Filed pursuant to Rule 424(b)(1) relating to the
Registrant's Registration Statement on Form S-4
(File Nos. 333-341034 and 333-341034)
PROSPECTUS
CASCADE CAPITAL TRUST I
Offer to Exchange Its
11.0% Capital Securities, Series B
(liquidation amount $1,000 per capital
security) Which Have Been Registered Under The
Securities Act of 1933
For Any and All Of Its Outstanding
11.0% Capital Securities, Series A
(liquidation amount $1,000 per capital security)
Fully and Unconditionally Guaranteed,
to the Extent Described in this Prospectus, By
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON AUGUST 30, 2000, UNLESS EXTENDED.
Cascade Capital Trust I is offering and selling upon the terms and
subject to the conditions described in this prospectus, as amended and
supplemented from time to time, and in the accompanying letter of transmittal,
which together constitute the exchange offer, to exchange up to and including
$10 million aggregate liquidation amount of its 11.0% capital securities, Series
B, referred to as the exchange capital securities, which have been registered
under the Securities Act of 1933, as amended, by a registration statement of
which this prospectus is a part, for a like amount of its outstanding 11.0%
capital securities, Series A, referred to as the original capital securities, of
which $10 million aggregate liquidation amount are issued and outstanding.
This prospectus and the letter of transmittal are first being mailed to
all holders of the 11.0% capital securities, Series A on or about July 28, 2000.
See "Risk Factors" beginning on page 17 to read about the risks that
you should consider in deciding whether to tender the 11.0% capital securities,
Series A in the exchange offer.
These securities are not deposits or accounts and are not insured by
the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission nor any state securities
commission or regulator has approved or disapproved these securities or
determined that this prospectus is accurate or complete. It is illegal for
anyone to tell you otherwise.
The date of this Prospectus is July 26, 2000.
AVAILABLE INFORMATION
Cascade Financial Corporation is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, referred to as
the Exchange Act, and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission, referred to
as the Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at 7 World Trade Center, 13th Floor, Suite
1300, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. You may also obtain copies of such material by
mail from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. If available, you may also
access such information through the Commission's electronic data gathering,
analysis and retrieval system, commonly referred to as EDGAR, via electronic
means, including the Commission's home page on the Internet
(http://www.sec.gov). The common stock of Cascade Financial Corporation is
traded on the Nasdaq National Market under the symbol "CASB." You may inspect
the reports, proxy statements and other information concerning us at the offices
of the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington D.C. 20006.
No separate financial statements of the Trust, as hereinafter
described, have been included in this prospectus and no separate financial
statements will be prepared in the future. We do not consider that such
financial statements would be material to holders of the exchange capital
securities offered by this prospectus because: (i) the Trust is a newly-formed
special purpose entity, (ii) has no operating history or independent operations
and (iii) is not engaged in and does not propose to engage in any activity other
than holding as trust assets our junior subordinated debentures, issuing the
capital and common securities, collectively referred to as the trust securities,
and engaging in incidental activities. We do not expect that the Trust will file
reports, proxy statements and other information under the Exchange Act with the
Commission.
This prospectus constitutes a part of a registration statement on Form
S-4 filed by us and the Trust with the Commission under the Securities Act of
1933, as amended, also referred to as the Securities Act. This prospectus does
not contain all the information set forth in the registration statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission, and reference is made to the registration statement and to the
exhibits relating to such registration statement for further information with
respect to Cascade Financial Corporation and the exchange securities. Any
statements contained in this prospectus concerning the provisions of any
document are not necessarily complete, and, in each instance, reference is made
to the copy of such document filed as an exhibit to the registration statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents that we have filed with the Commission are
incorporated into this prospectus by reference:
o Cascade Financial Corporation's Annual Report on Form 10-K for the
year ended June 30, 1999;
o Cascade Financial Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 as amended by Form 10-Q/A filed
December 1, 1999;
o Cascade Financial Corporation's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1999.
o Cascade Financial Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 as amended by Form 10-Q filed June 16,
2000.
Any statement contained in a document incorporated by reference in this
prospectus shall be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained in this prospectus
2
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus. You may obtain a copy of our filings with the Commission at
no cost, by writing or telephoning us at the following address:
Cascade Financial Corporation
Attention: Lars A. Johnson, Executive Vice President
2828 Colby Avenue
Everett, Washington 98201
(425) 339-5500
When we refer to this prospectus, we mean not only this prospectus but
also any documents which are incorporated or deemed to be incorporated in this
prospectus by reference. You should rely only on the information incorporated by
reference or provided in this prospectus or any supplement. We have not
authorized anyone else to provide you with additional or different information.
This prospectus is used to offer and sell the exchange capital securities
referred to in this prospectus, and only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of the date of this prospectus.
As used in this prospectus, "we" and "us" and "our" refer to Cascade
Financial Corporation and its consolidated subsidiaries, including Cascade Bank,
depending on the context.
FORWARD LOOKING STATEMENTS
Some of the information presented or incorporated by reference into
this prospectus contains "forward-looking" statements, and may be identified by
the use of such words as "believe," "expect," "anticipate," "should," "planned,"
"estimated" and "potential." Examples of forward-looking statements include, but
are not limited to, estimates with respect to our financial condition, results
of operations and business that are subject to various factors which could cause
actual results to differ materially from these estimates. These factors include,
but are not limited to:
o general economic conditions;
o changes in interest rates, deposit flows, loan demand, real estate
values and competition;
o changes in accounting principles, policies, or guidelines;
o changes in legislation or regulation; and
o other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products and
services.
Our actual results could vary materially from the future results
covered in our forward-looking statements. The statements in the "Risk Factors"
section of this prospectus are cautionary statements identifying important
factors, including certain risks and uncertainties, that could cause our results
to vary materially from the future results covered in such forward-looking
statements. Other factors, such as the general state of the United States
economy, could also cause actual results to vary materially from the future
results covered in such forward-looking statements. We disclaim any obligation
to announce publicly future events or developments that affect the
forward-looking statements in this prospectus.
3
SUMMARY
The following information is a summary of the significant terms of the
offering of our exchange capital securities. You should carefully read this
prospectus to understand fully the terms of the exchange capital securities, as
well as the tax and other considerations that are important to you in making a
decision about whether to exchange your original capital securities for the
exchange capital securities. You should pay special attention to the "Risk
Factors" section beginning on page 17 of this prospectus to determine whether an
investment in the exchange capital securities is appropriate for you.
Cascade Financial Corporation
Cascade Financial Corporation, a Delaware corporation, is a unitary
savings and loan holding company headquartered in Everett, Washington. We
conduct our business through Cascade Bank, a federally chartered stock savings
bank that has 14 branches and one loan origination office serving Snohomish,
King, Skagit and Whatcom counties. As of March 31, 2000, we had $645.6 million
of total assets, $539.0 million of loans outstanding, $428.4 million of deposits
and $36.7 million of stockholders' equity.
Cascade Bank was organized in 1916 as a Washington state chartered
savings and loan association, converted to a federal mutual savings bank in
1992, converted from a federal mutual to a federal stock savings bank in 1992
and became our wholly-owned subsidiary in 1994. Prior to 1996, our focus was on
the origination of single-family residential loans, commercial real estate,
construction and multi-family loans. In 1996, we revised our strategic plan to
seek a higher level of sustainable earnings by broadening our focus from being
primarily a real-estate based lender to becoming a full service community bank
offering a wider range of consumer and commercial banking services. As part of
this strategy, in August 1997, we acquired AmFirst Bancorporation and its
wholly-owned subsidiary, American First National Bank, a commercial bank with
approximately $67.3 million of assets at August 1, 1997. This acquisition
significantly expanded our commercial and consumer banking products and
augmented our management team with significant commercial banking experience.
Our Strategies
Our goal is to build a community oriented commercial bank. Accordingly,
our strategies focus on expanding our commercial banking activities and our net
interest margin. In order to realize these objectives, we are pursuing the
following strategies:
o Reducing the percentage of our assets consisting of lower-yielding
single-family first mortgage loans and mortgage-backed securities and
increasing the percentage of our assets consisting of business,
residential construction, commercial real estate and consumer
installment loans with higher risk-adjusted returns, shorter
maturities and more sensitivity to interest rate fluctuations.
o Reducing our reliance on higher-cost certificates of deposit and
Federal Home Loan Bank of Seattle, or FHLB, borrowings and increasing
deposits by attracting lower cost transaction accounts (such as
checking, savings and money market accounts).
o Maintaining our capital at or above the "well-capitalized" (as defined
for regulatory purposes) level.
o Deploying any excess capital into lending products intended to
generate higher risk-adjusted returns than those typically provided by
single-family first mortgage loans and mortgage-backed securities.
In addition, we periodically have discussions with and receive
financial information about other companies that may lead to our acquisition of
all or part of that company. However, we currently have no agreements or
understandings to acquire any other company.
4
Business
We operate in five distinct business areas:
Business Banking consists primarily of commercial business loans to
small to medium sized businesses operating in Snohomish, King, Skagit and
Whatcom counties. These loans are secured primarily by receivables, equipment,
other assets of the business and personal property, and the personal guarantee,
of the borrower. These loans typically have adjustable-rate terms of one year
and short-term fixed rates with terms of up to five years. We also offer
unsecured operating lines of credit that require annual repayment. We underwrite
our commercial business loans on the basis of the borrower's cash flow and
ability to service debt from earnings, as well as the underlying collateral
value. The borrower is generally required to provide us with at least two years
of financial statements, tax returns, current financial information on any and
all guarantors, and other reports that show trends in their current assets, and
to update this information annually. Our commercial business loans also include
owner occupied real estate loans with terms comparable to our income producing
property loans except that we may require a higher debt service coverage ratio
and a higher interest rate than if the loans were non-owner occupied. At March
31, 2000, we had commercial loans outstanding of $82.8 million, representing
15.3% of our total outstanding loan portfolio, of which $73.9 million were
secured and $8.7 million represented unsecured loans. In addition, as our
business banking activity increases we expect to expand our lower cost deposit
franchise through the growth of commercial checking as a source of funding.
Transaction accounts, including Money Market Deposit Accounts (MMDAs),
represented 40.5% of our total customer deposits as of March 31, 2000.
Residential Lending consists primarily of conforming and nonconforming
first mortgage loans secured by single-family residential properties located
principally in Snohomish, King, Thurston, Skagit, Whatcom and Kitsap counties.
Generally, our conforming residential loans meet the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation's underwriting standards
with respect to credit, debt ratios and documentation. Our nonconforming
residential loans are those that generally do not conform to agency underwriting
guidelines, whether as a result of marginal credit histories, the absence of
credit history, high debt-to-income ratios, reliance on the borrower's stated
income with verification of employment, non-owner occupied property, rural
property, balloon payment or a variety of other exceptions from agency
guidelines. Our nonconforming loans may be made to lower credit grade borrowers,
including credit-impaired borrowers. The original aggregate principal balance at
March 31, 2000 of our nonconforming loans originated since August 1998 was
approximately $64.9 million with an average original loan-to-value ratio of 75%
and a Fair Isaac and Company, Incorporated, or FICO, credit score of 681. A FICO
score is a principal measure of credit quality in the residential mortgage
industry and is one of the significant criteria we rely upon in our
underwriting. Based on the Federal Home Loan Mortgage Corporation guidelines, a
FICO score of 660 or higher indicates the borrower has an acceptable credit
reputation. In exchange for the additional lender risk associated with
nonconforming loans, borrowers generally are required to pay a higher interest
rate, and depending on the severity of the credit history, a lower loan-to-value
ratio may be required than for a conforming loan borrower. Generally, all
residential loans originated with a loan-to-value ratio above 80% have private
mortgage insurance in an amount sufficient to reduce our exposure to 75% or
below. We also offer a full line of home equity term loans and lines of credit.
Home equity loans are secured by a lien, generally junior in priority to a
senior lien on the borrower's home, and may have, when added to existing senior
lien balances, a post-funding combined loan-to-value ratio of up to 90% of the
value of the home securing the loan.
At March 31, 2000 we had residential loans outstanding (including
residential loans held for sale) of $214.7 million, representing 39.8% of our
total outstanding loans. Of this amount $67.7 million representing 12.5% of our
total outstanding loan portfolio were conforming residential loans, $107.7
million representing 19.9% of our total outstanding loan portfolio were
nonconforming residential loans and $39.3 million representing 7.3% of our total
outstanding loan portfolio were home equity loans.
Income Property Lending consists primarily of loans up to $5.0 million
in principal amount secured by multi-family residential and commercial real
estate properties such as apartment buildings, small office buildings and mixed
use properties located in Snohomish, King, Skagit and Whatcom counties. These
loans generally have a loan-to-value ratio of up to 80% and terms up to 30 years
with interest rates that adjust annually or annually after an initial three to
seven year period in accordance with the Twelfth District Cost of Funds Index
calculated by the FHLB-Seattle. These loans typically have debt service coverage
ratios of at least 1.2:1 and are generally personally guaranteed by the
borrower. At March 31, 2000, multi-family residential and commercial real estate
properties totaled $113.6 million and $54.5 million, respectively, representing
21.0% and 10.1% of
5
our total outstanding loan portfolio, respectively. At that date, our largest
income property loan totaled $4.8 million and was secured by an office park and
warehouse facility. This loan was performing in accordance with its terms as of
March 31, 2000.
Construction Lending consists of construction loans on one- to
four-family residences, primarily to builders. These loans are generally made
with the builder's personal guarantee. We generally do not make construction
loans to build income-producing properties. We have typically made loans to
builders we have identified based upon our research to be financially sound and
reputable within the construction industry. These loans are for:
o homes currently under contract for sale;
o model homes from which other homes will be marketed within a
subdivision; or
o homes built by builders for speculative purposes to be marketed for
sale during construction.
We also originate land acquisition and development loans where the
source of repayment is either the sale of finished lots or the sale of homes to
be constructed on the finished lots. We have attempted to increase our
residential construction loan portfolio because these loans have relatively high
margins, floating interest rates and short-term maturities and because of the
current favorable housing market in Snohomish, Skagit and Whatcom counties. Our
construction loans are generally for terms of up to 12 months while our land
acquisition loans are typically for terms of up to 18 months. We have granted
residential construction lines of credit to six builders in excess of $1.5
million. At March 31, 2000, our maximum outstanding commitment to one builder
totaled $9.0 million involving four different construction projects of which
$5.3 million had been drawn upon at March 31, 2000 and all of which are
performing in accordance with their repayment terms. At that date, we had
residential construction loans totaling $53.4 million representing 9.9% of our
total outstanding loan portfolio. Of this amount, $39.8 million was to builders,
$9.0 million was to individuals for custom home construction and $4.8 million
represented acquisition and development loans.
Consumer Lending consists primarily of fixed rate installment loans on
boats, automobiles and recreational vehicles, and a limited amount of unsecured
personal loans and credit cards totaling $21.1 million or 3.9% of our total loan
portfolio at March 31, 2000. Substantially all of our installment loans are made
to borrowers residing in Snohomish, King, Skagit and Whatcom counties. Although
boats secure $16.2 million of our installment loans, we have significantly
decreased our origination of boat loans and expect this amount to decline
further in the future.
Cascade Capital Trust I
Cascade Capital Trust I is a statutory business trust created under
Delaware law upon the filing of a certificate of trust with the Delaware
Secretary of State. The Trust's business and affairs are conducted by the
property trustee, the Delaware trustee and the three individual administrative
trustees, who are officers of Cascade Financial Corporation. The Trust exists
for the exclusive purposes of:
o issuing and selling the original capital securities and the exchange
capital securities, collectively referred to as the capital
securities;
o using the proceeds from the sale of the capital securities to acquire
junior subordinated debentures issued by Cascade Financial
Corporation; and
o engaging in only those other activities necessary, advisable or
incidental to the above.
Accordingly, the junior subordinated debentures are the sole assets of
the Trust, and payments under the junior subordinated debentures will be the
sole revenues of the Trust.
All of the common securities of the Trust are owned by Cascade
Financial Corporation.
6
The Exchange Offer
The Exchange Offer..................Up to and including $10 million aggregate
liquidation amount of exchange capital
securities are being offered in exchange for
a like aggregate liquidation amount of
original capital securities. Original
capital securities may be tendered for
exchange in whole or in part in an aggregate
liquidation amount of $100,000 (100 original
capital securities) or any integral multiple
of $1,000 (one original capital security) in
excess of $100,000. Under the exchange
offer, we will exchange as soon as
practicable after the date of this
prospectus our $10 million aggregate
principal amount of junior subordinated
debentures, Series A, also referred to as
the original junior subordinated debentures,
for a like aggregate principal amount of our
junior subordinated debentures, Series B,
also referred to as the exchange debentures.
We refer to the original junior subordinated
debentures and the exchange debentures
collectively as the junior subordinated
debentures.
We, together with the Trust, are making the
exchange offer in order to satisfy our
respective obligations under the
registration rights agreement relating to
the original capital securities. For a
description of the procedures for tendering
original capital securities, please read
"The Exchange Offer -- Procedures for
Tendering Original Capital Securities."
Expiration Date.....................5:00 p.m., New York City time, on August 30,
2000 unless the exchange offer is extended
by us and the Trust, in which case the
expiration date will be the latest date and
time to which the exchange offer is
extended.
Conditions to the Exchange Offer....The exchange offer is subject to certain
conditions, which may be waived by us and
the Trust in our sole discretion. The
exchange offer is not conditioned upon any
minimum liquidation amount of original
capital securities being tendered.
Terms of the Exchange Offer.........We and the Trust reserve the right in our
sole and absolute discretion, subject to
applicable law, at any time and from time to
time, (i) to delay the acceptance of the
original capital securities, (ii) to
terminate the exchange offer if certain
specified conditions have not been
satisfied, (iii) to extend the expiration
date of the exchange offer and retain all
original capital securities tendered as a
result of the exchange offer, subject,
however, to the right of holders of original
capital securities to withdraw their
tendered original capital securities, or
(iv) to waive any condition or otherwise
amend the terms of the exchange offer in any
respect.
Withdrawal Rights...................Tenders of original capital securities may
be withdrawn at any time on or prior to the
expiration date by delivering a written
notice of such withdrawal to the exchange
agent in conformity with certain procedures
as set forth under "The Exchange Offer --
Withdrawal Rights."
7
Procedures for Tendering Original
Capital Securities.................Certain brokers, dealers, commercial banks,
trust companies and other nominees who hold
original capital securities through The
Depository Trust Company, or DTC, must
effect tenders by book-entry transfer
through DTC's Automated Tender Offer
Program, or ATOP. Beneficial owners of
original capital securities registered in
the name of a broker, dealer, commercial
bank, trust company or other nominee are
urged to contact such person promptly if
they wish to tender original capital
securities under the exchange offer.
Tendering holders of original capital
securities that do not use ATOP must
complete and sign a letter of transmittal in
accordance with the instructions contained
in such letter and forward the same by mail,
facsimile transmission or hand delivery,
together with any other required documents,
to the exchange agent, either with the
certificates of the original capital
securities to be tendered or in compliance
with the specified procedures for guaranteed
delivery of original capital securities.
Tendering holders of original capital
securities that use ATOP will, by so doing,
acknowledge that they are bound by the terms
of the letter of transmittal. Letters of
transmittal and certificates representing
original capital securities should not be
sent to us or the Trust. Such documents
should only be sent to the exchange agent.
Resales of Exchange Capital
Securities........................We and the Trust are making the exchange
offer in reliance on the position of the
staff of the Commission as set forth in
certain interpretive letters addressed to
third parties in other transactions.
However, neither we nor the Trust has sought
our own interpretive letter and there can be
no assurance that the staff of the
Commission would make a similar
determination with respect to the exchange
offer as it has in such interpretive letters
to third parties. Based on these
interpretations by the staff of the
Commission, and subject to the two
immediately following sentences, we and the
Trust believe that exchange capital
securities issued under this exchange offer
in exchange for original capital securities
may be offered for resale, resold and
otherwise transferred by a holder of such
exchange capital securities, other than a
holder who is a broker-dealer, without
further compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that such exchange
capital securities are acquired in the
ordinary course of such holder's business
and that such holder is not participating,
and has no arrangement or understanding with
any person to participate, in a
distribution, within the meaning of the
Securities Act, of such exchange capital
securities. However, any holder of original
capital securities who is an affiliate of us
or the Trust or who intends to participate
in the exchange offer for the purpose of
distributing the exchange capital
securities, or any broker-dealer who
purchased the original capital securities
from the Trust to resell pursuant to Rule
144A or any other available exemption under
the Securities Act:
o will not be able to rely on the
interpretations of the staff of the
Commission set forth in the
above-mentioned interpretive
letters;
8
o will not be permitted or entitled
to tender such original capital
securities in the exchange offer;
and
o must comply with the registration
and prospectus delivery
requirements of the Securities Act
in connection with any sale or
other transfer of such original
capital securities unless such sale
is made in reliance on an exemption
from such requirements.
In addition, as described in this
prospectus, if any broker-dealer holds
original capital securities acquired for its
own account as a result of market-making or
other trading activities and exchanges such
original capital securities for exchange
capital securities, then such broker-dealer
must deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resales of such exchange
capital securities.
Each holder of original capital securities
who wishes to exchange original capital
securities for exchange capital securities
in the exchange offer will be required to
represent that:
o it is not an affiliate of us or the
Trust;
o any exchange capital securities to
be received by it are being
acquired in the ordinary course of
its business;
o it has no arrangement or
understanding with any person to
participate in a distribution,
within the meaning of the
Securities Act, of such exchange
capital securities; and
o if such holder is not a
broker-dealer, such holder is not
engaged in, and does not intend to
engage in, a distribution, within
the meaning of the Securities Act
of such exchange capital
securities.
Each broker-dealer that receives exchange
capital securities for its own account in
exchange for original capital securities,
where such original capital securities were
acquired by such broker-dealer as a result
of market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus meeting the
requirements of the Exchange Act in
connection with any resale of such exchange
capital securities. See "Plan of
Distribution."
The letter of transmittal states that, by so
acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an underwriter
within the meaning of the Securities Act.
Based on the position taken by the staff of
the Commission in the interpretive letters
referred to above, we and the Trust believe
that participating broker-dealers who
acquired original capital securities for
their own accounts as a result of
market-making activities or other trading
activities may fulfill their prospectus
delivery requirements with respect to the
exchange capital securities received upon
exchange of such original capital
securities, other than original capital
securities that represent an unsold
allotment from the initial sale of the
original capital
9
securities, with a prospectus meeting the
requirements of the Securities Act, which
may be the prospectus prepared for an
exchange offer so long as it contains a
description of the plan of distribution with
respect to the resale of such exchange
capital securities. Accordingly, this
prospectus, as it may be amended or
supplemented from time to time, may be used
by a participating broker-dealer in
connection with resales of exchange capital
securities received in exchange for original
capital securities where such original
capital securities were acquired by such
participating broker-dealer for its own
account as a result of market-making or
other trading activities. Subject to certain
provisions set forth in the registration
rights agreement and to the limitations
described in this prospectus under "The
Exchange Offer -- Resales of Exchange
Capital Securities," we and the Trust have
agreed that this prospectus, as it may be
amended or supplemented from time to time,
may be used by a participating broker-dealer
in connection with resales of such exchange
capital securities for a period ending 90
days after the expiration date, subject to
extension under certain limited
circumstances, or, if earlier, when all such
exchange capital securities have been
disposed of by such participating
broker-dealer. Any participating
broker-dealer who is an affiliate of us or
the Trust may not rely on such interpretive
letters and must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction.
Exchange Agent......................The exchange agent with respect to the
exchange offer is the property trustee of
the Trust, Wilmington Trust Company. The
address, telephone and facsimile number of
the exchange agent are set forth in "The
Exchange Offer -- Exchange Agent" and in the
letter of transmittal.
Use of Proceeds.....................Neither we nor the Trust will receive any
cash proceeds from the issuance of the
exchange capital securities.
Certain Federal Income Tax
Considerations....................The exchange of original capital securities
for exchange capital securities will not be
a taxable exchange for Federal income tax
purposes, and you should not recognize any
taxable gain or loss or any interest income
as a result of such exchange.
ERISA Considerations................You should review the information set forth
under "ERISA Considerations" prior to
tendering original capital securities in the
exchange offer.
10
The Exchange Capital Securities
Securities Offered..................Up to $10 million aggregate liquidation
amount of exchange capital securities,
liquidation amount $1,000 per exchange
capital security, will have been registered
under the Securities Act. The exchange
capital securities will be issued as were
the original capital securities under the
amended and restated declaration of trust,
dated as of March 1, 2000, as amended,
relating to the trust by and among us, as
Sponsor, Wilmington Trust Company, as
property trustee, Wilmington Trust Company,
as Delaware trustee, and the administrative
trustees, also referred to as the trust
agreement. The exchange capital securities
and any original capital securities that
remain outstanding after consummation of the
exchange offer will vote together as a
single class for purposes of determining
whether holders of the requisite percentage
in outstanding liquidation amount have taken
certain actions or exercised certain rights
under the trust agreement. The terms of the
exchange capital securities are identical in
all material respects to the terms of the
original capital securities, except that the
exchange capital securities have been
registered under the Securities Act, will
not be subject to certain restrictions on
transfer applicable to the original capital
securities and will not provide for any
increase in the distribution rate.
Distributions.......................You will be entitled to receive cumulative
cash distributions at the annual rate of
11.0% of the liquidation amount of $1,000
per exchange capital security. Distributions
will accumulate from the date the Trust
issued the original capital securities and
will be paid semi-annually in arrears on
March 1st and September 1st of each year,
beginning on September 1, 2000. The record
dates will be the 15th day of the month
immediately preceding the month in which the
relevant payment occurs. In the event the
exchange offer is consummated prior to the
first record date, August 15, 2000, each
exchange capital security will pay
cumulative distributions from and after
March 1, 2000 and no distributions will be
paid on any original capital security
tendered for an exchange capital security.
However, in the event the exchange offer is
consummated after August 15, distributions
will be paid on the original capital
securities accumulated from and after March
1 through September 1, 2000, and
distributions will be paid on the exchange
capital securities from and after September
1, 2000. The amount of each distribution
with respect to the capital securities will
include amounts accrued to, but excluding
the date the distribution is due. Because of
the foregoing procedures regarding
distributions, the amount of the
distributions received by holders whose
original capital securities are accepted for
exchange will not be affected by the
exchange.
11
Deferral Periods....................So long as no event of default under the
exchange debentures has occurred and is
continuing, we have the right, at one or
more times, to defer interest payments on
the exchange debentures for up to 10
consecutive semi-annual periods. All
deferrals will end on an interest payment
date and will not extend beyond March 1,
2030, the stated maturity date of the
exchange debentures.
If we defer interest payments on the
exchange debentures, the Trust will also
defer distributions on the exchange capital
securities. During this deferral period, the
exchange debentures will continue to accrue
interest and the exchange capital securities
will continue to accumulate distributions.
