As filed with the Securities and Exchange Commission on November 21, 2000
Registration No. 333-
333-
333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Downey Financial Corp.
(Exact name of registrant as specified in its charter)
Delaware 33-0633413
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3501 Jamboree Road
Newport Beach, California 92660
(949) 854-0300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
Downey Financial Capital Trust II Downey Financial Capital Trust III
(Exact name of co-registrant as (Exact name of co-registrant as
specified in its charter) specified in its charter)
Delaware Delaware
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
Applied For Applied For
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
3501 Jamboree Road 3501 Jamboree Road
Newport Beach, California 92660 Newport Beach, California 92660
(949) 854-0300 (949) 854-0300
(Address, including zip code, and telephone (Address, including zip code, and telephone
number, including area code, of co- number, including area code, of co-registrant's
registrant's principal executive office) principal executive office)
DANIEL D. ROSENTHAL
President and Chief Executive Officer
Downey Financial Corp.
3501 Jamboree Road
Newport Beach, California 92660
(949) 854-0300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
William T. Quicksilver, Esq.
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064-1614
Telephone: (310) 312-4000
Approximate date of commencement of proposed sale to public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Unit(1) Offering Price(1) Registration Fee
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Debt Securities of Downey
Financial Corp.(2).............
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Preferred Stock of Downey
Financial Corp.(3).............
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Common Stock of Downey Financial
Corp.(4).......................
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Capital Securities of Downey
Financial Capital Trust II and
Downey Financial Capital
Trust III (collectively the
"Trusts")(5)...................
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Guarantees of Downey Financial
Corp. with respect to Capital
Securities(6)..................
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Total........................... $300,000,000 100% $300,000,000(7) $79,200
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(1) The proposed maximum aggregate offering price has been estimated solely to
calculate the registration fee under Rule 457(o).
(2) Subject to note (7) below, we are registering an indeterminate principal
amount of debt securities, which may include junior subordinated debentures
we may issue and sell to the Trusts. Such junior subordinated debentures
may later be distributed to the holders of capital securities of the
Trusts. If any debt securities are issued at an original issue discount,
then the offering price will be in such greater principal amount as will
result in an aggregate initial offering price not to exceed $300,000,000
less the dollar amount of any securities previously issued.
(3) Subject to note (7) below, we are registering an indeterminate number of
shares of preferred stock.
(4) Subject to note (7) below, we are registering an indeterminate number of
shares of common stock.
(5) Subject to note (7) below, we are registering an indeterminate number of
shares of capital securities of the Trusts.
(6) We are also registering all other obligations that we may have with respect
to the capital securities issued by the Trusts. No separate consideration
will be received for any Guarantees or any other such obligations.
(7) In no event will the aggregate initial offering price of all securities
exceed $300,000,000. The aggregate amount of common stock registered is
further limited to that which is permissible under Rule 415 (a) (4) under
the Securities Act. The registered securities may be sold separately or as
units with other registered securities.
Downey Financial Corp., Downey Financial Capital Trust II and Downey
Financial Capital Trust III hereby amend this registration statement on such
date or dates as may be necessary to delay its effective date until they shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
Introductory Note
This Registration Statement contains a form of base prospectus relating to
common stock, preferred stock, debt securities of Downey Financial Corp.,
including junior subordinated debentures which may be issued to Downey
Financial Capital Trust II and Downey Financial Capital Trust III, and
guarantees by Downey Financial Corp. of the capital securities issued by Downey
Financial Capital Trust II and Downey Financial Capital Trust III. The base
prospectus also relates to the capital securities of Downey Financial Capital
Trust II and Downey Financial Capital Trust III.
To the extent required, the information in the prospectus, including
financial information, will be updated at the time of each offering. Upon each
offering, a prospectus supplement to the base prospectus will be filed.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. Downey +
+Financial Corp. and the trusts may not sell these securities until the +
+registration statement filed with the Securities and Exchange Commission is +
+effective. This prospectus is not an offer to sell these securities and it is +
+not a solicitation of an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated December , 2000
PROSPECTUS
$300,000,000
Downey Financial Corp.
May offer: Common Stock
Preferred Stock
Debt Securities
Downey Financial Capital Trust II
and
Downey Financial Capital Trust III
May offer: Capital Securities (Trust Preferred Securities)
guaranteed, to the extent described herein,
by Downey Financial Corp.
Downey Financial Corp. and, in the case of the capital securities, the
applicable trust, will provide the specific terms of these securities in
supplements to this prospectus. You should read this prospectus and the
accompanying prospectus supplement carefully before you invest.
Downey Financial Corp. and the trusts may use this prospectus to offer up to
$300,000,000 of securities.
Downey Financial Capital Trusts II and III may offer capital securities that
Downey Financial Corp. will fully and unconditionally guarantee, to the extent
described herein, based on its obligations under a guarantee and a trust
agreement for each trust and an indenture.
Downey Financial Corp. common stock is traded on the New York Stock Exchange
and Pacific Exchange under the symbol "DSL".
These securities are not deposits or other obligations of a bank and are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
, 2000
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY....................................................... 1
A WARNING ABOUT FORWARD-LOOKING INFORMATION ............................. 9
WHERE YOU CAN FIND MORE INFORMATION...................................... 10
DOCUMENTS INCORPORATED BY REFERENCE...................................... 10
USE OF PROCEEDS.......................................................... 11
RATIO OF EARNINGS TO FIXED CHARGES....................................... 11
DESCRIPTION OF THE COMMON STOCK.......................................... 12
DESCRIPTION OF THE PREFERRED STOCK....................................... 13
DESCRIPTION OF THE SENIOR AND SUBORDINATED DEBT SECURITIES .............. 15
DESCRIPTION OF THE CAPITAL SECURITIES ................................... 23
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES............................ 39
DESCRIPTION OF GUARANTEE................................................. 51
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE............................................ 53
BOOK-ENTRY ISSUANCE...................................................... 55
PLAN OF DISTRIBUTION..................................................... 57
LEGAL MATTERS............................................................ 58
EXPERTS.................................................................. 58
i
PROSPECTUS SUMMARY
This summary provides a brief overview of the key aspects of Downey
Financial Corp. and Downey Financial Capital Trusts II and III and all material
terms of the offered securities that are known as of the date of this
prospectus. In this prospectus, "Downey," "we," "us," and "our" refer to Downey
Financial Corp. and its consolidated subsidiaries unless otherwise expressly
stated where the context otherwise requires and "trusts" refers to Downey
Financial Capital Trusts II and III. For more complete information on Downey
and the trusts and a more complete understanding of the terms of the offered
securities, before making your investment decision, you should carefully read:
. this prospectus, which explains the general terms of the securities that
Downey and the trusts may offer;
. the accompanying prospectus supplement, which (1) explains the specific
terms of the securities being offered and (2) updates and changes
information in this prospectus; and
. the documents referred to in "Where You Can Find More Information" for
information about Downey, including its financial statements.
Downey Financial Corp.
Downey is a California-based savings and loan holding company. Our principal
subsidiary is Downey Savings and Loan Association F.A., which we refer to as
the "Bank." The Bank:
. is one of the largest financial institutions headquartered in Southern
California, based on total assets;
. was formed in 1957 as a California-licensed savings and loan and
converted to a federal charter in 1995; and
. at September 30, 2000, operated through 107 retail branches, including
43 full-service in-store branches in California, and eight California
loan production offices.
For the year ended December 31, 1999, we had the best year in our then 43-
year history with record:
. net income of $63.8 million, or $2.26 per share on a diluted basis, an
increase of 10.1% from 1998;
. asset growth of $3.1 billion, or 50%, to $9.4 billion; and
. loan production of $7.2 billion.
For the nine months ended September 30, 2000, we had:
. net income (excluding a $5.6 million after-tax gain from the sale of our
indirect automobile finance subsidiary) of $70.6 million, or $2.50 per
share on a diluted basis, an increase of 60.7% over the comparable 1999
period;
. total assets of $10.4 billion;
. total deposits of $7.7 billion;
. total stockholders' equity of $603 million; and
. non-performing assets of only $50 million or 0.48% of total assets.
Banking Activities
Our primary business is banking. Our banking activities focus on:
. the origination of loans, primarily loans secured by single family
residential properties, which are either retained in our portfolio or
sold in the secondary market;
1
. the attraction of low-cost deposits through our retail branches;
. providing exceptional customer service; and
. providing innovative new products and services, including an increasing
focus on products offered over the Internet and on-line banking.
The types of loans we offer include:
. adjustable rate residential mortgage loans, with rates tied primarily to
the Eleventh District Cost of Funds Index, including "subprime" loans
which carry higher interest rates;
. fixed rate residential mortgage loans;
. commercial real estate loans, including loans secured by retail
neighborhood shopping centers;
. construction loans; and
. consumer loans.
We also invest in various securities--primarily short-term obligations--to
satisfy bank regulations regarding minimum levels of liquid assets.
Net income from our banking operations totaled $53.8 million in 1999 and
$66.5 million for the first nine months of 2000 (excluding the $5.6 million
after-tax gain from the sale of our indirect automobile finance subsidiary).
Real Estate Investment Activities
Downey is also involved in real estate investment, which is conducted
primarily through the Bank's subsidiary, DSL Service Company. Activities
include development, construction and property management relating to our
portfolio of projects primarily within California but also in Arizona. Because
of regulatory restrictions that have been placed on real estate investment
activities, we have reduced the amount of this business in recent years. Net
income from our real estate investment and real estate joint venture activities
was $10.0 million in 1999 and $4.2 million for the first nine months of 2000.
Operating Strategy
Our operating strategy is to:
. capitalize on our strong position in our core California market and
expand our internet business;
. focus on our residential lending expertise;
. maintain our high lending standards and strong asset quality;
. continue to strengthen our retail franchise, including the establishment
of additional in-store branches;
. continue to focus on attracting low cost deposits from our retail
customer base;
. maintain the high quality of our service to depositors and borrowers; and
. improve our operating efficiency.
Our principal executive offices are located at 3501 Jamboree Road, Newport
Beach, California, 92660, and our telephone number is (949) 854-0300. Our Web
site is www.downeysavings.com.
2
Downey Financial Capital Trusts II and III
Each of the trusts is a business trust formed under Delaware law. When we
are ready to issue and sell capital securities through a trust, we will amend
the trust agreements we signed in forming the trusts to read substantially like
the forms of amended and restated trust agreements that have been filed with
the SEC as an exhibit to the registration statement of which this prospectus is
a part. We have established each trust solely for the following purposes:
. to issue and sell to the public its capital securities, which represent
an undivided beneficial interest in the assets of the trust;
. to issue and sell its common securities to Downey in a total liquidation
amount equal to at least 3% of the total capital of the trust;
. to use the proceeds from the sale of its common securities and capital
securities to acquire junior subordinated debentures from Downey; and
. to engage in other activities that are directly related to the activities
listed above.
Because each trust has been established only for the purposes listed above,
the junior subordinated debentures will be the sole assets of the trust, and
payments on the junior subordinated debentures will be the sole source of
income to the trust. There are five trustees of each trust. Three of them, the
administrative trustees, are officers of Downey. Unless otherwise stated in the
relevant prospectus supplement, Wilmington Trust Company will act as the
property trustee of the trust and will also act as the Delaware trustee of the
trust.
The common securities will have terms substantially identical to and will
rank equal, and payments will be made thereon pro rata, with the capital
securities. However, if Downey defaults on the junior subordinated debentures,
then cash distributions and liquidation, redemption and other amounts payable
on the common securities will be subordinate to the capital securities in
priority of payment.
Each trust has a term set forth in the prospectus supplement, but may
terminate earlier if specific conditions are met. The trusts' principal offices
are located at 3501 Jamboree Road, Newport Beach, California 92660, and related
telephone number is (949) 854-0300.
3
The Securities that may be Offered
This section summarizes the legal and financial terms of the securities that
are described in more detail elsewhere in this prospectus. Final terms of any
particular security are set at the time of sale and are contained in the
prospectus supplement relating to those securities. That prospectus supplement
may vary from and supersede the terms contained in this prospectus. In
addition, you should read the more detailed information appearing elsewhere in
this prospectus and in the prospectus supplement. The maximum aggregate amount
of securities that may be offered by Downey and the trusts is $300,000,000.
Neither Downey nor the trusts are required to offer any securities.
The Offering of Common Stock
Issuer........................... Downey Financial Corp.
Amount and Price................. The price per share and amount are set
forth in the relevant prospectus
supplement and were determined by the
board of directors. Downey is authorized
to issue up to a total of 50,000,000
shares of common stock.
Dividends........................ Downey considers the payment of a quarterly
dividend every quarter but is not required
to pay a dividend. During 2000, a $0.09
dividend per share was declared during
each of the first three quarters.
Voting Rights.................... Each share is entitled to one vote at
meetings of stockholders.
The Offering of Preferred Stock
Issuer........................... Downey Financial Corp.
Amount and Price................. The price per share and amount are set
forth in the relevant prospectus
supplement and were determined by the
board of directors. Downey is authorized
to issue up to a total of 5,000,000
shares of preferred stock.
Terms and Conditions............. Downey may vary the terms of preferred
stock in one or more series as set forth
in the relevant prospectus supplement.
The terms may differ in number of share
in each series, the designation, powers
preferences and rights of shares in each
series and the qualifications,
limitations and restrictions of each
series. These terms include such things
as dividend, conversion and exchange and
redemption rights as well as liquidation
privileges.
Voting Rights.................... Unless otherwise provided, holders of
shares of preferred stock have no voting
rights except to the extent required by
law.
The Offering of Senior and Subordinated Debt Securities
Issuer........................... Downey Financial Corp.
Amount........................... Downey may issue up to $300,000,000 of
notes in connection with this prospectus.
There are no limitations on our ability
to issue additional indebtedness.
Denominations.................... The notes are issued and sold usually in
denominations of multiples of $1,000.
4
Status........................... The notes are our direct obligations. Each
relevant prospectus supplement states
whether the notes are senior or
subordinated debt. Senior notes rank
equally with our other unsecured senior
debt. Subordinated notes rank equally with
our other unsecured subordinated debt,
junior in right of payment to our senior
debt, and senior in right of payment to
our junior subordinated debentures.
Holders of Subordinated Notes Payment of principal of our subordinated
have Limited Rights............. notes may not be accelerated if there is a
default in the payment of principal or any
premium or interest or the performance of
any of our other Indenture covenants.
Maturities....................... The notes are due nine months or more from
the date of issue.
Interest......................... . Each note bears interest at the specified
rate or rate determined on the basis of
the method set forth in the relevant
prospectus supplement from the issue
date;
. Interest on each note is payable either
monthly, quarterly, semi-annually or
annually on each interest payment date
and on the maturity date. Interest also
will be paid on the date of redemption or
repayment if a note is repurchased by us
prior to maturity; and
. Interest on the notes is computed on the
basis of a 360-day year of twelve 30-day
months, unless otherwise stated in the
relevant prospectus supplement.
Principal........................ The principal amount of the notes is
payable on the maturity date at the
corporate trust office of the paying agent
or at any other place we may designate.
Redemption and Repayment......... . Unless otherwise stated in the relevant
prospectus supplement, the notes are not
redeemable at our option or at the option
of the holder, or repayable prior to the
maturity date; and
. The notes are unsecured and not subject
to any sinking fund.
Survivor's Options............... Specific notes may contain a provision
permitting the optional redemption of
those notes prior to maturity upon the
death of a purchaser holding the notes for
at least six months prior to the holder's
death. Your notes may not be redeemed
unless that right is specified in the
prospectus supplement for your notes. The
right to exercise the Survivor's Option is
subject to limits set by us on the
permitted dollar amount of total exercises
by holders of notes in any calendar year.
Additional details of this right are
described in the section entitled
"Description of Senior and Subordinated
Debt Securities--Survivor's Option."
Sale and Clearance............... Downey will sell notes in the United States
only. Notes are issued in book-entry only
form and clear through The Depository
Trust Company. Downey does not intend to
issue notes in certificated form.
Trustee.......................... The trustee for senior and subordinated
notes is Wilmington Trust Company, Rodney
Square North, 1100 North Market Street,
Wilmington, DE 19890, under separate
Indentures, each dated as of November 15,
2000.
5
The Offering of Capital Securities, Junior Subordinated Debentures and
Guarantees
Capital Securities Issuers....... Downey Financial Capital Trusts II and III
Junior Subordinated Debenture and
Guarantees Issuer............... Downey Financial Corp.
Securities Offered............... The capital securities of the trusts
represent undivided beneficial interests
in the assets of the trust. Each capital
security will entitle the holder to
receive cumulative periodic cash
distributions based on a liquidation
amount set forth in the relevant
prospectus supplement.
The Trusts' Assets............... Each trust will sell the capital securities
to the public and will sell its common
securities to Downey. Each trust will use
the proceeds from these sales to buy a
series of junior subordinated debentures
from Downey. When Downey pays interest on
the junior subordinated debentures, each
trust will pay distributions on the
capital securities at the same rate and at
the same times as Downey pays interest.
Distributions On the Capital
Securities...................... Holders of capital securities will be
entitled to receive cumulative cash
distributions at the specified annual rate
or rate determined on the basis of the
method set forth in the relevant
prospectus supplement based on the
liquidation amount per capital security as
set forth in the relevant prospectus
supplement. Distributions will accrue from
the date of original issuance, and will be
paid periodically as described in the
relevant prospectus supplement, unless
these payments are deferred as described
below. The amount of each periodic
distribution will include amounts accrued
to but excluding the date the distribution
payment is due.
Deferral of Distributions........ The payment of distributions on the capital
securities may be deferred if Downey
defers payments of interest on the junior
subordinated debentures. Unless otherwise
provided in the relevant prospectus
supplement, Downey will have the right, on
one or more occasions, to defer payments
of interest on the junior subordinated
debentures for a number of consecutive
interest periods specified in the
prospectus supplement.
Redemption of the Capital Each trust's duties to redeem the capital
Securities...................... securities depend on Downey's repayment of
the junior subordinated debentures. Each
trust is required to redeem all of the
outstanding capital securities when the
junior subordinated debentures are repaid
at maturity. The junior subordinated
debentures are scheduled to mature as set
forth in the relevant prospectus
supplement.
The junior subordinated debentures will
provide the terms upon which Downey can
redeem the junior subordinated debentures
at its option, and will specify, except
with respect to specific events, a date
prior to which Downey will not be allowed
to redeem the junior subordinated
debentures, and after which Downey will
have the right to redeem the junior
subordinated debentures, in whole or in
part.
6
Except as otherwise specified in the
relevant prospectus supplement, if
specific special events occur relating to
changes in tax or investment company laws
and regulations or in the treatment of
capital securities for bank regulatory
purposes, Downey will have the option to
redeem the junior subordinated debentures
held by the trust, in whole but not in
part, at any time within 90 days
thereafter. These special events are more
fully described under the caption
"Description of the Capital Securities--
Redemption."
If Downey redeems any junior subordinated
debentures before their maturity, each
trust will use the cash it receives on the
redemption of the junior subordinated
debentures to redeem, on a pro rata basis,
capital securities and common securities
having an aggregate liquidation amount
equal to the aggregate principal amount of
the junior subordinated debentures being
redeemed. When a trust redeems capital
securities, holders will be entitled to
receive an amount set forth in the
relevant prospectus supplement plus any
accumulated and unpaid distributions.
Shortening of the Maturity of the
Junior Subordinated Debentures.. Downey will have the right to shorten the
maturity of the junior subordinated
debentures, unless otherwise stated in the
relevant prospectus supplement.
Capital Securities Guarantee..... In connection with the issuance of the
capital securities, Downey will enter into
a capital securities guarantee agreement
with Wilmington Trust Company, as
guarantee trustee for each trust. Under
that agreement, Downey will guarantee, on
a subordinated basis and to the extent
described in this prospectus, the payment
of all amounts due on the capital
securities.
Distribution of Junior
Subordinated Debentures......... Downey will have the right to dissolve the
trusts at any time, so long as Downey
obtains the prior approval of its primary
federal regulator, if that approval is
required under applicable law. If Downey
dissolves a trust, or if a trust
automatically dissolves because of other
specified events, after creditor
liabilities are satisfied, the trust will
distribute to the holders of its capital
securities and common securities, on a pro
rata basis, junior subordinated debentures
with a principal amount equal to the
stated liquidation amount of each capital
security and common security. If the
property trustee determines that a
distribution is impractical, then holders
of capital securities and common
securities will be entitled to receive, on
a pro rata basis, out of assets held by
the trust, so long as the rights of any
creditors of the trust are already
satisfied, an amount equal to the stated
liquidation amount plus accrued and unpaid
distributions. If the trust does not have
enough assets to pay this amount to each
holder of capital securities in full,
liquidating distributions will be paid,
first to holders of capital securities on
a pro rata basis before holders of common
securities will be entitled to receive any
moneys.
