Explanatory Note Regarding the Merger Agreement
The merger agreement and this summary of terms are included to provide you with information regarding the terms of the merger agreement. Factual
disclosures about Skagit and Banner contained in this proxy statement/prospectus or in the public reports of Banner filed with the SEC may supplement, update or modify the factual disclosures about
Skagit and Banner contained in the merger agreement. The merger agreement contains representations and warranties by Skagit, on the one hand, and by Banner, on the other hand, made solely for the
benefit of the other. The representations, warranties and covenants made in the merger agreement by Skagit and Banner were qualified and subject to important limitations agreed to by Skagit and Banner
in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary,
it is important to bear in mind that the representations and warranties were negotiated with the principal purpose of establishing circumstances in which a party to the merger agreement may have the
right not to consummate the merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to
the merger agreement, rather than establishing matters as facts. The representations and warranties also may be subject to a contractual standard of materiality different from that generally
applicable to shareholders and reports and documents filed with the SEC, and some were qualified by the matters contained in the confidential disclosure schedules that Skagit and Banner each delivered
in connection with the merger agreement and certain documents filed with the SEC. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be
accurate as of the date of this proxy statement/prospectus, may have changed since the date of the merger agreement. Accordingly, the representations and warranties in the merger agreement should not
be relied on by any persons as characterizations of the actual state of facts about Skagit or Banner at the time they were made or otherwise.
Merger Consideration
At the effective time of the merger, each outstanding share of Skagit common stock, other than certain shares held by Banner or Skagit (in each
case other than shares held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity or as a result of debts previously contracted) or by a
Skagit shareholder who properly exercises dissenters' right when and in the manner required under Chapter 23B.13 of the WBCA, will be converted into the right to receive 5.6664 shares of Banner
common stock, subject to the adjustment described below.
Potential Adjustment to Exchange Ratio
Not later than five (5) days after each month-end during the period from the date of the merger agreement until the final closing
statement is delivered to Banner as described below, Skagit will, in consultation with Banner and consistent with past practice, prepare in good faith and deliver to Banner
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(i) Skagit's
consolidated financial statements presenting the financial condition of Skagit and its subsidiaries on a consolidated basis as of the close of business on the last day of such
month-end and Skagit's and its subsidiaries' consolidated results of operations for the period from January 1, 2018 through the close of business on the last day of such month-end and
(ii) a statement setting forth adjusted shareholders' equity as if such month-end were the shareholders' equity measuring date (each as defined below) (we refer to each such statement as an
"interim closing statement"). Each interim closing statement will be prepared in accordance with GAAP and other applicable legal and accounting requirements, and reflect all period-end accruals and
other adjustments and will also reflect accruals for all transaction costs or other liabilities incurred or expected to be incurred at any time at or prior to the closing, including in connection with
the transactions contemplated by the merger agreement (whether or not doing so is in accordance with GAAP).
Not
later than five (5) days after the end of the month preceding the month that includes the anticipated closing date (as reasonably agreed in good faith by Banner and Skagit),
Skagit will, in consultation with Banner, prepare in good faith and deliver to Banner an updated interim closing statement as of and through the close of business on the last day of the month-end
immediately preceding the anticipated closing date prepared in a manner consistent with the interim closing statements (such statement as it may be adjusted in accordance with the merger agreement is
referred to as the "final closing statement"); provided, however, that if the anticipated closing date is in the first eight (8) days of a calendar month, then the final closing statement will
be prepared as of the month-end of the second month preceding the anticipated closing date (we refer to the date which the final closing statement is as of and through as the "shareholders' equity
measuring date"). Skagit must also deliver to Banner a certificate of Skagit's chief financial officer, dated as of the closing date, to the effect that the financial statements set forth in the final
closing statement continue to reflect accurately, as of the closing date, the financial condition of Skagit and its subsidiaries in all material respects and meet the requirements of the merger
agreement.
Banner
will have the right to review, and have reasonable access to, all relevant books and records, work papers, schedules, memoranda and other documents prepared by Skagit or its
subsidiaries or its and their respective accountants in connection with its preparation of the interim closing statements
and the final closing statement, as well as to executive, finance and accounting personnel of Skagit and its subsidiaries and any other information which Banner may reasonably request in connection
with its review, and Skagit and its subsidiaries and its and their accountants and other representatives will cooperate with and assist Banner and its accountants and other representatives in the
review of the interim closing statements and the final closing statement. In the event Banner disputes the final closing statement (including adjusted shareholders' equity set forth therein), Banner
will, no later than the later of (i) three (3) days after receiving the final closing statement and (ii) two (2) days prior to the anticipated closing date, give Skagit
written notice of its objections, which we refer to as an "objection notice," describing the nature of the dispute in reasonable detail and specifying those items and amounts as to which Banner
disagrees and, based on the information at its disposal, specifying Banner's proposed calculation of adjusted shareholders' equity. If Banner does not timely deliver an objection notice, adjusted
shareholders' equity set forth in the final closing statement delivered by Skagit will be utilized for the calculation of the adjustment to the exchange ratio described below and will be final and
binding on all the parties.
If
Banner timely delivers an objection notice, Banner and Skagit will cooperate in good faith to resolve such dispute, and if resolved, the final closing statement and adjusted
shareholders' equity as determined by Banner and Skagit in writing will be utilized for calculation of the adjustment to the exchange ratio described below and will be final and binding on all the
parties. If Banner and Skagit cannot resolve the dispute within five (5) days after the date of the objection notice, Banner and Skagit will appoint a mutually acceptable independent accounting
firm of national or regional reputation, which we refer to as the "independent accounting firm," to promptly review the merger agreement and
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the
disputed items in the objection notice and arbitrate the dispute and determine the final closing statement and adjusted shareholders' equity. The independent accounting firm will be given
reasonable access to all records, work papers, schedules, memoranda and other documents relevant to such dispute and will be limited to addressing only the particular disputes referred to in the
objection notice that have not been resolved by Banner and Skagit and will determine such disputed amounts, the final closing statement and adjusted shareholders' equity in accordance with the
provisions of the merger agreement. Upon reaching its determination of the final closing statement and adjusted shareholders' equity based on its determination of the disputed items, the independent
accounting firm will deliver a copy of its calculation of the final closing statement and adjusted shareholders' equity to Banner and Skagit. The determination of the independent accounting firm will
be made within twenty (20) days after its engagement and will be final and binding on all the parties. No party or its affiliates may seek further recourse to courts, other tribunals or
otherwise, other than to enforce the final decision of the independent accounting firm as to the determination of the final closing statement and adjusted shareholders' equity. The aggregate fees,
expenses and costs of the independent accounting firm will be borne (i) by Banner, if the difference, in absolute value terms, between adjusted shareholders' equity as finally determined and
adjusted shareholders' equity set forth in the objection notice is greater than the difference, in absolute value terms, between adjusted shareholders' equity as finally determined and adjusted
shareholders' equity set forth in the final closing statement as delivered by Skagit to Banner and (ii) otherwise by Skagit, in the form of a reduction to adjusted shareholders' equity for
purposes of calculating the adjustment to the exchange ratio described below.
The
merger consideration will be reduced, via a downward adjustment to the exchange ratio of 5.6664, on a dollar-for-dollar basis (based on the average closing price of Banner common
stock on the NASDAQ for the consecutive period of the five (5) full trading days immediately preceding (but not including) the date that is the second (2nd) business day prior to the closing
date, which we refer to as the "Banner average closing price"), if adjusted shareholders' equity is less than $80 million. Specifically, if adjusted shareholders' equity, as finally determined
pursuant to the merger agreement, is less than $80 million (we refer to the difference between $80 million and such adjusted shareholders' equity as the "shareholders' equity
shortfall"), the exchange ratio will be reduced by an amount, rounded to the ten-thousandth decimal point, equal to (i) the shareholders' equity shortfall
divided
by
(ii) the number of shares of Skagit common stock issued and outstanding immediately prior to the effective time of the merger (other than certain shares held by
Banner or Skagit which are not converted into the right to receive merger consideration),
divided by
(iii) the Banner average closing price. If
adjusted shareholders' equity, as finally determined pursuant to the merger agreement, is equal to or exceeds $80 million, there will be no adjustment to the exchange ratio, and Skagit may
declare and pay a special cash dividend to its shareholders immediately prior to the closing in an amount not to exceed such excess.
For
purposes of the merger agreement, "adjusted shareholders' equity" means the consolidated shareholders' equity of Skagit as set forth in the final closing statement prepared as of and
through the shareholders' equity measuring date minus any declared but unpaid dividends as of the shareholders' equity measuring date (or thereafter declared), plus the sum of (i) all fees and
expenses of all attorneys, accountants, investment bankers and other advisors and agents for Skagit for services rendered in connection with the transactions contemplated by the merger agreement,
(ii) any employee severance, retention or change-in-control payments or expenses consistent with the terms of the merger agreement, (iii) any payment made or expense accrued for the
purchase of a directors' and officers' liability insurance policy pursuant to the merger agreement, and (iv) other third-party costs, fees and expenses in an aggregate amount not to exceed
$50,000, in each case of clauses (i)-(iv) specifically incurred or accrued by Skagit in connection with the transactions contemplated by the merger agreement, and in each case, paid by Skagit
or payable by Skagit prior to the effective time of the merger to the extent reflected as accrued liabilities in the final closing statement.
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Set
forth below is a table showing the hypothetical exchange ratios and hypothetical implied values of the merger consideration based on a range of hypothetical adjusted shareholders'
equity values, and assuming (i) a Banner average closing price of either (x) $61.60, the closing price per share of Banner common stock on July 25, 2018, the last trading day
before the announcement of the merger agreement, or (y) $64.96, the closing price per share of Banner common stock on September 4, 2018, the last practicable trading day before the date
of this proxy statement/prospectus and (ii) that the number of shares of Skagit common stock issued and outstanding immediately prior to the effective time of the merger (other than certain
shares held by Banner or Skagit which are not converted into the right to receive merger consideration) is 544,257, the number of shares of Skagit common stock issued and outstanding as of
July 25, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hypothetical Adjusted
Shareholders' Equity
|
|
Hypothetical Banner
Average Closing Price
|
|
Hypothetical
Exchange Ratio
|
|
Hypothetical Implied Value of
Merger Consideration
|
|
|
|
$
|
80,000,000
|
|
$
|
61.60
|
|
|
5.6664
|
|
$
|
349.05
|
|
|
|
|
80,000,000
|
|
|
64.96
|
|
|
5.6664
|
|
|
368.09
|
|
|
|
|
77,500,000
|
|
|
61.60
|
|
|
5.5918
|
|
|
344.46
|
|
|
|
|
77,500,000
|
|
|
64.96
|
|
|
5.5957
|
|
|
363.50
|
|
|
|
|
75,000,000
|
|
|
61.60
|
|
|
5.5173
|
|
|
339.86
|
|
|
|
|
75,000,000
|
|
|
64.96
|
|
|
5.5250
|
|
|
358.90
|
|
|
|
|
72,500,000
|
|
|
61.60
|
|
|
5.4427
|
|
|
335.27
|
|
|
|
|
72,500,000
|
|
|
64.96
|
|
|
5.4543
|
|
|
354.31
|
|
|
|
|
70,000,000
|
|
|
61.60
|
|
|
5.3681
|
|
|
330.68
|
|
|
|
|
70,000,000
|
|
|
64.96
|
|
|
5.3836
|
|
|
349.72
|
|
If,
prior to the effective time of the merger, the outstanding shares of Banner common stock or Skagit common stock are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split, an appropriate and proportionate
adjustment will be made to the exchange ratio and the merger consideration to give Skagit shareholders and Banner the same economic effect as contemplated by the merger agreement prior to such event.
Based
on the number of shares of Banner common stock and shares of Skagit common stock outstanding as of September 4, 2018, the last date before the date of this proxy
statement/prospectus for which it was practicable to obtain this information, we expect that Skagit shareholders as of immediately prior to the closing of the merger will hold, in the aggregate,
approximately 8.7% of the issued and outstanding shares of Banner common stock immediately following the closing of the merger (without giving effect to any shares of Banner common stock held by
Skagit shareholders prior to the merger or any potential adjustment to the exchange ratio).
Fractional Shares
Banner will not issue any fractional shares of Banner common stock in the merger. In lieu of the issuance of any such fractional share, Banner
will pay to each Skagit shareholder who otherwise would be entitled to receive such fractional share an amount in cash (rounded to the nearest cent) determined by multiplying (i) the Banner
average closing price by (ii) the fraction of a share (after taking into account all shares of Skagit common stock held by such holder immediately prior to the effective time of the merger and
rounded to the nearest one-thousandth when expressed in decimal form) of Banner common stock to which such holder would otherwise be entitled to receive pursuant to the merger agreement.
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Effect of the Merger; Effective Time of the Merger; Organizational Documents of the Surviving
Corporation
Effect of the Merger
The merger agreement provides for the merger of Skagit with and into Banner, with Banner surviving the merger as the surviving corporation. We
sometimes refer to Banner following the merger as the "surviving corporation."
As
a result of the merger, Skagit shareholders will only participate in the surviving corporation's future earnings and potential growth through their ownership of Banner common stock.
All of the other incidents of direct ownership of Skagit common stock, such as the right to vote on certain corporate decisions, to elect directors and to receive dividends and distributions from
Skagit, will be extinguished upon completion of the merger. All of the properties, rights, privileges, powers and franchises of Skagit
will vest in the surviving corporation, and all debts, duties and liabilities of Skagit will become the debts, liabilities and duties of the surviving corporation.
Under
the merger agreement, Banner is empowered to, at any time prior to the effective time of the merger, change the method or structure of effecting the combination of Skagit and
Banner. However, that no such change or amendment may (i) alter or change the amount or kind of the merger consideration, (ii) adversely affect the tax treatment of the merger with
respect to either party or its shareholders or (iii) impede or materially delay the consummation of the transaction or the receipt of the requisite regulatory approvals.
Closing; Effective Time of the Merger
The closing of the merger will take place at 10:00 a.m. Seattle time, on a date no later than three (3) business days after the
satisfaction or waiver (subject to applicable law) of all of the conditions set forth in the merger agreement (other than those conditions that by their nature can only be satisfied at the closing,
but subject to the satisfaction or waiver thereof), unless another date, time or place is agreed to in writing by Banner and Skagit. The date on which the closing occurs is referred to as the "closing
date."
On
the closing date, the parties will execute and file articles of merger with the Secretary of State of the State of Washington and a plan of merger. The merger will become effective at
such time as designated in the articles of merger and plan of merger, or if no time is designated, at the time of filing of the articles of merger and plan of merger, which we refer to as the
"effective time of the merger."
Organizational Documents of the Surviving Corporation
The amended and restated articles of incorporation and bylaws of Banner, as in effect immediately prior to the effective time of the merger,
will be the articles of incorporation and bylaws of the surviving corporation until duly amended in accordance with their respective terms and applicable law. The surviving corporation will continue
to exist under the name "Banner Corporation."
Exchange and Payment Procedures
At or prior to the effective time of the merger, Banner will deposit, or cause to be deposited, with an exchange agent designated by Banner and
reasonably acceptable to Skagit, for the benefit of Skagit shareholders, Banner common stock and any cash in lieu of fractional shares to be delivered to Skagit shareholders pursuant to the merger
agreement, which amounts we refer to as the "exchange fund." As promptly as practicable after the effective time of the merger, but in no event later than five (5) business days thereafter,
Banner will cause the exchange agent to mail to each record holder, as of immediately prior to the effective time of the merger, of shares of Skagit common stock that are
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converted
into the right to receive the merger consideration at the effective time of the merger, a letter of transmittal for use in connection with the exchange and instructions for use in
surrendering the applicable certificates or book entry shares in exchange for the merger consideration. The letter of transmittal will specify that delivery will be effected, and risk of loss and
title to certificates of Skagit common stock will pass, only upon proper delivery of the certificates to the exchange agent.
