's General Counsel. The General Counsel's address is
currently Washington Mutual, 1201 Third Avenue, WMT 1500, Seattle, Washington
98101.
8. Within thirty (30) days after receipt of notice of arbitration,
Washington Mutual and I will attempt to agree upon a mutually acceptable
arbitrator. If Washington Mutual and I are unable to agree upon an arbitrator,
we will submit the dispute to the American Arbitration Association ("AAA"). If
AAA is, for some reason, unable or unwilling to accept the matter, we will
submit the matter to a comparable arbitration service. The arbitration shall be
conducted in accordance with the laws of the state in which the arbitration is
conducted and the rules and requirements of the arbitration service being
utilized, to the extent that such rules and requirements do not conflict with
the terms of this Binding Arbitration Agreement.
9. At the request of either Washington Mutual or myself, the arbitrator
will schedule a pre-hearing conference to, among other things, agree on
procedural matters, obtain stipulations, and attempt to narrow the issues.
<PAGE> 13
10. During the arbitration process, Washington Mutual and I may each
make a written demand on the other for a list of witnesses, including experts,
to be called and/or copies of documents to be introduced at the hearing. The
demand must be served at least thirty (30) days prior to the hearing. The list
and copies of documents must be delivered within twenty-five (25) days of
service of the demand.
11. Either party shall be entitled to conduct a limited amount of
discovery prior to the arbitration hearing. Either party may take a maximum of
two (2) depositions. Either party may apply to the arbitrator for further
discovery. Such further discovery may, in the discretion of the arbitrator, be
awarded upon a showing of sufficient cause. If any documents to be produced or
requested for production contain or refer to matters which are private,
proprietary and/or confidential, the arbitrator shall make an appropriate
protective order prohibiting or limiting use and disclosure of such documents
and providing for return of documents produced after the arbitration is
concluded.
12. Either party may file a brief with the arbitrator. Each brief must
be served on the arbitrator and the other party at least five (5) working days
prior to the hearing, and if not timely served must be disregarded by the
arbitrator. The brief shall specify the facts the party intends to prove,
analyze the applicable law or policy, and specify the remedy sought, At the
close of the hearing, each party shall be given leave to file a post-hearing
brief. The time for filing the posthearing brief shall be set by the arbitrator.
13. I understand that, at my expense, I have the right to hire an
attorney to represent me in the arbitration, and Washington Mutual has that same
night. I also understand that all parties shall have the right to present
evidence at the arbitration, through testimony and documents, and to
cross-examine witnesses called by another party. Each party agrees to pay the
fees of any witnesses testifying at that party's request. Each party also agrees
to pay the cost of any stenographic record of the arbitration hearing should
that party request any such record. The requesting party must notify the other
of such arrangements at least two (2) working days in advance of the hearing.
14. Any postponement or cancellation fee imposed by the arbitration
service will be paid by the party requesting the postponement or cancellation.
During the time the arbitration proceedings are ongoing, Washington Mutual will
advance any required administrative or arbitrator's fees. Each party will pay
its own witness fees.
15. At the conclusion of the arbitration, each party agrees to promptly
pay any arbitration award against it.
16. We agree that the decision of the arbitrator shall be final and
binding on all parties and shall be the exclusive remedy of the parties. The
arbitrator shall issue a written and signed statement of the basis of his or her
decision, including findings of fact
<PAGE> 14
and conclusions of law. In making the decision and award, if any, the arbitrator
shall apply applicable substantive law. The arbitrator may only award any remedy
that would have been available in court. The decision and award, if any, shall
be consistent with the terms of this Binding Arbitration Agreement and shall
include an allocation of the costs of the arbitration proceeding between the
parties.
17. This Binding Arbitration Agreement may be enforced by a court of
competent jurisdiction through the filing of a petition to compel arbitration,
or otherwise, The decision and award of the arbitrator may also be judicially
enforced pursuant to applicable law.
18. Because of the interstate nature of Washington Mutual's business,
this Binding Arbitration Agreement is governed by the Federal Arbitration Act, 9
U.S.C, Section l et seq. (the "FAA"). The provisions of the FAA (and to the
extent not preempted by the FAA, the provisions of the law of the state of my
principal place of employment with Washington Mutual that generally apply to
commercial arbitration agreements, such as provisions granting stays of court
actions pending arbitration) are incorporated into this Binding Arbitration
Agreement to the extent not inconsistent with the other terms of this Binding
Arbitration Agreement.
19. We agree that if any provision of this Binding Arbitration
Agreement is found to be unenforceable to any extent or in violation of any
statute, rule, regulation or common law, it will not affect the enforceability
of the remaining provisions and the court shall enforce the affected provision
and all remaining provisions to the fullest extent permitted by law.
20. This Binding Arbitration Agreement shall remain in fall force and
effect at all times during and subsequent to my employment with Washington
Mutual, or any successor in interest to Washington Mutual.
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
(RESENDEZ)
This Employment Agreement (the "Agreement") is between Washington
Mutual, Inc. ("Washington Mutual"), and Edward Resendez ("Employee").
Contemporaneously herewith, Washington Mutual and Long Beach Financial
Corporation ("Long Beach") have entered into an Agreement (the "Merger
Agreement") and Plan of Merger, pursuant to which Long Beach will merge with and
into Washington Mutual. At the effective time of such merger (the "Effective
Time"), Long Beach's wholly owned subsidiary, Long Beach Mortgage Company ("Long
Beach Mortgage"), will become a wholly owned subsidiary of Washington Mutual.
Washington Mutual and Employee desire that, as of the Effective Time, Employee
will be employed by Long Beach Mortgage under the terms set forth herein. The
parties therefore agree as follows:
1. Employment. Washington Mutual (through its subsidiary Long Beach
Mortgage after the Effective Time) hereby agrees to employ Employee, and
Employee hereby agrees to accept employment, on the terms in this Agreement;
provided, this Agreement shall be void without further action by the parties if
the Merger Agreement is terminated.
2. Position and Duties. Employee shall be employed in the capacity of
President of Long Beach Mortgage, and shall perform such duties as are customary
for such position as Washington Mutual may from time to time direct.
3. Compensation & Benefits.
(a) Base Salary: Employee's base salary shall be two hundred and
eighty thousand dollars ($280,000) per year, payable in equal increments
pursuant to Washington Mutual's normal payroll schedule.
(b) Target Bonus: During the term of this Agreement Employee shall
be paid a target bonus of fifty percent (50%) of Employee's base salary in
effect on the last day of the calendar year to which the target bonus is
applicable, based on Employee's achievement of performance based criteria
established by Washington Mutual in the reasonable good faith exercise of its
discretion. In the calendar year of the Effective Date (defined herein), the
earned portion of the target bonus shall be paid pro rata for the number of
months of employment under this Agreement in such year. Thereafter, Employee
must be actively employed on the last day of the applicable calendar year to be
eligible to receive the earned portion of the target bonus. Target bonuses shall
be paid within the time frame established by Washington Mutual's policy.
<PAGE> 2
(c) 1999 Pro Rata Bonus: Employee shall be paid a pro rata bonus for
1999 in the amount of two hundred and sixty two thousand five hundred dollars
($262,500), subject to modification as stated herein. The stated amount of the
pro rata bonus assumes an Effective Time of September 30, 1999, and is
calculated pro rata based on an annualized bonus of three hundred and fifty
thousand dollars ($350,000); the pro rata bonus shall be adjusted accordingly to
the actual Effective Time, and shall be paid on the date of the Effective Time
(the "Effective Date").
(d) Additional Compensation for Services: As additional compensation
for the services Employee is to provide hereunder, Employee shall receive the
following:
(1) Restricted Stock: Employee shall be granted restricted stock
with a value of three hundred thousand dollars ($300,000), with the number of
shares to be equal to $300,000 divided by the closing price of Washington
Mutual's common stock on the Effective Date. Ownership of the referenced
restricted stock shall vest fully in Employee three years from the effective
date of this Agreement, contingent upon Employee being employed by Washington
Mutual on said vesting date. If prior to the vesting date Employee is terminated
with or without cause or voluntarily terminates his employment with or without
good cause, other than as provided for in connection with a Change of Control
(as defined herein), all rights to the restricted stock shall be forfeited.
Except as expressly stated herein, the restricted stock shall be subject to the
terms of the Washington Mutual, Inc. Restricted Stock Plan, as amended from time
to time.
(2) Stock Options: Employee shall be granted the option to
purchase 20,000 shares of the common stock of Washington Mutual at an exercise
price equal to the closing price of Washington Mutual's common stock on the
Effective Date. The option shares shall vest and become exercisable in three
equal annual installments on the first through third anniversaries of the
effective date of this Agreement. If prior to any vesting date Employee is
terminated with or without cause, or voluntarily terminates his employment with
or without good cause, other than as provided for in connection with a Change of
Control, all rights to the unvested option shares shall be forfeited. Except as
expressly stated herein, the stock options shall be subject to the terms of the
Washington Mutual, Inc. Stock Option Plan, as amended from time to time.
(3) Future Stock Options: Commencing in the year 2000 Employee
shall be eligible for stock option grants on the same basis as similarly
situated employees of Washington Mutual.
(4) Automobile Allowance: Employee shall be paid an annual
automobile allowance in the total sum of five thousand dollars ($5,000), which
sum shall be paid on a pro rata basis during each month of active employment.
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<PAGE> 3
(e) Long Beach Change of Control Compensation: The parties recognize
that Employee is entitled to compensation from Long Beach in the event of a
change of control of Long Beach pursuant to a certain employment agreement
between Employee and Long Beach effective January 1, 1998, and that the merger
of Long Beach into Washington Mutual constitutes a change of control for such
purpose. In full satisfaction of Long Beach's obligations under said employment
agreement arising from a change in control (other than Long Beach's continuing
obligations under Section 3.7 of such employment agreement as amended as of May
18, 1999), Employee shall receive consideration of nine hundred and sixty two
thousand five hundred dollars ($962,500), which amount shall be paid in cash on
the Effective Date.
(f) Fringe Benefits: Employee shall receive fringe benefits, such as
health, disability and life insurance, comparable to those offered to other
similarly situated employees of Washington Mutual, as determined by Washington
Mutual from time to time.
(g) All compensation paid to Employee pursuant to this Agreement
shall be subject to lawfully required withholdings.
4. 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 Washington Mutual; (b) Employee will
devote to the performance of his or her duties all such time and attention as
Washington Mutual 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 Washington Mutual's
express consent, 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.
5. Term and Termination.
(a) This Agreement shall take effect upon the Effective Date.
(b) This Agreement shall have an initial term of two years from the
effective date, during which initial term the Employee can be terminated only
for cause.
(1) If during the initial two year term of this Agreement
Employee is terminated without "cause" or voluntarily terminates his employment
with "good cause" (as said terms are defined herein), (i) Employee will be paid
the base salary
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<PAGE> 4
for the balance of the initial two year term, and (ii) Employee shall be paid
the target bonus for the balance of the term for which Employee has not
previously received a bonus.
(2) For the period of employment following the initial term of
two years from the effective date, Employee shall be employed at will and can be
terminated by Washington Mutual, or any parent, affiliate or subsidiary of
Washington Mutual by which Employee may then be employed, at any time, without
notice or cause. Employee's at will status following the initial two years after
the effective date of this Agreement can be changed only by a written agreement,
subsequent to this Agreement, signed by the President of Washington Mutual
expressly stating that Employee's employment can be terminated only for cause.
During the period Employee's status is at will, except as expressly provided in
this Agreement, upon termination of employment Washington Mutual shall have no
liability to pay any further compensation or any other benefit or sum whatsoever
to Employee.
(c) Upon termination of employment, Employee's rights under all
employee pension plans, employee welfare benefit plans, bonus plans and stock
option and restricted stock plans shall be determined under the terms of the
plans and grants themselves, except as otherwise specifically provided in this
Agreement.
(d) If (i) Employee's employment is terminated by Washington Mutual
for any reason upon or within two years after a Change in Control (as defined
below) or (ii) Employee resigns for "good cause" (as defined below) upon or
within two 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 two times Employee's annual compensation. In
addition, upon such an event:
(1) all stock options held by Employee, including those granted
herein, shall become immediately vested and exercisable notwithstanding any
provisions in the grant of such options regarding vesting, and
(2) the lapse of the restrictions on Employee's restricted stock
shall automatically be accelerated; provided that the provision in this
subsection (2) shall be effective only if the Compensation Committee has taken
action approving 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 (2), either at the time it approves
the acceleration or in connection with making any particular grant of restricted
stock.
4
<PAGE> 5
(e) For purposes of Section 5(d), Employee's "annual compensation"
shall include all items of compensation provided by Washington Mutual other than
the value of stock options and/or restricted stock granted to Employee, and
excluding consideration paid to Employee on a nonrecurring basis arising from
the acquisition of Long Beach. 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 benefit plans for the calendar year in which the
termination occurs, including without limitation contributions to pension plans
and plans qualified under Section 125 of the Internal Revenue Code of 1986
(cafeteria plans).
(f) Notwithstanding the foregoing, if any payment described in
Section 5(d), 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 5(d) 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.
(g) For purposes of this Agreement, "Change in Control" shall mean:
(1) 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 or Long Beach Mortgage, (ii) the aggregate
voting power of Washington Mutual's or Long Beach Mortgage's voting securities
or (iii) the total market value of Washington Mutual's or Long Beach Mortgage's
voting securities;
(2) 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
5
<PAGE> 6
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;
(3) 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 a Subsidiary) 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;
(4) 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
(5) 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.
(h) For purposes of this Agreement:
(1) "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
(2) "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.
(i) For purposes of this Agreement, "good cause" for Employee to
resign shall mean:
(1) The assignment of duties to Employee, without his express
written consent, which (a) are materially different from Employee's duties as
provided herein, or (b) result in Employee having significantly less authority
and/or responsibility than provided herein;
(2) The removal (which shall include being placed on
administrative leave for more than thirty days) of Employee from the position
specified in Section 2 hereof unless with Employee's express written consent,
except where such removal is for cause (as defined below) or by reason of
Employee's disability;
6
<PAGE> 7
(3) A reduction of Employee's base salary or target bonus as
provided herein, as the same may be increased from time to time thereafter;
(4) Following a Change in Control, 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, excluding nonrecurring payment of consideration arising from
the acquisition of Long Beach; or
(5) Any requirement to move Employee's principal place of
employment to a location more than a fifty mile radius from Long Beach's
existing executive offices in Orange, CA.
(j) For purposes 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 a
Subsidiary, physical attack on another employee, willful malfeasance or gross
negligence in the performance of his or her duties, or misconduct materially
injurious to Washington Mutual or a Subsidiary.
6. 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 or stock
plan).
7. 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, its Subsidiaries, and/or affiliates. This includes
information developed by Employee, alone or with others, or entrusted to
Washington Mutual, its Subsidiaries, and/or affiliates, by their respective
customers or others. Confidential Information includes, without limitation,
information relating to the trade secrets, know-how, procedures, purchasing,
accounting, marketing, sales, customers, clients, employees, business strategies
and acquisition strategies, agents and independent brokers, software programs,
and other information of Washington Mutual, its Subsidiaries, and/or
7
<PAGE> 8
affiliates. During and after the term of employment Employee will hold all such
Confidential Information in strict confidence and will not disclose or use it
except as authorized by Washington Mutual and for Washington Mutual's benefit.
8. 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 or its
Subsidiaries.
