e424b5
The information in
this preliminary prospectus supplement is not complete and may
be changed. This preliminary prospectus supplement and the
accompanying prospectus are not an offer to sell these
securities and are not soliciting an offer to buy these
securities, in any jurisdiction where the offer or sale is not
permitted.
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Filed Pursuant to Rule 424(b)(5)
under the Securities Act of 1933
Registration Statement No. 333-130929
Subject
to Completion: Dated December 10, 2007
Preliminary Prospectus Supplement to Prospectus Dated
January 9, 2006
2,500,000 Shares
% SERIES R NON-CUMULATIVE
PERPETUAL
CONVERTIBLE PREFERRED STOCK
Washington Mutual, Inc. is offering 2,500,000 shares of
our % Series R Non-Cumulative
Perpetual Convertible Preferred Stock, referred to as the
Series R Preferred Stock.
Dividends on the Series R Preferred Stock will be payable
quarterly in arrears, when, as and if declared by our board of
directors, at a rate of % per year
on the liquidation preference of $1,000 per share. The dividend
payment dates will the 15th day of each March, June,
September and December, commencing on March 15, 2008, or
the next business day if any such day is not a business day.
Dividends on the Series R Preferred Stock will be
non-cumulative. If for any reason our board of directors does
not declare full cash dividends on the Series R Preferred
Stock for a dividend period, we will have no obligation to pay
any dividends for that period, whether or not our board of
directors declares dividends on the Series R Preferred
Stock for any subsequent dividend period. However, with certain
exceptions, if we have not declared, paid or set aside for
payment full quarterly dividends on the Series R Preferred
Stock for a particular dividend period, we may not declare or
pay dividends on or redeem or purchase our common stock or other
junior securities during the next succeeding dividend period.
Each share of the Series R Preferred Stock may be converted
at any time, at the option of the holder,
into shares
of our common stock (which reflects an approximate initial
conversion price of $ per share of
common stock) plus cash in lieu of fractional shares, subject to
anti-dilution adjustments. The conversion rate will be adjusted
as described herein upon the occurrence of certain make-whole
acquisition transactions and other events.
The Series R Preferred Stock is not redeemable by us at any
time. On or after December 18, 2012, if the closing price
of our common stock exceeds 130% of the conversion price for 20
trading days during any consecutive 30 trading day period,
including the last trading day of such period, ending on the
trading day preceding the date we give notice of mandatory
conversion, we may at our option cause some or all of the
Series R Preferred Stock to be automatically converted into
common stock at the then prevailing conversion rate.
Prior to this offering, there has been no public market for the
Series R Preferred Stock. We have applied to list the
Series R Preferred Stock on the New York Stock Exchange
under the symbol WM PrR, and expect trading in the
Series R Preferred Stock to begin within 30 days of
December , 2007, the original issue date. Our
common stock is listed on the New York Stock Exchange under the
symbol WM. The last reported price of our common
stock on December 10, 2007 was $19.88 per share.
The shares of Series R Preferred Stock are not savings
accounts, deposits or other obligations of any bank and are not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Investing in the shares of Series R Preferred Stock
involves risks. See Risk Factors beginning on
page S-11.
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Per Share
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Total
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Price to the public
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds to Washington Mutual, Inc. (before expenses)
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$
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$
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We have granted the underwriters the right to purchase up to an
additional 375,000 shares of the Series R Preferred Stock
to cover over-allotments
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus
supplement or the accompanying prospectus. Any representation to
the contrary is a criminal offense.
The underwriters expect to deliver the shares of Series R
Preferred Stock against payment in New York, New York on or
about December , 2007.
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LEHMAN
BROTHERS |
MORGAN
STANLEY |
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CREDIT
SUISSE |
GOLDMAN,
SACHS & CO. |
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DEUTSCHE
BANK SECURITIES
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JPMORGAN
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RBS
GREENWICH CAPITAL
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UBS
INVESTMENT BANK
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BNY CAPITAL MARKETS, INC.
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CABRERA CAPITAL MARKETS, LLC
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THE WILLIAMS CAPITAL GROUP, L.P.
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December , 2007.
TABLE OF
CONTENTS
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S-ii
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S-ii
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S-iii
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S-1
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S-11
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S-23
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S-23
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S-42
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S-47
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S-48
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S-54
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S-56
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S-61
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S-61
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Prospectus
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You should rely only on the information contained in or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. No one is authorized to give you
information other than that contained in this prospectus
supplement and the accompanying prospectus. This prospectus
supplement may be used only for the purpose for which it has
been prepared. We have not, and the underwriters have not,
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it.
We are not, and the underwriters are not, making an offer to
sell the shares of Series R Preferred Stock in any
jurisdiction where the offer or sale is not permitted. You
should not assume that the information appearing in this
prospectus supplement, the accompanying prospectus or any
document incorporated by reference in this prospectus supplement
or the accompanying prospectus is accurate as of any date other
than the date of the applicable document. Our business,
financial condition, results of operations and prospects may
have changed since that date. This prospectus supplement and the
accompanying prospectus do not constitute an offer, or an
invitation on our behalf or on behalf of the underwriters, to
subscribe for and purchase any of the shares of Series R
Preferred Stock and may not
S-i
be used for or in connection with an offer or solicitation by
anyone in any jurisdiction in which such an offer or
solicitation is not authorized or to any person to whom it is
unlawful to make such an offer or solicitation.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering
of shares of Series R Preferred Stock and also adds to and
updates information contained in the accompanying prospectus and
the documents incorporated by reference into this prospectus
supplement and the accompanying prospectus. The second part, the
accompanying prospectus, gives more general information, some of
which may not apply to this offering. You should read both this
prospectus supplement and the accompanying prospectus, as well
as the information incorporated by reference into both documents.
If the description of the offering varies between this
prospectus supplement and the accompanying prospectus, you
should rely on the information contained in this prospectus
supplement.
As used in this prospectus supplement, the terms
we, us, and
our refer to Washington Mutual, Inc. and the
term Washington Mutual refers to Washington
Mutual, Inc. and its consolidated subsidiaries.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
We file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange
Commission, or SEC. You may read and copy any
document that we file at the SECs public reference room at
100 F Street, N.E., Washington, D.C. Please call
the SEC at
1-800-SEC-0330
for further information on the public reference room. In
addition, our SEC filings are available to the public from the
SECs web site at
http://www.sec.gov.
Our SEC filings are also available at the offices of the New
York Stock Exchange, or NYSE. For further
information on obtaining copies of our public filings at the
NYSE, you should call
212-656-5060.
The SEC allows us to incorporate by reference the information we
file with it, which means that we can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be a part
of this prospectus supplement, and later information that we
file with the SEC will automatically update and supersede this
information. We incorporate by reference the following documents
listed below and any future filings made with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the Exchange
Act), until the completion of the distribution of the
securities:
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Our Annual Report on
Form 10-K
for the year ended December 31, 2006;
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Our Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2007, June 30, 2007
and September 30, 2007; and
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Our Current Reports on
Form 8-K
(in each case, other than information and exhibits
furnished to and not filed with the SEC
in accordance with SEC rules and regulations) filed on
January 22, 2007, February 7, 2007, March 14,
2007, April 23, 2007, May 30, 2007, July 18,
2007, October 30, 2007, October 31, 2007,
November 9, 2007, November 15, 2007 and
December 10, 2007.
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You may request a copy of these filings, at no cost, by writing
or telephoning us at the following address:
Washington Mutual, Inc.
1301 Second Avenue
Seattle, Washington 98101
Telephone:
(206) 500-5200
Attention: Investor Relations Department WMC2203
We have also filed a registration statement
(No. 333-130929)
with the SEC relating to the securities offered by this
prospectus supplement and the accompanying prospectus. This
prospectus supplement is part of
S-ii
the registration statement. You may obtain from the SEC a copy
of the registration statement and exhibits that we filed with
the SEC when we registered the securities. The registration
statement may contain additional information that may be
important to you.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus
contain or incorporate by reference forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended (the Securities Act), and
Section 21E of the Exchange Act. Forward-looking statements
can be identified by the fact that they do not relate strictly
to historical or current facts. They often include words such as
expects, anticipates,
intends, plans, believes,
seeks, estimates, or words of similar
meaning, or future or conditional verbs such as
will, would, should,
could or may.
Forward-looking statements provide managements current
expectations or predictions of future conditions, events or
results. They may include projections of our revenues, income,
earnings per share, capital expenditures, dividends, capital
structure or other financial items, descriptions of
managements plans or objectives for future operations,
products or services, or descriptions of assumptions underlying
or relating to the foregoing. They are not guarantees of future
performance. By their nature, forward-looking statements are
subject to risks and uncertainties. These statements speak only
as of the date they are made. Management does not undertake to
update forward-looking statements to reflect the impact of
circumstances or events that arise after the date the
forward-looking statements were made except as required by
federal securities law.
There are a number of significant factors which could cause
actual conditions, events or results to differ materially from
those described in the forward-looking statements, many of which
are beyond managements control or its ability to
accurately forecast or predict. Factors that might cause our
future performance to vary from that described in our
forward-looking statements include market, credit, operational,
regulatory, strategic, liquidity, capital and economic factors
as described under Risk Factors in this prospectus
supplement and in our periodic reports filed with the SEC,
including, without limitation, a continued general decline in
U.S. housing prices and mortgage activity, continued increases
in the delinquency rates of borrowers, and a continued reduction
in the availability of secondary markets for our mortgage loan
products. In addition, other factors could adversely affect our
results and this list is not a complete set of all potential
risks or uncertainties. These factors should not be construed as
exhaustive and should be read in conjunction with the other
cautionary statements that are included or incorporated by
reference in this prospectus supplement.
S-iii
This summary highlights information contained elsewhere, or
incorporated by reference, in this prospectus supplement. As a
result, it does not contain all the information that may be
important to you. To understand this offering fully, you must
read this entire prospectus supplement and the accompanying
prospectus carefully, including the risk factors beginning on
page S-11
and the documents incorporated by reference into this prospectus
supplement and the accompanying prospectus.
Washington
Mutual, Inc.
With a history dating back to 1889, Washington Mutual, Inc. is a
retailer of financial services to consumers and small
businesses. Based on our consolidated total assets at
September 30, 2007, we were the largest thrift holding
company in the United States and seventh largest among all
U.S.-based
bank and thrift holding companies. We operate principally in
California, Washington, Oregon, Illinois, Florida, Texas and the
greater New York/New Jersey metropolitan area, and have
operations in 25 other states. As of September 30, 2007, we
served the needs of approximately 19.9 million consumer
households through 2,212 retail banking stores, 463 lending
stores and centers, 3,968 ATMs, telephone call centers and
online banking. As of September 30, 2007, on a consolidated
basis, we had total assets of approximately $330 billion,
total liabilities of approximately $306 billion, total
deposits of approximately $194 billion and total
stockholders equity of approximately $24 billion.
Our earnings are primarily driven by lending to consumers and
small businesses and by deposit-taking activities which generate
net interest income, and by activities that generate noninterest
income, including the sale and servicing of loans and the
provision of fee-based services to our customers.
We operate through four main business segments: the Retail
Banking Group, the Card Services Group, the Commercial Group and
the Home Loans Group. The Retail Banking Group, the Card
Services Group and the Home Loans Group are consumer-oriented,
while the Commercial Group serves commercial customers.
Retail Banking Group. The principal activities
of the Retail Banking Group include: (1) offering a
comprehensive line of deposit and other retail banking products
and services to consumers and small businesses; (2) holding
both our portfolio of home loans held for investment and the
substantial majority of our portfolio of home equity loans and
lines of credit (but not our portfolio of mortgage loans to
higher risk borrowers originated or purchased through the
subprime mortgage channel); (3) originating home equity
loans and lines of credit; and (4) providing investment
advisory and brokerage services, sales of annuities and other
financial services.
Card Services Group. The Card Services Group
manages our credit card operations. The groups principal
activities include (1) issuing credit cards;
(2) either holding outstanding balances on credit cards in
portfolio or securitizing and selling them; (3) servicing
credit card accounts; and (4) providing other cardholder
services. Credit card balances that are held in our loan
portfolio generate interest income from finance charges on
outstanding card balances, and noninterest income from the
collection of fees associated with the credit card portfolio,
such as performance fees (late, overlimit and returned check
charges), annual membership fees and cash advance and balance
transfer fees.
Commercial Group. The principal activities of
the Commercial Group include: (1) providing financing to
developers and investors for multi-family dwellings and, to a
lesser extent, other commercial properties; (2) servicing
multi-family and other commercial real estate loans and holding
such loans in its portfolio as part of its commercial asset
management business; and (3) providing limited deposit
services to commercial customers.
Home Loans Group. The principal activities of
the Home Loans Group include: (1) originating and servicing
home loans; (2) originating and servicing home equity loans
and lines of credit; (3) holding certain residential
mortgages in its loan portfolio, including mortgage loans to
higher risk borrowers that were offered
S-1
through the subprime mortgage channel; and (4) making
available insurance-related products and participating in
reinsurance activities with other insurance companies.
We are incorporated in the state of Washington and are a savings
and loan holding company. We own two banking subsidiaries as
well as numerous nonbank subsidiaries. As a savings and loan
holding company, we are subject to regulation by the Office of
Thrift Supervision (the OTS). Our banking
subsidiaries, Washington Mutual Bank and Washington Mutual Bank
fsb, are subject to regulation and examination by the OTS (their
primary federal regulator) as well as the Federal Deposit
Insurance Corporation (the FDIC). Our
principal business offices are located at 1301 Second Avenue,
Seattle, Washington 98101.
Recent
Developments
Capital
and Liquidity Strengthening Measures
On December 10, 2007, we announced a series of measures
designed to address the challenges we face from the continuing
disruptions in the mortgage and capital markets by strengthening
our capital and liquidity resources and accelerating the
alignment of our Home Loans business with our Retail Banking
operations. These measures include this offering as well as a
planned major reduction in company-wide noninterest expense
(such reduction estimated at approximately $500 million for
2008) as a result of a substantial resizing of our Home Loans
business and reduced corporate support expense, together with a
significant change in the strategic focus of our Home Loans
business in response to a changed market.
In addition, our board of directors intends to reduce the
quarterly dividend rate on our common stock to $0.15 per share
from the most recent quarterly rate of $0.56 per share, which we
anticipate will result in potential capital savings in 2008 of
approximately $1.4 billion.
As previously announced, we believe that the mortgage market is
undergoing a fundamental shift due to credit dislocation and a
prolonged period of reduced capital markets liquidity. As a
result, we expect national mortgage originations to shrink by
approximately 40 percent in 2008 compared to 2007. To
reflect the changes in this market, we will substantially adjust
and resize our Home Loans business and also reduce corporate
support expense. These actions include:
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discontinuing all remaining lending through our subprime
mortgage channel,
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closing approximately 190 of our 336 home loan centers and sales
offices,
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closing nine Home Loans processing and call centers,
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eliminating approximately 2,600 Home Loans positions, or about
22 percent of the Home Loans staff,
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eliminating approximately 550 corporate and other support
positions, and
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closing WaMu Capital Corp., our institutional broker-dealer
business, as well as our mortgage banker finance warehouse
lending operation,
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At the same time, we plan to accelerate our previously announced
strategy to expand our focus on mortgage lending directly to
customers through our retail banking stores and other retail
distribution channels. We will also add bank loan consultants to
support our retail store network.
As a result of the fundamental shift in the mortgage market and
the actions we are taking to resize our Home Loans business, we
will incur a fourth quarter after-tax charge of approximately
$1.6 billion for the write-down of all the goodwill
associated with the Home Loans business. This non-cash charge
will not affect our tangible or regulatory capital or our
liquidity.
Financial
Update
Loan Loss Provision. Continued deterioration
in the mortgage markets and declining housing prices have led to
increasing fourth quarter charge-offs and delinquencies in our
loan portfolio. As a result, we now expect our fourth quarter
2007 provision for loan losses to be between $1.5 and
$1.6 billion, approximately twice the level of expected
fourth quarter net charge-offs.
S-2
We currently expect our first quarter 2008 provision for loan
losses to be in the range of $1.8 to $2.0 billion,
reflecting an increase in provision which we expect to be well
ahead of charge-offs, which are also expected to increase
significantly during that quarter. The first quarter 2008 range
reflects our current view that prevailing adverse conditions in
the credit and housing markets will persist through 2008.
While difficult to predict, we also currently expect quarterly
loan loss provisions through the end of 2008 to remain elevated,
generally consistent with our expectation for the first quarter
of 2008. We anticipate that there may be some additional
variation depending on the level of credit card securitization
activity during any quarter.
Noninterest Expense. We expect that our
expense reduction steps described above will result in
approximately $140 million in additional expenses in the
fourth quarter of 2007. We are targeting company-wide
noninterest expense at or below $8.0 billion for 2008.
Fourth Quarter Loss. Including the effect of
non-cash, goodwill-related charges, we expect to report a net
loss for the fourth quarter of 2007.
As discussed in this prospectus supplement and the documents
incorporated in it by reference, our business, financial
condition and operating results have been and continue to be
adversely affected by ongoing disruptions in the mortgage and
capital markets, among other trends. Further significant
deterioration in these markets or other trends that affect us
could adversely affect the outlook for our operations as
described above.
For a discussion of factors that could affect our business,
financial condition and operating results in the fourth quarter
of this year and in future periods, see Special Note
Regarding Forward-Looking Statements and Risk
Factors.
S-3
THE
OFFERING
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Issuer |
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Washington Mutual, Inc., a Washington corporation. |
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Securities Offered |
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2,500,000 shares of %
Series R Non-Cumulative Perpetual Convertible Preferred
Stock. |
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Option to Purchase Additional Shares of Series R Preferred
Stock
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We have granted the underwriters an option to purchase up to
375,000 additional shares of the Series R Preferred
Stock from us at the price to the public, less the underwriting
discounts, within 30 days from the date of this prospectus
supplement to cover over-allotments. |
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Dividends |
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Dividends on the Series R Preferred Stock will be payable
quarterly if, when and as declared by our board of directors out
of legally available funds at an annual rate
of % on the per share liquidation
preference of $1,000 per share. |
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Dividends on the Series R Preferred Stock will be
non-cumulative. If for any reason our board of directors does
not declare full cash dividends on the Series R Preferred
Stock for a quarterly dividend period, we will have no
obligation to pay any dividends for that period, whether or not
our board of directors declares dividends on the Series R
Preferred Stock for any subsequent dividend period. |
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Dividend Payment Dates |
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March 15, June 15, September 15 and December 15 of
each year (or the following business day if such date is not a
business day), commencing on March 15, 2008. |
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Dividend Stopper |
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With certain limited exceptions, if we do not pay full quarterly
dividends on the Series R Preferred Stock for a particular
dividend period, we may not pay dividends on, or repurchase,
redeem or make a liquidation payment with respect to, our common
stock or other junior securities during the next succeeding
dividend period. |
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Redemption |
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The Series R Preferred Stock is not redeemable. |
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Maturity |
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Perpetual. |
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Conversion Right |
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Each share of the Series R Preferred Stock may be converted
at any time, at the option of the holder,
into shares
of our common stock (which reflects an approximate initial
conversion price of $ per share of
our common stock) plus cash in lieu of fractional shares,
subject to anti-dilution adjustments. |
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If the conversion date is prior to the record date for any
declared cash dividend for the dividend period in which you
elect to convert, you will not receive any declared cash
dividends for that dividend period. If the conversion date is
after the record date for any declared cash dividend and prior
to the dividend payment date, you will receive that cash
dividend on the relevant dividend payment date if you were the
holder of record on the record date for that dividend; however,
whether or not you were the holder of record on the record date,
you must pay to the conversion agent when you convert your
shares of Series R Preferred Stock an amount in cash equal
to the full dividend actually paid on the dividend payment date
for the then-current dividend period on the shares being
converted, unless your shares are being converted as a
consequence of a mandatory conversion at our option, a
make-whole acquisition or a fundamental change as described
below. |
S-4
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Mandatory Conversion at Our Option |
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On or after December 18, 2012, we may, at our option, or
any time or from time to time cause some or all of the
Series R Preferred Stock to be converted into shares of our
common stock at the then applicable conversion rate. We may
exercise our conversion right if, for 20 trading days within any
period of 30 consecutive trading, including the last trading day
of such period, days ending on the trading day preceding the
date we give notice of mandatory conversion, the closing price
of our common stock exceeds 130% of the then applicable
conversion price of the Series R Preferred Stock. |
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Conversion Upon Certain Acquisitions |
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The following provisions will apply if one of the following
events occur: |
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a person or group within the
meaning of Section 13(d) of the Exchange Act files a
Schedule TO or any schedule, form or report under the
Exchange Act disclosing that such person or group has become the
direct or indirect ultimate beneficial owner, as
defined in
Rule 13d-3
under the Exchange Act, of our common equity representing more
than 50% of the voting power of our common stock; or
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consummation of any consolidation or merger of us or
similar transaction or any sale, lease or other transfer in one
transaction or a series of transactions of all or substantially
all of the consolidated assets of us and our subsidiaries, taken
as a whole, to any person other than one of our subsidiaries, in
each case pursuant to which our common stock will be converted
into cash, securities or other property.
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These transactions are referred to as make-whole
acquisitions; provided, however that a make-whole
acquisition will not be deemed to have occurred if at least 90%
of the consideration received by holders of our common stock in
the transaction or transactions consists of shares of common
stock or American Depositary Receipts in respect of common stock
that are traded on a U.S. national securities exchange or that
will be so traded when issued or exchanged in connection with a
make-whole acquisition. |
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Upon a make-whole acquisition, we will, under certain
circumstances, be required to pay a make-whole adjustment in the
form of an increase in the conversion rate upon any conversions
of the Series R Preferred Stock that occur during the
period beginning on the effective date of the make-whole
acquisition and ending on the date that is 30 days after
the effective date as described herein. The make-whole
adjustment will be payable in shares of our common stock or the
consideration into which our common stock has been converted or
exchanged in connection with the make-whole acquisition. |
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The amount of the make-whole adjustment, if any, will be based
on the stock price and the effective date of the make-whole
acquisition. A description of how the make-whole adjustment will
be determined and a table showing the make-whole adjustment that
would apply at various stock prices and effective dates is set
forth under Description of Series R Preferred
Stock Conversion Upon Fundamental Change. |
S-5
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Conversion Upon Fundamental Change
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If the reference price (as defined under Description of
Series R Preferred Stock Conversion Upon
Fundamental Change) in connection with a fundamental
change (as defined under Description of Series R
Preferred Stock Conversion Upon Fundamental
Change) is less than the applicable conversion price, each
share of Series R Preferred Stock may be converted during
the period beginning on the effective date of the fundamental
change and ending on the date that is 30 days after the
effective date of such fundamental change at an adjusted
conversion price equal to the greater of (1) the reference
price and (2) $ ,
which is 50% of the closing price of our common stock on the
date of this prospectus supplement, subject to adjustment. If
the reference price is less than
$ , holders will receive a maximum
of shares
of our common stock per share of Series R Preferred Stock,
subject to adjustment, which may result in a holder receiving
value that is less than the liquidation preference of the
Series R Preferred Stock. In lieu of issuing common stock
upon conversion in the event of a fundamental change, we may at
our option, and if we obtain any necessary regulatory approval,
make a cash payment equal to the reference price for each share
of common stock otherwise issuable upon conversion. |
|
|
|
See Description of Series R Preferred
Stock Conversion Upon Fundamental Change. |
|
Reorganization Events (Including Mergers)
|
|
The following provisions apply in the event of certain
reorganization events, which include, subject
to certain exceptions: |
|
|
|
any consolidation or merger of us with or into
another person in each case pursuant to which our common stock
will be converted into cash, securities or other property;
|
|
|
|
any sale, transfer, lease or conveyance to another
person of all or substantially all of our property and assets in
each case pursuant to which our common stock will be converted
into cash, securities or other property; or
|
|
|
|
certain reclassifications of our common stock or
statutory exchanges of our securities.
|
|
|
|
Each share of the Series R Preferred Stock outstanding
immediately prior to the reorganization events will become
convertible at the option of the holders of the Series R
Preferred Stock into the kind of securities, cash and other
property receivable in the reorganization event by holders of
our common stock. See Description of Series R
Preferred Stock Reorganization Events. |
|
Anti-Dilution Adjustments |
|
The conversion rate may be adjusted in the event of, among other
things, (1) increases in cash dividends, (2) dividends
or distributions in common stock or other property,
(3) certain issuances of stock purchase rights,
(4) certain self tender offers or (5) subdivisions,
splits and combinations of the common stock. See
Description of Series R Preferred Stock
Anti-Dilution Adjustments. |
|
Liquidation Rights |
|
Upon our voluntary or involuntary liquidation, dissolution or
winding-up,
holders of Series R Preferred Stock will be entitled to
receive out of our assets that are legally available for
distribution to |
S-6
|
|
|
|
|
stockholders, before any distribution is made to holders of our
common stock or other junior securities, a liquidating
distribution in the amount of $1,000 per share of Series R
Preferred Stock plus any declared and unpaid dividends, without
accumulation of any undeclared dividends. Distributions will be
made pro rata as to the Series R Preferred Stock and any
other parity securities and only to the extent of our assets, if
any, that are available after satisfaction of all liabilities to
creditors. |
|
Voting Rights |
|
Holders of the Series R Preferred Stock will have no voting
rights, except with respect to certain fundamental changes in
the terms of the Series R Preferred Stock and certain other
matters. In addition, if dividends on the Series R
Preferred Stock are not paid in full for six dividend periods,
whether consecutive or not, the holders of Series R
Preferred Stock, acting as a class with any other parity
securities having similar voting rights, will have the right to
elect two directors to our board. The terms of office of these
directors will end when we have paid or set aside for payment
full quarterly dividends for four consecutive dividend periods.
See Description of Series R Preferred
Stock Voting Rights. |
|
Ranking |
|
The Series R Preferred Stock will rank, with respect to the
payment of dividends and distributions upon liquidation,
dissolution or
winding-up,
senior to our common stock, our Series RP Preferred Stock
and each other class or series of preferred stock we may issue
in the future the terms of which do not expressly provide that
it ranks on a parity with or senior to the Series R
Preferred Stock as to dividend rights and rights on liquidation,
winding-up
and dissolution of Washington Mutual, Inc. The Series R
Preferred Stock will rank on a parity with our outstanding
Series K Preferred Stock and any Series I Preferred
Stock, Series J Preferred Stock, Series L Preferred
Stock, Series M Preferred Stock and Series N Preferred
Stock we may issue in the future and each other class or series
of preferred stock we may issue in the future the terms of which
expressly provide that such class or series will rank on a
parity with the Series R Preferred Stock as to dividend
rights and rights on liquidation, winding up and dissolution of
Washington Mutual, Inc. |
|
|
|
As of September 30, 2007, 500 shares of our
Series K Preferred Stock were outstanding. See
Description of Other Preferred Stock. |
|
Preemptive Rights |
|
None. |
|
Listing |
|
Prior to this offering, there has been no public market for the
Series R Preferred Stock. We have applied to list the
Series R Preferred Stock on the New York Stock Exchange
under the symbol WM PrR. If the application is
approved, we expect trading in the Series R Preferred Stock
to begin within 30 days of December ,
2007, the original issue date. |
|
|
|
Our common stock is listed on the New York Stock Exchange under
the symbol WM. |
|
Use of Proceeds |
|
We expect to receive net proceeds from this offering of
approximately $ billion,
after expenses and underwriting discounts and commissions. We
intend initially to contribute up to $1.0 billion of the
net proceeds from this offering to Washington Mutual Bank, our
principal |
S-7
|
|
|
|
|
bank subsidiary, as additional capital, and retain the remaining
net proceeds at our holding company for general corporate
purposes. See Use of Proceeds. |
|
Certain U.S. Federal Income Tax Considerations
|
|
For a discussion of certain U.S. federal income tax
considerations of purchasing, owning and disposing of the
Series R Preferred Stock and any common stock received upon
its conversion, see Certain U.S. Federal Income Tax
Considerations. Dividends paid to non-corporate U.S.
holders in taxable years beginning before January 1, 2011
generally should be taxable at a maximum rate of 15%, subject to
certain conditions and limitations. Dividends paid to corporate
U.S. holders generally should be eligible for the dividends
received deduction, subject to certain conditions and
limitations. Dividends paid to non-U.S. holders generally should
be subject to withholding of U.S. federal income tax at a 30%
rate or such lower rate as may be specified by an applicable
income tax treaty. |
|
Risk Factors |
|
For a discussion of risks and uncertainties involved with an
investment in our Series R Preferred Stock and our common
stock, see Risk Factors beginning on
page S-11
of this prospectus supplement. |
Unless otherwise stated, all information contained in this
prospectus supplement assumes that the underwriters do not
exercise their option to purchase 375,000 additional shares of
the Series R Preferred Stock.
S-8
Summary
Financial and Other Information
The following table presents our summary consolidated condensed
financial and other information as of and for the nine months
ended September 30, 2007 and 2006 and as of and for the
years ended December 31, 2006, 2005, 2004, 2003 and 2002.
We derived the summary consolidated condensed financial
information as of and for the years ended December 31,
2006, 2005 and 2004 from our audited financial statements which
are incorporated by reference in this prospectus supplement. We
derived the summary consolidated condensed financial information
as of and for the years ended December 31, 2003 and 2002
from our audited financial statements which are not incorporated
by reference in this prospectus supplement. We derived the
summary consolidated condensed financial information as of and
for the nine months ended September 30, 2007 and 2006 from
our unaudited financial statements which are not incorporated by
reference in this prospectus supplement. The unaudited financial
statements have been prepared on substantially the same basis as
the audited financial statements and include all adjustments
that we consider necessary for a fair presentation of our
financial position and results of operations for all periods
presented.