During a deferral period, you will also
accumulate additional distributions at the
annual rate of 11.0% on any accumulated and
unpaid distributions, to the extent
permitted by law. If the Trust defers your
distributions, you will still be required to
accrue interest income and include it in
your gross income for Federal income tax
purposes, even if you are a cash basis
taxpayer.
Ranking.............................Our obligations under the exchange
debentures are unsecured and subordinated to
payment of our senior and subordinated debt,
to the extent and in the manner set forth in
the indenture, dated as of March 1, 2000, as
amended and supplemented from time to time,
between us and Wilmington Trust Company, as
debenture trustee, relating to the exchange
debentures, also referred to as the
indenture, and will be effectively
subordinated to all of the existing and
future liabilities and obligations of our
subsidiaries, including Cascade Bank's
deposit liabilities. Exchange
Guarantee...........................We are offering to exchange our guarantee,
also referred to as the exchange guarantee,
of payments of cash distributions and
payments in liquidation of the Trust or
redemption of the exchange capital
securities for the existing guarantee, also
referred to as the original guarantee, in
respect of the original capital securities.
We refer to the original guarantee and the
exchange guarantee collectively as the
guarantees. Under the trust agreement
creating Cascade Capital Trust I, our
exchange debentures and related indenture
and our exchange guarantee, we will, on a
subordinated basis, fully, irrevocably and
unconditionally guarantee:
o payment of distributions on the
exchange capital securities;
o payments on liquidation of the
Trust; and
o payments on maturity or earlier
redemption of the exchange capital
securities.
12
If we do not make a payment on the exchange
debentures, the Trust will not have
sufficient funds to make payments on the
exchange capital securities. Our exchange
guarantee does not assure the payment of
distributions when the Trust does not have
sufficient funds to pay the distributions.
Our obligations under the exchange guarantee
are unsecured and subordinated to payment of
our senior and subordinated debt and will be
effectively subordinated to all of the
existing and future liabilities and
obligations of our subsidiaries, including
Cascade Bank's deposit liabilities.
Distribution of Exchange
Debentures..........................At any time, we will have the right, subject
to receipt of any required regulatory
approval, to liquidate the Trust and cause
the exchange debentures to be distributed to
holders of exchange capital securities and
common securities in liquidation of the
Trust. The exchange debentures will have
identical terms and conditions as the
exchange capital securities. We will, for
instance, have the same rights, subject to
the receipt of any required regulatory
approval, to redeem such exchange debentures
as if the exchange debentures were held by
the Trust.
In the event of the involuntary or voluntary
liquidation, dissolution, winding up or
termination of the Trust in which the
exchange debentures are not distributed to
you, then you, as the holders of the
exchange capital securities, will be
entitled to receive for each exchange
capital security, after satisfaction of
creditors of the Trust, a liquidation amount
of $1,000 plus accumulated and unpaid
distributions thereon (including interest
thereon) to the date of payment. The Trust
will be able to make this distribution in
cash only if the exchange debentures are
redeemed by us.
Maturity and
Redemption..........................The exchange debentures will mature on March
1, 2030, unless redeemed prior to such date
if certain conditions are met. The Trust
will redeem the exchange capital securities
when we pay the exchange debentures at
maturity or upon any earlier redemption of
the exchange debentures.
Our ability to redeem some or all of the
exchange debentures on or after March 1,
2010 is subject to certain conditions. In
addition, we may redeem the exchange
debentures at our option, in whole but not
in part, at any time prior to March 1, 2010:
o if certain tax events occur;
o if there is a change in the way the
exchange debentures would be
treated for regulatory capital
purposes; or
o if there is a change in the
Investment Company Act of 1940 that
requires the Trust to register
under that law.
13
We may have to obtain regulatory approvals,
including the approval of the Office of
Thrift Supervision, or OTS, before we redeem
any exchange debentures prior to maturity.
If we redeem the exchange debentures, you
will receive the liquidation amount of
$1,000 per exchange capital security plus
any accrued and unpaid distributions to the
date of redemption, and if such redemption
occurs prior to March 1, 2020, you will be
entitled to a premium.
Transfer
Restriction.........................The exchange capital securities will be
issued, and may be transferred, only in
blocks having an aggregate liquidation
amount of not less than $100,000 (100
exchange capital securities) or any integral
multiple of $1,000 in excess of thereof. Any
such transfer of exchange capital securities
in a block having a liquidation amount of
less than $100,000 shall be deemed to be
void and of no legal effect whatsoever.
Absence of Market for the
Exchange Capital Securities.........The exchange capital securities will be a
new issue of securities for which there is
no market. Although the initial purchasers
intend to make a market in the exchange
capital securities, in a manner permitted
under applicable securities laws, Sandler
O'Neill & Partners, L.P. and Keefe, Bruyette
& Woods, Inc., the initial purchasers, are
not obligated to do so, and any such market
making may be discontinued at any time
without notice. Accordingly, there can be no
assurance as to the development or liquidity
of any market for the exchange capital
securities. Neither we nor the Trust intend
to apply for listing of the exchange capital
securities on any securities exchange or for
quotation through the Nasdaq Stock Market,
Inc.
ERISA
Considerations......................For a discussion of certain prohibited
transactions and fiduciary duty issues
pertaining to purchases by or on behalf of
an employee benefit plan, you should see
"ERISA Considerations."
Voting
Rights..............................As a holder of the exchange capital
securities, you will have no voting rights,
except in limited circumstances. You should
read "Description of Exchange Capital
Securities -- Voting Rights; Amendment of
the Trust Agreement" for more information.
Risk
Factors.............................For a discussion of considerations relevant
to an investment in the capital securities
or the exchange of original capital
securities for exchange capital securities
which should be carefully considered by you,
please read "Risk Factors."
14
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are our selected consolidated financial and other
information as of, and for the periods ended March 31, 1999 and 2000 and each of
the five years ended June 30, 1999. This financial information is derived in
part from, and should be read in conjunction with, our consolidated financial
statements and related notes incorporated by reference in our Annual Report on
Form 10- K for the year ended June 30, 1999 and included in our Form 10-Q for
the quarter ended March 31, 2000, incorporated herein by reference. On August 1,
1997, AmFirst Bancorporation was merged with and into us. The merger has been
accounted for as a pooling-of-interests and, accordingly, the financial results
for all periods reported have been restated, where applicable, to include
AmFirst Bancorporation. The selected unaudited consolidated financial
information for the nine months ended March 31, 2000 is not necessarily
indicative of the operating results for the year or any other interim period.
At June 30,
-------------------------------------------------------------- At March 31,
1995 1996 1997 1998 1999 2000
----------- ------------ ------------ ------------ ----------- ------------
(In thousands, except per share amounts)
Selected Financial Condition Data:
Assets................................. $367,597 $399,316 $434,162 $444,155 $557,086 $645,645
Total loans outstanding(1)............. 252,573 275,807 345,080 388,877 459,990 539,012
Deposits............................... 252,204 277,897 304,205 312,518 361,786 428,391
Stockholders' equity................... 23,499 25,526 27,537 31,412 34,239 36,693
Non-performing loans(2)................ 1,836 720 1,069 1,921 1,201 726
Book value per common share, basic..... $4.48 $4.81 $5.18 $5.86 $6.28 $6.64
For the Nine Months
For the Year Ended June 30, Ended March 31,
------------------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1999 2000
----------- ------------ ------------ ------------ ---------- ---------- ---------
(In thousands, except per share amounts)
Selected Operating Data:
Interest income........................ $ 27,460 $ 29,694 $ 31,568 $ 33,916 $ 38,205 $ 27,945 $ 35,456
Interest expense....................... 15,693 19,104 19,924 20,118 21,956 16,037 21,433
-------- -------- -------- -------- -------- --------- --------
Net interest income.................... 11,767 10,590 11,644 13,798 16,249 11,908 14,023
Provision for (recovery of) loan losses (319) 61 810 247 427 427 560
-------- -------- -------- -------- -------- --------- --------
Net interest income after provision for
loan losses.......................... 12,086 10,529 10,834 13,551 15,822 11,481, 13,463
Non-interest income.................... 2,833 2,780 1,942 2,458 2,837 2,274 1,612
Non-interest expense................... 9,957 9,225 9,673 10,728 12,438 8,789 10,784
SAIF recapitalization assessment....... -- -- 1,224 -- -- -- --
-------- -------- -------- -------- -------- --------- --------
Income before income taxes............. 4,962 4,084 1,879 5,281 6,221 4,966 4,291
Income taxes........................... 1,658 1,303 511 1,756 2,117 1,691 1,456
-------- -------- -------- -------- -------- --------- --------
Net income............................. $ 3,304 $ 2,781 $ 1,368 $ 3,525 $ 4,104 $ 3,275 $ 2,835
======== ======== ======== ======== ======== ========= ========
Net income per common share, basic..... $ 0.63 $ 0.53 $ 0.26 $ 0.66 $ 0.76 $ 0 .61 $ 0.52
Weighted average number of shares
outstanding, basic................... 5,214,739 5,257,058 5,266,298 5,312,305 5,420,286 5,387,792 5,482,125
Net income per common share,
diluted.............................. $ 0.57 $ 0.48 $ 0.23 $ 0.60 $ 0.69 $ 0.55 $ 0.48
Weighted average number of shares
outstanding, diluted................. 5,709,321 5,792,396 5,832,231 5,843,386 5,956,543 5,905,624 5,942,004
(Continued on next page)
15
At or For the Nine
Months Ended
At or For the Year Ended June 30, March 31,
------------------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1999 2000
----------- ------------ ------------ ------------ ---------- ---------- ---------
(In thousands, except per share amounts)
Performance Ratios:
Return on average assets(4).............. 0.95% 0.73% 0.52% 0.82% 0.83% 0.91% 0.62%
Return on average stockholders'
equity(5).............................. 14.96 11.44 8.37 12.05 12.21 13.20 10.68
Average stockholders equity to
assets(6).............................. 6.38 6.34 6.25 6.84 6.77 7.29 6.05
Net interest spread(7)................... 3.15 2.52 2.49 2.94 2.96 3.14 2.95
Net interest margin(8)................... 3.54 2.90 2.90 3.40 3.43 3.48 3.19
Efficiency ratio(9)...................... 68.20 69.00 71.20 65.99 65.17 63.96 71.54
General and administrative expenses
to average assets...................... 2.87 2.41 2.32 2.51 2.51 2.45 2.37
Average interest-earning assets to
average interest-bearing liabilities... 108.09% 107.37% 108.37% 109.20% 110.12% 107.21% 104.97%
Asset Quality Ratios:
Non-performing loans to total loans
outstanding(1)......................... 0.74% 0.26% 0.31% 0.50% 0.26% 0.23% 0.13%
Non-performing loans to total assets..... 0.50 0.18 0.25 0.43 0.22 0.19 0.11
Non-performing assets to total assets.... 0.95 0.37 0.42 0.45 0.22 0.20 0.26
Allowance for loan losses to
non-performing loans................... 180.01 463.37 362.86 215.67 354.20 444.69 670.66
Allowance for loan losses to total
loans outstanding...................... 1.31 1.20 1.12 1.07 0.93 1.00 0.91
Earnings to Fixed Charges Ratios(10):
Including interest on deposits........... 1.32x 1.21x 1.16x 1.26x 1.28x 1.31x 1.20x
Excluding interest on deposits........... 2.03x 1.79x 1.58x 2.07x 2.12x 2.29x 1.65x
Capital Ratios:
Tier 1 (core) capital.................... 6.30% 6.48% 6.33% 7.02% 6.36% 6.52% 7.46%
Tier 1 risk-based........................ 11.71% 11.95% 10.16% 10.25% 9.18% 9.68% 11.00%
Total capital............................ 12.91% 13.13% 11.40% 11.35% 10.17% 10.70% 12.01%
<FN>
(1) Total loans outstanding is total gross loans including loans held for
sale, less loans in process and deferred fees.
(2) Non-performing loans include loans accounted for on a nonaccrual basis
or 90 days past due, and excludes restructured loans of $4.2 million in
each of 1995 and 1996. There were no restructured loans for the other
periods presented.
(3) Ratios exclude the impact of the Savings Association Insurance Fund
recapitalization assessment.
(4) Net income divided by average total assets.
(5) Net income divided by average equity.
(6) Average equity divided by average total assets.
(7) Difference between weighted average yield on interest-earning assets
and weighted average rate on interest-bearing liabilities.
(8) Net interest income as a percentage of average interest-earning assets.
(9) Total other expenses divided by total net interest income before
provision for loan losses plus total other income.
(10) For purposes of computing the ratios of earnings to fixed charges,
earnings represented income before income taxes, plus fixed charges.
Fixed charges represent total interest expense, including and excluding
interest on deposits.
</FN>
16
RISK FACTORS
Prospective purchasers of the exchange capital securities should
carefully review the information contained elsewhere or incorporated by
reference in this prospectus and should particularly consider the following
factors, which do not necessarily appear in the order of importance. Investors
should consider all of these factors to be important. Because holders of the
exchange capital securities may receive exchange debentures in exchange therefor
upon liquidation of the Trust, prospective purchasers of the exchange capital
securities are also making an investment decision with regard to the exchange
debentures and should carefully review all the information regarding the
exchange debentures contained in this prospectus.
RISKS RELATED TO YOUR INVESTMENT IN
THE EXCHANGE CAPITAL SECURITIES
Cascade Financial Corporation cannot make payments under the exchange guarantee
or the exchange debentures if Cascade Financial Corporation defaults on its
obligations that are more senior.
Our obligations under the exchange guarantee and the exchange
debentures are unsecured and rank:
o junior to all of our other borrowings, except those borrowings
that by their terms are equal or junior;
o junior to all of our subsidiaries' liabilities, including
Cascade Bank's deposit accounts; and
o senior to our common stock and preferred stock.
This means that we cannot pay under the exchange guarantee or the
exchange debentures if we default on payments of any of our other borrowings,
unless, by their terms, those borrowings are equal or junior to the exchange
guarantee. In addition, if the maturity of the exchange debentures is
accelerated, we cannot pay under the exchange guarantee or the exchange
debentures until all of our more senior borrowings are paid in full. Finally, if
we liquidate, go bankrupt or dissolve, we would be able to pay under the
exchange guarantee and the exchange debentures only after we have paid all of
our liabilities that are senior to the exchange guarantee.
If we default on our obligations to pay principal, premium or interest
on the exchange debentures, the Trust will not have sufficient funds to make
distribution, redemption or liquidation payments on the exchange capital
securities. As a result, you will not be able to rely upon our exchange
guarantee for payment of these amounts. Instead, you may seek legal redress
against us directly to collect payments owed to you or rely on the property
trustee to enforce the rights of the Trust under the exchange debentures against
us.
The exchange capital securities, exchange guarantee, the exchange
debentures and the indenture do not limit our ability to incur additional debt,
including debt that is senior in priority of payment.
The ability of the Trust to make payments due on the exchange capital
securities is solely dependent on us making payments on the exchange debentures
as and when required.
For more information on payments under the exchange guarantee and the
exchange debentures, you should refer to "Description of Exchange Debentures --
Subordination" and "Description of Exchange Guarantee -- Status of the Exchange
Guarantee."
Banking laws and regulations limit Cascade Financial Corporation's access to
funds, which may prevent Cascade Financial Corporation from making payments
under the exchange debentures and the exchange guarantee.
We are a unitary savings and loan association holding company regulated
by the OTS and almost all of our operating assets are owned by Cascade Bank. We
rely primarily on dividends from Cascade Bank to meet our obligations for
payment of corporate expenses, to pay cash dividends to our common and preferred
stockholders and to engage in share repurchase programs, and will rely on such
dividends to pay principal, premium and interest on the
17
exchange debentures and make payments under the exchange guarantee. The OTS
limits all capital distributions by Cascade Bank directly or indirectly to us,
including dividend payments. Cascade Bank must file an application to receive
the approval of the OTS for the proposed capital distribution.
Under the prompt corrective action provisions of the Federal Deposit
Insurance Act, or FDIA, Cascade Bank is prohibited from making capital
distributions, including the payment of dividends, if, after making any capital
distribution, Cascade Bank would become undercapitalized as defined under the
FDIA. Based on Cascade Bank's current financial condition, we do not expect that
this provision will have any impact on our ability to obtain dividends from
Cascade Bank. Payment of dividends by Cascade Bank also may be restricted at any
time at the discretion of the appropriate regulator if it deems the payment to
constitute unsafe or unsound banking practice. Currently, approximately $10.4
million is available for the payment of dividends to us without further approval
from the OTS.
We cannot assure you that Cascade Bank will be able to pay dividends at
past levels, or at all, in the future. See the section entitled "Regulation and
Supervision" in our Annual Report on Form 10-K for the year ended June 30, 1999,
which is incorporated into this prospectus by reference.
In addition to regulatory restrictions on the payment of dividends,
Cascade Bank is subject to certain restrictions imposed by federal law on any
extensions of credit it makes to its affiliates and on investments in stock or
other securities of its affiliates. We are considered an affiliate of Cascade
Bank. These restrictions prevent affiliates of Cascade Bank, including us, from
borrowing from Cascade Bank, unless various types of collateral secure the
loans. Federal law limits the aggregate amount of loans to and investments in
any single affiliate to 10% of Cascade Bank's capital stock and surplus and also
limits the aggregate amount of loans to and investments in all affiliates to 20%
of Cascade Bank's capital stock and surplus. As of March 31, 2000, approximately
$5.3 million of credit was available to us under this limitation.
If we do not receive sufficient cash dividends or borrowings from
Cascade Bank, then it is unlikely that we will have sufficient funds to make
payments on the exchange debentures and the exchange guarantee, thereby leaving
insufficient funds for the Trust to make payments to you on the exchange capital
securities.
Also, as a holding company, our right to receive any distribution of
assets of any subsidiary, upon such subsidiary's liquidation or reorganization
or otherwise (and thus your right to benefit indirectly from such distribution),
is subject to the prior claims of creditors of that subsidiary, except to the
extent we are also recognized as a creditor of that subsidiary. For example, if
Cascade Bank, our only direct operating subsidiary, is liquidated or
reorganized, depositors of Cascade Bank would have the right to receive
distributions from Cascade Bank before us unless we were considered a creditor
of Cascade Bank. At March 31, 2000, Cascade Bank had total liabilities,
including deposits, of $609.0 million.
Cascade Financial Corporation can defer interest payments on the exchange
debentures, causing your payments under the exchange capital securities to stop,
which will have tax consequences to you and may affect the market price of the
exchange capital securities.
We have the right, at one or more times, unless an event of default
exists under the exchange debentures, to defer interest payments on the exchange
debentures for up to 10 consecutive semi-annual periods, but not beyond March 1,
2030. If we defer interest payments, the Trust will defer paying distributions
to you on your exchange capital securities during the deferral period.
Additionally, during this period, any unpaid distributions on the exchange
capital securities will accumulate additional distributions at the rate of 11.0%
per year, compounded semi-annually, to the extent permitted by law. During this
time, we will be prohibited from declaring or paying cash dividends on our
common stock and preferred stock and making payments on certain of our debt
securities. For more information, please refer to "Description of Exchange
Capital Securities -- Distributions."
When any deferral period ends and we pay all interest then accrued and
unpaid on the exchange debentures, we may elect to begin a new deferral period.
There is no limitation on the number of times that we may elect to begin a
deferral period. See "Description of Exchange Capital Securities --
Distributions" and "Description of Exchange Debentures -- Option to Extend
Interest Payment Date."
18
If we exercise our right to defer payments of interest on the exchange
debentures, you will be required to accrue income (as original issue discount)
in respect of the deferred stated interest allocable to your exchange capital
securities for Federal income tax purposes, which will be allocated but not
distributed to you. As a result, you will be required to recognize income for
Federal income tax purposes before you receive any cash. Furthermore, if you
dispose of your exchange capital securities prior to the record date for the
distribution payment, you will not receive, from the Trust, the cash related to
this interest income.
As a result of our right to defer interest payments, the market price
of the exchange capital securities, which represent preferred beneficial
interests in the Trust, may be more volatile than the market prices of other
securities that are not subject to such deferral options. We do not currently
intend to exercise our right to defer interest payments on the exchange
debentures. However, if we exercise this right in the future, the market price
of the exchange capital securities will probably be affected. The exchange
capital securities may trade at a price that does not fully reflect the value of
accrued but unpaid interest on the exchange debentures. If you sell your
exchange capital securities during a deferral period, you may not receive the
same return on your investment as someone else who continues to hold the
exchange capital securities.
Distribution of exchange debentures may have a possible adverse effect on the
trading price.
We have the right to dissolve the Trust at any time if such dissolution
and any distribution of the exchange debentures would not result in a taxable
event to the holders of the exchange capital securities. If we dissolve the
Trust, the Trust will be liquidated by distribution of the exchange debentures
to holders of the exchange capital securities and the common securities.
Under current Federal income tax laws, a distribution of exchange
debentures to you on the dissolution of the Trust would not be a taxable event
to you. Nevertheless, if the Trust is classified for Federal income tax purposes
as an association taxable as a corporation at the time it is dissolved, the
distribution of exchange debentures to you would be a taxable event. In
addition, if there is a change in law, a distribution of exchange debentures to
you on the dissolution of the Trust could also be a taxable event.
Your investment in the exchange capital securities may decrease in
value if the exchange debentures are distributed to you in liquidation of the
Trust. We cannot predict the liquidity of the market or market prices for the
exchange debentures that may be distributed. Accordingly, the exchange
debentures that you receive upon a distribution, or the exchange capital
securities you hold pending such distribution, may trade at a discount to the
price that you paid to purchase the exchange capital securities. Because you may
receive the exchange debentures, you must also make an investment decision with
regard to the exchange debentures. You should carefully review all of the
information regarding the exchange debentures contained in this prospectus.
You will have limited voting rights.
As a holder of exchange capital securities, you will have limited
voting rights. You can vote only to modify certain terms of the exchange capital
securities or on the removal of the property and Delaware trustees of the Trust
upon a limited number of events. We, along with the property trustee and the
administrative trustees, may amend the trust agreement without your consent even
if these actions adversely affect your interests, to ensure that the Trust:
o will continue to be classified as a grantor trust for Federal
income tax purposes; and
o will not be required to register as an "investment company"
under the Investment Company Act of 1940.
You will not have any voting rights regarding Cascade Financial
Corporation or the administrative trustees or with respect to any matters
submitted to a vote of our common stockholders. See "Description of Exchange
Capital Securities -- Voting Rights; Amendment of the Trust Agreement" and "--
Removal of Issuer Trustees" for more information on your limited voting rights.
19
The limited covenants relating to the exchange capital securities and the
exchange debentures do not protect you.
The covenants in the governing documents relating to the exchange
capital securities and the exchange debentures are limited. As a result, the
governing documents do not protect you in the event of an adverse change in our
financial condition or results of operations. In addition, the governing
documents do not limit our ability, or the ability of our subsidiaries, to incur
additional debt. You should not consider the terms of the governing documents to
be a significant factor in evaluating whether we will be able to comply with our
obligations under the exchange debentures or the guarantee.
The limited covenants relating to the capital securities and the junior
subordinated debentures do not protect you.
The covenants in the governing documents relating to the capital
securities and the junior subordinated debentures are limited. As a result, the
governing documents do not protect you in the event of an adverse change in our
financial condition or results of operations. In addition, the governing
documents do not limit our ability, or the ability of our subsidiaries, to incur
additional debt. You should not consider the terms of the governing documents to
be a significant factor in evaluating whether we will be able to comply with our
obligations under the junior subordinated debentures or the guarantee.
Trading characteristics of the exchange capital securities may create adverse
tax consequences for you.
The exchange capital securities may trade at a price that does not
reflect the value of the accrued but unpaid interest on the underlying exchange
debentures. If you dispose of your exchange capital securities between the
record date for payments on the exchange capital securities, you may have
adverse tax consequences. Under these circumstances, you will be required to
include accrued but unpaid interest on the exchange debentures allocable to the
exchange capital securities through the date of disposition in your income. If
interest on the exchange debentures is included in income under the original
issue discount provisions, you would add this amount to your adjusted tax basis
in your share of the underlying exchange debentures deemed disposed. If your
selling price is less than your adjusted tax basis, which will include all
accrued but unpaid original issue discount interest included in your income, you
could recognize a capital loss which cannot be applied to offset ordinary income
for federal income tax purposes, subject to exceptions. See "Certain Federal
Income Tax Consequences -- Interest Income and Original Issue Discount" and
"--Sales or Redemptions of Capital Securities" for more information on possible
adverse tax consequences to you.
Your failure to exchange original capital securities may adversely affect your
ability to sell such securities.
The original capital securities have not been registered under the
Securities Act or any state securities laws and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws, or
pursuant to an exemption from the applicable securities laws or in a transaction
not subject to such laws, and in each case in compliance with certain other
conditions and restrictions. Original capital securities which remain
outstanding after consummation of the exchange offer will continue to bear a
legend reflecting such restrictions on transfer. In addition, upon consummation
of the exchange offer, holders of original capital securities which remain
outstanding will not be entitled to any rights to have such original capital
securities registered under the Securities Act or to any similar rights under
the registration rights agreement, subject to certain limited exceptions. We and
the Trust do not intend to register under the Securities Act any original
capital securities which remain outstanding after consummation of the exchange
offer, subject to such limited exceptions, if applicable. To the extent that
original capital securities are tendered and accepted in the exchange offer,
your ability to sell untendered original capital securities could be adversely
affected.
The exchange capital securities and any original capital securities
which remain outstanding after consummation of the exchange offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage in outstanding liquidation amount thereof have taken
certain actions or exercised certain rights under the trust agreement. See
"Description of Exchange Capital Securities -- Voting Rights; Amendment of the
Trust Agreement."
20
Absence of public market; restrictions on resale.
The original capital securities were issued to, and we believe such
securities are currently owned by, a relatively small number of beneficial
owners. The original capital securities have not been registered under the
Securities Act and will be subject to restrictions on transferability if they
are not exchanged for the exchange capital securities. Although the exchange
capital securities may be resold or otherwise transferred by the holders, who
are not affiliates of Cascade Financial Corporation or the Trust, without
compliance with the registration requirements under the Securities Act, they
will constitute a new issue of securities with no established trading market and
will be transferable only in blocks having a liquidation amount of not less than
$100,000 (100 exchange capital securities).
If a public trading market develops, future trading prices of the
exchange capital securities will depend on many factors, including, among
others, prevailing interest rates, our operating results and the market for
similar securities. The initial purchasers have been making a market in the
capital securities and informed the Trust and us that they intend to make a
market in the exchange capital securities. However, the initial purchasers are
not obligated to do so and any such activity may be terminated at any time
without notice to the holders of the capital securities. In addition, any market
making activity will be subject to the limits of the Securities Act and may be
limited during the pendency of the exchange offer. Accordingly, we cannot assure
you that an active public market or other market will develop for the exchange
capital securities, or as to the liquidity of or the trading market for the
exchange capital securities. If an active public market does not develop, the
market price and liquidity of the exchange capital securities may be adversely
affected. In addition, neither we nor the Trust intend to apply for listing of
the exchange capital securities on any securities exchange or for quotation
through the Nasdaq Stock Market, Inc. See "Plan of Distribution."