7
Ranking of the Capital In general, the capital securities will
Securities...................... rank on a parity in right of payment and
payments thereon will be made pro rata
with the common securities of the trust.
However, the capital securities will have
a preference under specific circumstances
with respect to cash distributions and
amounts payable on liquidation,
redemption or otherwise over the common
securities, which will be held by Downey.
Voting Rights of the Holders of
Capital Securities.............. Holders of capital securities will
generally have limited voting rights
relating only to the modification of the
capital securities, the dissolution,
winding-up or termination of the trusts.
For more information, see below under the
caption "Description of the Capital
Securities--Voting Rights; Amendment of
the Trust Agreement."
8
A WARNING ABOUT FORWARD-LOOKING INFORMATION
Downey Financial Corp. and Downey Financial Capital Trusts II and III have
each made forward-looking statements in this prospectus, the accompanying
prospectus supplement and in documents that are incorporated by reference in
this prospectus, that are subject to risks and uncertainties. These statements
are based on the beliefs and assumptions of management and on information
currently available to management. Forward-looking statements include the
information concerning possible or assumed future operating results and
financial condition appearing in this prospectus and the accompanying
prospectus supplement, in documents that are incorporated by reference in this
prospectus and statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends," "plans," "estimates" or
similar expressions. Although we believe that our expectations are based on
reasonable assumptions, actual results may differ materially from our
expectations. Factors that could cause actual results to differ from
expectations include those described below:
. General economic or business conditions, either nationally or in
California, may be less favorable than expected, resulting in, among
other things, a deterioration in credit quality or a reduced demand for
credit;
. Because our business is concentrated in California, changes in the
economic conditions of the California market could adversely affect our
operations;
. Changes in the interest rate environment could adversely affect our
banking and real estate investment activities;
. Regulatory changes could have adverse effects on the financial services
industry;
. Competitive pressures among depository and other financial institutions
may increase significantly;
. Our competitors may have greater financial resources that enable them to
compete more successfully than we can;
. Federal monetary policy changes could have adverse effects on the
financial services industry; or
. We could experience greater than anticipated losses on our loans because
borrowers, guarantors and related parties may fail to perform in
accordance with the terms of their loans.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Actual results may differ from
expectations due to many factors beyond our ability to control or predict,
including those described above, and in documents incorporated by reference in
this prospectus. For these statements, Downey Financial Corp. and Downey
Financial Capital Trusts II and III claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.
You should rely only on the information contained and incorporated by
reference in this prospectus and the accompanying prospectus supplement. We
have not authorized anyone to provide you with information different from that
contained or incorporated by reference in this prospectus and the accompanying
prospectus supplement. Downey and the trusts are offering to sell securities
and seeking offers to buy securities only in jurisdictions where offers and
sales are permitted. The information contained and incorporated by reference in
this prospectus and the accompanying prospectus supplement is accurate only as
of the date of this prospectus or the prospectus supplement or the date of the
document incorporated by reference, as the case may be, regardless of the time
of delivery of the prospectus or prospectus supplement or any sale of the
securities.
9
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and proxy statements and other
information with the SEC. You may read and copy any document which Downey
Financial Corp. files at the SEC's public reference rooms in Washington, D.C.,
Chicago, Illinois and New York, New York. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our filings with the SEC
are also available to the public over the Internet at a World Wide Web site
maintained by the SEC at http://www.sec.gov. In addition, you may inspect our
reports, proxy statements and other information at the offices of the New York
Stock Exchange.
Downey Financial Corp. and the trusts have jointly filed with the SEC a
Registration Statement on Form S-3 under the Securities Act with respect to the
securities offered by this prospectus. This prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information
shown in the Registration Statement. For further information with respect to
Downey Financial Corp., the trusts and the securities offered by this
prospectus, reference is made to the Registration Statement and the exhibits
thereto which you may inspect at the public reference facilities of the SEC, at
the address shown above, or through the SEC's Web site.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
prospectus which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a 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 made by us with the SEC which we
may make under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 until we sell all of the securities offered hereby:
. Annual Report on Form 10-K, as amended, for the year ended December 31,
1999; and
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2000,
June 30, 2000 and September 30, 2000.
You may request a copy of these incorporated filings, without charge,
excluding all exhibits unless specifically incorporated by reference as an
exhibit to this prospectus. You may request copies by writing or telephoning
Downey Financial Corp., 3501 Jamboree Road, Newport Beach, California 92660,
Attention: Corporate Secretary, telephone (949) 854-0300.
This prospectus does not contain or incorporate by reference any separate
financial statements of the trusts. We do not consider that financial
statements of the trusts are material to holders of the capital securities
because each trust is a newly formed special purpose entity, has no operating
history or independent operations and is not engaged in and does not propose to
engage in any activity other than holding the junior subordinated debentures of
Downey Financial Corp. and issuing the capital securities and the common
securities. For more information, see the information under the captions
"Prospectus Summary--Downey Financial Capital Trusts II and III," "Description
of the Capital Securities," "Description of Junior Subordinated Debentures" and
"Description of Guarantee." In addition, we do not expect that the trusts will
be filing reports under the Securities Exchange Act of 1934 with the SEC.
10
USE OF PROCEEDS
Except as otherwise stated in any prospectus supplement, Downey will use the
net proceeds from the sale of common stock, preferred stock and debt securities
for general corporate purposes, which may include advances or investments in
our subsidiaries, working capital, capital expenditures and repayment of
existing indebtedness.
All of the proceeds from the sale of capital securities will be invested by
the trusts in the junior subordinated debentures of Downey.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges on a
consolidated basis for the periods specified.
Nine Months
Ended September
30, Year Ended December 31,
--------------- -------------------------------
2000 1999 1999 1998 1997 1996(1) 1995
------- ------- ----- ----- ----- ------- -----
Ratio of earnings to fixed
charges:
Excluding interest on
deposits................... 2.11x 2.78x 2.47x 6.22x 2.96x 2.39x 2.15x
Including interest on
deposits................... 1.32x 1.33x 1.32x 1.36x 1.29x 1.18x 1.18x
- --------
(1) Excluding the 1996 SAIF special assessment, the ratio of earnings to fixed
charges would have been 1.30x including interest on deposits and 3.28x
excluding interest on deposits.
The ratio of earnings to fixed charges is calculated as follows:
(income before income taxes) + (fixed charges) - (capitalized
interest)
--------------------------------------------------
(fixed charges)
Fixed charges, excluding interest on deposits, consist of
. interest on short-term borrowings and long-term debt,
. amortization of debt expense,
. capitalized interest,
. one-third of net rental expense, which we believe is representative of
the interest factor, and
. dividends on capital securities.
Fixed charges, including interest on deposits, consist of all of the items
listed immediately above plus interest on deposits.
11
DESCRIPTION OF THE COMMON STOCK
Downey may issue, either separately or together with other securities,
shares of common stock. Under its certificate of incorporation, Downey is
authorized to issue up to 50,000,000 shares of common stock. Upon receipt by
Downey of the full specified purchase price therefor, the common stock will be
fully paid and nonassessable. A prospectus supplement relating to an offering
of common stock, or other securities convertible or exchangeable for, or
exercisable into, common stock, will describe the relevant terms, including the
number of shares offered, any initial offering price, and market price and
dividend information, as well as, if applicable, information on other related
securities.
12
DESCRIPTION OF THE PREFERRED STOCK
The following briefly summarizes the material terms of our preferred stock,
other than pricing and related terms disclosed in the prospectus supplement.
You should read the particular terms of any series of preferred stock offered
by us which will be described in more detail in any prospectus supplement
relating to such series, together with the more detailed provisions of our
certificate of incorporation and the statement with respect to shares relating
to each particular series of preferred stock for provisions that may be
important to you. The statement with respect to shares relating to each
particular series of preferred stock offered by the relevant prospectus
supplement and this prospectus will be filed as an exhibit to a document
incorporated by reference in the registration statement. The relevant
prospectus supplement will also state whether any of the terms summarized below
do not apply to the series of preferred stock being offered.
General
Under our certificate of incorporation, the board of directors of Downey is
authorized to issue shares of preferred stock in one or more series, and to
establish from time to time a series of preferred stock with the following
terms specified:
. the number of shares to be included in the series;
. the designation, powers, preferences and rights of the shares of the
series; and
. the qualifications, limitations or restrictions of such series, except
as otherwise stated in the certificate incorporation.
Prior to the issuance of any series of preferred stock, the board of
directors of Downey will adopt resolutions creating and designating the series
as a series of preferred stock and the resolutions will be filed in a statement
with respect to shares as an amendment to the certificate of incorporation. The
term "board of directors of Downey" includes any duly authorized board
committee.
The rights of holders of the preferred stock offered may be adversely
affected by the rights of holders of any shares of preferred stock that may be
issued in the future. The board of directors may cause shares of preferred
stock to be issued in public or private transactions for any proper corporate
purpose. Examples of proper corporate purposes include issuances to obtain
additional financing in connection with acquisitions or otherwise, and
issuances to officers, directors and employees of Downey and its subsidiaries
pursuant to benefit plans or otherwise. Shares of preferred stock issued by
Downey may have the effect of rendering more difficult or discouraging an
acquisition of Downey deemed undesirable by the board of directors of Downey.
The preferred stock will be, when issued, fully paid and nonassessable.
Unless the relevant prospectus supplement states otherwise, holders of each
series of preferred stock will not have any preemptive or subscription rights
to acquire more stock of Downey.
The transfer agent, registrar, dividend disbursing agent and redemption
agent for shares of each series of preferred stock will be named in the
prospectus supplement relating to such series.
Rank
Unless otherwise specified in the relevant prospectus supplement relating to
the shares of any series of preferred stock, such shares will rank on an equal
basis with each other series of preferred stock and prior to the common stock
as to dividends and distributions of assets.
Dividends
Unless the relevant prospectus supplement states otherwise, holders of each
series of preferred stock will be entitled to receive cash dividends, when, as
and if declared by the board of directors of Downey out of
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funds legally available for dividends. The rates and dates of payment of
dividends will be set forth in the relevant prospectus supplement relating to
each series of preferred stock. Dividends will be payable to holders of record
of preferred stock as they appear on the books of Downey on the record dates
fixed by the board of directors of Downey. Dividends on any series of preferred
stock may be cumulative or noncumulative.
Downey may not declare, pay or set apart for payment dividends on the
preferred stock unless full dividends on any other series of preferred stock
that ranks on an equal or senior basis have been paid or sufficient funds have
been set apart for payment for:
. all prior dividend periods of the other series of preferred stock that
pay dividends on a cumulative basis; or
. the immediately preceding dividend period of the other series of
preferred stock that pay dividends on a noncumulative basis.
Conversion and Exchange
The relevant prospectus supplement for any series of preferred stock will
state the terms, if any, on which shares of that series are convertible into or
exchangeable for shares of Downey's common stock.
Redemption
If so specified in the relevant prospectus supplement, a series of preferred
stock may be redeemable at any time, in whole or in part, at the option of
Downey or the holder thereof, or may be mandatorily redeemed.
Any partial redemptions of preferred stock will be made in a way that the
board of directors of Downey decides is equitable.
Unless Downey defaults in the payment of the redemption price, dividends
will cease to accrue after the redemption date on shares of preferred stock
called for redemption and all rights of holders of such shares will terminate
except for the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up of
Downey, holders of each series of preferred stock will be entitled to receive
distributions upon liquidation in the amount set forth in the relevant
prospectus supplement relating to such series of preferred stock, plus an
amount equal to any accrued and unpaid dividends. Such distributions will be
made before any distribution is made on any securities ranking junior to the
preferred stock with respect to liquidation, including common stock.
If the liquidation amounts payable relating to the preferred stock of any
series and any other securities ranking on a parity regarding liquidation
rights are not paid in full, the holders of the preferred stock of such series
and such other securities will share in any such distribution of available
assets of Downey on a ratable basis in proportion to the full liquidation
preferences. Holders of such series of preferred stock will not be entitled to
any other amounts from Downey after they have received their full liquidation
preference.
Voting Rights
The holders of shares of preferred stock will have no voting rights, except:
. as otherwise stated in the prospectus supplement;
. as otherwise stated in the statement with respect to shares
establishing such series; or
. as required by applicable law.
14
DESCRIPTION OF THE SENIOR AND SUBORDINATED DEBT SECURITIES
Our senior notes are issued under an indenture dated as of November 15, 2000
(the "Senior Indenture") between Downey and Wilmington Trust Company and our
subordinated notes are issued under an indenture dated as of November 15, 2000
(the "Subordinated Indenture," and together with the Senior Indenture, referred
to in this caption Description of the Senior and Subordinated Debt Securities
as the "Indentures") between Downey and Wilmington Trust Company. The
statements in this prospectus and the related prospectus supplements concerning
the notes and the Indentures are not complete and are subject to, and qualified
in their entirety by, the provisions of the Indentures, including the
definitions of certain terms. Our junior subordinated debentures are discussed
under "Description of Junior Subordinated Debentures."
Whenever we refer to particular provisions of the Indentures or the defined
terms contained in the Indentures, those provisions and defined terms are
incorporated in this prospectus by reference. The Indentures do not limit the
amount of additional indebtedness that we may incur. Accordingly, without the
consent of the holders of the notes, we may issue additional indebtedness under
the Indentures in excess of the $300,000,000 initial offering price of the
notes offered by this prospectus.
Notes issued in accordance with this prospectus and a related prospectus
supplement will have the following general characteristics:
. The notes are our direct unsecured obligations. Each prospectus
supplement states whether the notes are senior or subordinated debt.
Senior notes rank equally with all of our other unsecured senior debt and
subordinated notes rank equally with all of our other unsecured
subordinated debt, junior in right of payment to our senior debt and
senior to our junior subordinated debentures.
. The notes are not subject to any sinking fund.
In addition, the prospectus supplement relating to each offering of notes
will describe specific terms of the notes, including:
. the price, which may be expressed as a percentage of the aggregate
initial public offering price of the note, at which the note will be
issued to the public;
. the date on which the note will be issued to the public;
. the maturity date of the note;
. the minimum denomination of the notes, which usually will be $1,000 and
multiples of $1,000;
. the rate per annum or method for determining the rate at which the note
will bear interest;
. the interest payment dates;
. the purchase price, any commission and net proceeds to us;
. whether the authorized representative of the holder of a beneficial
interest in the note will have the right to seek repayment upon the death
of the purchaser as described under "--Survivor's Option";
. if the note may be redeemed at our option, or repaid at the option of the
holder, prior to its maturity date, and the provisions relating to
redemption or repayment;
. any special United States Federal income tax consequences of the
purchase, ownership and disposition of the note; and
. any other terms of the note not inconsistent with the provisions of the
applicable Indenture.
Payment of Principal and Interest
Principal of, premium, if any, and interest on the notes will be paid to
owners of a beneficial interest in the notes in accordance with the
arrangements then in place between the paying agent and the Depository Trust
15
Company, or the Depository, and its participants. Interest on each note will be
payable either monthly, quarterly, semiannually or annually on each interest
payment date and at maturity or on the date of redemption or repayment if a
note is repurchased by us prior to maturity. Interest is payable to the person
in whose name a note is registered at the close of business on the regular
record date before each interest payment date. Interest payable at maturity, on
a date of redemption or in connection with the exercise of a Survivor's Option
is payable to the person to whom principal is payable.
We will pay any administrative costs imposed by banks in connection with
making payments in immediately available funds, but any tax, assessment or
governmental charge imposed upon payments, including, without limitation, any
withholding tax, is the responsibility of the holders of a beneficial interest
in the notes in respect of which such payments are made.
Interest and Interest Rates
Each note will begin to accrue interest on its issue date. The applicable
prospectus supplement will specify an interest rate or the method of
determining the interest rate payable monthly, quarterly, semi-annually or
annually. Interest on the notes is computed on the basis of a 360-day year of
twelve 30-day months, unless otherwise specified in the relevant prospectus
supplement. If the maturity date or an interest payment date for any note is
not a Business Day, principal, premium, if any, and interest for that note is
paid on the next Business Day, and no interest will accrue from, and after, the
maturity date or interest payment date.
Payment of Interest
The interest payment dates for a note that provides for interest payments
are as follows:
Interest
Payments Interest Payment Dates
-------- ----------------------
Monthly...... Fifteenth day of each calendar month, beginning in the first
calendar month following the month the note was issued.
Quarterly.... Fifteenth day of every third month, beginning in the third
calendar month following the month the note was issued.
Semi-annual.. Fifteenth day of every sixth month, beginning in the sixth
calendar month following the month the note was issued.
Annual....... Fifteenth day of every twelfth month, beginning in the twelfth
calendar month following the month the note was issued.
The regular record date for any interest payment date is the first day of
the calendar month in which the interest payment date occurs, except that the
regular record date for the final interest payment date is the final interest
payment date.
Interest on a note will be payable beginning on the first interest payment
date after its issue date to holders of record on the corresponding regular
record date. If interest is payable on a day which is not a Business Day,
payment will be postponed to the next Business Day and no additional interest
will accrue as a result of such delayed payment.
"Business Day," with respect to the senior and subordinated notes, means,
unless the supplement relating to that note states otherwise, any day other
than a Saturday or Sunday that meets the following applicable requirement: such
day is not a day on which banking institutions are authorized or required by
law, regulation or executive order to be closed in the city (or in any one of
the cities, if more than one) in which amounts are payable, as specified in the
relevant prospectus supplement.
16
Redemption and Repayment
Unless we otherwise provide in the relevant prospectus supplement, the notes
are not redeemable prior to the maturity date or repayable prior to the
maturity date.
If the relevant prospectus supplement states that the note is redeemable at
our option prior to its maturity date, then, we may redeem any of those notes
either in whole or from time to time in part, upon not less than 30 nor more
than 60 days' notice to the Depository as the holder of the note.
If the relevant prospectus supplement states that your note is repayable by
us at your option, we will require receipt of notice of the request for
prepayment at least 30 but not more than 60 days prior to the next interest
payment date. We also must receive the completed form entitled "Option to Elect
Repayment."
Exercise of the repayment option by the holder of a note is irrevocable. The
Depository's nominee is considered the holder of the notes and therefore will
be the only entity that can exercise that right to repayment.
To ensure that the Depository's nominee will timely exercise a right to
repayment with respect to a particular beneficial interest in a note, the
beneficial owner of such interest must instruct the broker or other direct or
indirect participant through which it holds a beneficial interest in the note
to notify the Depository of its desire to exercise a right to repayment.
Because different firms have different cut-off times for accepting instructions
from their customers, each beneficial owner should consult the broker or other
direct or indirect participant through which it holds an interest in a note to
determine the cut-off time by which the instruction must be given for timely
notice to be delivered to the Depository. Conveyance of notices and other
communications by the Depository to participants, by participants to indirect
participants and by participants and indirect participants to beneficial owners
of the notes will be governed by agreements among them and any applicable
statutory or regulatory requirements.
The actual redemption or repayment normally will occur on the interest
payment date following receipt of a valid notice. Unless otherwise specified in
the relevant prospectus supplement, the redemption or repayment price will
equal 100% of the principal amount of the note plus accrued interest to the
date of redemption or repayment.
We may at any time purchase notes, including those otherwise tendered for
repayment by a holder, or holder's duly authorized representative, pursuant to
the Survivor's Option described in the next paragraph, at any price or prices
in the open market or otherwise. If we purchase the notes in this manner, we
have the discretion to either hold, resell or surrender the notes to the
Trustee for cancellation.
Conversion and Exchange
The terms, if any, on which the notes will be convertible into or
exchangeable for our common stock or other equity or debt securities, property,
cash or obligations or a combination of any of the foregoing, will be
summarized in the relevant prospectus supplement relating to the specific
notes. The terms may include provisions for the conversion or exchange, either
on a mandatory basis, at the option of the holder or at our option.
Survivor's Option
The "Survivor's Option" is our agreement with the purchaser of a note to
repurchase that note, if requested, upon the death of the purchaser occurring
at least six months after the purchaser purchased the note. The prospectus
supplement relating to any note will state whether the estate of the deceased
holder of a beneficial interest in the note will have the Survivor's Option;
notes held for less than six months at the purchaser's date of death are not
eligible for repurchase by exercise of the Survivor's Option.
17
If the Survivor's Option is exercised, we will, at our option, either repay
or purchase any note, in whole or in part, that is properly tendered for
repayment by or on behalf of the person that has authority to act on behalf of
the deceased owner of the note, at a price equal to 100% of the principal
amount of the beneficial interest of the deceased owner in the note plus
accrued interest to the date of repayment.
We have the discretionary right to limit the aggregate principal amount of
notes as to which exercises of the Survivor's Option shall be accepted from all
holders in any calendar year to an amount equal to the greater of $1,000,000 or
1% of the outstanding principal amount of all notes outstanding as of the end
of the most recent calendar year. We also have the discretionary right to limit
to $200,000 in any calendar year the aggregate principal amount of acceptances
of exercise of the Survivor's Option in such calendar year for any individual
deceased holder. In addition, we will not permit the exercise of the Survivor's
Option for an amount less than $1,000 or that will result in a note with a
principal amount of less than $1,000 to remain outstanding.
