Item 1.01. Entry into a Material Definitive Agreement.
On July 25, 2018, Banner Corporation, a Washington corporation ("Banner"), and Skagit Bancorp, Inc., a Washington corporation
("Skagit"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which, subject to the terms and conditions set forth therein, Skagit will merge with and into Banner (the
"Merger"), with Banner as the surviving corporation in the Merger. Immediately following the Merger, Skagit's wholly owned bank subsidiary, Skagit Bank, will merge with and into Banner's wholly owned
bank subsidiary, Banner Bank (the "Bank Merger"), with Banner Bank as the surviving entity in the Bank Merger. The Merger Agreement was unanimously approved and adopted by the Board of Directors of
each of Banner and Skagit.
Subject
to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of common stock, no par value, of Skagit ("Skagit
Common Stock") outstanding immediately prior to the Effective Time, other than certain shares held by Banner, Skagit or a holder of Skagit Common Stock who properly exercises dissenters' rights when
and in the manner required under Chapter 23B.13 of the Washington Business Corporation Act, will be converted into the right to receive 5.6664 shares (the "Exchange Ratio") of common stock, par
value $0.01 per share, of Banner ("Banner Common Stock"), subject to adjustment as provided in the Merger Agreement (the "Merger Consideration"). The Merger Consideration will be reduced, via a
downward adjustment to the Exchange Ratio, on a dollar-for-dollar basis (based on the Banner Average Closing Price (as defined below)) if Skagit's shareholders' equity, measured as of the month-end
prior to the closing (or, if the closing is expected to occur in the first eight days of a month, the preceding month-end) and subject to certain adjustments, is less than $80 million. Skagit
will be entitled to pay a special dividend
to its shareholders immediately prior to closing to the extent such shareholders' equity, as adjusted, exceeds $80 million.
At
the Effective Time, each stock option granted by Skagit (a "Skagit Option") that is outstanding as of immediately prior to the Effective Time will fully vest and will be cancelled and
converted into the right to receive a cash payment, without interest and less applicable withholding taxes, equal to the product of (i) the number of shares of Skagit Common Stock subject to
the Skagit Option as of immediately prior to the Effective Time and (ii) the excess, if any, of the (1) product of (A) the Exchange Ratio and (B) the average closing price
of Banner Common Stock for the five full trading days immediately preceding the date that is the second business day prior to the closing date of the Merger (the "Banner Average Closing Price") over
(2) the exercise price per share of Skagit Common Stock subject to such Skagit Option as of the Effective Time.
The
Merger Agreement provides that effective immediately following the Effective Time, Banner will appoint Cheryl Bishop, the Chief Executive Officer of Skagit, to serve on the Banner
Board of Directors.
The
Merger Agreement contains customary representations and warranties from both Banner and Skagit, each with respect to its and its subsidiaries' business, and each party has agreed to
customary covenants, including, in the case of Skagit, covenants relating to the conduct of its business during the interim period between the execution of the Merger Agreement and the Effective Time
and Skagit's obligation to call a meeting of its shareholders to adopt and approve the Merger Agreement, and, subject to certain customary exceptions, for the Board of Directors of Skagit to recommend
that its shareholders adopt and approve the Merger Agreement. Skagit has also agreed to customary non-solicitation covenants relating to alternative acquisition proposals.
The
completion of the Merger is subject to customary conditions, including (1) adoption and approval of the Merger Agreement by the affirmative vote of the holders of two-thirds
of the outstanding shares of Skagit Common Stock, (2) non-objection by the NASDAQ to the listing of the shares of Banner Common Stock to be issued in the Merger, (3) receipt of all
required regulatory approvals, including the approval of the Federal Reserve Board, the Federal Deposit Insurance
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Corporation
and the Washington State Department of Financial Institutions, Division of Banks, and with respect to Banner's obligation to complete the Merger, without any required regulatory approval
resulting in a materially burdensome regulatory condition, (4) effectiveness of a registration statement on Form S-4 for the shares of Banner Common Stock to be issued in the Merger,
(5) absence of any law, order, injunction or decree prohibiting or making illegal the completion of the transactions contemplated by the Merger Agreement and (6) final determination of
the amount of Skagit's adjusted
shareholders' equity for purposes of determining any adjustment to the Exchange Ratio and the Merger Consideration. Each party's obligation to complete the Merger is also subject to certain additional
customary conditions, including (1) the receipt of a tax opinion from the applicable party's counsel to the effect that the Merger will qualify as a "reorganization" for tax purposes,
(2) the accuracy of the other party's representations and warranties, subject to certain qualifications and exceptions, as of the date of the Merger Agreement and as of the closing date, and
(3) material performance of the other party's covenants, agreements and obligations under the Merger Agreement. Banner's obligation to complete the Merger is also subject to the condition that
holders of not more than 10% of the outstanding shares of Skagit Common Stock have exercised their dissenters' rights under Washington law.
The
Merger Agreement provides certain termination rights for both Banner and Skagit and further provides that a termination fee of $7.75 million would be payable by Skagit to
Banner upon termination of the Merger Agreement under certain circumstances.
In
connection with the execution of the Merger Agreement, Banner entered into voting agreements with certain directors and executive officers of Skagit and/or their affiliates (the
"Voting Agreements"), in which each such person agreed, among other things, to vote the shares of Skagit Common Stock owned beneficially or of record by such person and over which it has voting power
in favor of the Merger Agreement, and against any alternative acquisition proposal or other action that would prevent, impede, interfere with, delay, postpone, discourage or frustrate the purposes of
or adversely affect the consummation of the transactions contemplated by the Merger Agreement, as well as certain other restrictions with respect to the voting and transfer of such person's shares of
Skagit Common Stock. The Voting Agreements also contain certain confidentiality, non-solicitation and, in the case of the Voting Agreements executed by non-executive officers of Skagit,
non-competition covenants.
The
foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is
attached hereto as Exhibit 2.1 and is incorporated herein by reference.
The
representations, warranties and covenants of each party set forth in the Merger Agreement have been made only for purposes of, and were and are solely for the benefit of the parties
to, the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual
risk between the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from
those applicable to investors. Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time, and investors should not
rely on them as statements of fact. In addition, such representations and warranties (1) will not survive consummation of the Merger and (2) were made only as of the date of the Merger
Agreement or such other date as is specified in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger
Agreement, which subsequent information may or may not be fully reflected in the parties' public disclosures. Accordingly, the Merger Agreement is included with this filing only to provide investors
with information regarding the terms of the Merger Agreement, and not to provide investors with any other factual information regarding Banner or Skagit,
their respective affiliates or their respective businesses. The Merger Agreement should not be read alone, but should instead be read in conjunction with the other information regarding Banner,
Skagit,
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their
respective affiliates or their respective businesses, the Merger Agreement and the Merger that will be contained in, or incorporated by reference into, the registration statement on
Form S-4 that will include a proxy statement/prospectus, which will be sent to the shareholders of Skagit seeking their approval of the Merger Agreement, as well as in the Forms 10-K,
Forms 10-Q, Forms 8-K and other filings that Banner makes with the Securities and Exchange Commission ("SEC").