Notwithstanding the registration of the exchange capital securities in
the exchange offer, holders who are "affiliates" (as defined under Rule 405 of
the Securities Act) of us or the Trust may publicly offer for sale or resell the
exchange capital securities only in compliance with the provisions of Rule 144
under the Securities Act.
Each broker-dealer that receives exchange capital securities for its
own account in exchange for original capital securities, where such original
capital securities were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange capital
securities. See "Plan of Distribution."
We are not obligated to notify you of defects or irregularities in the exchange
offer procedures.
Subject to conditions set forth under "The Exchange Offer -- Conditions
to the Exchange Offer," issuance of the exchange capital securities in exchange
for original capital securities under the exchange offer will be made only after
a timely receipt by the Trust of:
o a book-entry confirmation evidencing the tender of such
original capital securities through ATOP; or
o certificates representing such original capital securities, a
properly completed and duly executed letter of transmittal,
with any required signature guarantees, and all other required
documents.
Therefore, holders of the original capital securities desiring to
tender such original capital securities should allow sufficient time to ensure
timely delivery. See "The Exchange Offer -- Acceptance for Exchange and Issuance
of Exchange Capital Securities" and "-- Procedures for Tendering Original
Capital Securities." Neither we nor the Trust is under any duty to give
notification of defects or irregularities with respect to the tenders of
original capital securities for exchange.
21
RISKS RELATING TO CASCADE FINANCIAL CORPORATION
AND CASCADE BANK
Our business may be adversely affected by downturns in the local economies on
which we depend.
Our loan portfolio is concentrated in the Greater Puget Sound region,
particularly Snohomish, King, Skagit and Whatcom counties in western Washington.
This market has recently benefitted from a growing high-technology and service
economy, resulting in rapid population increases and home construction. Our
profits depend on providing products and services to customers in this local
region. An increase in unemployment, a decrease in real estate values or further
increases in interest rates could weaken the local economy. Weakness in our
market area could depress our earnings and consequently our financial condition
because:
o customers may not want or need our products and services;
o borrowers may not be able to repay their loans;
o the value of the collateral securing our loans to borrowers
may decline; and
o the quality of our loan portfolio may decline.
In addition, the Boeing Company is the largest employer in the Puget
Sound Area and in Snohomish County. The Boeing Company has, in the past, had
wide fluctuations in its number of employees. Boeing layoffs may create problems
for us if we have outstanding loans to employees who are laid-off and not hired
by other companies, or to subcontractors that have canceled or delayed orders
from Boeing. Significant Boeing layoffs in recent years have not affected our
asset quality, however, we cannot assure you that any future Boeing layoffs or
strikes will not adversely affect our asset quality.
In addition, our market area has been, and may in the future be,
subject to earthquakes. We usually do not require our borrowers to maintain
earthquake insurance on properties securing mortgage loans. Accordingly,
earthquake damage to properties securing mortgage loans or to properties we own
could have a material adverse effect on our profitability.
Our focus on commercial banking may have an adverse impact on our results of
operations.
Our business strategy centers on the continued transition to commercial
banking activities in order to expand our net interest margin. Consistent with
this strategy, we are working to reduce the percentage of our assets that are
lower-yielding single-family first mortgage loans and mortgage-backed securities
and to increase the percentage of our assets consisting of commercial,
residential construction and installment consumer loans that have higher
risk-adjusted returns and shorter maturities.
Our commercial banking strategy may take a period of time to implement
fully and may require the incurrence of additional expenses to originate the
desired volume of non-residential loans. Specifically, in recent years, we have
incurred above average non-interest expense levels, which are primarily related
to our transition into community banking and the maintenance of our mortgage
banking activities. Non-interest expense was $10.7 million for the year ended
June 30, 1998 compared to $12.4 million for the year ended June 30, 1999 and was
$8.8 million for the nine-months ended March 31, 1999 compared to $10.8 million
for the nine-months ended March 31, 2000. Our mortgage banking activities are
highly dependent upon the local real estate market and the level and trend of
interest rates. Some of our expenses in this operation are variable, however, a
significant portion are fixed in the short-term and as a result can contribute
to periodic variances in our non-interest expense. Additionally, expenses have
been incurred over recent periods related to data processing, equipment and
personnel related to our commercial banking operations. We cannot assure you
that our increased expenditures will result in our meeting our objective to
increase the proportion of our non-residential loan portfolio to total
outstanding loans. Factors that may affect our ability to increase originations
of these loans include the demand for these loans, interest rates, our ability
to recruit and retain commercial lenders and the state of the local and national
economy.
22
By significantly increasing our commercial banking activities we have
increased our risk profile relative to traditional thrift institutions. A
substantial portion of our commercial business loans is unseasoned because they
have been originated recently and have not been subject to unfavorable economic
conditions. While we have increased our allowance for loan losses in recent
years, the percentage of the allowance for loan losses to total loans
outstanding declined in each of the past five years to .91% at March 31, 2000.
In addition, we cannot assure you that a downturn in the local economy would not
have a material adverse effect on the quality of the commercial business loan
portfolio, thereby resulting in material delinquencies and losses to our
operations.
Our business may be adversely affected if we fail to effectively manage our
credit risk.
In addition to originating residential mortgage loans, both conforming
and nonconforming, we originate loans for a much more diversified loan portfolio
compared to a traditional one- to four-family lender. Our more significant
lending areas include construction, commercial, multi-family and consumer
installment. This diversification presents the challenge of managing the unique
credit risks discussed below associated with each type of loan product. For more
information about our loan products, you should read "Summary -- Business."
Nonconforming Residential Mortgage Lending. Single-family first
mortgage loans comprise the largest component of our loan portfolio and are
secured primarily by properties located in Snohomish, King, Skagit and Whatcom
counties. These loans are generally made on the basis of the borrower's ability
to make repayment from his or her employment and the loans are fully secured by
residential real estate whose value tends to be more easily ascertainable than
commercial real estate. A significant and growing portion of our residential
loan portfolio does not, however, conform to or satisfy the requirements for
sale in the secondary market. These loans generally are originated when the
borrower's credit profile, or some aspect of the security property, do not meet
secondary market guidelines. For example, we may make loans to borrowers who
have marginal or limited credit histories, provide limited or no documentation
of assets or income and have higher debt-to-income ratios than our loans
conforming to secondary market guidelines. At March 31, 2000, $107.7 million or
19.9% of our total outstanding loan portfolio and 50% of our one- to four-family
residential loan portfolio consisted of nonconforming one- to four-family
residential loans. Our nonconforming one- to four-family residential loans
generally have an increased risk of delinquency and foreclosure than conforming
loans and may result in higher levels of realized loss. Although we have not
experienced such increased delinquencies or foreclosures in the current economy,
we cannot assure you that our nonconforming loan portfolio would not be
adversely affected in the event of a downturn in regional economic conditions.
For more information, you should read "Summary -- Business."
Construction Lending. Residential construction loans were $53.4 million
or 9.9% of our loan portfolio at March 31, 2000. These loans involve greater
credit risks than secured residential or commercial lending because loan funds
are advanced upon the security of the project under construction that is of
uncertain value before completion. Our risk of loss on a construction loan is
dependent largely upon the accuracy of the initial estimate of the property's
value at completion of construction or development and the estimated cost
(including interest) of the construction. If the estimate of construction costs
is inaccurate, we may be required to advance additional funds to complete the
development. If, upon completion of the project, the estimate of the
marketability of the property is inaccurate, the borrower may be unable to sell
the completed project in a timely manner or obtain adequate proceeds to repay
the loan. Delays in completing the project may arise from labor problems,
material shortages and other unpredictable contingencies. Furthermore, if the
estimate of value of a completed project is inaccurate, then we may be
confronted with, at or prior to the maturity of the loan, a project with a value
that is insufficient to assure full repayment. As a result, these loans may
involve the disbursement of substantial funds with repayment dependent, in part,
on the success of the ultimate project rather than the ability of the borrower
or guarantor to repay principal and interest.
Income Property Lending. Income property loans include loans secured by
commercial real estate and multi-family real estate. Commercial real estate
loans were $54.5 million or 10.1% of our loan portfolio at March 31, 2000 while
multi-family residential loans were $113.6 million or 21.0% of our total loan
portfolio at that date. Income property loans are generally considered to be
riskier than single-family first mortgage loans because they typically have
larger balances and are more affected by adverse conditions in the economy.
Income property loans also involve a greater degree of risk than one- to
four-family residential mortgage loans because they usually have unpredictable
cash flows and are more difficult to evaluate and monitor. For example,
repayment of multi-family loans is dependent, in
23
large part, on sufficient cash flow from the property to cover operating
expenses and debt service. Rental income might not rise sufficiently over time
to meet increases in the loan rate at repricing, or increases in operating
expenses (i.e., utilities, taxes). As a result, impaired loans are difficult to
identify early on. In addition, our loans are concentrated in a single
geographical area. Because payments on loans secured by income properties often
depend upon the successful operation and management of the properties, repayment
of such loans may be affected by factors outside the borrower's control such as
adverse conditions in the real estate market or the economy or changes in
government regulation. If the cash flow from the project is reduced (for
example, if leases are not obtained or renewed), the borrower's ability to repay
the loan and the value of the security for the loan may be impaired.
Commercial Business Lending. Commercial business lending generally
involves greater risk than residential mortgage lending and involves factors
affecting risk that are different from those associated with residential loans.
Commercial business loans were $82.8 million or 15.3% of our total loan
portfolio at March 31, 2000. Included in the commercial business loan portfolio
at that date, was $19.3 million of owner occupied commercial real estate loans.
The balance of our commercial business loan portfolio is comprised primarily of
asset-based loans collateralized by equipment, accounts receivable or other
business assets and unsecured operating lines of credit. Commercial business
loans typically involve larger loan amounts than traditional real estate secured
loans and are subject to a greater extent to adverse conditions in the economy.
These loans are of higher risk than traditional real estate secured loans
because repayment is often dependent on the successful operation of the
business, and because the loan is typically made on the value of the collateral
provided by the borrower to secure the loan. There is little additional credit
support provided by the borrower for most of these loans and the secondary
source of repayment is based almost solely on the liquidation of the pledged
collateral and the ability to collect on personal guarantees, if any. As a
result, in the case of loans secured by accounts receivable, the availability of
funds for the repayment of such loans may be substantially dependent on the
ability of the borrower to collect amounts due from its customers. The
collateral securing other loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
Accordingly, the repayment of a commercial business loan depends primarily on
the successful operation of the borrower's business and creditworthiness of the
borrower (and any guarantors), while liquidation of collateral is a secondary
and often insufficient source of repayment.
Consumer Installment Lending. Consumer installment loans were $21.1
million or 3.9%, of our loan portfolio as of the March 31, 2000 of which $16.2
million were boat loans. The balance of our consumer loans is automobile and
recreational vehicle loans, and unsecured personal loans. Consumer loans entail
greater risk than residential mortgage loans, particularly in the case of
consumer loans that are unsecured or secured by rapidly depreciating assets such
as boats or automobiles. In such cases, any repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of the greater likelihood of damage, loss
or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various Federal and state laws, including
Federal and state bankruptcy and insolvency laws, may limit the amount that can
be recovered on such loans.
We could be adversely affected by these and the other risks related to
our loans. Borrower defaults resulting in losses in excess of our allowance for
loan losses could have a material adverse effect on our profitability and
financial condition.
Rising interest rates may reduce our net income.
Our ability to make a profit, like that of most financial institutions,
substantially depends upon our net interest income, which is the difference
between the interest income we earn on our interest-earning assets (such as
loans) and the interest expense we pay on our interest-bearing liabilities (such
as deposits). Certain assets and liabilities, however, may react in different
degrees to changes in market interest rates. Further, interest rates on certain
types of assets and liabilities may fluctuate prior to changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. In this regard, at March 31, 2000,
approximately $304.6 million or 56.4% of our total loans outstanding are
adjustable rate loans that adjust based upon the Twelfth District Cost of Funds,
a lagging index, which could result in our assets repricing less rapidly than
our liabilities. Additionally, certain assets,
24
such as adjustable rate mortgages, have features, including payment and rate
caps, which restrict changes in their interest rates.
Factors such as inflation, economic growth or recession, employment
levels, money supply, international disorders, instability in domestic and
foreign financial markets, and other factors beyond our control may affect
interest rates. Changes in market interest rates will also affect the level of
voluntary prepayments on our loans and the receipt of payments on our
mortgage-backed securities resulting in the receipt of proceeds that may be
reinvested at a lower rate than the loan or mortgage-backed security being
prepaid. Although we pursue an asset-liability management strategy designed to
control our risk from changes in market interest rates, changes in interest
rates could have a material adverse effect on our profitability.
We originate residential loans for sale and for our portfolio. The
origination of loans for sale is designed to meet customer financing needs and
earn fee income. The origination of loans for sale is highly dependent upon the
local real estate market and the level and trend of interest rates. Increasing
interest rates may reduce the origination of loans for sale and consequently the
fee income we earn. While our commercial banking, construction and income
property business lines are an increasing portion of our activities, higher
interest rates may reduce our mortgage-banking activities and thereby our
income.
We use various tools to measure and monitor interest rate risk. Each of
these interest rate risk methodologies has limitations, but when evaluated
together, we believe they provide a reasonable estimation of our exposure to
interest rate risk. The primary tool we use is income simulation. On at least a
quarterly basis, an income simulation model is used to quantify the effects of
various hypothetical changes in interest rates on our projected net interest
income over a 12-month period. The model permits us to evaluate the effects of
various shifts in market interest rates on our net interest income expected in a
stable interest rate environment (i.e., base net interest income). The
assumptions underlying the models require management to exercise judgment as to
the reasonableness of such assumptions. As of September 30, 1999, the latest
date for which information is available, our income simulation model projects
net interest income would decrease by approximately 5% of base net interest
income, assuming an immediate parallel shift upward in market interest rates by
200 basis points. This projected decrease is within our policy limit. The use of
different estimation methodologies may have a material effect on the estimated
results.
Under OTS regulations, we are required to monitor changes in the net
portfolio value (NPV) of the expected future cash flows of our assets and
liabilities. Our NPV ratio is our NPV divided by the estimated market value of
total assets. As of March 31, 2000, the latest date for which information is
available, a 200 basis point increase in interest rates would have reduced our
NPV by approximately 28% resulting in an NPV ratio of 6.9%. We cannot assure you
that future changes in our mix of assets and liabilities, or unforeseen changes
in market interest rates will not result in more extensive declines in our NPV
and NPV ratio.
At March 31, 2000, $72.7 million of our securities were classified as
available-for-sale under generally accepted accounting principles. The estimated
market value of our available-for-sale securities portfolio may increase or
decrease depending on changes in interest rates. Generally, as interest rates
increase, the estimated market value of our fixed rate securities portfolio will
decrease because the average yield on the portfolio, relatively, will be less
than the yields on securities available in the market at that time. Under
generally accepted accounting principles, we are required to increase or
decrease stockholders' equity by the amount of the change in estimated market
value of our available-for-sale securities portfolio, net of the related tax
benefit, under the category of accumulated other comprehensive income.
Therefore, a decline in the estimated market value of this portfolio will result
in a decline in reported stockholders' equity. This decrease will occur even
though the securities are not sold. If these securities are never sold, the
decrease will be recovered over the life of the securities. At March 31, 2000,
the decline in stockholders' equity due to a decline in the estimated market
value of the available-for-sale securities portfolio was $2.4 million compared
to $1.8 million at June 30, 1999 and to $104,000 at June 30, 1998.
Loss of key personnel may hurt our operations.
We will depend on our management team to continue to implement our
strategy of focusing on commercial banking while maintaining asset quality and
operational standards, as well as integrating acquired businesses. We are
25
especially dependent on a limited number of key management personnel. The loss
of the chief executive officer, the president and other senior executive
officers, because of death or other reasons, could have a material adverse
impact on our operations because other officers may not have the experience and
expertise to readily replace these individuals. As a result, the Board of
Directors may have to search outside of our business structure for qualified,
permanent replacements. This search may be prolonged and we cannot assure you
that we would be able to locate and hire qualified replacements. We do not have
any plans to obtain a "key man" life insurance policy for any of our officers,
or other employees.
Strong competition within our market area may reduce our ability to attract and
retain deposits and originate loans.
We face competition both in originating loans and in attracting
deposits. Competition in the banking and financial services industry is intense.
We have competed for customers by offering excellent service and competitive
rates on our loans and deposit products. The types of institutions we compete
with include commercial banks, savings institutions, mortgage banking firms,
credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms. As a result of their size and ability to
achieve economies of scale, certain of our competitors offer a broader range of
products and services than we offer. In addition, our competitors may offer
products at interest rates that, if we match, could adversely affect our net
interest margin. As a result, our profitability depends upon our continued
ability to successfully compete in our market area while achieving our
investment objectives.
USE OF PROCEEDS
Neither we nor the Trust will receive any cash proceeds from the
issuance of the exchange capital securities and the exchange guarantee. In
consideration for issuing the exchange capital securities in exchange for
original capital securities as described in this prospectus, the Trust will
receive original capital securities in like liquidation amount. The original
capital securities surrendered in exchange for the exchange capital securities
will be retired and canceled.
All of the proceeds from the sale by the Trust of its original capital
securities and common securities were invested by the Trust in the original
junior subordinated debentures. The net proceeds we received from the sale of
the $10 million aggregate principal amount of our junior subordinated
debentures, Series A, also referred to as the original junior subordinated
debentures, were approximately $9.4 million, net of estimated commissions and
other estimated offering expenses. We used all of the net proceeds to increase
Cascade Bank's capital level.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust is treated as our
subsidiary, and, accordingly, the accounts of the Trust are included in our
consolidated financial statements. The capital securities are presented as a
separate line item in our consolidated statements of financial condition and
appropriate disclosures about the capital securities, the guarantee and the
junior subordinated debentures are included in the notes to consolidated
financial statements. For financial reporting purposes, we will record
distributions payable on the capital securities as interest expense in the
consolidated statements of income.
Future reports we file under the Exchange Act will include a footnote
to the consolidated financial statements stating that:
o the Trust is wholly-owned;
o the sole assets of the Trust are the junior subordinated
debentures (specifying the principal amount, interest rate and
maturity date of such junior subordinated debentures); and
o our obligations under the trust agreement, the junior
subordinated debentures and related indenture and the original
guarantee and the exchange guarantee, collectively referred to
as the guarantees, in
26
the aggregate, constitute a full and unconditional guarantee
by us of the obligations of the Trust under the capital
securities.
We expect that the Trust will not be required to provide separate
reports under the Exchange Act.
CAPITALIZATION
The following table sets forth our consolidated capitalization at March
31, 2000, and as adjusted to give effect to the issuance of the original capital
securities offered by the Trust, and the receipt and application by us of the
net proceeds from the corresponding sale of the original junior subordinated
debentures to the Trust. Consummation of the exchange offer will have no effect
on such capitalization. You should read this table in conjunction with our
consolidated financial statements and related notes contained in our Form 10-Q/A
for the quarter ended March 31, 2000, which are incorporated by reference into
the prospectus.
March 31, 2000
----------------
Actual
----------------
(In thousands)
Long-term borrowings(1)...................... $ 89,907
--------
Guaranteed preferred beneficial
interest in junior subordinated
debentures(2).............................. $ 10,310
--------
Stockholders' equity:
Preferred stock, $.01 par value;
500,000 shares authorized, none
outstanding................................ ---
Common stock, $.01 par value;
8,000,000 shares authorized,
5,489,879 shares issued
and outstanding............................ 55
Additional paid in capital................... 5,034
Retained earnings-substantially
restricted................................. 33,983
Accumulated other comprehensive
income (loss)(3)........................... (2,379)
--------
Total stockholders' equity................... 36,693
Total long-term borrowings
and stockholders' equity................... 136,910
========
Capital ratios (Cascade Bank)(4):
Tier 1 (core) capital........................ 7.46%
Tier 1 risk-based capital.................... 11.00
Total capital................................ 12.01
- -----------------
(1) Certain FHLB advances due beyond one year have an option whereby the
issuer can call the long-term borrowing due at any time prior to the
expiration of the option date. The amount of such advances with option
dates within one year amount to $50 million.
(2) As described in this prospectus, the sole assets of the Trust, which is
our subsidiary, will be $10.3 million aggregate principal amount of the
11.0% junior subordinated debentures, Series A, which will mature on
March 1, 2030, unless redeemed prior to such date in accordance with
their terms. We will own all of the common securities issued by the
Trust.
(3) Includes only net unrealized loss on securities available-for-sale.
27
CASCADE FINANCIAL CORPORATION
We are a unitary savings and loan holding company headquartered in
Everett, Washington. We conduct our business through Cascade Bank, a federally
chartered stock savings bank which has 14 branches and one loan origination
office serving Snohomish, King, Skagit and Whatcom counties. As of March 31,
2000, we had $645.6 million of total assets, $539.0 million of total outstanding
loans, $428.4 million of deposits and $36.7 million of stockholders' equity.
Cascade Bank was organized in 1916 as a Washington state chartered
savings and loan association, converted to a federal mutual savings bank in
1992, converted from a federal mutual to a federal stock savings bank in 1992
and became our wholly owned subsidiary in 1994. Prior to 1996, our focus was on
the origination of single-family residential loans, commercial real estate,
construction and multi-family loans. In 1996, we revised our strategic plan to
seek a higher level of earnings by broadening our focus from being primarily a
real estate-based lender to becoming a full service community bank offering a
wider range of consumer and commercial banking services. As part of this
strategy, in August 1997, we acquired AmFirst Bancorporation and its
wholly-owned subsidiary, American First National Bank, a commercial bank with
approximately $67.3 million of assets at August 1, 1997. This acquisition
significantly expanded our commercial and consumer banking products and
augmented our management team with significant commercial banking experience.
REGULATION AND SUPERVISION
We are subject to extensive federal and, to a lesser extent, state
regulation. We are subject to examination and supervision by the OTS, as our
chartering agency, and by the Federal Deposit Insurance Corporation, or the
FDIC, as the deposit insurer. We, as a unitary savings and loan holding company,
are regulated, examined and supervised by the OTS. We are required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS and of the Commission under the federal securities laws. The OTS has primary
enforcement responsibility over federally chartered savings associations and has
substantial discretion to impose enforcement action on an institution that fails
to comply with its regulatory requirements, particularly with respect to its
capital requirements. In addition, the FDIC has the authority to recommend to
the Director of the OTS that enforcement action be taken with respect to a
particular federally chartered savings association and, if action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances.
This regulation and supervision establishes a comprehensive framework
of activities in which we can engage and is intended primarily for the
protection of the deposit insurance fund and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.
Regulations affecting banks and financial services companies undergo continuous
modification and the ultimate effect of such changes cannot be predicted.
Regulations and laws may be modified at any time, and new legislation may be
enacted that affects us, our bank and non-bank subsidiaries. Any change in such
regulation, whether by the OTS, the FDIC or Congress could have a material
adverse impact on our operations.
Almost all of our assets consist of our investment in Cascade Bank, our
principal subsidiary. Thus, our ability to pay principal of, and premium and
interest on, the junior subordinated debentures depends almost entirely on cash
dividends we receive from Cascade Bank. The OTS limits all capital distributions
by Cascade Bank directly or indirectly to us, including dividend payments. As
the subsidiary of a savings and loan holding company, Cascade Bank currently
must file a notice with the OTS for each capital distribution. However, if the
total amount of all capital distributions (including each proposed capital
distribution) for the applicable calendar year exceeds net income for that year
to date plus the retained net income for the preceding two years, then Cascade
Bank must file an application to receive the approval of the OTS for the
proposed capital distribution. Currently, approximately $10.4 million is
available for the payment of dividends to us without further approval from the
OTS.
In addition to the OTS limits, Cascade Bank may not pay dividends to us
if, after paying those dividends, it would fail to meet the required minimum
levels under risk-based capital guidelines and the minimum leverage and
28
tangible capital ratio requirements. Under the FDIA, an insured depositary
institution such as Cascade Bank is prohibited from making capital
distributions, including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" (as such term is
used in the FDIA). Based on Cascade Bank's current financial condition, we do
not expect that this provision will have any impact on our ability to obtain
dividends from Cascade Bank. Payment of dividends by Cascade Bank also may be
restricted at any time at the discretion of the appropriate regulator if it
deems the payment to constitute an unsafe and unsound banking practice. We
cannot assure you that Cascade Bank will be able to pay dividends at past
levels, or at all, in the future.
If we do not receive sufficient cash dividends from Cascade Bank, it is
unlikely that we will have sufficient funds to make payments on the junior
subordinated debentures or that the Trust will be able to make the related
payments on the capital securities. See "Description of Exchange Capital
Securities" and "Description of Exchange Debentures."
Other statutes and regulations that affect us and Cascade Bank are
summarized in "Item 1. Business --Regulation and Supervision" of our Annual
Report on Form 10-K for the fiscal year ended June 30, 1999, which is
incorporated into this prospectus by reference.
CASCADE CAPITAL TRUST I
The Trust is a statutory business trust created under Delaware law upon
the filing of a certificate of trust with the Delaware Secretary of State. The
Trust exists for the exclusive purposes of:
o issuing and selling the capital securities and the common
securities;
o using the proceeds from the sale of the capital securities and
the common securities to acquire the junior subordinated
debentures issued by us; and
o engaging in only those other activities necessary, advisable
or incidental thereto, including the exchange offer.
The junior subordinated debentures are the sole assets of the Trust,
and, accordingly, payments under the junior subordinated debentures will be the
sole revenues of the Trust. We own all of the common securities of the Trust,
which have an aggregate liquidation amount equal to at least 3% of the total
capital of the Trust. The common securities rank pari passu, and payments will
be made thereon pro rata, with the capital securities, except that upon the
occurrence and continuance of an event of default under the trust agreement
resulting from an event of default under the junior subordinated debentures, our
rights as holder of the common securities to payments in respect of
distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the capital securities. See
"Description of Exchange Capital Securities -- Subordination of Common
Securities." The Trust has a term of approximately 31 years, but may dissolve
earlier as provided in the trust agreement. The Trust's business and affairs are
conducted by Wilmington Trust Company, as property trustee and as the Delaware
trustee, and three administrative trustees, collectively referred to as the
issuer trustees. Wilmington Trust Company also acts as trustee under the
guarantees and as debenture trustee under the indenture. See "Description of
Exchange Debentures" and "Description of Exchange Guarantee." The holder of the
common securities of the Trust or, if an event of default under the trust
agreement has occurred and is continuing, the holders of a majority in
liquidation amount of the capital securities, will be entitled to appoint,
remove or replace the property trustee and/or the Delaware trustee. In no event
will the holders of the exchange capital securities have the right to vote to
appoint, remove or replace the administrative trustees; such voting rights will
be vested exclusively in the holder of the common securities. The duties and
obligations of each issuer trustee are governed by the trust agreement. As
issuer of the exchange debentures, we will pay all fees, expenses, debts and
obligations (other than the payment of principal of, and premium and interest
on, the capital securities) related to the Trust and the offering of the
exchange capital securities and pay, directly or indirectly, all ongoing costs,
expenses and liabilities of the Trust. The principal executive office of the
Trust is Cascade Financial Corporation, 2828 Colby Avenue, Washington 98201, and
its telephone number is (425) 339-5500.