The summary consolidated condensed results are not indicative of
the expected future operating results. The results for any
interim period are not necessarily indicative of the results
that may be expected for a full fiscal year. The following
summary historical financial and other information should be
read together with Managements Discussion and
Analysis of Financial Condition and Results of Operations
in our Annual Report on
Form 10-K
for the year ended December 31, 2006 and our Quarterly
Report on
Form 10-Q
for the quarter ended September 30, 2007 and the historical
financial statements and notes thereto incorporated by reference
in this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except ratios and percentages)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
6,131
|
|
|
$
|
6,123
|
|
|
$
|
8,121
|
|
|
$
|
8,218
|
|
|
$
|
7,411
|
|
|
$
|
7,865
|
|
|
$
|
8,288
|
|
Provision for loan and lease losses
|
|
|
1,574
|
|
|
|
472
|
|
|
|
816
|
|
|
|
316
|
|
|
|
209
|
|
|
|
42
|
|
|
|
404
|
|
Non-interest income
|
|
|
4,678
|
|
|
|
4,786
|
|
|
|
6,377
|
|
|
|
5,097
|
|
|
|
4,061
|
|
|
|
5,437
|
|
|
|
4,174
|
|
Non-interest expense
|
|
|
6,434
|
|
|
|
6,551
|
|
|
|
8,807
|
|
|
|
7,620
|
|
|
|
7,332
|
|
|
|
7,267
|
|
|
|
6,081
|
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
27
|
|
|
|
444
|
|
|
|
38
|
|
|
|
434
|
|
|
|
111
|
|
|
|
90
|
|
Net income
|
|
|
1,801
|
|
|
|
2,501
|
|
|
|
3,558
|
|
|
|
3,432
|
|
|
|
2,878
|
|
|
|
3,880
|
|
|
|
3,861
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
$
|
28,406
|
|
|
$
|
29,017
|
|
|
$
|
24,978
|
|
|
$
|
24,659
|
|
|
$
|
19,219
|
|
|
$
|
36,707
|
|
|
$
|
43,905
|
|
Loans held for sale
|
|
|
7,586
|
|
|
|
23,720
|
|
|
|
44,970
|
|
|
|
33,582
|
|
|
|
42,743
|
|
|
|
20,837
|
|
|
|
39,623
|
|
Loans held in portfolio
|
|
|
237,132
|
|
|
|
241,765
|
|
|
|
224,960
|
|
|
|
229,632
|
|
|
|
207,071
|
|
|
|
175,150
|
|
|
|
143,028
|
|
Mortgage servicing rights
|
|
|
6,794
|
|
|
|
6,288
|
|
|
|
6,193
|
|
|
|
8,041
|
|
|
|
5,906
|
|
|
|
6,354
|
|
|
|
5,341
|
|
Goodwill
|
|
|
9,062
|
|
|
|
8,368
|
|
|
|
9,050
|
|
|
|
8,298
|
|
|
|
6,196
|
|
|
|
6,196
|
|
|
|
6,213
|
|
Assets
|
|
|
330,110
|
|
|
|
348,877
|
|
|
|
346,288
|
|
|
|
343,573
|
|
|
|
307,581
|
|
|
|
275,178
|
|
|
|
268,225
|
|
Deposits
|
|
|
194,280
|
|
|
|
210,882
|
|
|
|
213,956
|
|
|
|
193,167
|
|
|
|
173,658
|
|
|
|
153,181
|
|
|
|
155,516
|
|
Securities sold under agreements to repurchase
|
|
|
4,732
|
|
|
|
13,665
|
|
|
|
11,953
|
|
|
|
15,532
|
|
|
|
15,944
|
|
|
|
28,333
|
|
|
|
16,717
|
|
Advances from Federal Home Loan Banks
|
|
|
52,530
|
|
|
|
47,247
|
|
|
|
44,297
|
|
|
|
68,771
|
|
|
|
70,074
|
|
|
|
48,330
|
|
|
|
51,265
|
|
Other borrowings
|
|
|
40,887
|
|
|
|
33,883
|
|
|
|
32,852
|
|
|
|
23,777
|
|
|
|
18,498
|
|
|
|
15,483
|
|
|
|
14,712
|
|
Total liabilities
|
|
|
306,169
|
|
|
|
322,419
|
|
|
|
319,319
|
|
|
|
316,294
|
|
|
|
286,692
|
|
|
|
255,773
|
|
|
|
248,501
|
|
Stockholders equity
|
|
|
23,941
|
|
|
|
26,458
|
|
|
|
26,969
|
|
|
|
27,279
|
|
|
|
20,889
|
|
|
|
19,405
|
|
|
|
19,724
|
|
S-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
September 30,
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except ratios and percentages)
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets(1)
|
|
|
0.74
|
%
|
|
|
0.96
|
%
|
|
|
1.02
|
%
|
|
|
1.05
|
%
|
|
|
1.01
|
%
|
Return on average common
equity(1)
|
|
|
9.96
|
|
|
|
12.68
|
|
|
|
13.52
|
|
|
|
14.91
|
|
|
|
14.26
|
|
Net interest margin
|
|
|
2.85
|
|
|
|
2.64
|
|
|
|
2.60
|
|
|
|
2.79
|
|
|
|
2.94
|
|
Efficiency
ratio(2)(3)
|
|
|
59.53
|
|
|
|
60.05
|
|
|
|
60.75
|
|
|
|
57.23
|
|
|
|
63.91
|
|
Asset Quality
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets/total
assets(4)(5)
|
|
|
1.65
|
%
|
|
|
0.69
|
%
|
|
|
0.80
|
%
|
|
|
0.57
|
%
|
|
|
0.58
|
%
|
Allowance as a percentage of total loans held in
portfolio(4)
|
|
|
0.80
|
%
|
|
|
0.64
|
%
|
|
|
0.72
|
%
|
|
|
0.74
|
%
|
|
|
0.63
|
%
|
Net charge-offs
|
|
$
|
876
|
|
|
$
|
375
|
|
|
$
|
510
|
|
|
$
|
244
|
|
|
$
|
135
|
|
Capital Adequacy (at period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios for Washington Mutual, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity/total assets
|
|
|
7.25
|
%
|
|
|
7.58
|
%
|
|
|
7.79
|
%
|
|
|
7.94
|
%
|
|
|
6.79
|
%
|
Tangible equity to total tangible
assets(6)
|
|
|
5.60
|
|
|
|
5.86
|
|
|
|
6.04
|
|
|
|
5.62
|
|
|
|
4.94
|
|
Total risk-based capital to total risk-weighted
assets(7)
|
|
|
10.67
|
|
|
|
11.10
|
|
|
|
11.77
|
|
|
|
10.80
|
|
|
|
11.20
|
|
Tier 1 capital to average total
assets(7)
|
|
|
5.86
|
|
|
|
6.28
|
|
|
|
6.35
|
|
|
|
5.83
|
|
|
|
5.41
|
|
Capital Ratios for Washington Mutual Bank (well-capitalized
minimum):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to adjusted total assets (5.00)%
|
|
|
6.40
|
|
|
|
6.47
|
|
|
|
6.79
|
|
|
|
6.47
|
|
|
|
5.35
|
|
Adjusted tier 1 capital to total risk-weighted assets
(6.00)%
|
|
|
7.60
|
|
|
|
8.12
|
|
|
|
8.28
|
|
|
|
8.49
|
|
|
|
7.96
|
|
Total risk-based capital to total risk-weighted assets (10.00)%
|
|
|
11.24
|
|
|
|
11.30
|
|
|
|
12.16
|
|
|
|
11.50
|
|
|
|
11.53
|
|
|
|
|
(1) |
|
Includes income from continuing and discontinued operations. |
|
(2) |
|
Based on continuing operations. |
|
(3) |
|
The efficiency ratio is defined as noninterest expense divided
by total revenue (net interest income and noninterest income). |
|
(4) |
|
At period end. |
|
(5) |
|
Excludes non-accrual loans held for sale. |
|
(6) |
|
Excludes unrealized net gain/loss on available-for-sale
securities and derivatives, goodwill and intangible assets, but
includes mortgage servicing rights (MSR) and
transition adjustments related to the adoption of Financial
Accounting Standards Board Statement No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, as of December 31, 2006.
These adjustments are applied to both the numerator and the
denominator. Minority interests of $1.96 billion for
September 30, 2006, $2.94 billion for
September 30, 2007 and $2.45 billion for
December 31, 2006 are included in the numerator. |
|
(7) |
|
Estimates of what the total risk-based capital and Tier 1
capital ratios would be if Washington Mutual, Inc. were a bank
holding company subject to the regulatory capital guidelines of
the Board of Governors of the Federal Reserve System (the
Federal Reserve Board). The amounts and
components of total risk-based capital and Tier 1 capital
included in these estimates are based on our judgment of what
may be included as such capital under the Federal Reserve Board
regulatory capital guidelines and are not reported to or
approved by the Federal Reserve Board. |
S-10
An investment in the Series R Preferred Stock or our
common stock is subject to certain risks. You should carefully
consider the risks described below, as well as the other
information included or incorporated by reference into this
prospectus supplement and the accompanying prospectus, including
our financial statements and the notes thereto, before making an
investment decision.
Risks
Relating to Our Business
If
current market conditions persist, our ability to raise
liquidity including through the sale of mortgage loans in the
secondary market or otherwise may be adversely
affected.
Our liquidity may be affected by an inability to access the
capital markets or by unforeseen demands on cash. This situation
may arise due to circumstances beyond our control, such as a
general market disruption. During the first nine months of this
year and continuing into the fourth quarter of 2007, there has
been significant volatility in the subprime secondary mortgage
market which has spread into markets for all other nonconforming
residential mortgages. Since the latter part of July 2007,
liquidity in the secondary market for nonconforming residential
mortgage loans and securities backed by such loans has
diminished significantly. While these market conditions persist,
our ability to raise liquidity through the sale of mortgage
loans in the secondary market will be adversely affected. As a
result of these conditions in the secondary mortgage markets, we
have in recent periods retained for our own account
substantially all of the nonconforming mortgage loans we
originate or purchase. We cannot predict with any degree of
certainty how long these market conditions may continue or
whether liquidity for nonconforming residential mortgages will
improve, although it is our current expectation that the
existing turmoil in the secondary mortgage markets will continue
to significantly and adversely affect loan origination volumes
and gain on sale results during the remainder of 2007 and into
2008.
In addition, in response to market conditions and events
affecting us, several rating agencies have recently downgraded
or assigned a negative outlook to our credit ratings. We cannot
predict whether the rating agencies will take further negative
actions with respect to our credit ratings. Such actions could
have the effect of increasing our borrowing costs, making it
more difficult for our banking subsidiaries to attract
institutional or wholesale deposits or otherwise making
financing more difficult. This offering is intended to enhance
our ability to meet our liquidity needs. However, we may not be
able to raise the amount of capital we intend to raise in this
offering, and, even if we do so, we cannot assure you that the
proceeds of this offering will be adequate to meet our liquidity
needs.
Changes
in interest rates may adversely affect our business, including
net interest income and earnings.
Like other financial institutions, we raise funds for our
business by, among other things, borrowing money in the capital
markets and from the Federal Home Loan Bank system and accepting
deposits from depositors, which we use to make loans to
customers and invest in debt securities and other
interest-earning assets. We earn interest on these loans and
assets and pay interest on the money we borrow and on the
deposits we accept from depositors. Changes in interest rates,
including changes in the relationship between short-term rates
and long-term rates, may have negative effects on our net
interest income and therefore our earnings. If the rate of
interest we pay on our borrowings and deposits increases more
than the rate of interest we earn on our assets, our net
interest income, and therefore our earnings, would likely be
adversely affected. Our earnings could also be negatively
affected if the interest rates we charge on our earning assets
fall more quickly than the rates we pay on our borrowings and
deposits. Changes in interest rates and responses by our
competitors to those changes may affect the rate of customer
pre-payments for mortgages and other term loans and may affect
the balances customers carry on their credit cards. These
changes can reduce the overall yield on our assets. Changes in
interest rates and responses by our competitors to these changes
may also affect customer decisions to maintain balances in the
deposit accounts they have with us. These changes may require us
to replace withdrawn balances with higher-cost alternative
sources of funding.
In addition, changes in interest rates may affect our mortgage
banking business in complex and significant ways. For example,
changes in interest rates can affect gain from mortgage loans
and loan servicing fees,
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which are the principal components of revenue from sales and
servicing of home mortgage loans. When mortgage rates decline,
the fair value of MSR asset generally declines and gain from
mortgage loans tends to increase, to the extent we are able to
sell or securitize mortgage loans in the secondary market. When
mortgage rates rise, we generally expect loan volumes and
payoffs in our servicing portfolio to decrease. As a result, the
fair value of our MSR asset generally increases and gain from
mortgage loans decreases. In recent periods, however, declines
in general interest rates have not resulted in an increase in
prepayment rates, due in part to the reduced liquidity in the
mortgage markets making refinancing by borrowers more difficult.
As part of our overall risk management activities, we seek to
mitigate changes in the fair value of our MSR asset by
purchasing and selling financial instruments, entering into
interest rate contracts and forward commitments to purchase or
sell mortgage-backed securities and adjusting the mix and amount
of such financial instruments or contracts to take into account
the effects of different interest rate environments. The MSR
asset and the mix of financial instruments used to mitigate
changes in its fair value are not perfectly correlated. This
imperfect correlation creates the potential for excess MSR risk
management gains or losses during any period. Management must
exercise judgment in selecting the amount, type and mix of
financial instruments and contracts to mitigate changes in the
fair value of our MSR. We cannot assure you that the amount,
type and mix of financial instruments and contracts we select
will fully offset significant changes in the fair value of the
MSR, and our actions could negatively impact our earnings. Our
reliance on these risk management instruments may be impacted by
periods of illiquidity in the secondary markets, which could
negatively impact the performance of the MSR risk management
instruments. For further discussion of how interest rate risk,
basis risk, volatility risk and prepayment risk are managed, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Market Risk
Management in our Annual Report on
Form 10-K
for the year ended December 31, 2006.
We use
estimates in determining the fair value of certain of our
assets, which estimates may prove to be incorrect and result in
significant changes in valuation.
A portion of our assets are carried on our balance sheet at fair
value, including: our MSR, trading assets including certain
retained interests from securitization activities,
available-for-sale securities and derivatives. Generally, for
assets that are reported at fair value, we use quoted market
prices or internal valuation models that utilize observable
market data inputs to estimate their fair value. In certain
cases, observable market prices and data may not be readily
available or their availability may be diminished due to market
conditions. We use financial models to value certain of these
assets. These models are complex and use asset specific
collateral data and market inputs for interest rates. We cannot
assure you that we can properly manage the complexity of our
models and valuations to ensure, among other things, that the
models are properly calibrated, the assumptions are reasonable,
the mathematical relationships used in the model are predictive
and remain so over time, and the data and structure of the
assets and hedges being modeled are properly input. Such
assumptions are complex as we must make judgments about the
effect of matters that are inherently uncertain. Different
assumptions could result in significant changes in valuation,
which in turn could result in significant changes in the dollar
amount of assets we report on our balance sheet. We may in the
future also elect to carry a portion of our liabilities at fair
value, in which case the same risks as described above would
also apply to our determinations of the fair values of such
liabilities.
Economic
conditions that negatively affect housing prices and the job
market have resulted, and may continue to result, in a
deterioration in credit quality of our loan portfolios, and such
deterioration in credit quality has had, and could continue to
have, a negative impact on our business.
Washington Mutual is one of the nations largest lenders,
and a deterioration in the credit quality of our loan portfolios
can have a negative impact on our earnings resulting from
increased provisioning for loan and lease losses and from
increased nonaccrual loans, which could cause a decrease in our
interest-earning assets. Credit risk is the risk of loss due to
adverse changes in a borrowers ability to meet its
financial obligations on agreed upon terms. The overall credit
quality of our loan portfolios is impacted by the strength of
the U.S. economy and local economies in which we conduct
our lending operations as well as trends in residential housing
prices. We continually monitor changes in the economy,
particularly unemployment rates and housing
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prices, because these factors can impact the ability of our
borrowers to repay their loans. Economic trends that negatively
affect housing prices and the job market could result in, among
other things, a deterioration in the credit quality of our loan
portfolios. As previously announced, we believe that the
U.S. mortgage market is undergoing a dramatic shift, and we
expect that national origination volumes may decline by as much
as 40 percent in 2008 compared to 2007. In addition, during
the course of 2007 deteriorating trends in housing prices and
economic conditions in many parts of the United States have
resulted in significant increases in loan delinquencies and
losses in our mortgage portfolios, which we expect to continue
into 2008. We cannot assure you that housing prices, mortgage
availability and economic conditions will not experience
significant further deterioration in the future with further
adverse effects on our operating results, business and financial
condition.
We make various assumptions and judgments about the
collectibility of our loan portfolios. In determining the amount
of the allowance for loan losses, we review our loans and our
loss and delinquency experience, and we evaluate present and
foreseeable economic conditions and trends. If our assumptions
are incorrect, our allowance for loan losses may be insufficient
to cover probable incurred losses in our loan portfolios,
resulting in additions to our allowance which would reduce our
earnings in the period in which the additional provisions are
taken. In addition, the OTS periodically reviews our allowance
for loan losses and may require us to increase our provision for
loan losses or recognize further loan charge-offs. As explained
under Summary Recent Developments in
this prospectus supplement, we currently expect to increase the
amount of our provision for loan losses in the fourth quarter of
2007 and in 2008. These amounts are based on, among other
factors, our assumptions and forecasts for delinquency and
default rates on our loan portfolios, and the amount of loans
charged off, in those periods. These assumptions and forecasts
may prove to be incorrect. If the actual delinquency and default
rates and the actual amount of loans charged off in future
periods prove to be higher than our current assumptions and
forecasts, we may have to increase further our provision for
loan losses. Any increase in our provision for loan losses, our
allowance for loan losses or loan charge-offs could have a
material adverse effect on our results of operations and
financial condition.
We offer credit cards to our customers and retain certain credit
card balances in our portfolio and securitize and sell other
credit card balances. Credit cards typically have smaller
balances, shorter lifecycles and experience higher delinquency
and charge-off rates than real estate secured loans. Account
management efforts, seasoning and economic conditions, including
unemployment rates and housing prices, affect the overall credit
quality of our credit card portfolio.
Until recently, we originated and purchased from third-party
lenders loans to higher risk borrowers through our subprime
mortgage channel. Borrowers in the subprime mortgage channel
tend to have greater vulnerability to changes in economic and
housing market factors, such as increases in unemployment, a
slowdown in housing price appreciation or declines in housing
prices, than do other borrowers. The performance of this loan
portfolio in recent quarters has been, and in the future will
likely continue to be, negatively impacted by a variety of
factors, including changes in the economic factors noted above,
which negatively impact borrowers.
Certain
of our loan products have features that may result in increased
credit risk.
We have significant portfolios of home equity loans, which are
secured by a first or second lien on the borrowers
property. When we hold a second lien on a property which is
subordinate to a first lien mortgage held by another lender,
both the probability of default and severity of loss risk is
generally higher than when we hold both the first and second
lien positions. Home equity loans and lines of credit with
combined loan-to-value ratios of greater than 80 percent
also expose us to greater credit risk than home loans with
loan-to-value ratios of 80 percent or less at origination.
This greater credit risk arises because, in general, both
default risk and the severity of risk is higher when borrowers
have less equity in their homes.
We originate Option ARM loans for sale and securitization and
for our home loan portfolio. Borrowers with Option ARM loans
have the option of making minimum payments based on the rate
charged during the introductory period, which is generally lower
than the fully-indexed rate. If, as permitted by the loan terms,
borrowers continue to make minimum payments after the
introductory period ends, those borrowers may
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experience negative amortization as unpaid interest is deferred
and added to the principal amount of the loan. The risk that
Option ARM borrowers will be unable to make increased loan
payments as a result of negative amortization or as a result of
the interest rate on the loan adjusting upward to the
fully-indexed rate, both of which can occur simultaneously in
certain situations, are the principal risks associated with the
Option ARM product.
We originate interest-only loans that we either securitize or
hold in our portfolio. Borrowers with interest-only loans are
initially required to make payments that are sufficient to cover
accrued interest. After a predetermined period (generally five
years), the payments are reset to allow the loan to fully
amortize over its remaining life. Borrowers with interest-only
loans are particularly affected by unemployment, declining
housing prices and reduced home price appreciation. Such
economic trends could cause the credit performance of
interest-only loans to deteriorate with a negative impact on our
results.
For further discussion of credit risk, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Credit Risk
Management in our Annual Report on
Form 10-K
for the year ended December 31, 2006.
We are
subject to risks related to credit card operations, and this may
adversely affect our credit card portfolio and our ability to
continue growing the credit card business.
Credit card lending brings with it certain risks and
uncertainties. These include the composition and risk profile of
our credit card portfolio and our ability to continue growing
the credit card business. The success of the credit card
business also depends, in part, on the success of our product
development, product rollout efforts and marketing initiatives,
including the rollout of credit card products to our existing
retail and mortgage loan customers, and our ability to continue
to successfully target creditworthy customers. Recent disputes
involving the Visa and MasterCard networks, including their
membership standards and pricing structures, could also result
in changes that would be adverse to the credit card business.
For example, in the third quarter of 2007, Visa Inc., Visa USA
and Visa International and five of its member banks, including
us, reached a settlement agreement with American Express with
respect to an antitrust lawsuit against us. In connection with
the settlement, we recognized a $38 million charge to
noninterest expense in our third quarter 2007 results of
operations, and recorded a corresponding liability at
September 30, 2007 to establish a litigation settlement
reserve, representing our share of the settlement liability.
Certain member banks have commenced informal discussions with
the Office of the Chief Accountant of the SEC regarding the
appropriate accounting treatment of a related judgment sharing
agreement among the member banks and Visa. At this time we
cannot predict the outcome of these discussions. Other disputes
involving Visa and its members remain unresolved. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Credit Card
Industry Litigation in our Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007. Changes in
interest rates can also negatively affect the credit card
business, including costs associated with funding the credit
card portfolio, as described above under Changes in
interest rates may adversely affect our business, including net
interest income and earnings.
We are
subject to operational risk, which may result in incurring
financial and reputational losses.
We are exposed to many types of operational risk, including the
risk of fraud by employees or outsiders, the risk of operational
errors, including clerical or record-keeping errors or those
resulting from faulty or disabled computer or telecommunications
systems. Given our high volume of transactions, certain errors
may be repeated or compounded before they are discovered and
successfully corrected. Our dependence upon automated systems to
record and process transactions may further increase the risk
that technical system flaws or employee tampering with or
manipulation of those systems will result in losses that are
difficult to detect.
We may be subject to disruptions of our systems, arising from
events that are wholly or partially beyond our control
(including, for example, computer viruses or electrical or
telecommunications outages), which may give rise to losses in
service to customers and to financial loss or liability. We are
further exposed to the risk that our external vendors may be
unable to fulfill their contractual obligations (or will be
subject to the same risk of fraud or operational errors by their
respective employees as we are) and to the risk that our (or our
S-14
vendors) business continuity and data security systems
prove to be inadequate. We rely on offshoring of services to
vendors in foreign countries for certain functions and this
creates the risk of incurring losses arising from unfavorable
political, economic and legal developments in those countries.
We also face the risk that the design of our controls and
procedures may prove to be inadequate or are circumvented,
thereby causing delays in detection of errors or inaccuracies in
data and information. Although we maintain a system of controls
designed to keep operational risk at appropriate levels, it is
possible that any lapses in the effective operations of our
controls and procedures could materially affect our earnings or
harm our reputation. In an organization as large and complex as
Washington Mutual, lapses or deficiencies in internal control
over financial reporting could be material to us.
In addition, we are heavily dependent on the strength and
capability of our technology systems which we use both to
interface with our customers and to manage our internal
financial and other systems. Our ability to run our business in
compliance with applicable laws and regulations is dependent on
these infrastructures.
We depend on the expertise of key personnel and face competition
for talent. Our success depends, in large part, on our ability
to hire and retain key people. If we are unable to retain these
people and to attract talented people, or if key people fail to
perform properly, our business may suffer. For further
discussion of operational risks, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations Operational Risk Management in
our Annual Report on
Form 10-K
for the year ended December 31, 2006.
Changes
in the regulation of financial services companies, housing
government-sponsored enterprises and credit card lenders could
adversely affect us.
The banking and financial services industries, in general, are
heavily regulated. Proposals for legislation further regulating
the banking and financial services industry are continually
being introduced in the United States Congress. The
agencies regulating the financial services industry also
periodically adopt changes to their regulations.
Proposals that are now receiving a great deal of attention and
could significantly impact our business include changes to
capital requirements, consumer protection initiatives relating
to bank overdraft practices, security of customer information,
marketing practices, nontraditional mortgage loan products
including Option ARM loans and interest-only products, credit
card lending practices, fees charged to merchants for credit and
debit card transactions and predatory lending. For instance, in
June 2007, under the Home Ownership Equity Protection Act, the
Federal Reserve Board held a public hearing in order to gather
information on how it might use its rulemaking authority to curb
abusive lending practices in the home mortgage market, including
the subprime sector. There have also been a number of
legislative hearings and proposals for increased regulation of
residential mortgage lending. For example, the U.S. Senate
Banking Committee has issued a Statement of Principles as
guidance for companies servicing mortgages of subprime
borrowers. The U.S. House of Representatives Financial
Services Committee has recently held hearings on home mortgage
lending, including predatory lending practices, and may propose
new legislation governing the mortgage markets. On
December 5, 2007, President Bush proposed a plan for a five
year moratorium on interest rate resets for certain subprime
mortgages held by qualifying borrowers. Other public officials
and private groups have proposed similar plans. In addition,
there continues to be a focus on reform of the housing
government-sponsored enterprises including the federal home loan
bank system. We are unable to predict whether any of these
proposals will be implemented or in what form and what effect
any such proposal could have on our business or operating
results.
It is possible that one or more legislative proposals may be
adopted or regulatory changes may be made that would have an
adverse effect on our business. For further discussion of the
regulation of financial services, see Regulation and
Supervision in our Annual Report on
Form 10-K
for the year ended December 31, 2006.
S-15
We are
subject to significant competition from banking and nonbanking
companies.
We operate in a highly competitive environment and expect
competition to continue as financial services companies combine
to produce larger companies that are able to offer a wide array
of financial products and services at competitive prices with
attractive terms. In addition, customer convenience and service
capabilities, such as product lines offered and the
accessibility of services, are significant competitive factors.
Our most direct competition for loans comes from commercial
banks, other savings institutions, investment banking firms,
national mortgage companies and other credit card lenders. Our
most direct competition for deposits comes from commercial
banks, other savings institutions and credit unions doing
business in our markets. As with all banking organizations, we
also experience competition from nonbanking sources, including
mutual funds, corporate and government debt securities and other
investment alternatives offered within and outside of our
primary markets. In addition, technological advances and the
growth of
e-commerce
have made it possible for non-depository institutions to offer
products and services that were traditionally offered only by
banks. Many of these competitors have fewer regulatory
constraints and some have lower cost structures.
In addition, we compete on the basis of transaction execution,
innovation and technology. Our industry is subject to rapid and
significant technological changes. In order to compete in our
industry, we must continue to invest in technologies across all
of our businesses, including transaction processing, data
management, customer interactions and communications and risk
management and compliance systems. We expect that new
technologies will continue to emerge, and these new services and
technologies could be superior to or render our technologies
obsolete. Our future success will depend in part on our ability
to continue to develop and adapt to technological changes and
evolving industry standards. If we are not able to invest
successfully in and compete at the leading edge of technological
advances across all of our businesses, our revenues and
profitability could suffer.
Our
business and earnings are highly sensitive to general business,
economic and market conditions, and continued deterioration in
these conditions may adversely affect our business and
earnings.
Our business and earnings are highly sensitive to general
business and economic conditions. These conditions include the
slope of the yield curve, inflation, the money supply, the value
of the U.S. dollar as compared to foreign currencies,
fluctuations in both debt and equity capital markets, and the
strength of the U.S. economy and the local economies in
which we conduct business. Changes in these conditions may
adversely affect our business and earnings. For example, when
short-term interest rates rise, there is a lag period until
adjustable-rate mortgages reprice. As a result, we may
experience compression of our net interest margin with a
commensurate adverse effect on earnings. Likewise, as has
occurred in recent quarters, our earnings could also be
adversely affected when a flat or inverted yield curve develops,
as this may inhibit our ability to grow our adjustable-rate
mortgage portfolio and may also cause margin compression. A
prolonged economic downturn could increase the number of
customers who become delinquent or default on their loans, or a
rising interest rate environment could increase the negative
amortization of Option ARM loans, which may eventually result in
increased delinquencies and defaults. Rising interest rates
could also decrease customer demand for loans. During 2007, the
housing market in the United States (including California and
Florida, where the properties securing approximately 46.4% and
9.5%, respectively, of our outstanding mortgage loans by
principal balance are located) began to experience significant
adverse trends, including accelerating price depreciation in
some markets and rising delinquency and default rates. This has
resulted in higher levels of charge-offs and provisions for loan
and lease losses, which have adversely affected our earnings. In
addition, during the second half of 2007, disruptions in the
capital markets began to substantially limit the ability of
mortgage originators, including ourselves, to sell mortgage
loans to the capital markets through whole loan sales or any
securitization format. We cannot predict how long these adverse
conditions will continue or whether they will worsen materially.
Our business and earnings are significantly affected by the
fiscal and monetary policies of the federal government and its
agencies. We are particularly affected by the policies of the
Federal Reserve Board, which regulates the supply of money and
credit in the United States. Federal Reserve policies
directly and indirectly
S-16
influence the yield on our interest-earning assets and the cost
of our interest-bearing liabilities. Changes in those policies
are beyond our control and are difficult to predict.
We may
face damage to our professional reputation and business as a
result of allegations and negative public opinion as well as
pending and threatened litigation.
Reputational risk, meaning the risk to earnings and capital from
negative public opinion, is inherent in our business. Negative
public opinion can result from the actual or perceived manner in
which we conduct our business activities, which include our
sales and trading practices, our loan origination and servicing
activities, our retail banking and credit card operations, our
management of actual or potential conflicts of interest and
ethical issues and our protection of confidential customer
information. Negative public opinion can adversely affect our
ability to keep and attract customers. We cannot assure you that
we will be successful in avoiding damage to our business from
reputational risk.