9. Non-solicitation. Employee agrees that during his employment with
Washington Mutual and for a period of eighteen (18) months after the termination
of his employment for any reason, Employee shall not without the express written
consent of Washington Mutual (i) directly or indirectly solicit, induce or
attempt to solicit or induce any employee of Washington Mutual, a Subsidiary, or
affiliate to discontinue his employment; (ii) usurp any opportunity of
Washington Mutual, a Subsidiary, or affiliate thereof, of which Employee became
aware during his tenure with Washington Mutual or which is made available to him
on the basis of the belief that Employee is still employed by Washington Mutual,
a Subsidiary or affiliate; (iii) directly or indirectly solicit, induce or
attempt to influence any person that is an account, customer, client of
Washington Mutual, a Subsidiary or affiliate to restrict, transfer or cancel the
business of any such account, customer, or client with Washington Mutual, a
Subsidiary or affiliate; or (iv) directly or indirectly solicit, induce or
attempt to influence any mortgage broker with whom Employee dealt or learned of
while employed by Long Beach Mortgage or Washington Mutual or a Subsidiary to
transfer or refer to another lender all or part of such mortgage broker's
business with or referrals to Washington Mutual or a Subsidiary.
10. Resolution of Disputes. Any dispute arising out of or relating to
this Agreement or Employee's employment (or termination of employment) shall be
submitted to and resolved by final and binding arbitration as provided in the
Binding Arbitration Agreement attached as Exhibit A, whether the claimant is
Employee or Washington Mutual. In any dispute in arbitration or court arising
out of or relating to this Agreement, the losing party shall pay the prevailing
party's reasonable attorneys' fees, costs and expenses.
11. 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 on these subjects that Employee may
have with Washington Mutual, or any Subsidiary of Washington Mutual. Employee
acknowledges
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<PAGE> 9
that Employee shall be entitled to change in control benefits, severance
benefits or other employment separation benefits only as specifically provided
in this Agreement (or, to the extent applicable according to its terms, as
provided in the Washington Mutual Severance Plan as in effect from time to
time), notwithstanding the terms of any other representation, policy, severance
plan, benefit plan or agreement.
(b) This Agreement has been drafted in contemplation of and shall
be construed in accordance with and governed by the law of the state of
Employee's principal place of employment with Washington Mutual.
(c) 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.
(d) If a court or arbitrator 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.
(e) Employee may not assign Employee's rights or delegate
Employee's duties under this Agreement.
(f) Washington Mutual may assign its rights and delegate its duties
under this Agreement to Washington Mutual or any Subsidiary of Washington Mutual
(the term "Washington Mutual" as used herein shall include such Subsidiary,
including, after the effective date, Long Beach Mortgage), or to any purchaser
of all or substantially all of Washington Mutual's assets. The transfer of
Employee's employment from Washington Mutual to any other Subsidiary of
Washington Mutual or to the purchaser of all or substantially all of the assets
of Washington Mutual shall not be considered a termination of employment, but
this Agreement shall run to the benefit of, and be binding upon, the new
employer. In the event of a Change in Control, as defined above, this Agreement
shall bind, and run to the benefit of, the successor to Washington Mutual
resulting from the Change in Control.
9
<PAGE> 10
DATED effective as of the 18th day of May, 1999.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By /s/ Fay L. Chapman
---------------------------
Executive Vice President
EMPLOYEE: /s/ Edward Resendez
---------------------------
Edward Resendez
10
<PAGE> 11
EXHIBIT A
BINDING ARBITRATION AGREEMENT
This Binding Arbitration Agreement is a part of, and incorporated into,
that certain Employment Agreement between the parties dated effective as of the
18th day of May, 1999. I, the employee who is a party to the Employment
Agreement to which this Exhibit is attached, as well as Washington Mutual, agree
as follows:
1. Any and all disputes which involve or relate in any way to my
employment (or termination of employment) with Washington Mutual shall be
submitted to and resolved by final and binding arbitration.
2. Washington Mutual and I understand that by entering into this
Binding Arbitration Agreement, we are each waiving any right we may have to file
a lawsuit or other civil action or proceeding relating to my employment with
Washington Mutual, and are waiving any right we may have to resolve employment
disputes through trial by jury. We agree that arbitration shall be in lieu of
any and all lawsuits or other civil legal proceedings relating to my employment.
3. This Binding Arbitration Agreement is intended to cover all civil
claims which involve or relate in any way to my employment (or termination of
employment) with Washington Mutual, including, but not limited to, claims of
employment discrimination or harassment on the basis of race, sex, age,
religion, color, national origin, sexual orientation, disability and veteran
status (including claims under Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Americans with Disabilities Act, the
Employee Retirement Income Security Act "ERISA"), the Fair Labor Standards Act,
the Immigration Reform and Control Act and any other local, state or federal law
concerning employment or employment discrimination), claims based on violation
of public policy or statute, and claims against individuals or entities employed
by, acting on behalf of, or affiliated with Washington Mutual. However, ERISA
plan benefit issues and claims for workers compensation or for unemployment
compensation benefits are not covered by this Binding Arbitration Agreement. The
statutes of limitations otherwise applicable under law shall apply to all claims
made in the arbitration.
4. I understand and agree that despite anything in this Binding
Arbitration Agreement to the contrary, I am not waiving the right to file or
institute a complaint or charge with any government agency authorized to
investigate or resolve employment-related matters, including but not limited to
the United States Equal Employment Opportunity Commission, the Department of
Labor, the Occupational Safety and Health Commission, the National Labor
Relations Board, the Immigration and Naturalization
<PAGE> 12
Service, and any other comparable local, state or federal agency. I also
understand and agree that despite anything in this Binding Arbitration Agreement
to the contrary, 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 may remain in effect pending the
outcome of arbitration. No such request shall be a waiver of the right to submit
any dispute to arbitration.
5. This Binding Arbitration Agreement does not constitute an employment
contract, require discharge only for cause, or require any particular corrective
action or discharge procedures.
6. Arbitration under this Binding Arbitration Agreement shall be
conducted before a single arbitrator and shall take place within the state where
I am currently employed by Washington Mutual, or where I was so employed at the
time of termination.
7. In order to initiate arbitration, Washington Mutual or I must so
notify the other party in writing of their decision to initiate arbitration,
either by personal delivery or certified mail. The notification should include
the following information about the employee: name, home address, work address,
work and home phone number, and the following information about the occurrence:
date, location, nature of the claims or dispute, facts upon which the claims are
made, and remedy requested. Any notice of arbitration initiated by Washington
Mutual shall be sent to my last known residence address as reflected in my
personnel file at Washington Mutual. Notice of arbitration initiated by me shall
be sent to Washington Mutual's General Counsel. The General Counsel's address is
currently Washington Mutual, 1201 Third Avenue, WMT 1500, Seattle, Washington
98101.
8. Within thirty (30) days after receipt of notice of arbitration,
Washington Mutual and I will attempt to agree upon a mutually acceptable
arbitrator. If Washington Mutual and I are unable to agree upon an arbitrator,
we will submit the dispute to the American Arbitration Association ("AAA"). If
AAA is, for some reason, unable or unwilling to accept the matter, we will
submit the matter to a comparable arbitration service. The arbitration shall be
conducted in accordance with the laws of the state in which the arbitration is
conducted and the rules and requirements of the arbitration service being
utilized, to the extent that such rules and requirements do not conflict with
the terms of this Binding Arbitration Agreement.
9. At the request of either Washington Mutual or myself, the arbitrator
will schedule a pre-hearing conference to, among other things, agree on
procedural matters, obtain stipulations, and attempt to narrow the issues.
<PAGE> 13
10. During the arbitration process, Washington Mutual and I may each
make a written demand on the other for a list of witnesses, including experts,
to be called and/or copies of documents to be introduced at the hearing. The
demand must be served at least thirty (30) days prior to the hearing. The list
and copies of documents must be delivered within twenty-five (25) days of
service of the demand.
11. Either party shall be entitled to conduct a limited amount of
discovery prior to the arbitration hearing. Either party may take a maximum of
two (2) depositions. Either party may apply to the arbitrator for further
discovery. Such further discovery may, in the discretion of the arbitrator, be
awarded upon a showing of sufficient cause. If any documents to be produced or
requested for production contain or refer to matters which are private,
proprietary and/or confidential, the arbitrator shall make an appropriate
protective order prohibiting or limiting use and disclosure of such documents
and providing for return of documents produced after the arbitration is
concluded.
12. Either party may file a brief with the arbitrator. Each brief must
be served on the arbitrator and the other party at least five (5) working days
prior to the hearing, and if not timely served must be disregarded by the
arbitrator. The brief shall specify the facts the party intends to prove,
analyze the applicable law or policy, and specify the remedy sought, At the
close of the hearing, each party shall be given leave to file a post-hearing
brief. The time for filing the posthearing brief shall be set by the arbitrator.
13. I understand that, at my expense, I have the right to hire an
attorney to represent me in the arbitration, and Washington Mutual has that same
night. I also understand that all parties shall have the right to present
evidence at the arbitration, through testimony and documents, and to
cross-examine witnesses called by another party. Each party agrees to pay the
fees of any witnesses testifying at that party's request. Each party also agrees
to pay the cost of any stenographic record of the arbitration hearing should
that party request any such record. The requesting party must notify the other
of such arrangements at least two (2) working days in advance of the hearing.
14. Any postponement or cancellation fee imposed by the arbitration
service will be paid by the party requesting the postponement or cancellation.
During the time the arbitration proceedings are ongoing, Washington Mutual will
advance any required administrative or arbitrator's fees. Each party will pay
its own witness fees.
15. At the conclusion of the arbitration, each party agrees to promptly
pay any arbitration award against it.
16. We agree that the decision of the arbitrator shall be final and
binding on all parties and shall be the exclusive remedy of the parties. The
arbitrator shall issue a written and signed statement of the basis of his or her
decision, including findings of fact
<PAGE> 14
and conclusions of law. In making the decision and award, if any, the arbitrator
shall apply applicable substantive law. The arbitrator may only award any remedy
that would have been available in court. The decision and award, if any, shall
be consistent with the terms of this Binding Arbitration Agreement and shall
include an allocation of the costs of the arbitration proceeding between the
parties.
17. This Binding Arbitration Agreement may be enforced by a court of
competent jurisdiction through the filing of a petition to compel arbitration,
or otherwise, The decision and award of the arbitrator may also be judicially
enforced pursuant to applicable law.
18. Because of the interstate nature of Washington Mutual's business,
this Binding Arbitration Agreement is governed by the Federal Arbitration Act, 9
U.S.C, Section l et seq. (the "FAA"). The provisions of the FAA (and to the
extent not preempted by the FAA, the provisions of the law of the state of my
principal place of employment with Washington Mutual that generally apply to
commercial arbitration agreements, such as provisions granting stays of court
actions pending arbitration) are incorporated into this Binding Arbitration
Agreement to the extent not inconsistent with the other terms of this Binding
Arbitration Agreement.
19. We agree that if any provision of this Binding Arbitration
Agreement is found to be unenforceable to any extent or in violation of any
statute, rule, regulation or common law, it will not affect the enforceability
of the remaining provisions and the court shall enforce the affected provision
and all remaining provisions to the fullest extent permitted by law.
20. This Binding Arbitration Agreement shall remain in fall force and
effect at all times during and subsequent to my employment with Washington
Mutual, or any successor in interest to Washington Mutual.
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
(CURRY)
This Employment Agreement (the "Agreement") is between Washington
Mutual, Inc. ("Washington Mutual"), and Frank J. Curry ("Employee").
Contemporaneously herewith, Washington Mutual and Long Beach Financial
Corporation ("Long Beach") have entered into an Agreement (the "Merger
Agreement") and Plan of Merger, pursuant to which Long Beach will merge with and
into Washington Mutual. At the effective time of such merger (the "Effective
Time"), Long Beach's wholly owned subsidiary, Long Beach Mortgage Company ("Long
Beach Mortgage"), will become a wholly owned subsidiary of Washington Mutual.
Washington Mutual and Employee desire that, as of the Effective Time, Employee
will be employed by Long Beach Mortgage under the terms set forth herein. The
parties therefore agree as follows:
1. Employment. Washington Mutual (through its subsidiary Long Beach
Mortgage after the Effective Time) hereby agrees to employ Employee, and
Employee hereby agrees to accept employment, on the terms in this Agreement;
provided, this Agreement shall be void without further action by the parties if
the Merger Agreement is terminated.
2. Position and Duties. Employee shall be employed in the capacity of
Executive Vice President, Chief Operating Officer of Long Beach Mortgage, and
shall perform such duties as are customary for such position as Washington
Mutual may from time to time direct.
3. Compensation & Benefits.
(a) Base Salary: Employee's base salary shall be two hundred and
eighty thousand dollars ($280,000) per year, payable in equal increments
pursuant to Washington Mutual's normal payroll schedule.
(b) Target Bonus: During the term of this Agreement Employee shall
be paid a target bonus of fifty percent (50%) of Employee's base salary in
effect on the last day of the calendar year to which the target bonus is
applicable, based on Employee's achievement of performance based criteria
established by Washington Mutual in the reasonable good faith exercise of its
discretion. In the calendar year of the Effective Date (defined herein), the
earned portion of the target bonus shall be paid pro rata for the number of
months of employment under this Agreement in such year. Thereafter, Employee
must be actively employed on the last day of the applicable calendar year to be
eligible to receive the earned portion of the target bonus. Target bonuses shall
be paid within the time frame established by Washington Mutual's policy.
<PAGE> 2
(c) 1999 Pro Rata Bonus: Employee shall be paid a pro rata bonus for
1999 in the amount of two hundred and sixty two thousand five hundred dollars
($262,500), subject to modification as stated herein. The stated amount of the
pro rata bonus assumes an Effective Time of September 30, 1999, and is
calculated pro rata based on an annualized bonus of three hundred and fifty
thousand dollars ($350,000); the pro rata bonus shall be adjusted accordingly to
the actual Effective Time, and shall be paid on the date of the Effective Time
(the "Effective Date").
(d) Additional Compensation for Services: As additional compensation
for the services Employee is to provide hereunder, Employee shall receive the
following:
(1) Restricted Stock: Employee shall be granted restricted stock
with a value of three hundred thousand dollars ($300,000), with the number of
shares to be equal to $300,000 divided by the closing price of Washington
Mutual's common stock on the Effective Date. Ownership of the referenced
restricted stock shall vest fully in Employee three years from the effective
date of this Agreement, contingent upon Employee being employed by Washington
Mutual on said vesting date. If prior to the vesting date Employee is terminated
with or without cause or voluntarily terminates his employment with or without
good cause, other than as provided for in connection with a Change of Control
(as defined herein), all rights to the restricted stock shall be forfeited.
Except as expressly stated herein, the restricted stock shall be subject to the
terms of the Washington Mutual, Inc. Restricted Stock Plan, as amended from time
to time.
(2) Stock Options: Employee shall be granted the option to
purchase 20,000 shares of the common stock of Washington Mutual at an exercise
price equal to the closing price of Washington Mutual's common stock on the
Effective Date. The option shares shall vest and become exercisable in three
equal annual installments on the first through third anniversaries of the
effective date of this Agreement. If prior to any vesting date Employee is
terminated with or without cause, or voluntarily terminates his employment with
or without good cause, other than as provided for in connection with a Change of
Control, all rights to the unvested option shares shall be forfeited. Except as
expressly stated herein, the stock options shall be subject to the terms of the
Washington Mutual, Inc. Stock Option Plan, as amended from time to time.
(3) Future Stock Options: Commencing in the year 2000 Employee
shall be eligible for stock option grants on the same basis as similarly
situated employees of Washington Mutual.
(4) Automobile Allowance: Employee shall be paid an annual
automobile allowance in the total sum of five thousand dollars ($5,000), which
sum shall be paid on a pro rata basis during each month of active employment.