29
THE EXCHANGE OFFER
Purpose of the Exchange Offer
In connection with the sale of the original capital securities, we and
the Trust entered into the registration rights agreement with the initial
purchasers, under which we and the Trust agreed to file and to use our best
efforts to cause to become effective with the Commission a registration
statement with respect to the exchange of the original capital securities for
exchange capital securities with terms identical in all material respects to the
terms of the original capital securities. A copy of the registration rights
agreement has been filed as an exhibit to the registration statement of which
this prospectus is a part.
The exchange offer is being made to satisfy ours and the Trust's
contractual obligations under the registration rights agreement. The form and
terms of the exchange capital securities are the same as the form and terms of
the original capital securities except that the exchange capital securities have
been registered under the Securities Act and will not provide for any increase
in the distribution rate and certain restrictions on transfer applicable to the
original capital securities. In that regard, the original capital securities
provide, among other things, that, if a registration statement relating to the
exchange offer has not been filed with the Commission on or prior to the 150th
day after the issue date, the distribution rate borne by the original capital
securities will increase by 25 basis points per annum until the exchange offer
is consummated. Upon consummation of the exchange offer, holders of original
capital securities will not be entitled to any increase in the distribution rate
on the original capital securities or any further registration rights under the
registration rights agreement, except under limited circumstances. See "Risk
Factors."
The exchange offer is not being made to, nor will the Trust accept
tenders for exchange from, holders of original capital securities in any
jurisdiction in which the exchange offer or its acceptance would not be in
compliance with the securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect
to the exchange offer means any person in whose name the original capital
securities are registered on the books of the Trust or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose original capital securities are held of record by DTC who desires
to deliver such original capital securities by book-entry transfer at DTC.
Under the exchange offer, we will exchange as soon as practicable after
the date of this prospectus the original guarantee for the exchange guarantee
and the original junior subordinated debentures, in an amount corresponding to
the original capital securities accepted for exchange, for a like aggregate
principal amount of the exchange debentures. The exchange guarantee and exchange
debentures have been registered under the Securities Act.
Terms of the Exchange Offer
The Trust hereby offers, upon the terms and subject to the conditions
set forth in this prospectus and in the accompanying letter of transmittal, to
exchange up to $10 million aggregate liquidation amount of exchange capital
securities for a like aggregate liquidation amount of original capital
securities properly tendered on or prior to the expiration date and not properly
withdrawn in accordance with the procedures described below. The Trust will
issue, promptly after the expiration date, an aggregate liquidation amount of up
to $10 million of exchange capital securities in exchange for a like principal
amount of outstanding original capital securities tendered and accepted in
connection with the exchange offer. Holders may tender their original capital
securities in whole or in part in a liquidation amount of not less than $100,000
(100 capital securities) or any integral multiple of $1,000 liquidation amount
(one capital security) in excess of $100,000.
The exchange offer is not conditioned upon any minimum liquidation
amount of original capital securities being tendered. As of the date of this
prospectus, $10 million aggregate liquidation amount of the original capital
securities is outstanding.
Holders of original capital securities do not have any appraisal or
dissenters' rights in connection with the exchange offer. Original capital
securities which are not tendered for or are tendered but not accepted in
connection with
30
the exchange offer will remain outstanding and be entitled to the benefits of
the trust agreement, but will not be entitled to any further registration rights
under the registration rights agreement, except under limited circumstances. See
"Risk Factors" and "Description of Original Securities."
If any tendered original capital securities are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth in this prospectus or otherwise, certificates for any such unaccepted
original capital securities will be returned, without expense, to the tendering
holder promptly after the expiration date.
Holders who tender original capital securities in connection with the
exchange offer will not be required to pay brokerage commissions or fees or,
subject to the instructions in the letter of transmittal, transfer taxes with
respect to the exchange of original capital securities in connection with the
exchange offer. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. See "--
Fees and Expenses."
Neither we, our Board of Directors nor any issuer trustee of the Trust
makes any recommendation to you as to whether to tender or refrain from
tendering all or any portion of your original capital securities pursuant to the
exchange offer. In addition, no one has been authorized to make any such
recommendation. You must make your own decisions whether to tender pursuant to
the exchange offer and, if so, the aggregate amount of original capital
securities to tender based your own financial position and requirements.
Expiration Date; Extensions; Amendments
The term "expiration date" means 5:00 p.m., New York City time, on
August 30, 2000, unless we or the Trust extends the exchange offer, in which
case the term "expiration date" shall mean the latest date and time to which the
exchange offer is extended.
We and the Trust expressly reserve the right in our sole and absolute
discretion, subject to applicable law, at any time and from time to time:
o to delay the acceptance of the original capital securities for
exchange;
o to terminate the exchange offer, whether or not any original
capital securities have theretofore been accepted for
exchange, if the Trust determines, in its sole and absolute
discretion, that any of the events or conditions referred to
under "-- Conditions to the Exchange Offer" have occurred or
exist or have not been satisfied;
o to extend the expiration date of the exchange offer and retain
all original capital securities tendered under the exchange
offer, subject, however, to the right of holders of original
capital securities to withdraw their tendered original capital
securities as described under "-- Withdrawal Rights;" and
o to waive any condition or otherwise amend the terms of the
exchange offer in any respect.
If the exchange offer is amended in a manner determined by us and the Trust to
constitute a material change, or if we and the Trust waive a material condition
of the exchange offer, we and the Trust will promptly disclose such amendment by
means of a prospectus supplement that will be distributed to the holders of the
original capital securities, and we and the Trust will extend the exchange offer
to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will
be followed promptly by oral or written notice to the exchange agent and by
making a public announcement, and such announcement in the case of an extension
will be made no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled expiration date. Without limiting the manner
in which we and the Trust may choose to make any public announcement and subject
to applicable law, we and the Trust shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency.
31
Acceptance for Exchange and Issuance of Exchange Capital Securities
Upon the terms and subject to the conditions of the exchange offer, the
Trust will exchange, and will issue to the exchange agent, exchange capital
securities for original capital securities validly tendered and not withdrawn
promptly after the expiration date.
In all cases, delivery of exchange capital securities in exchange for
original capital securities tendered and accepted for exchange under the
exchange offer will be made only after timely receipt by the exchange agent of
(i) the book-entry confirmation described below under "-- Procedures for
Tendering Original Capital Securities -- Book-Entry Transfer" or (ii)
certificates representing such original capital securities, the letter of
transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, and any other documents required by the
letter of transmittal.
Subject to the terms and conditions of the exchange offer, the Trust
will be deemed to have accepted for exchange, and thereby exchanged, original
capital securities validly tendered and not withdrawn as, if and when the Trust
gives oral or written notice to the exchange agent of the Trust's acceptance of
such original capital securities for exchange under the exchange offer. The
exchange agent will act as agent for the Trust for the purpose of receiving
tenders of book-entry confirmations or certificates representing original
capital securities, letters of transmittal and related documents, and as agent
for tendering holders for the purpose of receiving book-entry confirmations or
certificates representing original capital securities, letters of transmittal
and related documents and transmitting exchange capital securities to validly
tendering holders. Such exchange will be made promptly after the expiration
date. If for any reason whatsoever, acceptance for exchange or the exchange of
any original capital securities tendered pursuant to the exchange offer is
delayed, whether before or after the Trust's acceptance for exchange of original
capital securities, or the Trust extends the exchange offer or is unable to
accept for exchange or exchange original capital securities tendered under the
exchange offer, then, without prejudice to the Trust's rights set forth in this
prospectus, the exchange agent may, nevertheless, on behalf of the Trust and
subject to Rule l4e-1 (c) under the Exchange Act, retain tendered original
capital securities and such original capital securities may not be withdrawn
except to the extent tendering holders are entitled to withdrawal rights as
described under "-- Withdrawal Rights."
In accordance with the letter of transmittal, a holder of original
capital securities will warrant and agree that it has full power and authority
to tender, exchange, sell, assign and transfer the original capital securities,
that the Trust will acquire good, marketable and unencumbered title to the
tendered original capital securities, free and clear of all liens, restrictions,
charges and encumbrances, and the original capital securities tendered for
exchange are not subject to any adverse claims or proxies. Such holder also will
warrant and agree that it will, upon request, execute and deliver any additional
documents deemed by the Trust or the exchange agent to be necessary or desirable
to complete the exchange, sale, assignment, and transfer of the original capital
securities tendered under the exchange offer. Tendering holders of original
capital securities that use ATOP will, by so doing, acknowledge that they are
bound by the terms of the letter of transmittal.
Procedures for Tendering Original Capital Securities
Valid Tender. Except as set forth in this prospectus, in order for
original capital securities to be validly tendered under the exchange offer, a
properly completed and duly executed letter of transmittal (or facsimile
thereof), with any required signature guarantees and any other required
documents, must be received by the exchange agent at its address set forth under
"-- Exchange Agent," and, in addition, one of the following:
o tendered original capital securities must be received by the
exchange agent;
o such original capital securities must be tendered pursuant to
the procedures for book-entry transfer set forth in this
prospectus and a book-entry confirmation must be received by
the exchange agent, in each case on or prior to the expiration
date; or
o the guaranteed delivery procedures set forth in this
prospectus must be complied with.
32
If less than all of the original capital securities are tendered, a
tendering holder should fill in the amount of original capital securities being
tendered in the appropriate box on the letter of transmittal or so indicate in
an agent's message in lieu of the letter of transmittal. The entire amount of
original capital securities delivered to the exchange agent will be deemed to
have been tendered unless otherwise indicated.
The method of delivery of the book-entry confirmations or certificates,
the letter of transmittal and all other required documents is at the option and
sole risk of the tendering holder, and delivery will be deemed made only when
actually received by the exchange agent. If delivery is by mail, we recommend
using registered mail, return receipt requested, properly insured, or an
overnight delivery service. In all cases, sufficient time should be allowed to
ensure timely delivery.
Book-Entry Transfer. For purposes of the exchange offer, the exchange
agent will establish an account with respect to the original capital securities
at DTC as soon as practicable. Any tendering financial institution that is a
participant in DTC's book-entry transfer facility system must make a book-entry
delivery of the original capital securities by causing DTC to transfer such
original capital securities into the exchange agent's account at DTC in
accordance with DTC's ATOP procedures for transfers. Such holder of original
capital securities using ATOP should transmit its acceptance to DTC on or prior
to the expiration date, or comply with the guaranteed delivery procedures set
forth below. DTC will verify such acceptance, execute a book-entry transfer of
the tendered original capital securities into the exchange agent's account at
DTC and then send to the exchange agent confirmation of such book-entry
transfer, including an agent's message confirming that DTC has received an
express acknowledgment from such holder that such holder has received and agrees
to be bound by the letter of transmittal and that we and the Trust may enforce
the letter of transmittal against such holder, book-entry confirmation.
A beneficial owner of original capital securities that are held by or
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee or custodian is urged to contact such entity promptly if such
beneficial owner wishes to participate in the exchange offer.
Certificates. If the tender is not made through ATOP, certificates
representing original capital securities, as well as the letter of transmittal,
or facsimile thereof, properly completed and duly executed, with any required
signature guarantees, and any other required documents required by the letter of
transmittal, must be received by the exchange agent at its address set forth
under "-- Exchange Agent" on or prior to the expiration date in order for such
tender to be effective, or the guaranteed delivery procedure set forth herein
must be complied with.
If less than all of the original capital securities are tendered, a
tendering holder should fill in the amount of original capital securities being
tendered in the appropriate box on the letter of transmittal. The entire amount
of original capital securities delivered to the exchange agent will be deemed to
have been tendered unless otherwise indicated.
Signature Guarantees. Certificates for the original capital securities
need not be endorsed and signature guarantees on the letter of transmittal are
unnecessary unless:
o a certificate for the original capital securities is
registered in a name other than that of the person
surrendering the certificate; or
o the holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the letter
of transmittal.
In the case of the above conditions, such certificates for original capital
securities must be duly endorsed or accompanied by a properly executed bond
power, with the endorsement or signature on the bond power and on the letter of
transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an "eligible guarantor institution," including (as
such terms are defined therein): (a) a bank; (b) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (c) a
credit union; (d) a national securities exchange, registered securities
association or clearing agency; or (e) a savings association that is a
participant in a Securities Transfer Association, an eligible institution,
unless surrendered on behalf of such eligible institution. See Instruction 1 to
the letter of transmittal.
33
Delivery. The method of delivery of the book-entry confirmation or
certificates representing tendered original capital securities, the letter of
transmittal, and all other required documents is at the option and sole risk of
the tendering holder, and delivery will be deemed made only when actually
received by the exchange agent. If delivery is by mail, registered mail, return
receipt requested, properly insured, or an overnight delivery service is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
Notwithstanding any other provision hereof, the delivery of exchange
capital securities in exchange for original capital securities tendered and
accepted for exchange pursuant to the exchange offer will in all cases be made
only after timely receipt by the exchange agent of:
o a book-entry confirmation with respect to such original
capital securities; or
o certificates representing original capital securities and a
properly completed and duly executed letter of transmittal, or
facsimile thereof, together with any required signature
guarantees and any other documents required by the letter of
transmittal.
Accordingly, the delivery of exchange capital securities might not be made to
all tendering holders at the same time, and will depend upon when book-entry
confirmations with respect to original capital securities or certificates
representing original capital securities and other required documents are
received by the exchange agent.
Delivery of documents to DTC in accordance with DTC's procedures does
not constitute delivery to the exchange agent.
Guaranteed Delivery. If a holder desires to tender original capital
securities under the exchange offer and the certificates for such original
capital securities are not immediately available or time will not permit all
required documents to reach the exchange agent on or prior to the expiration
date, or the procedure for book-entry transfer cannot be completed on a timely
basis, such original capital securities may nevertheless be tendered, provided
that all of the following guaranteed delivery procedures are complied with:
o such tenders are made by or through an eligible institution;
o properly completed and duly executed notice to the exchange
agent guaranteeing delivery to the exchange agent of either
certificates representing original capital securities or a
book-entry confirmation in compliance with the requirements
set forth in this prospectus, the notice of guaranteed
delivery, substantially in the form accompanying the letter of
transmittal, is received by the exchange agent, as provided
herein, on or prior to expiration date; and
o a book-entry confirmation or the certificates representing all
tendered original capital securities, in proper form for
transfer, together with a properly completed and duly executed
letter of transmittal, or facsimile thereof, with any required
signature guarantees and any other documents required by the
letter of transmittal, are, in any case, received by the
exchange agent within three Nasdaq National Market trading
days after the date of execution of such notice of guaranteed
delivery.
The notice of guaranteed delivery may be delivered by hand, or
transmitted by facsimile or mail to the exchange agent and must include a
guarantee by an eligible institution in the form set forth in such notice.
The Trust's acceptance for exchange of original capital securities
tendered in compliance with any of the procedures described above will
constitute a binding agreement between the tendering holder and the Trust upon
the terms and subject to the conditions of the exchange offer.
Determination of Validity. We and the Trust will determine all
questions as to the form of documents, validity, eligibility, including time of
receipt, and acceptance for exchange of any tendered original capital
securities, in our sole discretion, and the determination shall be final and
binding on all parties. We and the Trust reserve the absolute right, in our sole
and absolute discretion, to reject any and all tenders determined by us not to
be in proper form or the
34
acceptance of which, or exchange for, may, in the opinion of counsel to us and
the Trust, be unlawful. We and the Trust also reserve the absolute right,
subject to applicable law, to waive any of the conditions of the exchange offer
as set forth under "-- Conditions to the Exchange Offer" or any condition or
irregularity in any tender of original capital securities of any particular
holder whether or not similar conditions or irregularities are waived in the
case of other holders.
The Trust's and our interpretation of the terms and conditions of the
exchange offer, including the letter of transmittal and the instructions
thereto, will be final and binding. No tender of original capital securities
will be deemed to have been validly made until all irregularities with respect
to such tender have been cured or waived. Neither we, nor the Trust, any
affiliates or assigns of us or the Trust, the exchange agent or any other person
shall be under any duty to give any notification of any irregularities in
tenders or incur any liability for failure to give any such notification.
If any letter of transmittal, endorsement, bond power, power of
attorney, or any other document required by the letter of transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by us and the
Trust, proper evidence satisfactory to us and the Trust, in our sole discretion,
of such person's authority to so act must be submitted.
Resales of Exchange Capital Securities
The Trust is making the exchange offer for the exchange capital
securities in reliance on the position of the staff of the Commission as set
forth in certain interpretive letters addressed to third parties in other
transactions. However, neither we nor the Trust sought our own interpretive
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the exchange offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Commission, and subject to the two immediately following sentences,
we and the Trust believe that exchange capital securities issued under this
exchange offer in exchange for original capital securities may be offered for
resale, resold and otherwise transferred by a holder, other than a holder who is
a broker-dealer, without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such exchange capital
securities are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution, within the meaning of the
Securities Act, of such exchange capital securities. However, any holder of
original capital securities who is an affiliate of us or the Trust or who
intends to participate in the exchange offer for the purpose of distributing
exchange capital securities, or any broker-dealer who purchased original capital
securities from the Trust to resell pursuant to Rule 144A or any other available
exemption under the Securities Act:
o will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set
forth in the above-mentioned interpretive letters;
o will not be permitted or entitled to tender such original
capital securities in the exchange offer; and
o must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale
or other transfer of such original capital securities or, if
distributed, junior subordinated debentures, unless such sale
is made in reliance on an exemption from such requirements.
In addition, as described below, if any broker-dealer holds original
capital securities acquired for its own account as a result of market-making or
other trading activities and exchanges such original capital securities for
exchange capital securities, then such broker-dealer must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resales of
such exchange capital securities.
Each holder of original capital securities who wishes to exchange
original capital securities for exchange capital securities in the exchange
offer will be required to represent that:
o it is not an affiliate of us or the Trust;
35
o any exchange capital securities to be received by it are being
acquired in the ordinary course of its business;
o it has no arrangement or understanding with any person to
participate in a distribution, within the meaning of the
Securities Act, of such exchange capital securities; and
o if such holder is not a broker-dealer, such holder is not
engaged in, and does not intend to engage in, a distribution,
within the meaning of the Securities Act, of such exchange
capital securities.
We and the Trust may require such holder, as a condition to such
holder's eligibility to participate in the exchange offer, to furnish to us and
the Trust (or an agent thereof) in writing information as to the number of
"beneficial owners," within the meaning of Rule 13d-3 under the Exchange Act, on
behalf of whom such holder holds the capital securities to be exchanged in the
exchange offer. Each broker-dealer that receives exchange capital securities for
its own account as a result of the exchange offer must acknowledge that it
acquired the original capital securities for its own account as the result of
market-making activities or other trading activities and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such exchange capital securities. The letter of
transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. Based on the position taken by the staff of the
Commission in the interpretive letters referred to above, we and the Trust
believe that participating broker-dealers who acquired original capital
securities for their own accounts as a result of market-making activities or
other trading activities may fulfill their prospectus delivery requirements with
respect to the exchange capital securities received upon exchange of such
original capital securities, other than original capital securities which
represent an unsold allotment from the initial sale of the original capital
securities, with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such exchange capital securities. Accordingly, this prospectus, as it may be
amended or supplemented from time to time, may be used by a participating
broker-dealer during the period referred to below in connection with resales of
exchange capital securities received in exchange for original capital securities
where such original capital securities were acquired by such participating
broker-dealer for its own account as a result of market-making or other trading
activities. Subject to certain provisions set forth in the registration rights
agreement, we and the Trust have agreed that this prospectus, as it may be
amended or supplemented from time to time, may be used by a participating
broker-dealer in connection with resales of such exchange capital securities for
a period ending 90 days after the expiration date, subject to extension under
certain limited circumstances described below, or, if earlier, when all such
exchange capital securities have been disposed of by such participating
broker-dealer. See "Plan of Distribution." However, a participating
broker-dealer who intends to use this prospectus in connection with the resale
of exchange capital securities received in exchange for original capital
securities pursuant to the exchange offer must notify us or the Trust, or cause
us or the Trust to be notified, on or prior to the expiration date, that it is a
participating broker-dealer. Such notice may be given in the space provided for
that purpose in the letter of transmittal or may be delivered to the exchange
agent at the address set forth herein under "-- Exchange Agent." Any
participating broker-dealer who is an affiliate of us or the Trust may not rely
on such interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
Each participating broker-dealer who surrenders original capital
securities under the exchange offer will be deemed to have agreed, by execution
of the letter of transmittal, that upon receipt of notice from us or the Trust
of the occurrence of any event or the discovery of:
o any fact which makes any statement contained or incorporated
by reference in this prospectus untrue in any material
respect;
o any fact which causes this prospectus to omit to state a
material fact necessary in order to make the statements
contained or incorporated by reference herein, in light of the
circumstances under which they were made, not misleading; or
o the occurrence of certain other events specified in the
registration rights agreement.
36
Such participating broker-dealer will suspend the sale of exchange
capital securities, or the exchange guarantee or the exchange debentures, as
applicable, pursuant to this prospectus until we or the Trust has amended or
supplemented this prospectus to correct such misstatement or omission and has
furnished copies of the amended and supplemented prospectus to such
participating broker-dealer, or we or the Trust has given notice that the sale
of the exchange capital securities, or the exchange guarantee or the exchange
debentures, as applicable, may be resumed, as the case may be.
If we or the Trust gives such notice to suspend the sale of the
exchange capital securities, or the exchange guarantee or the exchange
debentures, as applicable, the 90-day period referred to above shall be extended
during which participating broker-dealers are entitled to use this prospectus in
connection with the resale of exchange capital securities by the number of days
during the period from and including the date of the giving of such notice to
and including the date when participating broker-dealers shall have received
copies of the amended or supplemented prospectus necessary to permit resales of
the exchange capital securities or to and including the date on which we or the
Trust has given notice that the sale of exchange capital securities, or the
exchange guarantee or the exchange debentures, as applicable, may be resumed, as
the case may be.
Withdrawal Rights
Except as otherwise provided in this prospectus, tenders of original
capital securities may be withdrawn at any time on or prior to the expiration
date.
In order for a withdrawal to be effective, a written or facsimile
transmission of such notice of withdrawal must be timely received by the
exchange agent at the address set forth under "-- Exchange Agent" on or prior to
the expiration date. Any such notice of withdrawal must specify the name of the
person who tendered the original capital securities to be withdrawn, the
aggregate principal amount of original capital securities to be withdrawn, and,
if certificates for such original capital securities have been tendered, the
name of the registered holder of the original capital securities as set forth on
such certificates if different from that of the person who tendered such
original capital securities. If certificates representing original capital
securities have been delivered or otherwise identified to the exchange agent,
then prior to the physical release of such certificates, the tendering holder
must submit the serial numbers shown on the particular certificates to be
withdrawn and the signature on the notice of withdrawal must be guaranteed by an
eligible institution, except in the case of original capital securities tendered
for the account of an eligible institution. If original capital securities have
been tendered in accordance with the procedures for book-entry transfer set
forth in "--Procedures for Tendering Original Capital Securities -- Book-Entry
Transfer," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of original capital
securities. Withdrawals of tenders of original capital securities may not be
rescinded. Original capital securities properly withdrawn will not be deemed
validly tendered for purposes of the exchange offer, but may be retendered at
any subsequent time on or prior to the expiration date by following any of the
procedures described above under "-- Procedures for Tendering Original Capital
Securities."
All questions as to the validity, form and eligibility, including time
of receipt, of such withdrawal notices will be determined by us and the Trust,
in our sole discretion, whose determination shall be final and binding on all
parties. Neither we, nor the Trust, any affiliates or assigns of us or the
Trust, the exchange agent nor any other person shall be under any duty to give
any notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any original capital
securities which have been tendered but which are withdrawn will be returned to
the holder thereof promptly after withdrawal.
Distributions on Exchange Capital Securities
Holders of exchange capital securities whose original capital
securities are accepted for exchange will be entitled to receive cumulative cash
distributions arising from the payment of interest on the exchange debentures at
the annual rate of 11.0% of the liquidation amount of $1,000 per exchange
capital security, accumulating from March 1, 2000, and will be payable
semi-annually in arrears on March 1st and September 1st of each year, beginning
on September 1, 2000. The record dates will be the 15th day of the month
immediately preceding the month in which the relevant payment occurs. In the
event the exchange offer is consummated prior to the first record date, August
15, 2000,
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each exchange capital security will pay cumulative distributions from and after
March 1, 2000 and no distributions will be paid on any original capital security
tendered for an exchange capital security. However, in the event the exchange
offer is consummated after August 15, 2000, distributions will be paid on the
original capital securities accumulated from and after March 1, 2000 through
September 1, 2000, and distributions will be paid on the exchange capital
securities from and after September 1, 2000. The amount of each distribution
with respect to the capital securities will include amounts accrued to, but
excluding the date the distribution is due. Because of the foregoing procedures
regarding distributions, the amount of the distributions received by holders
whose original capital securities are accepted for exchange will not be affected
by the exchange.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, or any
extension of the exchange offer, we and the Trust will not be required to accept
for exchange, or to exchange, any original capital securities for any exchange
capital securities, and, as described below, may terminate the exchange offer
(whether or not any original capital securities have theretofore been accepted
for exchange) or may waive any conditions to or amend the exchange offer, if any
of the following conditions have occurred or exists or have not been satisfied:
o there shall occur a change in the current interpretation by
the staff of the Commission which permits the exchange capital
securities issued pursuant to the exchange offer in exchange
for original capital securities to be offered for resale,
resold and otherwise transferred by holders, other than
broker-dealers and any such holder which is an affiliate of us
or the Trust within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such exchange capital securities are acquired in the
ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to
participate in the distribution of such exchange capital
securities;
o any law, statute, rule or regulation shall have been adopted
or enacted which, in the judgment of us or the Trust, would
reasonably be expected to impair its ability to proceed with
the exchange offer;
o a stop order shall have been issued by the Commission or any
state securities authority suspending the effectiveness of the
registration statement, or proceedings shall have been
initiated or, to the knowledge of us or the Trust, threatened
for that purpose, or any governmental approval has not been
obtained, which approval we or the Trust shall, in its sole
discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby; or
o we determine in good faith that there is a reasonable
likelihood that, or a material uncertainty exists as to
whether, consummation of the exchange offer would result in an
adverse tax consequence to the Trust or us.
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Exchange Agent
Wilmington Trust Company, as property trustee of the Trust, has been
appointed as Exchange Agent for the exchange offer. Delivery of the letters of
transmittal and any other required documents, questions, requests for
assistance, and requests for additional copies of this prospectus or of the
letter of transmittal should be directed to the exchange agent as follows:
By Hand, Overnight Delivery, Registered or Certified Mail:
Wilmington Trust Company, as Exchange Agent
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attention: Corporate Trust Administration -
Cascade Capital Trust I Exchange Offer
Confirm by Telephone: (302) 651-1000
Facsimile Transmission: (302) 651-8882
(Eligible Institutions Only)
Delivery to another address other than the above address or facsimile
number will not constitute a valid delivery.