We also face risks arising from any supervisory actions taken by
our regulators. Effective October 17, 2007, Washington
Mutual Bank consented to the issuance of an OTS cease and desist
order requiring Washington Mutual Bank to comply with the Bank
Secrecy Act (BSA) and to strengthen and
improve its programs and controls for compliance with the BSA
and related anti-money laundering and other laws and
regulations. Although no fines or restrictions on Washington
Mutual Banks activities have been imposed by the OTS,
failure by us to comply with the terms of this order or other
applicable laws and regulations could have a material adverse
effect on our business, financial condition or operating results.
The volume of claims and amount of damages and penalties claimed
in litigation and regulatory proceedings against financial
institutions remain high. Substantial legal liability or
significant regulatory action against us and our subsidiaries
could have material adverse financial effects or cause
significant reputational harm to us, which in turn could
seriously harm our business prospects. On November 1, 2007,
the New York State Attorney General filed a lawsuit against
First American Corporation and one of its subsidiaries that
acted as an appraisal management company for us alleging, among
other things, that we conspired with First American to falsely
inflate the valuations done by First Americans appraisers
in connection with loans originated by us during the past
several years. We were not named in this complaint. Thereafter,
three securities class actions were filed against us and certain
of our officers alleging that we violated securities laws by
allegedly making false and misleading statements and omissions
concerning, among other things, the allegations in the New York
State Attorney Generals complaint as well as various
aspects of our performance and accounting in light of that
alleged conspiracy and of changing conditions in the home
lending and credit markets. In addition, three shareholder
derivative claims have been filed against our board of directors
and certain of our officers, as well as three actions asserting
claims under the U.S. Employee Retirement Income Security
Act of 1974, as amended, which we refer to as ERISA, on behalf
of putative classes of participants in or beneficiaries of our
401(k) benefit plan have been filed. These derivative and ERISA
actions are based in large part on the allegations in the New
York Attorney Generals complaint and the securities class
actions. For further discussion of pending legal actions that
may affect us, see Legal Proceedings in our
Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2007.
Risks
Relating to the Offering
Our
ability to pay dividends on the Series R Preferred Stock
will depend upon the operations of our
subsidiaries.
We are a holding company and our principal source of cash is
dividends and other distributions from our banking and
non-banking operating subsidiaries. If we are unable to receive
dividends from our operating subsidiaries, we may not be able to
pay dividends on the Series R Preferred Stock. Federal laws
and regulations limit the amount of dividends and other
distributions that our banking subsidiaries, Washington Mutual
Bank and Washington Mutual Bank fsb, are permitted to pay or
make, and, although Washington Mutual Bank fsb may currently pay
dividends to Washington Mutual Bank without prior approval from
the OTS, such approval is currently required in connection with
the payment of a dividend or the making of a distribution by
Washington Mutual Bank to us. Each of Washington Mutual Bank and
Washington Mutual
S-17
Bank fsb has a policy to remain well capitalized in order to
meet capital adequacy requirements under federal law and,
accordingly, generally would not pay dividends to the extent
payment of the dividend would result in it not being
well-capitalized. See Business Regulation
and Supervision in our Annual Report on
Form 10-K
for the year ended December 31, 2006.
We are
subject to restrictions on paying cash dividends.
On March 7, 2006, Washington Mutual Preferred Funding
(Cayman) I Ltd. issued $750,000,000 of 7.25% Perpetual
Non-cumulative Preferred Securities and Washington Mutual
Preferred Funding Trust I issued $1,250,000,000 of
Fixed-to-Floating Rate Perpetual Non-cumulative
Trust Securities. On December 6, 2006, Washington
Mutual Preferred Funding Trust II issued $500,000,000 of
Fixed-to-Floating Rate Perpetual Non-cumulative
Trust Securities. On May 21, 2007, Washington Mutual
Preferred Funding Trust III issued $500,000,000 of
Fixed-to-Floating Rate Perpetual Non-cumulative
Trust Securities. On October 18, 2007, Washington
Mutual Preferred Funding Trust IV issued $1,000,000,000 of
Fixed-to-Floating Rate Perpetual Non-cumulative
Trust Securities. These securities are collectively
referred to herein as Preferred and
Trust Securities. Payments to investors in
respect of the Preferred and Trust Securities are funded by
distributions on certain series of securities issued by
Washington Mutual Preferred Funding LLC, one of our indirect
subsidiaries, with similar terms to the relevant series of
Preferred and Trust Securities, which we refer to as the
LLC Preferred Securities.
If for any dividend period full dividends are not paid in
respect of the LLC Preferred Securities or the Preferred and
Trust Securities, then we generally will be prohibited from
declaring or paying any dividends or other distributions, or
redeeming, purchasing or acquiring, any of our capital
securities, including the Series R Preferred Stock, during
the next succeeding dividend period applicable to any of the LLC
Preferred Securities or the Preferred and Trust Securities.
In addition, any other financing agreements that we enter into
in the future may limit our ability to pay cash dividends on our
capital stock, including the Series R Preferred Stock. In
the event that any other financing agreements in the future
restrict our ability to pay dividends in cash on the
Series R Preferred Stock, we may be unable to pay dividends
in cash on the Series R Preferred Stock unless we can
refinance amounts outstanding under those agreements.
Further, Washington law provides that we may pay dividends on
the Series R Preferred Stock only if after payment of such
dividends we would be able to pay our liabilities as they become
due in the usual course of business and only to the extent by
which our total assets after payment of such dividends exceed
the sum of our total liabilities plus the amount that, if we
were to be dissolved at the time of the distribution, would be
needed to satisfy preferential rights upon dissolution of
stockholders whose preferential rights are superior to those
receiving the distributions. Lastly, even if we are permitted
under our contractual obligations and Washington law to pay cash
dividends on the Series R Preferred Stock, we may not have
sufficient cash to pay dividends in cash on the Series R
Preferred Stock.
Dividends
on the Series R Preferred Stock are
non-cumulative.
Dividends on the Series R Preferred Stock are
non-cumulative. Consequently, if our board of directors does not
authorize and declare a dividend for any dividend period,
holders of the Series R Preferred Stock will not be
entitled to receive a dividend for such period, and such
undeclared dividend will not accrue and be payable. We will have
no obligation to pay dividends for a dividend period after the
dividend payment date for such period if our board of directors
has not declared such dividend before the related dividend
payment date, whether or not dividends are declared for any
subsequent dividend period with respect to the Series R
Preferred Stock. Our board of directors may determine that it
would be in our best interest to pay less than the full amount
of the stated dividends on the Series R Preferred Stock or
no dividend for any quarter even if funds are available. Factors
that would be considered by our board of directors in making
this determination are our financial condition and capital
needs, the impact of current and pending legislation and
regulations, economic conditions, tax considerations, and such
other factors as our board of directors may deem relevant.
S-18
The
market price of the Series R Preferred Stock will be
directly affected by the market price of our common stock, which
may be volatile.
To the extent that a secondary market for the Series R
Preferred Stock develops, we believe that the market price of
the Series R Preferred Stock will be significantly affected
by the market price of our common stock. We cannot predict how
the shares of our common stock will trade in the future. This
may result in greater volatility in the market price of the
Series R Preferred Stock than would be expected for
nonconvertible preferred stock. From January 1, 2005 to
November 30, 2007, the reported high and low sales prices
for our common stock ranged from a low of $16.75 per share to a
high of $47.01 per share. The market price of our common stock
will likely continue to fluctuate in response to a number of
factors including the following, most of which are beyond our
control:
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actual or anticipated quarterly fluctuations in our operating
and financial results;
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developments related to investigations, proceedings or
litigations that involve us;
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changes in financial estimates and recommendations by financial
analysts;
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dispositions, acquisitions and financings;
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actions of our current shareholders, including sales of common
stock by existing shareholders and our directors and executive
officers;
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changes in the ratings of our other securities;
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fluctuations in the stock price and operating results of our
competitors;
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regulatory developments; and
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developments related to the financial services industry.
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The market price of our common stock may also be affected by
market conditions affecting the stock markets in general,
including price and trading fluctuations on the New York Stock
Exchange. These conditions may result in (i) volatility in
the level of, and fluctuations in, the market prices of stocks
generally and, in turn, our common stock and (ii) sales of
substantial amounts of our common stock in the market, in each
case that could be unrelated or disproportionate to changes in
our operating performance. These broad market fluctuations may
adversely affect the market prices of our common stock, and, in
turn, the Series R Preferred Stock.
In addition, we expect that the market price of the
Series R Preferred Stock will be influenced by yield and
interest rates in the capital markets, our creditworthiness and
the occurrence of events affecting us that do not require an
adjustment to the conversion rate.
There
may be future sales or other dilution of our equity, which may
adversely affect the market price of our common stock or the
Series R Preferred Stock.
Except as described under Underwriting
Lock-Up
Agreements, we are not restricted from issuing additional
common stock or preferred stock, including any securities that
are convertible into or exchangeable for, or that represent the
right to receive, common stock or preferred stock or any
substantially similar securities. The market price of our common
stock or preferred stock could decline as a result of sales of a
large number of shares of common stock or preferred stock or
similar securities in the market after this offering or the
perception that such sales could occur.
Each share of Series R Preferred Stock will be convertible
at the option of the holder thereof
into shares
of our common stock, subject to anti-dilution adjustments. The
conversion of some or all of the Series R Preferred Stock
will dilute the ownership interest of our existing common
stockholders. Any sales in the public market of our common stock
issuable upon such conversion could adversely affect prevailing
market prices of the outstanding shares of our common stock and
the Series R Preferred Stock. In addition, the existence of
our Series R Preferred Stock may encourage short selling or
arbitrage trading activity by
S-19
market participants because the conversion of our Series R
Preferred Stock could depress the price of our equity securities.
The
issuance of additional preferred shares could adversely affect
holders of common stock, which may negatively impact your
investment.
Our board of directors is authorized to issue additional classes
or series of preferred shares without any action on the part of
the stockholders. The board of directors also has the power,
without stockholder approval, to set the terms of any such
classes or series of preferred shares that may be issued,
including voting rights, dividend rights and preferences over
the common stock with respect to dividends or upon the
liquidation, dissolution or winding up of our business and other
terms. If we issue preferred shares in the future that have a
preference over the common stock with respect to the payment of
dividends or upon liquidation, dissolution or winding up, or if
we issue preferred shares with voting rights that dilute the
voting power of the common stock, the rights of holders of the
common stock or the market price of the common stock could be
adversely affected. As noted above, a decline in the market
price of the common stock may negatively impact the market price
for the Series R Preferred Stock.
Holders
of the Series R Preferred Stock will have no rights as
holders of common stock until they acquire the common
stock.
Until the conversion of your Series R Preferred Stock into
common stock, you will have no rights with respect to the common
stock, including voting rights (except as described under
Description of Series R Preferred Stock
Voting Rights and as required by applicable state law),
rights to respond to tender offers and rights to receive any
dividends or other distributions on the common stock, but your
investment in our Series R Preferred Stock may be
negatively affected by these events. Upon conversion, you will
be entitled to exercise the rights of a holder of common stock
only as to matters for which the record date occurs on or after
the applicable conversion date. For example, in the event that
an amendment is proposed to our articles of incorporation or
bylaws requiring stockholder approval and the record date for
determining the stockholders of record entitled to vote on the
amendment occurs prior to the conversion date, you will not be
entitled to vote on the amendment, although you will
nevertheless be subject to any changes in the powers,
preferences or special rights of our common stock that may occur
as a result of such amendment.
You
will have limited voting rights.
Until and unless we are in arrears on our dividend payments on
the Series R Preferred Stock for six dividend periods,
whether consecutive or not, you will have no voting rights
except with respect to certain fundamental changes in the terms
of the Series R Preferred Stock and certain other matters.
If dividends on the Series R Preferred Stock are not paid
in full for six dividend periods, whether consecutive or not,
the holders of Series R Preferred Stock, acting as a class
with any other parity securities having similar voting rights,
will have the right to elect two directors to our board. The
terms of office of these directors will end when we have paid or
set aside for payment full quarterly dividends for four
consecutive dividend periods. See Description of
Series R Preferred Stock Voting Rights.
The
Series R Preferred Stock is a new series of securities and
an active trading market for it may not develop.
Prior to this offering, there has been no public market for the
Series R Preferred Stock. The Series R Preferred Stock
is expected to be listed on the New York Stock Exchange within
30 days of December , 2007, the original
issue date. There can be no assurance, however, that an active
trading market will develop, or if developed, that an active
trading market will be maintained. The underwriters have advised
us that they intend to facilitate secondary market trading by
making a market in the Series R Preferred Stock. However,
the underwriters are not obligated to make a market in the
Series R Preferred Stock and may discontinue market making
activities at any time.
S-20
The
Series R Preferred Stock will rank junior to all of our and
our subsidiaries liabilities in the event of a bankruptcy,
liquidation or winding up.
In the event of bankruptcy, liquidation or winding up, our
assets will be available to pay obligations on the Series R
Preferred Stock only after all of our liabilities have been
paid. In addition, the Series R Preferred Stock will rank
in parity with the other series of preferred stock and will
effectively rank junior to all existing and future liabilities
of our subsidiaries and the capital stock (other than common
stock) of the subsidiaries held by entities or persons other
than us or entities owned or controlled by us. The rights of
holders of the Series R Preferred Stock to participate in
the assets of our subsidiaries upon any liquidation,
reorganization, receivership or conservatorship of any
subsidiary will rank junior to the prior claims of that
subsidiarys creditors and equity holders. As of
September 30, 2007, we had total consolidated liabilities
of approximately $306 billion. In the event of bankruptcy,
liquidation or winding up, there may not be sufficient assets
remaining, after paying our and our subsidiaries
liabilities, to pay amounts due on any or all of the
Series R Preferred Stock then outstanding.
The
conversion rate of the Series R Preferred Stock may not be
adjusted for all dilutive events that may adversely affect the
market price of the Series R Preferred Stock or the common
stock issuable upon conversion of the Series R Preferred
Stock.
The number of shares of our common stock that you are entitled
to receive upon conversion of a share of Series R Preferred
Stock is subject to adjustment for certain events arising from
increases in cash dividends, dividends or distributions in
common stock or other property, certain issuances of stock
purchase rights, certain self tender offers, subdivisions,
splits and combinations of the common stock and certain other
actions by us that modify our capital structure. See
Description of Series R Preferred Stock
Anti-Dilution Adjustments. We will not adjust the
conversion rate for other events, including offerings of common
stock for cash by us or in connection with acquisitions. There
can be no assurance that an event that adversely affects the
value of the Series R Preferred Stock, but does not result
in an adjustment to the conversion rate, will not occur.
Further, if any of these other events adversely affects the
market price of our common stock, it may also adversely affect
the market price of the Series R Preferred Stock. In
addition, except as described under
Underwriting
Lock-Up
Agreements, we are not restricted from offering common
stock in the future or engaging in other transactions that could
dilute our common stock.
The
delivery of additional make-whole shares in respect of
conversions following a make-whole acquisition or adjustment to
the conversion rate in respect of conversions following a
fundamental change may not adequately compensate
you.
If a make-whole acquisition occurs prior to conversion, we will,
under certain circumstances, increase the conversion rate in
respect of any conversions of the Series R Preferred Stock
that occur during the period beginning on the effective date of
the make-whole acquisition and ending on the date that is
30 days after the effective date by a number of additional
shares of common stock. The number of make-whole shares, if any,
will be based on the stock price and the effective date of the
make-whole acquisition. See Description of Series R
Preferred Stock Conversion Upon Certain
Acquisitions. Although this adjustment is designed to
compensate you for the lost option value of your Series R
Preferred Stock, it is only an approximation of such lost value
and may not adequately compensate you for your actual loss.
In addition, if a fundamental change occurs prior to conversion,
we will, under certain circumstances, increase the conversion
rate in respect of any conversions of the Series R
Preferred Stock that occur during the period beginning on the
effective date of the fundamental change and ending on the date
that is 30 days after the effective date. See
Description of Series R Preferred Stock
Conversion Upon Fundamental Change. However, if the
applicable reference price is less than
$ , holders will receive a maximum
of shares
of our common stock per share of Series R Preferred Stock,
subject to adjustment, which may result in a holder receiving
value that is less than the liquidation preference of the
Series R Preferred Stock.
S-21
Our obligation to deliver make-whole shares or to adjust the
conversion rate in respect of conversions following a
fundamental change could be considered a penalty, in which case
the enforceability thereof would be subject to general
principles of reasonableness, as applied to such payments.
You
may be subject to tax upon an adjustment to the conversion rate
of the Series R Preferred Stock even though you do not
receive a corresponding cash distribution.
The conversion rate of the Series R Preferred Stock is
subject to adjustment in certain circumstances, including the
payment of cash dividends. If the conversion rate is adjusted as
a result of a distribution that is taxable to our common
stockholders, such as a cash dividend, you will be deemed to
have received for U.S. federal income tax purposes a
taxable dividend to the extent of our earnings and profits
without the receipt of any cash. If you are a non-U.S holder (as
defined in Certain U.S. Federal Income Tax
Considerations), such deemed dividend may be subject to
U.S. federal withholding tax (currently at a 30% rate, or
such lower rate as may be specified by an applicable treaty),
which may be set off against subsequent payments on the
Series R Preferred Stock. See Certain
U.S. Federal Income Tax Considerations.
S-22
We expect to receive net proceeds from this offering of
approximately $ , after expenses
and underwriting discounts and commissions. We intend initially
to contribute up to $1.0 billion of the net proceeds from
this offering to Washington Mutual Bank, our principal bank
subsidiary, as additional capital, and retain the remaining net
proceeds at our holding company for general corporate purposes.
RATIO
OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS
The following table shows our ratio of earnings to fixed charges
and our ratio of earnings to combined fixed charges and
preferred dividends on a consolidated basis. The ratio of
earnings to fixed charges has been computed by dividing net
income plus all applicable income taxes plus fixed charges, by
fixed charges. The ratio of earnings to combined fixed charges
and preferred dividends has been computed by dividing net income
plus all applicable income taxes plus fixed charges, by fixed
charges and preferred dividend requirements.
Fixed charges consist of interest expense, either including or
excluding interest on deposits as set forth below, and the
portion of net rental expense deemed to be equivalent to
interest on long-term debt. Interest expense, other than on
deposits, includes interest on long-term debt, federal funds
purchased and securities sold under agreements to repurchase,
mortgages, commercial paper and other funds borrowed. The
preferred dividend requirements represent the pretax earnings
which would have been required to cover the dividend
requirements on our preferred stock outstanding.
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Nine Months
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Ended
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September 30,
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Year Ended December 31,
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2007
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2006
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2006
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2005
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2004
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2003
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2002
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Earnings to Fixed Charges:
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Including interest on deposits
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1.31
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1.44
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1.40
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1.68
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1.89
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2.28
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2.02
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Excluding interest on deposits
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1.77
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1.89
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1.84
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2.30
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2.67
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3.38
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2.88
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Earnings to Combined Fixed Charges and Preferred Dividends:
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Including interest on deposits
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1.30
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1.44
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1.40
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1.68
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1.89
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2.28
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2.02
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Excluding interest on deposits
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1.75
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1.89
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1.83
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2.30
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2.67
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3.38
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2.87
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S-23
The following table sets forth, on a consolidated basis, our
capitalization as of September 30, 2007:
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on an actual basis; and
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as adjusted to give effect to the issuance by Washington Mutual
Preferred Funding Trust IV of $1,000,000,000 of its
Fixed-to Floating Rate Perpetual Non-Cumulative Trust
Securities, the issuance by us of $500,000,000 of our 7.250%
Subordinated Notes due November 1, 2017, and this offering.
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You should read the following table together with
Summary Summary Financial and Other
Information and our consolidated financial statements and
notes thereto incorporated by reference into this prospectus
supplement and the accompanying prospectus.
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As of September 30, 2007
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Actual
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As Adjusted
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($ in millions)
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Deposits
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$
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194,280
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$
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194,280
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Federal funds purchased and commercial paper
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2,482
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2,482
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Securities sold under agreement to repurchase
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4,732
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4,732
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Advances from Federal Home Loan Banks
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52,530
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52,530
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Other borrowings
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40,887
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41,384
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Other liabilities
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8,313
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8,313
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Minority interests
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2,945
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3,917
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Total liabilities
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306,169
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307,638
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Stockholders equity:
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Series K preferred stock
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492
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492
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Series R preferred
stock(1)
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Common stock
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Capital surplus common stock
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2,575
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2,575
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Accumulated other comprehensive loss
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(390
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Retained earnings
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21,264
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Total stockholders equity
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23,965
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Total liabilities and stockholders equity
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$
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330,110
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Capital Adequacy:
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Tangible equity to total tangible assets
(2)
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5.60
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%
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6.64
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%
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Total risk-based capital to risk-weighted assets
(3)
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10.67
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%
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12.20
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%
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(1) |
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Assumes estimated expenses from this offering will be
approximately $1.75 million. |
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(2) |
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Excludes unrealized net gain/loss on available-for-sale
securities and derivatives, goodwill and intangible assets, but
includes MSR and transition adjustments related to the adoption
of Financial Accounting Standards Board Statement No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans. These adjustments are applied
to both the numerator and the denominator. Minority interests of
$2.94 billion for September 30, 2007 are included in
the numerator. |
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(3) |
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Estimate of what the total risk-based capital ratio would be if
Washington Mutual, Inc. were a bank holding company subject to
the regulatory capital guidelines of the Federal Reserve Board.
The amounts and components of total risk-based capital and
Tier 1 capital included in this estimate are based on our
judgment of what may be included as such capital under the
Federal Reserve Boards regulatory capital guidelines and
are not reported to or approved by the Federal Reserve Board. |
S-24
DESCRIPTION
OF SERIES R PREFERRED STOCK
This prospectus supplement summarizes specific terms and
provisions of the Series R Preferred Stock. Terms that
apply generally to our preferred stock are described in the
Description of Capital Stock Preferred
Stock section of the accompanying prospectus. The
following summary of the terms and provisions of the
Series R Preferred Stock does not purport to be complete
and is qualified in its entirety by reference to the pertinent
sections of our amended and restated articles of incorporation,
including the articles of amendment creating the Series R
Preferred Stock, which will be incorporated by reference in the
registration statement that we filed with the SEC. You should
read our articles of incorporation, including the articles of
amendment, for the provisions that are important to you.
As used in this section, the terms the us,
we or our refer to Washington Mutual,
Inc. and not any of its subsidiaries.
General
Our amended and restated articles of incorporation authorize the
issuance of 10,000,000 preferred shares, with no par value. When
issued, the Series R Preferred Stock will constitute a
single series of our preferred shares, consisting of
2,500,000 shares (or 2,875,000 shares if the
underwriters exercise their option to purchase additional shares
in full in accordance with the procedures set forth in
Underwriting), no par value and liquidation
preference $1,000 per share. The holders of the Series R
Preferred Stock will have no preemptive rights. All of the
shares of the Series R Preferred Stock, when issued and
paid for, will be validly issued, fully paid and non-assessable.
The Series R Preferred Stock will rank, with respect to the
payment of dividends and distributions upon liquidation,
dissolution or
winding-up,
(1) on a parity with our outstanding Series K
Preferred Stock and any Series I Preferred Stock,
Series J Preferred Stock, Series L Preferred Stock,
Series M Preferred Stock and Series N Preferred Stock
we may issue in the future and each other class or series of
preferred stock we may issue in the future the terms of which
expressly provide that such class or series will rank on a
parity with the Series R Preferred Stock as to dividend
rights and rights on liquidation, winding up and dissolution of
Washington Mutual (collectively, the parity
securities) and (2) senior to our common stock,
our Series RP Preferred Stock and each other class or
series of preferred stock we may issue in the future the terms
of which do not expressly provide that it ranks on a parity with
or senior to the Series R Preferred Stock as to dividend
rights and rights on liquidation,
winding-up
and dissolution of Washington Mutual (collectively, the
junior securities). As of September 30,
2007, no class or series of our preferred stock is outstanding
other than 500 shares of our Series K Preferred Stock.
See Description of Other Preferred Stock for a
description of our preferred shares.
We will not be entitled to issue any class or series of our
capital stock, the terms of which provide that such class or
series will rank senior to the Series R Preferred Stock as
to payment of dividends or distribution of assets upon our
liquidation, dissolution or winding up, without the approval of
the holders of at least two-thirds of the shares of our
Series R Preferred Stock then outstanding and any class or
series of parity securities then outstanding, voting together as
a single class, with each series or class having a number of
votes proportionate to the aggregate liquidation preference of
the outstanding shares of such class or series. See
Voting Rights.
As of the date of this prospectus supplement, we are authorized
to issue up to 1,600,000,000 shares of common stock, with
no par value. As of September 30, 2007,
868,518,680 shares of common stock (including shares held
in escrow) were issued and outstanding.
Under Washington law, we may declare or pay dividends on the
Series R Preferred Stock only if after payment of such
dividends we would be able to pay our liabilities as they become
due in the usual course of business and only to the extent by
which our total assets after payment of such dividends exceed
the sum of our total liabilities plus the amount (the
preference amount) that, if we were to be
dissolved at the time of the distribution, would be needed to
satisfy preferential rights upon dissolution of stockholders
whose preferential rights are superior to those receiving the
distributions. When the need to make these
S-25
determinations arises, our board of directors will determine the
amount of our total assets, total liabilities and preference
amount in accordance with Washington law.
Dividends
Dividends on the Series R Preferred Stock will be payable
quarterly, if, when and as declared by our board of directors
out of legally available funds, on a non-cumulative basis on the
$1,000 per share liquidation preference, at an annual rate equal
to %. Subject to the foregoing,
dividends will be payable in arrears on March 15,
June 15, September 15 and December 15 of each year
commencing on March 15, 2008 or, if any such day is not a
business day, the next business day (each, a dividend
payment date). Each dividend will be payable to
holders of record as they appear on our stock register on the
first day of the month in which the relevant dividend payment
date occurs. Each period from and including a dividend payment
date (or the date of the issuance of the Series R Preferred
Stock) to but excluding the following dividend payment date is
herein referred to as dividend period.
Dividends payable for each dividend period will be computed on
the basis of the actual number of days elapsed in the period
divided by 360. If a scheduled dividend payment date falls on a
day that is not a business day, the dividend will be paid on the
next business day as if it were paid on the scheduled dividend
payment date, and no interest will accrue on the dividend so
payable for the period from and after that dividend payment date
to the date the dividend is paid.
Dividends on the Series R Preferred Stock will be
non-cumulative. If for any reason our board of directors does
not declare full cash dividends on the Series R Preferred
Stock for a dividend period, we will have no obligation to pay
any dividends for that period, whether or not our board of
directors declares dividends on the Series R Preferred
Stock for any subsequent dividend period.
We are not obligated to and will not pay holders of the
Series R Preferred Stock any interest or sum of money in
lieu of interest on any dividend not paid on a dividend payment
date. We are also not obligated to and will not pay holders of
the Series R Preferred Stock any dividend in excess of the
dividends on the Series R Preferred Stock that are payable
as described above.
There is no sinking fund with respect to dividends.
For a discussion of the tax consequences of dividends paid on
the Series R Preferred Stock, see Certain
U.S. Federal Income Tax Considerations
U.S. Holders Dividends and Certain
U.S. Federal Income Tax Considerations
Non-U.S. Holders Dividends.
Dividend
Stopper
In addition, if full quarterly dividends on all outstanding
shares of the Series R Preferred Stock for any dividend
period have not been declared and paid, we will be prohibited
from declaring or paying dividends with respect to, or
redeeming, purchasing or acquiring any of, our junior securities
during the next succeeding dividend period, other than:
(i) redemptions, purchases or other acquisitions of junior
securities in connection with any benefit plan or other similar
arrangement with or for the benefit of any one or more
employees, officers, directors or consultants or in connection
with a dividend reinvestment or stockholder stock purchase plan;
(ii) any declaration of a dividend in connection with any
stockholders rights plan, including with respect to our
Series RP Preferred Stock, or the issuance of rights, stock
or other property under any stockholders rights plan, or
the redemption or repurchase of rights pursuant thereto; and
(iii) conversions into or exchanges for other junior
securities and cash solely in lieu of fractional shares of the
junior securities.
If dividends for any dividend payment date are not paid in full
on the shares of the Series R Preferred Stock and there are
issued and outstanding shares of parity securities for which
such dividend payment date is also a scheduled dividend payment
date, then all dividends declared on shares of the Series R
Preferred Stock and such parity securities on such date shall be
declared pro rata so that the respective amounts of such
dividends shall bear the same ratio to each other as full
quarterly dividends per share on the shares of the
S-26
Series R Preferred Stock and all such parity securities
otherwise payable on such date (subject to their having been
declared by the board of directors out of legally available
funds and including, in the case of any such parity securities
that bear cumulative dividends, all accrued but unpaid
dividends) bear to each other.
Redemption
The Series R Preferred Stock will not be redeemable either
of our option or at the option of the holders.
Optional
Conversion Right
Each share of the Series R Preferred Stock may be converted
at any time, at the option of the holder,
into shares
of our common stock (which reflects an approximate initial
conversion price of $ per share of
common stock ) plus cash in lieu of fractional shares, subject
to anti-dilution adjustments (such price or adjusted price, the
conversion price).
The conversion rate and the corresponding conversion price in
effect at any given time are referred to as the
applicable conversion rate and the
applicable conversion price,
respectively, and will be subject to adjustment as described
below. The applicable conversion price at any given time will be
computed by dividing $1,000 by the applicable conversion rate at
such time.