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<PAGE> 3
(e) Long Beach Change of Control Compensation: The parties recognize
that Employee is entitled to compensation from Long Beach in the event of a
change of control of Long Beach pursuant to a certain employment agreement
between Employee and Long Beach effective January 1, 1998, and that the merger
of Long Beach into Washington Mutual constitutes a change of control for such
purpose. In full satisfaction of Long Beach's obligations under said employment
agreement arising from a change in control (other than Long Beach's continuing
obligations under Section 3.7 of such employment agreement as amended as of May
18, 1999), Employee shall receive consideration of nine hundred and sixty two
thousand five hundred dollars ($962,500), which amount shall be paid in cash on
the Effective Date.
(f) Fringe Benefits: Employee shall receive fringe benefits, such as
health, disability and life insurance, comparable to those offered to other
similarly situated employees of Washington Mutual, as determined by Washington
Mutual from time to time.
(g) All compensation paid to Employee pursuant to this Agreement
shall be subject to lawfully required withholdings.
4. 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 Washington Mutual; (b) Employee will
devote to the performance of his or her duties all such time and attention as
Washington Mutual 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 Washington Mutual's
express consent, 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.
5. Term and Termination.
(a) This Agreement shall take effect upon the Effective Date.
(b) This Agreement shall have an initial term of two years from the
effective date, during which initial term the Employee can be terminated only
for cause.
(1) If during the initial two year term of this Agreement
Employee is terminated without "cause" or voluntarily terminates his employment
with "good cause" (as said terms are defined herein), (i) Employee will be paid
the base salary
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<PAGE> 4
for the balance of the initial two year term, and (ii) Employee shall be paid
the target bonus for the balance of the term for which Employee has not
previously received a bonus.
(2) For the period of employment following the initial term of
two years from the effective date, Employee shall be employed at will and can be
terminated by Washington Mutual, or any parent, affiliate or subsidiary of
Washington Mutual by which Employee may then be employed, at any time, without
notice or cause. Employee's at will status following the initial two years after
the effective date of this Agreement can be changed only by a written agreement,
subsequent to this Agreement, signed by the President of Washington Mutual
expressly stating that Employee's employment can be terminated only for cause.
During the period Employee's status is at will, except as expressly provided in
this Agreement, upon termination of employment Washington Mutual shall have no
liability to pay any further compensation or any other benefit or sum whatsoever
to Employee.
(c) Upon termination of employment, Employee's rights under all
employee pension plans, employee welfare benefit plans, bonus plans and stock
option and restricted stock plans shall be determined under the terms of the
plans and grants themselves, except as otherwise specifically provided in this
Agreement.
(d) If (i) Employee's employment is terminated by Washington Mutual
for any reason upon or within two years after a Change in Control (as defined
below) or (ii) Employee resigns for "good cause" (as defined below) upon or
within two 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 two times Employee's annual compensation. In
addition, upon such an event:
(1) all stock options held by Employee, including those granted
herein, shall become immediately vested and exercisable notwithstanding any
provisions in the grant of such options regarding vesting, and
(2) the lapse of the restrictions on Employee's restricted stock
shall automatically be accelerated; provided that the provision in this
subsection (2) shall be effective only if the Compensation Committee has taken
action approving 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 (2), either at the time it approves
the acceleration or in connection with making any particular grant of restricted
stock.
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<PAGE> 5
(e) For purposes of Section 5(d), Employee's "annual compensation"
shall include all items of compensation provided by Washington Mutual other than
the value of stock options and/or restricted stock granted to Employee, and
excluding consideration paid to Employee on a nonrecurring basis arising from
the acquisition of Long Beach. 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 benefit plans for the calendar year in which the
termination occurs, including without limitation contributions to pension plans
and plans qualified under Section 125 of the Internal Revenue Code of 1986
(cafeteria plans).
(f) Notwithstanding the foregoing, if any payment described in
Section 5(d), 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 5(d) 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.
(g) For purposes of this Agreement, "Change in Control" shall mean:
(1) 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 or Long Beach Mortgage, (ii) the aggregate
voting power of Washington Mutual's or Long Beach Mortgage's voting securities
or (iii) the total market value of Washington Mutual's or Long Beach Mortgage's
voting securities;
(2) 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
5
<PAGE> 6
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;
(3) 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 a Subsidiary) 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;
(4) 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
(5) 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.
(h) For purposes of this Agreement:
(1) "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
(2) "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.
(i) For purposes of this Agreement, "good cause" for Employee to
resign shall mean:
(1) The assignment of duties to Employee, without his express
written consent, which (a) are materially different from Employee's duties as
provided herein, or (b) result in Employee having significantly less authority
and/or responsibility than provided herein;
(2) The removal (which shall include being placed on
administrative leave for more than thirty days) of Employee from the position
specified in Section 2 hereof unless with Employee's express written consent,
except where such removal is for cause (as defined below) or by reason of
Employee's disability;
6
<PAGE> 7
(3) A reduction of Employee's base salary or target bonus as
provided herein, as the same may be increased from time to time thereafter;
(4) Following a Change in Control, 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, excluding nonrecurring payment of consideration arising from
the acquisition of Long Beach; or
(5) Any requirement to move Employee's principal place of
employment to a location more than a fifty mile radius from Long Beach's
existing executive offices in Orange, CA.
(j) For purposes 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 a
Subsidiary, physical attack on another employee, willful malfeasance or gross
negligence in the performance of his or her duties, or misconduct materially
injurious to Washington Mutual or a Subsidiary.
6. 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 or stock
plan).
7. 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, its Subsidiaries, and/or affiliates. This includes
information developed by Employee, alone or with others, or entrusted to
Washington Mutual, its Subsidiaries, and/or affiliates, by their respective
customers or others. Confidential Information includes, without limitation,
information relating to the trade secrets, know-how, procedures, purchasing,
accounting, marketing, sales, customers, clients, employees, business strategies
and acquisition strategies, agents and independent brokers, software programs,
and other information of Washington Mutual, its Subsidiaries, and/or
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<PAGE> 8
affiliates. During and after the term of employment Employee will hold all such
Confidential Information in strict confidence and will not disclose or use it
except as authorized by Washington Mutual and for Washington Mutual's benefit.
8. 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 or its
Subsidiaries.
9. Non-solicitation. Employee agrees that during his employment with
Washington Mutual and for a period of eighteen (18) months after the termination
of his employment for any reason, Employee shall not without the express written
consent of Washington Mutual (i) directly or indirectly solicit, induce or
attempt to solicit or induce any employee of Washington Mutual, a Subsidiary, or
affiliate to discontinue his employment; (ii) usurp any opportunity of
Washington Mutual, a Subsidiary, or affiliate thereof, of which Employee became
aware during his tenure with Washington Mutual or which is made available to him
on the basis of the belief that Employee is still employed by Washington Mutual,
a Subsidiary or affiliate; (iii) directly or indirectly solicit, induce or
attempt to influence any person that is an account, customer, client of
Washington Mutual, a Subsidiary or affiliate to restrict, transfer or cancel the
business of any such account, customer, or client with Washington Mutual, a
Subsidiary or affiliate; or (iv) directly or indirectly solicit, induce or
attempt to influence any mortgage broker with whom Employee dealt or learned of
while employed by Long Beach Mortgage or Washington Mutual or a Subsidiary to
transfer or refer to another lender all or part of such mortgage broker's
business with or referrals to Washington Mutual or a Subsidiary.
10. Resolution of Disputes. Any dispute arising out of or relating to
this Agreement or Employee's employment (or termination of employment) shall be
submitted to and resolved by final and binding arbitration as provided in the
Binding Arbitration Agreement attached as Exhibit A, whether the claimant is
Employee or Washington Mutual. In any dispute in arbitration or court arising
out of or relating to this Agreement, the losing party shall pay the prevailing
party's reasonable attorneys' fees, costs and expenses.
11. 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 on these subjects that Employee may
have with Washington Mutual, or any Subsidiary of Washington Mutual. Employee
acknowledges
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<PAGE> 9
that Employee shall be entitled to change in control benefits, severance
benefits or other employment separation benefits only as specifically provided
in this Agreement (or, to the extent applicable according to its terms, as
provided in the Washington Mutual Severance Plan as in effect from time to
time), notwithstanding the terms of any other representation, policy, severance
plan, benefit plan or agreement.
(b) This Agreement has been drafted in contemplation of and shall be
construed in accordance with and governed by the law of the state of Employee's
principal place of employment with Washington Mutual.
(c) 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.
(d) If a court or arbitrator 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.
(e) Employee may not assign Employee's rights or delegate Employee's
duties under this Agreement.
(f) Washington Mutual may assign its rights and delegate its duties
under this Agreement to Washington Mutual or any Subsidiary of Washington Mutual
(the term "Washington Mutual" as used herein shall include such Subsidiary,
including, after the effective date, Long Beach Mortgage), or to any purchaser
of all or substantially all of Washington Mutual's assets. The transfer of
Employee's employment from Washington Mutual to any other Subsidiary of
Washington Mutual or to the purchaser of all or substantially all of the assets
of Washington Mutual shall not be considered a termination of employment, but
this Agreement shall run to the benefit of, and be binding upon, the new
employer. In the event of a Change in Control, as defined above, this Agreement
shall bind, and run to the benefit of, the successor to Washington Mutual
resulting from the Change in Control.
9
<PAGE> 10
DATED effective as of the 18th day of May, 1999.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By /s/ Fay L. Chapman
---------------------------
Executive Vice President
EMPLOYEE: /s/ Frank J. Curry
---------------------------
Frank J. Curry
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<PAGE> 11
EXHIBIT A
BINDING ARBITRATION AGREEMENT
This Binding Arbitration Agreement is a part of, and incorporated into,
that certain Employment Agreement between the parties dated effective as of the
18th day of May, 1999. I, the employee who is a party to the Employment
Agreement to which this Exhibit is attached, as well as Washington Mutual, agree
as follows:
1. Any and all disputes which involve or relate in any way to my
employment (or termination of employment) with Washington Mutual shall be
submitted to and resolved by final and binding arbitration.
2. Washington Mutual and I understand that by entering into this
Binding Arbitration Agreement, we are each waiving any right we may have to file
a lawsuit or other civil action or proceeding relating to my employment with
Washington Mutual, and are waiving any right we may have to resolve employment
disputes through trial by jury. We agree that arbitration shall be in lieu of
any and all lawsuits or other civil legal proceedings relating to my employment.
3. This Binding Arbitration Agreement is intended to cover all civil
claims which involve or relate in any way to my employment (or termination of
employment) with Washington Mutual, including, but not limited to, claims of
employment discrimination or harassment on the basis of race, sex, age,
religion, color, national origin, sexual orientation, disability and veteran
status (including claims under Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Americans with Disabilities Act, the
Employee Retirement Income Security Act "ERISA"), the Fair Labor Standards Act,
the Immigration Reform and Control Act and any other local, state or federal law
concerning employment or employment discrimination), claims based on violation
of public policy or statute, and claims against individuals or entities employed
by, acting on behalf of, or affiliated with Washington Mutual. However, ERISA
plan benefit issues and claims for workers compensation or for unemployment
compensation benefits are not covered by this Binding Arbitration Agreement. The
statutes of limitations otherwise applicable under law shall apply to all claims
made in the arbitration.
4. I understand and agree that despite anything in this Binding
Arbitration Agreement to the contrary, I am not waiving the right to file or
institute a complaint or charge with any government agency authorized to
investigate or resolve employment-related matters, including but not limited to
the United States Equal Employment Opportunity Commission, the Department of
Labor, the Occupational Safety and Health Commission, the National Labor
Relations Board, the Immigration and Naturalization
<PAGE> 12
Service, and any other comparable local, state or federal agency. I also
understand and agree that despite anything in this Binding Arbitration Agreement
to the contrary, 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 may remain in effect pending the
outcome of arbitration. No such request shall be a waiver of the right to submit
any dispute to arbitration.
5. This Binding Arbitration Agreement does not constitute an employment
contract, require discharge only for cause, or require any particular corrective
action or discharge procedures.
6. Arbitration under this Binding Arbitration Agreement shall be
conducted before a single arbitrator and shall take place within the state where
I am currently employed by Washington Mutual, or where I was so employed at the
time of termination.
7. In order to initiate arbitration, Washington Mutual or I must so
notify the other party in writing of their decision to initiate arbitration,
either by personal delivery or certified mail. The notification should include
the following information about the employee: name, home address, work address,
work and home phone number, and the following information about the occurrence:
date, location, nature of the claims or dispute, facts upon which the claims are
made, and remedy requested. Any notice of arbitration initiated by Washington
Mutual shall be sent to my last known residence address as reflected in my
personnel file at Washington Mutual. Notice of arbitration initiated by me shall
be sent to Washington Mutual's General Counsel. The General Counsel's address is
currently Washington Mutual, 1201 Third Avenue, WMT 1500, Seattle, Washington
98101.
8. Within thirty (30) days after receipt of notice of arbitration,
Washington Mutual and I will attempt to agree upon a mutually acceptable
arbitrator. If Washington Mutual and I are unable to agree upon an arbitrator,
we will submit the dispute to the American Arbitration Association ("AAA"). If
AAA is, for some reason, unable or unwilling to accept the matter, we will
submit the matter to a comparable arbitration service. The arbitration shall be
conducted in accordance with the laws of the state in which the arbitration is
conducted and the rules and requirements of the arbitration service being
utilized, to the extent that such rules and requirements do not conflict with
the terms of this Binding Arbitration Agreement.
9. At the request of either Washington Mutual or myself, the arbitrator
will schedule a pre-hearing conference to, among other things, agree on
procedural matters, obtain stipulations, and attempt to narrow the issues.
<PAGE> 13
10. During the arbitration process, Washington Mutual and I may each
make a written demand on the other for a list of witnesses, including experts,
to be called and/or copies of documents to be introduced at the hearing. The
demand must be served at least thirty (30) days prior to the hearing. The list
and copies of documents must be delivered within twenty-five (25) days of
service of the demand.
11. Either party shall be entitled to conduct a limited amount of
discovery prior to the arbitration hearing. Either party may take a maximum of
two (2) depositions. Either party may apply to the arbitrator for further
discovery. Such further discovery may, in the discretion of the arbitrator, be
awarded upon a showing of sufficient cause. If any documents to be produced or
requested for production contain or refer to matters which are private,
proprietary and/or confidential, the arbitrator shall make an appropriate
protective order prohibiting or limiting use and disclosure of such documents
and providing for return of documents produced after the arbitration is
concluded.
12. Either party may file a brief with the arbitrator. Each brief must
be served on the arbitrator and the other party at least five (5) working days
prior to the hearing, and if not timely served must be disregarded by the
arbitrator. The brief shall specify the facts the party intends to prove,
analyze the applicable law or policy, and specify the remedy sought, At the
close of the hearing, each party shall be given leave to file a post-hearing
brief. The time for filing the posthearing brief shall be set by the arbitrator.
13. I understand that, at my expense, I have the right to hire an
attorney to represent me in the arbitration, and Washington Mutual has that same
night. I also understand that all parties shall have the right to present
evidence at the arbitration, through testimony and documents, and to
cross-examine witnesses called by another party. Each party agrees to pay the
fees of any witnesses testifying at that party's request. Each party also agrees
to pay the cost of any stenographic record of the arbitration hearing should
that party request any such record. The requesting party must notify the other
of such arrangements at least two (2) working days in advance of the hearing.
14. Any postponement or cancellation fee imposed by the arbitration
service will be paid by the party requesting the postponement or cancellation.
During the time the arbitration proceedings are ongoing, Washington Mutual will
advance any required administrative or arbitrator's fees. Each party will pay
its own witness fees.
15. At the conclusion of the arbitration, each party agrees to promptly
pay any arbitration award against it.
16. We agree that the decision of the arbitrator shall be final and
binding on all parties and shall be the exclusive remedy of the parties. The
arbitrator shall issue a written and signed statement of the basis of his or her
decision, including findings of fact
<PAGE> 14
and conclusions of law. In making the decision and award, if any, the arbitrator
shall apply applicable substantive law. The arbitrator may only award any remedy
that would have been available in court. The decision and award, if any, shall
be consistent with the terms of this Binding Arbitration Agreement and shall
include an allocation of the costs of the arbitration proceeding between the
parties.