Fees and Expenses
We have agreed to pay the exchange agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection with the exchange offering. We will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this prospectus and related documents
to the beneficial owners of original capital securities, and in handling or
tendering for their customers.
Holders who tender their original capital securities for exchange will
not be obligated to pay any transfer taxes in connection therewith. If, however,
exchange capital securities are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the original capital
securities tendered, or if a transfer tax is imposed for any reason other than
the exchange of original capital securities in connection with the exchange
offer, then the amount of any such transfer taxes, whether imposed on the
registered holder or any other persons, will be payable by the tendering holder.
Neither we nor the Trust will make any payment to brokers, dealers or
other nominees soliciting acceptances of the exchange offer.
DESCRIPTION OF EXCHANGE CAPITAL SECURITIES
Under the terms of the trust agreement, the issuer trustees on behalf
of the trust will issue the exchange capital securities. The exchange capital
securities will represent beneficial interests in the trust and their holders
will be entitled to a preference over the common securities in certain
circumstances with respect to distributions and amounts payable on redemption of
the trust securities or liquidation of the Trust. See "-- Subordination of
Common Securities." The trust agreement will be qualified under the Trust
Indenture Act of 1939, as amended, referred to as the Trust Indenture Act. This
summary describes the material provisions of the exchange capital securities. It
is not complete and is subject to, and qualified by, the trust agreement,
including the definitions used in the trust agreement, and the Trust Indenture
Act.
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We have incorporated the definitions used in the trust agreement in this
prospectus. You can receive a complete copy of the form of trust agreement by
requesting a copy from Cascade Financial Corporation.
General
The exchange capital securities will constitute beneficial interests in
the Trust. As a holder of exchange capital securities, you will be entitled to a
preference over the common securities in certain circumstances with respect to
distributions and amounts payable on redemption of the exchange capital
securities or liquidation of the Trust, as described under "-- Subordination of
Common Securities." The trust agreement will not be qualified under the Trust
Indenture Act, except upon effectiveness of the exchange offer registration
statement or the shelf registration statement. By its terms, however, the trust
agreement will incorporate certain provisions of the Trust Indenture Act, and,
upon consummation of the exchange offer or effectiveness of the shelf
registration statement, the trust agreement will be subject to and governed by
the Trust Indenture Act.
The exchange capital securities will be limited to $10 million
aggregate liquidation amount at any one time outstanding. The exchange capital
securities will rank equal to, and payments will be made on a pro rata basis
with, the common securities, except as described under "-- Subordination of
Common Securities." The property trustee will have legal title to the exchange
debentures and will hold them in trust for the benefit of you and the other
holders of the exchange capital securities. Our exchange guarantee for the
benefit of the holders of the exchange capital securities will be a guarantee on
a subordinated basis with respect to the exchange capital securities, but will
not guarantee payment of distributions or amounts payable on redemption of the
exchange capital securities or liquidation of the Trust when the Trust does not
have funds legally available for such payments. You should read "Description of
Exchange Guarantee" for more information about our guarantee.
Distributions
Distributions on the exchange capital securities will be cumulative,
and will accumulate from the date that the original capital securities are first
issued. Distributions will be payable at the annual rate of 11.0% of the
liquidation amount, payable semi-annually in arrears on the distribution dates,
which are March 1st and September 1st of each year, commencing September 1,
2000, to the holders of the exchange capital securities on the relevant record
dates. The record dates will be the 15th day of the month immediately preceding
the month in which the relevant distribution date occurs. In the event the
exchange offer is consummated prior to the first record date, August 15, 2000,
each exchange capital security will pay cumulative distributions from and after
March 1, 2000, and no distributions will be paid on any original capital
security tendered for an exchange capital security. However, in the event the
exchange offer is consummated after August 15, 2000, distributions will be paid
on the original capital securities accumulated from and after March 1, 2000
through September 1, 2000, and distributions will be paid on the exchange
capital securities from and after September 1, 2000. The amount of distributions
to be paid on each distribution with respect to the capital securities will
include amounts accrued to, but excluding the date the distribution is due.
Because of the foregoing procedures regarding distributions, the amount of the
distributions received by holders whose original capital securities are accepted
for exchange will not be affected by the exchange. The amount of distributions
payable for any distribution period will be based on a 360-day year of twelve
30-day months.
If any distribution date would otherwise fall on a day that is not a
business day, the required payment will be made on the next business day without
any additional payments for the delay, unless the distribution would fall in the
next calendar year, in which case the distribution date will be the last
business day of the calendar year. A business day means any day other than a
Saturday or a Sunday, or a day on which banking institutions in New York, New
York or Wilmington, Delaware are authorized or required by law or executive
order to remain closed.
The Trust's revenue available for distribution to holders of the
exchange capital securities will be limited to our payments to the Trust under
our exchange debentures. For more information, please refer to "Description of
Exchange Debentures -- General." If we do not make interest payments on the
exchange debentures, the property trustee will not have funds available to pay
distributions on the exchange capital securities. Our guarantee only covers the
payment of distributions if and to the extent that the Trust has funds legally
available to pay the distributions. You should read "Description of Exchange
Guarantee" for more information about the extent of our exchange guarantee.
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Option to Defer Interest Payments
As long as no event of default under the exchange debentures exists, we
have the right under the indenture to elect to defer the payment of interest on
the exchange debentures, at any time or from time to time, for no more than 10
consecutive semi-annual periods, provided that no deferral period will end on a
date other than an interest payment date, or extend beyond March 1, 2030, the
stated maturity date of the exchange debentures. If we defer payments, the Trust
will defer semi-annual distributions on the exchange capital securities during
the deferral period. During any deferral period, distributions will continue to
accumulate on the exchange capital securities and on any accumulated and unpaid
distributions, compounded semi-annually from the relevant distribution date at
the applicable distribution rate, which will be equal to the applicable interest
rate on the exchange debentures. The term distributions includes any accumulated
additional distributions.
Before the end of any deferral period, we may extend the deferral
period, as long as the extension does not cause the deferral period to exceed 10
consecutive semi-annual periods or to end on a date other than an interest
payment date or extend beyond March 1, 2030. At the end of any deferral period
and upon the payment of all amounts then due on any interest payment date, we
may elect to begin a new deferral period, subject to the above requirements. No
interest shall be due and payable during a deferral period until the deferral
period ends. We must give the property trustee, the administrative trustees and
the debenture trustee notice of our election to defer interest payments or to
extend a deferral period at least five business days before the earlier of:
o the date the distributions on the exchange capital securities
would have been payable, except for the election to begin a
deferral period; and
o the date the administrative trustees are required to give
notice to any securities exchange or automated quotation
system or to holders of the exchange capital securities of the
record date or the date such distributions are payable, but in
any event not less than five business days prior to such
record date.
There is no limitation on the number of times that we may elect to
begin a deferral period. Please refer to "Description of Exchange Debentures --
Option to Extend Interest Payment Date" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
During any deferral period, we may not:
o declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect
to, any of our capital stock;
o make any payment of principal of, or interest or premium, if
any, on, or repay, repurchase or redeem any debt securities
that rank equal or junior to the exchange debentures; or
o make any guarantee payments with respect to any guarantee of
the debt securities of any of our subsidiaries if such
guarantee ranks equal or junior to the exchange debentures.
Notwithstanding the foregoing, during a deferral period the following
is permitted:
o a payment of dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase
shares of, our common stock;
o a declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance
of stock under any such plan in the future, or the redemption
or repurchase of any such rights under such plan;
o a payment under the guarantee;
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o a reclassification of our capital stock or the exchange or
conversion of one class or series of our capital stock for
another class or series of our capital stock;
o the purchase of fractional interests in shares of our capital
stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or
exchanged; and
o the purchase of common stock related to the issuance of common
stock or rights under any of our benefit plans for our
directors, officers or employees or any of our dividend
reinvestment plans.
We do not currently intend to exercise our right to defer payments of
interest on the exchange debentures. Our obligations under the guarantee to make
payment of distributions is limited to the extent that the Trust has funds
legally available to pay distributions. You should read "Description of Exchange
Guarantee" for more information about the extent of our guarantee.
Redemption
Upon repayment at maturity on March 1, 2030 or prepayment, in whole or
in part prior to March 1, 2030, of the exchange debentures (other than following
the distribution of the exchange debentures to you as a holder of the exchange
capital securities and us, as the holder of the common securities), the property
trustee will apply the proceeds from the repayment or prepayment of the exchange
debentures (as long as the property trustee has received written notice no later
than 45 days before the repayment) to redeem at the applicable redemption price
exchange capital securities and common securities having an aggregate
liquidation amount equal to the principal amount of the exchange debentures paid
to the Trust. The Trust will give notice of any redemption of exchange capital
securities between 30 to 60 days prior to the redemption date.
If we prepay less than all of the exchange debentures on the stated
maturity date or a redemption date, then the property trustee will allocate the
proceeds of the prepayment on a pro rata basis among the exchange capital
securities and the common securities. If a court of competent jurisdiction
enters an order to dissolve the Trust, the exchange debentures will be subject
to optional prepayment in whole, but not in part, on or after March 1, 2010.
We will have the right to prepay the exchange debentures:
o in whole or in part, on or after March 1, 2010; and
o in whole but not in part, prior to March 1, 2010, if there are
changes in the bank regulatory, investment company or tax laws
that would adversely affect the status of the Trust, the
exchange capital securities or the exchange debentures.
We may have to obtain regulatory approval, including the approval of
the OTS, before we redeem any exchange debentures. Please refer to "Description
of Exchange Debentures -- Optional Prepayment" and "-- Special Event Prepayment"
for information on prepayment of the exchange debentures.
The redemption prices applicable to the exchange capital securities
will correspond to the maturity and prepayment prices applicable to the exchange
debentures.
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Liquidation of the Trust and Distribution of Exchange Debentures
We will have the right at any time to dissolve the Trust and, after
satisfying the liabilities owed to the Trust's creditors, as required by
applicable law, we will have the right to distribute the exchange debentures to
the holders of the exchange capital securities and to us as holder of the common
securities. Our right to dissolve the Trust is subject to our receiving:
o an opinion of counsel to the effect that if we distribute the
exchange debentures, the holders of the exchange capital
securities will not experience a taxable event; and
o all required regulatory approvals.
The Trust will automatically dissolve if:
o certain bankruptcy events occur, or we dissolve or liquidate;
o we distribute exchange debentures having a principal amount
equal to the liquidation amount of the exchange capital
securities and the common securities to holders of such
securities and we, as sponsor, have given written directions
to the property trustee to dissolve the Trust (which direction
is at our option and, except as described above, wholly within
our discretion, as sponsor);
o the Trust redeems all of the exchange capital securities and
common securities in accordance with their terms;
o the Trust's term expires; or
o a court of competent jurisdiction enters an order for the
dissolution of the Trust.
If the Trust is dissolved for any of the above reasons, except for a
redemption of all exchange capital securities and the common securities, it will
be liquidated by the administrative trustees as quickly as they determine to be
possible by distributing to holders of the exchange capital securities and the
common securities, after satisfying the liabilities owed to the Trust's
creditors, as provided by applicable law, exchange debentures having a principal
amount equal to the liquidation amount of the exchange capital securities and
the common securities, unless the property trustee determines that this
distribution is not practicable. If the property trustee determines that this
distribution is not practicable, the holders of the exchange capital securities
will be entitled to receive an amount equal to the aggregate of the liquidation
amount plus accumulated and unpaid distributions on the exchange capital
securities to the date of payment (such amount being the "liquidation
distribution") out of the assets of the Trust legally available for distribution
to holders, after satisfying the liabilities owed to the Trust's creditors as
provided by applicable law. If the liquidation distribution can be paid only in
part because the Trust has insufficient assets legally available to pay the full
amount of the liquidation distribution, or if an event of default under the
exchange debentures exists, the exchange capital securities will have a priority
over the common securities. For more information, please refer to "--
Subordination of Common Securities."
After the liquidation date is fixed for any distribution of exchange
debentures to holders of the exchange capital securities:
o the exchange capital securities will no longer be deemed to be
outstanding;
o DTC or its nominee will receive in respect of each registered
global certificate representing exchange capital securities a
registered global certificate representing the exchange
debentures to be delivered upon this distribution; and
o any certificates representing exchange capital securities not
held by DTC or its nominee will be deemed to represent
exchange debentures having a principal amount equal to the
liquidation amount
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of those exchange capital securities, and bearing accrued and
unpaid interest in an amount equal to the accumulated and
unpaid distributions on those exchange capital securities
until such certificates are presented to the administrative
trustees or their agent for cancellation, in which case we
will issue to those holders, and the debenture trustee will
authenticate, a certificate representing the exchange
debentures.
We cannot assure you of the market prices for the exchange capital
securities or the exchange debentures that may be distributed to you in exchange
for the exchange capital securities if a dissolution and liquidation of the
Trust were to occur. Accordingly, the exchange capital securities that you
purchase, or the exchange debentures that you may receive upon a dissolution and
liquidation of the Trust, may trade at a discount to the price that you paid to
purchase the exchange capital securities.
If we elect not to prepay the exchange debentures prior to maturity and
either elect not to or we are unable to liquidate the Trust and distribute the
exchange debentures to holders of the exchange capital securities, the exchange
capital securities will remain outstanding until the repayment of the exchange
debentures on March 1, 2030.
Redemption Procedures
If we pay the exchange debentures at maturity or earlier prepayment,
the Trust will redeem exchange capital securities at the applicable redemption
price with the proceeds that it receives from our payment or prepayment of the
exchange debentures. Any redemption of exchange capital securities will be made
and the applicable redemption price will be payable on the redemption date only
to the extent that the Trust has funds legally available to pay the applicable
redemption price. For more information, you should refer to "-- Subordination of
Common Securities."
If the Trust gives a notice of redemption for the exchange capital
securities, then, by 12:00 noon, New York City time, on the redemption date, to
the extent funds legally are available, with respect to:
o the exchange capital securities held by DTC or its nominees,
the property trustee will deposit, or cause the paying agent
to deposit, irrevocably with DTC funds sufficient to pay the
applicable redemption price. For more information, you should
refer to "-- Form, Denomination, Book-Entry Procedures and
Transfer;" and
o the exchange capital securities held in certificated form, the
property trustee will irrevocably deposit with the paying
agent funds sufficient to pay the applicable redemption price
and will give the paying agent irrevocable instructions and
authority to pay the applicable redemption price to the
holders upon surrender of their certificates evidencing the
exchange capital securities. For more information, you should
refer to "-- Payment and Paying Agency."
The paying agent will initially be the property trustee and any
co-paying agent chosen by the property trustee and acceptable to the
administrative trustees and us.
Notwithstanding the foregoing, distributions payable on or before the
redemption date will be payable to the holders of the exchange capital
securities on the relevant record dates for the related distribution dates. If
the Trust gives a notice of redemption and funds are deposited as required, then
upon the date of the deposit, all rights of the holders of the exchange capital
securities called for redemption will cease, except the right of the holders of
the exchange capital securities to receive the applicable redemption price,
without interest, and the exchange capital securities called to be redeemed will
cease to be outstanding.
If any redemption date for the exchange capital securities is not a
business day, then the applicable redemption price, without interest or any
other payment in respect of the delay, will be paid on the next business day,
except that, if the next business day falls in the next calendar year, the
payment shall be made on the last business day of the calendar year.
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If payment of the applicable redemption price is improperly withheld or
refused and not paid either by the Trust or by us pursuant to the guarantee:
o distributions on the exchange capital securities will continue
to accumulate from the redemption date originally established
by the Trust to the date such applicable redemption price is
actually paid; and
o the actual payment date will be the redemption date for
purposes of calculating the applicable redemption price.
Notice of any redemption will be mailed between 30 and 60 days before
the redemption date to each holder of exchange capital securities at its
registered address. Unless we default in payment of the applicable redemption
price on, or in the repayment of, the exchange debentures, on and after the
redemption date, distribution will cease to accrue on the capital securities
called for redemption.
Subject to applicable law, including, without limitation, federal
securities laws, we or our subsidiaries may at any time, and from time to time,
purchase outstanding exchange capital securities in the open market or by
private agreement.
Subordination of Common Securities
Payment of distributions on, the redemption price of, and the
liquidation distribution for, the exchange capital securities and the common
securities, as applicable, will generally be made on a pro rata basis. However,
if an event of default under the exchange debentures exists on any distribution,
redemption or liquidation date, no payment of any distribution on, or applicable
redemption price of, or liquidation distribution for, any of the common
securities, and no other payment on account of the redemption, liquidation or
other acquisition of the common securities, will be made unless payment in full
in cash of all accumulated and unpaid distributions on all of the outstanding
exchange capital securities for all distribution periods terminating on or
before the distribution, redemption or liquidation date, or payment of the
applicable redemption price or liquidation distribution is made in full. All
funds available to the property trustee will first be applied to the payment in
full in cash of all distributions on, or redemption price of, or liquidation
distribution for, the exchange capital securities then due and payable.
In the case of any event of default under the trust agreement, we, as
holder of all of the common securities, will be deemed to have waived any right
to act with respect to the event of default until the effect of the event of
default has been cured or waived. Until any event of default has been cured or
waived, the property trustee will act solely on behalf of the holders of the
exchange capital securities and not on our behalf, and only the holders of the
exchange capital securities will have the right to direct the property trustee
to act on their behalf.
Events of Default; Notice
An event of default under the exchange debentures constitutes an event
of default under the trust agreement. See "Description of Exchange Debentures --
Events of Default Under the Exchange Debentures."
The trust agreement provides that within 10 business days after a
responsible officer, as defined in the trust agreement, of the property trustee
has actual knowledge of the occurrence of any event of default, the property
trustee will give notice of the event of default to the holders of the exchange
capital securities, the administrative trustees and, to us, as sponsor, unless
the event of default has been cured or waived. We, as sponsor, and the
administrative trustees are required to file annually with the property trustee
a certificate as to whether we and the administrative trustees have complied
with the applicable conditions and covenants of the trust agreement.
If an event of default under the exchange debentures exists, the
exchange capital securities will have a preference over the common securities as
described under "-- Liquidation of the Trust and Distribution of Exchange
Debentures" and "-- Subordination of Common Securities." An event of default
does not entitle the holders of exchange capital securities to require the
redemption of the exchange capital securities.
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Removal of Issuer Trustees
Unless an event of default under the exchange debentures exists, we may
remove the property trustee and the Delaware trustee at any time. If an event of
default under the exchange debentures exists, the property trustee and the
Delaware trustee may be removed only by the holders of a majority in liquidation
amount of the outstanding exchange capital securities. In no event will the
holders of the exchange capital securities have the right to vote to appoint,
remove or replace the administrative trustees, because these voting rights are
vested exclusively in us as the holder of all of the common securities. No
resignation or removal of the property trustee or the Delaware trustee and no
appointment of a successor trustee shall be effective until the acceptance of
appointment by the successor trustee in accordance with the trust agreement.
Co-trustees and Separate Property Trustee
Unless an event of default under the exchange debentures 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's property may at any time be located, 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 such
Trust's property, or to act as separate trustee of any such property, in either
case with such powers as may be provided in the instrument of appointment, and
to vest in such person or persons in such capacity any property, title, right or
power deemed necessary or desirable, subject to the provisions of the trust
agreement. In case an event of default has occurred and is continuing, the
property trustee alone shall have the power to make any such appointment of a
co-trustee.
Merger or Consolidation of Issuer Trustees
If the property trustee, the Delaware trustee or any administrative
trustee that is not a natural person is merged, converted or consolidated into
another entity, or such trustee is a party to a merger, conversion or
consolidation which results in a new entity, or an entity succeeds to all or
substantially all of the corporate trust business of such trustee, the new
entity shall be the successor of such trustee under the trust agreement,
provided that the entity is 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 all or substantially all of its
properties and assets to any corporation or other entity, except as described
below or as otherwise described under "-- Liquidation of the Trust and
Distribution of Exchange Debentures." The Trust may, at our request, as sponsor,
and with the consent of the administrative trustees but without the consent of
the holders of the exchange capital securities, merge with or into, consolidate,
amalgamate or be replaced by or convey, transfer or lease all or substantially
all of its properties and assets to a trust organized as such under the laws of
any state; provided, that:
o the successor either:
o expressly assumes all of the obligations of the Trust
with respect to the exchange capital securities; or
o substitutes securities for the exchange capital
securities that have substantially the same terms as
the exchange capital securities so long as the
substitute securities rank equal to the exchange
capital securities in priority with respect to
distributions and payments upon liquidation,
redemption and otherwise;
o we appoint a trustee of the successor possessing the same
powers and duties as the property trustee with respect to the
exchange debentures;
46
o the substitute securities are listed, or any substitute
securities will be listed upon notification of issuance, on
any national securities exchange or other organization on
which the exchange capital securities are then listed or
quoted, if any;
o if the exchange capital securities, substitute securities or
exchange debentures are rated by any nationally recognized
statistical rating organization prior to such transaction, the
transaction does not cause any of those securities to be
downgraded by any such rating organization;
o the transaction does not adversely affect the rights,
preferences and privileges of the holders of the exchange
capital securities (including any successor securities) in any
material respect;
o the successor has a purpose substantially identical to that of
the Trust;
o prior to the transaction, we received an opinion from
independent counsel to the Trust experienced in such matters
to the effect that:
o the transaction does not adversely affect the rights,
preferences and privileges of the holders of the
exchange capital securities (including any successor
securities) in any material respect (other than any
dilution of such holders' interests in the new
entity);
o following the transaction, neither the Trust nor the
successor will be required to register as an
investment company under the Investment Company Act;
and
o the Trust continues to be, and any successor will be,
classified as a grantor trust for U. S. Federal
income tax purposes; and
o we, or any permitted successor or assignee, own all of the
common securities of the successor and guarantee the
obligations of the successor under the substitute securities
at least to the extent provided by our guarantee and the
common securities guarantee.
Notwithstanding the foregoing, the Trust may not, except with the
consent of holders of 100% in liquidation amount of the exchange capital
securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease all or substantially all of its properties and assets
to, any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if the transaction would cause the Trust or
the successor not to be classified as a grantor trust for Federal income tax
purposes.
Voting Rights; Amendment of the Trust Agreement
Except as provided below and under "-- Mergers, Consolidations,
Amalgamations or Replacements of the Trust" and "Description of Exchange
Guarantee -- Amendments and Assignment" and as otherwise required by law and the
trust agreement, the holders of the exchange capital securities will have no
voting rights.
We, together with the property trustee and the administrative trustees,
may amend the trust agreement from time to time, without the consent of the
holders of the exchange capital securities, to:
o 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
are not inconsistent with the other provisions of the trust
agreement;
o modify, eliminate or add to any provisions of the trust
agreement as is necessary to ensure that at all times that any
exchange capital securities are outstanding, the Trust will
not be classified as an association taxable as a corporation
or to enable the Trust to qualify as a grantor trust, in each
case
47
for Federal income tax purposes, or to ensure that the Trust
will not be required to register as an investment company
under the Investment Company Act; or
o modify, eliminate or add any provisions of the trust agreement
as is necessary to enable us or the Trust to conduct an
exchange offer in the manner contemplated by the registration
rights agreement;
provided, however, that the amendment would not adversely affect in any material
respect the interests of the holders of the exchange capital securities. Any
amendments of the trust agreement pursuant to the foregoing shall become
effective when notice of the amendment is given to the holders of the exchange
capital securities.
We, together with the property trustee and the administrative trustees,
may amend the trust agreement:
o with the consent of holders of a majority in liquidation
amount of the outstanding exchange capital securities; and
o upon receipt by the property trustee and the administrative
trustees of an opinion of counsel experienced in such matters
to the effect that the amendment or the exercise of any power
granted to the property trustee and the administrative
trustees in accordance with the amendment will not affect the
Trust's classification as an entity that is not taxable as a
corporation or as being a grantor trust for Federal income tax
purposes or the Trust's exemption from status as an investment
company under the Investment Company Act.
provided, that, without the consent of each holder of exchange capital
securities, no amendment may change the amount or timing of any distribution on
the exchange capital securities or otherwise adversely affect the amount of any
distribution required to be made in respect of the exchange capital securities
as of a specified date, change any of the prepayment provisions, or restrict the
right of a holder of exchange capital securities to sue for the enforcement of
any payment on or after the specified date.
So long as the property trustee holds any exchange debentures, the
issuer trustees may not:
o direct the time, method and place of conducting any proceeding
for any remedy available to the debenture trustee, or execute
any trust or power conferred on the debenture trustee with
respect to the exchange debentures;
o waive certain past defaults under the indenture;
o exercise any right to rescind or annul a declaration
accelerating the maturity of the principal of the exchange
debentures; or
o consent to any amendment, modification or termination of the
indenture or the exchange debentures, where such consent shall
be required, without, in each case, obtaining the prior
consent of the holders of a majority in liquidation amount of
all outstanding capital securities; provided, however, that
where a consent under the indenture would require the consent
of each holder of exchange debentures affected by the
amendment, modification or termination, the property trustee
will not give its consent without the prior approval of each
holder of the exchange capital securities.
The issuer trustees will not revoke any action previously authorized or
approved by a vote of the holders of the exchange capital securities, except by
subsequent vote of such holders. The property trustee shall notify each holder
of exchange capital securities of any notice or knowledge of default it receives
with respect to the exchange debentures. In addition to obtaining the approvals
of the holders of the exchange capital securities, prior to taking any of the
foregoing actions, the issuer trustees shall obtain an opinion of counsel
experienced in such matters to the effect that the Trust will not be classified
as an association taxable as a corporation for Federal income tax purposes on
account of such action.
48
Any required approval of holders of exchange capital securities may be
given at a meeting of the holders convened for the purpose of approving the
matter or pursuant to written consent. The property trustee will cause a notice
to be given of any meeting at which holders of exchange capital securities are
entitled to vote or of any matter upon which action by written consent of such
holders is to be taken, to be given to each holder of exchange capital
securities in accordance with the trust agreement.
No vote or consent of the holders of exchange capital securities will
be required for the Trust to redeem and cancel the exchange capital securities
in accordance with the trust agreement.
Notwithstanding that holders of the exchange capital securities are
entitled to vote or consent under any of the circumstances described above, any
of the exchange capital securities that are owned by us, the Trust, the issuer
trustees or any affiliates thereof shall, for purposes of such vote or consent,
be treated as if they were not outstanding.
Form, Denomination, Book-Entry Procedures and Transfer
The exchange capital securities initially will be represented by one or
more exchange capital securities in registered, global form (collectively, the
global capital securities). The global capital securities will be deposited upon
issuance with the property trustee as custodian for DTC, in Wilmington,
Delaware, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described in
this prospectus.
In the event that exchange capital securities are issued in
certificated form, the exchange capital securities will be in blocks having a
liquidation amount of not less than $100,000 (100 exchange capital securities)
and may be transferred or exchanged only in such blocks in the manner described
in this prospectus.