An otherwise valid election to exercise the Survivor's Option may not be
withdrawn. Each election to exercise the Survivor's Option will be accepted in
the order received by the Trustee, except for any note the acceptance of which
would contravene the restrictions described above. Notes accepted for repayment
pursuant to exercise of the Survivor's Option normally will be repaid on the
first interest payment date that occurs 20 or more calendar days after the date
of the acceptance. Each note submitted for repayment that is not accepted in
any calendar year due to the application of the limitations described in the
preceding paragraph will be deemed to be tendered in the following calendar
year in the order in which all such notes were originally tendered. If a note
submitted for repayment pursuant to a valid exercise of the Survivor's Option
is not accepted, the applicable Trustee will deliver a notice by first-class
mail to the registered holder, at its last known address as indicated in the
note Register, that states the reason the note has not been accepted for
payment.
Since the notes are represented by a global note, the Depository or its
nominee is treated as the holder of the notes and will be the only entity that
can exercise the Survivor's Option for such notes. To obtain repayment pursuant
to exercise of the Survivor's Option for a note, the deceased holder's
authorized representative must provide the following to the broker or other
entity through which the beneficial interest in the note is held by the
deceased owner:
. appropriate evidence satisfactory to the applicable Trustee that (a) the
deceased was the owner of a beneficial interest in the note at the time
of death and for at least six months prior to his or her death, (b) the
death of the beneficial owner has occurred and (c) the representative has
authority to act on behalf of the deceased beneficial owner;
. if the beneficial interest in the note is held by a nominee of the
deceased beneficial owner, a certificate satisfactory to the applicable
Trustee from the nominee attesting to the deceased's ownership of a
beneficial interest in such note;
. a written request for repayment signed by the representative of the
decedent with signature guaranteed by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.
. if applicable, a properly executed assignment or endorsement;
. tax waivers and any other instruments or documents that the Trustee
reasonably requires in order to establish the validity of the ownership
of the notes and the claimant's entitlement to payment; and
. any additional information the Trustee requires to document ownership or
authority to make the election and to cause the redemption of the notes.
In turn, the broker or other entity will deliver each of these items to the
Trustee, together with evidence satisfactory to the Trustee from the broker or
other entity stating that it represents the deceased beneficial owner.
18
We retain the right to limit the aggregate principal amount of notes as to
which exercises of the Survivor's Option will be accepted in any one calendar
year as described above. All other questions regarding the eligibility or
validity of any exercise of the Survivor's Option will be determined by the
applicable Trustee, in its sole discretion, which determination will be final
and binding on all parties.
The death of a person owning a note in joint tenancy or tenancy by the
entirety with another or others will be deemed the death of the holder of the
note, and the entire principal amount of the note so held will be subject to
repayment.
The death of a person owning a note by tenancy in common will be deemed the
death of a holder of a note only with respect to the deceased holder's interest
in the note so held by tenancy in common. However, if a note is held by husband
and wife as tenants in common, the death of either will be deemed the death of
the holder of the note, and the entire principal amount of the note so held
will be subject to repayment.
The death of a person who, during his or her lifetime, was entitled to
substantially all of the beneficial interests of ownership of a note, will be
deemed the death of the holder of the note for purposes of this provision,
regardless of the registered holder, if the beneficial interest can be
established to the satisfaction of the applicable Trustee. The beneficial
interest will be deemed to exist in typical cases of nominee ownership,
ownership under the Uniform Transfers to Minors Act, community property or
other joint ownership arrangements between a husband and wife and custodial and
trust arrangements where one person has substantially all of the beneficial
ownership interest in the note during his or her lifetime.
The broker or other entity will be responsible for disbursing payments
received from the Trustee to the representative.
Forms for the exercise of the Survivor's Option may be obtained from
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, DE 19890; Corporate Trust Administration (302) 651-1000.
Subordination
The subordinated notes are subordinated in right of payment to our Senior
Indebtedness. The Subordinated Indenture basically defines "Senior
Indebtedness" as any indebtedness for money borrowed, including all of our
indebtedness for borrowed and purchased money, all of our obligations arising
from off-balance sheet guarantees and direct credit substitutes and our
obligations associated with derivative products such as interest and foreign
exchange rate contracts and commodity contracts, that were outstanding on the
date we executed the Subordinated Indenture, or were created, incurred or
assumed after that date and all deferrals, renewals, extensions and refundings
of that indebtedness or obligations unless the instrument creating or
evidencing the indebtedness provides that the indebtedness is subordinate in
right of payment to any of our other indebtedness. Our senior notes are Senior
Indebtedness. Our outstanding 10% Junior Subordinated Debentures due 2029 and
any other series of junior subordinated debentures will not be Senior
Indebtedness.
We will not be able to make any principal, premium or interest payments on
the subordinated notes or repurchase our subordinated notes if there is a
default or event of default on any Senior Indebtedness that is not remedied and
we and the Subordinated Trustee receive notice of this from the holders of at
least 10% in principal amount of any kind or category of any Senior
Indebtedness or the Subordinated Trustee receives notice from us.
If we repay any subordinated note before the required date or in connection
with a distribution of our assets to creditors pursuant to a dissolution,
winding up, liquidation or reorganization, any principal, premium or interest
owing to holders of our Senior Indebtedness will be paid to those holders
before any holders of Subordinated Indebtedness will be paid. In addition, if
such amounts were previously paid to the holder of a subordinated note or the
Subordinated Trustee, the holders of senior notes will have first rights to
such amounts previously paid.
19
Until all Senior Indebtedness is repaid in full, the holders of subordinated
notes will be subject to the rights of the holders of Senior Indebtedness to
receive payments or distributions of our assets.
Sale or Issuance of Capital Stock of Principal Subsidiary Bank
The Senior Indenture prohibits the issuance, sale or other disposition of
capital stock, or securities convertible into or options, warrants or rights to
acquire capital stock, of any Principal Subsidiary Bank (as defined below) or
of any subsidiary which owns shares of capital stock, or securities convertible
into or options, warrants or rights to acquire capital stock, of any Principal
Subsidiary Bank, with the following exceptions:
. sales of directors' qualifying shares;
. sales or other dispositions for fair market value, if, after giving
effect to the disposition and to the conversion of any shares or
securities convertible into capital stock of a Principal Subsidiary Bank,
we would own at least 80% of each class of the capital stock of such
Principal Subsidiary Bank;
. sales or other dispositions made in compliance with an order of a court
or regulatory authority of competent jurisdiction;
. any sale by a Principal Subsidiary Bank of additional shares of its
capital stock, securities convertible into shares of its capital stock,
or options, warrants or rights to subscribe for or purchase shares of its
capital stock, to its shareholders at any price, so long as before such
sale we owned, directly or indirectly, securities of the same class and
immediately after the sale, we owned, directly or indirectly, at least as
great a percentage of each class of securities of the Principal
Subsidiary Bank as we owned before such sale of additional securities;
and
. any issuance of shares of capital stock, or securities convertible into
or options, warrants or rights to subscribe for or purchase shares of
capital stock, of a Principal Subsidiary Bank or any subsidiary which
owns shares of capital stock, or securities convertible into or options,
warrants or rights to acquire capital stock, of any Principal Subsidiary
Bank, to us or our wholly owned subsidiary.
A Principal Subsidiary Bank is defined in the Senior Indenture as any of our
banking subsidiaries with total assets equal to more than 10% of our total
consolidated assets. At present, Downey Savings and Loan Association, F.A. is
our only Principal Subsidiary Bank.
There is no equivalent covenant in the Subordinated Indenture.
Waiver of Covenants
The holders of a majority in principal amount of the notes affected that are
outstanding under each of the Indentures may waive compliance with certain
covenants or conditions of such Indentures.
Modification of the Indentures
We and the applicable Trustee may modify each of the Senior and Subordinated
Indentures with the consent of the holders of at least 66 2/3% of the aggregate
principal amount of the notes at the time outstanding under that Indenture,
voting as one class. However, we cannot modify either Indenture to extend the
fixed maturity of, reduce the principal amount or redemption premium of, or
reduce the rate of or extend the time of payment of interest on, any note
without the consent of each noteholder. Furthermore, we cannot modify either
Indenture to reduce the percentage of notes required to consent to modification
without the consent of all holders of the notes outstanding under the
Indenture.
In addition, we and the Trustee may execute supplemental indentures in
limited circumstances without the consent of any holders of outstanding notes.
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Meetings and Action by Noteholders
The Trustee may call a meeting in its discretion or upon request by us or
the holders of at least 10% in principal amount of the notes outstanding under
either Indenture upon the giving of notice. If a meeting of noteholders is duly
held, any resolution raised or decision taken will be binding on all holders of
notes outstanding under the Indenture.
Defaults and Rights of Acceleration
The Senior Indenture defines an event of default as any one of the following
events:
. our failure to pay principal or premium when due on any notes;
. our failure to pay interest on any notes, within 30 days after the
interest becomes due;
. our breach of any of our other covenants contained in the senior notes or
the Senior Indenture that is not cured within 90 days after written
notice to us by the Senior Trustee, or to us and the Senior Trustee by
the holders of at least 25% in principal amount of all senior notes then
outstanding under the Senior Indenture and affected thereby; and
. certain events involving our bankruptcy, insolvency or liquidation.
The Subordinated Indenture defines an event of default solely as our
bankruptcy under Federal bankruptcy laws.
If an event of default occurs and is continuing, either the Trustee or the
holders of 25% in principal amount of the notes outstanding under the
applicable Indenture may declare the principal amount of all such notes to be
due and payable immediately. The holders of a majority in principal amount of
the notes then outstanding under the applicable Indenture may annul the
declaration of an event of default and waive past defaults.
Payment of principal of the subordinated notes may not be accelerated in the
case of a default in the payment of principal or any premium or interest or the
performance of any other covenants.
Collection of Indebtedness
If we fail to pay principal or premium on the notes or if we are over 30
days late on an interest payment on the notes, the appropriate Trustee can
demand that we pay to it, for the benefit of the noteholders under that
Indenture, the amount which is due and payable on those notes including any
interest incurred because of our failure to make that payment. If we fail to
pay the required amount on demand, the Trustee may take appropriate action
including instituting judicial proceedings.
The holders of a majority in principal amount of the notes then outstanding
under an Indenture may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee under that Indenture. A
Trustee, however, will be entitled to receive from the holders reasonable
indemnity against expenses and liabilities.
Periodically, we are required to file with the Trustees a certificate
stating that we are not in default with any of the terms of the respective
Indentures.
Notices
We will provide noteholders any required notices by first-class mail to the
addresses of the holders as they appear in the note Register.
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Concerning the Trustee
We have from time to time maintained deposit accounts and conducted other
banking transactions with Wilmington Trust Company and its affiliated entities
in the ordinary course of business. Wilmington Trust Company also serves as
trustee for a series of our outstanding indebtedness under the junior
subordinated indenture and will serve as trustee for other indebtedness under
the indentures discussed in this prospectus.
Registration and Settlement
All of the notes that we offer will be issued in book-entry only form. See
"Book-Entry Issuance."
Registration, Transfer and Payment of Certificated Notes
If we ever issue notes in certificated form, those notes may be presented
for registration, transfer and payment at the office of the Registrar or at the
office of any transfer agent designated and maintained by us. We have
originally designated Wilmington Trust Company, Rodney Square North, 1100 North
Market Square, Wilmington, DE 19890 to act in those capacities for both senior
and subordinated notes. The Registrar or transfer agent will make the transfer
or registration only if it is satisfied with the documents of title and
identity of the person making the request. There will not be a service charge
for any exchange or registration of transfer of the notes, but we may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with the exchange. At any time we may change
transfer agents or approve a change in the location through which any transfer
agent acts. We may also designate additional transfer agents for any notes at
any time.
We will not be required to (i) issue, exchange or register the transfer of
any note to be redeemed for a period of 15 days after the selection of the
notes to be redeemed; or (ii) exchange or register the transfer of any note
that was selected, called or is being called for redemption, except the
unredeemed portion of any note being redeemed in part.
We will pay principal and any premium and interest on any certificated notes
at the offices of the paying agents we may designate from time to time.
Generally, we will pay interest on a note on any interest payment date to
the person in whose name the note is registered at the close of business on the
regular record date for that payment.
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DESCRIPTION OF THE CAPITAL SECURITIES
The following section describes the general terms and provisions of the
capital securities to which any prospectus supplement may relate. The
particular terms of the capital securities offered by a trust and the extent to
which any of these general provisions do not apply to capital securities will
be described in the prospectus supplement relating to the capital securities.
In this prospectus, unless the context requires otherwise, we use the terms
set forth below as follows:
. the "Junior Subordinated Indenture" means the Junior Subordinated
Indenture, dated as of July 23, 1999, between Downey and Wilmington Trust
Company, as trustee (the "Indenture Trustee"), under which the junior
subordinated debentures will be issued;
. the "Trust Agreement" means the Amended and Restated Trust Agreement
relating to each trust to be entered into by Downey, as Depositor,
Wilmington Trust Company, as property trustee (the "Property Trustee"),
Wilmington Trust Company, as Delaware trustee (the "Delaware Trustee"),
and the administrative trustees (the "Administrative Trustees") named
therein (collectively, with the Property Trustee and Delaware Trustee,
the "Issuer Trustees"); and
. the "Guarantee Agreement" means the capital securities guarantee
agreement relating to the capital securities to be entered into by Downey
and Wilmington Trust Company, as guarantee trustee (the "Guarantee
Trustee").
The capital securities and the common securities will be issued under the
terms of the Trust Agreement. The Trust Agreement will be qualified as an
indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Administrative Trustees will be officers of Downey.
The Property Trustee is the independent trustee whose sole responsibility is
to fulfill the obligations specified in the Trust Indenture Act and the Trust
Agreement. The terms of the capital securities will include those stated in the
Trust Agreement and those made part of the Trust Agreement by the Trust
Indenture Act. We do not purport to represent that this summary of terms and
provisions of the capital securities and the Trust Agreement is complete. It is
qualified in its entirety by reference to all the provisions of the Trust
Agreement, including the definitions of terms in the Trust Agreement, and the
Trust Indenture Act. Wherever particular defined terms of the Trust Agreement
are referred to in this prospectus, the defined terms are incorporated in this
prospectus. As used under this caption "Description of the Capital Securities,"
all references to "Downey" mean Downey Financial Corp. excluding, unless
otherwise expressly stated or the context otherwise requires, its subsidiaries.
The form of the Trust Agreement has been filed as an exhibit to the
registration statement, together with all amendments and exhibits thereto (the
"Registration Statement"), of which this prospectus forms a part, and copies of
the Trust Agreement may be obtained as described under "Where You Can Find More
Information."
General
Under the terms of the Trust Agreement, the Administrative Trustees on
behalf of a trust will issue the capital securities and the common securities,
which we refer to collectively as the "Trust Securities." The capital
securities will represent undivided beneficial interests in the assets of the
trust. The holders of the capital securities will be entitled to a preference
in some circumstances with respect to Distributions, as defined below, and
amounts payable on redemption or liquidation over the common securities of the
trust, which will be held by Downey, as well as other benefits as described in
the Trust Agreement.
The capital securities will rank equally in right of payment with, and
payments will be made thereon pro rata with, the common securities of the
trust, except as described below under "--Subordination of Common Securities."
Legal title to the junior subordinated debentures will be held by the Property
Trustee in trust for the benefit of the holders of the Trust Securities. The
Guarantee Agreement executed by Downey for the benefit of the holders of the
capital securities will be a guarantee on a subordinated basis and will not
guarantee
23
payment of Distributions or amounts payable on redemption of the capital
securities or on liquidation of the capital securities if the trust does not
have funds on hand available to make these payments. See "Description of
Guarantee."
Distributions
Payment of Distributions. Holders of the capital securities will be entitled
to receive cumulative cash distributions accruing from the date of original
issuance and payable periodically in arrears, on the date specified in the
relevant prospectus supplement, unless there is a deferral as described below.
These payments, which we refer to as "Distributions," will commence at a
specified annual rate or rate determined on the basis of a method set forth in
the relevant prospectus supplement based on the Liquidation Amount per capital
security on the date and in the amount specified in the prospectus supplement.
Each date on which Distributions are payable is referred to as a "Distribution
Date." The amount of each Distribution due with respect to the capital
securities will include amounts accrued to but excluding the Distribution Date.
The distribution payable on any Distribution Date will be payable to registered
holders of the capital securities at the close of business on the immediately
preceding regular record date, which will be the 15th day, whether or not a
Business Day, immediately preceding the Distribution Date.
The amount of Distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months, unless otherwise stated in any
prospectus supplement. For any partial period, Distributions will be computed
on the basis of the actual number of days elapsed in a 30-day month. If any
date on which Distributions are payable on the capital securities is not a
Business Day, then payment of the Distributions payable on that date will be
made on the next Business Day, and without any interest or other payment in
respect of that delay, with the same force and effect as if made on the date
the payment was originally payable.
A "Business Day," with respect to the capital securities, shall mean any day
other than a Saturday or a Sunday, or a day on which banking institutions in
the City of New York are authorized or required by law or executive order to
remain closed.
The funds of the trust available for distribution to holders of its capital
securities will be limited to payments by Downey under the junior subordinated
debentures in which the trust will invest the proceeds from the issuance and
sale of its capital securities. For further information, see "Description of
Junior Subordinated Debentures." If Downey does not make interest payments on
the junior subordinated debentures, the Property Trustee will not have funds
available to pay Distributions on the capital securities. The payment of
Distributions, if and to the extent the trust has funds available for the
payment of Distributions, will be guaranteed on a subordinated basis by Downey.
For a more complete discussion of Downey's guarantee, see "Description of
Guarantee."
Extension Period. Unless otherwise stated in the relevant prospectus
supplement, so long as no Debenture Event of Default, as defined below, has
occurred and is continuing, Downey will have the right under the Junior
Subordinated Indenture to defer the payment of interest on the junior
subordinated debentures at any time and from time to time for a number of
consecutive interest periods specified in the prospectus supplement (each, an
"Extension Period"). However, no Extension Period may extend beyond the Stated
Maturity, as defined below, of the junior subordinated debentures or end on any
date other than an interest payment date for the junior subordinated
debentures. As a consequence of that election, the trust will defer periodic
Distributions on the capital securities during any Extension Period. During an
Extension Period, interest on the junior subordinated debentures will continue
to accrue and Distributions on the capital securities will continue to
accumulate in each case with interest thereon to the extent permitted by law,
compounded, at the rate per annum and frequency set forth in the prospectus
supplement. Because interest will continue to accrue during an Extension
Period, holders of capital securities will be required to accrue interest
income for United States federal income tax purposes. The term "Distributions"
as used in the captions entitled "Description of the Capital Securities,"
"Description of Junior Subordinated Debentures," and "Description of
24
Guarantee" shall include interest on the deferred Distributions and any other
Additional Amounts, as defined below.
During any Extension Period, Downey may not itself and shall not allow any
of its subsidiaries to:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of Downey's
capital stock, which includes common and preferred stock;
. make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of Downey that rank on a
parity with or junior to the junior subordinated debentures in right of
payment;
. redeem, purchase or acquire less than all of the junior subordinated
debentures or the capital securities; or
. make any guarantee payments with respect to any guarantee by Downey of
the debt securities of any subsidiary of Downey if the guarantee ranks on
parity with or junior to the junior subordinated debentures in right of
payment.
Notwithstanding the foregoing, during an Extension Period Downey and its
subsidiaries will be allowed to make:
. any dividend in a form of stock, warrants, options or other rights where
the dividend or the stock issuable upon the exercise of the warrants,
options or other rights is the same stock as that on which the dividend
is being paid or ranks on a parity with or junior to that stock in right
of payment;
. any declaration of a dividend in connection with the implementation of a
stockholders' rights plan or the issuance of stock under any
stockholders' rights plan in the future, or the redemption or repurchase
of any rights pursuant thereto;
. payments under the related Guarantee Agreement; and
. purchases of common stock related to the issuance of common stock or
rights under any of Downey's benefit plans for its directors, officers or
employees.
Before the termination of any Extension Period, Downey may further extend
the Extension Period, provided that the Extension Period does not extend beyond
the Stated Maturity.
If Downey shortens the Stated Maturity of the junior subordinated debentures
as described below under "Description of Junior Subordinated Debentures--
General" at any time while an Extension Period is in effect, and if the Stated
Maturity, as so shortened, would end before the last day of the Extension
Period, the Extension Period will be deemed to end on the Stated Maturity. If
the junior subordinated debentures are called for redemption on any date before
the end of an Extension Period, the Extension Period will be deemed to end on
that Redemption Date, as defined below, as to all of the capital securities.