17. This Binding Arbitration Agreement may be enforced by a court of
competent jurisdiction through the filing of a petition to compel arbitration,
or otherwise, The decision and award of the arbitrator may also be judicially
enforced pursuant to applicable law.
18. Because of the interstate nature of Washington Mutual's business,
this Binding Arbitration Agreement is governed by the Federal Arbitration Act, 9
U.S.C, Section l et seq. (the "FAA"). The provisions of the FAA (and to the
extent not preempted by the FAA, the provisions of the law of the state of my
principal place of employment with Washington Mutual that generally apply to
commercial arbitration agreements, such as provisions granting stays of court
actions pending arbitration) are incorporated into this Binding Arbitration
Agreement to the extent not inconsistent with the other terms of this Binding
Arbitration Agreement.
19. We agree that if any provision of this Binding Arbitration
Agreement is found to be unenforceable to any extent or in violation of any
statute, rule, regulation or common law, it will not affect the enforceability
of the remaining provisions and the court shall enforce the affected provision
and all remaining provisions to the fullest extent permitted by law.
20. This Binding Arbitration Agreement shall remain in fall force and
effect at all times during and subsequent to my employment with Washington
Mutual, or any successor in interest to Washington Mutual.
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
(LEONETTI)
This Employment Agreement (the "Agreement") is between Washington
Mutual, Inc. ("Washington Mutual"), and James H. Leonetti ("Employee").
Contemporaneously herewith, Washington Mutual and Long Beach Financial
Corporation ("Long Beach") have entered into an Agreement (the "Merger
Agreement") and Plan of Merger, pursuant to which Long Beach will merge with and
into Washington Mutual. At the effective time of such merger (the "Effective
Time"), Long Beach's wholly owned subsidiary, Long Beach Mortgage Company ("Long
Beach Mortgage"), will become a wholly owned subsidiary of Washington Mutual.
Washington Mutual and Employee desire that, as of the Effective Time, Employee
will be employed by Long Beach Mortgage under the terms set forth herein. The
parties therefore agree as follows:
1. Employment. Washington Mutual (through its subsidiary Long Beach
Mortgage after the Effective Time) hereby agrees to employ Employee, and
Employee hereby agrees to accept employment, on the terms in this Agreement;
provided, this Agreement shall be void without further action by the parties if
the Merger Agreement is terminated.
2. Position and Duties. Employee shall be employed in the capacity of
Senior Vice President and Chief Financial Officer, and shall perform such duties
as are customary for such position as Washington Mutual may from time to time
direct.
3. Compensation & Benefits.
(a) Base Salary: Employee's base salary shall be two hundred and
five thousand dollars ($205,000) per year, payable in equal increments pursuant
to Washington Mutual's normal payroll schedule.
(b) Target Bonus: During the term of this Agreement Employee shall
be paid a target bonus of forty percent (40%) of Employee's base salary in
effect on the last day of the calendar year to which the target bonus is
applicable, based on Employee's achievement of performance based criteria
established by Washington Mutual in the reasonable good faith exercise of its
discretion. In the calendar year of the Effective Date (defined herein), the
earned portion of the target bonus shall be paid pro rata for the number of
months of employment under this Agreement in such year. Thereafter, Employee
must be actively employed on the last day of the applicable calendar year to be
eligible to receive the earned portion of the target bonus. Target bonuses shall
be paid within the time frame established by Washington Mutual's policy.
<PAGE> 2
(c) 1999 Pro Rata Bonus: Employee shall be paid a pro rata bonus for
1999 in the amount of one hundred and fifteen thousand three hundred twelve
dollars and fifty cents ($115,312.50), subject to modification as stated herein.
The stated amount of the pro rata bonus assumes an Effective Time of September
30, 1999, and is calculated pro rata based on an annualized bonus of one hundred
and fifty three thousand seven hundred and fifty dollars ($153,750); the pro
rata bonus shall be adjusted accordingly to the actual Effective Time, and shall
be paid on the date of the Effective Time (the "Effective Date").
(d) Additional Compensation for Services: As additional compensation
for the services Employee is to provide hereunder, Employee shall receive the
following:
(1) Restricted Stock: Employee shall be granted restricted stock
with a value of fifty thousand dollars ($50,000), with the number of shares to
be equal to $50,000 divided by the closing price of Washington Mutual's common
stock on the Effective Date. Ownership of the referenced restricted stock shall
vest fully in Employee three years from the effective date of this Agreement,
contingent upon Employee being employed by Washington Mutual on said vesting
date. If prior to the vesting date Employee is terminated with or without cause
or voluntarily terminates his employment with or without good cause, other than
as provided for in connection with a Change of Control (as defined herein), all
rights to the restricted stock shall be forfeited. Except as expressly stated
herein, the restricted stock shall be subject to the terms of the Washington
Mutual, Inc. Restricted Stock Plan, as amended from time to time.
(2) Stock Options: Employee shall be granted the option to
purchase 12,000 shares of the common stock of Washington Mutual at an exercise
price equal to the closing price of Washington Mutual's common stock on the
Effective Date. The option shares shall vest and become exercisable in three
equal annual installments on the first through third anniversaries of the
effective date of this Agreement. If prior to any vesting date Employee is
terminated with or without cause, or voluntarily terminates his employment with
or without good cause, other than as provided for in connection with a Change of
Control, all rights to the unvested option shares shall be forfeited. Except as
expressly stated herein, the stock options shall be subject to the terms of the
Washington Mutual, Inc. Stock Option Plan, as amended from time to time.
(3) Future Stock Options: Commencing in the year 2000 Employee
shall be eligible for stock option grants on the same basis as similarly
situated employees of Washington Mutual.
(4) Automobile Allowance: Employee shall be paid an annual
automobile allowance in the total sum of five thousand dollars ($5,000), which
sum shall be paid on a pro rata basis during each month of active employment.
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<PAGE> 3
(5) Long Beach Change of Control Compensation: The parties
recognize that Employee is entitled to compensation from Long Beach in the event
of a change of control of Long Beach pursuant to a certain employment agreement
between Employee and Long Beach effective January 1, 1998, and that the merger
of Long Beach into Washington Mutual constitutes a change of control for such
purpose. In full satisfaction of Long Beach's obligations under said employment
agreement arising from a change in control (other than Long Beach's continuing
obligations under Section 3.7 of such employment agreement as amended as of May
18, 1999), Employee shall receive consideration with a value of three hundred
and fifty eight thousand seven hundred and fifty dollars ($358,750), which
amount shall be paid in cash on the Effective Date.
(e) Fringe Benefits: Employee shall receive fringe benefits, such as
health, disability and life insurance, comparable to those offered to other
similarly situated employees of Washington Mutual, as determined by Washington
Mutual from time to time.
(f) All compensation paid to Employee pursuant to this Agreement
shall be subject to lawfully required withholdings.
4. 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 Washington Mutual; (b) Employee will
devote to the performance of his or her duties all such time and attention as
Washington Mutual 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 Washington Mutual's
express consent, 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.
5. Term and Termination.
(a) This Agreement shall take effect upon the Effective Date.
(b) This Agreement shall have an initial term of two years from the
effective date, during which initial term the Employee can be terminated only
for cause.
(1) If during the initial two year term of this Agreement
Employee is terminated without "cause" or voluntarily terminates his employment
with "good cause" (as said terms are defined herein), (i) Employee will be paid
the base salary
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<PAGE> 4
for the balance of the initial two year term, and (ii) Employee shall be paid
the target bonus for the balance of the term for which Employee has not
previously received a bonus.
(2) For the period of employment following the initial term of
two years from the effective date, Employee shall be employed at will and can be
terminated by Washington Mutual, or any parent, affiliate or subsidiary of
Washington Mutual by which Employee may then be employed, at any time, without
notice or cause. Employee's at will status following the initial two years after
the effective date of this Agreement can be changed only by a written agreement,
subsequent to this Agreement, signed by the President of Washington Mutual
expressly stating that Employee's employment can be terminated only for cause.
During the period Employee's status is at will, except as expressly provided in
this Agreement, upon termination of employment Washington Mutual shall have no
liability to pay any further compensation or any other benefit or sum whatsoever
to Employee.
(c) Upon termination of employment, Employee's rights under all
employee pension plans, employee welfare benefit plans, bonus plans and stock
option and restricted stock plans shall be determined under the terms of the
plans and grants themselves, except as otherwise specifically provided in this
Agreement.
(d) If (i) Employee's employment is terminated by Washington Mutual
for any reason upon or within two years after a Change in Control (as defined
below) or (ii) Employee resigns for "good cause" (as defined below) upon or
within two 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 one and one half times Employee's annual
compensation. In addition, upon such an event:
(1) all stock options held by Employee, including those granted
herein, shall become immediately vested and exercisable notwithstanding any
provisions in the grant of such options regarding vesting, and
(2) the lapse of the restrictions on Employee's restricted stock
shall automatically be accelerated; provided that the provision in this
subsection (2) shall be effective only if the Compensation Committee has taken
action approving 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 (2), either at the time it approves
the acceleration or in connection with making any particular grant of restricted
stock.
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<PAGE> 5
(e) For purposes of Section 5(d), Employee's "annual compensation"
shall include all items of compensation provided by Washington Mutual other than
the value of stock options and/or restricted stock granted to Employee, and
excluding consideration paid to Employee on a nonrecurring basis arising from
the acquisition of Long Beach. 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 benefit plans for the calendar year in which the
termination occurs, including without limitation contributions to pension plans
and plans qualified under Section 125 of the Internal Revenue Code of 1986
(cafeteria plans).
(f) Notwithstanding the foregoing, if any payment described in
Section 5(d), 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 5(d) 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.
(g) For purposes of this Agreement, "Change in Control" shall mean:
(1) 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 or Long Beach Mortgage, (ii) the aggregate
voting power of Washington Mutual's or Long Beach Mortgage's voting securities
or (iii) the total market value of Washington Mutual's or Long Beach Mortgage's
voting securities;
(2) 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
5
<PAGE> 6
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;
(3) 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 a Subsidiary) 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;
(4) 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
(5) 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.
(h) For purposes of this Agreement:
(1) "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
(2) "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.
(i) For purposes of this Agreement, "good cause" for Employee to
resign shall mean:
(1) The assignment of duties to Employee, without his express
written consent, which (a) are materially different from Employee's duties as
provided herein, or (b) result in Employee having significantly less authority
and/or responsibility than provided herein;
(2) The removal (which shall include being placed on
administrative leave for more than thirty days) of Employee from the position
specified in Section 2 hereof unless with Employee's express written consent,
except where such removal is for cause (as defined below) or by reason of
Employee's disability;
6
<PAGE> 7
(3) A reduction of Employee's base salary or target bonus as
provided herein, as the same may be increased from time to time thereafter;
(4) Following a Change in Control, 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, excluding nonrecurring payment of consideration arising from
the acquisition of Long Beach; or
(5) Any requirement to move Employee's principal place of
employment to a location more than a fifty mile radius from Long Beach's
existing executive offices in Orange, CA.
(j) For purposes 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 a
Subsidiary, physical attack on another employee, willful malfeasance or gross
negligence in the performance of his or her duties, or misconduct materially
injurious to Washington Mutual or a Subsidiary.
6. 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 or stock plan).
7. 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, its Subsidiaries, and/or affiliates. This
includes information developed by Employee, alone or with others, or entrusted
to Washington Mutual, its Subsidiaries, and/or affiliates, by their respective
customers or others. Confidential Information includes, without limitation,
information relating to the trade secrets, know-how, procedures, purchasing,
accounting, marketing, sales, customers, clients, employees, business strategies
and acquisition strategies, agents and independent brokers, software programs,
and other information of Washington Mutual, its Subsidiaries, and/or
7
<PAGE> 8
affiliates. During and after the term of employment Employee will hold all such
Confidential Information in strict confidence and will not disclose or use it
except as authorized by Washington Mutual and for Washington Mutual's benefit.
8. 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 or its
Subsidiaries.
9. Non-solicitation. Employee agrees that during his employment with
Washington Mutual and for a period of eighteen (18) months after the termination
of his employment for any reason, Employee shall not without the express written
consent of Washington Mutual (i) directly or indirectly solicit, induce or
attempt to solicit or induce any employee of Washington Mutual, a Subsidiary, or
affiliate to discontinue his employment; (ii) usurp any opportunity of
Washington Mutual, a Subsidiary, or affiliate thereof, of which Employee became
aware during his tenure with Washington Mutual or which is made available to him
on the basis of the belief that Employee is still employed by Washington Mutual,
a Subsidiary or affiliate; (iii) directly or indirectly solicit, induce or
attempt to influence any person that is an account, customer, client of
Washington Mutual, a Subsidiary or affiliate to restrict, transfer or cancel the
business of any such account, customer, or client with Washington Mutual, a
Subsidiary or affiliate; or (iv) directly or indirectly solicit, induce or
attempt to influence any mortgage broker with whom Employee dealt or learned of
while employed by Long Beach Mortgage or Washington Mutual or a Subsidiary to
transfer or refer to another lender all or part of such mortgage broker's
business with or referrals to Washington Mutual or a Subsidiary.
10. Resolution of Disputes. Any dispute arising out of or relating to
this Agreement or Employee's employment (or termination of employment) shall be
submitted to and resolved by final and binding arbitration as provided in the
Binding Arbitration Agreement attached as Exhibit A, whether the claimant is
Employee or Washington Mutual. In any dispute in arbitration or court arising
out of or relating to this Agreement, the losing party shall pay the prevailing
party's reasonable attorneys' fees, costs and expenses.
11. 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 on these subjects that Employee may
have with Washington Mutual, or any Subsidiary of Washington Mutual. Employee
acknowledges
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<PAGE> 9
that Employee shall be entitled to change in control benefits, severance
benefits or other employment separation benefits only as specifically provided
in this Agreement (or, to the extent applicable according to its terms, as
provided in the Washington Mutual Severance Plan as in effect from time to
time), notwithstanding the terms of any other representation, policy, severance
plan, benefit plan or agreement.
(b) This Agreement has been drafted in contemplation of and shall
be construed in accordance with and governed by the law of the state of
Employee's principal place of employment with Washington Mutual.
(c) 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.
(d) If a court or arbitrator 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.
(e) Employee may not assign Employee's rights or delegate
Employee's duties under this Agreement.
(f) Washington Mutual may assign its rights and delegate its duties
under this Agreement to Washington Mutual or any Subsidiary of Washington Mutual
(the term "Washington Mutual" as used herein shall include such Subsidiary,
including, after the effective date, Long Beach Mortgage), or to any purchaser
of all or substantially all of Washington Mutual's assets. The transfer of
Employee's employment from Washington Mutual to any other Subsidiary of
Washington Mutual or to the purchaser of all or substantially all of the assets
of Washington Mutual shall not be considered a termination of employment, but
this Agreement shall run to the benefit of, and be binding upon, the new
employer. In the event of a Change in Control, as defined above, this Agreement
shall bind, and run to the benefit of, the successor to Washington Mutual
resulting from the Change in Control.
9
<PAGE> 10
DATED effective as of the 18th day of May, 1999.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By /s/ Fay L. Chapman
---------------------------
Executive Vice President
EMPLOYEE: /s/ James H. Leonetti
---------------------------
James H. Leonetti
10
<PAGE> 11
EXHIBIT A
BINDING ARBITRATION AGREEMENT
This Binding Arbitration Agreement is a part of, and incorporated into,
that certain Employment Agreement between the parties dated effective as of the
18th day of May 1999. I, the employee who is a party to the Employment Agreement
to which this Exhibit is attached, as well as Washington Mutual, agree as
follows:
1. Any and all disputes which involve or relate in any way to my
employment (or termination of employment) with Washington Mutual shall be
submitted to and resolved by final and binding arbitration.