Except as set forth in this prospectus, the global capital securities
may be transferred, in whole and not in part, only to another nominee of DTC or
to a successor of DTC or its nominee and only in amounts that would not cause a
holder to own less than 100 exchange capital securities. Beneficial interests in
the global capital securities may not be exchanged for exchange capital
securities in certificated form except in the limited circumstances described in
this prospectus. See "-- Exchange of Book-Entry Capital Securities for
Certificated Capital Securities."
Depositary Procedures
DTC has advised the Trust and us that it is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, "participants")
and to facilitate the clearance and settlement of transactions in those
securities between participants through electronic book-entry changes in
accounts of its participants, to eliminate the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Indirect
access to DTC's system is also available to banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly (collectively, indirect
participants). Persons who are not participants may beneficially own securities
held by or on behalf of DTC only through participants or indirect participants.
The ownership interest and transfer of ownership interest of each actual
purchaser of each security held by or on behalf of DTC are recorded on the
records of participants and indirect participants.
DTC also has advised the Trust and us that, under procedures
established by it, (1) upon deposit of the global capital securities, DTC will
credit the accounts of participants designated by the initial purchasers with
the designated liquidation amount of the global capital securities and (2)
ownership of beneficial interests in the global capital securities will be shown
on, and the transfer of ownership of the global capital securities, will be
effected only through, records maintained by DTC (with respect to participants)
or by participants and indirect participants (with respect to other owners of
beneficial interests in the global capital securities).
49
You may hold your interests in the global capital security directly
through DTC if you are a participant, or indirectly through organizations that
are participants. All interests in a global capital security will be subject to
the procedures and requirements of DTC. The laws of some states require that
certain persons take physical delivery in certificated form of securities that
they own. Consequently, the ability to transfer beneficial interests in a global
capital security to those persons will be limited to that extent. Because DTC
can act only on behalf of participants, which in turn act on behalf of indirect
participants and certain banks, the ability of a person having beneficial
interests in a global capital security to pledge its interests to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interests, may be affected by the lack of a physical certificate
evidencing its interests. For certain other restrictions on the transferability
of the exchange capital securities, see "-- Exchange of Book-Entry Capital
Securities for Certificated Capital Securities."
Except as described below, owners of beneficial interests in the global
capital securities will not have exchange capital securities registered in their
name, will not receive physical delivery of exchange capital securities in
certificated form and will not be considered the registered owners or holders
thereof under the trust agreement for any purpose.
Payments on the global capital security registered in the name of DTC,
or its nominee, will be payable by the property trustee to DTC in its capacity
as the holder under the trust agreement. Under the terms of the trust agreement,
the property trustee will treat the persons in whose names the exchange capital
securities, including the global capital securities, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Neither the property trustee nor any agent thereof
has or will have any responsibility or liability for:
o any aspect of DTC's records or any participant's or indirect
participant's records relating to, or payments made on account
of, beneficial ownership interests in the global exchange
capital securities, or for maintaining, supervising or
reviewing any of DTC's records or any participant's or
indirect participant's records relating to the beneficial
ownership interests in the global capital securities; or
o any other matter relating to the actions and practices of DTC
or any of its participants or indirect participants.
DTC has advised the Trust and us that its current practice, upon
receipt of any payment on the exchange capital securities, is to credit the
accounts of the relevant participants with the payment on the payment date, in
amounts proportionate to their respective holdings in liquidation amount of the
exchange capital securities as shown on the records of DTC unless DTC has reason
to believe it will not receive payment on the payment date. Payments by
participants and indirect participants to the beneficial owners of exchange
capital securities will be governed by standing instructions and customary
practices and will be the responsibility of participants or indirect
participants and will not be the responsibility of DTC, the property trustee,
the Trust or us. None of us, the Trust or the property trustee will be liable
for any delay by DTC or any of its participants or indirect participants in
identifying the beneficial owners of the exchange capital securities, and we,
the Trust and the property trustee may conclusively rely on, and will be
protected in relying on, instructions from DTC or its nominee for all purposes.
Any secondary market trading activity in interests in the global
capital securities will settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will settle in same-day funds.
DTC has advised the Trust and us that it will take any action permitted
to be taken by a holder of exchange capital securities including, without
limitation, presenting the exchange capital securities for exchange as described
below, only at the direction of one or more participants who have an interest in
DTC's global capital securities in respect of the portion of the liquidation
amount of the exchange capital securities as to which the participant or
participants has or have given direction. However, if an event of default exists
under the trust agreement, DTC reserves the right to exchange the global capital
securities for legended exchange capital securities in certificated form and to
distribute the certificated exchange capital securities to its participants.
50
We believe that the information in this section concerning DTC and its
book-entry system has been obtained from reliable sources, but we do not take
responsibility for the accuracy of this information.
Although DTC has agreed to the procedures described in this section to
facilitate transfers of interests in the global capital securities among
participants in DTC, DTC is not obligated to perform or to continue to perform
these procedures, and these procedures may be discontinued at any time. None of
us, the Trust, or the property trustee will have any responsibility or liability
for any aspect of the performance by DTC or its participants or indirect
participants of any of their respective obligations under the rules and
procedures governing their operations or for maintaining, supervising or
reviewing any records relating to the global capital securities that are
maintained by DTC or any of its participants or indirect participants.
Exchange of Book-Entry Capital Securities for Certificated Capital Securities
A global capital security is exchangeable for exchange capital
securities in registered certificated form if:
o DTC notifies the Trust that it is unwilling or unable to
continue as depository for the global capital security; or has
ceased to be a clearing agency registered under the Exchange
Act, and the Trust thereupon fails to appoint a successor
depository within 90 days;
o the Trust, in its sole discretion, elects to cause the
issuance of the exchange capital securities in certificated
form; or
o there shall have occurred and be continuing an event of
default or any event which after notice or lapse of time or
both would be an event of default under the trust agreement.
In addition, beneficial interests in a global capital security may be
exchanged by or on behalf of DTC for certificated exchange capital securities
upon request by DTC, but only upon at least 20 days' prior written notice given
to the property trustee in accordance with DTC's customary procedures. In all
cases, certificated exchange capital securities delivered in exchange for any
global capital security or beneficial interests therein will be registered in
the names, and issued in any approved denominations, requested by or on behalf
of the depository in accordance with its customary procedures.
Payment and Paying Agency
The Trust will make payments on any global capital security to DTC,
which will credit the relevant accounts at DTC on the applicable distribution
dates. The Trust will make payments on the exchange capital securities that are
not held by DTC by mailing a check to the address of the holder entitled to the
payment as the holder's address appears on the register. The paying agent will
initially be the property trustee and any co-paying agent chosen by the property
trustee and acceptable to the administrative trustees and us. The paying agent
will be permitted to resign as paying agent upon 30 days' notice to the property
trustee, the administrative trustees and us. In the event that the property
trustee is no longer the paying agent, the administrative trustees will appoint
a successor (which must be a bank or trust company acceptable to the
administrative trustees and us) to act as paying agent.
Restrictions on Transfer
The exchange capital securities will be issued, and may be transferred,
only in blocks having a liquidation amount of not less than $100,000 (100
exchange capital securities) and multiples of $1,000 in excess of $100,000. Any
attempted sale, transfer or other disposition of exchange capital securities in
a block having a liquidation amount of less than $100,000 will be deemed to be
void and of no legal effect whatsoever. Any such purported transferee will be
deemed not to be the holder of such exchange capital securities for any purpose,
including but not limited to the receipt of distributions on such exchange
capital securities, and such purported transferee will be deemed to have no
interest whatsoever in such exchange capital securities.
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Registrar and Transfer Agent
The property trustee will act as registrar and transfer agent for the
exchange capital securities.
The Trust will register transfers of the exchange capital securities
without charge, except for any tax or other governmental charges that may be
imposed in connection with any transfer or exchange. The Trust will not be
required to have the transfer of the exchange capital securities registered
after they have been called for redemption.
Miscellaneous
The administrative trustees are authorized and directed to conduct the
affairs of and to operate the Trust so that:
o the Trust will not be deemed to be an investment company
required to be registered under the Investment Company Act;
o the Trust will be classified as a grantor trust for Federal
income tax purposes; and
o the exchange debentures will be treated as our indebtedness
for Federal income tax purposes.
We, together with the administrative trustees, are authorized to take
any action, not inconsistent with applicable law, the certificate of trust of
the Trust or the trust agreement, that we and the administrative trustees
determine in our discretion is necessary or desirable, as long as it does not
materially adversely affect the interests of the holders of the trust
securities.
The trust agreement provides that holders of the trust securities have
no preemptive or similar rights to subscribe for any additional exchange capital
securities and the issuance of exchange capital securities and the common
securities is not subject to preemptive or similar rights.
The Trust may not borrow money, issue debt, execute mortgages or pledge
any of its assets.
Governing Law
The trust agreement and exchange capital securities will be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflict of law principles.
Information Concerning the Property Trustee
Except if an event of default exists under the trust agreement, the
property trustee will undertake to perform only the duties specifically set
forth in the trust agreement. While such an event of default exists, the
property trustee 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. Subject
to this provision, the property trustee is not obligated to exercise any of the
powers vested in it by the trust agreement at the request of any holder of trust
securities, unless it is offered reasonable indemnity against the costs,
expenses and liabilities that it might incur. If no event of default exists and
the property trustee is required to decide between alternative causes of action
or to 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 exchange capital securities or the common securities are
entitled under the trust agreement to vote, then the property trustee shall take
such action as directed by us and, if not directed, shall take such action as it
deems advisable and in the best interests of the holders of the trust securities
and will have no liability, except for its own bad faith, negligence or willful
misconduct.
52
DESCRIPTION OF EXCHANGE DEBENTURES
This summary describes the material provisions of the exchange
debentures. It is not complete and is subject to, and qualified in its entirety
by, the indenture. The indenture will not be qualified under the Trust Indenture
Act, except upon effectiveness of the exchange offer registration statement or
the shelf registration statement. However, by its terms, the indenture will
incorporate by reference certain provisions of the Trust Indenture Act and, upon
consummation of the exchange offer or effectiveness of the shelf registration
statement, the indenture will be governed by and subject to the Trust Indenture
Act. We have incorporated the definitions used in the indenture in this
prospectus. You can obtain a copy of the indenture by requesting it from us.
Wilmington Trust Company will act as debenture trustee under the indenture.
General
The Trust invested the proceeds from the sale of the capital securities
and the common securities in the original junior subordinated debentures issued
by us. The original junior subordinated debentures bear interest at the annual
rate of 11.0% of the principal amount of the original junior subordinated
debentures, payable semi-annually in arrears on interest payment dates of March
1st and September 1st of each year to the person in whose name each original
junior subordinated debenture is registered at the close of business on the
relevant record date. The exchange debentures will have terms identical in all
material respects to the original junior subordinated debentures, except that
the exchange debentures will not contain terms with respect to transfer
restrictions under the Securities Act and will not provide for any liquidated
damages. The first interest payment date for the exchange debentures will be
September 1, 2000. The period beginning on and including the date the exchange
debentures are first issued and ending on but excluding May 1, 2000 and each
period beginning on and including an interest payment date and ending on but
excluding the next interest payment date is an interest period.
We anticipate that, until the liquidation, if any, of the Trust, each
exchange debenture will be held by the property trustee in trust for the benefit
of the holders of the exchange capital securities. The amount of interest
payable for any interest period will be computed on the basis of a 360-day year
of twelve 30-day months. In the event that any interest payment date would
otherwise fall on a day that is not a business day, the required payment will be
made on the next business day (without any interest or other payment due to the
delay), unless it would fall in the next calendar year, in which case the
interest payment date shall be the last business day of the calendar year.
Accrued interest that is not paid on the applicable interest payment
date will bear additional interest (to the extent permitted by law) at the rate
of 11.0% per year, compounded semi-annually, from the last interest payment date
for which interest was paid. The term "interest" as used in this prospectus
includes semi-annual interest payments and interest on semi-annual interest
payments not paid on the applicable interest payment date.
Notwithstanding anything to the contrary above, if the stated maturity
date or date of earlier redemption falls on a day that is not a business day,
the payment of principal, premium, if any, and interest will be paid on the next
business day, with the same force and effect as if made on such date, and no
interest on such payments will accrue from and after such date.
The exchange debentures will be issued as a series of junior
subordinated deferrable interest debentures under the indenture.
The exchange debentures will mature on March 1, 2030, unless redeemed
prior to such date in accordance with the terms discussed below.
The exchange debentures will rank equal to all of our other
subordinated debentures which have been or may be issued to other trusts
established by us, in each case similar to the Trust, and will be unsecured and
rank subordinate and junior to all of our senior indebtedness to the extent and
in the manner set forth in the indenture. See "--Subordination."
53
We are a unitary savings and loan association holding company regulated
by the OTS, and almost all of our operating assets are owned by Cascade Bank. We
are a legal entity separate and distinct from our subsidiaries. Holders of
exchange debentures should look only to us for payments on the exchange
debentures. The principal sources of our income are dividends, interest and fees
from Cascade Bank. We rely primarily on dividends from Cascade Bank to meet our
obligations for payment of principal and interest on our outstanding debt
obligations and corporate expenses. Dividend payments from Cascade Bank are
subject to regulatory limitations, generally based on current and retained
earnings, imposed by the OTS. See "Regulation and Supervision." Currently,
approximately $10.4 million is available for the payment of dividends to us
without further approval from the OTS.
We cannot assure you that Cascade Bank will be able to pay dividends at
past levels, or at all, in the future. See the section entitled "Regulation and
Supervision" in our Annual Report on Form 10-K for the year ended June 30, 1999,
which is incorporated into this prospectus by reference.
In addition to restrictions on the payment of dividends, Cascade Bank
is subject to certain restrictions imposed by federal law on any extensions of
credit to, and certain other transactions with, us and certain other affiliates,
and on investments in stock or other securities thereof. See "Regulation and
Supervision." As of March 31, 2000, approximately $5.3 million of credit was
available to us under these limitations, if adequate collateral would have been
available to secure such borrowings.
Also, as a holding company, our right to receive any distribution of
assets of any subsidiary, upon such subsidiary's liquidation or reorganization
or otherwise (and thus your right to benefit indirectly from such distribution),
is subject to the prior claims of creditors of that subsidiary (including
depositors, in the case of Cascade Bank), except to the extent that we may be
recognized as a creditor of that subsidiary. At March 31, 2000, Cascade Bank,
our only direct subsidiary, had total liabilities, including deposits, of $608.8
million. Accordingly, the exchange debentures will be effectively subordinated
to all existing and future liabilities of our subsidiaries (including Cascade
Bank's deposit liabilities) and all liabilities of any of our future
subsidiaries. The indenture does not limit the incurrence or issuance of other
secured or unsecured debt by us or any subsidiary, including senior
indebtedness. See "-- Subordination."
Form, Registration and Transfer
If the exchange debentures are distributed to the holders of the
exchange capital securities, the exchange debentures may be represented by one
or more global certificates registered in the name of Cede & Co., as the nominee
of DTC. The depositary arrangements for such exchange debentures are expected to
be substantially similar to those in effect for the exchange capital securities.
For a description of DTC and the terms of the depositary arrangements relating
to payments, transfers, voting rights, redemptions and other notices and other
matters, you should read "Description of Exchange Capital Securities -- Form,
Denomination, Book-Entry Procedures and Transfer."
Payment and Paying Agents
Payment of principal of (and premium, if any) and interest on the
exchange debentures will be made at the office of the debenture trustee in
Wilmington, Delaware or at the office of such paying agent or paying agents as
we may designate from time to time, except that, at our option, payment of any
interest may be made, except in the case of exchange debentures in global form:
o by check mailed to the address of the person or entity
entitled to the interest payment as such address shall appear
in the register for the exchange debentures; or
o by transfer to an account maintained by the person or entity
entitled to the interest payment as specified in the register,
provided that proper transfer instructions have been received
by the relevant record date.
Payment of any interest on any exchange debenture will be made to the
person or entity in whose name the exchange debenture is registered at the close
of business on the record date for the interest payment date, except in the case
of defaulted interest.
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We may at any time designate additional paying agents or rescind the
designation of any paying agent; however, we will always be required to maintain
a paying agent in each place of payment for the exchange debentures.
Any moneys deposited with the debenture trustee or any paying agent, or
then held by us, in trust for the payment of the principal of (or premium, if
any), or interest on, any exchange debenture and remaining unclaimed for two
years after such principal (or premium, if any) or interest has become due and
payable shall, at our request, be repaid to us and the holder of the exchange
debenture shall thereafter look, as a general unsecured creditor, only to us for
payment.
Option to Extend Interest Payment Date
So long as no event of default under the exchange debentures exists, we
will have the right under the indenture to defer the payment of interest on the
exchange debentures, at any time and from time to time, for no more than 10
consecutive semi-annual periods, provided that no deferral period shall end on a
date other than an interest payment date or extend beyond March 1, 2030. At the
end of a deferral period, we must pay all interest then accrued and unpaid
(together with interest thereon at the rate of 11.0% per year, compounded
semi-annually from the last interest payment date to which interest was paid, to
the extent permitted by applicable law). During a deferral period, interest will
continue to accrue, and holders of the exchange capital securities or, if the
exchange debentures have been distributed to holders of the exchange capital
securities, holders of exchange debentures, will be required to include that
deferred interest in gross income for Federal income tax purposes on an accrual
method of accounting prescribed by the Internal Revenue Code of 1986, as
amended, referred to as the Code, and Treasury regulation provisions on original
issue discount prior to the receipt of cash attributable to that income. See
"Certain Federal Income Tax Consequences --Interest Income and Original Issue
Discount."
During any such deferral period, we may not:
o declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect
to, any of our capital stock;
o make any payment of principal of, or interest or premium, if
any, on, or repay, repurchase or redeem any of our debt
securities that rank equal to or junior to the exchange
debentures; or
o make any guarantee payments with respect to any guarantee by
us of the debt securities of any of our subsidiaries
(including our exchange guarantee of the exchange capital
securities of the Trust and any other guarantees) if such
guarantee ranks equal or junior to the exchange debentures
other than:
o dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase
shares of, our common stock;
o any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future,
or the redemption or repurchase of any rights
pursuant thereto;
o payments under the exchange guarantee;
o as a result of a reclassification of our capital
stock or the exchange or conversion of one class or
series of our capital stock for another class or
series of our capital stock;
o the purchase of fractional interests in shares of our
capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security
being converted or exchanged; and
55
o purchases of our common stock related to the issuance
of common stock or rights under any of our benefit
plans for our directors, officers or employees or any
of our dividend reinvestment plans.
Before the end of any deferral period, we may extend the deferral
period, as long as no event of default exists and the extension does not cause
the deferral period to exceed 10 consecutive semi-annual periods, to end on a
date other than an interest payment date or to extend beyond March 1, 2030. At
the end of any deferral period and upon the payment of all then accrued and
unpaid interest (together with interest thereon at the rate of 11.0% per year,
compounded semi-annually, to the extent permitted by applicable law), we may
elect to begin a new deferral period, subject to the requirements set forth in
this prospectus. No interest will be due and payable during a deferral period
until the deferral period ends.
We must give the property trustee, the administrative trustees and the
debenture trustee notice of our election at least five business days before the
earlier of:
o the date the distributions on the exchange capital securities
would have been payable, except for the election to begin or
extend such deferral period; or
o the date the administrative trustees are required to give
notice to any securities exchange or automated quotation
system on which the exchange capital securities are listed or
quoted or to holders of exchange capital securities of the
record date for such distributions; or
o the date such distributions are payable, but in any event not
less than five business days prior to such record date.
The debenture trustee will notify holders of the exchange capital
securities of our election to begin or extend a new deferral period.
There is no limit on the number of times that we may elect to begin a
deferral period.
We do not currently intend to exercise our right to defer payments of
interest on the exchange debentures.
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Optional Prepayment
The exchange debentures will be prepayable, in whole or in part, at our
option on or after March 1, 2010, subject to our receipt of any required
regulatory approval, at an optional prepayment price equal to the percentage of
the outstanding principal amount of the exchange debentures specified below,
plus, in each case, accrued and unpaid interest on the exchange debentures, if
any, to the date of prepayment if redeemed during the 12-month period beginning
November 1st of the years indicated below:
Year Percentage
---- ----------
2010 105.50%
2011 104.95%
2012 104.40%
2013 103.85%
2014 103.30%
2015 102.75%
2016 102.20%
2017 101.65%
2018 101.10%
2019 100.55%
2020 and thereafter 100.00%
Special Event Prepayment
If there are changes in the bank regulatory, investment company or tax
laws that adversely affect the status of the Trust, the exchange capital
securities or the exchange debentures, we may, at our option and at any time,
subject to our receipt of any required regulatory approval, prepay the exchange
debentures, in whole but not in part, at any time within 90 days of the change
in the law, at the special event prepayment price. The special event prepayment
price will be an amount equal to the greater of:
o 100% of the principal amount of the exchange debentures, or
o the sum, as determined by a quotation agent referred to below,
of the present values of the remaining scheduled payments of
principal and interest on the exchange debentures from the
prepayment date to the stated maturity date, discounted to the
prepayment date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the adjusted
treasury rate,
plus, in the case of each of the above scenarios, accrued and unpaid interest
and liquidated damages, if any, to the date of prepayment.
A change in the bank regulatory law means our receipt of an opinion of
independent bank regulatory counsel experienced in such matters to the effect
that, as a result of:
o any amendment to, or change (including any announced
prospective change) in, any laws or regulations of the United
States or any rules, guidelines or policies of an applicable
regulatory agency or authority; or
o any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations,
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which amendment or change is effective or which pronouncement or decision is
announced on or after the date the exchange capital securities are first issued,
the exchange capital securities do not constitute, or within 90 days of the
opinion will not constitute, Tier 1 Capital (or its then equivalent if we were
subject to such capital requirement).
A change in the investment company law means the receipt by us and the
Trust of an opinion of independent securities counsel experienced in such
matters to the effect that, as a result of:
o any amendment to, or change (including any announced
prospective change) in, any laws or regulations of the United
States or any rules, guidelines or policies of any applicable
regulatory agency or authority; or
o any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations,
which amendment or change is effective or which pronouncement or decision is
announced on or after the date the exchange capital securities are first issued,
the Trust is, or within 90 days of the date of the opinion will be, considered
an investment company that is required to be registered under the Investment
Company Act.
A change in tax law means the receipt by us and the Trust of an opinion
of independent tax counsel experienced in such matters to the effect that, as a
result of:
o any amendment to, or change (including any announced
prospective change) in, any laws or regulations of the United
States or any political subdivision or taxing authority
thereof or therein; or
o any official administrative pronouncement or judicial decision
interpreting or applying such laws or regulations,
which amendment or change is effective or which pronouncement or decision is
announced on or after the date the exchange capital securities are first issued,
there is more than an insubstantial risk that:
o the Trust is, or will be within 90 days of the date of such
opinion, subject to Federal income tax with respect to any
income received or accrued on the exchange debentures;
o interest payable by us on the exchange debentures is not, or
within 90 days of the date of such opinion will not be,
deductible by us, in whole or in part, for Federal income tax
purposes; or
o the Trust is, or will be within 90 days of the date of such
opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.
Adjusted treasury rate means, with respect to a prepayment date, the
rate per annum equal to:
o the yield, under the heading which represents the average for
the immediately prior week, appearing in the most recently
published statistical release designated "H.15 (519)" or any
successor publication which is published weekly by the Federal
Reserve Board and which establishes yields on actively traded
United States Treasury securities adjusted to constant
maturity under the caption "Treasury Constant Maturities," for
the maturity corresponding to the remaining life, defined
below (if no maturity is within three months before or three
months after the maturity corresponding to the remaining life,
yields for the two published maturities most closely
corresponding to the remaining life shall be determined, and
the adjusted treasury rate shall be interpolated or
extrapolated from such yields on a straight-line basis,
rounding to the nearest month); or
o if such release (or any successor release) is not published
during the week preceding the calculation date or does not
contain such yields, the rate per annum equal to the
semi-annual equivalent yield to maturity of the comparable
treasury issue, calculated using a price for the comparable
treasury issue
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(expressed as a percentage of its principal amount) equal to
the comparable treasury price for such prepayment date,
plus: 414 basis points.
Comparable treasury issue means the United States Treasury security
selected by the quotation agent (defined below) having a maturity comparable to
the remaining life of the exchange debentures that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining life. If no United States Treasury security has a maturity which is
within a period from three months before to three months after the remaining
life, the two most closely corresponding United States Treasury securities, as
selected by the quotation agent, shall be used as the comparable treasury issue,
and the adjusted treasury rate shall be interpolated or extrapolated on a
straight-line basis, rounding to the nearest month, using such securities.
Comparable treasury price means, with respect to a prepayment date:
o the average of three reference treasury dealer quotations for
such prepayment date, after excluding the highest and lowest
such reference treasury dealer quotations; or
o if the quotation agent obtains fewer than five such reference
treasury dealer quotations, the average of all such reference
treasury dealer quotations.
Quotation agent means the reference treasury dealer appointed by us.
Reference treasury dealer means a nationally recognized U.S. Government
securities dealer in New York, New York selected by us.
Reference treasury dealer quotations means, with respect to each
reference treasury dealer and the prepayment date, the average, as determined by
the debenture trustee, of the bid and asked prices for the comparable treasury
issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the debenture trustee by such reference treasury dealer at 5:00 p.m.,
New York time, on the third business day preceding such prepayment date.
Remaining life means the term of the exchange debentures from the
prepayment date to the stated maturity date.
We will mail any notice of prepayment between 30 and 60 days before the
prepayment date to each holder of exchange debentures to be prepaid at its
registered address. Unless we default in payment of the prepayment price, on the
prepayment date interest shall cease to accrue on the exchange debentures called
for prepayment.
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a change in the tax law, we will pay as
additional amounts on the exchange debentures any amounts as may be necessary in
order that the amount of distributions then due and payable by the Trust on the
outstanding exchange capital securities shall not be reduced as a result of any
additional sums, including taxes, duties or other governmental charges to which
the Trust has become subject as a result of a change in the tax law.
Certain Covenants of Cascade Financial Corporation
We will covenant that we will not:
o declare or pay any dividends or distributions on, or redeem,
purchase, acquire or make a liquidation payment with respect
to, any of our capital stock;
o make any payment of principal of, or interest or premium, if
any, on, or repay, repurchase or redeem any of our debt
securities that rank equal or junior to the exchange
debentures; or
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o make any guarantee payments with respect to any of our
guarantees of the debt securities of any of our subsidiaries
if such guarantee ranks equal or junior to the exchange
debentures, other than:
o dividends or distributions in shares of, or options,
warrants or rights to subscribe for or purchase
shares of, our common stock;
o any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future,
or the redemption or repurchase of any such rights
pursuant thereto;
o payments under the exchange guarantee;
o as a result of a reclassification of our capital
stock or the exchange or conversion of one class or
series of our capital stock for another class or
series of our capital stock;
o the purchase of fractional interests in shares of our
capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security
being converted or exchanged; and
o purchases of our common stock related to the issuance
of common stock or rights under any of our benefit
plans for its directors, officers or employees or any
of our dividend reinvestment plans,
if at such time:
o we have actual knowledge that there is any event that is, or
with the giving of notice or the lapse of time, or both, would
be, an event of default under the exchange debentures and that
we have not taken reasonable steps to cure;
o we are in default with respect to our payment obligations
under the exchange guarantee; or
o we have given notice of our election to exercise our right to
defer interest payments on the exchange debentures as provided
in the indenture and the deferral period, or any extension of
the deferral period, is continuing.