You should not send in your certificates until you receive the letter of transmittal and instructions.
Skagit
shareholders who properly surrender their certificates or book entry shares to the exchange agent, accompanied by a properly completed and duly executed letter of transmittal will
receive for each Skagit share the stock consideration plus any cash payable in lieu of any fractional shares of Banner, and any dividends or distributions such holder has the right to receive pursuant
to the merger agreement. No interest will be paid or accrue on any merger consideration, dividends or distributions or cash in lieu of fractional shares.
Distributions with Respect to Unsurrendered Shares
No dividends or other distributions declared with respect to Banner common stock will be paid to the holder of any unsurrendered certificate or
book entry share that evidenced
ownership of shares of Skagit common stock until such holder surrenders such shares. After such surrender, the record holder will be entitled to receive any dividends or other distributions, without
interest, that have been become payable with respect to the holder's whole shares of Banner common stock.
Transfers Following the Effective Time of the Merger
After the effective time of the merger, there will be no transfers on the stock transfer books of Skagit of the shares of Skagit common stock
that were issued and outstanding immediately prior to the effective time of the merger. If, after the effective time of the merger, any such certificates or book entry shares are presented for
transfer to the exchange agent, they will be canceled and exchanged for the merger consideration as provided in the merger agreement.
Termination of Exchange Fund
Any portion of the exchange fund that remains unclaimed by Skagit shareholders for six (6) months after the effective time of the merger
will be delivered to the surviving corporation. From and after such time, any former holders of Skagit common stock who have not exchanged their shares may thereafter look only to the surviving
corporation for payment of the merger consideration, cash in lieu of any fractional shares and any unpaid dividends and distributions on the Banner common stock such holder has the right to receive
pursuant to the merger agreement. None of Banner, Skagit, the surviving corporation nor the exchange agent, nor any other person, will be liable to any former holder of Skagit common stock for any
amount delivered in good faith to a public official pursuant to abandoned property, escheat or similar laws.
Lost, Stolen or Destroyed Stock Certificates
If any certificate representing shares of Skagit common stock is lost, stolen or destroyed, upon the making of an affidavit of such fact by the
person claiming the certificate to be lost, stolen or destroyed and, if reasonably required by Banner or the exchange agent, the posting by such person of a bond in such amount as Banner or the
exchange agent may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such certificate, the exchange agent will issue in exchange for such
lost, stolen or destroyed certificate the merger
consideration, any cash in lieu of fractional shares, and any dividends or distributions to which such holder is entitled pursuant to the merger agreement.
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Withholding Rights
Banner will be entitled to deduct and withhold, or cause the exchange agent to deduct and withhold, from any amounts payable pursuant to the
merger agreement to any holder of Skagit common stock or Skagit equity awards such amounts as it is required to deduct and withhold with respect to the making of such payment under applicable tax
laws, and any such withheld amounts that are paid to the appropriate governmental authority will be treated for all purposes of the merger agreement as having been paid to the holder of Skagit common
stock or equity awards from whom such amounts were deducted or withheld.
Treatment of Skagit Stock Options
At the effective time of the merger, each Skagit option that is outstanding as of immediately prior to the effective time of the merger will
fully vest and be canceled 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 of the merger and (ii) the excess, if any, of (1) the product of the exchange ratio and 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 of the merger.
Dissenters' Rights
All shares of Skagit common stock that are issued and outstanding immediately prior to the effective time of the merger and that are held by a
Skagit shareholder who did not vote in favor of the merger agreement or the merger and who exercises dissenters' rights when and in the manner required under Chapter 23B.13 of the Washington
Business Corporation Act, which we refer to as the "WBCA," will not be converted into or be exchangeable for the right to receive the merger consideration, but instead such holder will be entitled to
only such rights as are granted with respect to the payment of the fair value of such shares under the applicable provisions of Chapter 23B.13 of the WBCA. At the effective time of the merger,
such dissenting shares will no longer be outstanding and will automatically be canceled and will cease to exist, and such holder will cease to have any rights with respect thereto, except the rights
provided for pursuant to the applicable provisions of the WBCA and the merger agreement, unless and until such holder has failed to perfect or has effectively withdrawn or lost rights to demand or
receive the fair value of such shares of Skagit common stock under the WBCA.
If
any shareholder dissenting pursuant to the WBCA and the merger agreement has failed to perfect or has effectively withdrawn or lost any such right, such holder's shares of Skagit
common stock will then be treated as if they had been converted into and become exchangeable for the right to receive, as of the effective time of the merger, the merger consideration for each such
share of Skagit common stock, in accordance with the merger agreement, without any interest.
Skagit
will give Banner (i) prompt notice of any written notices Skagit receives from or on behalf of its shareholders to exercise dissenters' rights in respect of any shares of
Skagit common stock, attempted withdrawals of such notices and any other instruments served pursuant to the WBCA and received by Skagit relating to shareholders' dissenters' rights and (ii) the
opportunity to participate in negotiations and proceedings with respect to demands for fair value under the WBCA. Skagit may not, except with the prior written consent of Banner, make any payment with
respect to, or settle, or offer or agree to settle, any such demand. Any merger consideration made available to the exchange agent to exchange for shares of Skagit common stock for which dissenters'
rights have been perfected will be returned to Banner upon demand.
See
also "The MergerDissenters' Rights" on page 74.
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Representations and Warranties
The merger agreement contains representations and warranties made by Skagit and Banner. These include, among other things, representations
relating to:
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-
valid corporate organization and existence;
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-
capitalization;
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-
authority to enter into the merger and the binding nature of the merger agreement;
-
-
no breach of organizational documents, law or other agreements as a result of the merger;
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-
third-party consents and approvals;
-
-
filing of necessary reports with regulatory authorities;
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-
conformity of financial statements with GAAP;
-
-
internal controls over financial reporting and disclosure controls and procedures;
-
-
broker/finder fees;
-
-
operation in the ordinary course of business and absence of material adverse effects since December 31, 2017;
-
-
involvement in litigation and orders issued by governmental authorities;
-
-
compliance with applicable laws;
-
-
material contracts;
-
-
agreements with regulatory agencies;
-
-
absence of any action or awareness of any fact or circumstance that could reasonably be expected to prevent the merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code;
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-
the receipt of a fairness opinion from each party's respective financial advisor; and
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-
accuracy of the information supplied for inclusion in this proxy statement/prospectus and the registration statement of which it forms a
part.
Banner
also makes certain representations and warranties to Skagit in the merger agreement regarding its SEC filings.
Skagit
makes additional representations and warranties to Banner in the merger agreement relating to, among other things:
-
-
certain tax matters;
-
-
certain employee benefit matters, including matters relating to employee benefit plans;
-
-
labor relations and employment matters;
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-
risk management instruments;
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certain environmental matters;
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its investment and commodities portfolio;
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-
matters relating to owned and leased real property and personal property;
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-
intellectual property;
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-
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related party transactions;
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inapplicability of state takeover statutes to the transactions contemplated by the merger agreement;
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its loan portfolio;
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insurance coverage; and
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absence of any requirement for Skagit and its subsidiaries to be registered, licensed or qualified as broker-dealer, investment advisor and
insurance subsidiaries under applicable laws.
Some
of the representations and warranties contained in the merger agreement are qualified by as to "materiality" or by a "material adverse effect" standard. For purposes of the merger
agreement, a "material adverse effect" means, with respect to Banner, Skagit or the surviving corporation, as the case may be, any effect, change, event, circumstance, condition, occurrence or
development that, either individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (i) the business, properties, assets, liabilities,
results of operations or condition (financial or otherwise) of such party and its subsidiaries taken as a whole or (ii) the ability of such party to consummate the transactions contemplated by
the merger agreement.
However,
in the case of clause (i) above, a material adverse effect will not be deemed to include the impact of:
-
-
changes, after July 25, 2018, in GAAP or applicable regulatory accounting requirements or their enforcement, implementation or
interpretation;
-
-
changes, after July 25, 2018, in laws, rules or regulations of general applicability to companies in the industries in which such party
and its subsidiaries operate;
-
-
changes, after July 25, 2018, in global, national or regional political conditions (including the outbreak of war or acts of terrorism)
or in economic or market conditions affecting the financial services industry generally and not specifically relating to such party or its subsidiaries, including any disruption in any financial,
banking or securities markets in general and any decline in the price of any market index or any change in prevailing interest rates;
-
-
changes relating to or arising out of the public disclosure of the merger agreement or of the transactions contemplated thereby, other than
with respect to certain specified representations and warranties;
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-
a failure, in and of itself, to meet earnings projections or internal financial forecasts, but not including the underlying causes thereof;
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-
changes in the trading price of Skagit common stock or Banner common stock (as applicable), in and of itself, but not including any underlying
causes thereof; or
-
-
actions that are taken with the express prior written consent of the other party in contemplation of the transactions contemplated by the
merger agreement,
except,
in the case of the first, second and third bullets above, to the extent that the effects of such changes are disproportionately adverse to such party and its subsidiaries, taken as a whole, as
compared to other companies in the industries in which such party and its subsidiaries operate.
Conduct of Businesses of Skagit and Banner Prior to Completion of the Merger
Under the merger agreement, Skagit has agreed to certain restrictions on its activities and the activities of its subsidiaries during the period
from July 25, 2018 to the effective time of the merger. In general, subject to certain exceptions set forth in the merger agreement, Skagit is required to, and to
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cause
its subsidiaries to, conduct its business in the ordinary course consistent with past practice in all material respects and use reasonable best efforts to maintain and preserve intact its
business organization, employees and business relationships with customers, regulators and other persons and each of Skagit and Banner will, and will cause their respective subsidiaries to, take no
action that would reasonably be expected to materially and adversely affect or materially delay the ability to obtain any necessary approvals of any regulatory agency or other governmental entity
required for the merger or to perform its covenants and agreements or to consummate the transactions contemplated by the merger agreement on a timely basis.
In
addition, subject to certain exceptions set forth in the merger agreement, Skagit will not, and will not permit any of its subsidiaries to, without the prior written consent of Banner
(such consent not to be unreasonably withheld, conditioned or delayed):
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incur any indebtedness, or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other
person, corporation or other entity, other than (i) federal funds borrowings and Federal Home Loan Bank borrowings, in each case with a maturity not in excess of six (6) months, and
(ii) deposits, in the case of each of (i) and (ii), in the ordinary course of business consistent with past practice;
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adjust, split, combine or reclassify any capital stock or other equity interest;
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make, declare or pay or set a record date for any dividend, or any other distribution on, or directly or indirectly redeem, purchase or
otherwise acquire, or register under the Securities Act of 1933 any shares of its capital stock or other equity or voting securities or any securities or obligations convertible or exchangeable into,
or exercisable for, any shares of its capital stock or other equity or voting securities, or certain other securities of Skagit or its subsidiaries, except for (i) dividends paid by any
subsidiary of Skagit to Skagit or any wholly owned subsidiary of Skagit, (ii) quarterly dividends at a rate not in excess of $1.50 per share of Skagit common stock, (iii) a special cash
dividend that the board of directors of Skagit may declare and pay immediately prior to the closing in the event adjusted shareholders' equity, as finally determined pursuant to the merger agreement,
exceeds $80 million, in an amount not to exceed such excess and (iv) the acceptance of Skagit common stock as payment for the exercise price of Skagit options or for withholding taxes
incurred in connection with the exercise of Skagit options or the vesting or settlement of Skagit equity awards outstanding as of July 25, 2018, in each case, in accordance with past practice
and the terms of the applicable award agreements as in effect on July 25, 2018;
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grant any Skagit equity awards or any stock options, stock appreciation rights, performance shares, restricted stock units, restricted shares
or other equity or equity-based awards or interests, or grant any person, corporation or other entity any right to acquire certain securities of Skagit or its subsidiaries;
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issue, sell, transfer, dispose of, mortgage, encumber or otherwise permit to become outstanding any shares of capital stock, voting securities
or equity interests, or securities convertible or exchangeable into, or exercisable for, any shares of its capital stock or other equity or voting securities, or certain other securities of Skagit and
its subsidiaries, or any options, warrants, or other rights of any kind to acquire any shares of capital stock or other equity or voting securities, or certain other securities of Skagit and its
subsidiaries, except pursuant to the exercise, vesting or settlement of Skagit equity awards outstanding as of July 25, 2018 in accordance with their terms as in effect on July 25, 2018;
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sell, transfer, mortgage, encumber or otherwise dispose of any of its properties or assets to any individual, corporation or other entity other
than a wholly owned subsidiary, or cancel, release
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and
operating, securitization and servicing policies, except as required by applicable law, regulation or policies imposed by any governmental entity;
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make or acquire any loans or extensions of credit outside of the ordinary course of business consistent with past practice and Skagit's lending
policies and procedures in effect as of July 25, 2018 or that exceed Skagit's internal lending limits such that the loans or extension of credit would require approval by the Loan Committee of
the Skagit board, unless Skagit has notified and provided the relevant loan package to Banner and thereafter has consulted with Banner for at least two (2) business days after the relevant loan
package is provided to Banner;
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make any material changes in its policies and practices with respect to (i) underwriting, pricing, originating, acquiring, selling,
servicing, or buying or selling rights to service, loans or (ii) its hedging practices and policies, in each case except as required by law or requested by a regulatory agency;
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make, or commit to make, any capital expenditures that exceed by more than 5% in the aggregate the capital expenditures budget of Skagit in
effect on July 25, 2018;
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make, change or revoke any tax election, change an annual tax accounting period, adopt or change any tax accounting method, file any amended
tax return, enter into any closing agreement with respect to taxes, or settle any tax claim, audit, assessment or dispute or surrender any right to claim a refund of taxes;
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make application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other
significant office or operations facility of it or its subsidiaries;
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materially reduce the amount of its insurance coverage;
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amend in a manner that adversely impacts in any material respect the ability to conduct its business, terminate or allow to lapse any material
permits; or
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agree to take, make any commitment to take, or adopt any resolutions of its board of directors or similar governing body authorizing any of the
actions described above.
Banner
has also agreed to certain restrictions on its activities and the activities of its subsidiaries during the period from July 25, 2018 to the effective time of the merger.
Subject to certain exceptions set forth in the merger agreement, Banner will not, and will not permit any of its subsidiaries to, without the prior written consent of Skagit (such consent not to be
unreasonably withheld, conditioned or delayed):
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amend Banner's articles of incorporation or bylaws in a manner that would adversely affect the holders of Skagit common stock
disproportionately relative to other holders of Banner common stock;
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adjust, split, combine or reclassify any capital stock of Banner;
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take any action or knowingly fail to take any action where such action or failure to act could reasonably be expected to prevent the merger
from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code; or
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agree to take, make any commitment to take, or adopt any resolutions of its board of directors or similar governing body authorizing any of the
actions described above.
Regulatory Matters
Banner and Skagit have agreed to cooperate with each other and use their reasonable best efforts to promptly (and in the case of the
applications, notices, petitions and filings in respect of the requisite
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regulatory
approvals, within thirty (30) business days of July 25, 2018) prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities which are necessary or advisable to consummate the transactions
contemplated by the merger agreement, and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such governmental entities.
Each
of Skagit and Banner will, and will cause its subsidiaries to, use their reasonable best efforts (a) to take, or cause to be taken, all actions necessary, proper or advisable
to comply promptly with all legal requirements that may be imposed on such party or its subsidiaries with respect to the merger and the bank merger and, subject to the conditions set forth in the
merger agreement, to consummate the transactions contemplated by the merger agreement, and (b) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any governmental entity and any other third party that is advisable or required to be obtained by Skagit or Banner or any of their respective subsidiaries in
connection with the merger, the bank merger and the other transactions contemplated by the merger agreement, and each of Banner and Skagit agrees to use its reasonable best efforts to resolve any
objections that may be asserted by any governmental entity with respect to the merger agreement or the transactions contemplated by the merger agreement.