2. Washington Mutual and I understand that by entering into this
Binding Arbitration Agreement, we are each waiving any right we may have to file
a lawsuit or other civil action or proceeding relating to my employment with
Washington Mutual, and are waiving any right we may have to resolve employment
disputes through trial by jury. We agree that arbitration shall be in lieu of
any and all lawsuits or other civil legal proceedings relating to my employment.
3. This Binding Arbitration Agreement is intended to cover all civil
claims which involve or relate in any way to my employment (or termination of
employment) with Washington Mutual, including, but not limited to, claims of
employment discrimination or harassment on the basis of race, sex, age,
religion, color, national origin, sexual orientation, disability and veteran
status (including claims under Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Americans with Disabilities Act, the
Employee Retirement Income Security Act "ERISA"), the Fair Labor Standards Act,
the Immigration Reform and Control Act and any other local, state or federal law
concerning employment or employment discrimination), claims based on violation
of public policy or statute, and claims against individuals or entities employed
by, acting on behalf of, or affiliated with Washington Mutual. However, ERISA
plan benefit issues and claims for workers compensation or for unemployment
compensation benefits are not covered by this Binding Arbitration Agreement. The
statutes of limitations otherwise applicable under law shall apply to all claims
made in the arbitration.
4. I understand and agree that despite anything in this Binding
Arbitration Agreement to the contrary, I am not waiving the right to file or
institute a complaint or charge with any government agency authorized to
investigate or resolve employment-related matters, including but not limited to
the United States Equal Employment Opportunity Commission, the Department of
Labor, the Occupational Safety and Health Commission, the National Labor
Relations Board, the Immigration and Naturalization
<PAGE> 12
Service, and any other comparable local, state or federal agency. I also
understand and agree that despite anything in this Binding Arbitration Agreement
to the contrary, 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 may remain in effect pending the
outcome of arbitration. No such request shall be a waiver of the right to submit
any dispute to arbitration.
5. This Binding Arbitration Agreement does not constitute an employment
contract, require discharge only for cause, or require any particular corrective
action or discharge procedures.
6. Arbitration under this Binding Arbitration Agreement shall be
conducted before a single arbitrator and shall take place within the state where
I am currently employed by Washington Mutual, or where I was so employed at the
time of termination.
7. In order to initiate arbitration, Washington Mutual or I must so
notify the other party in writing of their decision to initiate arbitration,
either by personal delivery or certified mail. The notification should include
the following information about the employee: name, home address, work address,
work and home phone number, and the following information about the occurrence:
date, location, nature of the claims or dispute, facts upon which the claims are
made, and remedy requested. Any notice of arbitration initiated by Washington
Mutual shall be sent to my last known residence address as reflected in my
personnel file at Washington Mutual. Notice of arbitration initiated by me shall
be sent to Washington Mutual's General Counsel. The General Counsel's address is
currently Washington Mutual, 1201 Third Avenue, WMT 1500, Seattle, Washington
98101.
8. Within thirty (30) days after receipt of notice of arbitration,
Washington Mutual and I will attempt to agree upon a mutually acceptable
arbitrator. If Washington Mutual and I are unable to agree upon an arbitrator,
we will submit the dispute to the American Arbitration Association ("AAA"). If
AAA is, for some reason, unable or unwilling to accept the matter, we will
submit the matter to a comparable arbitration service. The arbitration shall be
conducted in accordance with the laws of the state in which the arbitration is
conducted and the rules and requirements of the arbitration service being
utilized, to the extent that such rules and requirements do not conflict with
the terms of this Binding Arbitration Agreement.
9. At the request of either Washington Mutual or myself, the arbitrator
will schedule a pre-hearing conference to, among other things, agree on
procedural matters, obtain stipulations, and attempt to narrow the issues.
<PAGE> 13
10. During the arbitration process, Washington Mutual and I may each
make a written demand on the other for a list of witnesses, including experts,
to be called and/or copies of documents to be introduced at the hearing. The
demand must be served at least thirty (30) days prior to the hearing. The list
and copies of documents must be delivered within twenty-five (25) days of
service of the demand.
11. Either party shall be entitled to conduct a limited amount of
discovery prior to the arbitration hearing. Either party may take a maximum of
two (2) depositions. Either party may apply to the arbitrator for further
discovery. Such further discovery may, in the discretion of the arbitrator, be
awarded upon a showing of sufficient cause. If any documents to be produced or
requested for production contain or refer to matters which are private,
proprietary and/or confidential, the arbitrator shall make an appropriate
protective order prohibiting or limiting use and disclosure of such documents
and providing for return of documents produced after the arbitration is
concluded.
12. Either party may file a brief with the arbitrator. Each brief must
be served on the arbitrator and the other party at least five (5) working days
prior to the hearing, and if not timely served must be disregarded by the
arbitrator. The brief shall specify the facts the party intends to prove,
analyze the applicable law or policy, and specify the remedy sought, At the
close of the hearing, each party shall be given leave to file a post-hearing
brief. The time for filing the posthearing brief shall be set by the arbitrator.
13. I understand that, at my expense, I have the right to hire an
attorney to represent me in the arbitration, and Washington Mutual has that same
night. I also understand that all parties shall have the right to present
evidence at the arbitration, through testimony and documents, and to
cross-examine witnesses called by another party. Each party agrees to pay the
fees of any witnesses testifying at that party's request. Each party also agrees
to pay the cost of any stenographic record of the arbitration hearing should
that party request any such record. The requesting party must notify the other
of such arrangements at least two (2) working days in advance of the hearing.
14. Any postponement or cancellation fee imposed by the arbitration
service will be paid by the party requesting the postponement or cancellation.
During the time the arbitration proceedings are ongoing, Washington Mutual will
advance any required administrative or arbitrator's fees. Each party will pay
its own witness fees.
15. At the conclusion of the arbitration, each party agrees to promptly
pay any arbitration award against it.
16. We agree that the decision of the arbitrator shall be final and
binding on all parties and shall be the exclusive remedy of the parties. The
arbitrator shall issue a written and signed statement of the basis of his or her
decision, including findings of fact
<PAGE> 14
and conclusions of law. In making the decision and award, if any, the arbitrator
shall apply applicable substantive law. The arbitrator may only award any remedy
that would have been available in court. The decision and award, if any, shall
be consistent with the terms of this Binding Arbitration Agreement and shall
include an allocation of the costs of the arbitration proceeding between the
parties.
17. This Binding Arbitration Agreement may be enforced by a court of
competent jurisdiction through the filing of a petition to compel arbitration,
or otherwise, The decision and award of the arbitrator may also be judicially
enforced pursuant to applicable law.
18. Because of the interstate nature of Washington Mutual's business,
this Binding Arbitration Agreement is governed by the Federal Arbitration Act, 9
U.S.C, Sectionl et seq. (the "FAA"). The provisions of the FAA (and to the
extent not preempted by the FAA, the provisions of the law of the state of my
principal place of employment with Washington Mutual that generally apply to
commercial arbitration agreements, such as provisions granting stays of court
actions pending arbitration) are incorporated into this Binding Arbitration
Agreement to the extent not inconsistent with the other terms of this Binding
Arbitration Agreement.
19. We agree that if any provision of this Binding Arbitration
Agreement is found to be unenforceable to any extent or in violation of any
statute, rule, regulation or common law, it will not affect the enforceability
of the remaining provisions and the court shall enforce the affected provision
and all remaining provisions to the fullest extent permitted by law.
20. This Binding Arbitration Agreement shall remain in fall force and
effect at all times during and subsequent to my employment with Washington
Mutual, or any successor in interest to Washington Mutual.
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
(SULLIVAN)
This Employment Agreement (the "Agreement") is between Washington
Mutual, Inc. ("Washington Mutual"), and James J. Sullivan ("Employee").
Contemporaneously herewith, Washington Mutual and Long Beach Financial
Corporation ("Long Beach") have entered into an Agreement (the "Merger
Agreement") and Plan of Merger, pursuant to which Long Beach will merge with and
into Washington Mutual. At the effective time of such merger (the "Effective
Time"), Long Beach's wholly owned subsidiary, Long Beach Mortgage Company ("Long
Beach Mortgage"), will become a wholly owned subsidiary of Washington Mutual.
Washington Mutual and Employee desire that, as of the Effective Time, Employee
will be employed by Long Beach Mortgage under the terms set forth herein. The
parties therefore agree as follows:
1. Employment. Washington Mutual (through its subsidiary Long Beach
Mortgage after the Effective Time) hereby agrees to employ Employee, and
Employee hereby agrees to accept employment, on the terms in this Agreement;
provided, this Agreement shall be void without further action by the parties if
the Merger Agreement is terminated.
2. Position and Duties. Employee shall be employed in the capacity of
Senior Vice President, General Counsel and Secretary, and shall perform such
duties as are customary for such position as Washington Mutual may from time to
time direct.
3. Compensation & Benefits.
(a) Base Salary: Employee's base salary shall be two hundred
thousand dollars ($200,000) per year, payable in equal increments pursuant to
Washington Mutual's normal payroll schedule.
(b) Target Bonus: During the term of this Agreement Employee shall
be paid a target bonus of forty percent (40%) of Employee's base salary in
effect on the last day of the calendar year to which the target bonus is
applicable, based on Employee's achievement of performance based criteria
established by Washington Mutual in the reasonable good faith exercise of its
discretion. In the calendar year of the Effective Date (defined herein), the
earned portion of the target bonus shall be paid pro rata for the number of
months of employment under this Agreement in such year. Thereafter, Employee
must be actively employed on the last day of the applicable calendar year to be
eligible to receive the earned portion of the target bonus. Target bonuses shall
be paid within the time frame established by Washington Mutual's policy.
<PAGE> 2
(c) 1999 Pro Rata Bonus: Employee shall be paid a pro rata bonus for
1999 in the amount of seventy five thousand dollars ($75,000), subject to
modification as stated herein. The stated amount of the pro rata bonus assumes
an Effective Time of September 30, 1999, and is calculated pro rata based on an
annualized bonus of one hundred thousand dollars ($100,000); the pro rata bonus
shall be adjusted accordingly to the actual Effective Time, and shall be paid on
the date of the Effective Time (the "Effective Date").
(d) Additional Compensation for Services: As additional compensation
for the services Employee is to provide hereunder, Employee shall receive the
following:
(1) Restricted Stock: Employee shall be granted restricted stock
with a value of fifty thousand dollars ($50,000), with the number of shares to
be equal to $50,000 divided by the closing price of Washington Mutual's common
stock on the Effective Date. Ownership of the referenced restricted stock shall
vest fully in Employee three years from the effective date of this Agreement,
contingent upon Employee being employed by Washington Mutual on said vesting
date. If prior to the vesting date Employee is terminated with or without cause
or voluntarily terminates his employment with or without good cause, other than
as provided for in connection with a Change of Control (as defined herein), all
rights to the restricted stock shall be forfeited. Except as expressly stated
herein, the restricted stock shall be subject to the terms of the Washington
Mutual, Inc. Restricted Stock Plan, as amended from time to time.
(2) Stock Options: Employee shall be granted the option to
purchase 12,000 shares of the common stock of Washington Mutual at an exercise
price equal to the closing price of Washington Mutual's common stock on the
Effective Date. The option shares shall vest and become exercisable in three
equal annual installments on the first through third anniversaries of the
effective date of this Agreement. If prior to any vesting date Employee is
terminated with or without cause, or voluntarily terminates his employment with
or without good cause, other than as provided for in connection with a Change of
Control, all rights to the unvested option shares shall be forfeited. Except as
expressly stated herein, the stock options shall be subject to the terms of the
Washington Mutual, Inc. Stock Option Plan, as amended from time to time.
(3) Future Stock Options: Commencing in the year 2000 Employee
shall be eligible for stock option grants on the same basis as similarly
situated employees of Washington Mutual.
(4) Automobile Allowance: Employee shall be paid an annual
automobile allowance in the total sum of five thousand dollars ($5,000), which
sum shall be paid on a pro rata basis during each month of active employment.
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<PAGE> 3
(e) Long Beach Change of Control Compensation: The parties recognize
that Employee is entitled to compensation from Long Beach in the event of a
change of control of Long Beach pursuant to a certain employment agreement
between Employee and Long Beach effective January 1, 1998, and that the merger
of Long Beach into Washington Mutual constitutes a change of control for such
purpose. In full satisfaction of Long Beach's obligations under said employment
agreement arising from a change in control, Employee shall receive consideration
with a value of three hundred thousand dollars ($300,000), which amount shall be
paid in cash on the Effective Date.
(f) Fringe Benefits: Employee shall receive fringe benefits, such as
health, disability and life insurance, comparable to those offered to other
similarly situated employees of Washington Mutual, as determined by Washington
Mutual from time to time.
(g) All compensation paid to Employee pursuant to this Agreement
shall be subject to lawfully required withholdings.
4. 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 Washington Mutual; (b) Employee will
devote to the performance of his or her duties all such time and attention as
Washington Mutual 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 Washington Mutual's
express consent, 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.
5. Term and Termination.
(a) This Agreement shall take effect upon the Effective Date.
(b) This Agreement shall have an initial term of two years from the
effective date, during which initial term the Employee can be terminated only
for cause.
(1) If during the initial two year term of this Agreement
Employee is terminated without "cause" or voluntarily terminates his employment
with "good cause" (as said terms are defined herein), (i) Employee will be paid
the base salary for the balance of the initial two year term, and (ii) Employee
shall be paid the target
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<PAGE> 4
bonus for the balance of the term for which Employee has not previously received
a bonus.
(2) For the period of employment following the initial term of
two years from the effective date, Employee shall be employed at will and can be
terminated by Washington Mutual, or any parent, affiliate or subsidiary of
Washington Mutual by which Employee may then be employed, at any time, without
notice or cause. Employee's at will status following the initial two years after
the effective date of this Agreement can be changed only by a written agreement,
subsequent to this Agreement, signed by the President of Washington Mutual
expressly stating that Employee's employment can be terminated only for cause.
During the period Employee's status is at will, except as expressly provided in
this Agreement, upon termination of employment Washington Mutual shall have no
liability to pay any further compensation or any other benefit or sum whatsoever
to Employee.
(c) Upon termination of employment, Employee's rights under all
employee pension plans, employee welfare benefit plans, bonus plans and stock
option and restricted stock plans shall be determined under the terms of the
plans and grants themselves, except as otherwise specifically provided in this
Agreement.
(d) If (i) Employee's employment is terminated by Washington Mutual
for any reason upon or within two years after a Change in Control (as defined
below) or (ii) Employee resigns for "good cause" (as defined below) upon or
within two 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 one and one half times Employee's annual
compensation. In addition, upon such an event:
(1) all stock options held by Employee, including those granted
herein, shall become immediately vested and exercisable notwithstanding any
provisions in the grant of such options regarding vesting, and
(2) the lapse of the restrictions on Employee's restricted stock
shall automatically be accelerated; provided that the provision in this
subsection (2) shall be effective only if the Compensation Committee has taken
action approving 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 (2), either at the time it approves
the acceleration or in connection with making any particular grant of restricted
stock.
(e) For purposes of Section 5(d), Employee's "annual compensation"
shall include all items of compensation provided by Washington Mutual other than
the
4
<PAGE> 5
value of stock options and/or restricted stock granted to Employee, and
excluding consideration paid to Employee on a nonrecurring basis arising from
the acquisition of Long Beach. 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 benefit plans for the calendar year in which the
termination occurs, including without limitation contributions to pension plans
and plans qualified under Section 125 of the Internal Revenue Code of 1986
(cafeteria plans).