Upon the termination of any Extension Period and the payment of all amounts
then due, and so long as no Debenture Event of Default has occurred and is
continuing, Downey may elect to begin a new Extension Period. Each Extension
Period must end on a Distribution Date, and all deferred Distributions will be
payable on that Distribution Date to the persons in whose names the capital
securities are registered at the close of business on the immediately preceding
record date.
The Administrative Trustees will give notice of Downey's election to begin
or extend an Extension Period to the holders of the capital securities as
described below under "Description of Junior Subordinated Debentures--Option to
Defer Interest Payments."
25
Except as described above, there is no limitation on the number of times
that Downey may elect to begin an Extension Period. Downey must give the Issuer
Trustees notice of its election of any Extension Period at least one Business
Day before the earlier of:
. the date the Distributions on the capital securities would have been
payable but for the election to begin or extend the Extension Period,
. the date the Administrative Trustees are required to give notice to the
New York Stock Exchange or any applicable stock exchange or automated
quotation system on which the capital securities are then listed or
quoted or to holders of the capital securities of the record date, or
. the date the Distributions are payable, but, in any event not less than
one Business Day before the applicable record date.
Redemption
Upon the repayment or redemption at any time, in whole or in part, of any
junior subordinated debentures, the proceeds from the repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount, as defined
below, of the Trust Securities. The Property Trustee will redeem the Trust
Securities upon not less than 30 nor more than 60 days' notice of a date of
redemption (the "Redemption Date"), at the Redemption Price, as defined below.
For a more complete discussion of the redemption procedures for the junior
subordinated debentures, see "Description of Junior Subordinated Debentures--
Redemption."
If less than all of the junior subordinated debentures are to be repaid or
redeemed on a Redemption Date, then the proceeds from the repayment or
redemption shall be allocated to the redemption of the capital securities and
common securities pro rata, except as described below under "--Events of
Default; Notice."
The junior subordinated debentures will provide the terms, which will be set
forth in the relevant prospectus supplement, upon which Downey can redeem the
junior subordinated debentures at its option, and will specify, except with
respect to specific events, a date prior to which Downey will not be allowed to
redeem the junior subordinated debentures, and after which Downey will have the
right to redeem the junior subordinated debentures, in whole or in part.
Except as otherwise specified in the relevant prospectus supplement, on the
occurrence of a Tax Event, Investment Company Event or a Capital Treatment
Event, Downey will have the option to redeem the junior subordinated debentures
held by the trust, in whole but not in part, at any time within 90 days
thereafter.
If a Tax Event, Capital Treatment Event or an Investment Company Event has
occurred and is continuing and Downey does not elect to redeem the junior
subordinated debentures and thereby cause a mandatory redemption of the Trust
Securities, the Trust Securities will remain outstanding and, in the case of a
Tax Event, Downey will be obligated to pay Additional Sums, as defined below,
if any, on the junior subordinated debentures.
Additionally, if a Tax Event, Capital Treatment Event or an Investment
Company Event has occurred and is continuing and Downey does not elect to
liquidate the trust and cause the junior subordinated debentures to be
distributed to holders of the Trust Securities in liquidation of the trust as
described below, then the Trust Securities will remain outstanding and, in the
case of a Tax Event, Downey will be obligated to pay Additional Sums, if any,
on the junior subordinated debentures.
A "Tax Event" means the receipt by Downey and the trust of an opinion of
nationally recognized independent tax counsel, which may include outside
counsel to Downey for this offering, experienced in these matters to the effect
that as a result of:
. any amendment to, or change (including any announced prospective change)
in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or
26
. any official or administrative pronouncement or action or judicial
decision interpreting or applying such laws or regulations, which
amendment or change is effective or which prospective change, action,
pronouncement or decision is announced on or after the original issuance
date of the capital securities, there is more than an insubstantial risk
that:
. the trust is, or will be within 90 days of the date of the opinion,
subject to United States federal income tax with respect to income
received or accrued on the junior subordinated debentures;
. interest payable by Downey on the junior subordinated debentures is not,
or within 90 days of the date of the opinion will not be, deductible by
Downey, in whole or in part, for United States federal income tax
purposes; or
. the trust is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
An "Investment Company Event" means the receipt by Downey and the trust of
an opinion of nationally recognized independent counsel, which may include
outside counsel to Downey for this offering, experienced in these matters to
the effect that, as the result of any change in law or regulation or any
written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority, which
change is effective or which written change is announced on or after the
original issuance date of the capital securities, there is more than an
insubstantial risk that the trust is or will be considered an "investment
company" that is required to be registered under the Investment Company Act of
1940, as amended.
A "Capital Treatment Event" means the receipt by Downey and the trust of an
opinion of nationally recognized independent counsel, which may include outside
counsel to Downey for this offering, experienced in these matters to the effect
that, as a result of any amendment to, or change, including any announced
prospective change, in the laws or any regulations thereunder of the United
States or any political subdivision thereof or therein, or as a result of any
official or administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment or change is
effective or which prospective change, pronouncement, action or decision is
announced on or after the original issuance date of the capital securities,
there is more than an insubstantial risk that:
. Downey will not be entitled to treat the capital securities, or any
substantial portion thereof, as "tier 1 capital," or the then equivalent
thereof, for purposes of the capital adequacy guidelines of the primary
federal regulator of Downey, as then in effect and applicable to Downey,
in which case the legal opinion shall also state that Downey is subject
to those holding company capital adequacy guidelines; or
. The Bank will not be entitled to treat the net proceeds from the sale of
the junior subordinated debentures that are invested in the Bank, or any
substantial portion thereof, as "tier 1 capital," or the then equivalent
thereof, for purposes of the capital adequacy guidelines of the primary
federal regulator of the Bank, as then in effect and applicable to the
Bank, assuming for this purpose that at least 50% of the net proceeds are
invested in the Bank by Downey in the form of a capital contribution or
through the purchase of the common stock of the Bank.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions including any Additional Amounts, as defined
below, due and paid or payable by the trust on the outstanding Trust Securities
shall not be reduced as a result of any additional taxes, duties and other
governmental charges to which the trust has become subject as a result of a Tax
Event.
"Additional Amounts" means, with respect to the Trust Securities of a given
liquidation amount and for a given period, the amount of Additional Interest,
as defined below, paid or payable by Downey on a Like Amount of junior
subordinated debentures for such period.
"Additional Interest" means the interest, if any, that shall accrue on any
interest on the junior subordinated debentures the payment of which has not
been made on the applicable Interest Payment Date, as
27
defined below under "Description of Junior Subordinated Debentures," or other
date when due, including without limitation any interest which is deferred as
the result of an Extension Period, and which shall accrue at the rate per annum
specified or determined as specified in the junior subordinated debentures.
"Like Amount" means:
. With respect to a redemption of Trust Securities, Trust Securities
having a Liquidation Amount equal to the principal amount of the junior
subordinated debentures to be contemporaneously redeemed, allocated pro
rata to the common securities and the capital securities based upon the
relative Liquidation Amounts of the outstanding capital securities and
common securities, subject to the preferential rights of the capital
securities if a Debenture Event of Default has occurred and is
continuing; and
. With respect to a distribution of junior subordinated debentures to
holders of Trust Securities in connection with a dissolution or
liquidation of the trust, junior subordinated debentures having a
principal amount equal to the Liquidation Amount of the Trust Securities
of the holder to whom such junior subordinated debentures are
distributed.
"Liquidation Amount" means the amount per Trust Security stated in the
prospectus supplement.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date.
Redemption Procedures
The trust shall redeem capital securities on each Redemption Date at the
Redemption Price. The trust shall pay the Redemption Price with the applicable
proceeds from the contemporaneous redemption of the junior subordinated
debentures. The trust shall redeem the capital securities and pay the
Redemption Price on each Redemption Date only to the extent that the trust has
funds on hand for the payment of the Redemption Price. For a description of
factors affecting the redemption of the Trust Securities, see "--Subordination
of Common Securities" and "Description of Guarantee." The trust may not redeem
fewer than all of the outstanding Trust Securities unless it has paid all
accumulated and unpaid Distributions on all Trust Securities for all periodic
distribution periods terminating on or before the relevant Redemption Date.
If the trust gives a notice of redemption in respect of the capital
securities, then, by 12:00 noon, Eastern time, on the Redemption Date, to the
extent funds are available, the Property Trustee will irrevocably deposit with
the Depository funds sufficient to pay the aggregate Redemption Price and will
give the Depository irrevocable instructions and authority to pay the
Redemption Price to the holders of the capital securities. For a description of
the Depository procedures, see "Book-Entry Issuance." With respect to Trust
Securities not held in book-entry form, the Property Trustee, to the extent
funds are available, will irrevocably deposit with the paying agent for those
Trust Securities, by 12:00 noon, Eastern time, on the Redemption Date, funds
sufficient to pay the aggregate Redemption Price and will give the paying agent
irrevocable instructions and authority to pay the Redemption Price to the
holders of the Trust Securities upon their surrender of the certificates
evidencing the Trust Securities.
Notwithstanding the foregoing, Distributions payable on any Distribution
Date falling on or before the Redemption Date shall be payable to the
registered holders of the capital securities at the close of business on the
relevant record dates for the related Distribution Dates. Thus, if a Redemption
Date falls on a Distribution Date, the Distribution payable on that date will
be paid to the person who was the holder of record on the relevant record date.
If the trust has given notice of redemption and the Property Trustee has
deposited funds as required, then upon the date that the Property Trustee makes
the deposit, all of the rights of the holders of the capital securities to be
redeemed will cease except as follows and those capital securities will cease
to be outstanding. The only right a holder of capital securities to be redeemed
will still have is the right to receive the applicable Redemption Price, and
any Distributions payable on or before the Redemption Date, but without
interest for any period from and after the Redemption Date. If any date fixed
for redemption of the capital
28
securities is not a Business Day, then the trust will pay the Redemption Price
payable on that date on the next succeeding Business Day, and without any
interest or other payment in respect of any delay. If the trust or Downey,
under the terms of the Guarantee Agreement, improperly withholds or refuses
payment of the Redemption Price in respect of capital securities called for
redemption, Distributions on the capital securities will continue to accrue, at
the then applicable rate, from the Redemption Date originally established by
the trust for the capital securities to the date the Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price. For a discussion
of Downey's obligations under the Guarantee Agreement, see "Description of
Guarantee."
If allowed under applicable law, including, without limitation, United
States federal securities law, and further provided that Downey is not then
exercising its rights to defer interest payments on the junior subordinated
debentures, Downey or its subsidiaries, other than the trust, may at any time
and from time to time purchase outstanding capital securities by tender, in the
open market or by private agreement.
If less than all of the outstanding Trust Securities issued by the trust are
to be redeemed on a Redemption Date, then the aggregate Redemption Price for
the Trust Securities to be redeemed shall be allocated pro rata to the capital
securities and common securities based upon the relative Liquidation Amounts of
the capital securities and common securities then outstanding. The particular
capital securities to be redeemed shall be selected not more than 60 days
before the Redemption Date by the Property Trustee from the outstanding capital
securities not previously called for redemption, by a method that the Property
Trustee deems fair and appropriate and which may provide for the selection for
redemption of portions, equal to the amount set forth in the relevant
prospectus supplement. The Property Trustee shall promptly notify the
Securities Registrar in writing of the capital securities selected for
redemption and, in the case of any capital securities selected for partial
redemption, the Liquidation Amount to be redeemed. For all purposes of the
Trust Agreement, unless the context otherwise requires, all provisions relating
to the redemption of capital securities shall relate to the portion of the
aggregate Liquidation Amount of capital securities which has been or is to be
redeemed.
In the event of any redemption, neither the trust nor the Property Trustee
shall be required to:
. issue, register the transfer of or exchange capital securities during a
period beginning at the opening of business 15 days before the date of
mailing of a notice of redemption of any capital securities called for
redemption and ending at the close of business on the day of the
mailing; or
. register the transfer or exchange any capital securities so selected for
redemption, except, in the case of any capital securities being redeemed
in part, any portion of the capital securities not to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities to be
redeemed at the holder's registered address. Unless Downey defaults in payment
of the Redemption Price on the junior subordinated debentures, on and after the
Redemption Date interest will cease to accrue on the junior subordinated
debentures or portions of the junior subordinated debentures called for
redemption and, unless payment of the Redemption Price in respect of the
capital securities is withheld or refused and not paid either by the trust or
Downey as required by the Guarantee Agreement, Distributions will cease to
accumulate on the capital securities or portions of the capital securities
called for redemption.
Subordination of Common Securities
Payment of Distributions on, and the Redemption Price of, the capital
securities and common securities shall be made pro rata based on the
Liquidation Amounts of the outstanding capital securities and common
securities. However, no payment of any Distribution, including Additional
Amounts, if applicable, on, or applicable Redemption Price of, any of the
common securities, and no other payment on account of the redemption,
liquidation or other acquisition of the common securities, shall be made if:
. a Debenture Event of Default shall have occurred and be continuing as a
result of any failure by Downey to pay any amounts in respect of the
junior subordinated debentures when due; or
29
. the trust is dissolved or liquidated and funds held by the trust are
insufficient to pay in full the aggregate Liquidation Amount, plus
accrued and unpaid Distributions, payable on the Trust Securities or, in
the event of the distribution of junior subordinated debentures to
holders of capital securities upon such dissolution or liquidation, the
holders of capital securities do not receive the full amount of junior
subordinated debentures to which they are entitled.
The payments with respect to the common securities will be allowed, however,
if:
. payment in full in cash of all accumulated and unpaid Distributions,
including Additional Amounts, if applicable, on all of the outstanding
capital securities for all Distribution periods terminating on or prior
thereto, and in the case of payment of the applicable Redemption Price,
the full payment in cash of the Redemption Price on all of the
outstanding capital securities then called for redemption, shall have
been made or provided for; or
. the trust is dissolved or liquidated and the full Liquidation Amount on
all outstanding capital securities plus accumulated and unpaid
Distributions thereon shall have been made or duly provided for in cash
or, in the event of the distribution of junior subordinated debentures
to holders of capital securities upon the dissolution or liquidation,
the distribution to each holder of capital securities of the junior
subordinated debentures to which such holder is entitled shall have been
made or duly provided for.
All funds available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions on, or the Redemption Price or
Liquidation Amount, plus accrued and unpaid Distributions, of the capital
securities then due and payable, including Additional Amounts, if applicable,
or, in the event of the distribution of junior subordinated debentures upon
dissolution or liquidation of the trust, the junior subordinated debentures
available to the Property Trustee shall first be distributed to holders of
capital securities.
In the case of any Event of Default under the Trust Agreement resulting from
a Debenture Event of Default, Downey as holder of the common securities will be
deemed to have waived any right to act with respect to the Event of Default
until all Events of Default with respect to the capital securities have been
cured, waived or otherwise eliminated. Until all Events of Default with respect
to the capital securities have been so cured, waived or otherwise eliminated,
the Property Trustee shall act solely on behalf of the holders of the capital
securities and not on behalf of Downey as holder of the common securities and
only the holders of the capital securities will have the right to direct the
Property Trustee to act on their behalf.
Liquidation Distribution Upon Dissolution
The amount payable on the Trust Securities if the trust is liquidated or
dissolved is the amount stated in the prospectus supplement for each Trust
Security plus accumulated and unpaid Distributions thereon to the date of
payment. Downey has the right to make the payment to holders of the Trust
Securities by distributing a Like Amount of the junior subordinated debentures
to them as described below.
Downey will have the right, at any time before the 30th day before the
Stated Maturity, to dissolve the trust and cause a Like Amount of the junior
subordinated debentures to be distributed to holders of the Trust Securities.
Before exercising this right, Downey must receive approval of the Federal
Reserve or OTS, if then required under applicable capital guidelines or
policies of the Federal Reserve or OTS, and an opinion of nationally recognized
independent tax counsel, which may include outside counsel to Downey for this
offering, experienced in these matters to the effect that the holders of the
Trust Securities will not recognize income, gain or loss for United States
federal income tax purposes as a result of the dissolution of the trust and
distribution of the junior subordinated debentures and will be subject to
federal income tax with respect to the junior subordinated debentures on the
same amounts, in the same manner and at the same times as would have been the
case if the holders had remained holders of Trust Securities. For a more
complete discussion of the distribution of the junior subordinated debentures,
see "--Distribution of Junior Subordinated Debentures." Downey might exercise
its right to dissolve the trust under circumstances where a Tax Event, a
Capital
30
Treatment Event, an Investment Company Event or other undesirable event could
be avoided simply by dissolving the trust and causing the junior subordinated
debentures to be distributed to the holders of the Trust Securities.
In addition, under the terms of the Trust Agreement, the trust shall
automatically dissolve upon expiration of its term and shall earlier dissolve
on the first to occur of:
. specific events of bankruptcy, dissolution or liquidation of Downey or
any other holder of the common securities;
. the distribution of a Like Amount of the junior subordinated debentures
to the holders of its Trust Securities, if Downey, as Depositor, has
delivered written direction to the Property Trustee to terminate the
trust, which direction is optional and wholly within the discretion of
Downey, as Depositor, so long as Downey has received an opinion of
nationally recognized independent tax counsel, which may include outside
counsel to Downey for this offering, experienced in these matters to the
effect that the holders of the Trust Securities will not recognize
income, gain or loss for United States federal income tax purposes as a
result of the dissolution of the trust and the distribution of the
junior subordinated debentures and will be subject to federal income tax
with respect to the junior subordinated debentures on the same amounts,
in the same manner and at the same times as would have been the case if
the holders had remained holders of Trust Securities;
. redemption of all of the capital securities as described under "--
Redemption;" or
. the entry of an order for the dissolution of the trust, Downey or any
other holder of the common securities by a court of competent
jurisdiction.
If an early dissolution occurs as described above, the Issuer Trustees shall
liquidate the trust as expeditiously as the Issuer Trustees determine to be
possible by distributing, after satisfaction of liabilities to creditors of the
trust as provided by applicable law, to the holders of the Trust Securities a
Like Amount of the junior subordinated debentures. However, if this
distribution is determined by the Property Trustee not to be practical, the
holders will be entitled to receive out of the assets of the trust available
for distribution to holders, after satisfaction of liabilities to creditors of
the trust as provided by applicable law, an amount equal to the aggregate of
the Liquidation Amount plus accrued and unpaid Distributions thereon to the
date of payment. The amount due and payable upon liquidation of the trust,
whether payable in cash or out of the assets of the trust, is called the
"Liquidation Distribution." If the Liquidation Distribution can be paid only in
part because the trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
trust on the capital securities shall be paid on a pro rata basis, based upon
Liquidation Amounts. Downey, as the holder of the common securities, will be
entitled to receive distributions upon the trust's liquidation pro rata with
the holders of the capital securities, except that if a Debenture Event of
Default has occurred and is continuing as a result of any failure by Downey to
pay any amounts due in respect of the junior subordinated debentures when due
or if funds available to the trust are insufficient to pay in full the
Liquidation Distribution on all of the outstanding capital securities, the
capital securities shall have a priority over the common securities to the
extent described above under "--Subordination of Common Securities."
After the liquidation date fixed for any distribution of junior subordinated
debentures for Trust Securities, the following will happen:
. the Trust Securities will no longer be deemed to be outstanding;
. certificates representing a Like Amount of junior subordinated
debentures will be issued to holders of Trust Securities certificates,
upon surrender of such certificates to the Administrative Trustees or
their agent for exchange;
. any Trust Securities certificates not so surrendered for exchange will
be deemed to represent a Like Amount of junior subordinated debentures,
accruing interest from the last Distribution Date on which a
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Distribution was made on the Trust Securities certificates until the
certificates are surrendered for exchange as described above; and
. all rights of securityholders holding Trust Securities will cease,
except the right of the securityholders to receive a Like Amount of
junior subordinated debentures upon surrender of Trust Securities
certificates and to receive accrued and unpaid interest on the junior
subordinated debentures.
We can give no assurance as to the market prices for the junior
subordinated debentures that may be distributed in exchange for the capital
securities if a dissolution and liquidation of the trust were to occur.
Accordingly, the junior subordinated debentures that holders of capital
securities may receive on dissolution and liquidation of the trust may trade
at a discount to the price paid to purchase the capital securities offered by
this prospectus.
If Downey elects to dissolve the trust and thereby causes the junior
subordinated debentures to be distributed to holders of the capital securities
in liquidation of the trust, Downey shall continue to have the right to
shorten the maturity of the junior subordinated debentures, subject to a
number of conditions which are discussed under "Description of Junior
Subordinated Debentures--General."