If the conversion date is prior to the record date for any
declared dividend for the dividend period in which you elect to
convert, you will not receive any declared dividends for that
dividend period. If the conversion date is after the record date
for any declared dividend and prior to the dividend payment
date, you will receive that dividend on the relevant dividend
payment date if you were the holder of record on the record date
for that dividend; however, whether or not you were the holder
of record on the record date, you must pay to the conversion
agent when you convert your shares of Series R Preferred
Stock an amount in cash equal to the full dividend actually paid
on the dividend payment date for the then-current dividend
period on the shares being converted, unless your shares of
Series R Preferred Stock are being converted as a
consequence of a mandatory conversion at our option, a
make-whole acquisition or a fundamental change as described
below under Mandatory Conversion at Our
Option, Conversion Upon Certain
Acquisitions and Conversion Upon
Fundamental Change, respectively.
Mandatory
Conversion at Our Option
On or after December 18, 2012, we may, at our option, at
any time or from time to time cause some or all of the
Series R Preferred Stock to be converted into shares of our
common stock at the then applicable conversion rate. We may
exercise our conversion right if, for 20 trading days within any
period of 30 consecutive trading days, including the last
trading day of such period, ending on the trading day preceding
the date we give notice of mandatory conversion, the closing
price of our common stock exceeds 130% of the then applicable
conversion price of the Series R Preferred Stock.
If less than all of the Series R Preferred Stock are
converted, the conversion agent will select the Series R
Preferred Stock to be converted by lot, or on a pro rata basis
or by another method the conversion agent considers fair and
appropriate, including any method required by DTC or any
successor depositary. If the conversion agent selects a portion
of your Series Preferred Stock for partial mandatory
conversion and you convert a portion of the same share of
Series R Preferred Stock, the converted portion will be
deemed to be from the portion selected for mandatory conversion.
The closing price of the common stock on any
date of determination means the closing sale price or, if no
closing sale price is reported, the last reported sale price of
the shares of our common stock on the New York Stock Exchange on
that date. If the common stock is not traded on the New York
Stock Exchange on any date of determination, the closing price
of the common stock on any date of determination means the
closing sale price as reported in the composite transactions for
the principal U.S. national or regional securities exchange
on which our common stock is so listed or quoted, or, if no
closing price is reported, the last reported sale price on the
principal U.S. national or regional securities exchange on
which our common stock is so listed or quoted, or if the common
stock are not so listed or quoted on a U.S. national or
regional
S-27
securities exchange, the last quoted bid price for the common
stock in the over-the-counter market as reported by Pink Sheets
LLC or similar organization, or, if that bid price is not
available, the market price of the common stock on that date as
determined by a nationally recognized independent investment
banking firm retained by us for this purpose.
A trading day is a day on which the shares of
our common stock:
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are not suspended from trading on any national or regional
securities exchange or association or over-the-counter market at
the close of business; and
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have traded at least once on the national or regional securities
exchange or association or over-the-counter market that is the
primary market for the trading of the common stock.
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For purposes of this prospectus supplement, all references to
the closing price and last reported sale price of the common
stock on the New York Stock Exchange shall be such closing price
and last reported sale price as reflected on the website of the
New York Stock Exchange
(http://www.nyse.com)
and as reported by Bloomberg Professional Service; provided
that in the event that there is a discrepancy between the
closing sale price as reflected on the website of the New York
Stock Exchange and as reported by Bloomberg Professional
Service, the closing sale price and last reported sale price on
the website of the New York Stock Exchange shall govern.
To exercise the mandatory conversion right described above, we
must provide a notice of such conversion to each holder of our
Series R Preferred Stock or issue a press release for
publication and make this information available on our website.
The conversion date will be a date selected by us (the
mandatory conversion date) and will be no
more than 20 days after the date on which we provide such
notice of mandatory conversion or issue such press release. In
addition to any information required by applicable law or
regulation, the notice of mandatory conversion and press release
shall state, as appropriate:
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the mandatory conversion date;
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the number of shares of our common stock to be issued upon
conversion of each share of Series R Preferred
Stock; and
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the number of shares of Series R Preferred Stock to be
converted.
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Conversion
Procedures
Conversion into shares of our common stock will occur on the
mandatory conversion date or any applicable conversion date (as
defined below). On the mandatory conversion date, certificates
representing shares of our common stock will be issued and
delivered to you or your designee upon presentation and
surrender of the certificate evidencing the Series R
Preferred Stock to the conversion agent if shares of the
Series R Preferred Stock are held in certificated form, and
upon compliance with some additional procedures described below.
If a holders interest is a beneficial interest in a global
certificate representing Series R Preferred Stock, a
book-entry transfer through DTC will be made by the conversion
agent upon compliance with the depositarys procedures for
converting a beneficial interest in a global security.
On the date of any conversion at the option of the holders, if a
holders interest is in certificated form, a holder must do
each of the following in order to convert:
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complete and manually sign the conversion notice provided by the
conversion agent, or a facsimile of the conversion notice, and
deliver this irrevocable notice to the conversion agent;
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surrender the shares of Series R Preferred Stock to the
conversion agent;
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if required, furnish appropriate endorsements and transfer
documents;
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if required, pay all transfer or similar taxes; and
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if required, pay funds equal to any declared and unpaid dividend
payable on the next dividend payment date to which such holder
is entitled.
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S-28
If a holders interest is a beneficial interest in a global
certificate representing Series R Preferred Stock, in order
to convert a holder must comply with the last three requirements
listed above and comply with the depositarys procedures
for converting a beneficial interest in a global security.
The date on which a holder complies with the foregoing
procedures is the conversion date.
The conversion agent for the Series R Preferred Stock is
initially the transfer agent. A holder may obtain copies of the
required form of the conversion notice from the conversion
agent. The conversion agent will, on a holders behalf,
convert the Series R Preferred Stock into shares of our
common stock, in accordance with the terms of the notice
delivered by us described below. Payments of cash for dividends
and in lieu of fractional shares and, if shares of our common
stock are to be delivered, a stock certificate or certificates,
will be delivered to the holder, or in the case of global
certificates, a book-entry transfer through DTC will be made by
the conversion agent.
The person or persons entitled to receive the shares of common
stock issuable upon conversion of the Series R Preferred
Stock will be treated as the record holder(s) of such shares as
of the close of business on the applicable conversion date.
Prior to the close of business on the applicable conversion
date, the shares of common stock issuable upon conversion of the
Series R Preferred Stock will not be deemed to be
outstanding for any purpose and you will have no rights with
respect to the common stock, including voting rights, rights to
respond to tender offers and rights to receive any dividends or
other distributions on the common stock, by virtue of holding
the Series R Preferred Stock.
Conversion
Upon Certain Acquisitions
General. The following provisions will
apply if, prior to the conversion date, one of the following
events occur:
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a person or group within the meaning of
Section 13(d) of the Exchange Act files a Schedule TO or
any schedule, form or report under the Exchange Act disclosing
that such person or group has become the direct or indirect
ultimate beneficial owner, as defined in
Rule 13d-3
under the Exchange Act, of our common equity representing more
than 50% of the voting power of our common stock; or
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consummation of any consolidation or merger of us or similar
transaction or any sale, lease or other transfer in one
transaction or a series of transactions of all or substantially
all of the consolidated assets of us and our subsidiaries, taken
as a whole, to any person other than one of our subsidiaries, in
each case pursuant to which our common stock will be converted
into cash, securities or other property.
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These transactions are referred to as make-whole
acquisitions; provided, however that a
make-whole acquisition will not be deemed to have occurred if at
least 90% of the consideration received by holders of our common
stock in the transaction or transactions consists of shares of
common stock or American Depositary Receipts in respect of
common stock that are traded on a U.S. national securities
exchange or that will be so traded when issued or exchanged in
connection with a make-whole acquisition.
The phrase all or substantially all of our assets is
likely to be interpreted by reference to applicable state law at
the relevant time, and will be dependent on the facts and
circumstances existing at such time. As a result, there may be a
degree of uncertainty in ascertaining whether a sale or transfer
is of all or substantially all of our assets.
Upon a make-whole acquisition, we will, under certain
circumstances, increase the conversion rate in respect of any
conversions of the Series R Preferred Stock that occur
during the period (the make-whole acquisition
conversion period) beginning on the effective date of
the make-whole acquisition (the effective
date) and ending on the date that is 30 days
after the effective date, by a number of additional shares of
common stock (the make-whole shares) as
described below.
We will notify holders, at least 20 days prior to the
anticipated effective date of such make-whole acquisition, of
the anticipated effective date of such transaction. The notice
will specify the anticipated effective date of the make-whole
acquisition and the date by which each holders make-whole
acquisition conversion right must be exercised. We will also
notify holders on the effective date of such make-whole
S-29
acquisition specifying, among other things, the date that is
30 days after the effective date, the number of make-whole
shares and the amount of the cash, securities and other
consideration receivable by the holder upon conversion. To
exercise the make-whole acquisition conversion right, a holder
must deliver to the conversion agent, on or before the close of
business on the date specified in the notice, the certificate
evidencing such holders shares of the Series R
Preferred Stock, if the Series R Preferred Stock are held
in certificated form. If a holders interest is a
beneficial interest in a global certificate representing
Series R Preferred Stock, in order to convert a holder must
comply with the requirements listed above under
Conversion Procedures and comply with
the depositarys procedures for converting a beneficial
interest in a global security. The date that the holder complies
with these requirements is referred to as the
make-whole conversion date. If a
holder does not elect to exercise the make-whole acquisition
conversion right, such holders shares of the Series R
Preferred Stock will remain outstanding but will not be eligible
to receive make-whole shares.
Make-Whole Shares. The following table
sets forth the number of make-whole shares per share of
Series R Preferred Stock for each stock price and effective
date set forth below:
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Stock Price
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Effective Date
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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$
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12/ /2007
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12/15/2008
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12/15/2009
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12/15/2010
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12/15/2011
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12/15/2012
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Thereafter
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The number of make-whole shares will be determined by reference
to the table above and is based on the effective date and the
price (the stock price) paid per share of our
common stock in such transaction. If the holders of our shares
of common stock receive only cash in the make-whole acquisition,
the stock price shall be the cash amount paid per share.
Otherwise the stock price shall be the average of the closing
price per share of our common stock on the 10 trading days up to
but not including the effective date.
The stock prices set forth in the first row of the table (i.e.,
the column headers) will be adjusted as of any date on which the
conversion rate of the Series R Preferred Stock is
adjusted. The adjusted stock prices will equal the stock prices
applicable immediately prior to such adjustment multiplied by a
fraction, the numerator of which is the conversion rate
immediately prior to the adjustment giving rise to the stock
price adjustment and the denominator of which is the conversion
rate as so adjusted. Each of the number of make-whole shares in
the table will be subject to adjustment in the same manner as
the conversion rate as set forth under
Anti-Dilution Adjustments.
The exact stock price and effective dates may not be set forth
on the table, in which case:
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if the stock price is between two stock price amounts on the
table or the effective date is between two dates on the table,
the number of make-whole shares will be determined by
straight-line interpolation between the number of make-whole
shares set forth for the higher and lower stock price amounts
and the two dates, as applicable, based on a
365-day year;
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if the stock price is in excess of
$ per
share (subject to adjustment as described above), no make-whole
shares will be issued upon conversion of the Series R
Preferred Stock; and
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if the stock price is less than
$ per
share (subject to adjustment as described above), no make-whole
shares will be issued upon conversion of the Series R
Preferred Stock.
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Our obligation to deliver make-whole shares could be considered
a penalty, in which case the enforceability thereof would be
subject to general principles of reasonableness, as applied to
such payments.
S-30
Conversion
Upon Fundamental Change
If the reference price (as defined below) in connection with a
fundamental change (as defined below) is less than the
applicable conversion price, each share of Series R
Preferred Stock may be converted during the period beginning on
the effective date of the fundamental change and ending on the
date that is 30 days after the effective date of such
fundamental change at an adjusted conversion price equal to the
greater of (1) the reference price and
(2) $ , which is
50% of the closing price of our common stock on the date of this
prospectus supplement, subject to adjustment (the base
price). The base price will be adjusted as of any date
the conversion rate of the Series R Preferred Stock is adjusted.
The adjusted base price will equal the base price applicable
immediately prior to such adjustment multiplied by a fraction,
the numerator of which is the conversion rate immediately prior
to the adjustment giving rise to the stock price adjustment and
the denominator of which is the conversion rate as so adjusted.
If the reference price is less than the base price, holders will
receive a maximum
of shares
of our common stock per share of Series R Preferred Stock,
subject to adjustment, which may result in a holder receiving
value that is less than the liquidation preference of the
Series R Preferred Stock. In lieu of issuing common stock
upon conversion in the event of a fundamental change, we may at
our option, and if we obtain any necessary regulatory approval,
make a cash payment equal to the reference price for each share
of common stock otherwise issuable upon conversion.
The reference price is the price paid per
share of common stock in such fundamental change. If the holders
of our shares of common stock receive only cash in the
fundamental change, the reference price shall be the cash amount
paid per share. Otherwise the reference price shall be the
average of the closing price per share of our common stock on
the 10 trading days up to but not including the effective date
of the fundamental change.
A fundamental change will have deemed to have
occurred upon the occurrence of any of the following:
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(a)
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a person or group within the meaning of
Section 13(d) of the Exchange Act files a Schedule TO
or any schedule, form or report under the Exchange Act
disclosing that such person or group has become the direct or
indirect ultimate beneficial owner, as defined in
Rule 13d-3
under the Exchange Act, of our common equity representing more
than 50% of the voting power of our common stock; or
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(b)
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consummation of any consolidation or merger of us or similar
transaction or any sale, lease or other transfer in one
transaction or a series of transactions of all or substantially
all of the consolidated assets of us and our subsidiaries, taken
as a whole, to any person other than one of our subsidiaries, in
each case pursuant to which our shares of common stock will be
converted into cash, securities or other property, other than
pursuant to a transaction in which the persons that
beneficially owned (as defined in
Rule 13d-3
under the Exchange Act) directly or indirectly, voting shares
immediately prior to such transaction beneficially own, directly
or indirectly, voting shares representing a majority of the
total voting power of all outstanding classes of voting shares
of the continuing or surviving person immediately after the
transaction; or
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(c)
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our common stock ceases to be listed on a U.S. national
securities exchange or another over-the-counter market in the
United States;
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provided, however, that a fundamental change with respect
to clauses (a) or (b) above will not be deemed to have
occurred if at least 90% of the consideration in the transaction
or transactions consists of common stock or American Depositary
Receipts in respect of common stock that are traded on a
U.S. national securities exchange or that will be so traded
when issued or exchanged in connection with a fundamental change.
The phrase all or substantially all of our assets is
likely to be interpreted by reference to applicable state law at
the relevant time, and will be dependent on the facts and
circumstances existing at such time. As a result, there may be a
degree of uncertainty in ascertaining whether a sale or transfer
is of all or substantially all of our assets.
S-31
Reorganization
Events
In the event of:
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(a)
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any consolidation or merger of us with or into another person in
each case pursuant to which our common stock will be converted
into cash, securities or other property of us or another person;
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(b)
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any sale, transfer, lease or conveyance to another person of all
or substantially all of our property and assets, in each case
pursuant to which our common stock will be converted into cash,
securities or other property;
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(c)
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any reclassification of the common stock into securities,
including securities other than the common stock; or
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(d)
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any statutory exchange of our securities with another person
(other than in connection with a merger or acquisition),
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each of which is referred to as a reorganization
event, each share of the Series R
Preferred Stock outstanding immediately prior to such
reorganization event will, without the consent of the holders of
the Series R Preferred Stock, become convertible into the
kind of securities, cash and other property receivable in such
reorganization event by a holder of the shares of our common
stock that was not the counterparty to the reorganization event
or an affiliate of such other party (such securities, cash and
other property, the exchange property). In
the event that holders of the shares of our common stock have
the opportunity to elect the form of consideration to be
received in such transaction, the consideration that the holders
of the Series R Preferred Stock are entitled to receive
will be deemed to be the types and amounts of consideration
received by the majority of the holders of the shares of our
common stock that affirmatively make an election. Holders have
the right to convert their shares of Series R Preferred
Stock in the event of certain acquisitions as described under
Conversion Upon Certain Acquisitions. In
connection with certain reorganization events, holders of the
Series R Preferred Stock may have the right to vote as a
class, see Voting Rights.
Anti-Dilution
Adjustments
The conversion rate will be adjusted in the following
circumstances:
(1) Stock Dividend Distributions. If we pay
dividends or other distributions on the common stock in common
stock, then the conversion rate in effect immediately prior to
the ex-date for such dividend or distribution will be multiplied
by the following fraction:
OS1
OSo
Where,
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OSo =
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the number of shares of common stock outstanding immediately
prior to ex-date for such dividend or distribution.
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OS1 =
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the number of shares of common stock outstanding immediately
after the opening of business on the ex-date for such dividend
or distribution.
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(2) Subdivisions, Splits and Combination of the Common
Stock. If we subdivide, split or combine the shares of
common stock, then the conversion rate in effect immediately
prior to the effective date of such share subdivision, split or
combination will be multiplied by the following fraction:
OS1
OSo
Where,
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OSo = |
the number of shares of common stock outstanding immediately
prior to the effective date of such share subdivision, split or
combination.
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OS1 = |
the number of shares of common stock outstanding immediately
after the opening of business on the effective date of such
share subdivision, split or combination.
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(3) Issuance of Stock Purchase Rights. If we
issue to all holders of the shares of our common stock rights or
warrants (other than rights or warrants issued pursuant to a
dividend reinvestment plan or share purchase plan or other
similar plans) entitling them, for a period of up to
45 days from the date of issuance of such rights or
warrants, to subscribe for or purchase the shares of our common
stock at less than the current market price, as defined below,
of the common stock on the date fixed for the determination of
stockholders entitled to receive such rights or warrants, then
the conversion rate in effect immediately prior to the ex-date
for such distribution will be multiplied by the following
fraction:
OSo + X
OSo + Y
Where,
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OSo = |
the number of shares of common stock outstanding immediately
prior to the ex-date for such distribution.
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X =
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the total number of shares of common stock issuable pursuant to
such rights or warrants.
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Y =
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the number of shares of common stock equal to the aggregate
price payable to exercise such rights or warrants divided by the
current market price.
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To the extent that such rights or warrants are not exercised
prior to their expiration or shares of our common stock are
otherwise not delivered pursuant to such rights or warrants upon
the exercise of such rights or warrants, the conversion rate
shall be readjusted to such conversion rate that would then be
in effect had the adjustment made upon the issuance of such
rights or warrants been made on the basis of the delivery of
only the number of shares of our common stock actually
delivered. In determining the aggregate offering price payable
for such shares of our common stock, there shall be taken into
account any consideration received for such rights or warrants
and the value of such consideration (if other than cash, to be
determined by our board of directors).
(4) Debt or Asset Distributions. If we
distribute to all holders of shares of our common stock
evidences of indebtedness, shares of capital stock, securities,
cash or other assets (excluding any dividend or distribution
referred to in clause (1) above, any rights or warrants
referred to in clause (3) above, any dividend or
distribution paid exclusively in cash, any consideration payable
in connection with a tender or exchange offer made by us or any
of our subsidiaries, and any dividend of shares of capital stock
of any class or series, or similar equity interests, of or
relating to a subsidiary or other business unit in the case of
certain spin-off transactions as described below), then the
conversion rate in effect immediately prior to the ex-date for
such distribution will be multiplied by the following fraction:
SP0
SP0 − FMV
Where,
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SP0 = |
the current market price per share of common stock on such date.
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FMV = |
the fair market value of the portion of the distribution
applicable to one share of common stock on such date as
determined by our board of directors.
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In a spin-off, where we make a distribution to all
holders of our shares of common stock consisting of capital
stock of any class or series, or similar equity interests of, or
relating to, a subsidiary or other business unit, the conversion
rate will be adjusted on the fifteenth trading day after the
effective date of the distribution by multiplying such
conversion rate in effect immediately prior to such fifteenth
trading day by the following
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fraction:
MP0
+ MPs
MP0
Where,
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MP0 =
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the average of the closing prices of the common stock over the
first ten trading days commencing on and including the fifth
trading day following the effective date of such distribution.
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MPs =
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the average of the closing prices of the capital stock or equity
interests representing the portion of the distribution
applicable to one share of common stock over the first ten
trading days commencing on and including the fifth trading day
following the effective date of such distribution, or, if not
traded on a national or regional securities exchange or
over-the-counter market, the fair market value of the capital
stock or equity interests representing the portion of the
distribution applicable to one share of our common stock on such
date as determined by our board of directors.
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(5) Cash Distributions. If we make a
distribution consisting exclusively of cash to all holders of
the common stock, excluding (a) any cash dividend on the
common stock to the extent that the aggregate cash dividend per
share of the common stock does not exceed $0.15 in any fiscal
quarter (the dividend threshold amount),
(b) any cash that is distributed in a reorganization event
(as described below) or as part of a spin-off
referred to in clause (4) above, (c) any dividend or
distribution in connection with our liquidation, dissolution or
winding up, and (d) any consideration payable in connection
with a tender or exchange offer made by us or any of our
subsidiaries, then in each event, the conversion rate in effect
immediately prior to the ex-date for such distribution will be
multiplied by the following fraction:
SP0
SP0 − DIV
Where,
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SP0 = |
the closing price per share of common stock on the ex-date.
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DIV = |
the amount per share of common stock of the dividend or
distribution, as determined pursuant to the following paragraph.
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If an adjustment is required to be made as set forth in this
clause as a result of a distribution (1) that is a
regularly scheduled quarterly dividend, such adjustment would be
based on the amount by which such dividend exceeds the dividend
threshold amount or (2) that is not a regularly scheduled
quarterly dividend, such adjustment would be based on the full
amount of such distribution.
The dividend threshold amount is subject to adjustment on an
inversely proportional basis whenever the conversion rate is are
adjusted; provided that no adjustment will be made to the
dividend threshold amount for any adjustment made to the
conversion rate pursuant to this clause (5).
(6) Self Tender Offers and Exchange Offers. If
we or any of our subsidiaries successfully complete a tender or
exchange offer for our common stock where the cash and the value
of any other consideration included in the payment per share of
the common stock exceeds the closing price per share of the
common stock on the trading day immediately succeeding the
expiration of the tender or exchange offer, then the conversion
rate in effect at the close of business on such immediately
succeeding trading day will be multiplied by the following
fraction:
AC +
(SP0
x
OS1)
OS0
x
SP0
Where,
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SP0 = |
the closing price per share of common stock on the trading day
immediately succeeding the expiration of the tender or exchange
offer.
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OS0 =
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the number of shares of common stock outstanding immediately
prior to the expiration of the tender or exchange offer,
including any shares validly tendered and not withdrawn.
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OS1 =
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the number of shares of common stock outstanding immediately
after the expiration of the tender or exchange offer.
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AC = |
the aggregate cash and fair market value of the other
consideration payable in the tender or exchange offer, as
determined by our board of directors.
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In the event that we are, or one of our subsidiaries is,
obligated to purchase shares of our common stock pursuant to any
such tender offer or exchange offer, but we are, or such
subsidiary is, permanently prevented by applicable law from
effecting any such purchases, or all such purchases are
rescinded, then the conversion rate shall be readjusted to be
such conversion rate that would then be in effect if such tender
offer or exchange offer had not been made.
(7) Rights Plans. To the extent that we have a
rights plan in effect with respect to the common stock on any
conversion date, upon conversion of any shares of the
Series R Preferred Stock, you will receive, in addition to
the shares of our common stock, the rights under the rights
plan, unless, prior to such conversion date, the rights have
separated from the shares of our common stock, in which case the
conversion rate will be adjusted at the time of separation as if
we made a distribution to all holders of the common stock as
described in clause (4) above, subject to readjustment in
the event of the expiration, termination or redemption of such
rights.
In addition, we may make such increases in the conversion rate
as we deem advisable in order to avoid or diminish any income
tax to holders of the common stock resulting from any dividend
or distribution of the shares (or issuance of rights or warrants
to acquire the shares) or from any event treated as such for
income tax purposes or for any other reason.
For a discussion of the tax consequences of a change in the
conversion rate, see Certain U.S. Federal Income Tax
Considerations U.S. Holders
Adjustment of Conversion Rate and Certain
U.S. Federal Income Tax Considerations
Non-U.S. Holders
Dividends in this prospectus supplement.
Adjustments to the conversion rate will be calculated to the
nearest 1/10,000th of a share. No adjustment in the
conversion rate will be required unless the adjustment would
require an increase or decrease of at least one percent in the
conversion rate. If any adjustment is not required to be made
because it would not change the conversion rate by at least one
percent, then the adjustment will be carried forward and taken
into account in any subsequent adjustment; provided that
on a mandatory conversion date or the effective date of a
make-whole acquisition or a fundamental change, adjustments to
the conversion rate will be made with respect to any such
adjustment carried forward that has not been taken into account
before such date.
No adjustment to the conversion rate will be made if holders may
participate in the transaction that would otherwise give rise to
such adjustment as a result of holding the Series R
Preferred Stock, without having to convert the Series R
Preferred Stock, as if they held the full number of shares of
common stock into which a share of the Series R Preferred
Stock may then be converted.
The applicable conversion rate will not be adjusted:
(a) upon the issuance of any shares of common stock
pursuant to any present or future plan providing for the
reinvestment of dividends or interest payable on the securities
and the investment of additional optional amounts in common
stock under any plan;
(b) upon the issuance of any shares of common stock or
rights or warrants to purchase those shares pursuant to any
present or future employee, director or consultant benefit plan
or program of or assumed by us or any of our subsidiaries;
(c) upon the issuance of any shares of common stock
pursuant to any option, warrant, right or exercisable,
exchangeable or convertible security outstanding as of the date
the shares of Series R Preferred Stock were first issued;
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(d) for a change in the par value or no par value of the
common stock; or
(e) for accrued and unpaid dividends on the Series R
Preferred Stock.
We will be required, as soon as practicable after the conversion
rate is adjusted, to provide or cause to be provided written
notice of the adjustment to the holders of shares of
Series R Preferred Stock. We will also be required to
deliver a statement setting forth in reasonable detail the
method by which the adjustment to the conversion rate was
determined and setting forth the revised conversion rate.
The current market price on any date is the
average of the daily closing price per share of the common stock
or other securities on each of the five consecutive trading days
preceding the earlier of the day before the date in question and
the day before the ex-date with respect to the
issuance or distribution requiring such computation. The term
ex-date, when used with respect to any
such issuance or distribution, means the first date on which the
common stock or other securities trade without the right to
receive such issuance or distribution.
Fractional
Shares
No fractional shares of our common stock will be issued to
holders of the Series R Preferred Stock upon conversion. In
lieu of any fractional shares of common stock otherwise issuable
in respect of the aggregate number of shares of the
Series R Preferred Stock of any holder that are converted,
that holder will be entitled to receive an amount in cash
(computed to the nearest cent) equal to the same fraction of the
closing price per share of our common stock determined as of the
second trading day immediately preceding the effective date of
conversion.
If more than one share of the Series R Preferred Stock is
surrendered for conversion at one time by or for the same
holder, the number of full shares of common stock issuable upon
conversion thereof shall be computed on the basis of the
aggregate number of shares of Series R Preferred Stock so
surrendered.
Common
Stock Rights
Reference is made to the Description of Capital
Stock Common Stock in the accompanying
prospectus for a description of the rights of holders of common
stock to be delivered upon conversion of the Series R
Preferred Stock.
Liquidation
Rights
In the event that we voluntarily or involuntarily liquidate,
dissolve or wind up, the holders of Series R Preferred
Stock at the time outstanding will be entitled to receive
liquidating distributions in the amount of $1,000 per share of
Series R Preferred Stock, plus an amount equal to any
declared but unpaid dividends thereon, out of assets legally
available for distribution to our stockholders, before any
distribution of assets is made to the holders of our common
stock or any other junior securities. After payment of the full
amount of such liquidating distributions, the holders of
Series R Preferred Stock will not be entitled to any
further participation in any distribution of assets by, and will
have no right or claim to any of our remaining assets.
In the event that our assets available for distribution to
stockholders upon any liquidation, dissolution or
winding-up
of our affairs, whether voluntary or involuntary, are
insufficient to pay in full the amounts payable with respect to
all outstanding shares of the Series R Preferred Stock and
the corresponding amounts payable on any parity securities, the
holders of Series R Preferred Stock and the holders of such
other parity securities will share ratably in any distribution
of our assets in proportion to the full respective liquidating
distributions to which they would otherwise be respectively
entitled.
For such purposes, our consolidation or merger with or into any
other entity, the consolidation or merger of any other entity
with or into us, or the sale of all or substantially all of our
property or business, will not be deemed to constitute our
liquidation, dissolution, or
winding-up.
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Voting
Rights
Except as provided below, the holders of the Series R
Preferred Stock will have no voting rights.
Washington law attaches mandatory voting rights to classes or
series of shares that are affected by certain amendments to the
articles of incorporation. The holders of the outstanding shares
of a class or series are entitled to vote as a separate voting
group if stockholder voting is otherwise required by Washington
law and if the amendment would:
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increase the aggregate number of authorized shares of the class
or series;
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effect an exchange or reclassification of all or part of the
issued and outstanding shares of the class or series into shares
of another class or series, thereby adversely affecting the
holders of the shares so exchanged or reclassified;
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change the rights, preferences, or limitations of all or part of
the issued and outstanding shares of the class or series,
thereby adversely affecting the holders of shares of the class
or series;
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change all or part of the issued and outstanding shares of the
class or series into a different number of shares of the same
class or series, thereby adversely affecting the holders of
shares of the class or series;
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create a new class or series of shares having rights or
preferences with respect to dividends or other distributions or
to dissolution that are, or upon designation by the board of
directors may be, prior, superior, or substantially equal to the
shares of the class or series;
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increase the rights or preferences with respect to
distributions, or on liquidations or dissolution, or the number
of authorized shares of any class or series that, after giving
effect to the amendment, has rights or preferences with respect
to distributions, or on liquidations or dissolution that are, or
upon designation by the board of directors may be prior,
superior, or substantially equal to the shares of the class or
series;
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limit or deny an existing pre-emptive right of all or part of
the shares of the class or series;
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cancel or otherwise adversely affect rights to distributions
that have accumulated but not yet been declared on all or part
of the shares of the class or series; or
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effect a redemption or cancellation of all or part of the shares
of the class or series in exchange for cash or any other form of
consideration other than shares of the corporation.