(f) Notwithstanding the foregoing, if any payment described in
Section 5(d), 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 5(d) 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.
(g) For purposes of this Agreement, "Change in Control" shall mean:
(1) 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 or Long Beach Mortgage, (ii) the aggregate
voting power of Washington Mutual's or Long Beach Mortgage's voting securities
or (iii) the total market value of Washington Mutual's or Long Beach Mortgage's
voting securities;
(2) 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
5
<PAGE> 6
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;
(3) 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 a Subsidiary) 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;
(4) 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
(5) 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.
(h) For purposes of this Agreement:
(1) "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
(2) "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.
(i) For purposes of this Agreement, "good cause" for Employee to
resign shall mean:
(1) The assignment of duties to Employee, without his express
written consent, which (a) are materially different from Employee's duties as
provided herein, or (b) result in Employee having significantly less authority
and/or responsibility than provided herein;
(2) The removal (which shall include being placed on
administrative leave for more than thirty days) of Employee from the position
specified in Section 2 hereof unless with Employee's express written consent,
except where such removal is for cause (as defined below) or by reason of
Employee's disability;
(3) A reduction of Employee's base salary or target bonus as
provided herein, as the same may be increased from time to time thereafter;
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<PAGE> 7
(4) Following a Change in Control, 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, excluding nonrecurring payment of consideration arising from
the acquisition of Long Beach; or
(5) Any requirement to move Employee's principal place of
employment to a location more than a fifty mile radius from Long Beach's
existing executive offices in Orange, CA.
(j) For purposes 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 a
Subsidiary, physical attack on another employee, willful malfeasance or gross
negligence in the performance of his or her duties, or misconduct materially
injurious to Washington Mutual or a Subsidiary.
6. 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 or stock
plan).
7. 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, its Subsidiaries, and/or affiliates. This includes
information developed by Employee, alone or with others, or entrusted to
Washington Mutual, its Subsidiaries, and/or affiliates, by their respective
customers or others. Confidential Information includes, without limitation,
information relating to the trade secrets, know-how, procedures, purchasing,
accounting, marketing, sales, customers, clients, employees, business strategies
and acquisition strategies, agents and independent brokers, software programs,
and other information of Washington Mutual, its Subsidiaries, and/or affiliates.
During and after the term of employment Employee will hold all such Confidential
Information in strict confidence and will not disclose or use it except as
authorized by Washington Mutual and for Washington Mutual's benefit.
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<PAGE> 8
8. 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 or its
Subsidiaries.
9. Non-solicitation. Employee agrees that during his employment with
Washington Mutual and for a period of eighteen (18) months after the termination
of his employment for any reason, Employee shall not without the express written
consent of Washington Mutual (i) directly or indirectly solicit, induce or
attempt to solicit or induce any employee of Washington Mutual, a Subsidiary, or
affiliate to discontinue his employment; (ii) usurp any opportunity of
Washington Mutual, a Subsidiary, or affiliate thereof, of which Employee became
aware during his tenure with Washington Mutual or which is made available to him
on the basis of the belief that Employee is still employed by Washington Mutual,
a Subsidiary or affiliate; (iii) directly or indirectly solicit, induce or
attempt to influence any person that is an account, customer, client of
Washington Mutual, a Subsidiary or affiliate to restrict, transfer or cancel the
business of any such account, customer, or client with Washington Mutual, a
Subsidiary or affiliate; or (iv) directly or indirectly solicit, induce or
attempt to influence any mortgage broker with whom Employee dealt or learned of
while employed by Long Beach Mortgage or Washington Mutual or a Subsidiary to
transfer or refer to another lender all or part of such mortgage broker's
business with or referrals to Washington Mutual or a Subsidiary.
10. Resolution of Disputes. Any dispute arising out of or relating to
this Agreement or Employee's employment (or termination of employment) shall be
submitted to and resolved by final and binding arbitration as provided in the
Binding Arbitration Agreement attached as Exhibit A, whether the claimant is
Employee or Washington Mutual. In any dispute in arbitration or court arising
out of or relating to this Agreement, the losing party shall pay the prevailing
party's reasonable attorneys' fees, costs and expenses.
11. 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 on these subjects that Employee may
have with Washington Mutual, or any Subsidiary of Washington Mutual. Employee
acknowledges that Employee shall be entitled to change in control benefits,
severance benefits or other employment separation benefits only as specifically
provided in this Agreement (or, to the extent applicable according to its terms,
as provided in the Washington Mutual
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<PAGE> 9
Severance Plan as in effect from time to time), notwithstanding the terms of any
other representation, policy, severance plan, benefit plan or agreement.
(b) This Agreement has been drafted in contemplation of and shall
be construed in accordance with and governed by the law of the state of
Employee's principal place of employment with Washington Mutual.
(c) 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.
(d) If a court or arbitrator 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.
(e) Employee may not assign Employee's rights or delegate
Employee's duties under this Agreement.
(f) Washington Mutual may assign its rights and delegate its duties
under this Agreement to Washington Mutual or any Subsidiary of Washington Mutual
(the term "Washington Mutual" as used herein shall include such Subsidiary,
including, after the effective date, Long Beach Mortgage), or to any purchaser
of all or substantially all of Washington Mutual's assets. The transfer of
Employee's employment from Washington Mutual to any other Subsidiary of
Washington Mutual or to the purchaser of all or substantially all of the assets
of Washington Mutual shall not be considered a termination of employment, but
this Agreement shall run to the benefit of, and be binding upon, the new
employer. In the event of a Change in Control, as defined above, this Agreement
shall bind, and run to the benefit of, the successor to Washington Mutual
resulting from the Change in Control.
9
<PAGE> 10
DATED effective as of the 18th day of May, 1999.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By /s/ Fay L. Chapman
---------------------------
Executive Vice President
EMPLOYEE: /s/ James J. Sullivan
---------------------------
James J. Sullivan
10
<PAGE> 11
EXHIBIT A
BINDING ARBITRATION AGREEMENT
This Binding Arbitration Agreement is a part of, and incorporated into,
that certain Employment Agreement between the parties dated effective as of the
18th day of May, 1999. I, the employee who is a party to the Employment
Agreement to which this Exhibit is attached, as well as Washington Mutual, agree
as follows:
1. Any and all disputes which involve or relate in any way to my
employment (or termination of employment) with Washington Mutual shall be
submitted to and resolved by final and binding arbitration.
2. Washington Mutual and I understand that by entering into this
Binding Arbitration Agreement, we are each waiving any right we may have to file
a lawsuit or other civil action or proceeding relating to my employment with
Washington Mutual, and are waiving any right we may have to resolve employment
disputes through trial by jury. We agree that arbitration shall be in lieu of
any and all lawsuits or other civil legal proceedings relating to my employment.
3. This Binding Arbitration Agreement is intended to cover all civil
claims which involve or relate in any way to my employment (or termination of
employment) with Washington Mutual, including, but not limited to, claims of
employment discrimination or harassment on the basis of race, sex, age,
religion, color, national origin, sexual orientation, disability and veteran
status (including claims under Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Americans with Disabilities Act, the
Employee Retirement Income Security Act "ERISA"), the Fair Labor Standards Act,
the Immigration Reform and Control Act and any other local, state or federal law
concerning employment or employment discrimination), claims based on violation
of public policy or statute, and claims against individuals or entities employed
by, acting on behalf of, or affiliated with Washington Mutual. However, ERISA
plan benefit issues and claims for workers compensation or for unemployment
compensation benefits are not covered by this Binding Arbitration Agreement. The
statutes of limitations otherwise applicable under law shall apply to all claims
made in the arbitration.
4. I understand and agree that despite anything in this Binding
Arbitration Agreement to the contrary, I am not waiving the right to file or
institute a complaint or charge with any government agency authorized to
investigate or resolve employment-related matters, including but not limited to
the United States Equal Employment Opportunity Commission, the Department of
Labor, the Occupational Safety and Health Commission, the National Labor
Relations Board, the Immigration and Naturalization
<PAGE> 12
Service, and any other comparable local, state or federal agency. I also
understand and agree that despite anything in this Binding Arbitration Agreement
to the contrary, 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 may remain in effect pending the
outcome of arbitration. No such request shall be a waiver of the right to submit
any dispute to arbitration.
5. This Binding Arbitration Agreement does not constitute an employment
contract, require discharge only for cause, or require any particular corrective
action or discharge procedures.
6. Arbitration under this Binding Arbitration Agreement shall be
conducted before a single arbitrator and shall take place within the state where
I am currently employed by Washington Mutual, or where I was so employed at the
time of termination.
7. In order to initiate arbitration, Washington Mutual or I must so
notify the other party in writing of their decision to initiate arbitration,
either by personal delivery or certified mail. The notification should include
the following information about the employee: name, home address, work address,
work and home phone number, and the following information about the occurrence:
date, location, nature of the claims or dispute, facts upon which the claims are
made, and remedy requested. Any notice of arbitration initiated by Washington
Mutual shall be sent to my last known residence address as reflected in my
personnel file at Washington Mutual. Notice of arbitration initiated by me shall
be sent to Washington Mutual's General Counsel. The General Counsel's address is
currently Washington Mutual, 1201 Third Avenue, WMT 1500, Seattle, Washington
98101.
8. Within thirty (30) days after receipt of notice of arbitration,
Washington Mutual and I will attempt to agree upon a mutually acceptable
arbitrator. If Washington Mutual and I are unable to agree upon an arbitrator,
we will submit the dispute to the American Arbitration Association ("AAA"). If
AAA is, for some reason, unable or unwilling to accept the matter, we will
submit the matter to a comparable arbitration service. The arbitration shall be
conducted in accordance with the laws of the state in which the arbitration is
conducted and the rules and requirements of the arbitration service being
utilized, to the extent that such rules and requirements do not conflict with
the terms of this Binding Arbitration Agreement.
9. At the request of either Washington Mutual or myself, the arbitrator
will schedule a pre-hearing conference to, among other things, agree on
procedural matters, obtain stipulations, and attempt to narrow the issues.
<PAGE> 13
10. During the arbitration process, Washington Mutual and I may each
make a written demand on the other for a list of witnesses, including experts,
to be called and/or copies of documents to be introduced at the hearing. The
demand must be served at least thirty (30) days prior to the hearing. The list
and copies of documents must be delivered within twenty-five (25) days of
service of the demand.
11. Either party shall be entitled to conduct a limited amount of
discovery prior to the arbitration hearing. Either party may take a maximum of
two (2) depositions. Either party may apply to the arbitrator for further
discovery. Such further discovery may, in the discretion of the arbitrator, be
awarded upon a showing of sufficient cause. If any documents to be produced or
requested for production contain or refer to matters which are private,
proprietary and/or confidential, the arbitrator shall make an appropriate
protective order prohibiting or limiting use and disclosure of such documents
and providing for return of documents produced after the arbitration is
concluded.
12. Either party may file a brief with the arbitrator. Each brief must
be served on the arbitrator and the other party at least five (5) working days
prior to the hearing, and if not timely served must be disregarded by the
arbitrator. The brief shall specify the facts the party intends to prove,
analyze the applicable law or policy, and specify the remedy sought, At the
close of the hearing, each party shall be given leave to file a post-hearing
brief. The time for filing the posthearing brief shall be set by the arbitrator.
13. I understand that, at my expense, I have the right to hire an
attorney to represent me in the arbitration, and Washington Mutual has that same
night. I also understand that all parties shall have the right to present
evidence at the arbitration, through testimony and documents, and to
cross-examine witnesses called by another party. Each party agrees to pay the
fees of any witnesses testifying at that party's request. Each party also agrees
to pay the cost of any stenographic record of the arbitration hearing should
that party request any such record. The requesting party must notify the other
of such arrangements at least two (2) working days in advance of the hearing.
14. Any postponement or cancellation fee imposed by the arbitration
service will be paid by the party requesting the postponement or cancellation.
During the time the arbitration proceedings are ongoing, Washington Mutual will
advance any required administrative or arbitrator's fees. Each party will pay
its own witness fees.
15. At the conclusion of the arbitration, each party agrees to promptly
pay any arbitration award against it.
16. We agree that the decision of the arbitrator shall be final and
binding on all parties and shall be the exclusive remedy of the parties. The
arbitrator shall issue a written and signed statement of the basis of his or her
decision, including findings of fact
<PAGE> 14
and conclusions of law. In making the decision and award, if any, the arbitrator
shall apply applicable substantive law. The arbitrator may only award any remedy
that would have been available in court. The decision and award, if any, shall
be consistent with the terms of this Binding Arbitration Agreement and shall
include an allocation of the costs of the arbitration proceeding between the
parties.
17. This Binding Arbitration Agreement may be enforced by a court of
competent jurisdiction through the filing of a petition to compel arbitration,
or otherwise, The decision and award of the arbitrator may also be judicially
enforced pursuant to applicable law.
18. Because of the interstate nature of Washington Mutual's business,
this Binding Arbitration Agreement is governed by the Federal Arbitration Act, 9
U.S.C, Sectionl et seq. (the "FAA"). The provisions of the FAA (and to the
extent not preempted by the FAA, the provisions of the law of the state of my
principal place of employment with Washington Mutual that generally apply to
commercial arbitration agreements, such as provisions granting stays of court
actions pending arbitration) are incorporated into this Binding Arbitration
Agreement to the extent not inconsistent with the other terms of this Binding
Arbitration Agreement.
19. We agree that if any provision of this Binding Arbitration
Agreement is found to be unenforceable to any extent or in violation of any
statute, rule, regulation or common law, it will not affect the enforceability
of the remaining provisions and the court shall enforce the affected provision
and all remaining provisions to the fullest extent permitted by law.
20. This Binding Arbitration Agreement shall remain in fall force and
effect at all times during and subsequent to my employment with Washington
Mutual, or any successor in interest to Washington Mutual.
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
(WOOD)
This Employment Agreement (the "Agreement") is between Washington
Mutual, Inc. ("Washington Mutual"), and Elizabeth A. Wood ("Employee").
Contemporaneously herewith, Washington Mutual and Long Beach Financial
Corporation ("Long Beach") have entered into an Agreement (the "Merger
Agreement") and Plan of Merger, pursuant to which Long Beach will merge with and
into Washington Mutual. At the effective time of such merger (the "Effective
Time"), Long Beach's wholly owned subsidiary, Long Beach Mortgage Company ("Long
Beach Mortgage"), will become a wholly owned subsidiary of Washington Mutual.
Washington Mutual and Employee desire that, as of the Effective Time, Employee
will be employed by Long Beach Mortgage under the terms set forth herein. The
parties therefore agree as follows:
1. Employment. Washington Mutual (through its subsidiary Long Beach
Mortgage after the Effective Time) hereby agrees to employ Employee, and
Employee hereby agrees to accept employment, on the terms in this Agreement;
provided, this Agreement shall be void without further action by the parties if
the Merger Agreement is terminated.
2. Position and Duties. Employee shall be employed in the capacity of
Senior Vice President, Organizational Development and Human Resources , and
shall perform such duties as are customary for such position as Washington
Mutual may from time to time direct.
3. Compensation & Benefits.
(a) Base Salary: Employee's base salary shall be one hundred and
fifty thousand dollars ($150,000) per year, payable in equal increments pursuant
to Washington Mutual's normal payroll schedule.
(b) Target Bonus: During the term of this Agreement Employee shall
be paid a target bonus of thirty percent (30%) of Employee's base salary in
effect on the last day of the calendar year to which the target bonus is
applicable, based on Employee's achievement of performance based criteria
established by Washington Mutual in the reasonable good faith exercise of its
discretion. In the calendar year of the Effective Date (defined herein), the
earned portion of the target bonus shall be paid pro rata for the number of
months of employment under this Agreement in such year. Thereafter, Employee
must be actively employed on the last day of the applicable calendar year to be
eligible to receive the earned portion of the target bonus. Target bonuses shall
be paid within the time frame established by Washington Mutual's policy.