So long as the trust capital securities remain outstanding, we also
will covenant:
o to directly or indirectly maintain 100% direct or indirect
ownership of the common securities; provided, however, that
any of our permitted successors under the indenture may
succeed to our ownership of the common securities;
o to use commercially reasonable efforts to cause the Trust to
remain a business trust, except in connection with the
distribution of exchange debentures to the holders of trust
securities in liquidation of the Trust, the redemption of all
of the trust securities, or certain mergers, consolidations or
amalgamations, each as permitted by the trust agreement;
o to use commercially reasonable efforts to cause the Trust to
otherwise continue not to be classified as an association
taxable as a corporation and to be classified as a grantor
trust for Federal income tax purposes;
o to use commercially reasonable efforts to cause each holder of
trust securities to be treated as owning an undivided
beneficial interest in the junior subordinated debentures; and
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o to not cause, as sponsor of the Trust, or permit, as holder of
the common securities, the dissolution, winding-up or
liquidation of the Trust, except as provided in the trust
agreement.
Modification of Indenture
From time to time, we, together with the debenture trustee, may,
without the consent of the holders of exchange debentures, amend the indenture
for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies or enabling us and the Trust to conduct an exchange
offer as contemplated by the registration rights agreement, provided that any
amendment to the indenture does not materially adversely affect the interest of
the holders of exchange debentures, and qualifying, or maintaining the
qualification of, the indenture under the Trust Indenture Act.
The indenture permits us and the debenture trustee, with the consent of
the holders of a majority in aggregate principal amount of exchange debentures,
to modify the indenture in a manner affecting the rights of the holders of the
exchange debentures; provided that no modification may, without the consent of
the holders of each outstanding subordinated debenture affected:
o change the stated maturity date, or reduce the principal
amount, of the exchange debentures;
o reduce the amount payable on prepayment or reduce the rate or
extend the time of payment of interest except pursuant to our
right under the indenture to defer the payment of interest
(see "-- Option to Extend Interest Payment Date");
o change any of the prepayment provisions;
o make the principal of, (or premium, if any) or interest on,
the exchange debentures payable in any coin or currency other
than that provided in the exchange debentures;
o impair or affect the right of any holder of exchange
debentures to institute suit for the payment thereof; or
o reduce the percentage of the principal amount of the exchange
debentures, the holders of which are required to consent to
any such modification.
Events of Default Under the Exchange Debentures
An event of default under the exchange debentures means:
o our failure for 30 days to pay any interest (including
compounded interest and additional sums, if any) or liquidated
damages, if any, on the exchange debentures or any other
similar debentures when due (subject to the deferral of any
interest due date in the case of a deferral period with
respect to the exchange debentures or other similar
debentures, as the case may be);
o our failure to pay any principal or premium, if any, on the
exchange debentures or any other similar debentures when due,
whether at maturity, upon prepayment, by accelerating the
maturity or otherwise;
o our failure to observe or perform any other covenant contained
in the indenture for 90 days after written notice to us from
the debenture trustee or to us and the debenture trustee from
the holders of at least 25% in aggregate outstanding principal
amount of exchange debentures; or
o certain events related to our bankruptcy, insolvency or
reorganization.
Prior to any declaration accelerating the maturity of the junior
subordinated debentures, the holders of a majority in aggregate outstanding
principal amount of the junior subordinated debentures affected may, on behalf
of
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the holders of all the junior subordinated debentures, waive any past default,
except a default in the payment of principal (or premium, if any) or interest
(including compounded interest and additional sums, if any) or liquidated
damages, if any (unless such default has been cured and a sum sufficient to pay
all matured installments of interest and principal (and premium, if any) due
otherwise than by acceleration has been deposited with the debenture 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.
The holders of a majority in aggregate outstanding principal amount of
the exchange debentures have, subject to certain exceptions, the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the debenture trustee. The debenture trustee or the holders of not less than
25% in aggregate outstanding principal amount of the exchange debentures may
declare the principal due and payable immediately upon an event of default under
the exchange debentures. The holders of a majority in aggregate outstanding
principal amount of the exchange debentures may annul this declaration and waive
the default if the default (other than the non-payment of the principal of the
exchange debentures which has become due solely by such acceleration) 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
debenture trustee.
The holders of a majority in aggregate outstanding principal amount of
the exchange debentures affected may, on behalf of the holders of all the
exchange debentures, waive any past default, except a default in the payment of
principal (or premium, if any) or interest (including compounded interest and
additional sums, if any) or liquidated damages, if any (unless such default has
been cured and a sum sufficient to pay all matured installments of interest and
principal (and premium, if any) due otherwise than by acceleration has been
deposited with the debenture 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 exchange debenture.
The indenture requires that we file with the debenture trustee a
certificate annually as to the absence of defaults specified under the
indenture.
The indenture provides that the debenture trustee may withhold notice
of a debenture event of default from the holders of the exchange debentures if
the debenture trustee considers it in the interest of the holders to do so.
Enforcement of Certain Rights by Holders of Exchange Capital Securities
If an event of default under the exchange debentures exists that is
attributable to our failure to pay the principal of (or premium, if any) or
interest (including compounded interest and additional sums, if any) or
liquidated damages, if any, on the exchange debentures on the due date, a holder
of exchange capital securities may institute a direct action against us. We may
not amend the indenture to remove this right to bring a direct action without
the prior written consent of the holders of all of the exchange capital
securities. Notwithstanding any payments that we make to a holder of exchange
capital securities in connection with a direct action, we shall remain obligated
to pay the principal of (and premium, if any) and interest on the exchange
debentures, and we shall be subrogated to the rights of the holder of the
exchange capital securities with respect to payments on the exchange capital
securities to the extent that we make any payments to a holder in any direct
action.
The holders of the exchange capital securities will not be able to
exercise directly any remedies, other than those described in the above
paragraph, available to the holders of the exchange debentures, unless an event
of default exists under the trust agreement. See "Description of Exchange
Capital Securities -- Events of Default; Notice."
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Consolidation, Merger, Sale of Assets and Other Transactions
The indenture provides that we will not consolidate with or merge into
any other person or convey, transfer or lease all or substantially all of our
properties to any person, and no person shall consolidate with or merge into us
or convey, transfer or lease all or substantially all of its properties to us,
unless:
o in case we consolidate with or merge into another person or
convey or transfer all or substantially all of our properties
to any person, the successor is organized under the laws of
the United States or any state or the District of Columbia,
and the successor expressly assumes our obligations under the
indenture with respect to the exchange debentures;
o immediately after giving effect to the transaction, no event
of default under the exchange debentures, and no event which,
after notice or lapse of time or both, would become an event
of default under the exchange debentures, exists; and
o certain other conditions as prescribed in the indenture are
met.
The general provisions of the indenture do not afford holders of the
exchange debentures protection in the event of a highly leveraged or other
transaction that we may become involved in that may adversely affect holders of
the exchange debentures.
Satisfaction and Discharge
The indenture provides that when, among other things,
o all exchange debentures not previously delivered to the
debenture trustee for cancellation have become due and payable
or will become due and payable at maturity or called for
prepayment within one year, and
o we deposit or cause to be deposited with the debenture trustee
funds, in trust, for the purpose and in an amount sufficient
to pay and discharge the entire indebtedness on the exchange
debentures not previously delivered to the debenture trustee
for cancellation, for the principal (and premium, if any) and
interest (including compounded interest and additional sums,
if any) to the date of the deposit or to March 1, 2030, as the
case may be,
then the indenture will cease to be of further effect (except as to our
obligations to pay all other sums due pursuant to the indenture and to provide
the officers' certificates and opinions of counsel), and we will be deemed to
have satisfied and discharged the indenture.
Subordination
We have promised that any of our exchange debentures issued under the
indenture will rank junior to all of our senior indebtedness to the extent
provided in the indenture. Upon any payment or distribution of our assets to
creditors upon our liquidation, dissolution, winding up, reorganization,
assignment for the benefit of our creditors, marshaling of our assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings in connection
with any insolvency or bankruptcy proceeding involving us, the allocable amounts
in respect of the senior indebtedness must be paid in full before the holders of
the exchange debentures will be entitled to receive or retain any payment in
respect thereof.
If the maturity of exchange debentures is accelerated, the holders of
all senior indebtedness outstanding at such time will first be entitled to
receive payment in full of the allocable amounts in respect of such senior
indebtedness before the holders of exchange debentures will be entitled to
receive or retain any payment in respect of the principal of (or premium, if
any), or interest, if any, on the exchange debentures.
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No payments on account of principal (or premium, if any) or interest,
if any, in respect of the exchange debentures may be made if there is a default
in any payment with respect to senior indebtedness, or an event of default
exists with respect to any senior indebtedness that accelerates the maturity of
the senior indebtedness, or if any judicial proceeding shall be pending with
respect to the default.
Allocable amounts, when used with respect to any senior indebtedness,
means all amounts due or to become due on such senior indebtedness less, if
applicable, any amount which would have been paid to, and retained by, the
holders of such senior indebtedness (whether as a result of the receipt of
payments by the holders of such senior indebtedness from us or any other obligor
thereon or from any holders of, or trustee in respect of, other indebtedness
that is subordinate and junior in right of payment to such senior indebtedness
pursuant to any provision of such indebtedness for the payment over of amounts
received on account of such indebtedness to the holders of such senior
indebtedness or otherwise) but for the fact that such senior indebtedness is
subordinate or junior in right of payment to (or subject to a requirement that
amounts received on such senior indebtedness be paid over to obligees on) trade
accounts payable or accrued liabilities arising in the ordinary course of
business.
Indebtedness for money borrowed means any of our obligations, or any
obligation guaranteed by us, to repay borrowed money, whether or not evidenced
by bonds, debentures, notes or other written instruments, except that
indebtedness for money borrowed does not include trade accounts payable or
accrued liabilities arising in the ordinary course of business.
Indebtedness ranking on a parity with the exchange debentures means:
o indebtedness for money borrowed, whether outstanding on the
date the indenture is executed or created, assumed or incurred
after the date that the indenture is executed, to the extent
the indebtedness for money borrowed by its terms ranks equal
to and not prior to the exchange debentures in the right of
payment upon the happening of our dissolution, winding-up,
liquidation or reorganization;
o all other debt securities, and guarantees in respect of those
debt securities, issued to any trust other than the Trust, or
a trustee of such trust, partnership or other entity
affiliated with us, that is our financing vehicle (a
"financing entity"), in connection with the issuance by the
financing entity of equity securities or other securities
guaranteed by us pursuant to an instrument that ranks equal
with or junior to the exchange guarantee; and
o the securing of any indebtedness otherwise constituting
indebtedness ranking on a parity with the exchange debentures
shall not be deemed to prevent such indebtedness from
constituting indebtedness ranking on a parity with the
exchange debentures.
Indebtedness ranking junior to the exchange debentures means any
indebtedness for money borrowed, whether outstanding on the date the indenture
is executed or created, assumed or incurred after the date the indenture is
executed, to the extent the indebtedness for money borrowed by its terms ranks
junior to and not equal with or prior to the exchange debentures (and any other
indebtedness ranking on a parity with the exchange debentures) in right of
payment upon the happening of our dissolution or winding-up or liquidation or
reorganization. The securing of any indebtedness otherwise constituting
indebtedness ranking junior to the exchange debentures shall not be deemed to
prevent such indebtedness for money borrowed from constituting indebtedness
ranking junior to the exchange debentures.
Senior indebtedness means all indebtedness for money borrowed, whether
outstanding on the date the indenture is executed or created, assumed or
incurred after the date the indenture is executed, except indebtedness ranking
on a parity with the exchange debentures or indebtedness ranking junior to the
exchange debentures, and any deferrals, renewals or extensions of the senior
indebtedness.
We are a unitary savings and loan association holding company regulated
by the OTS, and almost all of our operating assets are owned by Cascade Bank. We
rely primarily on dividends from Cascade Bank to meet our obligations for
payment of principal and interest on our outstanding debt obligations and
corporate expenses. We are
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a legal entity separate and distinct from its subsidiaries. Holders of exchange
debentures should look only to us for payments on the exchange debentures. There
are regulatory limitations on the payment of dividends directly or indirectly to
us from Cascade Bank. In addition, Cascade Bank is subject to certain
restrictions imposed by federal law on any extensions of credit to, and certain
other transactions with, us and certain other affiliates, and on investments in
stock or other securities thereof. See "Regulation and Supervision" for a
discussion of these dividend and borrowing restrictions. Accordingly, the
exchange debentures will be effectively subordinated to all existing and future
liabilities of our subsidiaries.
Also, as a holding company, our right to receive any distribution of
assets of any subsidiary upon such subsidiary's liquidation or reorganization or
otherwise (and thus your right to benefit indirectly from such distribution), is
subject to the prior claims of creditors of that subsidiary (including
depositors, in the case of Cascade Bank), except to the extent we may be
recognized as a creditor of that subsidiary. At March 31, 2000, Cascade Bank,
our only direct subsidiary, had total liabilities, including deposits, of $608.8
million. Accordingly, the exchange debentures will be effectively subordinated
to all existing and future liabilities of our subsidiaries (including Cascade
Bank's deposit liabilities) and all liabilities of any of our future
subsidiaries. The indenture does not limit the incurrence or issuance of other
secured or unsecured debt of us or any subsidiary, including senior
indebtedness.
Restrictions on Transfer
The exchange debentures will be issued and may be transferred only in
blocks having an aggregate principal amount of not less than $100,000 and
multiples of $1,000 in excess thereof. Any attempted transfer of exchange
debentures in a block having an aggregate principal amount of less than $100,000
will be deemed to be void and of no legal effect whatsoever. Any such purported
transferee shall be deemed not to be the holder of such exchange debentures for
any purpose, including but not limited to the receipt of payments on such
exchange debentures, and such purported transferee shall be deemed to have no
interest whatsoever in such exchange debentures.
Governing Law
The indenture and the exchange debentures will be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflict of law principles.
Information Concerning the Debenture Trustee
Following the exchange offer and the qualification of the indenture
under the Trust Indenture Act, the debenture trustee will have and be subject to
all the duties and responsibilities specified with respect to an indenture
trustee under the Trust Indenture Act. Subject to such provisions, the debenture
trustee is not obligated to exercise any of the powers vested in it by the
indenture at the request of any holder of exchange debentures, unless offered
reasonable indemnity by the holder against the costs, expenses and liabilities
which might be incurred thereby. The debenture trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties under the indenture.
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DESCRIPTION OF EXCHANGE GUARANTEE
We will execute and deliver the exchange guarantee at the same time the
exchange capital securities are issued. The exchange guarantee will be qualified
as an indenture under the Trust Indenture Act upon effectiveness of the exchange
offer registration statement. The terms of the exchange guarantee are identical
in all material respects to the terms of the original guarantee. This summary of
the material provisions of the exchange guarantee is not complete and is subject
to, and qualified in its entirety by, the exchange guarantee and the Trust
Indenture Act. The guarantee trustee will hold the exchange guarantee for the
benefit of the holders of the exchange capital securities. You can obtain a copy
of the exchange guarantee by requesting it from Cascade Financial Corporation.
Wilmington Trust Company will act as guarantee trustee under the exchange
guarantee.
General
We will irrevocably agree to pay in full on a subordinated basis, to
the extent set forth in this prospectus, the following payments with respect to
the exchange capital securities to the extent not paid by the Trust:
o any accumulated and unpaid distributions required to be paid
on the exchange capital securities, to the extent that the
Trust has funds legally available at that time;
o the applicable redemption price with respect to the exchange
capital securities called for redemption, to the extent that
the Trust has funds legally available at that time; and
o upon a voluntary or involuntary dissolution, winding-up or
liquidation of the Trust (other than in connection with the
distribution of the exchange debentures to holders of the
exchange capital securities or the redemption of all exchange
capital securities), the lesser of (a) the liquidation
distribution, to the extent the Trust has funds legally
available at that time, and (b) the amount of assets of the
Trust remaining available for distribution to holders of
exchange capital securities after satisfying the liabilities
owed to the Trust's creditors as required by applicable law.
The exchange guarantee will rank subordinate and junior to all senior
indebtedness to the extent provided in the exchange guarantee. See "-- Status of
the Exchange Guarantee." Our obligation to make a guarantee payment may be
satisfied by our direct payment of the required amounts to the holders of the
exchange capital securities or by causing the Trust to pay these amounts to the
holders of the exchange capital securities.
The exchange guarantee will be an irrevocable guarantee on a
subordinated basis of the Trust's obligations under the exchange capital
securities, but will apply only to the extent that the Trust has funds
sufficient to make these payments. If we do not make payments on the exchange
debentures held by the Trust, then it will not be able to make the related
payments to you on the exchange capital securities and will not have funds
legally available. Please refer to the "Relationship Among the Exchange Capital
Securities, the Exchange Debentures and the Exchange Guarantee" section of this
prospectus.
The exchange guarantee does not limit us from incurring or issuing
other secured or unsecured debt, including senior indebtedness, whether under
the indenture, any other indenture that we may enter into in the future or
otherwise. The holders of at least a majority in aggregate liquidation amount of
the exchange capital securities 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 our guarantee or to direct the exercise of any trust power
conferred upon the guarantee trustee under our guarantee. If the guarantee
trustee fails to enforce the guarantee, any holder of the exchange capital
securities may institute a legal proceeding directly against us to enforce their
rights under the guarantee without first instituting a legal proceeding against
the Trust, the guarantee trustee or any other person or entity.
If we default on our obligation to pay amounts payable under the
exchange debentures, the Trust will lack funds for the payment of distributions
or amounts payable on redemption of the exchange capital securities or
otherwise, and the holders of the exchange capital securities will not be able
to rely upon the exchange guarantee for payment of such amounts. Instead, if an
event of default under the exchange debentures exists that is attributable to
our failure to pay
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principal of (or premium, if any) or interest on the exchange debentures on a
payment date, then any holder of exchange capital securities may institute a
direct action against us pursuant to the terms of the indenture for enforcement
of payment to that holder of the principal of (or premium, if any) or interest
on such exchange debentures having a principal amount equal to the aggregate
liquidation amount of the exchange capital securities of that holder. In
connection with a direct action, we will have a right of set-off under the
indenture to the extent that we made any payment to the holder of exchange
capital securities in the direct action. Except as described in this prospectus,
holders of exchange capital securities will not be able to exercise directly any
other remedy available to the holders of the exchange debentures or assert
directly any other rights in respect of the exchange debentures. The trust
agreement provides that each holder of exchange capital securities by accepting
the exchange capital securities agrees to the provisions of the exchange
guarantee and the indenture.
We will, through our guarantee, the trust agreement, the exchange
debentures and the indenture, taken together, fully, irrevocably and
unconditionally guarantee all of the Trust's obligations under the exchange
capital securities. No single document standing alone, or operating in
conjunction with fewer than all of the other documents, constitutes that
guarantee. Only the combined operation of these documents provides a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
exchange capital securities. You should refer to the section in this prospectus
entitled "Relationship Among the Exchange Capital Securities, the Exchange
Debentures and the Exchange Guarantee" for more information about our guarantee.
Status of the Exchange Guarantee
Our exchange guarantee will constitute an unsecured obligation and will
rank subordinate and junior to all senior indebtedness in the same manner as the
exchange debentures. See "Description of Exchange Debentures --Subordination."
In addition, because we are a holding company, our right to participate in any
distribution of the assets of our subsidiaries, including Cascade Bank, upon
their liquidation or reorganization or otherwise is subject to the prior claims
of their creditors (including Cascade Bank's depositors), except to the extent
we may be recognized as their creditor. Accordingly, our obligations under the
exchange guarantee effectively will be subordinated to all existing and future
liabilities of our present and future subsidiaries (including depositors of
Cascade Bank). As a result, claimants should look only to our assets for
payments under the exchange guarantee. See "Description of Exchange Debentures
- -- General."
Our guarantee will rank equal to all of our other guarantees with
respect to preferred beneficial interests issued by other trusts. Our guarantee
of the Trust's exchange capital securities does not limit the amount of secured
or unsecured debt, including senior indebtedness, that we or any of our
subsidiaries may incur. We expect from time to time that we will incur
additional indebtedness and that our subsidiaries will also incur additional
liabilities.
Our guarantee will constitute a guarantee of payment only to the extent
that the Trust has funds legally available and not of collection, enabling the
guaranteed party to institute a legal proceeding directly against us to enforce
their rights under the exchange guarantee without first instituting a legal
proceeding against any other person or entity. Our guarantee will not be
discharged, except by payment of the exchange guarantee payments in full to the
extent that the Trust has not paid, or upon distribution of the exchange
debentures to, the holders of the exchange capital securities.
Events of Default
There will be an event of default under the exchange guarantee if we
fail to perform any of our payment or other obligations under the exchange
guarantee; except that with respect to a default in payment of any guarantee
payment, we shall have received notice of default and shall not have cured the
default within 60 days after receipt of the notice. We, as guarantor, will be
required to file annually with the guarantee trustee a certificate regarding our
compliance with the applicable conditions and covenants under our guarantee.
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Amendments and Assignment
Except with respect to any changes that do not materially adversely
affect the rights of holders of the exchange capital securities (in which case
no approval will be required), the exchange guarantee may not be amended without
the prior approval of the holders of a majority of the liquidation amount of
such outstanding capital securities. You should read "Description of Exchange
Capital Securities -- Voting Rights; Amendment of the Trust Agreement" for more
information about the manner of obtaining the holders' approval. All guarantees
and agreements contained in the exchange guarantee shall bind our successors,
assigns, receivers, trustees and representatives and shall inure to the benefit
of the holders of the exchange capital securities then outstanding.
Termination of the Exchange Guarantee
Our guarantee will terminate and be of no further force and effect
upon:
o full payment of the applicable redemption price of all
outstanding exchange capital securities;
o full payment of the liquidation amount payable upon
liquidation of the Trust; or
o distribution of exchange debentures to the holders of the
exchange capital securities.
Our guarantee will continue to be effective or will be reinstated, as
the case may be, if at any time any holder of the exchange capital securities
must restore payment of any sums paid under the exchange capital securities or
the exchange guarantee.
Governing Law
The exchange guarantee will be governed by and construed in accordance
with the laws of the State of New York, without regard to conflict of law
principles.
Information Concerning the Guarantee Trustee
The guarantee trustee, except if we default under the exchange
guarantee, will undertake to perform only such duties as are specifically set
forth in the exchange guarantee and, in case a default with respect to the
exchange guarantee has occurred, 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. Subject to this provision, the guarantee trustee will not be obligated
to exercise any of the powers vested in it by the exchange guarantee at the
request of any holder of the exchange capital securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that it might
incur.
DESCRIPTION OF ORIGINAL SECURITIES
We refer to the original capital securities, the original guarantee and
the original junior subordinated debentures collectively as the original
securities and refer to the exchange capital securities, the exchange guarantee
and the exchange debentures collectively as the exchange securities.
The terms of the original securities are identical in all materials
respects to the exchange securities, except that:
o original securities have not been registered under the
Securities Act, are subject to certain restrictions on
transfer and are entitled to certain rights under the
applicable registration rights agreement, which rights will
terminate upon consummation of the exchange offer, except
under limited circumstances;
o the exchange capital securities will not provide for any
increase in the distribution rate; and
o the exchange debentures will not provide for any liquidated
damages.
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The original securities provide that, if a registration statement
relating to the exchange offer is not declared effective by the Commission on or
prior to the 180th day after the issue date, liquidated damages shall accrue on
the principal amount of the original junior subordinated debentures, and
additional distributions shall accumulate on the liquidation amount of the
original capital securities, each at a rate of 25 basis points per annum. In
addition, the original capital securities provide that, if the Trust has not
exchanged exchange capital securities for all original capital securities
validly tendered by the 45th day after the date on which the registration
statement is declared effective, the distribution rate borne by the original
capital securities will increase by 25 basis points per annum for the period
from the occurrence of such event until such time as the exchange offer has been
consummated. The exchange securities are not, and upon consummation of the
exchange offer, the original securities will not be, entitled to any such
additional interest or distributions. Accordingly, holders of original capital
securities should review the information set forth under "Risk Factors -- Your
failure to exchange original capital securities may adversely affect your
ability to sell such securities" and "Description of Exchange Capital
Securities."
RELATIONSHIP AMONG THE EXCHANGE CAPITAL SECURITIES,
THE EXCHANGE DEBENTURES AND THE EXCHANGE GUARANTEE
Full and Unconditional Guarantee
We will irrevocably guarantee payments of distributions and other
amounts due on the exchange capital securities to the extent the Trust has funds
legally available to pay such amounts as and to the extent set forth under
"Description of Exchange Guarantee." Taken together, our obligations under the
exchange debentures, the indenture, the trust agreement and the exchange
guarantee will provide a full, irrevocable and unconditional guarantee of the
Trust's payments of distributions and other amounts due on the exchange capital
securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes this guarantee. Only the
combined operation of these documents effectively provides a full, irrevocable
and unconditional guarantee of the Trust's obligations under the exchange
capital securities.
If and to the extent that we do not make the required payments on the
exchange debentures, the Trust will not have sufficient funds to make its
related payments, including distributions on the exchange capital securities.
Our guarantee will not cover any payments when the Trust does not have
sufficient funds legally available to make those payments. Your remedy, as a
holder of exchange capital securities, is to institute a direct action against
us. Our obligations under the exchange guarantee will be subordinate and junior
to all senior indebtedness.
Sufficiency of Payments
As long as we pay the interest and other payments when due on the
exchange debentures, the Trust will have sufficient funds to cover distributions
and other payments due on the exchange capital securities, primarily because:
o the aggregate principal amount or prepayment price of the
exchange debentures will equal the aggregate liquidation
amount or redemption price, as applicable, of the trust
securities;
o the interest rate and interest payment dates and other payment
dates on the exchange debentures will match the distribution
rate and distribution dates and other payment dates for the
trust securities;
o as sponsor, we will pay for all and any costs, expenses and
liabilities of the Trust, except for the Trust's obligations
to holders of trust securities; and
o the trust agreement also provides that the Trust is not
authorized to engage in any activity that is not consistent
with its limited purposes.
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Enforcement Rights of Holders of Exchange Capital Securities
You, as holder of exchange capital securities, may institute a legal
proceeding directly against us to enforce your rights under our guarantee
without first instituting a legal proceeding against the guarantee trustee, the
Trust or any other person or entity.