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Holders of the outstanding shares of a class or series of stock
are entitled under Washington law to vote as a separate voting
group with respect to a merger or share exchange if stockholder
voting is otherwise required by Washington law and if, as a
result of the merger or share exchange, holders of a part or all
of the class or series would hold or receive:
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shares of any class or series of the surviving or acquiring
corporation, or of any parent corporation of the surviving
corporation, and either (i) that class or series has a
greater number of authorized shares than the class or series
held by the holders, or (ii) there is a change in the
number of shares held by the holders or in the rights,
preferences or limitations of the shares or the class or series
and the change adversely affects the holders;
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shares of any class or series of the surviving or acquiring
corporation, or of any parent corporation of the surviving
corporation, and such holders would be, as compared to their
circumstances prior to the merger or exchange, adversely
affected by the creation, existence, number of authorized shares
or rights or preferences of another series that may be prior,
superior or substantially equal to the shares to be received by
such holders; or
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cash or any other property other than shares of the surviving or
acquiring corporation or of any parent corporation of the
surviving corporation.
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S-37
Under Washington law, if any class or series of shares is
entitled to vote as a group in connection with an amendment of
the articles of incorporation, a merger or a share exchange,
such class or series and any other classes or series affected in
a substantially similar way will vote together as a single
voting group unless otherwise provided in the articles or by the
board of directors.
Washington law permits these statutory voting rights to be
expanded or, in certain circumstances, limited in the
designation of the terms of a class or series. The statutory
voting rights of the holders of Series R Preferred Stock
will be expanded and, in certain circumstances, limited as
described below.
If after issuance of the Series R Preferred Stock we fail
to pay, or declare and set aside for payment, full quarterly
dividends on the Series R Preferred Stock or any other
class or series of parity securities for six dividend periods,
whether consecutive or not, or their equivalent, the authorized
number of our directors will be increased by two. Subject to
compliance with any requirement for regulatory approval of, or
non-objection to, persons serving as directors, the holders of
Series R Preferred Stock, voting together as a single and
separate class with the holders of any outstanding parity
securities having similar voting rights (the Voting Parity
Securities), will have the right to elect two directors in
addition to the directors then in office at our next annual
meeting of stockholders. This right will continue at each
subsequent annual meeting until we pay dividends in full on the
Series R Preferred Stock and any Voting Parity Securities
for three consecutive dividend periods or their equivalent and
pay or declare and set aside for payment dividends in full for
the fourth consecutive dividend period or its equivalent.
The term of such additional directors will terminate, and the
total number of directors will be decreased by two after we pay
dividends in full for three consecutive dividend periods or
their equivalent and declare and pay or set aside for payment
dividends in full on the Series R Preferred Stock and any
Voting Parity Securities for the fourth consecutive dividend
period or its equivalent or, if earlier, upon the conversion of
all of the shares of Series R Preferred Stock. After the
term of such additional directors terminates, the holders of the
Series R Preferred Stock will not be entitled to elect
additional directors unless full quarterly dividends on the
Series R Preferred Stock have again not been paid or
declared and set aside for payment for six future dividend
periods.
Any additional director elected by the holders of the
Series R Preferred Stock and the Voting Parity Securities
may only be removed by the vote of the holders of record of the
outstanding Series R Preferred Stock and Voting Parity
Securities, voting together as a single and separate class, at a
meeting of our stockholders called for that purpose. Any vacancy
created by the removal of any such director may be filled only
by the vote of the holders of the outstanding Series R
Preferred Stock and Voting Parity Securities, voting together as
a single and separate class.
So long as any shares of Series R Preferred Stock are
outstanding, the vote or consent of the holders of at least
two-thirds of the shares of Series R Preferred Stock at the
time outstanding, voting as a class with all other series of
preferred stock ranking equally with the Series R Preferred
Stock and entitled to vote thereon, given in person or by proxy,
either in writing without a meeting or by vote at any meeting
called for the purpose, will be necessary for effecting or
validating any of the following actions, whether or not such
approval is required by Washington law:
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any amendment, alteration or repeal of any provision of our
amended and restated articles of incorporation (including the
articles of amendment creating the Series R Preferred
Stock) or our bylaws that would alter or change the voting
powers, preferences or special rights of the Series R
Preferred Stock so as to affect them adversely;
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any amendment or alteration of our amended and restated articles
of incorporation to authorize or create, or increase the
authorized amount of, any shares of, or any securities
convertible into shares of, any class or series of our capital
stock ranking prior to the Series R Preferred Stock in the
payment of dividends or in the distribution of assets on any
liquidation, dissolution or our
winding-up; or
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the consummation of a binding share exchange or reclassification
involving the Series R Preferred Stock or a merger or
consolidation of us with another entity, except that holders of
Series R Preferred Stock will have no right to vote under
this provision or otherwise under Washington law if in each case
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(i) the Series R Preferred Stock remains outstanding
or, in the case of any such merger or consolidation with respect
to which we are not the surviving or resulting entity, is
converted into or exchanged for preference securities of the
surviving or resulting entity or its ultimate parent, that is an
entity organized and existing under the laws of the United
States of America, any state thereof or the District of
Columbia, and (ii) such Series R Preferred Stock
remaining outstanding or such preference securities, as the case
may be, have such rights, preferences, privileges and voting
powers, taken as a whole, as are not materially less favorable
to the holders thereof than the rights, preferences, privileges
and voting powers of the Series R Preferred Stock, taken as
a whole;
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provided, however, that any increase in the amount of the
authorized or issued Series R Preferred Stock or authorized
preferred stock or any securities convertible into preferred
stock or the creation and issuance, or an increase in the
authorized or issued amount, of other series of preferred stock
or any securities convertible into preferred stock ranking
equally with
and/or
junior to the Series R Preferred Stock with respect to the
payment of dividends (whether such dividends are cumulative or
non-cumulative)
and/or the
distribution of assets upon our liquidation, dissolution or
winding-up
will not be deemed to adversely affect the voting powers,
preferences or special rights of the Series R Preferred
Stock and, notwithstanding any provision of Washington law,
holders of Series R Preferred Stock will have no right to
vote on such an increase.
If an amendment, alteration, repeal, share exchange,
reclassification, merger or consolidation described above would
adversely affect one or more but not all series of voting
preferred stock (including the Series R Preferred Stock for
this purpose), then only those series affected and entitled to
vote shall vote as a class in lieu of all such series of
preferred stock.
The foregoing voting provisions will not apply if, at or prior
to the time when the act with respect to which such vote would
otherwise be required shall be effected, all outstanding shares
of Series R Preferred Stock shall have been converted into
shares of our common stock.
Miscellaneous
We will at all times reserve and keep available out of the
authorized and unissued shares of our common stock or shares
held in the treasury by us, solely for issuance upon the
conversion of the Series R Preferred Stock, that number of
shares of common stock as shall from time to time be issuable
upon the conversion of all the Series R Preferred Stock
then outstanding, together with a number of shares equal to the
unused portion of the share cap amount. Any shares of the
Series R Preferred Stock converted into shares of our
common stock or otherwise reacquired by us shall resume the
status of authorized and unissued preferred shares, undesignated
as to series, and shall be available for subsequent issuance.
Transfer
Agent, Registrar, Paying Agent and Conversion Agent
Mellon Investor Services LLC will act as transfer agent,
registrar and paying agent for the payment of dividends for the
Series R Preferred Stock and the conversion agent for the
conversion of the Series R Preferred Stock.
Title
We and the transfer agent, registrar, paying agent and
conversion agent may treat the registered holder of the
Series R Preferred Stock as the absolute owner of the
Series R Preferred Stock for the purpose of making payment
and settling the related conversions and for all other purposes.
Book-Entry,
Delivery and Form
The Depository Trust Company will act as securities
depositary for the Series R Preferred Stock. The
Series R Preferred Stock will be issued only as fully
registered securities registered in the name of Cede &
Co., the depositarys nominee. One or more fully registered
global security certificates, representing the total aggregate
number of shares of the Series R Preferred Stock, will be
issued and deposited with or on behalf of
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the depositary and will bear a legend regarding the restrictions
on exchanges and registration of transfer referred to below.
The laws of some jurisdictions require that some purchasers of
securities take physical delivery of securities in definitive
form. Those laws may impair the ability to transfer beneficial
interests in the Series R Preferred Stock so long as the
Series R Preferred Stock is represented by global security
certificates.
The depositary is a limited-purpose trust company organized
under the New York Banking Law, a banking
organization within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform
Commercial Code and a clearing agency registered
pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934.
The depositary holds securities that its participants deposit
with the depositary. The depositary also facilitates the
settlement among participants of securities transactions,
including transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants
accounts, thus eliminating the need for physical movement of
securities certificates. Direct participants include securities
brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. The depositary is
owned by a number of its direct participants and by the New York
Stock Exchange, the American Stock Exchange, Inc. and the
Financial Industry Regulatory Authority, Inc., collectively
referred to as participants. Access to the depositary system is
also available to others, including securities brokers and
dealers, bank and trust companies that clear transactions
through or maintain a direct or indirect custodial relationship
with a direct participant, collectively referred to as indirect
participants. The rules applicable to the depositary and its
participants are on file with the SEC.
Except as otherwise required by applicable law, no shares of the
Series R Preferred Stock represented by global security
certificates may be exchanged in whole or in part for the
Series R Preferred Stock registered, and no transfer of
global security certificates will be made in whole or in part
for the Series R Preferred Stock registered, and no
transfer of global security certificates in whole or in part may
be registered, in the name of any person other than the
depositary or any nominee of the depositary, unless (i) the
depositary has notified us that it is unwilling or unable to
continue as depositary for the global security certificates and
we do not appoint a qualified replacement within 90 days;
(ii) the depositary has ceased to be qualified to act as
such and we do not appoint a qualified replacement within
90 days; or (iii) we decide to discontinue the use of
book-entry transfer through the depositary (or any successor
depositary). All of the Series R Preferred Stock
represented by one or more global security certificates or any
portion of them will be registered in those names as the
depositary may direct.
As long as the depositary or its nominee is the registered owner
of the global security certificates, the depositary or that
nominee will be considered the sole owner and holder of the
global security certificates and all of the Series R
Preferred Stock represented by those certificates for all
purposes under the Series R Preferred Stock.
Notwithstanding the foregoing, nothing herein shall prevent us
or any of our agents or the registrar or any of its agents from
giving effect to any written certification, proxy or other
authorization furnished by the depositary or impair, as between
the depositary and its members or participants, the operation of
customary practices of the depositary governing the exercise of
the rights of a holder of a beneficial interest in any global
security certificates. The depositary or any nominee of the
depositary may grant proxies or otherwise authorize any person
to take any action that the depositary or such nominee is
entitled to take pursuant to the Series R Preferred Stock,
the articles of amendment of the articles of incorporation,
which contains the terms of the Series R Preferred Stock,
or the articles of incorporation.
Except in the limited circumstances referred to above or as
otherwise required by applicable law, owners of beneficial
interests in global security certificates will not be entitled
to have the global security certificates or the Series R
Preferred Stock represented by those certificates registered in
their names, will not receive or be entitled to receive physical
delivery of the Series R Preferred Stock certificates in
exchange and will not be considered to be owners or holders of
the global security certificates or any of the Series R
Preferred Stock represented by those certificates for any
purpose under the Series R Preferred Stock. All payments on
the
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Series R Preferred Stock represented by the global security
certificates and all related transfers and deliveries of common
stock will be made to the depositary or its nominee as their
holder.
Ownership of beneficial interests in the global security
certificates will be limited to participants or persons that may
hold beneficial interests through institutions that have
accounts with the depositary or its nominee, including Euroclear
Bank S.A./N.V., as the operator of the Euroclear System, and
Clearstream Banking, société anonyme. Ownership
of beneficial interests in global security certificates will be
shown only on, and the transfer of those ownership interests
will be effected only through, records maintained by the
depositary or its nominee with respect to participants
interests or by the participant with respect to interests of
persons held by the participants on their behalf.
Procedures for conversion on the conversion date will be
governed by arrangements among the depositary, participants and
persons that may hold beneficial interests through participants
designed to permit the settlement without the physical movement
of certificates. Payments, transfers, deliveries, exchanges and
other matters relating to beneficial interests in global
security certificates may be subject to various policies and
procedures adopted by the depositary from time to time.
Neither we nor any of the agents will have any responsibility or
liability for any aspect of the depositarys or any
participants records relating to, or for payments made on
account of, beneficial interests in global security
certificates, or for maintaining, supervising or reviewing any
of the depositarys records or any participants
records relating to those beneficial ownership interests.
The information in this section concerning the depositary and
its book-entry system has been obtained from sources that we
believe to be reliable, but we do not take responsibility for
its accuracy.
Replacement
of Series R Preferred Stock Certificates
If physical certificates are issued, we will replace any
mutilated certificate at your expense upon surrender of that
certificate to the transfer agent. We will replace certificates
that become destroyed, stolen or lost at your expense upon
delivery to us and the transfer agent of satisfactory evidence
that the certificate has been destroyed, stolen or lost,
together with any indemnity that may be required by the transfer
agent and us.
However, we are not required to issue any certificates
representing the Series R Preferred Stock on or after the
applicable conversion date. In place of the delivery of a
replacement certificate following the applicable conversion
date, the transfer agent, upon delivery of the evidence and
indemnity described above, will deliver the shares of common
stock pursuant to the terms of the Series R Preferred Stock
formerly evidenced by the certificate.
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DESCRIPTION
OF OTHER PREFERRED STOCK
The following description of our preferred stock is a summary of
the material terms of our Amended and Restated Articles of
Incorporation (articles of incorporation).
Reference is made to the more detailed provisions of, and such
descriptions are qualified in their entirety by reference to,
our articles of incorporation, which are incorporated by
reference in the registration statement that we filed with the
SEC for this offering. You should read our articles of
incorporation for the provisions that are important to you.
Our articles of incorporation currently authorize
10,000,000 shares of preferred stock, no par value. On
September 30, 2007, we had outstanding 500 shares of
Series K Preferred Stock, no par value and liquidation
preference $1,000,000 per share. In addition, we have authorized
the issuance of, and reserved shares with respect to, our
Series I Preferred Stock, Series J Preferred Stock,
Series L Preferred Stock, Series M Preferred Stock and
Series N Preferred Stock, as well as shares of preferred
stock contemplated by our Rights Agreement, dated as of
December 20, 2000, entered by and between us and Mellon
Investor Services LLC (the Rights Agreement).
The Series R Preferred Stock will rank, with respect to the
payment of dividends and distributions upon liquidation,
dissolution or
winding-up,
on a parity with our outstanding Series K Preferred Stock
and any Series I Preferred Stock, Series J Preferred
Stock, Series L Preferred Stock, Series M Preferred
Stock and Series N Preferred Stock we may issue in the
future and each other class or series of preferred stock we may
issue in the future the terms of which expressly provide that
such class or series will rank on a parity with the
Series R Preferred Stock as to dividend rights and rights
on liquidation, winding up and dissolution of Washington Mutual.
See Description of Series R Preferred
Stock General.
For purposes of this description, Exchange
Event means (i) Washington Mutual Bank becoming
undercapitalized under the OTS prompt
corrective action regulations, (ii) Washington Mutual
Bank being placed into conservatorship or receivership or
(iii) the OTS, in its sole discretion, directing such
exchange in anticipation of Washington Mutual Bank becoming
undercapitalized in the near term or taking
supervisory action that limits the payment of dividends, as
applicable, by Washington Mutual Bank, and in connection
therewith, directs such exchange.
For purposes of this description,
3-Month
USD LIBOR means, with respect to any dividend period,
a rate determined on the basis of the offered rates for
three-month U.S. dollar deposits, commencing on the first
day of such dividend period, which appears on Reuters Screen
LIBOR01 Page as of approximately 11:00 a.m., London time,
on the LIBOR determination date for such dividend period. If on
any LIBOR determination date no rate appears on Reuters Screen
LIBOR01 Page as of approximately 11:00 a.m., London time,
we or an affiliate of ours on our behalf will on such LIBOR
determination date request four major reference banks in the
London interbank market selected by us to provide us with a
quotation of the rate at which three-month deposits in
U.S. dollars, commencing on the first day of such dividend
period, are offered by them to prime banks in the London
interbank market as of approximately 11:00 a.m., London
time, on such LIBOR determination date and in a principal amount
equal to that which is representative for a single transaction
in such market at such time. If at least two such quotations are
provided,
3-Month USD
LIBOR for such dividend period will be the arithmetic mean
(rounded upward if necessary to the nearest .00001 of 1%) of
such quotations as calculated by us. If fewer than two
quotations are provided,
3-Month USD
LIBOR for such dividend period will be the arithmetic mean
(rounded upward if necessary to the nearest .00001 of 1%) of the
rates quoted as of approximately 11:00 am., New York time,
on the first day of such dividend period by three major banks in
New York City, New York selected by us for loans in
U.S. dollars to leading European banks, for a three-month
period commencing on the first day of such dividend period and
in a principal amount of not less than $1,000,000.
Series I
Preferred Stock
Pursuant to an issuance by Washington Mutual Preferred Funding
Trust I of $1,250,000,000 of Fixed-to-Floating Rate
Perpetual Non-cumulative Trust Securities (the
Series I Trust Securities), if so
directed by the OTS following the occurrence of an Exchange
Event (as defined above), each Series I Trust Security
will be automatically exchanged for a like amount of depositary
shares each representing 1/1,000th of a share of
S-42
our Series I Perpetual Non-cumulative Fixed-to-Floating
Rate Preferred Stock, no par value and liquidation preference
$1,000,000 per share (the Series I Preferred
Stock). The number of shares constituting the
Series I Preferred Stock is 1,250.
After the issuance of the Series I Preferred Stock, holders
of shares of the Series I Preferred Stock will be entitled
to receive, when, as and if declared by the board of directors,
non-cumulative dividends payable in arrears quarterly on
March 15, June 15, September 15 and December 15 of
each year. If issued prior to the day immediately preceding
March 15, 2011, from such date of issuance to
March 15, 2011 dividends will be, for each outstanding
share of Series I Preferred Stock, payable at an annual
rate of 6.534% on the per share liquidation preference of the
Series I Preferred Stock. From the later of March 15,
2011 and the date of issuance of the Series I Preferred
Stock, dividends will be, for each outstanding share of the
Series I Preferred Stock, payable at an annual rate on the
per share liquidation preference of the Series I Preferred
Stock equal to
3-Month USD
LIBOR (as defined above) for the related dividend period plus
1.4825%.
The Series I Preferred Stock may be redeemed in whole or in
part, at our option, under certain circumstances, prior to
March 15, 2011, at specified redemption prices plus any
declared but unpaid dividends. The Series I Preferred Stock
may be redeemed in whole or in part at our option, at any time,
or from time to time, on or after March 15, 2011, at a
redemption price of $1,000,000 per share, plus any declared but
unpaid dividends. The holders of the Series I Preferred
Stock may not require us to redeem the Series I Preferred
Stock.
Except as required by law, and as provided in this paragraph,
holders of Series I Preferred Stock have no voting rights.
If after the issuance of the Series I Preferred Stock we
fail to pay full dividends on the Series I Preferred Stock
for six dividend periods, the holders of Series I Preferred
Stock, acting as a class with any other parity securities having
similar voting rights, including the Series R Preferred
Stock offered by this prospectus supplement, will have the right
to elect two directors to our board of directors. The terms of
office of these directors will end when we have paid or set
aside for payment full dividends for four consecutive dividend
periods.
Series J
Preferred Stock
Pursuant to an issuance by Washington Mutual Preferred Funding
(Cayman) I Ltd. of $750,000,000 of 7.25% Rate Perpetual
Non-cumulative Preferred Securities (the WaMu Cayman
Preferred Securities), if so directed by the OTS
following the occurrence of an Exchange Event, each WaMu Cayman
Preferred Security will be automatically exchanged for a like
amount of depositary shares representing 1/1,000th of a
share of our Series J Perpetual Non-cumulative Fixed Rate
Preferred Stock, no par value and liquidation preference
$1,000,000 per share (the Series J Preferred
Stock). The number of shares constituting the
Series J Preferred Stock is 750.
After the issuance of the Series J Preferred Stock, holders
of shares of the Series J Preferred Stock will be entitled
to receive, when, as and if declared by the board of directors,
non-cumulative dividends payable in arrears quarterly on
March 15, June 15, September 15 and December 15 of
each year. Dividends will be, for each outstanding share of
Series J Preferred Stock, payable at an annual rate of
7.25% on the per share liquidation preference.
The Series J Preferred Stock may be redeemed in whole or in
part, at our option, under certain circumstances, prior to
March 15, 2011, at specified redemption prices plus any
declared but unpaid dividends. The Series J Preferred Stock
may be redeemed in whole or in part, at our option, at any time,
or from time to time, on or after March 15, 2011, at a
redemption price of $1,000,000 per share, plus any declared but
unpaid dividends. The holders of the Series J Preferred
Stock may not require us to redeem the Series J Preferred
Stock.
Except as required by law, and as provided in this paragraph,
holders of Series J Preferred Stock have no voting rights.
If after the issuance of the Series J Preferred Stock we
fail to pay full dividends on the Series J Preferred Stock
for six dividend periods, the holders of Series J Preferred
Stock, acting as a class with any other parity securities having
similar voting rights, including the Series R Preferred
Stock offered by this
S-43
prospectus supplement, will have the right to elect two
directors to our board of directors. The terms of office of
these directors will end when we have paid or set aside for
payment full dividends for four consecutive dividend periods.
Series K
Preferred Stock
On September 18, 2006, we issued 20,000,000 depositary
shares, each representing a 1/40,000th ownership interest
in a share of our Series K Perpetual Non-Cumulative
Floating Rate Preferred Stock, liquidation preference $1,000,000
per share (equivalent to $25 per depositary share), referred to
in this Prospectus Supplement as the Series K
Preferred Stock. Each holder of depositary shares is
entitled to similar rights and preferences (including as to
dividend, voting, redemption and liquidation rights) as the
depositary shares representing Series R Preferred Stock
offered by this prospectus supplement. The number of shares
constituting the Series K Preferred Stock is 500.
Holders of shares of the Series K Preferred Stock are
entitled to receive non-cumulative dividends payable in arrears
quarterly on March 15, June 15, September 15 and
December 15 of each year. Dividends are, for each outstanding
share of Series K Preferred Stock, payable at an annual
rate on the per share liquidation preference equal to the
greater of
(i) 3-Month
USD LIBOR (as defined above) for the related dividend period
plus 0.70% or (ii) four percent (4.00%).
The Series K Preferred Stock may be redeemed in whole or in
part, at our option, at any time, or from time to time, on or
after September 15, 2011, at a redemption price of
$1,000,000 per share, plus any declared but unpaid dividends.
The holders of the Series K Preferred Stock may not require
us to redeem the Series K Preferred Stock.
Except as required by law, holders of Series K Preferred
Stock have no voting rights except with respect to certain
fundamental changes in the terms of the Series K Preferred
Stock and certain other matters. In addition, if we fail to pay
full dividends on the Series K Preferred Stock for six
dividend periods, the holders of Series K Preferred Stock,
acting as a class with any other parity securities having
similar voting rights, including the Series R Preferred
Stock offered by this prospectus supplement, will have the right
to elect two directors to our board of directors. The terms of
office of these directors will end when we have paid or set
aside for payment full dividends for four consecutive dividend
periods.
Series L
Preferred Stock
Pursuant to an issuance by Washington Mutual Preferred Funding
Trust II of $500,000,000 of Fixed-to-Floating Rate
Perpetual Non-cumulative Trust Securities (the
Series L Trust Securities), if so
directed by the OTS following the occurrence of an Exchange
Event, each Series L Trust Security will be
automatically exchanged for a like amount of depositary shares
each representing 1/1,000th of a share of our Series L
Perpetual Non-cumulative Fixed-to-Floating Rate Preferred Stock,
no par value and liquidation preference $1,000,000 per share
(the Series L Preferred Stock). The
number of shares constituting the Series L Preferred Stock
will be 500.
After the issuance of the Series L Preferred Stock, holders
of shares of the Series L Preferred Stock will be entitled
to receive, when, as and if declared by the board of directors,
non-cumulative dividends payable in arrears quarterly on
March 15, June 15, September 15 and December 15 of
each year. If issued prior to the day immediately preceding
December 15, 2016, from such date of issuance to
December 15, 2016 dividends will be, for each outstanding
share of Series L Preferred Stock, payable at an annual
rate of 6.665% on the per share liquidation preference of the
Series L Preferred Stock. From the later of
December 15, 2016 and the date of issuance of the
Series L Preferred Stock, dividends will be, for each
outstanding share of the Series L Preferred Stock, payable
at an annual rate on the per share liquidation preference of the
Series L Preferred Stock equal to
3-Month USD
LIBOR (as defined above) for the related dividend period plus
1.7925%.
The Series L Preferred Stock may be redeemed in whole or in
part, at our option, under certain circumstances, at specified
redemption prices plus any declared but unpaid dividends. The
holders of the Series L Preferred Stock may not require us
to redeem the Series L Preferred Stock.
S-44
Except as required by law, holders of Series L Preferred
Stock have no voting rights except with respect to certain
fundamental changes in the terms of the Series L Preferred
Stock and certain other matters. In addition, if after the
issuance of the Series L Preferred Stock we fail to pay
full dividends on the Series L Preferred Stock for six
dividend periods, the holders of Series L Preferred Stock,
acting as a class with any other parity securities having
similar voting rights, including the Series P Preferred
Stock offered by this prospectus supplement, will have the right
to elect two directors to our board of directors. The terms of
office of these directors will end when we have paid or set
aside for payment full dividends for four consecutive dividend
periods.
Series M
Preferred Stock
Pursuant to an issuance by Washington Mutual Preferred Funding
Trust III of $500,000,000 of Fixed-to-Floating Rate
Perpetual Non-cumulative Trust Securities (the
Series M Trust Securities), if so
directed by the OTS following the occurrence of an Exchange
Event, each Series M Trust Security will be
automatically exchanged for a like amount of depositary shares
each representing 1/1,000th of a share of our Series M
Perpetual Non-cumulative Fixed-to-Floating Rate Preferred Stock,
no par value and liquidation preference $1,000,000 per share
(the Series M Preferred Stock). The
number of shares constituting the Series M Preferred Stock
is 500.
After the issuance of the Series M Preferred Stock, holders
of shares of the Series M Preferred Stock will be entitled
to receive, when, as and if declared by the board of directors,
non-cumulative dividends payable in arrears quarterly on
March 15, June 15, September 15 and December 15 of
each year. If issued prior to the day immediately preceding
June 15, 2012, from such date of issuance to June 15,
2012 dividends will be, for each outstanding share of
Series M Preferred Stock, payable at an annual rate of
6.895% on the per share liquidation preference of the
Series M Preferred Stock. From the later of June 15,
2012 and the date of issuance of the Series M Preferred
Stock, dividends will be, for each outstanding share of the
Series M Preferred Stock, payable at an annual rate on the
per share liquidation preference of the Series M Preferred
Stock equal to
3-Month USD
LIBOR (as defined above) for the related dividend period plus
1.755%.
The Series M Preferred Stock may be redeemed in whole or in
part, at our option, under certain circumstances, at specified
redemption prices plus any declared but unpaid dividends. The
holders of the Series M Preferred Stock may not require us
to redeem the Series M Preferred Stock.
Except as required by law, holders of Series M Preferred
Stock have no voting rights except with respect to certain
fundamental changes in the terms of the Series M Preferred
Stock and certain other matters. In addition, if after the
issuance of the Series M Preferred Stock we fail to pay
full dividends on the Series M Preferred Stock for six
dividend periods, the holders of Series M Preferred Stock,
acting as a class with any other parity securities having
similar voting rights including the Series P Preferred
Stock offered by this prospectus supplement, will have the right
to elect two directors to our board of directors. The terms of
office of these directors will end when we have paid or set
aside for payment full dividends for four consecutive dividend
periods.
Series N
Preferred Stock
Pursuant to an issuance by Washington Mutual Preferred Funding
Trust IV of $1,000,000,000 of Fixed-to-Floating Rate
Perpetual Non-cumulative Trust Securities (the
Series N Trust Securities), if so
directed by the OTS following the occurrence of an Exchange
Event, each Series N Trust Security will be
automatically exchanged for a like amount of depositary shares
each representing 1/1,000th of a share of our Series N
Perpetual Non-cumulative Fixed-to-Floating Rate Preferred Stock,
no par value and liquidation preference $1,000,000 per share
(the Series N Preferred Stock). The
number of shares constituting the Series N Preferred Stock
is 1,000.
After the issuance of the Series N Preferred Stock, holders
of shares of the Series N Preferred Stock will be entitled
to receive, when, as and if declared by the board of directors,
non-cumulative dividends payable in arrears quarterly on
March 15, June 15, September 15 and December 15 of
each year. If issued prior to the day immediately preceding
December 15, 2017, from such date of issuance to
December 15, 2017 dividends
S-45
will be, for each outstanding share of Series N Preferred
Stock, payable at an annual rate of 9.75% on the per share
liquidation preference of the Series N Preferred Stock.
From the later of December 15, 2017 and the date of
issuance of the Series N Preferred Stock, dividends will
be, for each outstanding share of the Series N Preferred
Stock, payable at an annual rate on the per share liquidation
preference of the Series N Preferred Stock equal to
3-Month USD
LIBOR (as defined above) for the related dividend period plus
4.723%.
The Series N Preferred Stock may be redeemed in whole or in
part, at our option, under certain circumstances, at specified
redemption prices plus any declared but unpaid dividends. The
holders of the Series N Preferred Stock may not require us
to redeem the Series N Preferred Stock.
Except as required by law, holders of Series N Preferred
Stock have no voting rights except with respect to certain
fundamental changes in the terms of the Series N Preferred
Stock and certain other matters. In addition, if after the
issuance of the Series N Preferred Stock we fail to pay
full dividends on the Series N Preferred Stock for six
dividend periods, the holders of Series N Preferred Stock,
acting as a class with any other parity securities having
similar voting rights, including the Series R Preferred
Stock offered by this prospectus supplement, will have the right
to elect two directors to our board of directors. The terms of
office of these directors will end when we have paid or set
aside for payment full dividends for four consecutive dividend
periods.