Events of Default; Notice
Any one of the following events or other events specified in the relevant
prospectus supplement that has occurred and is continuing constitutes an
"Event of Default" under the Trust Agreement with respect to the capital
securities, regardless of the reason for the Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or by any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body:
1. the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default");
2. default by the trust in the payment of any Distribution when it becomes
due and payable, and continuation of such default for a period of 30 days;
3. default by the trust in the payment of any Redemption Price of any Trust
Security when it becomes due and payable;
4. default in the performance, or breach, in any material respect, of any
covenant or warranty of any of the Issuer Trustees in the Trust Agreement
(other than a default or breach in the performance of a covenant or warranty
which is addressed in clause 2 or 3 above), and continuation of such default
or breach for a period of 90 days after there has been given, by registered or
certified mail, to the defaulting Issuer Trustee and the trust by the holders
of at least 25% in aggregate Liquidation Amount of the outstanding capital
securities, a written notice specifying such default or breach and requiring
it to be remedied and stating that such notice is a "Notice of Default" under
the Trust Agreement; or
5. the occurrence of specific events of bankruptcy or insolvency with
respect to the Property Trustee.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of the Event of Default to the holders of the capital securities, the
Administrative Trustees and Downey, as Depositor, unless the Event of Default
shall have been cured or waived. Downey, as Depositor, and the Administrative
Trustees will be required to file annually with the Property Trustee a
certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing as a result
of any failure by Downey to pay any amounts in respect of the junior
subordinated debentures when due, the capital securities shall have a
preference over the common securities as described under "--Subordination of
Common Securities" and
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"--Liquidation Distribution Upon Dissolution." Upon a Debenture Event of
Default, either the Indenture Trustee or the holders of not less than 25% in
aggregate principal amount of the junior subordinated debentures then
outstanding may declare all of the junior subordinated debentures to be due and
payable immediately by giving notice in writing to Downey.
If the Indenture Trustee or the holders of not less than 25% in principal
amount of the outstanding junior subordinated debentures fail to declare the
principal of all of the junior subordinated debentures due and payable upon a
Debenture Event of Default, the holders of at least 25% in Liquidation Amount
of the capital securities then outstanding shall have the right to declare the
principal amount of the junior subordinated debentures immediately due and
payable. In either event, payment of principal and interest on the junior
subordinated debentures shall remain subordinated to the extent provided in the
Indenture.
In addition, holders of the capital securities have the right in specific
circumstances to bring a Direct Action, as defined below and discussed under
"Description of Junior Subordinated Debentures--Enforcement of Specified Rights
by Holders of Capital Securities."
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures may rescind and annul the declaration and its
consequences if all defaults, other than the non-payment of the principal and
interest of the junior subordinated debentures which has become due solely by
the acceleration, have been cured or waived as provided in the Indenture and a
sum sufficient to pay all overdue installments of interest, including any
Additional Interest, and principal due otherwise than by acceleration has been
deposited with the Indenture Trustee. The holders of a majority in aggregate
Liquidation Amount of the capital securities may similarly waive any past
default under the Indenture, except a default in the payment of principal or
interest, unless the default has been cured or waived and a sum sufficient to
pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Indenture Trustee, or a default in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each outstanding junior
subordinated debenture.
Removal of Trustees
Unless an Event of Default shall have occurred and be continuing, Downey as
the holder of the common securities may remove at any time any of the Property
Trustee, the Delaware Trustee or the Administrative Trustees. If an Event of
Default has occurred and is continuing, the holders of a majority in
Liquidation Amount of the outstanding capital securities may remove the
Property Trustee or the Delaware Trustee or both of them. In no event will the
holders of the capital securities have the right to vote to appoint, remove or
replace the Administrative Trustees, which voting rights are vested exclusively
in Downey as the holder of the common securities. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee has been made in
compliance with the provisions of the Trust Agreement.
Co-Trustees and Separate Property Trustee
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property
may at the time be located, Downey, as the holder of the common securities, and
the Administrative Trustees by agreed action of the majority of the
Administrative Trustees shall have the power to appoint one or more persons
either to act as a co-trustee, jointly with the Property Trustee, of all or any
part of the Trust Property, or to act as separate trustee of any Trust
Property, in either case with the powers as may be provided in the instrument
of appointment, and to vest in the person or persons in that capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. If Downey does not join in the appointment
within 15 days of the receipt by it of a request to do so, or in case an Event
of Default has occurred and is continuing, the Property Trustee alone shall
have power to make the appointment.
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Merger or Consolidation of Issuer Trustees
Any Person, as defined in the Trust Agreement, into which the Property
Trustee or the Delaware Trustee may be merged or converted or with which it may
be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Property Trustee or Delaware Trustee shall be a
party, or any Person succeeding to all or substantially all the corporate trust
business of the Property Trustee or Delaware Trustee, shall be the successor of
the Property Trustee or Delaware Trustee, as the case may be, under the Trust
Agreement, provided the Person shall be otherwise qualified and eligible.
Mergers, Consolidations, Amalgamations or Replacements of the Trust
The trust may not merge with or into, consolidate, amalgamate or be replaced
by, or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, except as described below or
otherwise in the relevant prospectus supplement. The trust may, at the request
of Downey, with the consent of the Administrative Trustees and without the
consent of the holders of the capital securities, merge with or into,
consolidate, amalgamate or be replaced by or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to a trust
organized under the laws of any state. Downey will only be allowed to make this
request if:
. the successor trust either (a) expressly assumes all of the obligations
of the trust with respect to the Trust Securities or (b) substitutes for
the Trust Securities other securities having substantially the same
terms as the common securities (the "Successor Common Securities") and
the capital securities (the "Successor Capital Securities") so long as
the Successor Common Securities are subordinated in right of payment to
the Successor Capital Securities to the same extent and in the same
manner as the common securities are subordinated in right of payment to
the capital securities;
. Downey expressly appoints a trustee of the successor trust possessing
the same powers and duties as the Property Trustee as the holder of the
junior subordinated debentures;
. the Successor Capital Securities are listed, or any Successor Capital
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the capital
securities are then listed, if any;
. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not cause the capital securities or the Successor
Capital Securities, as the case may be, to be downgraded by any
nationally recognized statistical rating organization which gives
ratings to the capital securities or the Successor Capital Securities,
as the case may be;
. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the capital securities or the Successor
Capital Securities, as the case may be, in any material respect;
. the successor trust has a purpose identical to that of the trust;
. before the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease, Downey has received an opinion from nationally
recognized independent counsel, which may include outside counsel to
Downey for this offering, experienced in the following matters to the
effect that:
. the merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of holders of the capital securities or the Successor Capital
Securities, as the case may be, in any material respect; and
. following the merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the trust nor any successor trust
will be required to register as an investment company under the
Investment Company Act or will be classified as other than a grantor
trust for United States federal income tax purposes; and
34
. Downey or any permitted successor or assignee owns all of the Successor
Common Securities of the successor and guarantees the obligations of the
successor trust under the Successor Capital Securities at least to the
extent provided by the Guarantee Agreement and under the Successor
Common Securities at least to the extent provided by Downey's guarantee
of the common securities.
Notwithstanding the foregoing, the trust shall not, except with the consent
of holders of 100% in Liquidation Amount of the outstanding capital securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety to any other Person or permit any other Person to consolidate,
amalgamate, merge with or into, or replace it if the consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
the trust or the successor entity to be classified as other than a grantor
trust for United States federal income tax purposes.
Voting Rights; Amendment of the Trust Agreement
Except as provided below and under "--Removal of Trustees" and "Description
of Guarantee--Amendments and Assignment" and as otherwise required by law and
the Trust Agreement, the holders of the capital securities will have no voting
rights.
The Trust Agreement may be amended from time to time by Downey, the Property
Trustee and the Administrative Trustees, without the consent of holders of the
Trust Securities, if the Trust Agreement is being amended to:
1. cure any ambiguity, correct or supplement any provisions in the Trust
Agreement that may be inconsistent with any other provision, or to make any
other provisions with respect to matters or questions arising under the Trust
Agreement, which shall not be inconsistent with the other provisions of the
Trust Agreement; or
2. modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that the trust will be classified for
United States federal income tax purposes as a grantor trust at all times that
any Trust Securities are outstanding or to ensure that the trust will not be
required to register as an "investment company" under the Investment Company
Act.
In the case of clause 1 above, the amendment will only be allowed if the
action shall not adversely affect in any material respect the interests of any
holder of Trust Securities, and any amendments of the Trust Agreement shall
become effective when notice of the amendments are given to the holders of the
Trust Securities.
In other cases, the Trust Agreement may be amended by the Administrative
Trustees and the Property Trustee with:
. the consent of holders representing not less than a majority of the
aggregate Liquidation Amount of the outstanding Trust Securities; and
. the receipt by the Issuer Trustees of an opinion of nationally
recognized independent counsel, which may include outside counsel to
Downey for this offering, experienced in these matters to the effect
that the amendment or the exercise of any power granted to the Issuer
Trustees in compliance with the terms of the amendment will not affect
the trust's status as a grantor trust for United States federal income
tax purposes or the trust's exemption from registration as an investment
company under the Investment Company Act.
However, the Trust Agreement may only be amended with the unanimous consent
of each holder of Trust Securities, if it is being amended to:
. change the amount or timing of any Distribution on the Trust Securities,
or the amount or timing of any payment of the Redemption Price of, or
the amount or timing of any payment or distribution of funds or
35
property, including junior subordinated debentures, payable or
distributable upon liquidation or dissolution of the trust or otherwise
adversely affect the amount or change the time of any Distribution
required to be made in respect of the Trust Securities or the amount of
funds or property, including junior subordinated debentures, required to
be paid or distributed in respect of the Trust Securities; or
. restrict the right of a holder of Trust Securities to institute suit for
the enforcement of any of the foregoing payments on or after the date it
is due.
So long as any junior subordinated debentures are held by the Property
Trustee, the Issuer Trustees shall not:
. direct the time, method and place of conducting any proceeding for any
remedy available to the Indenture Trustee, or execute any trust or power
conferred on the Indenture Trustee or the Property Trustee with respect
to the junior subordinated debentures;
. waive any past default that is waivable under the Indenture;
. exercise any right to rescind or annul a declaration that the principal
of and interest on all the junior subordinated debentures shall be due
and payable; or
. consent to any amendment, modification or termination of the Indenture
or the junior subordinated debentures, where their consent shall be
required;
without, in each case, obtaining the prior approval of the holders of a
majority in aggregate Liquidation Amount of all outstanding capital securities;
provided, however, that where a consent under the Indenture would require the
consent of each holder of junior subordinated debentures affected thereby, no
consent shall be given by the Property Trustee without the prior consent of
each holder of the outstanding capital securities.
The Issuer Trustees shall not revoke any action previously authorized or
approved by vote of the holders of the capital securities except by subsequent
vote of the holders of the capital securities. The Property Trustee shall
notify each holder of capital securities of any notice of default with respect
to the junior subordinated debentures. In addition to obtaining the foregoing
approvals of the holders of the capital securities, before taking any of the
foregoing actions, the Issuer Trustees shall obtain an opinion of nationally
recognized independent counsel, which may include outside counsel to Downey for
this offering, experienced in these matters to the effect that the trust will
not be classified as other than a grantor trust for United States federal
income tax purposes on account of that action.
Any required approval from holders of the capital securities may be given at
a meeting of the holders convened for that purpose or may be given by written
consent. The Property Trustee will cause a notice of any meeting at which
holders of the capital securities are entitled to vote, or of any matter upon
which action by written consent of the holders of the capital securities is to
be taken, to be given to each holder of record of the capital securities in the
manner described in the Trust Agreement.
No vote or consent of holders of the capital securities will be required for
the trust to redeem and cancel the capital securities in compliance with the
Trust Agreement.
Notwithstanding that holders of the capital securities will be entitled to
vote or consent under any of the circumstances described above, any of the
capital securities that are owned by Downey, the Issuer Trustees or any
affiliate of Downey or any Issuer Trustee, shall, for purposes of any vote or
consent, be treated as if they were not outstanding.
Expenses
In the Indenture, Downey will agree to pay all costs, expenses, obligations
and liabilities, other than with respect to the Trust Securities, of the trust,
including those relating to the organization of the trust, the fees and
expenses of the Issuer Trustees, costs and expenses relating to the operation
of the trust, those relating to the
36
offering of the capital securities and the fees and expenses of the Property
Trustee in connection with any enforcement of the rights of the holders of the
capital securities or the junior subordinated debentures. The foregoing
obligations of Downey under the Indenture are for the benefit of, and will be
enforceable by, any person to whom any of those costs, expenses, obligations,
taxes or liabilities are owed, which person is referred to as a "Creditor,"
whether or not the Creditor has received notice. Any Creditor may enforce the
obligations of Downey described in this paragraph and Downey will irrevocably
waive, to the extent permitted by law, any right or remedy to require that the
Creditor take action against the trust or any other person before proceeding
against Downey.
Global Capital Securities
The capital securities will be represented by one or more global
certificates registered in the name of the Depository or its nominee (a "Global
Capital Security"). See "Book-Entry Issuance."
Payment and Paying Agent
Payments in respect of the capital securities shall be made to the
Depository, which shall credit the relevant accounts at the Depository on the
applicable Distribution Dates and Redemption Dates, or, if any of the capital
securities are not held by the Depository, payments of Distributions shall be
made at the Property Trustee's option either by check mailed to the address of
the holder entitled thereto as the address shall appear on the register or by
wire transfer. The paying agent shall initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and Downey. The paying agent shall be permitted to
resign as paying agent upon 30 days' written notice to Downey, the Property
Trustee and the Administrative Trustees. If the Property Trustee shall no
longer be the paying agent, then the Administrative Trustees shall appoint a
successor, which shall be a bank or trust company acceptable to the Property
Trustee and Downey, to act as paying agent.
Registrar and Transfer Agent
The Property Trustee will act as registrar and transfer agent for the
capital securities. Registration of transfers of the capital securities will be
effected without charge by or on behalf of the trust, but the registrar may
require payment of a sum sufficient to cover any tax or other governmental
charges that may be imposed in connection with any transfer or exchange.
Downey will agree in the Trust Agreement that, if capital securities are
issued in certificated form, it will at all times maintain a paying agent and
transfer agent for the capital securities in the Borough of Manhattan, the City
of New York.
Information Concerning the Property Trustee
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only the duties that
are specifically provided in the Trust Agreement and, after an Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. In all other
instances, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any holder of
capital securities unless it is offered reasonable indemnity against the costs,
expenses and liabilities that might be incurred thereby. If no Event of Default
has occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the
Trust Agreement or is unsure of the application of any provision of the Trust
Agreement, and the matter is not one on which holders of the capital securities
are entitled under the Trust Agreement to vote, then the Property Trustee shall
take the action that is directed by Downey and if not so directed, shall take
the action as it deems advisable and in the best interests of the holders of
the Trust Securities and will have no liability therefor except for liability
resulting from its own bad faith, negligence or willful misconduct.
37
Miscellaneous
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the trust in such a way that the trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes, and so that the junior
subordinated debentures will be treated as indebtedness of Downey for United
States federal income tax purposes. In this connection, Downey and the
Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust or the Trust Agreement, that
Downey and the Administrative Trustees determine in their discretion to be
necessary or desirable for the foregoing purposes, as long as the action does
not materially adversely affect the interests of the holders of the capital
securities.
The holders of the capital securities have no preemptive or similar rights.
The trust may not borrow money or incur debt or mortgage or pledge any of
its assets.
Governing Law
The Trust Agreement will be governed by and construed under the laws of the
State of Delaware.
38
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The relevant prospectus supplement will describe specific terms relating to
the offering of the corresponding junior subordinated debentures. Concurrently
with the issuance of the capital securities, the trust will invest the proceeds
therefrom, together with the consideration paid by Downey for the common
securities, in junior subordinated debentures to be issued by Downey. The
junior subordinated debentures will be issued under the Junior Subordinated
Indenture.
The following summary of the terms and provisions of the junior subordinated
debentures and the Junior Subordinated Indenture does not purport to be
complete, and is qualified in its entirety by reference to the Junior
Subordinated Indenture, which has been filed as an exhibit to the Registration
Statement of which this prospectus forms a part, and to the Trust Indenture
Act. Copies of the junior subordinated debentures and the Junior Subordinated
Indenture may be obtained as described under "Where You Can Find More
Information." The Junior Subordinated Indenture is qualified under the Trust
Indenture Act. Whenever particular defined terms of the Junior Subordinated
Indenture are referred to in this prospectus, the defined terms are
incorporated herein by reference. As used under this caption "Description of
Junior Subordinated Debentures," all references to "Downey" mean Downey
Financial Corp. excluding, unless otherwise expressly stated or the context
otherwise requires, its subsidiaries.
General
The Junior Subordinated Indenture provides that Downey may issue junior
subordinated debt securities (the "Junior Debt Securities") thereunder from
time to time in one or more series and permits Downey to establish the terms of
each series of Junior Debt Securities at the time of issuance. The junior
subordinated debentures to be issued to each trust will constitute a separate
series of Junior Debt Securities under the Junior Subordinated Indenture. The
Junior Subordinated Indenture will not limit the aggregate amount of Junior
Debt Securities that may be issued by Downey under the Junior Subordinated
Indenture nor will it limit the incurrence or issuance of other debt by Downey
or any of its subsidiaries. The junior subordinated debentures will be
unsecured and will be subordinated to the extent described below.
The junior subordinated debentures will bear interest at an annual rate or
determined on the basis of a method, payable periodically in arrears during
each year (each, an "Interest Payment Date"), as specified in the relevant
prospectus supplement. Interest will be paid to the registered holders of the
junior subordinated debentures as of the close of business on the relevant
record date, which will be the 15th day, whether or not a Business Day,
immediately preceding the Distribution Date. The amount of each interest
payment due with respect to the junior subordinated debentures will include
amounts accrued to but excluding the relevant Interest Payment Date. It is
anticipated that, until the liquidation, if any, of the trust, each junior
subordinated debenture will be held in the name of the Property Trustee in
trust for the benefit of the holders of the capital securities.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months, unless otherwise stated in any
prospectus supplement. Interest for any partial period will be computed upon
the basis of the actual number of days elapsed in a 30-day month. If any date
on which interest is payable on the junior subordinated debentures is not a
Business Day, then payment of the interest payable on that date will be made on
the next Business Day, and without any interest or other payment in respect of
any delay. Accrued interest that is not paid on the applicable Interest Payment
Date will bear additional interest on the amount of the accrued interest, to
the extent permitted by law, at the annual rate and compounded as described in
the prospectus summary. The term "interest" as used herein shall include
periodic interest payments and Additional Interest, Additional Sums and
Additional Expenses, if any.
The junior subordinated debentures will mature thirty years after issuance
(this date, as it may be shortened as hereinafter described, the "Stated
Maturity"). Downey will have the right to shorten the maturity of the junior
subordinated debentures, unless otherwise stated in the relevant prospectus
supplement. Downey
39
may exercise its right to shorten the maturity of the junior subordinated
debentures under circumstances where, for example, a Tax Event, Capital
Treatment Event, Investment Company Event or other undesirable event could be
avoided simply by shortening the maturity of the junior subordinated
debentures. If Downey elects to shorten the Stated Maturity of the junior
subordinated debentures, then it shall give notice to the Indenture Trustee,
and the Indenture Trustee shall give notice of the shortening to the holders of
the junior subordinated debentures no less than 60 days before the
effectiveness of the shortening. If Downey elects to shorten the Stated
Maturity of the junior subordinated debentures, Downey will also cause the
capital securities to be redeemed on the earlier maturity date.
The Stated Maturity may be shortened only if Downey shall have received an
opinion of nationally recognized independent counsel, which may include outside
counsel to Downey for this offering, experienced in these matters to the effect
that:
. The holders of the capital securities and the junior subordinated
debentures will not recognize income, gain or loss for United States
federal income tax purposes as a result of the shortening of the Stated
Maturity and will be subject to United States federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if the shortening of the Stated Maturity had not occurred; and
. The shortening of the Stated Maturity will not cause the trust to be
classified as other than a grantor trust for the United States federal
income tax purposes.
The junior subordinated debentures will be unsecured and will be subordinate
in right of payment to all Senior and Subordinated Debt of Downey. Because
Downey is a holding company, the right of Downey to participate in any
distribution of assets of any subsidiaries upon the subsidiaries' liquidation
or reorganization or otherwise, and thus the ability of holders of the capital
securities and junior subordinated debentures to benefit indirectly from the
distribution, is subordinated to the prior claims of creditors of that
subsidiary, except to the extent that Downey may itself be a creditor with
recognized claims against the subsidiary, in which case the claims of Downey
would still be effectively subordinate to any security interest in, or
mortgages or other liens on, the assets of the subsidiary and would be
subordinate to any indebtedness of the subsidiary senior to that held by
Downey. In that regard, if a receiver or conservator is appointed for the Bank,
then the Federal Deposit Insurance Act recognizes a priority in favor of
depositors, including the FDIC as subrogee or transferee, over general
creditors. Thus, in the event of a conservatorship or receivership of the Bank,
claims for customer deposits would have a priority over any claims Downey may
itself have as a creditor of the Bank. Accordingly, the junior subordinated
debentures will be effectively subordinated to all existing and future
liabilities of the subsidiaries of Downey, including deposit liabilities of the
Bank, and holders of junior subordinated debentures should look only to the
assets of Downey for payments on the junior subordinated debentures. The
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of Downey, including Senior and Subordinated Debt.