However,
under no circumstances will Banner or any of its subsidiaries be required, and Skagit and its subsidiaries will not be permitted (without Banner's written consent), to take any
action, or commit to take any action, or agree to any condition or restriction, in connection with obtaining the foregoing permits, consents, approvals and authorizations of governmental entities that
would reasonably be expected to be materially burdensome on, or impair in any material respect the benefits of the transactions contemplated by the merger agreement to, Banner, the surviving
corporation or their subsidiaries, or have a material and adverse effect on Banner, the surviving corporation and their respective subsidiaries, taken as a whole, or Skagit and its subsidiaries, taken
as a whole (in each case, measured on a scale relative to Skagit and its subsidiaries, taken as a whole), after giving effect to the merger (we refer to any of the foregoing as a "materially
burdensome regulatory condition").
Skagit Shareholder Meeting; Withdrawal of Recommendation; Restructuring
Pursuant to the merger agreement, Skagit agreed to call a meeting of its shareholders, to be held as soon as reasonably practicable after the
registration statement of which this proxy statement/prospectus forms a part is declared effective, for the purpose of obtaining the vote of Skagit shareholders required to approve the merger
agreement, which we refer to as the "requisite Skagit shareholder vote." Skagit and its board must use their reasonable best efforts to obtain from Skagit shareholders such requisite Skagit
shareholder vote, including by communicating to Skagit shareholders the Skagit board's recommendation (and including such recommendation in this proxy statement/prospectus) that the Skagit
shareholders adopt and approve the merger agreement and the transactions contemplated by the merger agreement, and may not (i) withhold, withdraw, modify or qualify such recommendation in a
manner adverse to Banner, (ii) fail to make the Skagit board recommendation in favor of the merger agreement in this proxy statement/prospectus, (iii) adopt, approve, recommend or
endorse an acquisition proposal (as defined below) or publicly announce an intention to adopt, approve, recommend or endorse an acquisition proposal, (iv) fail to publicly, finally and without
qualification (A) recommend against any acquisition proposal or (B) reaffirm the Skagit board recommendation, in each case within ten (10) business days after such acquisition
proposal is made public or any request by Banner to do so (which request may be made once per acquisition proposal, and any material change thereto) (or such fewer number of days as remains prior to
the Skagit shareholder meeting), or (v) publicly propose to do any of the foregoing (we refer to any of the foregoing as a "recommendation change").
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However, prior to the time the requisite Skagit shareholder vote is obtained, the Skagit board may make a recommendation change if and only if (i) Skagit
and its subsidiaries and their representatives have complied with certain non-solicitation and related obligations regarding acquisition proposals, (ii) an unsolicited bona fide written
acquisition proposal is made to Skagit after July 25, 2018 by a third party, and such acquisition proposal is not withdrawn, (iii) the Skagit board has concluded in good faith (after
consultation with its outside legal counsel and financial advisors) that such acquisition proposal constitutes a superior proposal (as defined below), (iv) the Skagit board has concluded in
good faith (after consultation with its outside legal counsel) that failure to make a recommendation change would reasonably be expected to be inconsistent with the directors' fiduciary duties under
applicable law, (v) prior to effecting the recommendation change, three (3) business days have elapsed since Skagit has given written notice to Banner advising Banner that Skagit intends
to take such action and specifying in reasonable detail the reasons for its change, including the terms and conditions of, and the identity of the person making, any such acquisition proposal that is
the basis of the recommendation change (and any amendment or change to any material term of such acquisition proposal will require a new notice and the provisions described in this paragraph will
apply anew), (vi) during such three (3)-business day period, Skagit has considered, and engaged in good-faith discussions with Banner regarding, any adjustment or modification of the terms of
the merger agreement proposed by Banner, and (vii) the Skagit board, following such three (3)-business day period, again reasonably determines in good faith (after consultation with its outside
legal counsel and financial advisors, and taking into account any adjustment or modification of the terms of the merger agreement proposed by Banner and delivered to Skagit in writing) that such
acquisition proposal nonetheless continues to constitute a superior proposal
and that failure to make a recommendation change would reasonably be expected to be inconsistent with the directors' fiduciary duties under applicable law.
An
"acquisition proposal" means, other than the transactions contemplated by the merger agreement, any offer, proposal or inquiry relating to, or any third-party indication of interest
in, (i) any acquisition or purchase, direct or indirect, of fifteen percent (15%) or more of the consolidated assets of Skagit and its subsidiaries or fifteen percent (15%) or more of any class
of equity or voting securities of Skagit or its subsidiaries whose assets, individually or in the aggregate, constitute fifteen percent (15%) or more of the consolidated assets of Skagit,
(ii) any tender offer (including a self-tender offer), exchange offer or other acquisition of equity or voting securities that, if consummated, would result in such third party beneficially
owning fifteen percent (15%) or more of any class of equity or voting securities of Skagit or its subsidiaries whose assets, individually or in the aggregate, constitute fifteen percent (15%) or more
of the consolidated assets of Skagit or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar
transaction involving Skagit or its subsidiaries.
A
"superior proposal" means an unsolicited, bona fide written acquisition proposal made by a third party to acquire, directly or indirectly, pursuant to a tender offer, exchange offer,
merger, consolidation or other business combination or acquisition transaction, all or substantially all of the consolidated assets of Skagit and its subsidiaries or all of the outstanding shares of
Skagit common stock, and which the Skagit board has in good faith determined (after consultation with its outside legal counsel and financial advisors, and taking into account the terms and conditions
of such acquisition proposal and the merger agreement (as it may be proposed to be amended by Banner) and all legal, financial, timing, regulatory and other aspects of such acquisition proposal and
the person making the proposal), to be more favorable, from a financial point of view, to Skagit shareholders than the merger with Banner and the transactions contemplated by the merger agreement (as
it may be proposed to be amended by Banner) and to be reasonably likely to be consummated on a timely basis on the terms proposed.
Unless
the merger agreement has been terminated in accordance with its terms, the Skagit shareholder meeting must be convened and the merger agreement must be submitted to Skagit
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shareholders
at the Skagit shareholder meeting for the purpose of voting on the approval of the merger agreement, and Skagit may not submit to the vote of its shareholders any acquisition proposal or
any transactions contemplated by such acquisition proposal.
If
Skagit fails to obtain the requisite Skagit shareholder vote at a duly convened Skagit shareholder meeting held for that purpose or any adjournment or postponement thereof, unless the
merger
agreement has been validly terminated in accordance with its terms, both parties will in good faith use their reasonable best efforts to negotiate a restructuring of the transaction provided for in
the merger agreement and/or resubmit the merger agreement and the transactions contemplated by the merger agreement (or as restructured pursuant to this paragraph) to Skagit shareholders for approval.
However, neither party will have any obligation to (i) alter or change any material terms, including the amount or kind of the merger consideration, in a manner adverse to such party or its
shareholders or (ii) agree to any change that would adversely affect the tax treatment of the merger with respect to such party or its shareholders.
See
also "Termination of the Merger Agreement" and "Termination Fee" beginning on pages 95 and 97, respectively, of this proxy statement/prospectus.
No Solicitation
Skagit has agreed that it will not, and will cause its subsidiaries and its and their officers, directors, employees, agents, advisors,
financing sources, investment bankers, attorneys and other representatives not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or
proposals regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any acquisition proposal, (ii) engage or participate in any
negotiations with any person concerning any acquisition proposal, (iii) disclose or provide any confidential or nonpublic information to, have or participate in any discussions with, or
otherwise cooperate in any way with, any person in connection with or relating to any acquisition proposal (including by affording access to the personnel, properties, books, records or assets of
Skagit or its subsidiaries) or (iv) unless the merger agreement has been terminated in accordance with its terms, approve or enter into any term sheet, letter of intent, commitment, memorandum
of understanding, agreement in principle, acquisition agreement, merger agreement, or other agreement (whether written or oral, binding or nonbinding) (other than a confidentiality agreement entered
into in accordance with the merger agreement) in connection with or relating to any acquisition proposal.
Notwithstanding
the restrictions described above, prior to the receipt of the requisite Skagit shareholder vote, in the event Skagit receives an unsolicited bona fide written acquisition
proposal after July 25, 2018 that did not result from a breach of the non-solicitation and related provisions of the merger agreement, it may, and may permit its subsidiaries and Skagit's and
its subsidiaries' representatives to, furnish or cause to be furnished confidential or nonpublic information or data and participate in such negotiations or discussions with the person making the
acquisition proposal if and only if the Skagit board determines in good faith (after consultation with its outside legal counsel and financial advisors) that such acquisition proposal constitutes or
is reasonably likely to result in a superior proposal and that the failure to take such actions would reasonably be expected to be inconsistent with the directors' fiduciary duties under applicable
law. However, prior to providing any such confidential or nonpublic information or participating in such negotiations or discussions, Skagit must give Banner at least five (5) business days'
prior written notice and enter into a confidentiality agreement with such third party on terms no less favorable to it than the confidentiality agreement between Banner and Skagit, which
confidentiality agreement may not provide such person with any
exclusive right to negotiate with Skagit. Skagit will also provide Banner with a copy of any such confidential or nonpublic information provided to any person prior to or simultaneously with
furnishing such information to such person, to the extent not previously provided. The merger agreement required Skagit to, and to cause its representatives to, immediately cease any activities,
discussions or
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negotiations
conducted before July 25, 2018 with any person other than Banner with respect to any acquisition proposal and to request the return or destruction of any information provided to
any such person.
Skagit
will promptly (and within twenty-four (24) hours) advise Banner following receipt of any acquisition proposal or any inquiry which could reasonably be expected to lead to
an acquisition proposal, and its substance (including the terms and conditions of and the identity of the person making such inquiry or acquisition proposal) and will provide Banner an unredacted copy
of such acquisition proposal and any draft agreements, proposals or other materials or correspondence received in connection with such inquiry or acquisition proposal, and will keep Banner apprised of
any related developments, discussions and negotiations on a current basis, including any amendments to or revisions of the terms of such inquiry or acquisition proposal (including providing an
unredacted copy of such amended or revised acquisition proposal and any further or revised draft agreements, proposals or other materials or correspondence received in connection with such inquiry or
acquisition proposal). In addition, Skagit will enforce any existing confidentiality agreements to which it or any of its subsidiaries is a party in accordance with the terms thereof and will not
release any third party from, or waive any provisions of, any such agreements.
Governance Matters
The directors of Banner at the effective time of the merger will continue to be the directors of the surviving corporation from and after the
effective time of the merger, until their successors are duly elected or appointed. In addition, effective immediately following the effective time of the merger, Banner will take such action as is
necessary to appoint Cheryl R. Bishop to the board of directors of the surviving corporation.
The
officers of Banner at the effective time of the merger will continue to be the officers of the surviving corporation from and after the effective time of the merger until their
successors are duly elected or appointed, together with such additional persons as may thereafter be elected or appointed.
Expenses
Except as otherwise expressly provided in the merger agreement, all costs and expenses incurred in connection with the merger agreement and the
transactions contemplated by the merger agreement will be paid by the party incurring such expense.
Employee Matters
During the period commencing at the effective time of the merger and ending on the first anniversary of the effective time of the merger, Banner
will provide, or cause to be provided, to each continuing employee of Skagit and its subsidiaries, who continues to be employed by Banner and its subsidiaries after the effective time of the merger,
(i) a base salary or wage rate that is no less favorable than the base salary or wage rate provided by Skagit or any such subsidiary, as applicable, to such continuing employee immediately
prior to the effective time of the merger, (ii) an annual cash incentive compensation opportunity that is no less favorable than that provided to similarly situated employees of Banner and its
subsidiaries, and (iii) employee benefits that are substantially comparable in the aggregate to the employee benefits provided to similarly situated employees of Banner and its subsidiaries
(which requirement Banner may satisfy by providing employee benefits that are substantially comparable in the aggregate to the employee benefits provided by Skagit or its subsidiaries to such
continuing employees immediately prior to the effective time of the merger until such time as such continuing employees commence participation in the applicable employee benefit plans of Banner and
its subsidiaries).
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In
addition, Banner will, or will cause one of its subsidiaries to, provide to each continuing employee whose employment terminates during the 12-month period following the closing date
and who is not party to an individual change-in-control or severance agreement with severance benefits equal to the severance benefits for which such continuing employee would be eligible under the
severance plans or policies of Banner or its affiliates.
Following
the effective time of the merger, Banner will cause any Banner benefit plans in which Skagit employees are eligible to participate to recognize and provide credit for the
service of each continuing
employee with Skagit and its subsidiaries (and any predecessor thereto) prior to the effective time of the merger for purposes of eligibility, vesting and level of benefits under such Banner plans,
subject to certain exceptions. With respect to any Banner plan that provides medical, dental or vision insurance benefits, for the plan year in which such continuing employee is first eligible to
participate, Banner will use commercially reasonable efforts to (1) cause any preexisting condition limitations or eligibility waiting periods under such plan to be waived with respect to such
continuing employee to the extent such limitation would have been waived or satisfied under the Skagit benefit plan in which such continuing employee participated immediately prior to the effective
time of the merger, and (2) credit each continuing employee for any co-payments, deductibles or out-of-pocket expenses incurred by such continuing employee and his or her eligible dependents in
such plan year for purposes of any applicable co-payment, deductible and annual out-of-pocket expense requirements under any such Banner plan.
Indemnification and Insurance
The merger agreement provides that, for a period of six (6) years from and after the effective time of the merger, to the fullest extent
permitted by applicable law, the surviving corporation will indemnify and hold harmless, to the extent such persons are indemnified as of July 25, 2018 by Skagit pursuant to Skagit's articles
of incorporation and bylaws, or pursuant to certain indemnification agreements in effect on July 25, 2018, and will also advance expenses as incurred to the extent provided under Skagit's
articles of incorporation and bylaws (or such indemnification agreements), each present and former director and officer of Skagit and its subsidiaries (in each case, when acting in such capacity)
against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, damages or liabilities incurred in connection with any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or investigative, whether arising before or after the effective time of the merger, arising out of the fact that such person is or
was a director or officer of Skagit or any of its subsidiaries and pertaining to matters existing or occurring at or prior to the effective time of the merger, including the transactions contemplated
by the merger agreement, subject to such person providing an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
The
merger agreement requires that, for a period of six (6) years after the effective time of the merger, the surviving corporation maintain Skagit's existing directors' and
officers' liability insurance policies, or policies with a substantially comparable insurer of at least the same coverage and amounts containing terms and conditions which are no less advantageous to
the insured, with respect to claims arising from facts or events which occurred at or before the effective time of the merger. However, the surviving corporation is not required to expend, on an
annual basis, an amount in excess of 250% of the current annual premium paid as of July 25, 2018 by Skagit for such insurance, and if such premiums for such insurance would at any time exceed
that amount, then the surviving corporation will maintain policies of insurance which, in the surviving corporation's good faith determination, provide the maximum coverage available at an annual
premium not exceeding the premium cap. In lieu of the foregoing, Banner or Skagit, in consultation with, but only upon the consent of Banner (which consent may not be unreasonably withheld,
conditioned or delayed), may (and at the request of Banner, Skagit will) obtain at or prior to the effective time of the merger a six-year "tail" policy under Skagit's existing
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directors'
and officers' liability insurance policy providing equivalent coverage to that described above, if and to the extent that the same may be obtained for an amount that, in the aggregate, does
not exceed the premium cap.
Special Dividend
After adjusted shareholders' equity has been finally determined pursuant to the merger agreement for purposes of determining any adjustment to
the exchange ratio and the merger consideration, to the extent adjusted shareholders' equity exceeds $80 million, the Skagit board may, upon written notice to Banner and effective immediately
prior to the closing, declare and pay a special dividend to Skagit shareholders in an amount not to exceed such excess.
Certain Additional Covenants
The merger agreement also contains additional covenants, including, among others, covenants relating to the filing of this proxy
statement/prospectus, the listing of shares of Banner common stock to be issued in the merger, access to information and confidentiality, coordination with respect to litigation relating to the
merger, conversion and integration matters, and public announcements with respect to the transactions contemplated by the merger agreement.