Series RP
Preferred Stock
We have adopted a shareholder rights plan which provides that
one right to purchase 1/1,000th of a share of our
Series RP Preferred Stock (the Rights)
is attached to each outstanding share of our common stock. The
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
shareholders. The number of shares constituting our
Series RP Preferred Stock is 700,000. See Description
of Capital Stock Common Stock
Shareholder Rights Plan in the accompanying prospectus.
S-46
The Depository Trust Company (DTC) will
act as securities depositary for all of the shares of
Series R Preferred Stock. We will issue the Series R
Preferred Stock only as fully-registered securities registered
in the name of Cede & Co., DTCs nominee. We will
issue and deposit with DTC one or more fully-registered global
certificates for the shares of Series R Preferred Stock
representing, in the aggregate, the total number of the shares
of Series R Preferred Stock to be sold in this offering.
DTC has advised us that it is a limited purpose trust company
organized under the New York Banking Law, a banking
organization within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform
Commercial Code, and a clearing agency registered
under the provisions of Section 17A of the Exchange Act.
DTC holds securities that its participants deposit with DTC. DTC
also facilitates the settlement among participants of securities
transactions, like transfers and pledges, in deposited
securities through electronic computerized book-entry changes in
the participants accounts, eliminating in this manner the
need for physical movement of securities certificates. Direct
participants include securities brokers and dealers, banks,
trust companies, clearing corporations and other organizations.
DTC is owned by a number of its direct participants and by the
New York Stock Exchange, Inc., the American Stock Exchange,
Inc. and the Financial Industry Regulatory Authority, Inc.
Others, like securities brokers and dealers, banks and trust
companies that clear through or maintain custodial relationships
with direct participants, either directly or indirectly, are
indirect participants and also have access to the DTC system.
The rules applicable to DTC and its participants are on file
with the SEC.
Purchases of shares of Series R Preferred Stock within the
DTC system must be made by or through direct participants, who
will receive a credit for the shares of Series R Preferred
Stock on DTCs records. The ownership interest of each
actual purchaser of each share of Series R Preferred Stock
is in turn to be recorded on the direct and indirect
participants records. DTC will not send written
confirmation to beneficial owners of their purchases, but
beneficial owners are expected to receive written confirmations
providing details of the transactions, as well as periodic
statements of their holdings, from the direct or indirect
participants through which the beneficial owners purchased
shares of Series R Preferred Stock. Transfers of ownership
interests in the shares of Series R Preferred Stock are to
be accomplished by entries made on the books of participants
acting on behalf of beneficial owners. Beneficial owners will
not receive certificates representing their ownership interests
in shares of Series R Preferred Stock, unless the
book-entry system for the shares of Series R Preferred
Stock is discontinued.
All securities deposited by direct participants with DTC are
registered in the name of DTCs nominee, Cede &
Co., or such other name as may be requested by an authorized
representative of DTC. The deposit of securities with DTC and
their registration in the name of Cede & Co. or
another DTC nominee do not effect any change in beneficial
ownership.
DTC has no knowledge of the actual beneficial owners of the
Series R Preferred Stock. DTCs records reflect only
the identity of the direct participants to whose accounts the
Series R Preferred Stock is credited, which may or may not
be the beneficial owners. The participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants,
and by direct participants and indirect participants to
beneficial owners and the voting rights of direct participants,
indirect participants and beneficial owners, subject to any
statutory or regulatory requirements as is in effect from time
to time, will be governed by arrangements among them.
We will send redemption notices to Cede & Co. as the
registered holder of the shares of Series R Preferred
Stock. If less than all of these shares of Series R
Preferred Stock are redeemed, DTCs current practice is to
determine by lot the amount of the interest of each direct
participant to be redeemed.
Although voting on the shares of Series R Preferred Stock
is limited to the holders of record of the shares of
Series R Preferred Stock, in those instances in which a
vote is required, neither DTC nor Cede & Co. will
itself consent or vote on shares of Series R Preferred
Stock. Under its usual procedures, DTC would mail an
S-47
omnibus proxy to us as soon as possible after the record date.
The omnibus proxy assigns Cede & Co.s consenting
or voting rights to direct participants for whose accounts the
shares of Series R Preferred Stock are credited on the
record date (identified in a listing attached to the omnibus
proxy).
We will make distribution payments on the Series R
Preferred Stock, and the depositary will then make distribution
payments on the shares of Series R Preferred Stock to DTC.
DTCs practice is to credit direct participants
accounts on the relevant payment date in accordance with their
respective holdings shown on DTCs records unless DTC has
reason to believe that it will not receive payments on the
payment date. Standing instructions and customary practices will
govern payments from participants to beneficial owners. Subject
to any statutory or regulatory requirements, participants, and
neither DTC nor we, will be responsible for the payment. We and
any paying agent will be responsible for payment of
distributions to DTC. Direct and indirect participants are
responsible for the disbursement of the payments to the
beneficial owners.
DTC may discontinue providing its services as securities
depositary on any of the shares of Series R Preferred Stock
at any time by giving reasonable notice to us. If a successor
securities depositary is not obtained, final certificated shares
must be printed and delivered. We may at our option decide to
discontinue the use of the system of book-entry transfers
through DTC (or a successor depositary).
We have obtained the information in this section about DTC and
DTCs book-entry system from sources that we believe to be
accurate, but we assume no responsibility for the accuracy of
the information. We have no responsibility for the performance
by DTC or its participants of their respective obligations as
described in this prospectus or under the rules and procedures
governing their respective operations.
Beneficial owner refers to the ownership
interest of each actual purchaser of each share of Series R
Preferred Stock.
Direct participants refers to securities
brokers and dealers, banks, trust companies, clearing
corporations and other organizations who, with the New York
Stock Exchange, Inc., the American Stock Exchange Inc., and the
Financial Industry Regulatory Authority, Inc., own DTC.
Purchases of shares of Series R Preferred Stock within the
DTC system must be made by or through direct participants who
will receive a credit for the shares of Series R Preferred
Stock on DTCs records.
Indirect participants refers to others, like
securities brokers and dealers, banks and trust companies that
clear through or maintain custodial relationships with direct
participants, either directly or indirectly, and who also have
access to the DTC system.
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income
tax and, for
non-U.S. holders
(as defined below), estate tax consequences of the purchase,
ownership, conversion and disposition of the Series R
Preferred Stock and our common stock received in respect thereof
as of the date hereof. Except where noted, this summary deals
only with the Series R Preferred Stock and our common stock
held as capital assets. As used herein, the term
U.S. holder means a beneficial owner of
the Series R Preferred Stock or our common stock that is
for U.S. federal income tax purposes:
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an individual citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a
United States person.
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S-48
As used herein, the term
non-U.S. holder
means a beneficial owner of the Series R Preferred Stock or
our common stock that is neither a U.S. holder nor a
partnership (or other entity treated as a partnership for
U.S. federal income tax purposes).
This summary is not a detailed description of the
U.S. federal income tax consequences applicable to you if
you are subject to special treatment under the U.S. federal
income tax laws, including if you are:
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a dealer in securities or currencies;
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a financial institution;
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a regulated investment company;
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a real estate investment trust;
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an insurance company;
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a tax-exempt organization;
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a person holding the Series R Preferred Stock or our common
stock as part of a hedging, integrated, conversion or
constructive sale transaction or a straddle;
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a trader in securities that has elected the mark-to-market
method of accounting for your securities;
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a person liable for alternative minimum tax;
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a partnership or other pass-through entity for U.S. federal
income tax purposes;
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a person who is an investor in a pass-through entity;
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a U.S. holder whose functional currency is not
the U.S. dollar;
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a controlled foreign corporation;
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a passive foreign investment company; or
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a United States expatriate.
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This summary is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the Code),
and regulations, rulings and judicial decisions as of the date
hereof. Those authorities may be changed, perhaps retroactively,
so as to result in U.S. federal income and estate tax
consequences different from those summarized below.
If a partnership holds the Series R Preferred Stock or our
common stock, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding the
Series R Preferred Stock or our common stock, you should
consult your own tax advisors.
This summary does not contain a detailed description of all the
U.S. federal income and estate tax consequences to you in
light of your particular circumstances and does not address the
effects of any state, local or
non-U.S. tax
laws. If you are considering the purchase, ownership or
disposition of the Series R Preferred Stock, you should
consult your own tax advisors concerning the U.S. federal
income and estate tax consequences to you in light of your
particular situation as well as any consequences arising under
the laws of any other taxing jurisdiction.
U.S.
Holders
Dividends
Distributions on the Series R Preferred Stock or our common
stock will be dividends for U.S. federal income tax
purposes to the extent paid out of our current or accumulated
earnings and profits, as determined for U.S. federal income
tax purposes, and will be taxable as ordinary income although,
possibly at reduced rates, as discussed below. Although we
expect that our current and accumulated earnings and profits
will be
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such that all distributions paid with respect to the
Series R Preferred Stock or our common stock will qualify
as dividends for U.S. federal income tax purposes, we
cannot guarantee that result. Our accumulated earnings and
profits and our current earnings and profits in future years
will depend in significant part on our future profits or losses,
which we cannot accurately predict. To the extent that the
amount of any distribution paid on the Series R Preferred
Stock or our common stock exceeds our current and accumulated
earnings and profits attributable to that share of the
Series R Preferred Stock or our common stock, the
distribution will be treated first as a tax-free return of
capital and will be applied against and will reduce the
U.S. holders adjusted tax basis (but not below zero)
in that share of the Series R Preferred Stock or our common
stock. This reduction in basis will increase any gain, or reduce
any loss realized by the U.S. holder on the subsequent
sale, redemption or other disposition of the Series R
Preferred Stock or our common stock. The amount of any such
distribution in excess of the U.S. holders adjusted
tax basis will be taxed as capital gain. For purposes of the
remainder of the discussion under this heading, it is assumed
that distributions paid on the Series R Preferred Stock or
our common stock will constitute dividends for U.S. federal
income tax purposes.
If a U.S. holder is a corporation, dividends that are
received by it will generally be eligible for a 70% dividends
received deduction under the Code. However, the Code disallows
this dividends received deduction in its entirety if the
Series R Preferred Stock or our common stock with respect
to which the dividend is paid is held by such U.S. holder
for less than 46 days during the
91-day
period beginning on the date which is 45 days before the
date on which the Series R Preferred Stock or our common
stock becomes ex-dividend with respect to such dividend. (A
91-day
minimum holding period applies to any dividends on the
Series R Preferred Stock that are attributable to periods
in excess of 366 days.)
Under current law, if a U.S. holder is an individual or
other non-corporate holder, dividends received by such
U.S. holder generally will be subject to a reduced maximum
tax rate of 15% for taxable years beginning before
January 1, 2011, after which the rate applicable to
dividends is scheduled to return to the tax rate generally
applicable to ordinary income. The rate reduction does not apply
to dividends received to the extent that U.S. holders elect
to treat the dividends as investment income, for
purposes of the rules relating to the limitation on the
deductibility of investment-related interest, which may be
offset by investment expense. Furthermore, the rate reduction
will also not apply to dividends that are paid to such holders
with respect to the Series R Preferred Stock or our common
stock that is held by the holder for less than 61 days
during the
121-day
period beginning on the date which is 60 days before the
date on which the Series R Preferred Stock or our common
stock become ex-dividend with respect to such dividend. (A
91-day
minimum holding period applies to any dividends on the
Series R Preferred Stock that are attributable to periods
in excess of 366 days.)
In general, for purposes of meeting the holding period
requirements for both the dividends received deduction and the
reduced maximum tax rate on dividends described above,
U.S. holders may not count towards their holding period any
period in which they (a) have the option to sell, are under
a contractual obligation to sell, or have made (and not closed)
a short sale of the Series R Preferred Stock or our common
stock, as the case may be, or substantially identical stock or
securities, (b) are the grantor of an option to buy the
Series R Preferred Stock or our common stock, as the case
may be, or substantially identical stock or securities or
(c) otherwise have diminished their risk of loss on the
Series R Preferred Stock or our common stock, as the case
may be, by holding one or more other positions with respect to
substantially similar or related property. The
U.S. Treasury regulations provide that a taxpayer has
diminished its risk of loss on stock by holding a position in
substantially similar or related property if the taxpayer is,
including, without limitation, the beneficiary of a guarantee,
surety agreement, or similar arrangement that provides for
payments that will substantially offset decreases in the fair
market value of the stock. In addition, the Code disallows the
dividends received deduction as well as the reduced maximum tax
rate on dividends if the recipient of a dividend is obligated to
make related payments with respect to positions in substantially
similar or related property. This disallowance applies even if
the minimum holding period has been met. U.S. holders are
advised to consult their own tax advisors regarding the
implications of these rules in light of their particular
circumstances.
U.S. holders that are corporations should consider the
effect of Section 246A of the Code, which reduces the
dividends received deduction allowed with respect to
debt-financed portfolio stock. The Code also imposes
a 20% alternative minimum tax on corporations. In some
circumstances, the portion of dividends
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subject to the dividends received deduction will serve to
increase a corporations minimum tax base for purposes of
the determination of the alternative minimum tax. In addition, a
corporate shareholder may be required to reduce its basis in
stock with respect to certain extraordinary
dividends, as provided under Section 1059 of the
Code. U.S. holders should consult their own tax advisors in
determining the application of these rules in light of their
particular circumstances.
Sale
or Other Disposition
A sale, exchange, or other disposition of the Series R
Preferred Stock or our common stock will generally result in
gain or loss equal to the difference between the amount realized
upon the disposition (not including any amount attributable to
declared and unpaid dividends, which will be taxable as
described above to U.S. holders of record who have not
previously included such dividends in income) and a
U.S. holders adjusted tax basis in the Series R
Preferred Stock or our common stock, as the case may be. Such
gain or loss will be capital gain or loss and will be long-term
capital gain or loss if the U.S. holders holding
period for the Series R Preferred Stock or our common
stock, as applicable, exceeds one year. Under current law, if a
U.S. holder is an individual or other non-corporate holder,
net long-term capital gain realized by such U.S. holder is
subject to a reduced maximum tax rate of 15%. For taxable years
beginning on or after January 1, 2011, the maximum rate is
scheduled to return to the previously effective 20% rate. The
deduction of capital losses is subject to limitations.
Conversion
of the Series R Preferred Stock into Common
Stock
As a general rule, a U.S. holder will not recognize any
gain or loss in respect of the receipt of common stock upon the
conversion of the Series R Preferred Stock. The adjusted
tax basis of common stock received on conversion will equal the
adjusted tax basis of the Series R Preferred Stock
converted (reduced by the portion of adjusted tax basis
allocated to any fractional common stock exchanged for cash, as
described below), and the holding period of such common stock
received on conversion will generally include the period during
which the converted Series R Preferred Stock was held prior
to conversion.
Cash received in lieu of a fractional common share will
generally be treated as a payment in a taxable exchange for such
fractional common share, and capital gain or loss will be
recognized on the receipt of cash in an amount equal to the
difference between the amount of cash received and the amount of
adjusted tax basis allocable to the fractional common share. Any
cash received attributable to any declared and unpaid dividends
on the Series R Preferred Stock will be treated as
described above under U.S. Holders
Dividends.
In the event a U.S. holders Series R Preferred
Stock is converted pursuant to an election by the holder in the
case of certain acquisitions (see Description of
Series R Preferred Stock Conversion Upon
Certain Acquisitions), or is converted pursuant to certain
other transactions, including our consolidation or merger into
another person (see Description of Series R Preferred
Stock Reorganization Events) the tax treatment
of such a conversion will depend upon the facts underlying the
particular transaction triggering such a conversion. Each
U.S. holder should consult its tax adviser to determine the
specific tax treatment of a conversion under such circumstances.
Adjustment
of Conversion Rate
The conversion rate of the Series R Preferred Stock is
subject to adjustment under certain circumstances.
U.S. Treasury regulations promulgated under
Section 305 of the Code would treat a U.S. holder of
the Series R Preferred Stock as having received a
constructive distribution includable in such
U.S. holders income in the manner as described above
under U.S. Holders Dividends,
above, if and to the extent that certain adjustments in the
conversion rate increase the proportionate interest of a
U.S. holder in our earnings and profits. For example, an
increase in the conversion ratio to reflect a taxable dividend
to holders of common stock or in connection with certain
acquisitions (see Description of Series R Preferred
Stock Conversion Upon Certain Acquisitions)
will generally give rise to a deemed taxable dividend to the
holders of the Series R Preferred Stock to the extent of
our current and accumulated earnings and profits. In addition,
an
S-51
adjustment to the conversion rate of the Series R Preferred
Stock or a failure to make such an adjustment could potentially
give rise to constructive distributions to U.S. holders of
our common stock. Thus, under certain circumstances,
U.S. holders may recognize income in the event of a
constructive distribution even though they may not receive any
cash or property. Adjustments to the conversion rate made
pursuant to a bona fide reasonable adjustment formula which has
the effect of preventing dilution in the interest of the
U.S. holders of the Series R Preferred Stock, however,
will generally not be considered to result in a constructive
dividend distribution.
Information
Reporting and Backup Withholding
In general, information reporting will apply to dividends in
respect of the Series R Preferred Stock or our common stock
and the proceeds from the sale, exchange or other disposition of
the Series R Preferred Stock or our common stock that are
paid to a U.S. holder within the United States (and in
certain cases, outside the United States), unless a
U.S. holder is an exempt recipient such as a corporation.
Backup withholding may apply to such payments if a
U.S. holder fails to provide a taxpayer identification
number or certification of other exempt status or fails to
report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against a
U.S. holders U.S. federal income tax liability
provided the required information is furnished to the IRS.
Non-U.S.
Holders
Dividends
Dividends (including any constructive distributions taxable as
dividends) paid to a
non-U.S. holder
of the Series R Preferred Stock or our common stock
generally will be subject to withholding of United States
federal income tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. However, dividends
that are effectively connected with the conduct of a trade or
business by the
non-U.S. holder
within the United States (and, if required by an applicable
income tax treaty, are attributable to a United States permanent
establishment) are not subject to the withholding tax, provided
certain certification and disclosure requirements are satisfied.
Instead, such dividends are subject to United States federal
income tax on a net income basis in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code. Any such
effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
A
non-U.S. holder
of the Series R Preferred Stock or our common stock who
wishes to claim the benefit of an applicable treaty rate and
avoid backup withholding, as discussed below, for dividends will
be required (a) to complete Internal Revenue Service
Form W-8BEN
(or other applicable form) and certify under penalty of perjury
that such holder is not a United States person as defined under
the Code and is eligible for treaty benefits or (b) if the
Series R Preferred Stock or our common stock is held
through certain foreign intermediaries, to satisfy the relevant
certification requirements of applicable United States Treasury
regulations. Special certification and other requirements apply
to certain
non-U.S. holders
that are pass-through entities rather than corporations or
individuals.
A
non-U.S. holder
of the Series R Preferred Stock or our common stock
eligible for a reduced rate of United States withholding tax
pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for
refund with the Internal Revenue Service.
S-52
Sale
or Other Disposition
Any gain realized on the disposition of the Series R
Preferred Stock or our common stock (including, in the case of
conversion, the deemed exchange that gives rise to a payment of
cash in lieu of a fractional common share) generally will not be
subject to United States federal income tax unless:
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the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a United States permanent
establishment of the
non-U.S. holder);
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation for United States federal income tax purposes.
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An individual
non-U.S. holder
described in the first bullet point immediately above will be
subject to tax on the net gain derived from the sale under
regular graduated United States federal income tax rates. An
individual
non-U.S. holder
described in the second bullet point immediately above will be
subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States source capital losses, even
though the individual is not considered a resident of the United
States. If a
non-U.S. holder
that is a foreign corporation falls under the first bullet point
immediately above, it will be subject to tax on its net gain in
the same manner as if it were a United States person as defined
under the Code and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings
and profits or at such lower rate as may be specified by an
applicable income tax treaty.
We believe we are not and do not anticipate becoming a
United States real property holding corporation for
United States federal income tax purposes.
Conversion
into Common Stock
Non-U.S. holders will generally not recognize any gain or
loss in respect of the receipt of common stock upon the
conversion of the Series R Preferred Stock, except with
respect to any cash received in lieu of a fractional share that
is taxable as described above under
Non-U.S. Holders Sale or Other
Disposition.
Adjustment
of Conversion Rate
As described above under U.S. Holders
Adjustment of Conversion Rate, adjustments in the
conversion rate (or failures to adjust the conversion rate) that
increase the proportionate interest of a
non-U.S. holder
in our earning and profits could result in deemed distributions
to the
non-U.S. holder
that are taxed as described under
Non-U.S. Holders
Dividends.
Federal
Estate Tax
The Series R Preferred Stock and common stock owned or
treated as owned by an individual who is not a citizen or
resident of the United States (as specially defined for
U.S. federal estate tax purposes) at the time of death will
be included in the individuals gross estate for
U.S. federal estate tax purposes, unless an applicable
estate tax or other treaty provides otherwise and, therefore,
may be subject to U.S. federal estate tax.
Information
Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to
each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
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A
non-U.S. holder
will be subject to backup withholding for dividends paid to such
holder unless such holder certifies under penalty of perjury
that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that such holder is a United States person as defined under the
Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of the
Series R Preferred Stock or our common stock within the
United States or conducted through certain United States-related
financial intermediaries, unless the beneficial owner certifies
under penalty of perjury that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), or such owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
United States federal income tax liability provided the required
information is furnished to the Internal Revenue Service.
CERTAIN
ERISA CONSIDERATIONS
The following is a summary of certain considerations associated
with the purchase of the shares of Series R Preferred Stock
by employee benefit plans to which Title I of the
U.S. Employee Retirement Income Security Act of 1974, as
amended, which we refer to as ERISA, applies; plans, individual
retirement accounts and other arrangements to which
Section 4975 of the Code or provisions under any federal,
state, local,
non-U.S. or
other laws or regulations that are similar to such provisions of
ERISA or the Code, which we collectively refer to as Similar
Laws, apply; and entities whose underlying assets are considered
to include plan assets of such plans, accounts and
arrangements (each of which we call a Plan).
Each fiduciary of a Plan should consider the fiduciary standards
of ERISA or any applicable Similar Laws in the context of the
Plans particular circumstances before authorizing an
investment in the shares of Series R Preferred Stock.
Accordingly, among other factors, the fiduciary should consider
whether the investment would satisfy the prudence and
diversification requirements of ERISA or any applicable Similar
Laws and would be consistent with the documents and instruments
governing the Plan.
Section 406 of ERISA and Section 4975 of the Code
prohibit Plans subject to such provisions, which we call ERISA
Plans, from engaging in certain transactions involving
plan assets with persons that are parties in
interest under ERISA or disqualified persons
under the Code with respect to the ERISA Plans. A violation of
these prohibited transaction rules may result in an
excise tax or other liabilities under ERISA
and/or
Section 4975 of the Code for those persons, unless
exemptive relief is available under an applicable statutory or
administrative exemption. Employee benefit plans that are
governmental plans (as defined in Section 3(32) of ERISA),
certain church plans (as defined in Section 3(33) of ERISA)
and non-U.S. plans (as described in Section 4(b)(4) of
ERISA) are not subject to the requirements of ERISA or
Section 4975 of the Code, but may be subject to Similar
Laws.
Prohibited transactions within the meaning of Section 406
of ERISA or Section 4975 of the Code could arise if the
shares of Series R Preferred Stock were acquired by an
ERISA Plan with respect to which we or any of our affiliates are
a party in interest or a disqualified person. For example, if we
are a party in interest or disqualified person with respect to
an investing ERISA Plan (either directly or by reason of our
ownership of our subsidiaries), an extension of credit
prohibited by Section 406(a)(1)(B) of ERISA and
Section 4975(c)(1)(B) of the Code between the investing
ERISA Plan and us may be deemed to occur, unless exemptive
relief were available under an applicable exemption (see below).
The United States Department of Labor has issued prohibited
transaction class exemptions, or PTCEs, that may provide
exemptive relief for direct or indirect prohibited transactions
resulting from the purchase, holding or disposition of the
shares of Series R Preferred Stock. Those class exemptions
include:
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PTCE 96-23
for certain transactions determined by in-house asset managers;
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PTCE 95-60
for certain transactions involving insurance company general
accounts;
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PTCE 91-38
for certain transactions involving bank collective investment
funds;
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PTCE 90-1
for certain transactions involving insurance company separate
accounts; and
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PTCE 84-14
for certain transactions determined by independent qualified
professional asset managers.
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In addition, ERISA Section 408(b)(l7) provides a limited
exemption for the purchase and sale of securities and related
lending transactions, provided that neither the issuer of the
securities nor any of its affiliates have or exercise any
discretionary authority or control or render any investment
advice with respect to the assets of any Plan involved in the
transaction and provided further that the Plan pays no more than
adequate consideration in connection with the transaction (the
so-called service provider exemption).
No assurance can be made that all of the conditions of any such
exemptions will be satisfied.
Because of the possibility that direct or indirect prohibited
transactions or violations of Similar Laws could occur as a
result of the purchase, holding or disposition of the shares of
Series R Preferred Stock by a Plan, the shares of
Series R Preferred Stock may not be purchased by any Plan,
or any person investing the assets of any Plan, unless its
purchase, holding and disposition of the shares of Series R
Preferred Stock will not constitute or result in a non-exempt
prohibited transaction under ERISA or the Code or a violation of
any Similar Laws. Any purchaser or holder of the shares of
Series R Preferred Stock or any interest in the shares of
Series R Preferred Stock will be deemed to have represented
by its purchase and holding of the shares of Series R
Preferred Stock that either:
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it is not a Plan and is not purchasing the shares of
Series R Preferred Stock or interest in the shares of
Series R Preferred Stock on behalf of or with the assets of
any Plan; or
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its purchase, holding and disposition of the shares of Series R
Preferred Stock or interest in the shares of Series R
Preferred Stock will not constitute or result in a non-exempt
prohibited transaction under ERISA or the Code or a violation of
any Similar Laws.
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Due to the complexity of these rules and the penalties imposed
upon persons involved in non-exempt prohibited transactions, it
is important that any person considering the purchase of shares
of Series R Preferred Stock on behalf of or with the assets
of any Plan consult with its counsel regarding the consequences
under ERISA, the Code and any applicable Similar Laws of the
acquisition, ownership and disposition of shares of
Series R Preferred Stock, whether any exemption would be
applicable, and whether all conditions of such exemption have
been satisfied such that the acquisition and holding of the
shares of Series R Preferred Stock by the Plan are entitled
to full exemptive relief thereunder.
Nothing herein shall be construed as, and the sale of shares of
Series R Preferred Stock to a Plan is in no respect, a
representation by us or the underwriters that any investment in
the shares of Series R Preferred Stock would meet any or
all of the relevant legal requirements with respect to
investment by, or is appropriate for, Plans generally or any
particular Plan.
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Lehman Brothers Inc. and Morgan Stanley & Co.
Incorporated are acting as the representatives of the
underwriters and, together with Credit Suisse Securities (USA)
LLC and Goldman, Sachs & Co., as the joint
book-running managers of this offering. Under the terms of an
underwriting agreement, which we will file as an exhibit to our
current report on
Form 8-K
and incorporated by reference in this prospectus supplement and
the accompanying prospectus, each of the underwriters named
below has severally agreed to purchase from us the respective
number of shares of Series R Preferred Stock shown opposite
its name below:
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Underwriters
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Number of Shares
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Lehman Brothers Inc.
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Morgan Stanley & Co. Incorporated
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Credit Suisse Securities (USA) LLC
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Goldman, Sachs & Co.
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Barclays Capital Inc.
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Citigroup Global Markets Inc.
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Deutsche Bank Securities Inc.
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J.P. Morgan Securities Inc.
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Greenwich Capital Markets, Inc.
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UBS Securities LLC
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BNY Capital Markets, Inc.
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Cabrera Capital Markets, LLC
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Keefe, Bruyette & Woods, Inc.
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Samuel A. Ramirez & Company, Inc.
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The Williams Capital Group, L.P.
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Total
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2,500,000
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The underwriting agreement provides that the underwriters
obligation to purchase shares of Series R Preferred Stock
depends on the satisfaction of the conditions contained in the
underwriting agreement including:
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the obligation to purchase all of the shares of Series R
Preferred Stock offered hereby (other than those shares of
Series R Preferred Stock covered by their option to
purchase additional shares as described below), if any of the
shares are purchased;
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the representations and warranties made by us to the
underwriters are true;
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there is no material change in our business or in the financial
markets; and
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we deliver customary closing documents to the underwriters.
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Commissions
and Expenses
The following table summarizes the underwriting discounts and
commissions we will pay to the underwriters. These amounts are
shown assuming both no exercise and full exercise of the
underwriters option to purchase additional shares of
Series R Preferred Stock. The underwriting fee is the
difference between the initial price to the public and the
amount the underwriters pay to us for the shares.
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No Exercise
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Full Exercise
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Per share
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Total
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The representatives of the underwriters have advised us that the
underwriters propose to offer the shares of Series R
Preferred Stock directly to the public at the public offering
price on the cover of this prospectus supplement and to selected
dealers, which may include the underwriters, at such offering
price less a selling
S-56
concession not in excess of $ per
share. After the offering, the representatives may change the
offering price and other selling terms.
The expenses of the offering that are payable by us are
estimated to be $1.75 million (excluding underwriting
discounts and commissions).
Option to
Purchase Additional Shares
We have granted the underwriters an option exercisable for
30 days after the date of this prospectus supplement, to
purchase, from time to time, in whole or in part, up to an
aggregate of 375,000 shares of Series R Preferred
Stock at the public offering price less underwriting discounts
and commissions. This option may be exercised if the
underwriters sell more than 2,500,000 shares in connection
with this offering. To the extent that this option is exercised,
each underwriter will be obligated, subject to certain
conditions, to purchase its pro rata portion of these additional
shares based on the underwriters percentage underwriting
commitment in the offering as indicated in the table at the
beginning of this Underwriting Section.