Option to Defer Interest Payments
Except as otherwise stated in the relevant prospectus supplement, so long as
no Debenture Event of Default has occurred and is continuing, Downey will have
the right under the Junior Subordinated Indenture at any time during the term
of the junior subordinated debentures to defer the payment of interest at any
time and from time to time for a number of consecutive interest periods
specified in the prospectus supplement. No Extension Period, however, may
extend beyond the Stated Maturity. During an Extension Period, interest on the
junior subordinated debentures will continue to accrue, compounded at the
annual rate set forth in the prospectus supplement, to the extent permitted by
law. No Extension Period shall end other than on an Interest Payment Date. At
the end of an Extension Period, Downey must pay all interest then accrued and
unpaid, together with interest thereon compounded at the annual rate set forth
in the prospectus supplement, to the extent permitted by applicable law. During
an Extension Period, because interest will continue to accrue, holders of
junior subordinated debentures will be required to accrue interest income for
United States federal
40
income tax purposes. During any Extension Period, Downey will be restricted
from making specific payments as described below under "--Restrictions on
Specified Payments."
Before the termination of any Extension Period, Downey may further extend
the Extension Period, provided that the Extension Period does not extend beyond
the Stated Maturity. If Downey shortens the Stated Maturity at any time while
an Extension Period is in effect, and if the Stated Maturity, as so shortened,
would end before the last day of the Extension Period, the Extension Period
will be deemed to end on the Stated Maturity. If the junior subordinated
debentures are called for redemption on any date before the end of an Extension
Period, the Extension Period will be deemed to end on that Redemption Date as
to all of the junior subordinated debentures.
Upon the termination of any Extension Period and the payment of all amounts
then due, Downey may elect to begin a new Extension Period subject to the above
requirements. Each Extension Period must end on an Interest Payment Date, and
all deferred interest will be payable on that Interest Payment Date to the
persons in whose names the junior subordinated debentures are registered at the
close of business on the immediately preceding record date.
Except as discussed above, there is no limitation on the number of times
Downey may elect to begin an Extension Period. No interest shall be due and
payable during an Extension Period, except at the end of the Extension Period.
Downey must give the Property Trustee, the Administrative Trustees and the
Indenture Trustee notice of its election or extension of any Extension Period
at least one Business Day before the earlier of:
. the date the Distributions on the capital securities or the interest on
the junior subordinated debentures would have been payable except for the
election to begin or extend such Extension Period;
. the date the Administrative Trustees are or the Indenture Trustee is
required to give notice to the New York Stock Exchange or any applicable
stock exchange or automated quotation system on which the capital
securities or the junior subordinated debentures are then listed or
quoted or to the holders of the capital securities or the junior
subordinated debentures of the record date; or
. the date the interest is payable, but in any event not less than one
Business Day before the applicable record date.
The Indenture Trustee shall give notice of Downey's election to begin or
extend an Extension Period to the holders of the junior subordinated
debentures.
Distributions on the capital securities will be deferred by the trust during
any Extension Period as discussed under "Description of the Capital
Securities--Distributions."
Redemption
The junior subordinated debentures will provide the terms, which will be set
forth in the relevant prospectus supplement, upon which Downey can redeem the
junior subordinated debentures at its option, and will specify, except with
respect to specific events, a date prior to which Downey will not be allowed to
redeem the junior subordinated debentures, and after which Downey will have the
right to redeem the junior subordinated debentures, in whole or in part.
Except as otherwise specified in the relevant prospectus supplement, on the
occurrence of a Tax Event, Investment Company Event or a Capital Treatment
Event, Downey will have the option to redeem the junior subordinated debentures
held by the trust, in whole but not in part, at any time within 90 days
thereafter.
The junior subordinated debentures will be redeemable at a redemption price
equal to the accrued and unpaid interest on the junior subordinated debentures
so redeemed to the date fixed for redemption, plus a
41
percentage of the principal amount of the junior subordinated debentures so
redeemed as set forth in the prospectus supplement.
Notwithstanding the foregoing, installments of interest on the junior
subordinated debentures which are due and payable on Interest Payment Dates
falling on or before a redemption date shall be payable to the registered
holders as of the close of business on the relevant record dates. Notice of any
redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each holder of junior subordinated debentures to be redeemed
at the holder's registered address. Unless Downey defaults in payment of the
redemption price, on and after the redemption date interest) will cease to
accrue on the junior subordinated debentures or portions of the junior
subordinated debentures called for redemption.
If Downey redeems less than all of the outstanding junior subordinated
debentures, the junior subordinated debentures, or portions of the junior
subordinated debentures to be redeemed, will be selected by the Indenture
Trustee. The Indenture Trustee will select the junior subordinated debentures
to be redeemed from the outstanding junior subordinated debentures not
previously called for redemption. The Indenture Trustee may use any method it
deems fair and appropriate and which may provide for the selection for
redemption of a portion of the principal amount of any junior subordinated
debentures, as more fully described in the prospectus supplement.
Downey may not redeem fewer than all of the outstanding junior subordinated
debentures unless it has paid or contemporaneously pays all accrued and unpaid
interest on all junior subordinated debentures for all periodic interest
payment periods terminating on or before the relevant redemption date.
Unless otherwise provided in the prospectus supplement, junior subordinated
debentures will not be subject to any sinking fund.
Restrictions on Specified Payments
Downey will not make the payments described below if at any time Downey does
the following or the following events occur:
. failure by Downey to pay any principal of or interest on junior
subordinated debentures when due, including any Additional Interest or
Additional Sums;
. there shall have occurred any event of which Downey has actual knowledge
that (a) constitutes or with the giving of notice or the lapse of time,
or both, would constitute a Debenture Event of Default with respect to
the junior subordinated debentures, other than a Debenture Event of
Default referred to in the preceding bullet point, and (b) in respect of
which Downey shall not have taken reasonable steps to cure;
. Downey shall have given notice of its election of an Extension Period as
provided in the Indenture with respect to the junior subordinated
debentures and such Extension Period, or any extension of an Extension
Period, shall be continuing; or
. while the junior subordinated debentures are held by the trust, Downey
shall be in default with respect to its payment of any obligation under
the Guarantee Agreement.
If any of the above events occurs and is continuing, then Downey may not and
shall not allow any of its subsidiaries to:
. declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of Downey's
capital stock, which includes common and preferred stock;
. make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of Downey that rank on a
parity with or junior to the junior subordinated debentures in right of
payment;
42
. redeem, purchase or acquire less than all of the junior subordinated
debentures or the capital securities; or
. make any guarantee payments with respect to any guarantee by Downey of
the debt securities of any subsidiary of Downey if such guarantee ranks
on parity with or junior to the junior subordinated debentures in right
of payment.
Notwithstanding the foregoing, during an Extension Period Downey and its
subsidiaries will be allowed to make:
. any dividend in a form of stock, warrants, options or other rights where
the dividend or the stock issuable upon the exercise of the warrants,
options or other rights is the same stock as that on which the dividend
is being paid or ranks on a parity with or junior to that stock in right
of payment;
. any declaration of a dividend in connection with the implementation of a
stockholders' rights plan or the issuance of stock under any
stockholders' rights plan in the future, or the redemption or repurchase
of any rights pursuant thereto;
. payments under the Guarantee Agreement; and
. purchases of common stock related to the issuance of common stock or
rights under any of Downey's benefit plans for its directors, officers or
employees.
Debenture Events of Default
Any one or more of the following described events with respect to the junior
subordinated debentures and any other event specified in the relevant
prospectus supplement that has occurred and is continuing constitutes a
"Debenture Event of Default" with respect to the junior subordinated
debentures:
. failure for 30 days to pay any interest, including any Additional
Interest or Additional Sums, on the junior subordinated debentures when
due, subject to the deferral of any due date as the result of an
Extension Period;
. failure to pay any principal of the junior subordinated debentures when
due, whether at maturity, upon redemption, by declaration or otherwise;
. default in the performance, or breach, in any material respect, of any
covenants contained in the Indenture or the junior subordinated
debentures (other than a covenant contained in the Indenture for the
benefit of a series of Debt Securities other than the junior subordinated
debentures) for 90 days after written notice to Downey from the Indenture
Trustee or to Downey and the Indenture Trustee by the holders of at least
25% in aggregate outstanding principal amount of the junior subordinated
debentures;
. the dissolution, winding up or termination of the trust, except in
connection with the distribution of the junior subordinated debentures to
holders of Trust Securities in liquidation of the trust in accordance
with the terms of the Trust Agreement; or
. specified events in bankruptcy, insolvency or reorganization of Downey.
The holders of not less than a majority in aggregate outstanding principal
amount of the junior subordinated debentures will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Indenture Trustee. The Indenture Trustee or the holders of not less than
25% in aggregate outstanding principal amount of the junior subordinated
debentures may declare the principal of and accrued and unpaid interest on the
junior subordinated debentures due and payable immediately upon a Debenture
Event of Default. If the Indenture Trustee or the holders of the junior
subordinated debentures fail to make this declaration, the holders of at least
25% in aggregate Liquidation Amount of the capital securities shall have the
right. The holders of a majority in aggregate outstanding principal amount of
the junior subordinated debentures may annul the declaration and waive the
default if all defaults, other than the non-payment of the principal and
interest of the junior subordinated debentures which have become due solely by
43
the above-mentioned acceleration, have been cured or waived and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee.
Should the holders of the junior subordinated debentures fail to annul the
declaration and waive the default, the holders of a majority in aggregate
Liquidation Amount of the capital securities shall have this right.
The holders of a majority in aggregate outstanding principal amount of
junior subordinated debentures may, on behalf of the holders of all the junior
subordinated debentures, waive any past default, except a default in the
payment of principal or interest, unless the default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Indenture Trustee,
or a default in respect of a covenant or provision which under the Indenture
cannot be modified or amended without the consent of the holder of each
outstanding junior subordinated debenture.
In case a Debenture Event of Default shall occur and be continuing, the
Indenture Trustee will have the right to declare the principal of and the
interest on the junior subordinated debentures, and any other amounts payable
under the Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the junior subordinated debentures.
Downey will be required to file annually with the Indenture Trustee a
certificate as to whether or not Downey is in compliance with all the
conditions and covenants applicable to it under the Indenture.
Subordination
The junior subordinated debentures will be subordinate and junior in right
of payment to all Senior and Subordinated Debt to the extent provided in the
Junior Subordinated Indenture. Upon any payment or distribution of assets of
Downey to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors, marshaling of assets
or any bankruptcy, insolvency, receivership or similar proceedings in
connection with any insolvency or bankruptcy proceeding of Downey, the holders
of Senior and Subordinated Debt will first be entitled to receive payment in
full of all Senior and Subordinated Debt before the holders of junior
subordinated debentures will be entitled to receive or retain any payment in
respect of the junior subordinated debentures.
The Junior Subordinated Indenture also provides that Downey may not make
payments of principal of or interest on the junior subordinated debentures if:
. any Senior or Subordinated Debt is not paid when due and any applicable
grace period after the default has ended and the default has not been
cured or waived or ceased to exist; or
. the maturity of any Senior or Subordinated Debt has been accelerated
because of a default, and the acceleration has not been rescinded.
Upon the occurrence of any of the events described in the two preceding
paragraphs, any payment or distribution on the junior subordinated debentures
that would otherwise be payable in respect of the junior subordinated
debentures but for the subordination provisions will be paid or delivered
directly to the holders of Downey's Senior and Subordinated Debt until all of
Downey's Senior and Subordinated Debt has been paid in full. Upon the
occurrence of any of the events described in the two preceding paragraphs, if
the Indenture Trustee or any holder of junior subordinated debentures receives
any payment or distribution on account of the junior subordinated debentures
before all of Downey's Senior and Subordinated Debt is paid in full, then that
payment or distribution will be paid over or delivered and transferred to
Downey, or if Downey is in bankruptcy to a bankruptcy trustee, which will then
be obligated to pay the holders of its Senior and Subordinated Debt at the time
outstanding.
The rights of the holders of the junior subordinated debentures will be
subrogated to the rights of the holders of Downey's Senior and Subordinated
Debt to the extent of any payment Downey makes to the holders of its Senior or
Subordinated Debt that otherwise would have been made to the holders of the
junior subordinated debentures but for the subordination provisions.
44
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent:
1. every obligation of the Person for money borrowed;
2. every obligation of the Person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses;
3. every reimbursement obligation of the Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
the Person;
4. every obligation of the Person issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business);
5. every capital lease obligation of the Person;
6. all indebtedness of the Person for claims in respect of derivative
products, including interest rate, foreign exchange rate and commodity forward
contracts, options and swaps and similar arrangements; and
7. every obligation of the type referred to in clauses 1 through 6 of
another Person and all dividends of another Person the payment of which, in
either case, the Person in question has guaranteed or for which the person in
question is responsible or liable, directly or indirectly, as obligor or
otherwise.
"Senior and Subordinated Debt" means the principal of, and premium, and
interest, if any, including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to Downey whether or not
such claim for post-petition interest is allowed in such proceeding, on Debt of
Downey, whether incurred on or before the date of the Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or under
which the same is outstanding, it is expressly provided that such Debt is not
superior in right of payment to, or ranks on parity in right of payment with or
junior in right of payment to, the junior subordinated debentures or to other
Debt which by its express terms ranks on parity with, or junior to, the junior
subordinated debentures in right of payment. However, Senior and Subordinated
Debt shall not be deemed to include:
. any Debt of Downey which, when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code of
1978, as amended, or any successor provision thereto, was without
recourse to Downey;
. any Debt of Downey to any of its subsidiaries;
. any Debt to any employee of Downey;
. any other Junior Securities issued under the Junior Subordinated
Indenture;
. any Debt between or among Downey and any of its affiliates, including all
other debt securities and guarantees in respect of those debt securities
issued to any other trust, or trustee of any other trust, partnership,
limited liability company or other entity affiliated with Downey which is
a financing vehicle of Downey (a "Financing Entity") in connection with
the issuance by that Financing Entity of preferred securities or other
securities that rank on parity in right of payment with, or junior in
right of payment to, the capital securities or Downey's guarantee of
which ranks on a parity in right of payment with, or junior in right of
payment to, Downey's guarantee under the Guarantee Agreement;
. trade accounts payable or accrued liabilities arising in the ordinary
course of business; and
. any liabilities for federal, state, local or other taxes.
By reason of the subordination provisions described above, in the event of
bankruptcy, insolvency, receivership or similar proceedings involving Downey,
holders of Senior and Subordinated Debt may receive
45
more, ratably, and holders of junior subordinated debentures may receive less,
ratably, than other creditors of Downey. The subordination provisions will not
prevent the occurrence of any Debenture Event of Default.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior and Subordinated Debt that may be incurred by Downey. Downey
may from time to time incur additional indebtedness constituting Senior and
Subordinated Debt.
Additional Expenses
If at any time while the Property Trustee is the holder of the junior
subordinated debentures, the trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature, other than withholding
taxes, imposed by the United States or any other taxing authority, then, in any
such case, we will pay as additional interest on the junior subordinated
debentures any additional amounts ("Additional Expenses") that are required so
that the net amounts received and retained by the trust after paying those
taxes, duties, assessments or governmental charges will not be less than the
amounts the trust would have received if those taxes, duties, assessments or
governmental charges had not been imposed.
Denominations, Registration and Transfer
The junior subordinated debentures will initially be registered in the name
of the trust and delivered to and held by the Property Trustee. If the junior
subordinated debentures are distributed to holders of the capital securities,
it is anticipated that the junior subordinated debentures will be represented
by a global certificate or certificates registered in the name of the
Depository or its nominee (a "Global Subordinated Debenture"). It is likewise
anticipated that the depository arrangements for any Global Subordinated
Debenture will be substantially similar to those in effect for the capital
securities as described above under "Description of the Capital Securities--
Global Capital Securities" and under "Book-Entry Issuance" below. Accordingly,
beneficial interests in the Global Subordinated Debenture will be shown on, and
transfers of the Global Subordinated Debenture will be effected only through,
records maintained by the Depository. Except as described below, junior
subordinated debentures in certificated form will not be issued in exchange for
the Global Subordinated Debenture.
Unless and until a Global Subordinated Debenture is exchanged in whole or in
part for the individual capital securities represented thereby, it may not be
transferred except as a whole by:
. the Depository to a nominee of the Depository;
. a nominee of the Depository to the Depository or another nominee of the
Depository; or
. the Depository or any nominee to a successor depository or any nominee of
that successor.
The Depository may discontinue providing its services as securities
depository with respect to the Global Subordinated Debenture at any time.
A Global Subordinated Debenture shall be exchangeable for junior
subordinated debentures registered in the names of persons other than the
Depository or its nominee only if:
. the Depository notifies Downey that it is unwilling or unable to continue
as depository for the Global Subordinated Debenture or at any time the
Depository ceases to be a clearing agency registered under the Securities
Exchange Act if so required by applicable law or regulation, and no
successor depository shall have been appointed within 90 days of such
notification or of Downey becoming aware of the Depository's ceasing to
be so registered, as the case may be;
. Downey in its sole discretion determines that the Global Subordinated
Debenture shall be so exchangeable; or
. a Debenture Event of Default shall have occurred and be continuing.
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Any Global Subordinated Debenture that is exchangeable as described in the
preceding sentence shall be exchangeable for definitive certificates registered
in the names as the Depository shall direct. It is expected that the
instructions will be based upon directions received by the Depository from its
Participants with respect to ownership of beneficial interests in the Global
Subordinated Debenture. If junior subordinated debentures are issued in
definitive form, the junior subordinated debentures will be in denominations
set forth in the relevant prospectus summary and may be transferred or
exchanged at the offices described below.
For so long as the Property Trustee is the holder of the junior subordinated
debentures, all payments on junior subordinated debentures will be made to the
Property Trustee. Payments on junior subordinated debentures represented by a
Global Subordinated Debenture will be made to the Depository, as the depository
for the junior subordinated debentures. For junior subordinated debentures
issued in certificated form, principal and interest will be payable, the
transfer of the junior subordinated debentures will be registrable, and junior
subordinated debentures will be exchangeable for junior subordinated debentures
of other denominations of a like aggregate principal amount, at the office or
agency of Downey maintained for that purpose, which initially shall be the
office of the Indenture Trustee which on the date of this prospectus is located
at Rodney Square North, 1100 North Market Street, Wilmington, Delaware or at
the offices of any other paying agent or transfer agent appointed by Downey,
provided that payment of interest may be made at the option of Downey by check
mailed to the address of the persons entitled thereto or by wire transfer to
those persons. Downey will agree that, if the junior subordinated debentures
are distributed to holders of capital securities upon liquidation or
dissolution of the trust and any such junior subordinated debentures are not in
the form of Global Subordinated Debentures, it will at all times maintain a
paying agent and transfer agent for the junior subordinated debentures in the
Borough of Manhattan, the City of New York. For a description of the Depository
and the terms of the depository arrangements relating to payments, transfers,
voting rights, redemptions and other notices and other matters, see "Book-Entry
Issuance."
Downey will appoint the Indenture Trustee as securities registrar under the
Indenture. Junior subordinated debentures in certificated form may be presented
for exchange, and may be presented for registration of transfer, and shall, if
so required by Downey or the securities registrar, have the form of transfer
endorsed thereon, or a satisfactory written instrument of transfer, duly
executed, at the office of the securities registrar. Downey will not impose a
service charge for the transfer or exchange but may require payment of any
transfer tax or other governmental charge which may be imposed in connection
with any transfer or exchange. Downey may at any time rescind the designation
of any transfer agent or approve a change in the location through which any
transfer agent acts. Downey may at any time designate additional transfer
agents with respect to the junior subordinated debentures.
In the event of any redemption, neither Downey nor the Indenture Trustee
shall be required to:
. issue, register the transfer of or exchange junior subordinated
debentures during a period beginning at the opening of business 15
calendar days before the day of mailing of a notice of redemption of any
junior subordinated debentures called for redemption and ending at the
close of business on the day of mailing of the relevant notice of
redemption; or
. transfer or exchange any junior subordinated debentures so selected for
redemption in whole or in part, except, in the case of any junior
subordinated debentures being redeemed in part, any portion of the junior
subordinated debentures not to be redeemed.
Any moneys deposited with the Indenture Trustee or any Paying Agent, or then
held by Downey in trust, for the payment of the principal of or interest on the
junior subordinated debentures and remaining unclaimed for two years after the
principal or interest has become due and payable shall, at the request of
Downey, be repaid to Downey and the holder of those junior subordinated
debentures shall thereafter look, as a general unsecured creditor, only to
Downey for payment thereof.