<PAGE> 2
(c) 1999 Pro Rata Bonus: Employee shall be paid a pro rata bonus for
1999 in the amount of sixty-seven thousand five hundred dollar ($67,500),
subject to modification as stated herein. The stated amount of the pro rata
bonus assumes an Effective Time of September 30, 1999, and is calculated pro
rata based on an annualized bonus of ninety thousand dollars ($90,000); the pro
rata bonus shall be adjusted accordingly to the actual Effective Time, and shall
be paid on the date of the Effective Time (the "Effective Date").
(d) Additional Compensation for Services: As additional compensation
for the services Employee is to provide hereunder, Employee shall receive the
following:
(1) Restricted Stock: Employee shall be granted restricted stock
with a value of forty-two thousand five hundred dollars ($42,500), with the
number of shares to be equal to $42,500 divided by the closing price of
Washington Mutual's common stock on the Effective Date. Ownership of the
referenced restricted stock shall vest fully in Employee three years from the
effective date of this Agreement, contingent upon Employee being employed by
Washington Mutual on said vesting date. If prior to the vesting date Employee is
terminated with or without cause or voluntarily terminates her employment with
or without good cause, other than as provided for in connection with a Change of
Control (as defined herein), all rights to the restricted stock shall be
forfeited. Except as expressly stated herein, the restricted stock shall be
subject to the terms of the Washington Mutual, Inc. Restricted Stock Plan, as
amended from time to time.
(2) Stock Options: Employee shall be granted the option to
purchase 8,000 shares of the common stock of Washington Mutual at an exercise
price equal to the closing price of Washington Mutual's common stock on the
Effective Date. The option shares shall vest and become exercisable in three
equal annual installments on the first through third anniversaries of the
effective date of this Agreement. If prior to any vesting date Employee is
terminated with or without cause, or voluntarily terminates her employment with
or without good cause, other than as provided for in connection with a Change of
Control, all rights to the unvested option shares shall be forfeited. Except as
expressly stated herein, the stock options shall be subject to the terms of the
Washington Mutual, Inc. Stock Option Plan, as amended from time to time.
(3) Future Stock Options: Commencing in the year 2000 Employee
shall be eligible for stock option grants on the same basis as similarly
situated employees of Washington Mutual.
(4) Automobile Allowance: Employee shall be paid an annual
automobile allowance in the total sum of five thousand dollars ($5,000), which
sum shall be paid on a pro rata basis during each month of active employment.
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<PAGE> 3
(e) Long Beach Change of Control Compensation: The parties recognize
that Employee is entitled to compensation from Long Beach in the event of a
change of control of Long Beach pursuant to a certain employment agreement
between Employee and Long Beach effective January 1, 1998, and that the merger
of Long Beach into Washington Mutual constitutes a change of control for such
purpose. In full satisfaction of Long Beach's obligations under said employment
agreement arising from a change in control (other than Long Beach's continuing
obligations under Section 3.7 of such employment agreement as amended as of May
18, 1999), Employee shall receive consideration with a value of two hundred and
forty thousand dollars ($240,000), which amount shall be paid in cash on the
Effective Date.
(f) Fringe Benefits: Employee shall receive fringe benefits, such as
health, disability and life insurance, comparable to those offered to other
similarly situated employees of Washington Mutual, as determined by Washington
Mutual from time to time.
(g) All compensation paid to Employee pursuant to this Agreement
shall be subject to lawfully required withholdings.
4. 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 Washington Mutual; (b) Employee will
devote to the performance of his or her duties all such time and attention as
Washington Mutual 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 Washington Mutual's
express consent, 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.
5. Term and Termination.
(a) This Agreement shall take effect upon the Effective Date.
(b) This Agreement shall have an initial term of two years from the
effective date, during which initial term the Employee can be terminated only
for cause.
(1) If during the initial two year term of this Agreement
Employee is terminated without "cause" or voluntarily terminates his employment
with "good cause" (as said terms are defined herein), (i) Employee will be paid
the base salary
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<PAGE> 4
for the balance of the initial two year term, and (ii) Employee shall be paid
the target bonus for the balance of the term for which Employee has not
previously received a bonus.
(2) For the period of employment following the initial term of
two years from the effective date, Employee shall be employed at will and can be
terminated by Washington Mutual, or any parent, affiliate or subsidiary of
Washington Mutual by which Employee may then be employed, at any time, without
notice or cause. Employee's at will status following the initial two years after
the effective date of this Agreement can be changed only by a written agreement,
subsequent to this Agreement, signed by the President of Washington Mutual
expressly stating that Employee's employment can be terminated only for cause.
During the period Employee's status is at will, except as expressly provided in
this Agreement, upon termination of employment Washington Mutual shall have no
liability to pay any further compensation or any other benefit or sum whatsoever
to Employee.
(c) Upon termination of employment, Employee's rights under all
employee pension plans, employee welfare benefit plans, bonus plans and stock
option and restricted stock plans shall be determined under the terms of the
plans and grants themselves, except as otherwise specifically provided in this
Agreement.
(d) If (i) Employee's employment is terminated by Washington Mutual
for any reason upon or within two years after a Change in Control (as defined
below) or (ii) Employee resigns for "good cause" (as defined below) upon or
within two 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 one and one half times Employee's annual
compensation. In addition, upon such an event:
(1) all stock options held by Employee, including those granted
herein, shall become immediately vested and exercisable notwithstanding any
provisions in the grant of such options regarding vesting, and
(2) the lapse of the restrictions on Employee's restricted stock
shall automatically be accelerated; provided that the provision in this
subsection (2) shall be effective only if the Compensation Committee has taken
action approving 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 (2), either at the time it approves
the acceleration or in connection with making any particular grant of restricted
stock.
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<PAGE> 5
(e) For purposes of Section 5(d), Employee's "annual compensation"
shall include all items of compensation provided by Washington Mutual other than
the value of stock options and/or restricted stock granted to Employee, and
excluding consideration paid to Employee on a nonrecurring basis arising from
the acquisition of Long Beach. 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 benefit plans for the calendar year in which the
termination occurs, including without limitation contributions to pension plans
and plans qualified under Section 125 of the Internal Revenue Code of 1986
(cafeteria plans).
(f) Notwithstanding the foregoing, if any payment described in
Section 5(d), 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 5(d) 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.
(g) For purposes of this Agreement, "Change in Control" shall mean:
(1) 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 or Long Beach Mortgage, (ii) the aggregate
voting power of Washington Mutual's or Long Beach Mortgage's voting securities
or (iii) the total market value of Washington Mutual's or Long Beach Mortgage's
voting securities;
(2) 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
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<PAGE> 6
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;
(3) 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 a Subsidiary) 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;
(4) 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
(5) 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.
(h) For purposes of this Agreement:
(1) "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
(2) "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.
(i) For purposes of this Agreement, "good cause" for Employee to
resign shall mean:
(1) The assignment of duties to Employee, without her express
written consent, which (a) are materially different from Employee's duties as
provided herein, or (b) result in Employee having significantly less authority
and/or responsibility than provided herein;
(2) The removal (which shall include being placed on
administrative leave for more than thirty days) of Employee from the position
specified in Section 2 hereof unless with Employee's express written consent,
except where such removal is for cause (as defined below) or by reason of
Employee's disability;
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<PAGE> 7
(3) A reduction of Employee's base salary or target bonus as
provided herein, as the same may be increased from time to time thereafter;
(4) Following a Change in Control, 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, excluding nonrecurring payment of consideration arising from
the acquisition of Long Beach; or
(5) Any requirement to move Employee's principal place of
employment to a location more than a fifty mile radius from Long Beach's
existing executive offices in Orange, CA.
(j) For purposes of this Agreement, a removal of Employee from 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 a
Subsidiary, physical attack on another employee, willful malfeasance or gross
negligence in the performance of his or her duties, or misconduct materially
injurious to Washington Mutual or a Subsidiary.
6. 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 or stock
plan).
7. 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, its Subsidiaries, and/or affiliates. This includes
information developed by Employee, alone or with others, or entrusted to
Washington Mutual, its Subsidiaries, and/or affiliates, by their respective
customers or others. Confidential Information includes, without limitation,
information relating to the trade secrets, know-how, procedures, purchasing,
accounting, marketing, sales, customers, clients, employees, business strategies
and acquisition strategies, agents and independent brokers, software programs,
and other information of Washington Mutual, its Subsidiaries, and/or
7
<PAGE> 8
affiliates. During and after the term of employment Employee will hold all such
Confidential Information in strict confidence and will not disclose or use it
except as authorized by Washington Mutual and for Washington Mutual's benefit.
8. 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 or its
Subsidiaries.
9. Non-solicitation. Employee agrees that during her employment with
Washington Mutual and for a period of eighteen (18) months after the termination
of her employment for any reason, Employee shall not without the express written
consent of Washington Mutual (i) directly or indirectly solicit, induce or
attempt to solicit or induce any employee of Washington Mutual, a Subsidiary, or
affiliate to discontinue his or her employment; (ii) usurp any opportunity of
Washington Mutual, a Subsidiary, or affiliate thereof, of which Employee became
aware during her tenure with Washington Mutual or which is made available to her
on the basis of the belief that Employee is still employed by Washington Mutual,
a Subsidiary or affiliate; (iii) directly or indirectly solicit, induce or
attempt to influence any person that is an account, customer, client of
Washington Mutual, a Subsidiary or affiliate to restrict, transfer or cancel the
business of any such account, customer, or client with Washington Mutual, a
Subsidiary or affiliate; or (iv) directly or indirectly solicit, induce or
attempt to influence any mortgage broker with whom Employee dealt or learned of
while employed by Long Beach Mortgage or Washington Mutual or a Subsidiary to
transfer or refer to another lender all or part of such mortgage broker's
business with or referrals to Washington Mutual or a Subsidiary.
10. Resolution of Disputes. Any dispute arising out of or relating to
this Agreement or Employee's employment (or termination of employment) shall be
submitted to and resolved by final and binding arbitration as provided in the
Binding Arbitration Agreement attached as Exhibit A, whether the claimant is
Employee or Washington Mutual. In any dispute in arbitration or court arising
out of or relating to this Agreement, the losing party shall pay the prevailing
party's reasonable attorneys' fees, costs and expenses.
11. 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 on these subjects that Employee may
have with Washington Mutual, or any Subsidiary of Washington Mutual. Employee
acknowledges
8
<PAGE> 9
that Employee shall be entitled to change in control benefits, severance
benefits or other employment separation benefits only as specifically provided
in this Agreement (or, to the extent applicable according to its terms, as
provided in the Washington Mutual Severance Plan as in effect from time to
time), notwithstanding the terms of any other representation, policy, severance
plan, benefit plan or agreement.
(b) This Agreement has been drafted in contemplation of and shall
be construed in accordance with and governed by the law of the state of
Employee's principal place of employment with Washington Mutual.
(c) 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.
(d) If a court or arbitrator 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.
(e) Employee may not assign Employee's rights or delegate
Employee's duties under this Agreement.
(f) Washington Mutual may assign its rights and delegate its duties
under this Agreement to Washington Mutual or any Subsidiary of Washington Mutual
(the term "Washington Mutual" as used herein shall include such Subsidiary,
including, after the effective date, Long Beach Mortgage), or to any purchaser
of all or substantially all of Washington Mutual's assets. The transfer of
Employee's employment from Washington Mutual to any other Subsidiary of
Washington Mutual or to the purchaser of all or substantially all of the assets
of Washington Mutual shall not be considered a termination of employment, but
this Agreement shall run to the benefit of, and be binding upon, the new
employer. In the event of a Change in Control, as defined above, this Agreement
shall bind, and run to the benefit of, the successor to Washington Mutual
resulting from the Change in Control.
9
<PAGE> 10
DATED effective as of the 18th day of May, 1999.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By /s/ Fay L. Chapman
---------------------------
Executive Vice President
EMPLOYEE: /s/ Elizabeth A. Wood
---------------------------
Elizabeth A. Wood
10
<PAGE> 11
EXHIBIT A
BINDING ARBITRATION AGREEMENT
This Binding Arbitration Agreement is a part of, and incorporated into,
that certain Employment Agreement between the parties dated effective as of the
18th day of May, 1999. I, the employee who is a party to the Employment
Agreement to which this Exhibit is attached, as well as Washington Mutual, agree
as follows:
1. Any and all disputes which involve or relate in any way to my
employment (or termination of employment) with Washington Mutual shall be
submitted to and resolved by final and binding arbitration.
2. Washington Mutual and I understand that by entering into this
Binding Arbitration Agreement, we are each waiving any right we may have to file
a lawsuit or other civil action or proceeding relating to my employment with
Washington Mutual, and are waiving any right we may have to resolve employment
disputes through trial by jury. We agree that arbitration shall be in lieu of
any and all lawsuits or other civil legal proceedings relating to my employment.
3. This Binding Arbitration Agreement is intended to cover all civil
claims which involve or relate in any way to my employment (or termination of
employment) with Washington Mutual, including, but not limited to, claims of
employment discrimination or harassment on the basis of race, sex, age,
religion, color, national origin, sexual orientation, disability and veteran
status (including claims under Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Americans with Disabilities Act, the
Employee Retirement Income Security Act "ERISA"), the Fair Labor Standards Act,
the Immigration Reform and Control Act and any other local, state or federal law
concerning employment or employment discrimination), claims based on violation
of public policy or statute, and claims against individuals or entities employed
by, acting on behalf of, or affiliated with Washington Mutual. However, ERISA
plan benefit issues and claims for workers compensation or for unemployment
compensation benefits are not covered by this Binding Arbitration Agreement. The
statutes of limitations otherwise applicable under law shall apply to all claims
made in the arbitration.
4. I understand and agree that despite anything in this Binding
Arbitration Agreement to the contrary, I am not waiving the right to file or
institute a complaint or charge with any government agency authorized to
investigate or resolve employment-related matters, including but not limited to
the United States Equal Employment Opportunity Commission, the Department of
Labor, the Occupational Safety and Health Commission, the National Labor
Relations Board, the Immigration and Naturalization
<PAGE> 12
Service, and any other comparable local, state or federal agency. I also
understand and agree that despite anything in this Binding Arbitration Agreement
to the contrary, 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 may remain in effect pending the
outcome of arbitration. No such request shall be a waiver of the right to submit
any dispute to arbitration.
5. This Binding Arbitration Agreement does not constitute an employment
contract, require discharge only for cause, or require any particular corrective
action or discharge procedures.
6. Arbitration under this Binding Arbitration Agreement shall be
conducted before a single arbitrator and shall take place within the state where
I am currently employed by Washington Mutual, or where I was so employed at the
time of termination.
7. In order to initiate arbitration, Washington Mutual or I must so
notify the other party in writing of their decision to initiate arbitration,
either by personal delivery or certified mail. The notification should include
the following information about the employee: name, home address, work address,
work and home phone number, and the following information about the occurrence:
date, location, nature of the claims or dispute, facts upon which the claims are
made, and remedy requested. Any notice of arbitration initiated by Washington
Mutual shall be sent to my last known residence address as reflected in my
personnel file at Washington Mutual. Notice of arbitration initiated by me shall
be sent to Washington Mutual's General Counsel. The General Counsel's address is
currently Washington Mutual, 1201 Third Avenue, WMT 1500, Seattle, Washington
98101.
8. Within thirty (30) days after receipt of notice of arbitration,
Washington Mutual and I will attempt to agree upon a mutually acceptable
arbitrator. If Washington Mutual and I are unable to agree upon an arbitrator,
we will submit the dispute to the American Arbitration Association ("AAA"). If
AAA is, for some reason, unable or unwilling to accept the matter, we will
submit the matter to a comparable arbitration service. The arbitration shall be
conducted in accordance with the laws of the state in which the arbitration is
conducted and the rules and requirements of the arbitration service being
utilized, to the extent that such rules and requirements do not conflict with
the terms of this Binding Arbitration Agreement.