Lock-Up
Agreements
We and all of our directors and executive officers have agreed
that, subject to certain exceptions, without the prior written
consent of each of Lehman Brothers Inc. and Morgan
Stanley & Co. Incorporated, we and they will not
directly or indirectly (1) offer for sale, sell, pledge, or
otherwise dispose of (or enter into any transaction or device
that is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any
shares of common stock or Series R Preferred Stock
(including, without limitation, shares of our stock that may be
deemed to be beneficially owned by us or them in accordance with
the rules and regulations of the Securities and Exchange
Commission and shares of common stock that may be issued upon
exercise of any options or warrants) or securities convertible
into or exercisable or exchangeable for common stock or
Series R Preferred Stock, (2) enter into any swap or
other derivatives transaction that transfers to another, in
whole or in part, any of the economic consequences of ownership
of common stock or Series R Preferred Stock, (3) make
any demand for or exercise any right or file or cause to be
filed a registration statement, including any amendments
thereto, with respect to the registration of any shares of
common stock or Series R Preferred Stock or securities
convertible, exercisable or exchangeable into common stock or
Series R Preferred Stock or any of our other securities, or
(4) publicly disclose the intention to do any of the
foregoing before the date that is 60 days after the date of
this Prospectus Supplement.
The 60-day restricted period described in the preceding
paragraph will be extended if:
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during the last 17 days of the 60-day restricted period we
issue an earnings release or material news or a material event
relating to us occurs; or
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prior to the expiration of the 60-day restricted period, we
announce that we will release earnings results during the
16-day
period beginning on the last day of the 60-day period;
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in which case the restrictions described in the preceding
paragraph will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
announcement of the material news or material event, unless such
extension is waived in writing by Lehman Brothers Inc. and
Morgan Stanley & Co. Incorporated.
These restrictions do not apply to:
(1) the sale of shares of Series R Preferred Stock to
the underwriters;
(2) the issuance by us of our shares of common stock upon
the exercise of an option or a warrant or the conversion of a
security outstanding on the date of this prospectus supplement;
S-57
(3) the issuance by us of shares of common stock or
securities convertible into or exercisable or exchangeable for
shares of common stock pursuant to employee benefit plans, stock
incentive plans or other employee compensation plans in
existence on the date of this prospectus supplement;
(4) sales by any person other than us pursuant to a trading
plan established in accordance with
Rule 10b5-1
under the Exchange Act in existence on the date of this
prospectus supplement;
(5) transfers by any person other than us of shares of
common stock as a bona fide gift, or by will or intestacy; and
(6) the transfer of shares of common stock or any security
convertible into or exercisable or exchangeable for shares of
common stock to a member or members of the holders
immediate family or to a trust, the beneficiaries of which are
exclusively the holder or a member or members of his or her
immediate family; provided that each donee or other transferee
agrees to be subject to the restrictions on transfer described
above.
Lehman Brothers Inc. and Morgan Stanley & Co.
Incorporated, in their sole discretion, may release our common
stock or the Series R Preferred Stock and other securities
subject to the
lock-up
agreements described above in whole or in part at any time with
or without notice. When determining whether or not to release
common stock or Series R Preferred Stock and other
securities from
lock-up
agreements, Lehman Brothers Inc. and Morgan Stanley &
Co. Incorporated will consider, among other factors, the
holders reasons for requesting the release, the number of
shares of common stock or Series R Preferred Stock and
other securities for which the release is being requested and
market conditions at the time.
Indemnification
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, and
to contribute to payments that the underwriters may be required
to make for these liabilities.
Stabilization,
Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions,
short sales and purchases to cover positions created by short
sales, and penalty bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Series R Preferred
Stock, in accordance with Regulation M under the Securities
Exchange Act of 1934:
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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A short position involves a sale by the underwriters of shares
in excess of the number of shares the underwriters are obligated
to purchase in the offering, which creates the syndicate short
position. This short position may be either a covered short
position or a naked short position. In a covered short position,
the number of shares involved in the sales made by the
underwriters in excess of the number of shares they are
obligated to purchase is not greater than the number of shares
that they may purchase by exercising their option to purchase
additional shares. In a naked short position, the number of
shares involved is greater than the number of shares in their
option to purchase additional shares. The underwriters may close
out any short position by either exercising their option to
purchase additional shares
and/or
purchasing shares in the open market. In determining the source
of shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which
they may purchase shares through their option to purchase
additional shares. A naked short position is more likely to be
created if the underwriters are concerned that there could be
downward pressure on the price of the shares in the open market
after pricing that could adversely affect investors who purchase
in the offering.
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Syndicate covering transactions involve purchases of the
Series R Preferred Stock in the open market after the
distribution has been completed in order to cover syndicate
short positions.
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Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the Series R
Preferred Stock originally sold by the syndicate member is
purchased in a stabilizing or syndicate covering transaction to
cover syndicate short positions.
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These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our Series R Preferred Stock or
preventing or retarding a decline in the market price of the
Series R Preferred Stock. As a result, the price of the
Series R Preferred Stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on The New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the Series R Preferred Stock. In addition, neither we nor
any of the underwriters make representation that the
representatives will engage in these stabilizing transactions or
that any transaction, once commenced, will not be discontinued
without notice.
Electronic
Distribution
A prospectus in electronic format may be made available on the
Internet sites or through other online services maintained by
one or more of the underwriters
and/or
selling group members participating in this offering, or by
their affiliates. In those cases, prospective investors may view
offering terms online and, depending upon the particular
underwriter or selling group member, prospective investors may
be allowed to place orders online. The underwriters may agree
with us to allocate a specific number of shares for sale to
online brokerage account holders. Any such allocation for online
distributions will be made by the representatives on the same
basis as other allocations.
Other than the prospectus in electronic format, the information
on any underwriters or selling group members web
site and any information contained in any other web site
maintained by an underwriter or selling group member is not part
of the prospectus or the registration statement of which this
prospectus supplement and the accompanying prospectus form a
part, has not been approved
and/or
endorsed by us or any underwriter or selling group member in its
capacity as underwriter or selling group member and should not
be relied upon by investors.
NYSE
Listing
We have applied to list the Series R Preferred Stock on the
New York Stock Exchange under the symbol WM PrR, and
expect trading in the Series R Preferred Stock to begin
within 30 days of December , 2007, the
original issue date.
Stamp
Taxes
If you purchase shares of Series R Preferred Stock offered
in this prospectus supplement and the accompanying prospectus,
you may be required to pay stamp taxes and other charges under
the laws and practices of the country of purchase, in addition
to the offering price listed on the cover page of this
prospectus supplement and the accompanying prospectus.
Relationships
Certain of the underwriters and their related entities have
engaged and may engage in commercial and investment banking
transactions, financial advisory and other transactions with us
in the ordinary course of their business. They have received
customary compensation and expenses for these commercial and
investment banking transactions. Among other things, the
underwriters may purchase, as principals, loans originated or
sold by us.
S-59
Notice to
Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area
that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which
the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of
Series R Preferred Stock described in this prospectus
supplement may not be made to the public in that relevant member
state prior to the publication of a prospectus in relation to
the Series R Preferred Stock that has been approved by the
competent authority in that relevant member state or, where
appropriate, approved in another relevant member state and
notified to the competent authority in that relevant member
state, all in accordance with the Prospectus Directive, except
that, with effect from and including the relevant implementation
date, an offer of securities may be offered to the public in
that relevant member state at any time:
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to any legal entity that is authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities or
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to any legal entity that has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts or
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the representatives for any such
offer; or
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in any other circumstances that do not require the publication
of a prospectus pursuant to Article 3 of the Prospectus
Directive.
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Each purchaser of Series R Preferred Stock described in
this prospectus supplement located within a relevant member
state will be deemed to have represented, acknowledged and
agreed that it is a qualified investor within
the meaning of Article 2(1)(e) of the Prospectus Directive.
For purposes of this provision, the expression an offer to
the public in any relevant member state means the
communication in any form and by any means of sufficient
information on the terms of the offer and the securities to be
offered so as to enable an investor to decide to purchase or
subscribe the securities, as the expression may be varied in
that member state by any measure implementing the Prospectus
Directive in that member state, and the expression
Prospectus Directive means Directive
2003/71/EC and includes any relevant implementing measure in
each relevant member state.
We have not authorized and do not authorize the making of any
offer of Series R Preferred Stock through any financial
intermediary on our behalf, other than offers made by the
underwriters with a view to the final placement of the
Series R Preferred Stock as contemplated in this prospectus
supplement. Accordingly, no purchasers of the Series R
Preferred Stock, other than the underwriters, are authorized to
make any further offer of the Series R Preferred Stock on
behalf of us or the underwriters.
Notice to
Prospective Investors in the United Kingdom
This prospectus supplement is only being distributed to, and is
only directed at, persons in the United Kingdom that are
qualified investors within the meaning of Article 2(1)(e)
of the Prospectus Directive (Qualified
Investors) that are also (i) investment
professionals falling within Article 19(5) of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005
(the Order) or (ii) high net worth
entities, and other persons to whom it may lawfully be
communicated, falling within Article 49(2)(a) to
(d) of the Order (all such persons together being referred
to as relevant persons). This prospectus
supplement and its contents are confidential and should not be
distributed, published or reproduced (in whole or in part) or
disclosed by recipients to any other persons in the United
Kingdom. Any person in the United Kingdom that is not a relevant
persons should not act or rely on this document or any of its
contents.
S-60
The validity of the Series R Preferred Stock will be passed
upon for us by Charles Edward Smith III, First Vice President
and Assistant General Counsel, and by Simpson
Thacher & Bartlett LLP, New York, New York. The
validity of the Series R Preferred Stock will be passed
upon for the underwriters by Davis Polk & Wardwell,
New York, New York. Simpson Thacher & Bartlett LLP and
Davis Polk & Wardwell will rely as to all matters of
Washington law upon the opinion of Charles Edward Smith III,
First Vice President and Assistant General Counsel. As of
November 30, 2007, Mr. Smith beneficially owned
4,736 shares of our common stock.
The consolidated financial statements and managements
report on the effectiveness of internal control over financial
reporting incorporated in this document by reference from
Washington Mutual, Inc.s Annual Report on
Form 10-K
for the year ended December 31, 2006, have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
S-61
PROSPECTUS
Debt Securities
Preferred Stock
Depositary Shares
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission using a
shelf registration process. This means:
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we may sell any of the following
securities from time to time:
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debt securities
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preferred stock
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depositary shares
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we will provide a prospectus
supplement each time we issue the securities; and
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the prospectus supplement will
provide specific information about the terms of that issuance
and also may add, update or change information contained in this
prospectus.
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We may also issue common stock upon conversion or exchange of
any of the securities listed above. We will provide the specific
terms of these securities in supplements to this prospectus. You
should read this prospectus and the applicable prospectus
supplement carefully before you invest.
The securities may be sold directly to investors, through agents
designated from time to time or to or through underwriters or
dealers. See Plan of Distribution. If any
underwriters are involved in the sale of any securities in
respect of which this prospectus is being delivered, the names
of such underwriters and any applicable commissions or discounts
will be set forth in the applicable prospectus supplement. The
net proceeds we expect to receive from such sale also will be
set forth in the applicable prospectus supplement.
This prospectus may not be used to offer or sell any securities
unless accompanied by a prospectus supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is January 9, 2006.
Table of contents
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Page
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2
This prospectus is part of a shelf registration
statement that we have filed with the Securities Exchange
Commission (the SEC). By using a shelf registration
statement, we may sell, at any time and from time to time, in
one or more offerings, any combination of the securities
described in this prospectus. The exhibits to our registration
statement contain the full text of certain contracts and other
important documents we have summarized in this prospectus. Since
these summaries may not contain all the information that you may
find important in deciding whether to purchase the securities we
offer, you should review the full text of these documents. The
registration statement and the exhibits can be obtained from the
SEC as indicated under the heading Where You Can Find
Additional Information.
This prospectus only provides you with a general description of
the securities we may offer. Each time we sell securities, we
will provide a prospectus supplement that contains specific
information about the terms of those securities. The prospectus
supplement may also add, update or change information contained
in this prospectus. You should read both this prospectus and any
prospectus supplement together with the additional information
described below under the heading Where You Can Find
Additional Information.
We are not making an offer of these securities in any
jurisdiction where the offer is not permitted. You should not
assume that the information in this prospectus or a prospectus
supplement is accurate as of any date other than the date on the
front of the document.
References in this prospectus to Washington Mutual, the Company,
we, us and our are to Washington Mutual, Inc. (together with its
subsidiaries) unless the context otherwise provides.
Where
you can find additional information
We file annual, quarterly and current reports and other
information with the SEC. You may read and copy these reports
and other information at the public reference room of the SEC at
100 F Street, N.E., Washington , D.C. 20549. You may also obtain
copies of these documents by mail from the SEC reference room at
prescribed rates. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. These
reports and other information are also filed by us
electronically with the SEC and are available at the SECs
website, www.sec.gov.
The indentures pursuant to which the debt securities will be
issued require us to file reports under the Securities Exchange
Act of 1934, as amended (the Exchange Act).
Quarterly and annual reports will be made available upon request
of holders of the debt securities, which annual reports will
contain financial information that has been examined and
reported upon by, with an opinion expressed by, an independent
public or certified public accountant.
3
Incorporation
of certain documents by reference
The SEC allows us to incorporate by reference the
information we file with it, which means that we can disclose
important information to you by referring you to another
document that we filed with the SEC. The information
incorporated by reference is an important part of this
prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We
incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, until we sell all of the
securities:
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Our Annual Report to Shareholders
on
Form 10-K
for the fiscal year ended December 31, 2004;
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Our Quarterly Reports on
Form 10-Q
for the quarters ended March 31, June 30, and
September 30, 2005;
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Current Reports on
Form 8-K
and 8-K/A
dated January 6, January 14, January 20,
January 24, February 18, February 22,
March 2, March 22, March 23, April 19,
June 7, June 9, June 24, July 6,
July 20, July 25, September 8, September 23,
September 26, October 4 and October 27, 2005 and
Items 1.01 and 9.01 and Exhibit 10.1 from the Current
Reports on
Form 8-K
dated November 2 and December 23, 2005;
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The description of our 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; and
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Form 8-A/12B
dated February 8, 2001, as amended.
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You may obtain a copy of these filings at no cost, by writing or
telephoning us at 1201 Third Avenue, Seattle, Washington 98101,
telephone (206) 461-3187, attention Investor Relations
Department WMT0735.
You should rely only on the information contained or
incorporated by reference in this prospectus, any supplemental
prospectus or any pricing supplement. We have not authorized
anyone to provide you with any other information. We are not
making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information in
this prospectus, any accompanying prospectus supplement or any
document incorporated by reference is accurate as of any date
other than the date on the front of the document.
Special
note regarding forward-looking statements
This prospectus and the documents incorporated by reference
contain certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995 with respect to financial condition, results of operations,
and other matters. Statements in this prospectus, including
those incorporated by reference, that are not historical facts
are forward-looking statements for the purpose of
the safe harbor provided by Section 21E of the Exchange Act
and Section 27A of the Securities Act of 1933, as amended
(the Securities Act). Forward-looking statements can
be identified by the fact that they do not relate strictly to
historical or current facts. They often include words, such as
expects, anticipates,
intends, plans, believes,
seeks, estimates, or words of similar
meaning, or future or conditional verbs, such as
will, should, could, or
may.
Forward-looking statements provide our expectations or
predictions of future conditions, events or results. They are
not guarantees of future performance. By their nature
forward-looking statements are subject to risks and
uncertainties. These statements speak only as of the date they
are made. We do not undertake to update forward-looking
statements to reflect the impact of circumstances or events that
arise after the date the forward-looking statements were made.
There are a number of factors, many of which are beyond our
control, that could cause actual conditions, events or results
to differ significantly from those described in the
forward-looking statements. The factors are generally described
in our most recent
Form 10-K
and
Form 10-Q
under the caption Risk Factors.
4
With a history dating back to 1889, Washington Mutual is a
financial services company committed to serving consumers and
small- to medium-sized businesses. Based on our consolidated
total assets at September 30, 2005, we were the largest
thrift holding company in the United States and 7th largest
among all
U.S.-based
bank and thrift holding companies.
Washington Mutual operates principally in California,
Washington, Oregon, Illinois, Florida, Texas and the greater New
York/New Jersey metropolitan area, and has operations in 31
other states. We manage and report information concerning the
Companys activities, operations, products and services
around four segments: the Retail Banking and Financial Services
Group, the Home Loans Group (previously called the
Mortgage Banking Group), the Commercial Group and,
as of the quarter beginning October 1, 2005, Washington
Mutual Card Services.
5
Unless otherwise specified in the applicable prospectus
supplement, we will use the net proceeds from the sale of the
securities for general corporate purposes. Examples of general
corporate purposes include additions to working capital,
repayment of existing debt, acquisitions, and office expansions.
Ratio
of earnings to fixed charges
The following table sets forth our ratio of earnings to fixed
charges for each of the periods indicated.
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Year ended
December 31,
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Nine Months
Ended
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2001
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2002
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2003
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2004
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September 30,
2005
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1.30
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1.60
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2.03
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2.29
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1.90
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1.76
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For purposes of this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of
interest expense on borrowings and deposits, and the estimated
interest portion of rent expense.
6
Description
of debt securities
The following description of the debt securities sets forth the
material terms and provisions of the debt securities to which
any prospectus supplement may relate. The particular terms of
the debt securities offered by any prospectus supplement (the
Offered Debt Securities) and the extent, if any, to
which such general provisions may apply to the Offered Debt
Securities, will be described in the prospectus supplement
relating to such Offered Debt Securities. Accordingly, for a
description of the terms of a particular issue of debt
securities, reference must be made to both the prospectus
supplement relating thereto and to the following description.
The debt securities will be our general obligations. In the
event that any series of debt securities will be subordinated to
other securities that we have outstanding or may incur, the
terms of the subordination will be set forth in the prospectus
supplement relating to the subordinated debt securities. Senior
debt securities will be issued under the senior indenture dated
as of August 10, 1999 between Washington Mutual, Inc. and
The Bank of New York, as trustee, as supplemented by a first
supplemental indenture dated as of August 1, 2002 and a
second supplemental indenture dated as of November 20,
2002. References to the senior indenture in this prospectus will
mean the senior indenture as supplemented. Subordinated debt
securities will be issued under the subordinated indenture dated
April 4, 2000 between us and The Bank of New York, as
supplemented by the first supplemental indenture dated
August 1, 2002, and a second supplemental indenture dated
March 16, 2004. References to the subordinated indenture in
this prospectus will mean the subordinated indenture as
supplemented. Together the senior indenture and the subordinated
indenture and the supplemental indentures thereto are called the
indentures.
We have summarized selected provisions of the indentures below.
The senior indenture and form of subordinated indenture have
been filed as exhibits to the registration statement filed with
the SEC and you should read the indentures for provisions that
may be important to you. Accordingly, the following summary is
qualified in its entirety by reference to the provisions of the
indentures. Unless otherwise specified, capitalized terms used
in this summary have the meanings specified in the indentures.
GENERAL
The indentures do not limit the aggregate principal amount of
debt securities which may be issued under the indentures and
provide that debt securities may be issued from time to time in
one or more series. The indentures do not limit the amount of
other indebtedness or debt securities, other than certain
secured indebtedness as described below, which may be issued by
us or our subsidiaries.
Unless otherwise provided in a prospectus supplement, the debt
securities will be our unsecured obligations. The senior debt
securities will rank equally with all other unsecured and
unsubordinated indebtedness of ours. The subordinated debt
securities will be subordinated in right of payment to the prior
payment in full of all Senior Indebtedness including our senior
debt securities as described below under Subordination of
Subordinated Debt Securities and in the applicable
prospectus supplement.
The debt securities are our obligations exclusively. Because our
operations are currently conducted substantially through our
subsidiaries, our cash flow and the consequent ability to
service our debt, including the debt securities, are dependent
upon the earnings of our subsidiaries and the distribution
of those earnings to us, or upon loans or other payments of
funds to us by our subsidiaries. Our subsidiaries are separate
and distinct legal entities and have no obligation, contingent
or otherwise, to pay any amounts due with respect to the debt
securities or to make funds available therefor, whether
by dividends, loans or other payments. In addition, the
payment to us of dividends and certain loans and advances by our
subsidiaries may be subject to certain statutory or contractual
restrictions.
7
Payments are contingent upon the earnings of the subsidiaries,
and are subject to various business considerations.
The debt securities will be effectively subordinated to all
liabilities, including deposits, of our subsidiaries. At
September 30, 2005, our subsidiaries had
$190.41 billion of deposits and $103.80 billion of
debt outstanding. Any right we may have to receive assets of a
subsidiary upon its liquidation or reorganization (and the
consequent right of the holders of the debt securities to
participate in those assets) will be effectively subordinated to
the claims of that subsidiarys creditors, except to the
extent that we are recognized as a creditor of a subsidiary, in
which case our claims would still be subordinate to any security
interests in the assets of the subsidiary and any liabilities of
the subsidiary senior to liabilities held by us.
The debt securities may be issued in fully registered form
without coupons (registered securities) or in the
form of one or more global securities (each a Global
Security). Registered securities that are book-entry
securities will be issued as registered Global Securities.
Unless otherwise provided in the prospectus supplement, the debt
securities will be only registered securities. The debt
securities will be issued, unless otherwise provided in the
prospectus supplement, in denominations of $1,000 or an integral
multiple thereof for registered securities.
The prospectus supplement relating to the particular debt
securities offered thereby will describe the following terms of
the Offered Debt Securities:
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(1)
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the title of the Offered Debt Securities;
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(2)
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whether the Offered Debt Securities are senior debt securities
or subordinated debt securities;
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(3)
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the percentage of principal amount at which the Offered Debt
Securities will be issued;
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(4)
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any limit on the aggregate principal amount of the Offered Debt
Securities;
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(5)
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the date or dates on which the Offered Debt Securities will
mature and the amount or amounts of any installment of principal
payable on such dates;
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(6)
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the rate or rates (which may be fixed or variable) per year at
which the Offered Debt Securities will bear interest, if any, or
the method of determining such rate or rates and the date or
dates from which such interest, if any, will accrue;
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(7)
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the date or dates on which interest, if any, on the Offered Debt
Securities will be payable and the regular record dates for such
payment dates;
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(8)
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the terms of any sinking fund and the obligation, if any, of
ours to redeem or purchase the Offered Debt Securities pursuant
to any sinking fund or analogous provisions;
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(9)
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the portion of the principal amount of Offered Debt Securities
that is payable upon declaration of acceleration of the maturity
of the Offered Debt Securities;
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(10)
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whether the Offered Debt Securities will be issued in registered
form without coupons, including temporary and definitive global
form, and the circumstances, if any, upon which such Offered
Debt Securities may be exchanged for Offered Debt Securities
issued in a different form;
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(11)
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whether the Offered Debt Securities are to be issued in whole or
in part in the form of one or more Global Securities and, if so,
the identity of the depositary for such Global Security or
Securities;
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(12)
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whether and under what circumstances we will pay additional
amounts to any holder of Offered Debt Securities who is not a
United States person in respect of any tax, assessment or other
governmental charge required to be withheld or deducted and, if
so, whether we will have the option to redeem rather than pay
any additional amounts;
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(13)
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the place or places, if any, in addition to or instead of the
corporate trust office of the trustee, where the principal,
premium and interest with respect to the Offered Debt Securities
shall be payable;
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(14)
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the terms, if any, upon which the debt securities of the series
may be convertible into or exchanged for our common stock,
preferred stock, other debt securities or other securities of
any kind and the terms and conditions upon which such conversion
or exchange shall be effected, including the initial conversion
or exchange price or rate, the conversion or exchange period and
any other additional provisions;
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(15)
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if the amount of principal, premium or interest with respect to
the debt securities of the series may be determined with
reference to an index or pursuant to a formula, the manner in
which such amounts will be determined;
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(16)
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any authenticating or paying agent, transfer agent or registrar;
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(17)
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the applicability of, and any addition to or change in, the
covenants and definitions then set forth in the indenture or in
the terms then set forth in the indenture relating to permitted
consolidations, mergers, or sales of assets; and
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(18)
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certain other terms, including our ability to satisfy and
discharge our obligations under an indenture with respect to the
Offered Debt Securities.
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No service charge will be made for any transfer or exchange of
the debt securities except for any tax or other governmental
charge.
Debt securities of a single series may be issued at various
times with different maturity dates and different principal
repayment provisions, may bear interest at different rates, may
be issued at or above par or with an original issue discount,
and may otherwise vary, all as provided in the indentures. The
prospectus supplement for any debt securities issued above par
or with an original issue discount will state any applicable
material federal income tax consequences and other special
considerations.
SUBORDINATION OF
SUBORDINATED DEBT SECURITIES
Payment of the principal of (and premium, if any) and interest,
if any, on the subordinated debt securities will be subordinate
and junior in right of payment to the prior payment in full of
all Senior Debt (as defined herein). At September 30, 2005,
we had an aggregate par value of $7.60 billion in Senior
Debt and a par value of $3.83 billion in debt securities
subordinate to Senior Debt (exclusive of our subsidiaries). The
subordinated indenture does not limit or restrict our ability to
incur additional Senior Debt, but certain of our other debt
instruments contain such limitations.
In the event of any sale pursuant to any judgment or decree in
any proceeding by or on behalf of any holder, or of any
distribution, division or application of all or any part of our
assets to our creditors by reason of any liquidation,
dissolution or winding up of us or any receivership, insolvency,
bankruptcy or similar proceeding relative to us or our debts or
properties, then the holders of Senior Debt shall be preferred
in the payment of their claims over the holders of the
subordinated debt securities, and such Senior Debt shall be
satisfied in full before any payment or other distribution
(other than securities which are subordinate and junior in right
of payment to the payment of all Senior Debt then outstanding)
shall be made upon the subordinated debt securities. In the
event that any subordinated debt security is declared or becomes
due and payable before its maturity because of an occurrence of
an event of default (under circumstances not described in the
preceding sentence), no amount shall be paid in respect of the
subordinated debt securities in excess of current interest
payments, except sinking fund payments or at maturity, unless
all Senior Debt then outstanding shall have been paid in full or
payments satisfactory to the holders thereof provided therefor.
During the continuance of any default on Senior Debt, no
payments of principal, sinking fund, interest or premium shall
be made with respect to any Subordinated Debt Security if either
(i) notice of default has been given to us, provided
judicial proceedings are commenced in respect thereof within
120 days, or (ii) judicial proceedings shall be
9
pending in respect of such default. In the event that any
subordinated debt security is declared or becomes due and
payable before maturity, each holder of Senior Debt shall be
entitled to notice of same and shall be entitled to declare
payable on demand any Senior Debt outstanding to such holder.
Debt is defined in the indentures to include all
indebtedness of ours or any Consolidated Subsidiary representing
money borrowed, except indebtedness owed to us by any
Consolidated Subsidiary or owed to any Consolidated Subsidiary
by us or any other Consolidated Subsidiary, and includes
indebtedness of any other person for money borrowed when such
indebtedness is guaranteed by us or any Consolidated Subsidiary.
The term Debt shall be deemed to include the
liability of ours or any Consolidated Subsidiary in respect of
any investment or similar certificate, except to the extent such
certificates are pledged by purchasers as collateral for, and
are offset by, receivables. Senior Debt is defined
to mean all Debt of the Company except Subordinated Debt.
Subordinated Debt is defined to mean Debt of ours
which is subordinate and junior in right of payment to any
Senior Debt of ours by the terms of the instrument creating or
evidencing such Subordinate Debt and senior to the Junior
Subordinated Notes. Junior Subordinated Notes is
defined to mean our 8.36% Subordinated Notes due 2026,
8.375% Junior Subordinated Debentures due 2027, 9.33% Junior
Subordinated Deferrable Interest Debentures due 2027, and
5.375% Subordinated Defeasible Interest Debentures due 2041.
Subordinated debt securities will rank on a parity with all
other Subordinated Debt other than the Junior Subordinated
Notes. Subordinated debt securities are senior to the Junior
Subordinated Note and to our common stock and preferred stock,
and will be senior to any other class of capital stock which may
be authorized.
EXCHANGE,
REGISTRATION AND TRANSFER
Registered securities (other than book-entry securities) of any
series of Offered Debt Securities will be exchangeable for other
registered securities of the same series and of a like aggregate
principal amount and tenor of different authorized denominations.
Debt securities may be presented for exchange as provided above,
and registered securities (other than book-entry securities) may
be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed), at the office of the
Security Registrar or at the office of any transfer agent
designated by us for such purpose with respect to any series of
debt securities and referred to in the prospectus supplement. No
service charge will be charged for the transfer, but any tax or
other governmental charge must be paid. Such transfer or
exchange will be effected upon the Security Registrar or such
transfer agent, as the case may be, being satisfied with the
documents of title and identity of the person making the
request. If a prospectus supplement refers to any transfer
agents (in addition to the Security Registrar) initially
designated by us with respect to any series of debt securities,
we may at any time rescind the designation of any such transfer
agent or approve a change in the location through which any such
transfer agent acts, except that, if debt securities of a series
are issuable solely as registered securities, we will be
required to maintain a transfer agent in each Place of Payment
for such series. We may at any time designate additional
transfer agents with respect to any series of debt securities.
In the event of any redemption in part, we will not be required
to:
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Ø
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issue, register the transfer of or
exchange debt securities of any series during a period beginning
at the opening of business 15 days before any selection of
debt securities of that series to be redeemed and ending at the
close of business on if debt securities of the series are
issuable only as registered securities, the day of mailing of
the relevant notice of redemption; or
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Ø
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register the transfer of or
exchange any registered security, or portion thereof, called for
redemption, except the unredeemed portion of any registered
security being redeemed in part.
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10
For a discussion of restrictions on the exchange, registration
and transfer of Global Securities, see Global
Securities.