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Modification of Junior Subordinated Indenture
From time to time Downey and the Indenture Trustee may, without the consent
of the holders of the junior subordinated debentures, amend, waive or
supplement the Indenture for specified purposes, including:
. to evidence the succession of another party to Downey and the assumption
by that party of the covenants of Downey under the Junior Subordinated
Indenture;
. to add to the covenants of Downey for the benefit of the holders of the
junior subordinated debentures;
. to add any additional Events of Default for the benefit of the holders
of the junior subordinated debentures;
. to cure any ambiguity, to correct or supplement any provision of the
Junior Subordinated Indenture which may be defective or inconsistent
with any other provision in the Junior Subordinated Indenture, or to
make any other provisions regarding matters or questions arising under
the Junior Subordinated Indenture, provided that any actions under this
clause shall not adversely affect the interests of any holders of junior
subordinated debentures or capital securities in any material respect
for so long as they remain outstanding; or
. to comply with the requirements of the SEC to effect or maintain the
qualification of the Junior Subordinated Indenture under the Trust
Indenture Act.
The Junior Subordinated Indenture also contains provisions permitting Downey
and the Indenture Trustee, with the consent of the holders of not less than a
majority in principal amount of the outstanding junior subordinated debentures,
to modify the Indenture in a manner affecting the rights of the holders of the
junior subordinated debentures. However, Downey and the Indenture Trustee may
not modify the Indenture without the consent of the holder of each outstanding
junior subordinated debenture, except to the extent permitted in connection
with the deferral of Interest Payment Dates during an Extension Period, or the
shortening of the Stated Maturity, if the modification will:
. change the Stated Maturity of the junior subordinated debentures, or
reduce the principal amount of the junior subordinated debentures, or
reduce the rate or extend the time of payment of interest thereon, or
reduce the amount payable upon redemption, or change the place of
payment where, or the currency in which, any amount is payable or impair
the right to institute suit for the enforcement of any payment on or
after the date it is due and payable;
. reduce the percentage of principal amount of junior subordinated
debentures, the holders of which are required to consent to any
modification of or for waivers under the Indenture; or
. modify the provisions of the Indenture with respect to the subordination
of the junior subordinated debentures, including the definitions
relating thereto, in a manner adverse to the holders of the junior
subordinated debentures.
With respect to the above modifications, so long as any of the capital
securities remain outstanding, neither Downey, the Indenture Trustee, nor the
holders of the outstanding junior subordinated debentures may make
modifications to the Junior Subordinated Indenture that adversely affect the
holders of the capital securities in any material respect, and no termination
of the Junior Subordinated Indenture may occur, and no waiver of any Debenture
Event of Default or compliance with any covenant under the Indenture may be
effective, without the prior consent of the holders of at least a majority of
the aggregate Liquidation Amount of the capital securities then outstanding
unless and until the principal of the junior subordinated debentures and all
accrued and unpaid interest thereon have been paid in full and other conditions
are satisfied. Where a consent under the Indenture would require the consent of
each holder of junior subordinated debentures, no consent shall be given by the
Property Trustee without the prior consent of each holder of capital securities
then outstanding. In addition, Downey and the Indenture Trustee may execute,
without the consent of any holder of junior subordinated debentures, any
supplemental Indenture for the purpose of creating any new series of Debt
Securities.
48
Enforcement of Specified Rights by Holders of Capital Securities
If a Debenture Event of Default has occurred and is continuing and that
event is attributable to the failure of Downey to pay principal of or interest
on the junior subordinated debentures on the date that interest or principal is
otherwise payable, a holder of capital securities may institute a legal
proceeding directly against Downey for enforcement of payment to the holder of
the principal of or interest on the junior subordinated debentures having a
principal amount equal to the aggregate Liquidation Amount of the capital
securities held by the holder (a "Direct Action"). Downey may not amend the
Junior Subordinated Indenture to remove the foregoing right to bring a Direct
Action without the prior written consent of the holders of all of the capital
securities outstanding. In connection with a Direct Action, Downey will be
subrogated to the rights of any holders of the capital securities to the extent
of any payment made by Downey to any holders of the junior subordinated
debentures in the Direct Action.
The holders of the capital securities will not be able to exercise directly
any remedies other than those discussed in the preceding paragraph available to
the holders of the junior subordinated debentures unless there shall have been
an Event of Default under the Trust Agreement as discussed under "Description
of the Capital Securities--Events of Default; Notice."
Consolidation, Merger, Sale of Assets and Other Transactions
The Junior Subordinated Indenture provides that Downey shall not consolidate
or merge with or into any other Person or convey, transfer or lease its
properties and assets as an entirety or substantially as an entirety to any
Person, and no Person shall consolidate with or merge into Downey or convey,
transfer or lease its properties and assets as an entirety or substantially as
an entirety to Downey, unless:
. either Downey shall be the continuing Person, in the case of a merger,
or the successor Person, if other than Downey, formed by the
consolidation or into which Downey is merged or which acquires by
conveyance, transfer or lease the properties and assets of Downey as an
entirety or substantially as an entirety is organized under the laws of
the United States or any state or the District of Columbia, and the
successor Person expressly assumes, by execution of a supplemental
indenture in form satisfactory to the Indenture Trustee, all of Downey's
obligations under the junior subordinated debentures, the Guarantee
Agreement, the guarantee agreement in respect of the common securities
and the Indenture and the due and punctual performance and observance of
every obligation in the junior subordinated debentures, Guarantee
Agreement, guarantee agreement in respect of the common securities and
the Indenture to be performed or observed by Downey;
. immediately after giving effect thereto, no Debenture Event of Default
with respect to the junior subordinated debentures, and no event which,
after notice or lapse of time or both, would become a Debenture Event of
Default with respect to the junior subordinated debentures, shall have
occurred and be continuing; and
. other conditions as described in the Junior Subordinated Indenture are
met.
The provisions of the Indenture do not afford holders of the junior
subordinated debentures protection in the event of a highly leveraged or other
transaction involving Downey that may adversely affect holders of the junior
subordinated debentures.
Satisfaction and Discharge
The Junior Subordinated Indenture provides that when, among other things,
all junior subordinated debentures not previously delivered to the Indenture
Trustee for cancellation:
. have become due and payable,
. will become due and payable at their Stated Maturity within one year, or
. are to be called for redemption within one year under arrangements
satisfactory to the Indenture Trustee,
49
and, in each of the foregoing cases, Downey deposits or causes to be deposited
with the Indenture Trustee funds, in trust, for the purpose and in an amount in
the currency in which the junior subordinated debentures are payable sufficient
to pay and discharge the entire indebtedness on the junior subordinated
debentures not previously delivered to the Indenture Trustee for cancellation,
for the principal and interest to the date of the deposit or to the Stated
Maturity or the relevant Redemption Date, as the case may be, then the
Indenture will cease to be of further effect, except as to Downey's obligations
to pay all other sums due under the Indenture and to provide the officers'
certificates and opinions of counsel described therein, and a limited number of
other provisions which the Indenture provides will survive, and Downey will be
deemed to have satisfied and discharged the Indenture.
Covenants of Downey
Downey will pay to the trust any applicable Additional Sums if and so long
as:
. the trust is the holder of all the junior subordinated debentures; and
. a Tax Event in respect of the trust has occurred and is continuing.
Downey also covenants, as to the junior subordinated debentures:
. to maintain, directly or indirectly, 100% ownership of the common
securities of the trust, provided that successors which are permitted
under the Junior Subordinated Indenture may succeed to Downey's
ownership of the common securities;
. to use its reasonable efforts, consistent with the terms and provisions
of the Trust Agreement, to cause the trust to remain classified as a
grantor trust and not as an association taxable as a corporation for
United States federal income tax purposes;
. not to voluntarily terminate, wind-up or liquidate the trust, except
upon prior approval of the primary federal regulator of Downey if then
so required under applicable capital guidelines or policies of such
primary regulator, and except
. in connection with a distribution of junior subordinated debentures to
the holders of the capital securities in liquidation of the trust; or
. in connection with specified mergers, consolidations, or amalgamations
permitted by the Trust Agreement; and
. to pay the costs, expenses, obligations and liabilities as described
under "Description of Junior Subordinated Debentures--Additional
Expenses" and "Description of the Capital Securities--Expenses."
Governing Law
The Junior Subordinated Indenture and the junior subordinated debentures
will be governed by and construed under the laws of the State of New York.
Information Concerning the Indenture Trustee
The Indenture Trustee shall have all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act.
The Indenture Trustee, other than during the occurrence and continuance of a
Debenture Event of Default, undertakes only to perform those duties as are
specifically described in the Indenture and, after a Debenture Event of
Default, must exercise the same degree of care as a prudent person would
exercise or use in the conduct of his or her own affairs. Except as discussed
in the foregoing, the Indenture Trustee is under no obligation to exercise any
of the powers vested in it by the Indenture at the request of any holder of
junior subordinated debentures, unless the holder offers it reasonable
indemnity against the costs, expenses and liabilities which it might incur. The
Indenture Trustee is not required to expend or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the
Indenture Trustee reasonably believes that repayment or adequate indemnity is
not reasonably assured to it.
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DESCRIPTION OF GUARANTEE
The Guarantee Agreement will be executed and delivered by Downey
concurrently with the issuance of the capital securities for the benefit of the
holders of the capital securities. Wilmington Trust Company will act as
Guarantee Trustee under the Guarantee Agreement for the purposes of compliance
with the Trust Indenture Act, and the Guarantee Agreement will be qualified as
an indenture under the Trust Indenture Act. The following summary of provisions
of the Guarantee Agreement does not purport to be complete and is qualified in
its entirety by reference to the provisions of the Guarantee Agreement,
including the definitions therein of terms, and the Trust Indenture Act. The
form of the Guarantee Agreement has been filed as an exhibit to the
Registration Statement of which this prospectus forms a part, and copies of the
Guarantee Agreement may be obtained as described under "Where You Can Find More
Information." As used under this caption "Description of Guarantee," all
references to "Downey" mean Downey Financial Corp. excluding, unless otherwise
expressly stated or the context otherwise requires, its subsidiaries.
General
Downey will irrevocably and unconditionally agree to pay in full on a
subordinated basis, to the extent described below, the Guarantee Payments, as
defined below, to the holders of the capital securities, as and when due,
regardless of any defense, right of set-off or counterclaim that the trust may
have or assert other than the defense of payment. The following payments with
respect to the capital securities, to the extent not paid by or on behalf of
the trust (the "Guarantee Payments"), will be guaranteed by Downey under the
Guarantee Agreement:
. any accrued and unpaid Distributions required to be paid on the capital
securities, to the extent that the trust has funds on hand available
therefor at that time;
. the Redemption Price with respect to any capital securities called for
redemption, to the extent that the trust has funds on hand available
therefor at that time; and
. upon a voluntary or involuntary dissolution, winding up or liquidation
of the trust (unless the junior subordinated debentures are distributed
to the holders of the capital securities), the lesser of (a) the
Liquidation Distribution and (b) the amount of assets of the trust
remaining available for distribution to holders of the capital
securities after satisfaction of liabilities to creditors of the trust
as required by applicable law.
Downey's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by Downey to the holders of the capital
securities or by causing the trust to pay those amounts to the holders of the
capital securities.
Downey's guarantee (the "Guarantee") under the Guarantee Agreement will be
an irrevocable guarantee on a subordinated basis of the trust's obligations
under the capital securities, but will apply only to the extent the trust has
funds sufficient to make those payments, and is not a guarantee of collection.
If Downey does not make payments on the junior subordinated debentures held
by the trust, the trust will not be able to pay amounts due on the capital
securities and will not have funds available to pay amounts due on the capital
securities. The Guarantee Agreement does not limit the incurrence or issuance
of other secured or unsecured debt of Downey, including Senior and Subordinated
Debt.
Status of the Guarantee
The Guarantee will constitute an unsecured obligation of Downey and will
rank subordinate and junior in right of payment to all Senior and Subordinated
Debt in the same manner as the junior subordinated debentures.
The Guarantee will constitute a guarantee of payment and not of collection.
For example, the guaranteed party may institute a legal proceeding directly
against Downey to enforce its rights under the Guarantee Agreement without
first instituting a legal proceeding against any other person or entity. The
Guarantee will be
51
held by the Guarantee Trustee for the benefit of the holders of the capital
securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the trust or upon
distribution to the holders of the capital securities of the junior
subordinated debentures. Downey entered into a similar guarantee with respect
to a principal amount of $120 million of 10% capital securities issued by
Downey Financial Capital Trust I during 1999. The guarantee provided in
connection with that assurance ranks equally with the Guarantee for each trust
to be provided in this offering.
Amendments and Assignment
Except with respect to any changes which do not adversely affect the rights
of holders of the capital securities in any material respect, in which case no
vote will be required, the Guarantee Agreement may not be amended without the
prior approval of the holders of not less than a majority of the aggregate
Liquidation Amount of the outstanding capital securities. All guarantees and
agreements contained in the Guarantee Agreement shall bind the successors,
assigns, receivers, trustees and representatives of Downey and shall inure to
the benefit of the holders of the capital securities then outstanding.
Events of Default
An event of default under the Guarantee Agreement will occur upon the
failure of Downey to perform any of its payment obligations thereunder, or to
perform any of its non-payment obligations thereunder if the default remains
uncured for 90 days after Downey receives notice of the default. The foregoing
notice and cure conditions do not apply, however, with respect to Downey's
default in payment of any guarantee payment. The holders of not less than a
majority in aggregate Liquidation Amount of the outstanding capital securities
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee Agreement or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Guarantee Agreement. Any holder of the
capital securities may institute a legal proceeding directly against Downey to
enforce its rights under the Guarantee Agreement without first instituting a
legal proceeding against the trust, the Guarantee Trustee or any other person
or entity.
Downey, as guarantor, will be required to file annually with the Guarantee
Trustee a certificate as to whether or not Downey is in compliance with all
the conditions and covenants applicable to it under the Guarantee Agreement.
Information Concerning the Guarantee Trustee
The Guarantee Trustee, other than during the occurrence and continuance of
a default by Downey in performance of its obligations under the Guarantee
Agreement, undertakes to perform only those duties as are specifically
provided in the Guarantee Agreement and, after default with respect to the
Guarantee Agreement, must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Except as discussed in this paragraph, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee
Agreement at the request of any holder of the capital securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
it might incur.
Termination of the Guarantee Agreement
The Guarantee Agreement will terminate and be of no further force and
effect upon full payment of the Redemption Price of the capital securities,
upon full payment of the amounts payable upon liquidation of the trust or upon
distribution of junior subordinated debentures to the holders of the capital
securities upon the dissolution of the trust. The Guarantee Agreement will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of the capital securities must restore payment of any sums
paid under the capital securities or the Guarantee Agreement.
Governing Law
The Guarantee Agreement will be governed by and construed under the laws of
the State of New York.
52
RELATIONSHIP AMONG THE CAPITAL SECURITIES, THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
Full and Unconditional Guarantee
Payments of Distributions and other amounts due on the capital securities,
to the extent the trust has funds available for the payment of those amounts,
will be irrevocably guaranteed by Downey on a subordinated basis as and to the
extent described under "Description of Guarantee." Taken together, Downey's
obligations under the junior subordinated debentures, the Junior Subordinated
Indenture, the Trust Agreement, and the Guarantee Agreement will provide, in
the aggregate, a full, irrevocable and unconditional guarantee on a
subordinated basis of payments of distributions and other amounts due on the
capital securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes the same
guarantee. It is only the combined operation of those documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
trust's obligations under the capital securities. If and to the extent that
Downey does not make payments on the junior subordinated debentures, the trust
will not pay Distributions or other amounts due holders of the capital
securities. Neither the Guarantee Agreement nor any of the other documents
described above covers payment of Distributions or other amounts payable on the
capital securities when the trust does not have sufficient funds to pay those
amounts. In that event, the remedy of a holder of the capital securities is to
institute a legal proceeding directly against Downey for enforcement of
payment. The obligations of Downey under the Guarantee Agreement will be
subordinate and junior in right of payment to all Senior and Subordinated Debt
to the same extent as the junior subordinated debentures.
Sufficiency of Payments
As long as payments of interest and other payments are made when due on the
junior subordinated debentures, those payments will be sufficient to cover
Distributions and other payments due on the capital securities, primarily
because:
. the aggregate principal amount of the junior subordinated debentures
will be equal to the aggregate Liquidation Amount of the capital
securities and common securities;
. the interest rate and interest and other payment dates on the junior
subordinated debentures will match the distribution rate and
Distribution Dates and other payment dates for the capital securities;
. Downey shall pay for all and any costs, expenses and liabilities of the
trust except the trust's payment obligations to holders of the capital
securities; and
. the Trust Agreement further provides that the trust will not engage in
any activity that is not consistent with its limited purposes.
In connection with any Direct Action, Downey will be subrogated to the
rights of any holder of Trust Securities to the extent of any payment made by
Downey to any holder of the Trust Securities in the Direct Action.
Enforcement Rights of Holders of the Capital Securities under the Guarantee
Holders of capital securities may institute a legal proceeding directly
against Downey to enforce their rights under the Guarantee Agreement without
first instituting a legal proceeding against the Guarantee Trustee, the trust
or any other person or entity.
Downey's default or the event of default under any Senior or Subordinated
Debt would not constitute a default or Debenture Event of Default with respect
to the junior subordinated debentures. However, in the event of payment
defaults under, or acceleration of any Senior or Subordinated Debt, the
subordination provisions of the Junior Subordinated Indenture provide that no
payments may be made in respect of the junior subordinated debentures until the
Senior and Subordinated Debt has been paid in full or any payment default
thereunder has been cured or waived or the acceleration has been rescinded.
53
Limited Purpose of the Trust
The capital securities evidence beneficial interests in the assets of the
trust, and the trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds in junior subordinated debentures. A
principal difference between the rights of a holder of the capital securities
and the rights of a holder of a junior subordinated debenture is that a holder
of a junior subordinated debenture will be entitled to receive from Downey the
principal of and interest accrued on junior subordinated debentures held, while
a holder of the capital securities will be entitled to receive Distributions
from the trust.
Rights upon Dissolution
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the trust, other than a dissolution involving the distribution of the junior
subordinated debentures to the holders of the capital securities, the holders
of the capital securities will be entitled to receive, out of assets held by
the trust, the Liquidation Distribution in cash, as discussed under
"Description of the Capital Securities--Liquidation Distribution Upon
Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy of
Downey, the Property Trustee, as holder of the junior subordinated debentures,
would be a subordinated creditor of Downey, subordinated in right of payment to
all Senior and Subordinated Debt as described in the Indenture, but entitled to
receive payment in full of principal and interest, before any stockholders of
Downey receive payments or distributions. Since Downey is the guarantor under
the Guarantee Agreement and will pay for all costs, expenses and liabilities of
the trust, other than the trust's payment obligations to the holders of its
capital securities, the position of a holder of the capital securities and the
position of a holder of junior subordinated debentures relative to other
creditors and to shareholders of Downey in the event of liquidation or
bankruptcy of Downey are expected to be substantially the same.
54
BOOK-ENTRY ISSUANCE
All of the notes and capital securities that we offer will be issued in
book-entry only form, unless otherwise specified in the relevant prospectus
supplement. This means that we will not issue actual notes or certificates.
Instead, we will issue global notes or global certificates in registered form
(each, a "Global Instrument"). Each Global Instrument is held through the
Depository Trust Corporation ("DTC"), as Depository, and is registered in the
name of Cede & Co., as nominee of DTC. Accordingly, Cede & Co. will be the
holder of record. Each note and capital security represents a beneficial
interest in a Global Instrument.
So long as the junior subordinated debentures are held by the Property
Trustee, the junior subordinated debentures will not be issued in book-entry
form, but will be evidenced by one or more certificates held by, and registered
in the name of, the Property Trustee. However, if the junior subordinated
debentures are distributed to holders of capital securities upon dissolution or
liquidation of the trust, Downey anticipates that the junior subordinated
debentures will be issued in fully registered book-entry form.
Beneficial interests in a Global Instrument are shown on, and transfers are
effected through, records maintained by DTC or its participants. In order to
own a beneficial interest in a note or capital security, you must be an
institution that has an account with DTC or have a direct or indirect account
with such an institution.
Transfers of ownership interests in the notes or capital securities will be
accomplished by making entries in DTC participants' books acting on behalf of
beneficial owners.
Beneficial owners will not receive notes or certificates representing their
ownership interest, unless the use of the book-entry system is discontinued.
So long as DTC or its nominee is the registered owner of a Global
Instrument, DTC or its nominee, as the case may be, will be the sole holder of
the securities represented thereby for all purposes, including payment of
principal and interest, under the applicable indenture. Except as otherwise
provided below, the beneficial owners of the securities are not entitled to
receive physical delivery of certificated securities and will not be considered
the holders for any purpose under the applicable Indenture. Accordingly, each
beneficial owner must rely on the procedures of DTC and, if such beneficial
owner is not a DTC participant, on the procedures of the DTC participant
through which such beneficial owner owns its interest in order to exercise any
rights of a holder of a security under the applicable Indenture. The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. Those limits and laws may
impair the ability to transfer beneficial interests in the securities.