A default or event of default under any senior indebtedness would not
constitute a default or event of default under the trust agreement. However, if
there are payment defaults under, or accelerations of, senior indebtedness, the
subordination provisions of the indenture provide that we cannot make payments
in respect of the exchange debentures until we have paid the senior indebtedness
in full or we have cured any payment default or a payment default has been
waived. Our failure to make required payments on exchange debentures would
constitute an event of default under the trust agreement.
Limited Purpose of the Trust
The exchange capital securities will represent beneficial interests in
the Trust, and the Trust exists for the sole purpose of issuing and selling the
trust securities, using the proceeds from the sale of the trust securities to
acquire the original junior subordinated debentures, exchanging the original
capital securities and original junior subordinated debentures in the exchange
offer, and engaging in only those other activities necessary, advisable or
incidental thereto. A principal difference between the rights of a holder of an
exchange capital security and a holder of an exchange debenture is that a holder
of an exchange debenture will be entitled to receive from us the principal of
(and premium, if any) and interest on exchange debentures held, while a holder
of exchange capital securities is entitled to receive distributions from the
Trust (or, in certain circumstances, from us under our guarantee) if and to the
extent the Trust has funds legally available to pay the distributions.
Rights Upon Dissolution
Unless the exchange debentures are distributed to holders of the
exchange capital securities, if the Trust is voluntarily or involuntarily
dissolved, wound-up or liquidated, after satisfying the liabilities owed to the
Trust's creditors as required by applicable law, the holders of the exchange
capital securities will be entitled to receive, out of assets held by the Trust,
the liquidation distribution in cash. See "Description of Exchange Capital
Securities -- Liquidation of the Trust and Distribution of Exchange Debentures."
If we are voluntarily or involuntarily liquidated or bankrupted, the
property trustee, as holder of the exchange debentures, would be one of our
subordinated creditors, subordinated in right of payment to all senior
indebtedness, but entitled to receive payment in full of principal (and premium,
if any) and interest, before any of our stockholders receive payments or
distributions. Since we will be the guarantor under the exchange guarantee and
will agree to pay all costs, expenses and liabilities of the Trust (other than
the Trust's obligations to the holders of its exchange capital securities), the
positions of a holder of exchange capital securities and a holder of exchange
debentures relative to other creditors and to our stockholders in the event of
our liquidation or bankruptcy are expected to be substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
In the opinion of Silver, Freedman & Taff, L.L.P., special Federal
income tax counsel to us and the Trust, the following describes the material
Federal income tax consequences of the purchase, ownership and disposition of a
capital security.
This summary addresses the tax consequences only to a person that
acquires a capital security on its original issuance at its original price and
that holds the security as a capital asset. This summary does not address all
tax consequences that may be applicable to a beneficial owner of a capital
security and does not address the tax consequences to holders subject to special
tax regimes (like banks, thrifts, real estate investment trusts, regulated
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investment companies, insurance companies, dealers in securities or currencies,
tax-exempt investors or persons that will hold a capital security as a position
in a "straddle," as part of a "synthetic security" or "hedge" or as part of a
"conversion transaction" or other integrated investment). This summary does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may
apply to a capital security. This discussion is addressed to a U.S. Holder,
which is defined as a beneficial owner of a capital security that, for Federal
income tax purposes, is (or is treated as):
o a citizen or individual resident of the United States;
o a corporation or partnership (or entity treated for Federal
income tax purposes as a corporation or partnership) created
or organized in or under the laws of the United States or any
state (including the District of Columbia) or other political
subdivision thereof;
o an estate the income of which is includable in gross income
for Federal income tax purposes without regarding to its
source; or
o a trust if a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more U.S. persons have the ability to control
all substantial decisions of the trust.
This summary does not address the special consequences to a non U.S.
Holder who acquires a capital security. For purposes of this discussion, a
"Non-U.S. Holder" generally is any corporation, individual, partnership, estate
or trust that is not a U.S. Holder for Federal income tax purposes.
This summary does not address the tax consequences to any stockholder,
partner or beneficiary of a holder of a capital security. This summary is based
on the Code, Treasury regulations thereunder and the administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. An opinion of Silver, Freedman & Taff,
L.L.P. is not binding on the Internal Revenue Service, referred to as the IRS,
or the courts. No rulings have been or are expected to be sought from the IRS
with respect to any of the matters described in this prospectus. We can give no
assurance that the opinions expressed will not be challenged by the IRS or, if
challenged, that the challenge will not be successful.
Prospective investors are advised to consult with their own tax
advisors with respect to the tax consequences to them of the purchase, ownership
and disposition of the capital securities, including the tax consequences under
state, local, foreign, and other tax laws and possible effects of changes in
such tax laws.
Exchange of Capital Securities
The exchange of the original capital securities for exchange capital
securities pursuant to the exchange offer should not be treated as an exchange
for Federal income tax purposes and, therefore, should not be a taxable event to
holders for Federal income tax purposes, because the exchange capital securities
should not be considered to differ materially in kind or extent from the
original capital securities and because the exchange will occur by operation of
the terms of the capital securities. If the exchange were treated as an exchange
for Federal income tax purposes, such exchange should constitute a
recapitalization for Federal income tax purposes. Accordingly, the exchange
capital securities should have the same issue price as the original capital
securities, and a holder should have the same adjusted tax basis and holding
period in the exchange capital securities as the holder had in the original
capital securities immediately before the exchange.
Classification of the Junior Subordinated Debentures
We intend to take the position that the junior subordinated debentures
will be classified for Federal income tax purposes as our indebtedness. We,
together with the Trust and the holders of the capital securities (by acceptance
of a beneficial interest in a capital security) will agree to treat the junior
subordinated debentures as our indebtedness for all Federal income tax purposes.
We cannot be sure that this position will not be challenged by the IRS or, if
challenged,
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that the challenge will not be successful. The remainder of this discussion
assumes that the junior subordinated debentures will be classified as our
indebtedness for Federal income tax purposes.
Classification of the Trust
In connection with the issuance of the original capital securities,
Silver, Freedman & Taff, L.L.P. rendered its opinion that, under then current
law and assuming full compliance with the terms of the trust agreement and the
indenture (and certain other documents), and based on certain facts and
assumptions contained in that opinion, the Trust is classified for Federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation. Accordingly, for Federal income tax purposes, the Trust is not
subject to Federal income tax, and each holder of capital securities will be
considered the owner of an undivided interest in the junior subordinated
debentures, and each holder will be required to include in its gross income any
interest (or accrued original issue discount), with respect to its allocable
share of the junior subordinated debentures.
Interest Income and Original Issue Discount
Under the indenture, we have the right to defer the payment of interest
on the junior subordinated debentures at any time or from time to time for one
or more deferral periods not exceeding 10 consecutive semi-annual periods each,
provided that no deferral period shall end on a date other than an interest
payment date or extend beyond March 1, 2030. By reason of that right, the
Treasury regulations will subject the junior subordinated debentures to the
rules in the Code and Treasury regulations on debt instruments issued with
original issue discount, unless the indenture or junior subordinated debentures
contain terms or conditions that make the likelihood of exercise of the deferral
option remote. Under the Treasury regulations, a "remote" contingency that
stated interest will not be timely paid will be ignored in determining whether a
debt instrument is issued with original issue discount. Although the answer is
not clear, we believe that the likelihood that we would exercise our option to
defer payments of interest is remote since exercising that option would, among
other things, prevent us from declaring dividends on any class of our equity
securities. Accordingly, we intend to take the position that the junior
subordinated debentures will not be considered to be issued with original issue
discount and, accordingly, stated interest on the junior subordinated debentures
generally will be taxable to a holder as ordinary income at the time it is paid
or accrued in accordance with such holder's method of accounting.
Under the Treasury regulations, if we were to exercise our option to
defer payments of interest, the junior subordinated debentures would at that
time be treated as issued with original issue discount, and all stated interest
on the junior subordinated debentures would thereafter be treated as original
issue discount as long as the junior subordinated debentures remain outstanding.
If this occurred, all of a holder's interest income with respect to the junior
subordinated debentures would thereafter be accounted for on an economic accrual
basis regardless of such holder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a holder of a capital security would be required to include in
gross income original issue discount even though we would not make actual cash
payments during a deferral period. The amount of such includable original issue
discount could be significant. Also, under the Treasury regulations, if the
option to defer the payment of interest were determined not to be remote, the
junior subordinated debentures would be treated as having been originally issued
with original issue discount. In such event, a holder would be required to
include in gross income an amount of original issue discount each taxable year
that approximates the amount of interest that accrues on the junior subordinated
debentures at the stated interest rate, regardless of such holder's method of
tax accounting, and actual cash payments of interest on the junior subordinated
debenture would not be separately includable in gross income. These Treasury
regulations have not yet been addressed in any rulings or other interpretations
by the IRS, and it is possible that the IRS could take a position contrary to
the interpretation described in this prospectus.
Because income on the capital securities will constitute interest or
original issue discount, corporate holders of the capital securities will not be
entitled to a dividends-received deduction with respect to any income recognized
with respect to the capital securities.
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Receipt of Junior Subordinated Debenture or Cash upon Liquidation of the Trust
We will have the right at any time to liquidate the Trust and cause the
junior subordinated debentures to be distributed to the holders of the trust
securities. Under current law, the liquidation of the Trust and the distribution
of the junior subordinated debentures to trust security holders, for Federal
income tax purposes, would be treated as a nontaxable event to each holder, and
the aggregate tax basis in the junior subordinated debentures received by such
holder would be equal to the holder's aggregate tax basis in its capital
securities surrendered. A holder's holding period in the junior subordinated
debentures received in liquidation of the Trust would be the same as the holding
period that the holder had in the capital securities surrendered.
The junior subordinated debentures may be prepaid in cash, and the
proceeds of that prepayment would be distributed to holders in redemption of
their capital securities. Under current law, that redemption would constitute,
for Federal income tax purposes, a taxable disposition of the redeemed capital
securities, the tax consequences of which are described below under "-- Sales or
Redemptions of Capital Securities."
Sales or Redemptions of Capital Securities
On a sale or redemption of capital securities for cash, a holder will
recognize gain or loss equal to the difference between its adjusted tax basis in
the capital security and the amount realized on the sale or redemption of that
capital security. If the rules regarding original issue discount do not apply, a
holder's adjusted basis in a capital security generally will be its initial
purchase price, and if the holder uses an accrual method of accounting, the
holder's basis will be increased by any accrued but unpaid interest. If the
rules regarding original issue discount apply, a holder's adjusted basis in a
capital security generally will be its initial purchase price increased by any
original issue discount previously included in the holder's gross income to the
date of disposition and decreased by any payments received with respect to
original issue discount on the capital security. Gain or loss recognized on a
sale or redemption of a capital security will be capital gain or loss. Capital
gain recognized by an individual in respect of a capital security held for more
than one year as of the date of sale or redemption is subject to a maximum
Federal income tax rate of 20%.
The capital securities may trade at a price that discounts any accrued
but unpaid interest on the junior subordinated debentures. Therefore, the amount
realized by a holder who disposes of a capital security between distribution
payment dates and whose adjusted basis in the capital security has been
increased by the amount of any accrued but unpaid original issue discount (or
interest) may be less than the holder's adjusted basis in the capital security.
A holder's basis in a capital security could be increased either under the rules
regarding original issue discount or, if those rules do not apply, in the case
of a holder that uses an accrual method of accounting, under the accrual
accounting rules (as discussed above). In that case, the holder will recognize a
capital loss. Subject to a limited exception in the case of individual
taxpayers, capital losses cannot be applied to offset ordinary income for
Federal income tax purposes.
Non-U.S. Holders
For purposes of this discussion, a "Non-U.S. Holder" generally is any
corporation, individual, partnership, estate or trust that is not a U.S. Holder
for Federal income tax purposes.
Under current Federal income tax laws, subject to the discussion below
of backup withholding, payments by the Trust or any of its paying agents to a
Non-U.S. Holder will not be subject to Federal withholding tax, provided that
(a) the Non-U.S. Holder does not own, actually or constructively, 10% or more of
the total combined voting power of all classes of our stock entitled to vote,
(b) the Non-U.S. Holder is not a controlled foreign corporation that is related
to us through stock ownership, (c) the Non-U.S. Holder is not a bank whose
receipt of interest on the junior subordinated debentures is described in
Section 881(c)(3)(A) of the Code, and (d) either (A) the Non-U.S. Holder
certifies to the Trust or its agent, under penalties of perjury, that it is not
a U.S. Holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of business (a "financial institution") and
holds the capital security in that capacity certifies to the Trust or its agent,
under penalties of perjury, that the statement has been received from the
Non-U.S. Holder by it or by a financial institution between it and the Non-U.S.
Holder and furnishes the Trust or its agent with a copy thereof. New Treasury
regulations
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provides alternative methods for satisfying the certification requirements
described in clause (d), effective for certain payments made after December 31,
2000.
If a Non-U.S. Holder is engaged in a trade or business in the United
States and interest on the capital securities (or the junior subordinated
debentures) is effectively connected with the conduct of that trade or business,
the Non-U.S. Holder, although exempt from the withholding tax discussed above,
will be subject to Federal income tax on that interest on a net income basis in
generally the same manner as if it were a U.S. Holder. In addition, if such
Non-U.S. Holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% of its effectively connected earnings and profits that are
repatriated or treated as repatriated. For this purpose, the interest income
would be included in the foreign corporation's earnings and profits. In the case
of a Non-U.S. Holder entitled to the benefits of a tax treaty with the United
States, the foregoing discussion generally applies only if the Non-U.S. Holder
is engaged in business in the United States through a U.S. permanent
establishment and the income on the junior subordinated debentures is
attributable to that permanent establishment within the meaning of the treaty,
and the rate of the branch profits tax may be limited to a rate prescribed by
the treaty for the withholding of tax on dividends. New final Treasury
regulations generally prescribe new methods for certifying that a Non-U.S.
Holder is exempt from the withholding of Federal income tax by reason of being
engaged in trade or business or the United States. Any gain recognized upon a
sale or other disposition of capital securities (or junior subordinated
debentures) generally will not be subject to Federal income tax unless (1) the
gain is, or is treated as, effectively connected with a U.S. trade or business
of the Non-U.S. Holder or (2) in the case of a Non-U.S. Holder who is an
individual, that individual is present in the United States for 183 days or more
in the taxable year of the sale or other disposition, and certain other
conditions are met.
Backup Withholding Tax and Information Reporting
The amount of interest, including original issue discount, accrued on
capital securities held of record by U.S. persons (other than corporations and
other exempt holders) will be reported to the IRS. "Backup" withholding at a
rate of 31% will apply to payments of interest to non-exempt U.S. persons unless
the holder furnishes its taxpayer identification number in the manner prescribed
in applicable Treasury regulations, certifies that the number is correct,
certifies as to no loss of exemption from backup withholding and meets certain
other conditions.
Payment of the proceeds from the disposition of capital securities to
or through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
establishes an exemption from information reporting and backup withholding.
Non-U.S. Holders are generally exempt from the information reporting
and backup withholding rules but may be required to comply with certain
certification and identification requirements to prove their exemption.
Any amount withheld from a holder under the backup withholding rules
will be allowed as a refund or credit against such holder's Federal income tax
liability, provided the required information is furnished to the IRS.
It is anticipated that income on capital securities will be reported to
holders on Form 1099 (or any successor form) and mailed to holders of capital
securities by January 31 following each calendar year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISER WITH RESPECT TO THE
TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF A CAPITAL
SECURITY, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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ERISA CONSIDERATIONS
General
In evaluating the purchase of capital securities, a fiduciary of a
qualified profit-sharing, pension or stock bonus plan, including a plan for
self-employed individuals and their employees or any other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended,
referred to as ERISA, a collective investment fund or separate account in which
such plans invest and any other investor using assets that are treated as assets
of an employee benefit plan subject to ERISA (each, a Plan and collectively,
Plans) should consider:
o whether the ownership of capital securities is in accordance
with the documents and instruments governing such Plan;
o whether the ownership of capital securities is solely in the
interest of Plan participants and beneficiaries and otherwise
consistent with the fiduciary's responsibilities and in
compliance with the requirements of Part 4 of Title I of
ERISA, including, in particular, the diversification, prudence
and liquidity requirements of Section 404 of ERISA and the
prohibited transaction provisions of Section 406 of ERISA and
Section 4975 of the Code;
o whether the assets of the Trust are treated as assets of the
Plan; and
o the need to value the assets of the Plan annually.
In addition, the fiduciary of an individual retirement arrangement
under 408 of the Code, referred to as an IRA, considering the purchase of
capital securities should consider whether the ownership of the capital
securities would result in a non- exempt prohibited transaction under Section
4975 of the Code.
Governmental plans and certain church plans (each as defined under
ERISA) are not subject to the prohibited transaction rules. Such plans may,
however, be subject to Federal, state or local laws or regulations which may
affect their investment in the capital securities. Any fiduciary of such a
governmental or church plan considering an investment in the capital securities
should determine the need for, and the availability, if necessary, of any
exemptive relief under such laws or regulations.
The fiduciary investment considerations summarized below provide a
general discussion that does not include all of the fiduciary investment
considerations relevant to Plans and, where indicated, IRAs. This summary is
based on the current provisions of ERISA and the Code and regulations and
rulings thereunder, and may be changed (perhaps adversely and with retroactive
effect) by future legislative, administrative or judicial action.
Plans and IRAs that are prospective purchasers of capital securities
should consult with and rely upon their own advisors in evaluating these matters
in light of their own particular circumstances.
Plan Asset Regulation
Under Department of Labor regulations governing what constitutes the
assets of a Plan or IRA (Plan Assets) for purposes of ERISA and the related
prohibited transaction provisions of the Code (the Plan Asset Regulation, 29
C.F.R. Sec. 2510.3-101), when a Plan or IRA acquires an equity interest in
another entity, and such interest does not represent a "publicly offered
security" nor a security issued by an investment company registered under the
Investment Company Act of 1940, the Plan's assets include both the equity
interest and an undivided interest in each of the underlying assets of the
entity, unless it is established either that the entity is an operating company
or that equity participation in the entity by "benefit plan investors," as
defined in the Plan Assets Regulation, is not "significant." For purposes of the
Plan Asset Regulation, the Trust will be neither an investment company nor an
operating company.
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Under the Plan Asset Regulation, equity participation by benefit plan
investors will not be considered "significant" on any date only if immediately
after the most recent acquisition of the capital securities, the aggregate
interest in the capital securities held by benefit plan investors will be less
than 25% of the aggregate outstanding principal amount of the capital
securities. Although it is possible that the equity participation by benefit
plan investors on any date will not be "significant" for purposes of the Plan
Asset Regulation, such a result cannot be assured. Consequently, if Plans, IRAs
or investors using assets of Plans purchase the capital securities, the Trust's
assets could be deemed to be "plan assets" of such Plans and/or IRAs for
purposes of the fiduciary responsibility provisions of ERISA and the prohibited
transactions rules of ERISA and the Code. Under ERISA and the Code, any person
who exercises any authority or control respecting the management or disposition
of the assets of a Plan or IRA is considered to be a fiduciary of such Plan or
IRA. The property trustee of the Trust could therefore become a fiduciary of the
Plans and IRAs that invest in the capital securities and be subject to the
general fiduciary requirements of ERISA in exercising its authority with respect
to the management of the assets of the Trust. However, the property trustee will
have only limited discretionary authority with respect to the Trust assets and
the remaining functions and responsibilities performed by the property trustee
will be for the most part custodial and ministerial in nature.
Prohibited Transactions
The Trust, Cascade Financial Corporation (the obligor with respect to
the junior subordinated debentures held by the Trust) and their affiliates or
the property trustee may be a party in interest or a disqualified person with
respect to a Plan or IRA investing in the capital securities. Therefore, such
investment by a Plan or IRA may give rise to a prohibited transaction.
Consequently, before investing in the capital securities or acquiring junior
subordinated debentures, any person who is, or who is acquiring such securities
for, or on behalf of, a Plan or IRA should determine that either a statutory or
an administrative exemption from the prohibited transaction rules discussed
below or otherwise available is applicable to such investment in the capital
securities, or that such investment in, or acquisition of, such securities will
not result in a non- exempt prohibited transaction.
The statutory or administrative exemptions from the prohibited
transaction rules under ERISA and the Code which may be available to a Plan or
IRA, which is investing in the capital securities include the following
(collectively referred to as the ERISA Investor Exemptions):
o Prohibited Transaction Class Exemption, referred to as PTCE
90-1, regarding investments by insurance company pooled
separate accounts;
o PTCE 91-38, regarding investments by bank collective
investment funds;
o PTCE 84-14, regarding transactions effected by qualified
professional asset managers;
o PTCE 96-23, regarding transactions effected by in-house asset
managers; and
o PTCE 95-60, regarding investments by insurance company general
accounts.
No person who is, or who in acquiring capital securities is using the
assets of, a Plan or IRA may acquire capital securities unless one of the ERISA
Investor Exemptions or another applicable exemption is available to the Plan or
IRA, or such acquisition or holding of the capital securities will not result in
a non-exempt Prohibited Transaction. The acquisition of the capital securities
by any person who is, or who in acquiring such capital securities is using the
assets of, a Plan or IRA shall be deemed to constitute a representation by such
person to the property trustee of the Trust, Cascade Financial Corporation and
the initial purchasers either that:
o it is not a Plan, IRA, trustee or other person acting on
behalf of a Plan or IRA or other person or entity using the
assets of any Plan or IRA to finance such purchase; or
o such acquisition will not result in a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code for
which there is no applicable statutory or administrative
exemption.
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In the case of capital securities delivered in certificated form, the
purchaser will be required to make such representation, in writing, to the
trustee of the Trust, Cascade Financial Corporation and the initial purchasers.
THE DISCUSSION OF ERISA IN THIS PROSPECTUS IS GENERAL IN NATURE AND IS
NOT INTENDED TO BE ALL INCLUSIVE. ANY FIDUCIARY OF A PLAN, IRA, GOVERNMENTAL
PLAN OR CHURCH PLAN CONSIDERING AN INVESTMENT IN THE CAPITAL SECURITIES SHOULD
CONSULT WITH ITS LEGAL ADVISORS REGARDING THE CONSEQUENCES OF SUCH INVESTMENT
AND CONSIDER WHETHER THE PLAN OR IRA CAN MAKE THE REPRESENTATIONS NOTED ABOVE.
FURTHER, THE SALE OF INVESTMENTS TO PLANS AND IRAS IS IN NO RESPECT A
REPRESENTATION BY THE TRUST, CASCADE FINANCIAL CORPORATION, THE PROPERTY
TRUSTEE, THE INITIAL PURCHASERS OR ANY OTHER PERSON ASSOCIATED WITH THE SALE OF
THE CAPITAL SECURITIES THAT SUCH SECURITIES MEET ALL RELEVANT LEGAL REQUIREMENTS
WITH RESPECT TO INVESTMENTS BY PLANS AND IRAS GENERALLY OR ANY PARTICULAR PLAN,
OR THAT SUCH SECURITIES ARE OTHERWISE APPROPRIATE FOR PLANS AND IRAS GENERALLY
OR ANY PARTICULAR PLAN.
ANY PURCHASER PROPOSING TO ACQUIRE CAPITAL SECURITIES WITH ASSETS OF
ANY PLAN OR IRA SHOULD CONSULT WITH ITS COUNSEL.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange capital securities for its
own account pursuant to the exchange offer must acknowledge that it will deliver
a prospectus in connection with any resale of such exchange capital securities.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of exchange capital
securities received in exchange for original capital securities where such
original capital securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Trust and us have
agreed that, starting on the expiration date and ending on the close of business
on the 90th day following the expiration date, it will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, for a period of 90 days after the expiration
date, all dealers effecting transactions in the exchange securities may be
required to deliver a prospectus.
The Trust and us will not receive any proceeds from any sale of
exchange capital securities by broker-dealers. Exchange capital securities
received by broker-dealers for their own account pursuant to the exchange offer
may be sold from time to time in one or more transactions, in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange capital securities or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange capital securities. Any
broker-dealer that resells exchange capital securities that were received by it
for its own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange capital securities may be deemed
to be an underwriter within the meaning of the Securities Act and any profit of
any such resale of exchange capital securities and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act.
For a period of 90 days after the expiration date, the Trust and us
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. The Trust and us have agreed to pay all expenses
incident to the exchange offer, including the expenses of one counsel for the
holders of the capital securities, other than commissions or concessions of any
broker-dealers and will indemnify the holders of the exchange capital
securities, including any broker-dealers, against certain liabilities, including
liabilities under the Securities Act.
77
LEGAL MATTERS
The validity of the exchange capital securities, the exchange guarantee
and the exchange debentures will be passed upon for us by Breyer & Associates
PC. Certain matters of Delaware law relating to the validity of the exchange
capital securities will be passed upon on behalf of us and the Trust by Morris,
James, Hitchens & Williams LLP, special Delaware counsel to the Trust and us.
Certain matters relating to United States Federal income tax considerations will
be passed upon for us by Silver, Freedman & Taff, L.L.P., special tax counsel to
us.
EXPERTS
The consolidated financial statements of Cascade Financial Corporation
as of June 30, 1999 and 1998, and for each of the years in the three-year period
ended June 30, 1999, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
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You should rely only on the
information contained in this
prospectus or that to which we have
referred you. We have not authorized
anyone to provide you with any
additional or different information.
This prospectus does not constitute an
offer to sell, or the solicitation of
an offer to buy, any of the securities
offered hereby to any person in any
jurisdiction in which such offer or
solicitation would be unlawful. The
affairs of Cascade Financial
Corporation or the Trust may change
after the date of this prospectus.
Delivery of this prospectus and the CASCADE CAPITAL
sales of securities made hereunder TRUST I
does not mean otherwise.
- --------------
Offer to Exchange its
TABLE OF CONTENTS 11.0% Capital Securities, Series B
Page (liquidation amount $1,000
per exchange capital security)
Available Information...............2 which have been registered under the
Incorporation of Certain Securities Act of 1933 for any and
Documents by Reference............2 all of its outstanding
Forward Looking Statements..........3 11.0% Capital Securities,
Summary.............................4 Series A (liquidation amount $1,000
Selected Consolidated per original capital security)
Financial Information...........15
Risk Factors.......................17 --------------
Risks Related to Your Investment in
the Exchange Capital Securities.17
Risks Relating to Cascade
Financial Corporation
and Cascade Bank................22
Use of Proceeds....................26
Accounting Treatment...............26
Capitalization.....................27
Cascade Financial Corporation......28 --------------
Regulation and Supervision.........28
Cascade Capital Trust I............29 Fully and unconditionally guaranteed,
The Exchange Offer.................30 to the extent described in this
Description of Exchange prospectus, by
Capital Securities..............39
Description of Exchange
Debentures......................53
Description of Exchange CASCADE FINANCIAL
Guarantee.......................66 CORPORATION
Description of Original
Securities......................68
Relationship Among the Exchange
Capital Securities, PROSPECTUS
the Exchange Debentures and
the Exchange Guarantee..........69
Certain Federal Income Tax
Consequences....................70 July 26, 2000
ERISA Considerations...............75
Plan of Distribution...............77
Legal Matters......................78
Experts............................78