Conditions to Completion of the Merger
Each of Banner's and Skagit's obligation to effect the merger is subject to the satisfaction or waiver (subject to applicable law) by each
party, at or prior to the effective time of the merger, of the following conditions:
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approval of the merger agreement at the special meeting by the requisite Skagit shareholder vote;
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filing with the NASDAQ of a notification form for the listing of all shares of Banner common stock to be delivered as merger consideration and
non-objection by the NASDAQ to such listing;
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all regulatory authorizations, consents, orders or approvals required to consummate the transactions contemplated by the merger agreement from
the Federal Reserve Board, the FDIC, the DFI and, if required, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and any other authorizations, consents, orders or approvals from
governmental entities required to consummate the transactions contemplated by the merger agreement having been obtained and remaining in full force and effect and all statutory waiting periods in
respect thereof having been expired or been terminated, all of which we refer to as the "requisite regulatory approvals," and in the case of Banner's obligation to effect the merger, no such requisite
regulatory approval containing or resulting in, or being reasonably expected to result in, the imposition of any materially burdensome regulatory condition;
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the registration statement of which this proxy statement/prospectus forms a part having been declared effective by the SEC, and no stop
order suspending the effectiveness of the registration statement having been issued and no proceedings for that purpose having been initiated or threatened by the SEC and not withdrawn;
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no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the merger, the bank merger or any of the other transactions contemplated by the merger agreement being in effect, and no law, statute, rule, regulation, order,
injunction or decree having been enacted, entered, promulgated or enforced by any governmental entity which prohibits or makes illegal consummation of the merger, the bank merger or any of the other
transactions contemplated by the merger agreement; and
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adjusted shareholders' equity having been finally determined pursuant to the merger agreement.
Banner's
obligation to effect the merger is also subject to the satisfaction or waiver (subject to applicable law), at or prior to the effective time of the merger, of the following
conditions:
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accuracy of the representations and warranties of Skagit in the merger agreement as of the date of the merger agreement and as of the closing
date, subject to certain exceptions and subject to the materiality standards provided in the merger agreement;
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Skagit's performance of and compliance with in all material respects all of its obligations, covenants and agreements required to be performed
and complied with under the merger agreement at or prior to the effective time of the merger;
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delivery by Skagit of officers' certificates as required by the merger agreement;
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receipt of an opinion of Wachtell, Lipton, Rosen & Katz, dated as of the closing date of the merger, to the effect that the merger will
qualify as a "reorganization" within the meaning of Section 368(a) of the Code; and
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holders of not more than 10% of the outstanding shares of Skagit common stock having exercised their dissenters' rights pursuant to the WBCA.
Skagit's
obligation to effect the merger is also subject to the satisfaction or waiver (subject to applicable law), at or prior to the effective time of the merger, of the following
conditions:
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accuracy of the representations and warranties of Banner in the merger agreement as of the date of the merger agreement and as of the closing
date, subject to certain exceptions and subject to the materiality standards provided in the merger agreement;
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Banner's performance of and compliance with in all material respects all of its obligations, covenants and agreements required to be performed
and complied with under the merger agreement at or prior to the effective time of the merger;
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Banner's delivery of officers' certificates as required by the merger agreement; and
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receipt of an opinion of Miller Nash Graham & Dunn LLP, dated as of the closing date of the merger, to the effect that the merger
will qualify as a "reorganization" within the meaning of Section 368(a) of the Code.
Termination of the Merger Agreement
The merger agreement can be terminated at any time prior to the effective time of the merger, whether before or after the receipt of the
requisite Skagit shareholder vote, in the following circumstances:
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by mutual written consent of Banner and Skagit;
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by either Banner or Skagit, if any governmental entity that must grant a requisite regulatory approval has denied approval of the merger or the
bank merger or any of the other transactions contemplated by the merger agreement and such denial has become final and nonappealable or any governmental entity of competent jurisdiction has issued a
final nonappealable order, injunction, decree, or other legal restraint or prohibition permanently enjoining or otherwise prohibiting or making illegal the consummation of the merger or the bank
merger, or any of the other transactions contemplated by the merger agreement;
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by either Banner or Skagit, if the merger has not been completed on or before April 25, 2019, which we refer to as the "termination
date," unless the failure of the closing to occur by such
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Effect of Termination
If the merger agreement is terminated, it will become void and have no effect, except that (1) designated provisions of the merger
agreement will survive the termination, including those relating to public announcements and the confidential treatment of information and the termination fee described below and (2) both
Banner and Skagit will remain liable for any liabilities or damages arising out of its fraud or willful and material breach of any provision of the merger agreement.
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Termination Fee
Skagit will be required to pay Banner a termination fee of $7.75 million if the merger agreement is terminated in one of the following
circumstances:
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In the event that, after July 25, 2018 and prior to the termination of the merger agreement, (i) a bona fide acquisition proposal
has been communicated to or otherwise made known to the Skagit board or senior management or has been made directly to Skagit shareholders, or any person has publicly announced an acquisition proposal
with respect to Skagit, (ii) thereafter the merger agreement is terminated (A) by either Banner or Skagit because the merger has not been completed prior to the termination date, and
Skagit has not obtained the requisite Skagit shareholder vote but all other conditions to Skagit's obligation to complete the merger had been satisfied or were capable of being satisfied prior to such
termination, (B) by Banner based on a breach of the merger agreement by Skagit that would constitute the failure of an applicable closing condition, or (C) by Banner based on the
requisite Skagit shareholder vote not being obtained at the conclusion of the Skagit shareholder meeting (including any postponements or adjournments thereof), and (iii) prior to the date that
is twelve (12) months after the date of such termination, Skagit enters into a definitive agreement or consummates a transaction with respect to an acquisition proposal (whether or not the same
acquisition proposal as that referred to above), provided that for purposes of the foregoing, all references in the definition of acquisition proposal to "15%" will instead refer to "50%." In such
case, the termination fee must be paid to Banner on the earlier of the date Skagit enters into such definitive agreement and the date of consummation of such transaction.
-
-
In the event that the merger agreement is terminated by Banner pursuant to the last bullet set forth under "The Merger
AgreementTermination of the Merger Agreement" above. In such case, the termination fee must be paid to Banner within two (2) business days of the date of termination.
-
-
In the event that the merger agreement is terminated by Skagit pursuant to the third from the last bullet set forth under "The Merger
AgreementTermination of the Merger Agreement" above. In such case, the termination fee must be paid to Banner concurrently with, and as a condition to the effectiveness of, such
termination.
Amendment and Modification
The merger agreement may be amended by the parties, at any time before or after receipt of the requisite Skagit shareholder vote. However, after
the receipt of the requisite Skagit shareholder vote, there may not be, without further approval of such shareholders, any amendment of the merger agreement that requires such further approval under
applicable law. The merger agreement may not be amended except by an instrument in writing signed on behalf of each of the parties thereto.
At
any time prior to the effective time of the merger, the parties may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other
acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in the merger agreement or in any document delivered by such other party
pursuant to the merger agreement and (c) waive compliance with any of the agreements or satisfaction of any conditions for its benefit contained in the merger agreement. Any agreement on the
part of a party to any extension or waiver must be in writing signed on behalf of that party.
Governing Law; Jurisdiction
The merger agreement is governed by and will be construed in accordance with the laws of the State of Washington, without regard to any
applicable conflicts of law. The parties agree that any action
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or
proceeding in respect of any claim arising out of or related to the merger agreement or the transactions contemplated thereby will be brought exclusively in any federal or state court of competent
jurisdiction located in the State of Washington.
Specific Performance
Each party will be entitled to an injunction or injunctions to prevent breaches or threatened breaches of the merger agreement or to enforce
specifically the performance of the terms and provisions of the merger agreement, in addition to any other remedy to which they are entitled at law or in equity.
Voting and Support Agreements
In connection with the execution of the merger agreement, Banner entered into voting and support agreements with the directors and executive
officers of Skagit and/or their affiliates, 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 the proposal to adjourn or postpone the special meeting of the Skagit shareholders to a later date if there are not sufficient votes to
approve 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 and support agreements also contain certain confidentiality, non-solicitation and, in the case of the voting and support agreements executed by independent directors of
Skagit, non-competition covenants, which are applicable upon the closing of the merger and remain in effect for a period of two (2) years after the closing date. If the merger agreement is
terminated, the Skagit voting and support agreements will also terminate and be null and void and of no effect, except certain provisions will survive any such termination and such termination will
not relieve any party of any liability or damages resulting from any willful or material breach of any of its representations, warranties, covenants or other agreements therein.
The
preceding discussion is a summary of the Skagit voting and support agreements and is qualified in its entirety by reference to the form of the Skagit voting and support agreement,
which is provided in its entirety as
Annex D
to this proxy statement/prospectus.
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ADJOURNMENT OF THE SPECIAL MEETING TO SOLICIT
ADDITIONAL PROXIES
Skagit shareholders are being asked to approve one or more adjournments of the special meeting, if necessary or appropriate, to solicit
additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement. If this proposal is approved, the special meeting could be successively adjourned
to any date. Skagit does not intend to adjourn the special meeting to solicit additional proxies if the merger agreement is approved at the special meeting.
The
Skagit board unanimously recommends that you vote "
FOR
" the proposal to adjourn the special meeting, if necessary or appropriate, to
solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement.
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THE MERGER
1.1
The Merger
.
Subject to the terms and conditions of this Agreement, in accordance with the WBCA, at the Effective Time, the Company shall merge with and into
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Parent.
Parent shall be the Surviving Corporation in the Merger, and shall continue its corporate existence under the laws of the State of Washington. Upon consummation of the Merger, the separate
corporate existence of the Company shall terminate.
1.2
Closing
.
Subject
to the terms and conditions of this Agreement, the closing of the Merger (the
"
Closing
") will take place at 10:00 a.m. Seattle time, at the offices of Wachtell, Lipton, Rosen & Katz, on a date which shall be no later than three
(3) business days after the satisfaction or waiver (subject to applicable law) of all of the conditions set forth in Article VII hereof (other than those conditions that by their nature
can only be satisfied at the Closing, but subject to the satisfaction or waiver thereof), unless another date, time or place is agreed to in writing by Parent and the Company. The date on which the
Closing occurs is referred to in this Agreement as the "
Closing Date
."
1.3
Effective
Time
.
Subject to the terms and conditions of this Agreement, at the Closing, the parties shall execute, and Parent and the Company shall cause to be filed articles of merger with the Secretary
of State of the State of Washington (the "
Washington Secretary
") and a plan of merger, as provided in the relevant provisions of the WBCA (collectively, the
"
Articles of Merger
"). The Merger shall become effective at such time as designated in the Articles of Merger, or if no time is designated, at the time of filing of the
Articles of Merger. The term "Effective Time" shall be the date and time when the Merger becomes effective, as set forth in the Articles of Merger (or if no time is designated, at the time of filing
of the Articles of Merger).
1.4
Effects of the
Merger
.
At and after the Effective Time, the Merger shall have the effects set forth in the applicable provisions of the WBCA.
1.5
Conversion of
Company Common Stock
.
At the Effective Time, by virtue of the Merger and without any action on the part of Parent, the Company or the holder of any of the following securities:
(a)
Subject
to Section 2.2(e), each share of the common stock, no par value, of the Company issued and outstanding immediately prior to the Effective Time (the
"
Company Common Stock
"), except for the Cancelled Shares and Dissenting Shares, shall be converted into the right to receive, without interest, 5.6664 shares, subject to
adjustment pursuant to Section 1.13 (as adjusted pursuant to Section 1.13, the "
Exchange Ratio
"), of the common stock, par value $0.01 per share, of Parent
(the "
Parent Common Stock
") (the "
Merger Consideration
"); it being understood that upon the Effective Time, pursuant to Section 1.6,
the Parent Common Stock, including the shares issued to former holders of Company Common Stock, shall be the common stock of the Surviving Corporation.
(b) All
of the shares of Company Common Stock converted into the right to receive the Merger Consideration pursuant to this Article I shall no longer be outstanding
and shall automatically be cancelled and shall cease to exist as of the Effective Time, and each certificate (each, an "
Old Certificate
," it being understood that any
reference herein to "
Old Certificate
" shall be deemed to include reference to book-entry account statements relating to the ownership of shares of Company Common Stock)
previously representing any such shares of Company Common Stock shall thereafter represent only the right to receive (i) the Merger
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Consideration,
including without duplication, cash in lieu of fractional shares which the shares of Company Common Stock represented by such Old Certificate have been converted into the right to
receive pursuant to this Section 1.5 and Section 2.2(e) and (ii) any dividends or distributions which the holder thereof has the right to receive pursuant to Section 2.2(b)
upon the surrender of such Old Certificates in accordance with Section 2.2, in each case without any interest thereon. If, prior to the Effective Time, the outstanding shares of Parent Common
Stock or Company Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization,
reclassification, stock dividend, stock split or
reverse stock split, an appropriate and proportionate adjustment shall be made to the Exchange Ratio and the Merger Consideration to give holders of Company Common Stock and Parent the same economic
effect as contemplated by this Agreement prior to such event;
provided
, that nothing contained herein shall be construed to permit Parent or the Company to take any action
with respect to its securities or otherwise that is prohibited by the terms of this Agreement.
(c)
At
the Effective Time, all shares of Company Common Stock that are directly owned by the Company or Parent (in each case, other than (i) shares of Company
Common Stock held in trust accounts, managed accounts, mutual funds and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties or
(ii) shares of Company Common Stock held, directly or indirectly, by Parent or the Company in respect of a debt previously contracted) shall be cancelled and shall cease to exist and no Merger
Consideration or other consideration shall be delivered in exchange therefor (such cancelled shares, the "
Cancelled Shares
").
(d)
Notwithstanding
anything in this Agreement to the contrary, all shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time
and that are held by a holder of Company Common Stock who did not vote in favor of this Agreement or the Merger (or consent thereto in writing) and who exercises dissenters' rights when and in the
manner required under Chapter 23B.13 of the WBCA (the "
Dissenting Shares
"), shall not be converted into or be exchangeable for the right to receive the Merger
Consideration, but instead such holder shall be entitled to only such rights as are granted with respect to the payment of the fair value of such shares under the applicable provisions of
Chapter 23B.13 of the WBCA (and at the Effective Time, such Dissenting Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and such holder shall
cease to have any rights with respect thereto, except the rights provided for pursuant to the applicable provisions of Chapter 23B.13 of the WBCA and this Section 1.5(d)), unless and
until such holder shall have failed to perfect or shall have effectively withdrawn or lost rights to demand or receive the fair value of such shares of Company Common Stock under the WBCA. If any
shareholder dissenting pursuant to Chapter 23B.13 of the WBCA and this Section 1.5(d) shall have failed to perfect or shall have effectively withdrawn or lost any such right, such
holder's shares of Company Common Stock shall thereupon be treated as if they had been converted into and become exchangeable for the right to receive, as of the Effective Time, the Merger
Consideration for each such share of Company Common Stock, in accordance with Section 1.5(a), without any interest thereon. The Company shall give Parent (i) prompt notice of any written
notices the Company receives from or on behalf of its shareholders to exercise dissenters' rights in respect of any shares of Company Common Stock, attempted withdrawals of such notices and any other
instruments served pursuant to Chapter 23B.13 of the WBCA and received by the Company
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relating
to shareholders' dissenters' rights and (ii) the opportunity to participate in negotiations and proceedings with respect to demands for fair value under Chapter 23B.13 of the
WBCA. The Company
shall not, except with the prior written consent of Parent, make any payment with respect to, or settle, or offer or agree to settle, any such demand. Any Merger Consideration made available to the
Exchange Agent to exchange for shares of Company Common Stock for which dissenters' rights have been perfected shall be returned to Parent upon demand.
1.6
Parent Common
Stock
.
At and after the Effective Time, each share of Parent Common Stock issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of common
stock of the Surviving Corporation and shall not be affected by the Merger.