Each Global Instrument representing securities will be exchangeable for
certificated securities of like tenor and terms and of differing authorized
denominations in a like aggregate principal amount, only if (i) the Depository
notifies us that it is unwilling or unable to continue as Depository for the
Global Instrument or we become aware that the Depository has ceased to be a
clearing agency registered under the Exchange Act and, in any such case we fail
to appoint a successor to the Depository within 60 calendar days, (ii) we, in
our sole discretion, determine that the Global Instrument shall be exchangeable
for certificates or certificated notes or (iii) an event of default has
occurred and is continuing with respect to the notes or capital securities
under an Indenture. Upon any such exchange, the certificates or certificated
notes shall be registered in the names of the beneficial owners of the Global
Instrument representing the notes or capital securities.
The following is based on information furnished by DTC:
DTC will act as securities depository for the notes, capital securities and,
if applicable, junior subordinated debentures issued in book-entry form. These
securities will be issued as fully-registered certificates or notes registered
in the name of Cede & Co. (DTC's partnership nominee) or such other name as may
be requested by an authorized representative of DTC. Generally, one fully
registered Global Instrument will be issued for all of the principal amount of
a particular type or series of notes or capital securities.
55
DTC 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. DTC holds securities that its participants deposit with DTC. DTC
also facilitates the settlement among direct participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in direct participants' accounts,
thereby 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. DTC is owned
by a number of its direct participants and by the New York Stock Exchange,
Inc., the American Stock Exchange LLC, and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to DTC and its direct and indirect
participants are on file with the SEC.
Purchases of the notes or capital securities under the DTC system must be
made by or through direct participants, which will receive a credit for the
notes or capital securities on DTC's records. The beneficial interest of each
actual purchaser of each note or capital security is in turn to be recorded on
the direct and indirect participants' records.
Beneficial owners will not receive written confirmation from DTC of their
purchase, but beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the direct or indirect participant through which the beneficial
owner entered into the transaction. Transfers of beneficial interests in the
notes or capital securities are to be accomplished by entries made on the books
of direct and indirect participants acting on behalf of beneficial owners.
Beneficial owners will not receive certificates representing their beneficial
interests in notes or capital securities, except in the event that use of the
book-entry system for the notes, capital securities or, if applicable, junior
subordinated debentures is discontinued.
To facilitate subsequent transfers, all securities deposited by direct
participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of the securities with DTC and their
registration in the name of Cede & Co. or such other nominee do not effect any
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the securities; DTC's records reflect only the identity of the direct
participants to whose accounts such securities are credited, which may or may
not be the beneficial owners. The direct and indirect 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 will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Beneficial owners of the securities may
wish to take certain steps to augment transmission to them of notices of
significant events with respect to the securities, such as redemption, tenders,
defaults, and proposed amendments to the security documents.
Beneficial owners of the securities may wish to ascertain that the nominee
holding the securities for their benefit has agreed to obtain and transmit
notices to beneficial owners, or in the alternative, beneficial owners may wish
to provide their names and addresses to the Registrar and request that copies
of the notices be provided directly to them.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote
with respect to the securities. Under its usual procedures, DTC mails an
Omnibus Proxy to us as soon as possible after the regular record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts the securities are credited on the regular
record date (identified in a listing attached to the Omnibus Proxy).
56
We will pay principal and any premium or interest payments on the securities
in immediately available funds to DTC. DTC's practice is to credit direct
participants' accounts on the applicable payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe
that it will not receive payment on such date. Payments by participants to
beneficial owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name." These payments will be the
responsibility of these participants and not of DTC or any other party, subject
to any statutory or regulatory requirements that may be in effect from time to
time. Payment of principal and any premium or interest to DTC is our
responsibility, disbursement of such payments to direct participants is the
responsibility of DTC, and disbursement of such payments to the beneficial
owners is the responsibility of the direct or indirect participant.
We will send any redemption notices to Cede & Co. If less than all of a
particular issuance of securities is being redeemed, DTC's practice is to
determine by lot the amount of the interest of each direct participant in such
issue to be redeemed.
DTC may discontinue providing its services as securities depository for the
securities at any time by giving us reasonable notice. Under such
circumstances, if a successor securities depository is not obtained, we will
print and deliver certificated securities.
The information in this section and elsewhere in this prospectus concerning
the Depository and the Depository's book-entry system has been obtained from
sources that the trusts and Downey believe to be accurate, but the trusts and
Downey assume no responsibility for the accuracy of the information. Neither
the trusts nor Downey has any responsibility for the performance by the
Depository or its Participants of their individual obligations as described in
this prospectus, prospectus supplement or under the rules and procedures
governing their operations.
PLAN OF DISTRIBUTION
We and the trusts may offer and sell the securities to one or more
underwriters for resale by them or through agents, by agents without
underwriters, or to investors directly. The prospectus supplement with respect
to each type or series of securities will set forth the terms of the offering
of the securities, including the name or names of any underwriters or agents,
the purchase price of the securities and the net proceeds to us from such sale,
any underwriting discounts, agency fees and other items constituting
underwriters' or agents' compensation, any initial public offering price and
any discounts or concessions allowed, reallowed or paid to dealers.
If any underwriters are involved in the offer and sale of our securities,
including the securities of the trusts, the securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. Unless
otherwise set forth in the accompanying prospectus supplement, the obligations
of underwriters to purchase the securities will be subject to certain
conditions precedent and the underwriters will be obligated to purchase all the
securities described in the prospectus supplement if any are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If any agents are involved in the offer and sale of our securities,
including the securities of the trusts, the securities will be offered and sold
by these agents on a best efforts basis on our behalf for the period of their
appointment. The securities may be offered and sold by the agents on our behalf
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Unless otherwise set forth in the accompanying prospectus
supplement, the obligations of agents will be subject to certain conditions
precedent and the agents will not be obligated to purchase any of the
securities described in the prospectus supplement. Any initial public offering
price and any
57
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time. These agents may also be deemed to be underwriters under the
Securities Act of 1933.
If any dealers are used to sell our securities, including the securities of
the trusts, the securities will be sold by us or the trusts, as a principal, to
the dealer. The dealer will then sell the securities to the public at varying
prices that the dealer will determine at the time it sells the securities.
The prospectus supplement will include the names of any underwriters, agents
and dealers that we use. The prospectus supplement will also describe the terms
of the transactions, including the compensation to be paid to any underwriters,
agents and dealers. Underwriters, agents and dealers may be entitled, under
agreements entered into with us, to indemnification by us against certain
liabilities, including liabilities under the Securities Act of 1933.
If we solicit directly offers to purchase the securities, including the
securities of the trusts, we and the trusts may directly sell securities to
institutional or other investors. The terms of any direct sales will be
described in the prospectus supplement.
LEGAL MATTERS
The validity of the common stock, preferred stock, senior and subordinated
debt securities, the junior subordinated debentures and guarantees, offered
hereunder by Downey, will be passed upon by Manatt, Phelps & Phillips, LLP, Los
Angeles, California, counsel to Downey, unless otherwise specified in any
prospectus supplement. Matters of Delaware law relating to the validity of the
capital securities will be passed upon by Richards, Layton & Finger, P.A.,
Wilmington, Delaware, special counsel to Downey and the trusts, unless
otherwise specified in any prospectus supplement. Manatt, Phelps & Phillips,
LLP will rely on the opinions of Richards, Layton & Finger, P.A. as to matters
of Delaware law.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and 1998, and
for each of the years in the three-year period ended December 31, 1999 have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG LLP, independent auditors, incorporated herein
by reference, and upon the authority of said firm as experts in accounting and
auditing.
58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Securities and Exchange Commission registration fee................ $ 75,000
NASD fee........................................................... [ * ]
New York Stock Exchange fees....................................... [ * ]
Trustees' fees and expenses........................................ [ * ]
Legal fees and expenses............................................ [ * ]
Blue Sky fees and expenses......................................... [ * ]
Accounting fees and expenses....................................... [ * ]
Printing expenses.................................................. [ * ]
Miscellaneous expenses............................................. [ * ]
--------
Total............................................................ $[ * ]
========
All of the above items except the registration fee and NASD fee are
estimated.
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* to be provided by amendment.
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") contains
detailed provisions on indemnification of directors and officers against
expenses, judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with legal proceedings. Section 102(a)(7) of
the DGCL permits a provision in the certificate of incorporation of each
corporation organized thereunder, like Downey, eliminating or limiting, with
certain exceptions, the personal liability of a director of the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director.
Our bylaws provide that we shall indemnify and hold harmless to the fullest
extent authorized by Delaware law each person who is or was a director or
officer of Downey against all expense, liability and loss, including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement, reasonably incurred or suffered by the director or
officer. The indemnification shall continue as to a person who has ceased to be
a director or officer; provided, however, that, except as otherwise provided in
our bylaws, we shall indemnify any person seeking indemnification in connection
with a proceeding initiated by that person only if our board of directors
authorized the proceeding. The right to indemnification conferred in our bylaws
is a contract right and includes the right to have us pay the expenses incurred
in defending the proceeding in advance of its final disposition. However, if
Delaware law requires the payment of expenses incurred in advance of the final
disposition of a proceeding, we shall make payment only upon delivery to us of
an undertaking, by or on behalf of the director or officer, to repay all
amounts so advanced if it shall ultimately be determined that the director or
officer is not entitled to be indemnified under the bylaws or otherwise. Our
bylaws create a right to indemnification whether or not the proceeding to which
the indemnification relates arose in whole or in part before adoption of our
bylaws.
The rights of indemnification provided in our bylaws are not exclusive of
any other rights which may be available under Delaware law, any insurance or
other agreement, by vote of shareholders or disinterested directors or
otherwise. In addition, our bylaws authorize us to maintain insurance on behalf
of any person who is or was a director or officer of Downey or with another
entity at our request, whether or not we would have the power to provide
indemnification to the person. We currently maintain directors' and officers'
liability insurance. The indemnification provisions may, in some instances,
cover acts of directors and officers that may not be covered by insurance.
II-1
These provisions require indemnification even in cases in which the conduct
giving rise to the request for indemnification may have been negligent, grossly
negligent or reckless. Although equitable remedies may be available in some
instances, these indemnification provisions cover any expenses or damages
resulting from these suits.
Our certificate of incorporation provides for the elimination, except in
limited circumstances, of the liability of our directors for monetary damages
for breach of fiduciary duty to Downey and its shareholders. Under our
certificate of incorporation, a director shall not be personally liable to
Downey or its shareholders for monetary damages for breach of fiduciary duty as
a director, except for liability:
. for any breach of the director's duty of loyalty to Downey or its
shareholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. for unlawful payment of dividends or unlawful stock purchase or
redemption; or
. for any transaction from which the director derived an improper personal
benefit.
The underwriting agreement with respect to the offering of securities
registered hereunder will also provide for indemnification of Downey and its
officers and directors who signed this registration statement by the
underwriters, against certain liabilities including liabilities under the
Securities Act of 1933.
The Amended and Restated Trust Agreement also provides that we shall
indemnify the Property Trustee, the Delaware Trustee, the Administrative
Trustee, or any of their affiliates, or any officers, directors, shareholders,
employees, representatives, or agents of the Property Trustee, the Delaware
Trustee and the Administrative Trustee, each, a "Fiduciary Indemnified Person,"
for, and hold each Fiduciary Indemnified Person harmless, to the fullest extent
permitted by applicable law, against, any loss, damage, liability, tax,
penalty, expense or claim of any kind or nature whatsoever a Fiduciary
Indemnified Person incurred by reason of the creation, operation or dissolution
of the trust or any act or omission the Fiduciary Indemnified Person performed
or omitted in good faith on behalf of the trust and in a manner the Indemnified
Person reasonably believed to be within the scope of authority conferred on the
Fiduciary Indemnified Person by the Amended and Restated Trust Agreement.
However, no Fiduciary Indemnified Person shall be entitled to be indemnified in
respect of any loss, damage or claim the Fiduciary Indemnified Person incurred
by reason of gross negligence, or ordinary negligence in the case of the
Property Trustee, bad faith or willful misconduct with respect to the acts or
omissions.
Item 16. Exhibits
(a) Exhibits
1.1 Form of underwriting agreement for debt securities**
1.2 Form of underwriting agreement for preferred stock**
1.3 Form of underwriting agreement for trust preferred securities**
1.4 Form of underwriting agreement for common stock**
4.1 Form of Junior Subordinated Indenture between Downey Financial Corp. and
Wilmington Trust Company, as Trustee (includes Form of Junior
Subordinated Debenture). Incorporated by reference to the identically
numbered exhibit to the Registration Statement on Form S-3 (333-79835)
that was filed on June 2, 1999.
4.2 Certificate of Trust of Downey Financial Capital Trust II.
4.3 Trust Agreement of Downey Financial Capital Trust II dated as of November
3, 2000.
4.4 Form of Amended and Restated Trust Agreement of Downey Financial Capital
Trust II.
II-2
4.5 Form of Capital Securities Certificate of Downey Financial Capital Trust
II.
4.6 Form of Capital Securities Guarantee Agreement concerning Downey
Financial Capital Trust II.
4.7 Certificate of Trust of Downey Financial Capital Trust III.
4.8 Trust Agreement of Downey Financial Capital Trust III dated as of
November 3, 2000.
4.9 Form of Amended and Restated Trust Agreement of Downey Financial Capital
Trust III.
4.10 Form of Capital Securities Certificate of Downey Financial Capital Trust
III.
4.11 Form of Capital Securities Guarantee Agreement concerning Downey
Financial Capital Trust III.
4.12 Subordinated Debt Indenture dated as of November 15, 2000 between Downey
Financial Corp. and Wilmington Trust Company, as trustee.
4.13 Senior Debt Indenture dated as of November 15, 2000 between Downey
Financial Corp. and Wilmington Trust Company, as trustee.
5.1 Opinion and Consent of Manatt, Phelps & Phillips, LLP.
5.2 Opinion and Consent of Richards, Layton & Finger, P.A.
8.1 Opinion and Consent of Manatt, Phelps & Phillips, LLP, counsel to Downey
Financial Corp., as to certain federal income tax matters.**
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP.
23.2 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1
above).
23.3 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2
above).
24.1 A power of attorney is set forth on the signature page of the
Registration Statement.
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Junior Subordinated Indenture.
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Amended and Restated Trust Agreement regarding Downey
Financial Capital Trust II.
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Capital Securities Guarantee Agreement regarding
Downey Financial Capital Trust II.
25.4 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Amended and Restated Trust Agreement regarding Downey
Financial Capital Trust III.
25.5 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Capital Securities Guarantee Agreement regarding
Downey Financial Capital Trust III.
25.6 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Subordinated Debt Indenture.
25.7 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Senior Debt Indenture.
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*To be filed by amendment
** To be incorporated by reference herein in connection with the offering of
each applicable class of securities.
Item 17. Undertakings
The undersigned Registrants hereby undertake as follows:
(a) (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of the 1933;
II-3
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however. That paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3, Form S-8
or Form F-3, and the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of Downey's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, trustee or controlling
person in connection with the securities being registered, the Registrants
will, unless in the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(d) To file an application for the purpose of determining the eligibility of
the trustee to act under subsection (a) of section 310 of the Trust Indenture
Act ("Act") in accordance with the rules and regulations prescribed by the
Commission under section 305(b)(2) of the Act.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newport Beach, State of California, on November 20,
2000.
DOWNEY FINANCIAL CORP.
/s/ Daniel D. Rosenthal
By: _________________________________
Daniel D. Rosenthal
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Downey Financial Corp., do
hereby severally constitute and appoint Daniel D. Rosenthal and Thomas E.
Prince and each of them singly, our true and lawful attorneys and agents, to do
any and all things and acts in our names in the capacities indicated below and
to execute any all instruments for us and in our names in the capacities
indicated below which said persons, or either of them, may deem necessary or
advisable to enable Downey Financial Corp. to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with the offering contemplated by this
Registration Statement on Form S-3, including specifically, but not limited to,
power and authority to sign for us or any of us in our names in the capacities
indicated below and any and all amendments, including post-effective
amendments, to this Registration Statement and any Rule 462(b) registration
statement or amendments thereto; and we hereby ratify and confirm all that said
persons, or either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on November 20, 2000.
Signature Title
--------- -----
/s/ Daniel D. Rosenthal President, Chief Executive Officer
____________________________________ and Director (Principal Executive
Daniel D. Rosenthal Officer)
/s/ Thomas E. Prince Executive Vice President and Chief
____________________________________ Financial Officer (Principal
Thomas E. Prince Financial and Accounting Officer)
/s/ Michael Abrahams Director
____________________________________
Michael Abrahams
/s/ Paul Kouri Director
____________________________________
Paul Kouri
/s/ Maurice McAlister Director
____________________________________
Maurice McAlister
II-5
Signature Title
--------- -----
/s/ Brent McQuarrie Director
____________________________________
Brent McQuarrie
/s/ Cheryl E. Olson Director
____________________________________
Cheryl E. Olson
/s/ Lester C. Smull Director
____________________________________
Lester C. Smull
/s/ Sam Yellen Director
____________________________________
Sam Yellen
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newport Beach, State of California, on November 20,
2000.
DOWNEY FINANCIAL CAPITAL TRUST II DOWNEY FINANCIAL CAPITAL TRUST III
/s/ Daniel D. Rosenthal /s/ Daniel D. Rosenthal
By: _________________________________ By: ________________________________
Daniel D. Rosenthal, Trustee Daniel D. Rosenthal, Trustee
/s/ Thomas E. Prince /s/ Thomas E. Prince
By: _________________________________ By: ________________________________
Thomas E. Prince, Trustee Thomas E. Prince, Trustee
/s/ Paul G. Woollatt /s/ Paul G. Woollatt
By: _________________________________ By: ________________________________
Paul G. Woollatt, Trustee Paul G. Woollatt, Trustee
II-6
INDEX TO EXHIBITS
1.1 Form of underwriting agreement for debt securities**
1.2 Form of underwriting agreement for preferred stock**
1.3 Form of underwriting agreement for trust preferred securities**
1.4 Form of underwriting agreement for common stock**
4.1 Form of Junior Subordinated Indenture between Downey Financial Corp. and
Wilmington Trust Company, as Trustee (includes Form of Junior
Subordinated Debenture). Incorporated by reference to the identically
numbered exhibit to the Registration Statement on Form S-3 (333-79835)
that was filed on June 2, 1999.
4.2 Certificate of Trust of Downey Financial Capital Trust II.
4.3 Trust Agreement of Downey Financial Capital Trust II dated as of
November 3, 2000.
4.4 Form of Amended and Restated Trust Agreement of Downey Financial Capital
Trust II.
4.5 Form of Capital Securities Certificate of Downey Financial Capital Trust
II.
4.6 Form of Capital Securities Guarantee Agreement concerning Downey
Financial Capital Trust II.
4.7 Certificate of Trust of Downey Financial Capital Trust III.
4.8 Trust Agreement of Downey Financial Capital Trust III dated as of
November 3, 2000.
4.9 Form of Amended and Restated Trust Agreement of Downey Financial Capital
Trust III.
4.10 Form of Capital Securities Certificate of Downey Financial Capital Trust
III.
4.11 Form of Capital Securities Guarantee Agreement concerning Downey
Financial Capital Trust III.
4.12 Subordinated Debt Indenture dated as of November 15, 2000 between Downey
Financial Corp. and Wilmington Trust Company, as trustee.
4.13 Senior Debt Indenture dated as of November 15, 2000 between Downey
Financial Corp. and Wilmington Trust Company, as trustee.
5.1 Opinion and Consent of Manatt, Phelps & Phillips, LLP.
5.2 Opinion and Consent of Richards, Layton & Finger, P.A.
8.1 Opinion and Consent of Manatt, Phelps & Phillips, LLP, counsel to Downey
Financial Corp., as to certain federal income tax matters.**
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP.
23.2 Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1
above).
23.3 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2
above).
24.1 A power of attorney is set forth on the signature page of the
Registration Statement.
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Junior Subordinated Indenture.
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Amended and Restated Trust Agreement regarding Downey
Financial Capital Trust II.
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Capital Securities Guarantee Agreement regarding
Downey Financial Capital Trust II.
25.4 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Amended and Restated Trust Agreement regarding Downey
Financial Capital Trust III.
25.5 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Capital Securities Guarantee Agreement regarding
Downey Financial Capital Trust III.
25.6 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Subordinated Debt Indenture.
25.7 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as
trustee under the Senior Debt Indenture.
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*To be filed by amendment
** To be incorporated by reference herein in connection with the offering of
each applicable class of securities.