PAYMENT AND
PAYING AGENTS
Unless otherwise provided in the prospectus supplement, payment
of principal of (and premium, if any) and interest, if any, on
registered securities will be made in U.S. dollars at the
office of such Paying Agent or Paying Agents as we may designate
from time to time, except that at our option payment of any
interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the
Security Register. Unless otherwise provided in a prospectus
supplement, payment of any installment of interest on registered
securities will be made to the Person in whose name such
registered security is registered at the close of business on
the Regular Record Date for such interest.
Unless otherwise provided in a prospectus supplement, the
Corporate Trust Office of the trustee will be designated as our
sole Paying Agent for payments with respect to Offered Debt
Securities that are issuable solely as registered securities.
Any Paying Agents outside the United States and any other Paying
Agents in the United States initially designated by us for the
Offered Debt Securities will be named in a prospectus
supplement. We may at any time designate additional Paying
Agents or rescind the designation of any Paying Agent or approve
a change in the office through which any Paying Agent acts,
except that, if debt securities of a series are issuable solely
as registered securities, we will be required to maintain a
Paying Agent in each Place of Payment for such series.
All moneys paid by us to a Paying Agent for the payment of
principal of (and premium, if any) or interest, if any, on any
debt security or coupon that remain unclaimed at the end of two
years after such principal, premium or interest shall have
become due and payable will be repaid to us and the holder of
such debt security or coupon will thereafter look only to us for
payment thereof.
GLOBAL
SECURITIES
The debt securities of a series may be issued in whole or in
part as one or more Global Securities that will be deposited
with, or on behalf of, a depositary located in the United States
(a U.S. Depositary) or a common depositary
located outside the United States (a Common
Depositary) identified in the prospectus supplement
relating to such series. Global Securities will be issued in
registered form, in either temporary or definitive form.
The specific terms of the depositary arrangement with respect to
any debt securities of a series will be described in the
Prospectus Supplement relating to such series. We anticipate
that the following provisions will apply to all depositary
arrangements with a U.S. Depositary or Common Depositary.
BOOK-ENTRY
SECURITIES
Unless otherwise specified in a prospectus supplement, debt
securities which are to be represented by a Global Security to
be deposited with or on behalf of a U.S. Depositary will be
represented by a Global Security registered in the name of such
depositary or its nominee. Upon the issuance of a Global
Security in registered form, the U.S. Depositary for such
Global Security will credit, on its book-entry registration and
transfer system, the respective principal amounts of the debt
securities represented by such Global Security to the accounts
of institutions that have accounts with such depositary or its
nominee (participants). The accounts to be credited
shall be designated by the underwriters or agents of such debt
securities or by us, if such debt securities are offered and
sold directly by us. Ownership of beneficial interests in such
Global Securities will be limited to participants or persons
that may hold interests through participants. Ownership of
beneficial interests in such Global Securities will be shown on,
and the transfer of that ownership will be effected only
through, records maintained by the U.S. Depositary or its
nominee for such Global Security or by participants or persons
that hold through participants. The laws of some jurisdictions
require that certain purchasers of securities take physical
11
delivery of such securities in definitive form. Such limits and
such laws may impair the ability to transfer beneficial
interests in a Global Security.
So long as the U.S. Depositary for a Global Security in
registered form, or its nominee, is the registered owner of such
Global Security, such depositary or such nominee, as the case
may be, will be considered the sole owner or holder of the debt
securities represented by such Global Security for all purposes
under the indenture governing such debt securities. Except as
set forth below, owners of beneficial interests in such Global
Securities will not be entitled to have debt securities of the
series represented by such Global Security registered in their
names, will not receive or be entitled to receive physical
delivery of debt securities of such series in definitive form
and will not be considered the owners or holders thereof under
the indenture.
Payment of principal of (and premium, if any) and interest, if
any, on debt securities registered in the name of or held by a
U.S. Depositary or its nominee will be made to the
U.S. Depositary or its nominee, as the case may be, as the
registered owner or the holder of the Global Security
representing such debt securities. We nor any trustee or Paying
Agent, or the Security Registrar for such debt securities will
have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial
ownership interests in a Global Security for such debt
securities or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
We expect that the U.S. Depositary for debt securities of a
series, upon receipt of any payment of principal of (and
premium, if any) or interest on permanent Global Securities,
will credit participants accounts on the date such payment
is payable in accordance with their respective beneficial
interests in the principal amount of such Global Securities as
shown on the records of such Depositary. We also expect that
payments by participants to owners of beneficial interests in
such Global Security held through such participants will be
governed by standing instructions and customary practices, as is
now the case with securities held for the accounts of customers
registered in street name, and will be the
responsibility of such participants.
Unless and until it is exchanged in whole for debt securities in
definitive form, a Global Security may not be transferred except
as a whole by the U.S. Depositary for such Global Security
to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a
successor of such Depositary or a nominee of such successor. If
a U.S. Depositary for debt securities in registered form is
at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by us within ninety days,
we will issue debt securities in definitive registered form in
exchange for the Global Security or Securities representing such
debt securities. In addition, we may at any time and in our sole
discretion determine not to have any debt securities in
registered form represented by one or more Global Securities
and, in such event, will issue debt securities in definitive
registered form in exchange for the Global Security or
Securities representing such debt securities. In any such
instance, an owner of a beneficial interest in a Global Security
will be entitled to physical delivery in definitive form of debt
securities of the series represented by such Global Security
equal in principal amount to such beneficial interest and to
have such debt securities registered in the name of the owner of
such beneficial interest.
ABSENCE OF
RESTRICTIVE COVENANTS
We are not restricted by either of the indentures from paying
dividends or from incurring, assuming or becoming liable for any
type of debt or other obligations or from creating liens on our
property for any purpose. The indentures do not require the
maintenance of any financial ratios or specified levels of net
worth or liquidity. The indentures do not contain provisions
which afford holders of the debt securities protection in the
event of a highly leveraged transaction involving us.
12
MERGER AND
CONSOLIDATION
Each indenture provides that we, without the consent of the
holders of any of the outstanding debt securities, may
consolidate with or merge into any other corporation or transfer
or lease our properties and assets substantially as an entirety
to any Person or may permit any corporation to merge into us,
provided that:
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Ø
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the successor is a corporation
organized under the laws of any domestic jurisdiction;
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the successor, if other than us,
assumes our obligations under such indenture and the debt
securities issued thereunder;
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Ø
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immediately after giving effect to
such transaction, no Event of Default and no event which, after
notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing; and
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certain other conditions are met.
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Each indenture provides that, upon any consolidation or merger
or transfer or lease of our properties and assets of
substantially as an entirety in accordance with the preceding
paragraph, the successor corporation formed by such
consolidation or into which we are merged or to which such
transfer or lease is made shall be substituted for us with the
same effect as if such successor corporation had been named as
us. Thereafter, we shall be relieved of the performance and
observance of all obligations and covenants of such indenture
and the senior debt securities or subordinated debt securities,
as the case may be, including but not limited to the obligation
to make payment of the principal of (and premium, if any) and
interest, if any, on all the debt securities then outstanding,
and we may thereupon or any time thereafter be liquidated and
dissolved.
SATISFACTION AND
DISCHARGE
Unless a prospectus supplement provides otherwise, we will be
discharged from our obligations under the outstanding debt
securities of a series upon satisfaction of the following
conditions:
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we have irrevocably deposited with
the trustee either money, or U.S. Government Obligations
together with the predetermined and certain income to accrue
thereon without consideration of any reinvestment thereof, or a
combination of which (in the written opinion of independent
public accountants delivered to the trustee), will be sufficient
to pay and discharge the entire principal of (and premium, if
any), and interest, if any, to Stated Maturity or any redemption
date on, the outstanding debt securities of such series;
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Ø
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we have paid or caused to be paid
all other sums payable with respect to the outstanding debt
securities of such series;
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Ø
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the trustee has received an
Officers Certificate and an Opinion of Counsel each
stating that all conditions precedent have been complied with; or
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the trustee has received
(a) a ruling directed to us and the trustee from the United
States Internal Revenue Service to the effect that the holders
of the debt securities of such series will not recognize income,
gain or loss for federal income tax purposes as a result of our
exercise of our option to discharge our obligations under the
indenture with respect to such series and will be subject to
federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit
and discharge had not occurred or (b) an opinion of tax
counsel to the same effect as the ruling described in
clause (a) above and based upon a change in law.
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Upon such discharge, we will be deemed to have satisfied all the
obligations under the indenture, except for obligations with
respect to registration of transfer and exchange of the debt
securities of such series, and the rights of the holders to
receive from deposited funds payment of the principal of (and
premium, if any) and interest, if any, on the debt securities of
such series.
13
MODIFICATION OF
THE INDENTURE
Each indenture provides that we and the trustee thereunder may,
without the consent of any holders of debt securities, enter
into supplemental indentures for the purposes, among other
things, of adding to our covenants, adding any additional Events
of Default, establishing the form or terms of debt securities or
curing ambiguities or inconsistencies in such indenture or
making other provisions; provided such action shall not
adversely affect the interests of the holders of any series of
debt securities in any material respect.
Each indenture contains provisions permitting us, with the
consent of the holders of not less than a majority in principal
amount of the outstanding debt securities of all affected series
(acting as one class), to execute supplemental indentures adding
any provisions to or changing or eliminating any of the
provisions of such indenture or modifying the rights of the
holders of the debt securities of such series, except that no
such supplemental indenture may, without the consent of the
holders of all the outstanding debt securities affected thereby,
among other things:
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(1)
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change the maturity of the principal of, or any installment of
principal of or interest on, any of the debt securities;
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(2)
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reduce the principal amount thereof (or any premium thereon) or
the rate of interest, if any, thereon;
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(3)
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reduce the amount of the principal of Original Issue Discount
Securities payable on any acceleration of maturity;
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(4)
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change our obligation to maintain an office or agency in the
places and for the purposes required by such indenture;
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(5)
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impair the right to institute suit for the enforcement of any
such payment on or after the applicable maturity date;
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(6)
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reduce the percentage in principal amount of the outstanding
debt securities of any series, the consent of the holders of
which is required for any such supplemental indenture or for any
waiver of compliance with certain provisions of, or of certain
defaults under, such indenture; or
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(7)
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with certain exceptions, to modify the provisions for the waiver
of certain defaults and any of the foregoing provisions.
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EVENTS OF
DEFAULT
An Event of Default in respect of any series of debt securities
(unless it is either inapplicable to a particular series or has
been modified or deleted with respect to any particular series)
is defined in each indenture to be:
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Ø
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failure to pay interest on such
series of debt securities for 30 days after payment is due;
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Ø
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failure to pay the principal of
(or premium, if any) on such series of debt securities when due;
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Ø
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failure to perform any other
covenant in the indenture that applies to such series of debt
securities for 90 days after we have received written
notice of the failure to perform in the manner specified in the
indenture;
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an event of default under any
mortgage, indenture (including the indenture) or other
instrument under which any debt of Washington Mutual, Inc. or
any Principal Subsidiary Bank (defined below) shall be
outstanding which default shall have resulted in the
acceleration of such debt in excess of $75,000,000 in aggregate
principal amount and such acceleration shall not have been
rescinded or such debt discharged within a period of
30 days after notice;
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certain events of bankruptcy,
insolvency or reorganization; and
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any other event of default
provided for in such series of debt securities.
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Principal Subsidiary Bank is defined in the
indenture as each of Washington Mutual Bank (formerly known as
Washington Mutual Bank, FA) and any other subsidiary bank the
consolidated assets of which constitute 20% or more of the
consolidated assets of Washington Mutual, Inc. and its
subsidiaries. As of the date hereof, Washington Mutual Bank is
our only Principal Subsidiary Bank.
If an Event of Default shall have happened and be continuing,
either the trustee thereunder or the holders of not less than
25% in principal amount of the outstanding debt securities of
such series may declare the principal of all of the outstanding
notes to be immediately due and payable.
Each indenture provides that the holders of not less than a
majority in principal amount of the outstanding debt securities
of any series may direct the time, method and place of
conducting any proceeding for any remedy available to the
trustee thereunder, or exercising any trust or power conferred
on such trustee, with respect to the debt securities of such
series; provided that:
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such direction shall not be in
conflict with any rule of law or with the indenture,
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the trustee may take any other
action deemed proper that is not inconsistent with such
direction and
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the trustee shall not determine
that the action so directed would be unjustly prejudicial to the
holders of debt securities of such series not taking part in
such direction.
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Each indenture provides that the holders of not less than a
majority in principal amount of the outstanding debt securities
of any series may on behalf of the holders of all of the
outstanding debt securities of such series waive any past
default under such indenture with respect to such series and its
consequences, except a default (1) in the payment of the
principal of (or premium, if any) or interest, if any, on any of
the debt securities of such series or (2) in respect of a
covenant or provision of such indenture which, under the terms
of such indenture, cannot be modified or amended without the
consent of the holders of all of the outstanding debt securities
of such series affected thereby.
Each indenture contains provisions entitling the trustee
thereunder, subject to the duty of the trustee during an Event
of Default in respect of any series of debt securities to act
with the required standard of care, to be indemnified by the
holders of the debt securities of such series before proceeding
to exercise any right or power under such indenture at the
request of the holders of the debt securities of such series.
Each indenture provides that the trustee will, within
90 days after the occurrence of a default in respect of any
series of debt securities, give to the holders of the debt
securities of such series notice of all uncured and unwaived
defaults known to it; provided, however, that, except in the
case of a default in the payment of the principal of (or
premium, if any) or any interest on, or any sinking fund
installment with respect to, any of the debt securities of such
series, the trustee will be protected in withholding such notice
if it in good faith determines that the withholding of such
notice is in the interests of the holders of the debt securities
of such series; and provided, further, that such notice shall
not be given until at least 30 days after the occurrence of
an Event of Default regarding the performance of any covenant of
ours under such indenture other than for the payment of the
principal of (or premium, if any) or any interest on, or any
sinking fund installment with respect to, any of the debt
securities of such series. The term default for the purpose of
this provision only means any event that is, or after notice or
lapse of time, or both, would become, an Event of Default with
respect to the debt securities of such series.
We will be required to furnish annually to the trustee a
certificate as to compliance with all conditions and covenants
under the indenture.
15
NOTICES
Notices to holders of registered securities will be given by
mail to the addresses of such holders as they appear in the
Security Register.
TITLE
We, the appropriate Trustee and any agent of ours or such
Trustee may treat the registered owner of any registered
security (including registered securities in global registered
form) as the absolute owner thereof (whether or not such Debt
Security or coupon shall be overdue and notwithstanding any
notice to the contrary) for the purpose of making payment and
for all other purposes.
GOVERNING
LAW
New York law will govern the indentures and the debt securities.
16
Description
of capital stock
The following descriptions are summaries of the material terms
of our Amended and Restated Articles of Incorporation
(articles of incorporation), our bylaws and
applicable provisions of law. Reference is made to the more
detailed provisions of, and such descriptions are qualified in
their entirety by reference to, our articles of incorporation
and bylaws, which are incorporated by reference in the
registration statement that we filed with the SEC. You should
read our articles of incorporation and bylaws for the provisions
that are important to you.
Our articles of incorporation currently authorize
1,600,000,000 shares of common stock, no par value, and
10,000,000 shares of preferred stock, no par value. On
November 30, 2005, we had 992,057,807 shares of common
stock outstanding. There were no shares of preferred stock
outstanding.
COMMON
STOCK
We do not intend to offer shares of our common stock pursuant to
this prospectus except upon the conversion or exchange of debt
securities or preferred stock that we offer under this
prospectus.
Each share of common stock is entitled to one vote on all
matters properly presented at a meeting of shareholders.
Shareholders are not entitled to cumulative voting in the
election of directors.
The number of our directors is determined by our bylaws. The
bylaws currently set the number of directors at up to sixteen.
Our board of directors is divided into three classes of as equal
a number of directors as possible. The term of office of each
class is three years, with each term expiring in a different
year.
Interested Stockholders. Our articles of
incorporation prohibit, except under certain circumstances, us
(or any of our subsidiaries) from engaging in certain
significant business transactions with a major
stockholder. A major stockholder is a person
who, without the prior approval of our board of directors,
acquires beneficial ownership of five percent or more of our
outstanding voting stock. Prohibited transactions include, among
others:
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any merger with, disposition of
assets to, acquisition by us of the assets of, issuance of
securities of ours to, or acquisition by us of securities of, a
major stockholder;
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any reclassification of our voting
stock or of any subsidiary beneficially owned by a major
stockholder; or
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any partial or complete
liquidation, spin off, split off or split up of us or any
subsidiary.
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The above prohibitions do not apply, in general, if the specific
transaction is approved by:
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our board of directors prior to
the major stockholder involved having become a major stockholder;
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a vote of at least 80% of the
continuing directors (defined as those members of
our board prior to the involvement of the major stockholder);
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a majority of the continuing
directors if the major stockholder obtained unanimous
board approval to become a major stockholder;
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a vote of 95% of the outstanding
shares of our voting stock other than shares held by the major
stockholder; or
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a majority vote of the shares of
voting stock and the shares of voting stock owned by
stockholders other than any major stockholder if certain other
conditions are met.
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Our articles of incorporation also provide that during the time
a major stockholder exists, we may voluntarily dissolve only
upon the unanimous consent of our stockholders or an affirmative
vote of at least two-thirds of our 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.
Shareholder Rights Plan. We have adopted a
shareholder rights plan (the Rights Plan) which
provides that one right to purchase 1/1,000th of a share of
our Series RP preferred stock (the Rights) is
attached to each outstanding share of our common stock. The
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
shareholders. The Rights may cause substantial dilution to an
acquiring party that attempts to acquire us on terms not
approved by our board, but they will not interfere with any
merger or other business combination that is approved by our
board.
The Rights are attached to the shares of our common stock. The
Rights are not presently exercisable. At the time a party
acquires beneficial ownership of 15% or more of the outstanding
shares of our common stock or commences or publicly announces
for the first time a tender offer to do so, the Rights will
separate from the common stock and will become exercisable. Each
Right entitles the holder to purchase 1/1,000th share of
Series RP preferred stock, for an exercise price that is
currently $200 per share. Once the Rights become
exercisable, any Rights held by the acquiring party will be void
and, for the next 60 days, all other holders of Rights will
receive upon exercise of the Right that number of shares of our
common stock having a market value of two times the exercise
price of the Right. The Rights, which expire on January 4,
2011, may be redeemed by us for $0.001 per right prior to
becoming exercisable. Until a Right is exercised, the holder of
that Right will have no rights as a shareholder, including,
without limitation, the right to vote or receive dividends.
PREFERRED
STOCK
In this section we describe the general terms that will apply to
preferred stock that we may offer by this prospectus in the
future. When we issue a particular series, we will describe the
specific terms of the series of preferred stock in a prospectus
supplement. The description of provisions of our preferred stock
included in any prospectus supplement may not be complete and is
qualified in its entirety by reference to the description in our
articles of incorporation and our certificate of designation,
which will describe the terms of the offered preferred stock and
be filed with the SEC at the time of sale of that preferred
stock. At that time, you should read our articles of
incorporation and any certificate of designation relating to
each particular series of preferred stock for provisions that
may be important to you.
Our board of directors is authorized to provide for the issuance
from time to time of preferred stock in series and, as to each
series, to fix the designation, the dividend rate, whether
dividends are cumulative, the preferences which dividends will
have with respect to any other class or series of capital stock,
the voting rights, the voluntary and involuntary liquidation
prices, the conversion or exchange privileges, the redemption
prices and the other terms of redemption, and the terms of any
purchase or sinking funds applicable to the series. The terms of
any series of preferred stock will be described in a prospectus
supplement. Cumulative dividends, dividend preferences and
conversion, exchange and redemption provisions, to the extent
that some or all of these features may be present when shares of
our preferred stock are issued, could have an adverse effect on
the availability of earnings for distribution to the holders of
common stock or for other corporate purposes.
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Description
of depositary shares
We describe in this section the general terms of the depositary
shares. We will describe the specific terms of the depositary
shares in a prospectus supplement. The following description of
the deposit agreement, the depositary shares and the depositary
receipts is only a summary and you should refer to the forms of
the deposit agreement and depositary share certificate that will
be filed with the SEC in connection with any particular offering
of depositary shares.
GENERAL
We may offer fractional interests in preferred stock, rather
than full shares of preferred stock. In that case, we will
provide for the issuance by a depositary to investors of
receipts for depositary shares, each representing a fractional
interest in a share of a particular series of preferred stock.
The shares of any series of preferred stock underlying the
depositary shares will be deposited under a separate deposit
agreement between us and the depositary, which must be a bank or
trust company having its principal office in the United States
and having a combined capital and surplus of at least
$50 million. The applicable prospectus supplement will set
forth the name and address of the depositary. Subject to the
terms of the deposit agreement, each owner of a depositary share
will have a fractional interest in all the rights and
preferences of the preferred stock underlying such depositary
share. Those rights include any dividend, voting, redemption,
conversion and liquidation rights.
The depositary shares will be evidenced by depositary receipts
issued under the deposit agreement. If you purchase fractional
interests in shares of the related series of preferred stock,
you will receive depositary receipts as described in the
applicable prospectus supplement. While the final depositary
receipts are being prepared, we may order the depositary to
issue temporary depositary receipts substantially identical to
the final depositary receipts although not in final form. The
holders of the temporary depositary receipts will be entitled to
the same rights as if they held the depositary receipts in final
form. Holders of the temporary depositary receipts can exchange
them for the final depositary receipts at our expense.
WITHDRAWAL
Unless otherwise indicated in the applicable prospectus
supplement and unless the related depositary shares have been
called for redemption, if you surrender depositary receipts at
the principal office of the depositary, then you are entitled to
receive at that office the number of shares of preferred stock
and any money or other property represented by the depositary
shares. We will not issue partial shares of preferred stock. If
you deliver depositary receipts evidencing a number of
depositary shares that represent more than a whole number of
shares of preferred stock, the depositary will issue to you a
new depositary receipt evidencing the excess number of
depositary shares at the same time that the preferred stock is
withdrawn. Holders of shares of preferred stock received in
exchange for depositary shares will no longer be entitled to
deposit those shares under the deposit agreement or to receive
depositary shares in exchange for those shares of preferred
stock.
DIVIDENDS AND
OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions received with respect to the preferred stock to
the record holders of depositary shares representing the
preferred stock in proportion to the numbers of depositary
shares owned by the holders on the relevant record date. The
depositary will distribute only the amount that can be
distributed without attributing to any holder of depositary
shares a fraction of one cent. The balance not distributed will
be added to and treated as part of the next sum received by the
depositary for distribution to record holders of depositary
shares.
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If there is a distribution other than in cash, the depositary
will distribute property to the holders of depositary shares,
unless the depositary determines that it is not feasible to make
such distribution. If this occurs, the depositary may, with our
approval, sell the property and distribute the net proceeds from
the sale to the holders of depositary shares.
CONVERSION,
EXCHANGE AND REDEMPTION
Unless otherwise specified in the applicable prospectus
supplement, neither the depositary shares nor the series of
preferred stock underlying the depositary shares will be
convertible or exchangeable into any other class or series of
our capital stock.
If the series of the preferred stock underlying the depositary
shares is subject to redemption, the depositary shares will be
redeemed from the redemption proceeds, in whole or in part, of
the series of the preferred stock held by the depositary. The
redemption price per depositary share will bear the same
relationship to the redemption price per share of preferred
stock that the depositary share bears to the underlying
preferred stock. Whenever we redeem preferred stock held by the
depositary, the depositary will redeem, as of the same
redemption date, the number of depositary shares representing
the preferred stock redeemed. If less than all the depositary
shares are to be redeemed, the depositary shares to be redeemed
will be selected by lot or pro rata as determined by the
depositary.
VOTING
Upon receipt of notice of any meeting at which the holders of
the preferred stock are entitled to vote, the depositary will
mail Information about the meeting contained in the notice to
the record holders of the depositary shares relating to the
preferred stock. Each record holder of the depositary shares on
the record date (which will be the same date as the record date
for the preferred stock) will be entitled to instruct the
depositary as to how the preferred stock underlying the
holders depositary shares should be voted.
The depositary will try, if practical, to vote the preferred
stock underlying the depositary shares according to the
instructions received. We will agree to take all action
requested by and deemed necessary by the depositary in order to
enable the depositary to vote the preferred stock in that
manner. The depositary will not vote any preferred stock for
which it does not receive specific instructions from the holders
of the depositary shares relating to the preferred stock.
AMENDMENT AND
TERMINATION OF THE DEPOSIT AGREEMENT
We may amend the form of depositary receipt evidencing the
depositary shares and any provision of the deposit agreement by
agreement with the depositary at any time. Any amendment that
materially and adversely alters the rights of the existing
holders of depositary shares will not be effective, however,
unless approved by the record holders of at least a majority of
the depositary shares then outstanding. A deposit agreement may
be terminated by us or the depositary only if:
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all outstanding depositary shares
relating to the deposit agreement have been redeemed or
converted into or exchanged for other securities; or
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there has been a final
distribution on the underlying preferred stock in connection
with our liquidation, dissolution or winding up and the
distribution has been made to the holders of the related
depositary shares
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CHARGES OF
DEPOSITARY
We will pay all transfer and other taxes and governmental
charges arising solely from the existence of the depositary
arrangements. We will pay charges of the depositary in
connection with its duties under
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the deposit agreement. Holders of depositary shares will pay
transfer and other taxes and governmental charges and any other
charges that are stated to be their responsibility in the
deposit agreement.
MISCELLANEOUS
The depositary will forward to the holders of depositary shares
all reports and communications that we must furnish to the
holders of the preferred stock.
Neither we nor the depositary will be liable if either of us is
prevented or delayed by law or any circumstance beyond our
control in performing our respective obligations under the
deposit agreement. Our obligations and the depositarys
obligations under the deposit agreement will be limited to
performance in good faith of duties set forth in the deposit
agreement. Neither we nor the depositary will be obligated to
prosecute or defend any legal proceeding connected with any
depositary shares or preferred stock unless satisfactory
indemnity is furnished. We and the depositary may rely upon
written advice of counsel or accountants, or information
provided by persons presenting preferred stock for deposit,
holders of depositary shares or other persons believed to be
competent and on documents believed to be genuine.
RESIGNATION AND
REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering notice to
us. We may also remove the depositary at any time. Resignations
or removals will take effect upon the appointment of a successor
depositary and its acceptance of the appointment. The successor
depositary must be appointed within 60 days after delivery
of the notice of resignation or removal.
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We may sell the securities being offered hereby:
(i) directly to purchasers, (ii) through agents,
(iii) through dealers, (iv) through underwriters, or
(v) through a combination of any such methods of sale.
The distribution of the securities may be effected from time to
time in one or more transactions either (i) at a fixed
price or prices, which may be changed, (ii) at market
prices prevailing at the time of sale, (iii) at prices
related to such prevailing market prices, or (iv) at
negotiated prices.
Offers to purchase the securities may be solicited directly by
us or by agents designated by us from time to time. Any such
agent, which may be deemed to be an underwriter as that term is
defined in the Securities Act, involved in the offer or sale of
the debt securities in respect of which this prospectus is
delivered will be named, and any commissions payable by us to
such agent will be set forth in the prospectus supplement
relating to the offering of the securities. Unless otherwise
indicated in the applicable prospectus supplement, any such
agent will be acting on a best efforts basis for the period of
its appointment.
If a dealer is utilized in the sale of the securities in respect
of which this prospectus is delivered, we will sell the
securities to the dealer, as principal. The dealer, which may be
deemed to be an underwriter as that term is defined in the
Securities Act, may then resell the securities to the public at
varying prices to be determined by such dealer at the time of
resale. Dealer trading may take place in certain of the
securities, including securities not listed on any securities
exchange.
If an underwriter or underwriters are utilized in the sale, we
will execute an underwriting agreement with such underwriters at
the time of sale to them and the names of the underwriters will
be set forth in the applicable prospectus supplement, which will
be used by the underwriters to make resales of the securities in
respect of which this prospectus is delivered to the public. The
obligations of underwriters to purchase securities will be
subject to certain conditions precedent and the underwriters
will be obligated to purchase all of the securities of a series
if any are purchased.
Underwriters, dealers, agents and other persons may be entitled,
under agreements that may be entered into with us, to
indemnification against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with
respect to payments that they may be required to make in respect
thereof. Underwriters, dealers and agents may engage in
transactions with, or perform services for, us in the ordinary
course of business.
Except as indicated in the applicable prospectus supplement, the
securities are not expected to be listed on a securities
exchange, except for our common stock, which is listed on The
New York Stock Exchange, and any underwriters or dealers will
not be obligated to make a market in securities. We cannot
predict the activity or liquidity of any trading in the
securities.
The legality of the securities offered by this prospectus will
be passed upon by Heller Ehrman LLP, Seattle, Washington. As of
November 30, 2005, Heller Ehrman LLP and individual
attorneys at the firm who participated in this transaction owned
an aggregate of 12,992 shares of our common stock.
The auditors of the Issuer are Deloitte & Touche LLP
(Deloitte), an independent registered public
accounting firm, who have audited the Issuers consolidated
financial statements, without qualification,
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in accordance with generally accepted auditing standards in the
United States of America for each of the financial periods ended
December 31, 2004, 2003 and 2002, respectively, and who
have audited managements report on the effectiveness of
internal control over financial reporting for the year ended
December 31, 2004. Deloittes report on the
Issuers consolidated financial statements for the year
ended December 31, 2003 includes an explanatory paragraph
referring to the Issuers adoption of Statement of
Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, on January 1, 2002
and an explanatory paragraph referring to the Issuers 2002
restatement of Note 2 to the consolidated financial
statements. Deloittes report on the Issuers
consolidated financial statements for the year ended
December 31, 2002 includes an explanatory paragraph
referring to the Issuers adoption of
a) SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, on
January 1, 2001, b) SFAS No. 142, Goodwill
and Other Intangible Assets, on January 1, 2002, and
c) SFAS No. 147, Acquisitions of Certain
Financial Institutions, on October 1, 2002.
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