1.7
Treatment of
Company Equity Awards.
(a)
Company
Stock Options
. At the Effective Time, each compensatory option to purchase Company Common Stock granted by the Company
(a "
Company Option
") that is outstanding as of immediately prior to the Effective Time shall fully vest (to the extent unvested) and shall 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 Company Common Stock subject to the Company
Option as of immediately prior to the Effective Time and (ii) the excess, if any, of the Merger Consideration Value over the exercise price per share of Company Common Stock subject to such
Company Option as of the Effective Time. If the per share exercise price of a Company Option that is outstanding as of immediately prior to the Effective Time is equal to or greater than the Merger
Consideration Value, then such Company Option shall be cancelled at the Effective Time for no consideration. For purposes of this Agreement, "
Merger Consideration Value
"
means the product of (A) the Exchange Ratio and (B) the Parent Share Closing Price.
(b) At
or prior to the Effective Time, the Company, the Board of Directors of the Company and its Compensation Committee, as applicable, shall adopt any resolutions and
take any actions that are necessary to effectuate the provisions of this Section 1.7, including providing notice to the holders of Company Options in accordance with Section 6(l) of the
Amended and Restated 2005 Incentive Stock Plan of the Company (which notice shall be in a form mutually agreed by the Company and Parent).
1.8
Articles of
Incorporation of the Surviving Corporation
.
At the Effective Time, the Amended and Restated Articles of Incorporation of Parent (the "
Parent Articles
"), as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation, until thereafter duly amended in accordance with the terms thereof and applicable law.
1.9
Bylaws of the
Surviving Corporation
.
At the Effective Time, the Bylaws of Parent (the "
Parent Bylaws
"), as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation, until thereafter duly amended in accordance with the terms thereof and applicable law.
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1.10
Tax Consequences
.
It is intended that the Merger shall qualify as a "reorganization" within the meaning of Section 368(a) of the Code, and that this Agreement is intended to be and is adopted as a
"plan of reorganization" for the purposes of Sections 354 and 361 of the Code.
1.11
Bank Merger
.
Immediately following the Merger, Skagit Bank ("
Company Bank
"), a Washington state-chartered commercial bank and a wholly owned Subsidiary of the Company,
will merge (the "
Bank Merger
") with and into Banner Bank ("
Parent Bank
"), a Washington state-chartered commercial bank and a wholly owned
Subsidiary of Parent. Parent Bank shall be the surviving entity in the Bank Merger and, following the Bank Merger, the separate corporate existence of Company Bank shall cease. The parties agree that
the Bank Merger shall become effective immediately after the Effective Time. Promptly after the date of this Agreement, Parent and the Company shall cause Parent Bank and Company Bank, respectively,
to enter into an agreement and plan of merger in form and substance agreed to by Parent and the Company, which shall be customary for mergers similar to the Bank Merger (the "
Bank Merger
Agreement
"), and Parent, as the sole shareholder of Parent Bank, and the Company, as the sole shareholder of Company Bank, shall each approve and adopt the Bank Merger Agreement. The
Company shall cause Company Bank, and Parent shall cause Parent Bank, to execute such articles of merger and such other documents and certificates as are necessary to make the Bank Merger effective
("
Bank Merger Articles
") immediately following the Effective Time.
1.12
Determination of Adjusted
Shareholders' Equity.
(a) For
purposes of this Agreement, "
Adjusted Shareholders' Equity
" means the consolidated stockholders' equity of the Company as set forth in
the Final Closing Statement prepared in accordance with, and subject to adjustment as set forth in, Section 1.12, minus any declared but unpaid dividends as of the Shareholders' Equity
Measuring Date (or thereafter declared), plus the sum of (i) all fees and expenses of all attorneys, accountants, investment bankers and other advisors and agents for the Company for services
rendered in connection with the transactions contemplated by this Agreement, (ii) any employee severance, retention or change-in-control payments or expenses consistent with the terms of this
Agreement, (iii) any payment made or expense accrued for the purchase of a directors' and officers' liability insurance policy pursuant to Section 6.7(b), and (iv) other
third-party costs, fees and expenses in an aggregate amount not to exceed $50,000, in each case of clauses (i)-(iv) specifically incurred or accrued by the Company in connection with the
transactions contemplated hereby (as outlined in the example Interim Closing Statement set forth in Section 1.12(b) of the Company Disclosure Schedules) (collectively,
"
Transaction Costs
"), and in each case, paid by the Company or payable by the Company prior to the Effective Time to the extent reflected as accrued liabilities in the
Final Closing Statement.
(b) Not
later than five (5) days after each month-end during the period from the date of this Agreement until the Final Closing Statement is delivered to Parent, the
Company shall, in consultation with Parent and consistent with past practice, prepare in good faith and deliver to Parent (i) the Company's consolidated financial statements presenting
(x) the financial condition of the Company and its Subsidiaries on a consolidated basis as of the close of business on the last day of such month-end and (y) the Company's and its
Subsidiaries' consolidated
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results
of operations for the period from January 1, 2018 through the close of business on the last day of such month-end and (ii) a statement setting forth Adjusted Shareholders' Equity
as if such month-end were the Shareholders' Equity Measuring Date (each such statement, an "
Interim Closing Statement
"). Each Interim Closing Statement shall have been
prepared in accordance with GAAP and other applicable legal and accounting requirements, and reflect all period-end accruals and other adjustments and shall also reflect accruals for all Transaction
Costs or other liabilities incurred or expected to be incurred at any time at or prior to the Closing, including in connection with the transactions contemplated by this Agreement (whether or not
doing so is in accordance with GAAP). An example Interim Closing Statement for the month ended June 30, 2018 that satisfies the foregoing requirements (including a proper calculation of
Adjusted Shareholders' Equity) is set forth in Section 1.12(b) of the Company Disclosure Schedules. In the event Parent notifies the Company that it disputes any part of any Interim Closing
Statement (including Adjusted Shareholders' Equity stated therein), the Company shall cooperate with Parent in good faith to resolve such dispute as promptly as possible.
(c)
Not
later than five (5) days after the end of the month preceding the month that includes the Anticipated Closing Date, the Company shall, in consultation with
Parent, prepare in good faith and deliver to Parent an updated Interim Closing Statement as of and through the close of business on the last day of the month-end immediately preceding the Anticipated
Closing Date (such statement as it may be adjusted in accordance with Section 1.12(f), the "
Final Closing Statement"
);
provided
,
however
, that if the Anticipated Closing Date is in the first eight (8) days of a calendar month, then the Final Closing Statement shall be prepared as of the
month-end of the second month preceding the Anticipated Closing Date (
i.e.
, if the Anticipated Closing Date is on October 1, then the Final
Closing Statement shall be prepared as of and through August 31) (the date which the Final Closing Statement is as of and through, the "
Shareholders' Equity Measuring
Date"
). Such Final Closing Statement shall be prepared in a manner consistent with the Interim Closing Statements, and for the avoidance of doubt, shall set forth Adjusted Shareholders'
Equity as of the Shareholders' Equity Measuring Date. The Company shall also deliver to Parent a certificate of the Company's chief financial officer, dated as of the Closing Date, to the effect that
the financial statements set forth in the Final Closing Statement continue to reflect accurately, as of the Closing Date, the financial condition of the Company and its Subsidiaries in all material
respects and meet the requirements of this Section 1.12(c). For purposes of this Agreement, "
Anticipated Closing Date"
means the date on which the Closing is
expected to occur based on the provisions of Section 1.2, as reasonably agreed in good faith and confirmed in writing by Parent and Company as promptly as practicable.
(d)
Parent
shall have the right to review, and shall have reasonable access to, all relevant books and records, work papers, schedules, memoranda and other documents
prepared by the Company or its Subsidiaries or its and their respective accountants in connection with the Company's preparation of the Interim Closing Statements and the Final Closing Statement, as
well as to executive, finance and accounting personnel of the Company and its Subsidiaries and any other information which Parent may reasonably request in connection with its review of the Interim
Closing Statements and the Final Closing Statement. The Company will, and will cause its Subsidiaries and its and their accountants and other representatives to, cooperate with and assist Parent and
its accountants and other representatives in the review of the Interim Closing Statements and the Final Closing Statement.
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(e)
In
the event Parent disputes the Final Closing Statement (including Adjusted Shareholders' Equity set forth therein), Parent shall, no later than the later of
(i) three (3) days after receiving the Final Closing Statement and (ii) two (2) days prior to the Anticipated Closing Date, give the Company written notice of its
objections thereto (the "
Objection Notice"
), describing the nature of the dispute in reasonable detail and specifying those items and amounts as to which Parent disagrees
and, based on the information at its disposal, specifying Parent's proposed calculation of Adjusted Shareholders' Equity. If Parent does not timely deliver an Objection Notice prior to the date
specified in the previous sentence, Adjusted Shareholders' Equity set forth in the Final Closing Statement delivered by the Company shall be utilized for the calculation of the adjustment to the
Exchange Ratio pursuant to Section 1.13 and shall be final and binding on all the parties. Any items or amounts set forth in the Final Closing Statement as to which Parent does not disagree in
the Objection Notice shall be final and binding on all the parties.
(f)
If
Parent timely delivers an Objection Notice, Parent and the Company shall cooperate in good faith to resolve such dispute, and if resolved, the Final Closing
Statement and Adjusted Shareholders' Equity as determined by Parent and the Company in writing shall be utilized for calculation of the adjustment to the Exchange Ratio pursuant to Section 1.13
and shall be final and binding on all the parties. If Parent and the Company cannot resolve the dispute within five (5) days after the date of the Objection Notice (the
"
Negotiation Period
"), Parent and the Company shall appoint a mutually acceptable independent accounting firm of national or regional reputation (the
"
Independent Accounting Firm
") to promptly review this Agreement and the disputed items in the Objection Notice and arbitrate the dispute and determine the Final Closing
Statement and Adjusted Shareholders' Equity. The Independent Accounting Firm shall be given reasonable access to all records, work papers, schedules, memoranda and other documents relevant to such
dispute. The Independent Accounting Firm shall be limited to addressing only the particular disputes referred to in the Objection Notice that have not been resolved by Parent and the Company and shall
determine such disputed amounts, the Final Closing Statement, and Adjusted Shareholders' Equity in accordance with the provisions of this Agreement. Upon reaching its determination of the Final
Closing Statement and Adjusted Shareholders' Equity based on its determination of the disputed items, the Independent Accounting Firm shall deliver a copy of its calculation of the Final Closing
Statement and Adjusted Shareholders' Equity to Parent and the Company. The determination of the Independent Accounting Firm shall be made within twenty (20) days after its engagement (which
engagement shall be made no later than five (5) days after the end of the Negotiation Period) and shall be final and binding on all the parties. No party or its affiliates shall seek further
recourse to courts, other tribunals or otherwise, other than to enforce the final decision of the Independent Accounting Firm as to the determination of the Final Closing Statement and Adjusted
Shareholders' Equity. The aggregate fees, expenses and costs of the Independent Accounting Firm shall be borne (i) by Parent, if the difference, in absolute value terms, between Adjusted
Shareholders' Equity as finally determined and Adjusted Shareholders' Equity set forth in the Objection Notice is greater than the difference, in absolute value terms, between Adjusted Shareholders'
Equity as finally determined and Adjusted Shareholders' Equity set forth in the Final Closing Statement as delivered by the Company to Parent and (ii) otherwise by the Company, in the form of a
reduction to Adjusted Shareholders' Equity for purposes of calculating the adjustment to the Exchange Ratio pursuant to Section 1.13. For the avoidance of doubt, the dispute resolution process
contemplated by Section 1.12(e) and Section 1.12(f) shall
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be only to determine the disputed items reflected on the Final Closing Statement and necessary to the calculation of Adjusted Shareholders' Equity as of the Shareholders'
Equity Measuring Date, regardless of the date on which the Independent Accounting Firm delivers its calculation.
1.13
Exchange Ratio
Adjustment
.
(a) If
Adjusted Shareholders' Equity, as finally determined pursuant to Section 1.12, is greater than or equal to $80,000,000, there shall be no adjustment to the
Exchange Ratio, and to the extent Adjusted Shareholders' Equity, as finally determined pursuant to Section 1.12, exceeds $80,000,000, the Company may, in accordance with Section 6.17,
declare and pay a special cash dividend immediately prior to the Closing, in an amount not to exceed such excess.
(b) If
Adjusted Shareholders' Equity, as finally determined pursuant to Section 1.12, is less than $80,000,000, the Exchange Ratio shall be reduced by the Exchange
Ratio Reduction Amount.
(c)
For
purposes of this Agreement (i) the term "
Exchange Ratio Reduction Amount
" shall mean an amount, rounded to the ten-thousandth
decimal point, equal to (A) the Shareholders' Equity Shortfall,
divided by
(B) the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than Cancelled Shares),
divided by
(C) the Parent Share Closing Price and
(ii) the term "
Shareholders' Equity Shortfall
" shall mean the absolute value of the amount by which Adjusted Shareholders' Equity, as finally determined pursuant to
Section 1.12, is less than $80,000,000.
ARTICLE II
EXCHANGE OF SHARES
2.1
Parent to Make Merger
Consideration Available
.
At or prior to the Effective Time, Parent shall deposit, or shall cause to be deposited, with an exchange agent designated by Parent and reasonably acceptable to the Company (the
"
Exchange Agent
"), for the benefit of the holders of Old Certificates, for exchange in accordance with this Article II, (a) certificates or, at Parent's
option, evidence of shares in book-entry form, representing the shares of Parent Common Stock (collectively, referred to herein as "
New Certificates
"), to be delivered to
the holders of Company Common Stock pursuant to Section 1.5, and (b) any cash in lieu of fractional shares required to be paid to holders of Company Common Stock pursuant to this
Article II (such New Certificates and cash, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "
Exchange
Fund
").
2.2
Exchange of
Shares
.
(a) As
promptly as practicable after the Effective Time, but in no event later than five (5) business days thereafter, Parent shall cause the Exchange Agent to mail
to each holder of record of one or more Old Certificates representing shares of Company Common Stock immediately prior to the Effective Time that have been converted at the Effective Time into the
right to receive the Merger Consideration pursuant to Article I, (i) a letter of transmittal, which shall specify that delivery shall be effected, and risk of loss and title to the Old
Certificates shall
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pass,
only upon proper delivery of the Old Certificates to the Exchange Agent (the "
Letter of Transmittal
") and (ii) instructions for use in effecting the surrender
of the Old Certificates in exchange for New Certificates representing the number of whole shares of Parent Common Stock and any cash in lieu of fractional shares which the shares of Company Common
Stock represented by such Old Certificates shall have been converted into the right to receive pursuant to this Agreement, as well as any dividends or distributions to be paid in respect thereof
pursuant to Section 2.2(b). Upon proper surrender of an Old Certificate or Old Certificates for exchange and cancellation to the Exchange Agent, accompanied by a properly completed Letter of
Transmittal, duly executed, the holder of such Old Certificate or Old Certificates shall be entitled to receive in exchange therefor, as applicable, (i) a New Certificate representing that
number of whole shares of Parent Common Stock to which such holder of Company Common Stock shall have become entitled pursuant to the provisions of Article I and (ii) a check
representing the amount of (A) any cash in lieu of fractional shares that such holder has the right to receive in respect of the Old Certificate or Old Certificates surrendered pursuant to the
provisions of this Article II and (B) any dividends or distributions that the holder presenting such Old Certificate or Old Certificates has the right to receive pursuant to this
Section 2.2, and the Old Certificate or Old Certificates so surrendered shall forthwith be cancelled. No interest will be paid or accrued on any Merger Consideration, dividends or distributions
or cash in lieu of fractional shares payable to holders of Old Certificates. Until surrendered as contemplated by this Section 2.2, each Old Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive, upon surrender, the Merger Consideration and any cash in lieu of fractional shares or in respect of dividends or distributions as contemplated by
this Section 2.2.