9. At the request of either Washington Mutual or myself, the arbitrator
will schedule a pre-hearing conference to, among other things, agree on
procedural matters, obtain stipulations, and attempt to narrow the issues.
<PAGE> 13
10. During the arbitration process, Washington Mutual and I may each
make a written demand on the other for a list of witnesses, including experts,
to be called and/or copies of documents to be introduced at the hearing. The
demand must be served at least thirty (30) days prior to the hearing. The list
and copies of documents must be delivered within twenty-five (25) days of
service of the demand.
11. Either party shall be entitled to conduct a limited amount of
discovery prior to the arbitration hearing. Either party may take a maximum of
two (2) depositions. Either party may apply to the arbitrator for further
discovery. Such further discovery may, in the discretion of the arbitrator, be
awarded upon a showing of sufficient cause. If any documents to be produced or
requested for production contain or refer to matters which are private,
proprietary and/or confidential, the arbitrator shall make an appropriate
protective order prohibiting or limiting use and disclosure of such documents
and providing for return of documents produced after the arbitration is
concluded.
12. Either party may file a brief with the arbitrator. Each brief must
be served on the arbitrator and the other party at least five (5) working days
prior to the hearing, and if not timely served must be disregarded by the
arbitrator. The brief shall specify the facts the party intends to prove,
analyze the applicable law or policy, and specify the remedy sought, At the
close of the hearing, each party shall be given leave to file a post-hearing
brief. The time for filing the posthearing brief shall be set by the arbitrator.
13. I understand that, at my expense, I have the right to hire an
attorney to represent me in the arbitration, and Washington Mutual has that same
night. I also understand that all parties shall have the right to present
evidence at the arbitration, through testimony and documents, and to
cross-examine witnesses called by another party. Each party agrees to pay the
fees of any witnesses testifying at that party's request. Each party also agrees
to pay the cost of any stenographic record of the arbitration hearing should
that party request any such record. The requesting party must notify the other
of such arrangements at least two (2) working days in advance of the hearing.
14. Any postponement or cancellation fee imposed by the arbitration
service will be paid by the party requesting the postponement or cancellation.
During the time the arbitration proceedings are ongoing, Washington Mutual will
advance any required administrative or arbitrator's fees. Each party will pay
its own witness fees.
15. At the conclusion of the arbitration, each party agrees to promptly
pay any arbitration award against it.
16. We agree that the decision of the arbitrator shall be final and
binding on all parties and shall be the exclusive remedy of the parties. The
arbitrator shall issue a written and signed statement of the basis of his or her
decision, including findings of fact
<PAGE> 14
and conclusions of law. In making the decision and award, if any, the arbitrator
shall apply applicable substantive law. The arbitrator may only award any remedy
that would have been available in court. The decision and award, if any, shall
be consistent with the terms of this Binding Arbitration Agreement and shall
include an allocation of the costs of the arbitration proceeding between the
parties.
17. This Binding Arbitration Agreement may be enforced by a court of
competent jurisdiction through the filing of a petition to compel arbitration,
or otherwise, The decision and award of the arbitrator may also be judicially
enforced pursuant to applicable law.
18. Because of the interstate nature of Washington Mutual's business,
this Binding Arbitration Agreement is governed by the Federal Arbitration Act, 9
U.S.C, Section l et seq. (the "FAA"). The provisions of the FAA (and to the
extent not preempted by the FAA, the provisions of the law of the state of my
principal place of employment with Washington Mutual that generally apply to
commercial arbitration agreements, such as provisions granting stays of court
actions pending arbitration) are incorporated into this Binding Arbitration
Agreement to the extent not inconsistent with the other terms of this Binding
Arbitration Agreement.
19. We agree that if any provision of this Binding Arbitration
Agreement is found to be unenforceable to any extent or in violation of any
statute, rule, regulation or common law, it will not affect the enforceability
of the remaining provisions and the court shall enforce the affected provision
and all remaining provisions to the fullest extent permitted by law.
20. This Binding Arbitration Agreement shall remain in fall force and
effect at all times during and subsequent to my employment with Washington
Mutual, or any successor in interest to Washington Mutual.
<PAGE> 1
EXHIBIT 10.8
SHAREHOLDER'S NON-COMPETITION AGREEMENT
This Shareholder's Non-Competition Agreement (the "Agreement") is
between Washington Mutual, Inc. ("Washington Mutual") and _____________
("Shareholder"). Contemporaneously herewith, Washington Mutual and Long Beach
Financial Corporation ("Long Beach") have entered into an Agreement (the "Merger
Agreement") and Plan of Merger, pursuant to which Long Beach will merge with and
into Washington Mutual (the "Merger"). At the effective time of the Merger (the
"Effective Time"), Long Beach's wholly owned subsidiary, Long Beach Mortgage
Company ("Long Beach Mortgage"), will become a wholly owned subsidiary of
Washington Mutual. Washington Mutual and Shareholder desire that, as of the
Effective Time, Shareholder will be subject to the terms set forth herein. The
parties therefore agree as follows:
1. Purpose. Washington Mutual has mandated as a condition of the Merger
Agreement with Long Beach that certain shareholders of Long Beach, who are key
executives of Long Beach Mortgage and have materially contributed to its
goodwill and business value, must enter into agreements not to compete with Long
Beach Mortgage for a period of time after the merger of Long Beach with and into
Washington Mutual. The parties agree the requirement of non-competition
agreements is necessary and appropriate to protect the valuable goodwill of Long
Beach and Long Beach Mortgage subsequent to the Merger, and that Washington
Mutual would not be willing to consummate the Merger under the agreed upon
terms, if at all, without requiring such non-competition agreements.
2. Consideration to Shareholder. Shareholder owns common stock of Long
Beach, and/or vested and/or unvested stock options to acquire common stock of
Long Beach, which unvested options will vest if Long Beach is merged with and
into Washington Mutual. Shareholder represents that he/she will receive
substantial financial benefit, valued in excess of three million dollars, if
Long Beach is merged with and into Washington Mutual, and Shareholder is
therefore willing to enter into this Agreement to facilitate the Merger.
3. Term. The term of this Agreement shall be three years from the date
of the Effective Time (the "Effective Date"), provided this Agreement shall be
void without further action by the parties if the Merger Agreement is
terminated.
4. Confidentiality and Non-Competition.
4.1 During and after the term of this Agreement, Shareholder will
protect and hold in strictest confidence all Confidential Information of
Washington Mutual, Long Beach, and Long Beach Mortgage. "Confidential
Information" includes, without limitation, trade secrets, plans, programs,
source and object codes, specifications, drawings, diagrams, schematics,
formulae, product designs and concepts, reports, studies, technical know-how,
methods, customer and supplier and mortgage broker lists, customer and mortgage
broker requirements, agreements, licenses, price lists and policies, budgets,
projections, bids, costs, financial reports, financing materials, training
programs and manuals, and sales and marketing programs,
<PAGE> 2
materials, plans, and strategies. Confidential Information excludes information
known to the general public other than due to breach of this Agreement.
4.2 During the term of this Agreement, Shareholder will not in any
capacity (including, without limitation, as an employee, officer, agent,
director, consultant, owner, shareholder, partner, member or joint venturer)
directly or indirectly, whether or not for compensation, engage in or assist
others to engage in any business that is, or is preparing to be, in
"Competition" with Long Beach Mortgage; provided, however, that nothing herein
shall prevent the purchase or ownership by Shareholder of shares which
constitute less than one percent of the outstanding equity securities of a
publicly-held company. A business shall be deemed to be in "Competition" with
Long Beach Mortgage if it is engaged in the business of originating, purchasing
or selling sub-prime mortgage loans within the geographic area in which Long
Beach Mortgage is engaged in such business, which the parties agree is
throughout the United States, or if it is engaged in any other business in which
Long Beach Mortgage is engaged as of the Effective Date within the geographic
area in which Long Beach Mortgage in engaged in such business.
4.3 Shareholder further agrees that during the term of the
Agreement, Shareholder will not call on, reveal the name of, or otherwise
solicit, accept business from or attempt to entice away from Long Beach Mortgage
any actual or identified potential customer of Long Beach Mortgage or any
mortgage broker with whom Long Beach Mortgage has had a business relation prior
to the Merger or during the term of this Agreement, nor will he/she assist
others in doing so. Shareholder further agrees that he/she will not, during the
term of the Agreement, encourage or solicit or assist others to encourage or
solicit any employee, consultant or business relation of Long Beach Mortgage to
leave such employment or terminate such business relationship for any reason.
4.4 Shareholder acknowledges that the covenants in this Section 4
are reasonable in relation to the business in which Long Beach Mortgage is
engaged, Shareholder's knowledge of Long Beach Mortgage's business, the position
Shareholder has been afforded with Long Beach Mortgage and the material adverse
affect upon the value of the goodwill of Long Beach and Long Beach Mortgage if
Shareholder engaged in Competition during the term of this Agreement, and that
compliance with such covenants will not prevent him/her from pursuing his/her
livelihood. However, should any court of competent jurisdiction find that any
provision of such covenants is unreasonable, whether in period of time,
geographical area, or otherwise, then in that event the parties agree that such
covenants shall be interpreted and enforced to the maximum extent which the
court deems reasonable.
4.5 The parties expressly contemplate that this Agreement is within
the coverage of Cal. Bus. & Prof. Code Section 16601, and Shareholder represents
that he/she has no basis to believe with respect to this Agreement that said
provision is inapplicable.
5. Remedies. Shareholder acknowledges that the harm to Washington
Mutual and Long Beach Mortgage from any breach of Shareholder's obligations
under or related to this Agreement may be difficult to determine and may be
wholly or partially irreparable, and such
2
<PAGE> 3
obligations may be enforced by injunctive relief and other available remedies at
law or in equity. The parties further agree that neither Washington Mutual nor
Long Beach Mortgage shall be required to post any bond in connection with
enforcement of Shareholder's obligations hereunder unless required by applicable
law or court rule, and that Washington Mutual and Long Beach Mortgage in their
sole discretion shall be entitled to inform third parties of the existence of
this Agreement and of Shareholder's obligations hereunder. Any amounts received
by Shareholder or by any other party through Shareholder in breach of this
Agreement shall be held in trust for the benefit of Washington Mutual and Long
Beach Mortgage. In the event Shareholder breaches Section 4.2 or 4.3, the term
of this Agreement shall be extended by the period of time during which
Shareholder is in breach of Section 4.2 or 4.3, as the case may be. No term
hereof shall be construed to limit or supersede any other right or remedy of
Washington Mutual or Long Beach Mortgage under applicable law with respect to
the protection of trade secrets or otherwise.
6. No Conflicting Agreements. Shareholder represents that Shareholder
has no contractual obligations or other undertakings which would restrict or
impair Shareholder's performance of this Agreement. Shareholder agrees to
indemnify Washington Mutual and Long Beach Mortgage for all losses, claims, and
expenses (including reasonable attorneys' fees) arising from any breach of
Shareholder 's warranties or representations herein.
7. At Will Employment. Unless and to the extent otherwise agreed by
Washington Mutual and Shareholder in a separate written employment agreement,
any employment of Shareholder by Washington Mutual and/or Long Beach Mortgage is
and will be "at will." No term of any employment agreement between Washington
Mutual and/or Long Beach Mortgage and Shareholder shall be construed to conflict
with or lessen Shareholder 's obligations under this Agreement.
8. Miscellaneous.
8.1 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the respective successors, assigns, heirs, representatives,
executors and administrators of the parties. No waiver of or forbearance to
enforce any right or provision hereof shall be binding unless in writing and
signed by the party to be bound, and no such waiver or forbearance in any
instance shall apply to any other instance or to any other right or provision.
8.2 Governing Law; Venue. This Agreement will be governed by the laws
of the State of California without regard to its conflicts of laws rules. The
parties hereby agree that the exclusive venue for all matters and actions
arising under this Agreement shall be and remain in the judicial districts of
the state and federal courts, respectively, encompassing Long Beach, California,
and the parties hereby consent to the personal jurisdiction of such courts. The
prevailing party shall be entitled to reasonable attorneys' fees and costs
incurred in connection with such litigation.
8.3 Entire Agreement; Severability. This Agreement represents the
entire agreement between Washington Mutual and Shareholder concerning the
subject matter hereof and supersedes all prior agreements, correspondence and
understandings, whether oral or written, with respect to that subject matter. If
any provision of this Agreement is held to be invalid or
3
<PAGE> 4
unenforceable to any extent in any context, it shall nevertheless be enforced to
the fullest extent allowed by law in that and other contexts, and the validity
and force of the remainder of this Agreement shall not be affected thereby.
BY SIGNING BELOW, SHAREHOLDER ACKNOWLEDGES THAT HE/SHE HAS READ THIS
AGREEMENT IN ITS ENTIRETY AND UNDERSTANDS IT. SHAREHOLDER FURTHER ACKNOWLEDGES
THAT THIS AGREEMENT WAS DRAFTED BY COUNSEL FOR WASHINGTON MUTUAL, AND THAT
HE/SHE HAS HAD THE OPPORTUNITY TO CONSULT WITH HIS/HER COUNSEL WITH RESPECT TO
THIS AGREEMENT.
DATED as of the 18th day of May, 1999.
WASHINGTON MUTUAL: WASHINGTON MUTUAL, INC.
By /s/ Fay L. Chapman
---------------------------
Executive Vice President
SHAREHOLDER:
---------------------------
4
<PAGE> 5
LIST OF SHAREHOLDERS WHO ARE PARTIES TO THE NON-COMPETITION AGREEMENT:
Frank J. Curry
William K. Komperda
M. Jack Mayesh
Edward Resendez
5
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
- --------------------------------------------------------------------------------
We consent to the incorporation by reference in the Registration Statement of
Washington Mutual, Inc. on Form S-4 of our report dated February 26, 1999,
appearing in the Annual Report on Form 10-K of Washington Mutual, Inc. for the
year ended December 31, 1998 and to the reference to us under the heading
"Experts" in the Proxy Statement/Prospectus, which is part of such Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
Deloitte & Touche LLP
Seattle, Washington
June 18, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement of
Washington Mutual, Inc. on Form S-4 of our report dated January 25, 1999,
appearing in the Annual Report on Form 10-K of Long Beach Financial Corporation
for the year ended December 31, 1998, and to the reference to us under the
heading "Experts" in the Prospectus, which is part of such Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
- ----------------------------
Deloitte & Touche LLP
Costa Mesa, California
June 18, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of the Registration Statement on Form S-4
of Washington Mutual, Inc. of our report dated January 22, 1997, except as to
Note 28, which is as of March 7, 1997, relating to the consolidated financial
statements of Great Western Financial Corporation, which appears on page 69 of
the December 31, 1998, annual report on Form 10-K of Washington Mutual, Inc. and
to the reference to us under the heading "Experts" in the Proxy
Statement/Prospectus, which is part of such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- --------------------------------
PricewaterhouseCoopers LLP
Los Angeles, California
June 18, 1999
<PAGE> 1
Exhibit 23.7
CONSENT OF FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
We hereby consent to the inclusion of our opinion letter, dated May 18,
1999, to the Board of Directors of Long Beach Financial Corporation as Appendix
B to this Proxy Statement/Prospectus constituting part of this Registration
Statement on Form S-4 of Washington Mutual, Inc. (the ""Registration
Statement") and references made to such opinion in the Registration Statement.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under, nor do we admit that we are "experts"
for purposes of, the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
/s/ FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
- ----------------------------------------------
Friedman, Billings, Ramsey & Co., Inc.
Arlington, Virginia
June , 1999