(b) No
dividends or other distributions declared with respect to Parent Common Stock shall be paid to the holder of any unsurrendered Old Certificate until such holder
shall surrender such Old Certificate in accordance with this Article II. After the surrender of an Old Certificate in accordance with this Article II, the record holder thereof shall be
entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to the whole shares of Parent Common Stock that the
shares of Company Common Stock represented by such Old Certificate have been converted into the right to receive.
(c)
If
any New Certificate representing shares of Parent Common Stock is to be issued in a name other than that in which the Old Certificate or Old Certificates
surrendered in exchange therefor is or are registered, it shall be a condition of the issuance thereof that the Old Certificate or Old Certificates so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the person requesting such exchange shall pay in advance any transfer or other similar Taxes
required by reason of the issuance of a New Certificate representing shares of Parent Common Stock in any name other than that of the registered holder of the Old Certificate or Old Certificates
surrendered, or required for any other reason, or shall establish to the satisfaction of Parent and the Exchange Agent that such Tax has been paid or is not payable.
(d)
After
the Effective Time, there shall be no transfers on the stock transfer books of the Company of the shares of Company Common Stock that were issued and outstanding
immediately prior to the Effective Time. If, after the Effective Time, Old
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Certificates
representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for the Merger Consideration as provided in this Article II.
(e)
Notwithstanding
anything to the contrary contained herein, no New Certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Old Certificates, no dividend or distribution with respect to Parent Common Stock shall be payable on or with respect to any fractional share, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of a shareholder of Parent. In lieu of the issuance of any such fractional share, Parent shall pay to each former holder of
Company Common Stock who otherwise would be entitled to receive such fractional share an amount in cash (rounded to the nearest cent) determined by
multiplying
(i) the average of the closing price
per share of Parent Common Stock on the NASDAQ Global Select Market (the
"
NASDAQ
") as reported by www.nasdaq.com for the consecutive period of five (5) full trading days immediately preceding (but not including) the date that is the
second (2nd) business day prior to the Closing Date (or, if not reported therein, in another authoritative source mutually agreed upon by Parent and the Company) (the "
Parent Share
Closing Price
")
by
(ii) the fraction of a share (after taking into account all shares of Company Common Stock held by such holder
immediately prior to the Effective Time and rounded to the nearest one-thousandth when expressed in decimal form) of Parent Common Stock to which such holder would otherwise be entitled to receive
pursuant to Section 1.5. The parties acknowledge that payment of such cash consideration in lieu of issuing fractional shares is not separately bargained-for consideration, but merely
represents a mechanical rounding off for purposes of avoiding the expense and inconvenience that would otherwise be caused by the issuance of fractional shares.
(f)
Any
portion of the Exchange Fund that remains unclaimed by the holders of Company Common Stock for six (6) months after the Effective Time shall be delivered to
the Surviving Corporation. Any former holders of Company Common Stock who have not theretofore exchanged their Old Certificates in compliance with this Article II shall thereafter look only to
the Surviving Corporation for payment of the Merger Consideration, cash in lieu of any fractional shares and any unpaid dividends and distributions on the Parent Common Stock deliverable in respect of
each former share of Company Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Parent,
the Company, the Surviving Corporation, the Exchange Agent or any other person shall be liable to any former holder of Company Common Stock for any amount delivered in good faith to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g)
Parent
shall be entitled to deduct and withhold, or cause the Exchange Agent to deduct and withhold, from any Merger Consideration, cash in lieu of fractional shares of
Parent Common Stock, cash dividends or distributions payable pursuant to Section 2.2(b) or any other amounts otherwise payable pursuant to this Agreement to any holder of Company Common Stock
or Company Equity Awards such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign Tax law. To the
extent that amounts are so withheld by Parent or the Exchange Agent, as the case may be, and paid over to the appropriate governmental authority, the withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder in
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respect
of which the deduction and withholding was made by Parent or the Exchange Agent, as the case may be.
(h) In
the event any Old Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Old Certificate to
be lost, stolen or destroyed and, if reasonably required by Parent or the Exchange Agent, the posting by such person of a bond in such amount as Parent or the Exchange Agent may determine is
reasonably necessary as indemnity against any claim that may be made against it with respect to such Old Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Old
Certificate the Merger Consideration and any cash in lieu of fractional shares, deliverable in respect thereof pursuant to this Agreement, and any dividends or distributions to which such holder is
entitled pursuant to Section 2.2(b).
(i)
Subject
to the terms of this Agreement, Parent, in the exercise of its reasonable discretion, shall have the right to make all determinations, not inconsistent with
the terms of this Agreement, governing (i) the validity of any Letter of Transmittal and compliance by any holder of Company Common Stock with the procedures and instructions set forth herein
and therein, (ii) the issuance and delivery of the whole number of shares of Parent Common Stock into which shares of Company Common Stock are converted in the Merger and (iii) the
method of payment of cash in lieu of fractional shares of Parent Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except
as disclosed in the applicable section of the disclosure schedule delivered by the Company to Parent concurrently herewith (the "
Company
Disclosure Schedules
");
provided
that (i) no such item is required to be set forth as an exception to a representation or warranty if its absence
would not result in the related representation or warranty being deemed untrue or incorrect, (ii) the mere inclusion of an item in the Company Disclosure Schedules as an exception to a
representation or warranty shall not be deemed an admission by the Company that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to
result in a Material
Adverse Effect and (iii) any disclosures made with respect to a section of Article III shall be deemed to qualify (a) any other section of Article III specifically
referenced or cross-referenced and (b) other sections of Article III to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from
a reading of the disclosure that such disclosure applies to such other sections, the Company hereby represents and warrants to Parent as follows:
3.1
Corporate
Organization.
(a) The
Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington, and is a bank holding company duly
registered under the Bank Holding Company Act of 1956, as amended ("
BHC Act
"). The Company has the corporate power and authority to own, lease or operate all of its
properties and assets and to carry on its business as it is now being conducted. The Company is duly licensed or qualified to do business and in good standing in each jurisdiction in which the nature
of the
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business
conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or
qualified or to be in good standing would not, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company. As used in this Agreement, the term
"
Material Adverse Effect
" means, with respect to Parent, the Company or the Surviving Corporation, as the case may be, any effect, change, event, circumstance, condition,
occurrence or development that, either individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (i) the business, properties, assets,
liabilities, results of operations or condition (financial or otherwise) of such party and its Subsidiaries taken as a whole (
provided
,
however
, that, with respect to this clause (i), Material Adverse Effect shall not be deemed to include the impact of (A) changes, after the date hereof, in
U.S. generally accepted accounting principles ("
GAAP
") or applicable regulatory accounting requirements or the enforcement, implementation or interpretation thereof,
(B) changes, after the date hereof, in laws, rules or regulations of general applicability to companies in the industries in which such party and its Subsidiaries operate, (C) changes,
after the date hereof, in global, national or regional political conditions (including the outbreak of war or acts of terrorism) or in economic or market conditions affecting the financial services
industry generally and not specifically relating to such party or its Subsidiaries, including any disruption in any financial, banking or securities markets in general and any decline in the price of
any market index or any change in prevailing interest rates, (D) changes relating to or arising out of the public disclosure of this Agreement or of the transactions contemplated hereby
(provided that this exception shall not apply for purposes of the representations and warranties in Section 3.3(b) or Section 4.3(b)), (E) a failure, in and of itself, to meet
earnings projections or internal financial forecasts, but not including any underlying causes thereof, or changes in the trading price of Company Common Stock or Parent Common Stock (as applicable),
in and of
itself, but not including any underlying causes thereof or (F) actions that are taken with the express prior written consent of the other party in contemplation of the transactions contemplated
hereby; except, with respect to subclauses (A), (B), or (C), to the extent that the effects of such change are disproportionately adverse to such party and its Subsidiaries, taken as a whole,
as compared to other companies in the industries in which such party and its Subsidiaries operate) or (ii) the ability of such party to consummate the transactions contemplated hereby. As used
in this Agreement, the word "
Subsidiary
" when used with respect to any person, means any corporation, partnership, limited liability company, bank, trust, association,
joint venture or other organization, whether incorporated or unincorporated, or person of which (i) such first person directly or indirectly owns or controls at least a majority of the
securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions or (ii) such first person is or
directly or indirectly has the power to appoint a general partner, manager or managing member or others performing similar functions. True and complete copies of the Amended and Restated Articles of
Incorporation of the Company (the "
Company Articles
") and the Amended and Restated Bylaws of the Company (the "
Company Bylaws
"), as in effect
as of the date of this Agreement, have previously been made available by the Company to Parent. The Company is not in violation of any of the provisions of the Company Articles or the Company Bylaws.
(b)
Each
Subsidiary of the Company (a "
Company Subsidiary
") (i) is duly organized and validly existing under the laws of its
jurisdiction of organization, (ii) is duly licensed or qualified to do business and, where such concept is recognized under applicable law,
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in
good standing in all jurisdictions (whether federal, state, local or foreign) in which the nature of the business conducted by it or the character or location of the properties and assets owned or
leased by it makes such licensing or qualification necessary and in which the failure to be so licensed or qualified or in good standing would reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect on the Company and (iii) has all requisite corporate power and authority to own, lease or operate its properties and assets and to carry on its
business as now conducted. There are no restrictions on the ability of any Subsidiary of the Company to pay dividends or distributions, except in the case of a Subsidiary that is a regulated entity,
for restrictions on dividends or distributions generally applicable to all such regulated entities. The deposit accounts of each Subsidiary of the Company that is an insured depository institution are
insured by the Federal Deposit Insurance Corporation (the "
FDIC
") through the Deposit Insurance Fund (as defined in Section 3(y) of the Federal Deposit Insurance
Act of 1950) to the fullest extent permitted by law, all premiums and assessments required to be paid in connection therewith have been paid when due, and no proceedings for the termination of such
insurance are pending or threatened. No Company Subsidiary is in violation of any of the provisions of the articles or certificate of incorporation or bylaws (or comparable organizational documents)
of such Company Subsidiary.
3.2
Capitalization.
(a) The
authorized capital stock of the Company consists of 5,000,000 shares of Company Common Stock, without par value. As of the date of this Agreement, there are
(i) 544,257 shares of Company Common Stock issued and outstanding, which number includes 528 shares of Company Common Stock granted in respect of outstanding awards of Company Common Stock
subject to vesting, repurchase or other lapse restriction ("
Company Restricted Stock Awards
") (all of which will vest by the terms thereof in September 2018 or upon a
change in control, subject to continued employment), (ii) no shares of Company Common Stock held in treasury, (iii) 6,935 shares of Company Common Stock subject to and reserved for
issuance upon the exercise of outstanding Company Options (which Company Options have a weighted average exercise price of $190.13 per share of Company Common Stock), and (iv) no other shares
of capital stock or other voting securities or equity interests of the Company issued, reserved for issuance or outstanding. All of the issued and outstanding shares of Company Common Stock have been
duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. There are no bonds, debentures, notes
or other indebtedness or instruments that have the right to vote on any matters on which shareholders of the Company may vote, and no trust preferred or debt securities of the Company are issued or
outstanding. Other than the Company Options and Company Restricted Stock Awards (collectively, the "
Company Equity Awards
") issued prior to the date of this Agreement and
set forth in this Section 3.2(a), there are no outstanding subscriptions, options, warrants, stock appreciation rights, phantom units, scrip, rights to subscribe to, preemptive rights,
anti-dilutive rights, rights of first refusal or similar rights, puts, calls, commitments or agreements of any character whatsoever relating to, or securities or rights convertible into or
exchangeable or exercisable for, shares of capital stock or other voting or equity securities of or ownership interests in the Company, or contracts, commitments, understandings or arrangements by
which the Company may become bound to issue additional shares of its capital stock or other equity or voting securities of or ownership interests in the Company, or otherwise obligating the Company to
issue, transfer, sell, purchase, redeem or
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otherwise
acquire, or register under the Securities Act of 1933, as amended (the "
Securities Act
"), any of the foregoing (collectively, "
Company
Securities
"). Section 3.2(a) of the Company Disclosure Schedules sets forth a true, correct and complete list of all Company Equity Awards outstanding as of the date hereof
specifying, on a holder-by-holder basis, as applicable, (A) the name of each holder, (B) the number of shares subject to each such Company Equity Award, (C) the grant date of each
such Company Equity Award, (D) the Company Benefit Plan under which such Company Equity Award was granted, (E) the exercise price for each such Company Equity Award that is a Company
Option, and (F) the expiration date for each such Company Equity Award that is a Company Option. Other than the Company Equity Awards, no equity-based awards (including any cash awards where
the amount of payment is determined, in whole or in part, based on the price of any capital stock of the Company or any of its Subsidiaries) are outstanding. No Subsidiary of the Company owns any
capital stock of the
Company. Neither the Company nor any of its Subsidiaries is required to file with or furnish to the SEC any reports.
(b)
Other
than the Voting Agreements, there are no voting trusts, shareholder agreements, proxies or other agreements in effect to which the Company or any of its
Subsidiaries is a party with respect to the voting or transfer of the Company Common Stock, capital stock or other voting or equity securities or ownership interests of the Company or granting any
shareholder or other person any registration rights. The Company does not have in effect a "poison pill" or similar shareholder rights plan.
(c)
Section 3.2(c)
of the Company Disclosure Schedules sets forth a true and complete list of all Subsidiaries of the Company. The Company owns, directly or
indirectly, all of the issued and outstanding shares of capital stock or other equity ownership interests of each of the Company Subsidiaries, free and clear of any liens, claims, title defects,
mortgages, pledges, charges, encumbrances and security interests whatsoever ("
Liens
"), and all of such shares or equity ownership interests are duly authorized and validly
issued and are fully paid, nonassessable (except, with respect to bank Subsidiaries, as provided under 12 U.S.C. §55 or any comparable provision of applicable state law) and free of
preemptive rights, with no personal liability attaching to the ownership thereof. Other than the shares of capital stock or other equity ownership interests described in the previous sentence, there
are no outstanding subscriptions, options, warrants, stock appreciation rights, phantom units, scrip, rights to subscribe to, preemptive rights, anti-dilutive rights, rights of first refusal or
similar rights, puts, calls, commitments or agreements of any character whatsoever relating to, or securities or rights convertible into or exchangeable or exercisable for, shares of capital stock or
other voting or equity securities of or ownership interests in any Company Subsidiary, or contracts, commitments, understandings or arrangements by which any Company Subsidiary may become bound to
issue additional shares of its capital stock or other equity or voting securities or ownership interests in such Company Subsidiary, or otherwise obligating any Company Subsidiary to issue, transfer,
sell, purchase, redeem or otherwise acquire, or register under the Securities Act, any of the foregoing (collectively, "
Company Subsidiary Securities
"). Except for its
interests in the Company Subsidiaries, the Company does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest
in any person.
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3.3
Authority; No
Violation.
(a) The
Company has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the Merger have been duly and validly approved by the Board of Directors of the Company. The Board of Directors of the Company has determined that
the Merger, on the terms and conditions set forth in this Agreement, is in the best interests of the Company and its shareholders, and has directed that this Agreement and the transactions
contemplated hereby be submitted to the shareholders of the Company for approval at a meeting of such shareholders and has adopted a resolution to the foregoing effect and recommending that the
shareholders of the Company approve this Agreement and the transactions contemplated hereby. Except for the adoption and approval of this Agreement by the affirmative vote of the holders of two-thirds
of the outstanding shares of Company Common Stock (the "
Requisite Company Vote
"), and the adoption and approval of the Bank Merger Agreement by the Board of Directors of
Company Bank and the Company as its sole shareholder, no other corporate proceedings on the part of the Company are necessary to approve this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the Company and (assuming due authorization, execution and delivery by Parent) constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms (except in all cases as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization or similar laws of general applicability relating to or affecting insured depository institutions or the rights of creditors generally and the availability of equitable remedies (the
"
Enforceability Exceptions
")).
(b)
Neither
the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby, nor compliance by the
Company with any of the terms or provisions hereof, will (i) violate any provision of the Company Articles or the Company Bylaws or the articles or certificate of incorporation or bylaws (or
similar organizational documents) of any Company Subsidiary or (ii) assuming that the consents and approvals referred to in Section 3.4 are duly obtained, (x) violate any law,
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Company or any of its Subsidiaries or any of their respective properties or assets or
(y) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by or rights or obligations under, require consent under
or result in the creation of any Lien upon any of the respective properties or assets of the Company or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, agreement or other instrument or obligation to which the Company or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except (in the case of clause (y) above) for such violations, conflicts, breaches or defaults that, either individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.
3.4
Consents and
Approvals
.
Except for (a) the filing of any required applications, filings and notices, as applicable, with the Board of Governors of the Federal
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Reserve
System (the "
Federal Reserve Board
") under the BHC Act and approval of such applications, filings and notices, (b) the filing of any required applications,
filings or notices, as applicable, with the FDIC and the Washington State Department of Financial Institutions, Division of Banks (the "
DFI
") and any state banking
authorities listed on Section 3.4 of the Company Disclosure Schedules or Section 4.4 of the Parent Disclosure Schedules, and approval of such applications, filings and notices,
(c) the filing with the Securities and Exchange Commission (the "
SEC
") of a registration statement on Form S-4 (including any amendments and supplements
thereto, the "
S-4
") in which a proxy statement in definitive form relating to the Company Meeting to be held in connection with this Agreement and the transactions
contemplated hereby (including any amendments or supplements thereto, the "
Proxy Statement
") will be included as a prospectus, to be filed with the SEC by Parent in
connection with the transactions contemplated by this Agreement and declaration of effectiveness of the S-4, (d) the filing of the Articles of Merger with the Washington Secretary pursuant to
the WBCA, and the filing of the Bank Merger Articles, (e) if required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "
HSR Act
"), the
filing of any notices or other filings under the HSR Act, (f) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of shares of Parent Common Stock pursuant to this Agreement and (g) the approval of the listing of such shares of Parent Common Stock on the NASDAQ, no consents or
approvals of or filings or registrations with any court, administrative agency or commission or other governmental or regulatory authority or instrumentality or SRO (each, a
"
Governmental Entity
") are necessary in connection with (A) the execution and delivery by the Company of this Agreement or (B) the consummation by the
Company of the Merger and the other transactions contemplated hereby (including the Bank Merger). As of the date hereof, the Company is not aware of any reason why the necessary regulatory approvals
and consents will not be received to permit consummation of the Merger, the Bank Merger and the other transactions contemplated by this Agreement on a timely basis.
3.5
Reports
.
The
Company and each of its Subsidiaries have timely filed (or furnished) all reports, forms, correspondence,
registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file (or furnish, as applicable) since January 1, 2015 with
(i) any state regulatory authority, including the DFI, (ii) the Federal Reserve Board, (iii) the FDIC, (iv) any foreign regulatory authority and (v) any
self-regulatory organization (an "
SRO
") ((i) through (v), collectively, "
Regulatory Agencies
"), including any report, form, correspondence,
registration or statement required to be filed (or furnished, as applicable) pursuant to the laws, rules or regulations of the United States, any state, any foreign entity, or any Regulatory Agency,
and have paid all fees and assessments due and payable in connection therewith, except where the failure to file (or furnish, as applicable) such report, form, correspondence, registration or
statement or to pay such fees and assessments, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company. Each such report, form,
correspondence, registration or statement filed with (or furnished to, as applicable) any Regulatory Agency since January 1, 2015, as of the date of its filing (or furnishing, as applicable)
complied in all material respects with relevant legal requirements, including as to content. Except for normal examinations conducted by a Regulatory
Agency in the ordinary course of business of the Company and its Subsidiaries, no Regulatory Agency has initiated or has pending any proceeding or, to the knowledge of the Company, investigation into
the business or operations of the Company or any
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of
its Subsidiaries since January 1, 2015. There (i) is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any
examinations or inspections of the Company or any of its Subsidiaries and (ii) has been no formal or informal inquiries by, or disagreements or disputes with, any Regulatory Agency with respect
to the business, operations, policies or procedures of the Company or any of its Subsidiaries since January 1, 2015, in each case, which would reasonably be expected to be material to the
Company and its Subsidiaries, taken as a whole.
3.6
Financial
Statements.
(a) Set
forth in Section 3.6(a) of the Company Disclosure Schedules are complete and correct copies of (x) the audited balance sheet and statements of income,
comprehensive income, changes in stockholders' equity and cash flows (including any related notes and schedules thereto and the signed, unqualified opinion of Moss Adams LLP, the Company's
independent auditor) for the fiscal years ended December 31, 2015, 2016 and 2017, in each case for the Company and its Subsidiaries on a consolidated basis (collectively, the
"
Audited Company Financial Statements
") and (y) the unaudited balance sheet and statement of income for the Company and its Subsidiaries, as of and for the
six (6) months ended June 30, 2018, in each case for the Company and its Subsidiaries on a consolidated basis (such unaudited financial statements, together with the Audited
Company Financial Statements, the "
Company Financial Statements
"). The Company Financial Statements (i) have been prepared from, and are in accordance with, the
books and records of the Company and its Subsidiaries, (ii) fairly present in all material respects the consolidated results of operations, cash flows, changes in stockholders' equity and
consolidated financial position of the Company and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to
year-end audit adjustments normal and not material in nature and amount), (iii) complied, as of their respective dates of preparation, in all material respects with applicable accounting
requirements and (iv) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto.
The books and records of the Company and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions. No independent public accounting firm of the Company has resigned (or informed the Company that it intends to resign) or been dismissed as
independent public accountants of the Company as a result of or in connection with any disagreements with the Company on a matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
(b)
Neither
the Company nor any of its Subsidiaries has any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to
become due), except for those liabilities that are reflected or reserved against on the consolidated balance sheet of the Company as of June 30, 2018 included in the Company Financial
Statements and for liabilities incurred in the ordinary course of business consistent with past practice since June 30, 2018, or as expressly contemplated by this Agreement, in each case, which
would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on the Company.
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(c)
The
records, systems, controls, data and information of the Company and its Subsidiaries are recorded, stored, maintained and operated under means (including any
electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the Company or its Subsidiaries or accountants (including all
means of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have, either individually or in the aggregate, a Material
Adverse Effect on the Company. The Company maintains a system of internal accounting controls sufficient to comply with all legal and accounting requirements applicable to the business of the Company
and its Subsidiaries. The Company has not identified any significant deficiencies or material weaknesses in the design or operation of its internal control over financial reporting. Since
January 1, 2015, the Company has not experienced or effected any material change in internal control over financial reporting.
(d)
Neither
the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any
similar contract or arrangement (including any contract or arrangement relating to any transaction or relationship between or among the Company and any of its Subsidiaries, on the one hand, and any
unconsolidated affiliate, including any structured finance, special purpose or limited purpose entity or person, on the other hand, or any "off-balance sheet arrangement"), where the result, purpose
or intended effect of such contract or arrangement is to avoid disclosure of any material transaction involving, or material liabilities of, the Company or any of its Subsidiaries in the Company
Financial Statements.
(e)
Since
January 1, 2015, (i) neither the Company nor any of its Subsidiaries, nor, to the knowledge of the Company, any director, officer, employee,
auditor, accountant or representative of the Company or any of its Subsidiaries, has received or otherwise has had or obtained knowledge of any material complaint, allegation, assertion or claim,
whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to loan loss reserves, write-downs, charge-offs and accruals) of
the Company or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that the Company or any of its Subsidiaries
has engaged in questionable accounting or auditing practices, and (ii) no employee of or attorney (whether or not employed by the Company or any of its Subsidiaries) representing the Company or
any of its Subsidiaries has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by the Company or any of its Subsidiaries or any of their
respective officers, directors, employees or agents to the Board of Directors of the Company or any committee thereof or the Board of Directors or similar governing body of any Company Subsidiary or
any committee thereof, or to the knowledge of the Company, to any director or officer of the Company or any Company Subsidiary.
3.7
Broker's
Fees
.
With the exception of the engagement of Sandler O'Neill & Partners, L.P., neither the Company nor any Company Subsidiary nor any of their respective officers or directors
has employed any broker, finder or financial advisor or incurred any liability for any broker's fees, commissions or finder's fees in connection with the Merger or related transactions contemplated by
this Agreement. The Company has disclosed to Parent as of the date hereof the aggregate fees provided for in connection with the engagement by Sandler
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O'Neill &
Partners, L.P. related to the Merger and the other transactions contemplated hereunder.
3.8
Absence of
Certain Changes or Events.
(a)
Since
December 31, 2017, there has not been any effect, change, event, circumstance, condition, occurrence or development that has had or would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse Effect on the Company.
(b)
Since
December 31, 2017, the Company and its Subsidiaries have carried on their respective businesses in all material respects in the ordinary course consistent
with past practice.
3.9
Legal
Proceedings.
(a)
Except
as set forth in Section 3.9(a) of the Company Disclosure Schedules or as would not reasonably be expected, either individually or in the aggregate, to
have a Material Adverse Effect on the Company, neither the Company nor any of its Subsidiaries is a party to any, and there are no outstanding or pending or, to the knowledge of the Company,
threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature against the Company or any of its Subsidiaries or any of
their current or former directors or executive officers or challenging the validity or propriety of the transactions contemplated by this Agreement.
(b)
Each
matter set forth or required to be set forth in Section 3.9(a) of the Company Disclosure Schedules is insured under Insurance Policies with reputable
insurers in such amounts as constitute reasonably adequate coverage with respect to each such matter.
(c)
There
is no material injunction, order, judgment, decree, or regulatory restriction imposed upon the Company, any of its Subsidiaries or the assets of the Company or
any of its Subsidiaries (or that, upon consummation of the Merger, would apply to the Surviving Corporation or any of its affiliates).
3.10
Taxes and Tax Returns.
(a)
Each
of the Company and its Subsidiaries has duly and timely filed (including all applicable extensions) all material Tax Returns in all jurisdictions in which Tax
Returns are required to be filed by it, and all such Tax Returns are true, correct, and complete in all material respects. Neither the Company nor any of its Subsidiaries is the beneficiary of any
extension of time within which to file any material Tax Return (other than extensions to file Tax Returns obtained in the ordinary course). All material Taxes of the Company and its Subsidiaries
(whether or not shown on any Tax Returns) that are due have been fully and timely paid. Each of the Company and its Subsidiaries has withheld and paid all material Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, creditor, shareholder, independent contractor or other third party. Neither the Company nor any of its Subsidiaries has granted any
extension or waiver of the limitation period applicable to any material Tax that remains in effect. Neither the Company nor any of its
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Subsidiaries
has received written notice of assessment or proposed assessment in connection with any material amount of Taxes, and there are no threatened in writing or pending disputes, claims,
audits, examinations or other proceedings regarding any material Tax of the Company and its Subsidiaries or the assets of the Company and its Subsidiaries. The Company has made available to Parent
true, correct and complete copies of any private letter ruling requests, closing agreements or gain recognition agreements with respect to Taxes requested or executed in the last six (6) years.
Neither the Company nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement
exclusively between or among the Company and its Subsidiaries). Neither the Company nor any of its Subsidiaries (A) has been a member of an affiliated group filing a consolidated federal income
Tax Return (other than a group the common parent of which was the Company) or (B) has any liability for the Taxes of any person (other than the Company or any of its Subsidiaries) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise. Neither the Company nor any of its
Subsidiaries has been, within the past two (2) years or otherwise as part of a "plan (or series of related transactions)" within the meaning of Section 355(e) of the Code of which the
Merger is also a part, a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock intended to qualify for
tax-free treatment under Section 355 of the Code. Neither the Company nor any of its Subsidiaries has participated in a "listed transaction" within the meaning of Treasury Regulation
section 1.6011-4(b)(2). At no time during the past five (5) years has the Company been a United States real property holding corporation within the meaning of Section 897(c)(2) of
the Code.
(b) As
used in this Agreement, the term "
Tax
" or "
Taxes
" means all federal, state, local, and foreign income,
excise, gross receipts, ad valorem, profits, gains, property, capital, sales, transfer, use, license, payroll, employment, social security, severance, unemployment, withholding, duties, excise,
windfall profits, intangibles, franchise, backup withholding, value added, alternative or add-on minimum, estimated and other taxes, charges, fees, levies or like assessments together with all
penalties and additions to tax and interest thereon.
(c)
As
used in this Agreement, the term "
Tax Return
" means any return, declaration, report, claim for refund, estimate or information return
or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof, supplied or required to be supplied to a Governmental Entity.
3.11
Employees and Employee
Benefit Plans.
(a)
Section 3.11(a)
of the Company Disclosure Schedules sets forth a true and correct list of each material Company Benefit Plan. For purposes of this Agreement,
"
Company Benefit Plan
" means each employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("
ERISA
")), whether or not subject to ERISA, and each bonus, stock option, stock purchase, restricted stock, phantom stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit plan, program or arrangement, and each retention, bonus, employment, change of control, termination or severance plan,
program or arrangement or other contract or agreement (i) to or with respect to which the Company or any Subsidiary or any trade or business of the
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Company
or any of its Subsidiaries, whether or not incorporated, all of which together with the Company would be deemed a "single employer" within the meaning of Section 4001 of ERISA (a
"
Company ERISA Affiliate
"), is a party or has or, would reasonably be expected to have, any current or future obligation or (ii) that is maintained, contributed to
or sponsored by the Company or any of its Subsidiaries or any Company ERISA Affiliate for the benefit of any current or former employee, officer, director or independent contractor of the Company or
any of its Subsidiaries or any Company ERISA Affiliate.
(b) The
Company has heretofore made available to Parent a true and complete copy of (i) each material Company Benefit Plan (or, with respect to any unwritten
material Company Benefit Plan, a written description thereof), and (ii) to the extent applicable: (A) all summary plan descriptions, amendments, modifications or material supplements
relating to such Company Benefit Plan, (B) the most recent annual report (Form 5500), if any, filed with the Internal Revenue Service (the "
IRS
") with
respect to such Company Benefit Plan, (C) the most recently received IRS determination letter, if any, with respect to such Company Benefit Plan, and (D) the most recently prepared
actuarial report (if applicable) with respect to such Company Benefit Plan.
(c)
Each
Company Benefit Plan has been established, operated and administered in all material respects in accordance with its terms and the requirements of all applicable
laws, including ERISA and the Code. Neither the Company nor any of its Subsidiaries has taken any action to take corrective action or make a filing under any voluntary correction program of the IRS,
Department of Labor or any other Governmental Entity with respect to any Company Benefit Plan, and neither the Company nor any of its Subsidiaries has any knowledge of any plan defect that would
qualify for correction under any such program.
(d)
Section 3.11(d)
of the Company Disclosure Schedules identifies each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code
(each, a "
Company Qualified Plan
"). The IRS has issued a favorable determination letter with respect to each Company Qualified Plan and the related trust, which letter has
not been revoked (nor has revocation been threatened), and, to the knowledge of the Company, there are no existing circumstances and no events have occurred that could adversely affect the qualified
status of any Company Qualified Plan or the related trust or increase the costs relating thereto. No trust funding any the Company Benefit Plan is intended to meet the requirements of
Section 501(c)(9) of the Code.
(e)
Each
Company Benefit Plan that is a "nonqualified deferred compensation plan" (as defined in Section 409A(d)(1) of the Code) and any award thereunder, in each
case, that is subject to Section 409A of the Code, has (i) since January 1, 2005, been maintained and operated, in all material respects, in good faith compliance with
Section 409A of the Code and IRS Notice 2005-1 and (ii) since January 1, 2009, been, in all material respects, in documentary and operational compliance with Section 409A
of the Code.
(f)
None
of the Company, any of its Subsidiaries or any Company ERISA Affiliate has, at any time during the last six (6) years, sponsored, maintained or contributed
to or been obligated to contribute to (i) any plan that is subject to Section 302 or Title IV of ERISA or Section 412, 430 or 4971 of the Code, (ii) any plan that is a
"multiemployer plan" within the
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meaning
of Section 4001(a)(3) of ERISA (a "
Multiemployer Plan
") or (iii) any plan that has two (2) or more contributing sponsors at least two
(2) of whom are not under common control, within the meaning of Section 4063 of ERISA (a "
Multiple Employer Plan
"). None of the Company, any of its
Subsidiaries or any Company ERISA Affiliate has incurred any liability to a Multiemployer Plan or Multiple Employer Plan as a result of a complete or partial withdrawal (as those terms are defined in
Part I of Subtitle E of Title IV of ERISA) from a Multiemployer Plan or Multiple Employer Plan.
(g)
Except
as provided in Section 3.11(g) of the Company Disclosure Schedules, neither the Company nor any of its Subsidiaries sponsors, has sponsored or has any
obligation with respect to, any employee benefit plan, program, agreement or arrangement that provides for any post-employment or post-retirement health or medical or life insurance benefits for
retired, former or current employees or beneficiaries or dependents thereof, except as required by Section 4980B of the Code.
(h) All
contributions required to be made to any Company Benefit Plan by applicable law or by any plan document or other contractual undertaking, and all premiums due or
payable with respect to insurance policies funding any Company Benefit Plan have been timely made or paid in full or, to the extent not required to be made or paid, have been fully reflected on the
books and records of the Company.
(i)
There
are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations that have been asserted or instituted, and,
to the knowledge of the Company, no set of circumstances exists that may reasonably give rise to a claim or lawsuit, against the Company Benefit Plans, any fiduciaries thereof with respect to their
duties to the Company Benefit Plans or the assets of any of the trusts under any of the Company Benefit Plans that could reasonably be expected to result in any material liability of the Company or
any of its Subsidiaries to the Pension Benefit Guaranty Corporation, the IRS, the Department of Labor, any Multiemployer Plan, any Multiple Employer Plan, any participant in a Company Benefit Plan or
any other party.
(j)
None
of the Company, any of its Subsidiaries, any Company ERISA Affiliate or any other person, including any fiduciary, has engaged in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA), which could subject any of the Company Benefit Plans or their related trusts, the Company, any of its Subsidiaries, any
Company ERISA Affiliate or any person that the Company or any of its Subsidiaries has an obligation to indemnify, to any material tax or penalty imposed under Section 4975 of the Code or
Section 502 of ERISA.
(k)
Neither
the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or in conjunction with any other
event) result in, cause the vesting, exercisability or delivery of, or increase the amount or value of, any payment, right or other benefit to any employee, officer, director or other service provider
of the Company or any of its Subsidiaries, or result in any limitation on the right of the Company or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any
Company Benefit Plan or related trust. Without limiting the generality of the foregoing, no amount paid or payable (whether in cash, in property, or in the form of benefits) by
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the
Company or any of its Subsidiaries in connection with the transactions contemplated hereby (either solely as a result thereof or as a result of such transactions in conjunction with any other
event) will be an "excess parachute payment" within the meaning of Section 280G of the Code. Neither the Company nor any of its Subsidiaries maintains or contributes to a rabbi trust or similar
funding vehicle, and the transactions contemplated by this Agreement will not cause or require the Company or any of its affiliates to establish or make any contribution to a rabbi trust or similar
funding vehicle.
(l)
No
Company Benefit Plan provides for the gross-up or reimbursement of Taxes under Section 409A or 4999 of the Code, or otherwise. The Company has made available
to Parent true, correct and complete copies of Section 280G calculations (whether or not final) with respect to any disqualified individual in connection with the transactions contemplated
hereby.
(m) There
are no pending or, to the knowledge of the Company, threatened material labor grievances or material unfair labor practice claims or charges against the Company
or any of its Subsidiaries, or any strikes or other material labor disputes against the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries are party to or bound by any
collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company
or any of its Subsidiaries and, to the knowledge of the Company, there are no organizing efforts by any union or other group seeking to represent any employees of the Company or any of its
Subsidiaries. The Company and its Subsidiaries have complied in all material respects with all laws regarding employment and employment practices (including anti-discrimination) and terms and
conditions of employment and wages and hours (including classification of employees and equitable pay practices), and no claims relating to non-compliance with the foregoing are pending or, to the
knowledge of the Company, threatened.
3.12
Compliance with Applicable
Law
.
The Company and each of its Subsidiaries hold, and have at all times since January 1, 2015, held, and been in compliance with, all licenses, registrations, franchises,
certificates, variances, permits, charters and authorizations necessary for the lawful conduct of their respective businesses and ownership of their respective properties, rights and assets under and
pursuant to each (and have paid all fees and assessments due and payable in connection therewith), except where neither the cost of failure to hold or be in compliance with nor the cost of obtaining
and holding such license, registration, franchise, certificate, variance, permit, charter or authorization (nor the failure to pay any fees or assessments) would, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the Company, and to the knowledge of the Company, no suspension or cancellation of any such necessary license, franchise, permit,
charter or authorization is threatened. The Company and each of its Subsidiaries have complied in all material respects with and are not in material default or violation under any applicable law,
statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to the Company or any of its Subsidiaries, including all laws related to data protection or privacy, the
USA PATRIOT Act, the Bank Secrecy Act, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in
Lending Act and Regulation Z, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Wall Street Reform
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and
Consumer Protection Act, any regulations promulgated by the Consumer Financial Protection Bureau, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE
Mortgage Licensing Act of 2008, the Real Estate Settlement Procedures Act and Regulation X, Title V of the Gramm-Leach-Bliley Act and any other law, policy or guideline relating to bank
secrecy, discriminatory lending, financing or leasing practices, consumer protection, money laundering prevention, foreign assets control, U.S. sanctions laws and regulations, Sections 23A and
23B of the Federal Reserve Act, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. Company Bank has a Community Reinvestment Act rating of
"satisfactory" or better. Without limitation, none of the Company, or any of its Subsidiaries, or to the knowledge of the Company, any director, officer, employee, agent or other person acting on
behalf of the Company or any of its Subsidiaries has, directly or indirectly, (i) used any funds of the Company or any of its Subsidiaries for unlawful contributions, unlawful gifts, unlawful
entertainment or other expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political
parties or campaigns from funds of the Company or any of its Subsidiaries, (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any similar law,
(iv) established or maintained any unlawful fund of monies or other assets of the Company or any of its Subsidiaries, (v) made any fraudulent entry on the books or records of the Company
or any of its Subsidiaries, or (vi) made any unlawful bribe, unlawful rebate, unlawful payoff, unlawful influence payment, unlawful kickback or other unlawful payment to any person, private or
public, regardless of form, whether in money, property or services, to obtain favorable treatment in securing business to obtain special concessions for the Company or any of its
Subsidiaries, to pay for favorable treatment for business secured or to pay for special concessions already obtained for the Company or any of its Subsidiaries, or is currently subject to any United
States sanctions administered by the Office of Foreign Assets Control of the United States Treasury Department. Except as would not be material to the Company and its Subsidiaries, taken as a whole,
since January 1, 2015, the Company and each of its Subsidiaries have properly administered all accounts for which the Company or any of its Subsidiaries acts as a fiduciary, including accounts
for which the Company or any of its Subsidiaries serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment adviser, in compliance with the terms of the
applicable governing documents and applicable law. None of the Company or any of its Subsidiaries, or any director, officer or employee of Company or any of its Subsidiaries, has committed any breach
of trust with respect to any such fiduciary account that would be material to the Company and its Subsidiaries, taken as a whole, and the accountings for each such fiduciary account are true and
correct in all material respects and accurately reflect in all material respects the assets of such fiduciary account. As of the date hereof, the Company, Company Bank and each other insured
depositary Subsidiary of the Company is "well-capitalized" (as that term is defined in the relevant regulation of the institution's primary bank regulatory) and, as of the date hereof, neither the
Company nor any of its Subsidiaries has received any indication from a Governmental Entity that its status as "well-capitalized" or that Company Bank's Community Reinvestment Act rating will change
within one (1) year from the date of this Agreement.
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3.13
Certain
Contracts
.
(a)
Except
as set forth in Section 3.13(a) of the Company Disclosure Schedules, as of the date hereof, neither the Company nor any of its Subsidiaries is a party to
or bound by any contract, arrangement, commitment or understanding (whether written or oral):
(i)
that
would be a "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC, excluding any Company Benefit Plan),
assuming for these purposes that the Company were required to file periodic reports with the SEC pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "
Exchange Act
");
(ii)
that
contains a non-compete or client, employee or customer non-solicit requirement or any other provision that restricts the conduct of any line of business by the
Company or any of its affiliates or
upon consummation of the Merger would restrict the ability of the Surviving Corporation or any of its affiliates to engage in any line of business or in any geographic region;
(iii) any
of the benefits or obligations of or under which will arise or be increased or accelerated by the occurrence of the execution and delivery of this Agreement,
shareholder approval of this Agreement or the announcement or consummation of any of the transactions contemplated by this Agreement (either alone or upon the occurrence of any additional acts or
events), or under which a right of cancellation or termination will arise as a result thereof, or the value of any of the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(iv) that
relates to the incurrence of indebtedness by the Company or any of its Subsidiaries, including any sale-leaseback transactions, capitalized leases and other
similar financing transactions, or provides for the guarantee, support, indemnification, assumption or endorsement by the Company or any of its Subsidiaries of, or any similar commitment by the
Company or its Subsidiaries with respect to, the obligations, liabilities or indebtedness of any other person, in each case in the principal amount of $100,000 or more;
(v)
that
grants any right of first refusal, right of first offer or similar right with respect to any assets, rights or properties of the Company or its Subsidiaries or
that limits or purports to limit the ability of the Company or any of its Subsidiaries (or that following consummation of the Merger would purport to limit the Surviving Corporation or any of its
affiliates) to own, operate, sell, transfer, pledge or otherwise dispose of any assets or business;
(vi) that
obligates the Company or any of its Subsidiaries, or upon consummation of the Merger would obligate the Surviving Corporation or any of its affiliates, to conduct
business with any third party on a preferential or exclusive basis, that contains any "most favored nation" or similar covenants or that provides for a "clawback" or similar undertaking requiring the
reimbursement or refund of any fees;
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(vii) that
is an alliance, cooperation, limited liability company, joint venture, shareholders, partnership or similar agreement or any agreement involving a sharing of
profits or losses relating to the Company or any of its Subsidiaries;
(viii) that
involves the performance by the Company or any of its Subsidiaries of Loan servicing with any outstanding obligations that are material to the Company or any of
its Subsidiaries;
(ix) that
involves the payment of more than $100,000 per annum;
(x)
that
relates to the acquisition or disposition of any person, business or asset and under which the Company or any of its Subsidiaries has or may have a material
obligation or liability;
(xi) that
provides any third party the right to acquire, use or have access to, any assets or properties, or any interest therein, of the Company or any of its
Subsidiaries, other than in connection with the sale of Loans, Loan participations or investment securities in the ordinary course of business, consistent with past practice;
(xii) that
is a Derivative Contract;
(xiii) that
is a settlement, consent or similar agreement and contains any continuing obligations of the Company or any of its Subsidiaries;
(xiv) that
is an agreement with a federal or state Governmental Entity that insures or guarantees mortgage Loans or mortgage backed securities;
(xv) that
(A) grants the company or any of its Subsidiaries any right to use any Intellectual Property (other than "shrink-wrap," "click-wrap" or "web-wrap" licenses
in respect of commercially available software) and that provides for annual payments in excess of $50,000, (B) permits any person to use, enforce or register any Intellectual Property of the
Company or any of its Subsidiaries, including any license agreements, coexistence agreements and covenants not to sue or (C) restricts the right of the Company or any of its Subsidiaries to use
or register any Intellectual Property;
(xvi) that
provides for any earn-out, contingent purchase price or similar payment obligation, or a put, call or similar right pursuant to which the Company or any of its
Subsidiaries could be required to purchase or sell any equity securities of any person; or
(xvii) that
is not of the type listed above but that is material to the condition (financial or otherwise), results of operations or business of the Company or its
Subsidiaries.
Each
contract, arrangement, commitment or understanding of the type described in this Section 3.13(a), whether or not set forth in the Company Disclosure Schedules, is referred to herein as a
"
Company Contract
." The Company has made available to Parent true, correct and complete copies of each Company Contract in effect as of the date hereof.
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(b) (i)
Each Company Contract is valid and binding on the Company or one of its Subsidiaries, as applicable, and in full force and effect, except as, either individually or
in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company, (ii) the Company and each of its Subsidiaries has performed and complied with all
obligations required to be performed by it under each Company Contract, except where such noncompliance, either individually or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect on the Company, (iii) to the knowledge of the Company, each third-party counterparty to each Company Contract has performed and complied with all obligations required to be
performed by it under such Company Contract, except where such noncompliance, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the
Company, (iv) neither the Company nor any of its Subsidiaries knows of, or has received notice of, any violation of any Company Contract by any of the parties thereto which would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse Effect on the Company, and (v) no event or condition exists that constitutes or, after notice or lapse of time or
both, will constitute, a breach or default on the part of the Company or any of its Subsidiaries, or to the knowledge of the Company, any other party thereto, of or under any such Company Contract,
except where such default, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company.
3.14
Agreements with Regulatory
Agencies
.
Neither the Company nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money
penalty by, or is subject to any policies, procedures or board resolutions at the request or suggestion of any Regulatory Agency or other Governmental Entity that restricts in any material respect the
conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each,
whether or not set forth in the Company Disclosure Schedules, a "
Company Regulatory Agreement
"), nor has the Company or any of its Subsidiaries been advised by any
Regulatory Agency or other Governmental Entity that it is currently considering issuing, initiating, ordering, or requesting any such Company Regulatory Agreement.
3.15
Risk Management
Instruments
.
All interest rate swaps, caps, floors, option agreements, collars, futures and forward contracts and other similar derivative transactions and risk management arrangements (including any
collateralized debt or equity instruments evidencing or embedding any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions)
("
Derivative Contracts
"), whether entered into for the account of the Company, any of its Subsidiaries or for the account of a customer of the Company or one of its
Subsidiaries, were entered into in the ordinary course of business and in accordance with prudent banking practice, applicable rules, regulations and policies of any Regulatory Agency and with
counterparties reasonably believed to be financially responsible at the time and are legal, valid and binding obligations of the Company or one of its Subsidiaries enforceable in accordance with their
terms (except as may be limited by the Enforceability Exceptions), and are in full force and effect. The Company and each of its Subsidiaries have duly performed in all material respects all of their
obligations thereunder to the extent that such obligations to perform have accrued, and, to the knowledge of
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the
Company, there are no material breaches, violations or defaults or allegations or assertions of such by any party thereunder. The financial position of the Company and its Subsidiaries on a
consolidated basis under any such Derivative Contracts has been reflected in the books and records of the Company and such Subsidiaries in accordance with GAAP consistently applied.
3.16
Environmental Matters
.
Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on the Company, the Company and its Subsidiaries are in compliance,
and have complied, with all federal, state or local laws, regulations, orders, decrees, permits, authorizations, common law and agency requirements relating to: (i) the protection or
restoration of the environment, health and safety as it relates to hazardous substance exposure or natural resource damages, (ii) the handling, use, transportation, treatment, storage,
presence, disposal, release or threatened release of, or exposure to, any hazardous substance, or (iii) noise, odor, wetlands, indoor air quality, pollution, contamination or any injury to
persons or property from exposure to any hazardous substance (collectively, "
Environmental Laws
"). There are no legal, administrative, arbitral or other proceedings,
claims or actions, or to the knowledge of the Company, any private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that could
reasonably be expected to result in the imposition, on the Company or any of its Subsidiaries of any liability or obligation arising under any Environmental Law, pending or threatened against the
Company, which liability or obligation would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on the Company. To the knowledge of the Company, there
is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would reasonably be expected to have, either individually
or in the aggregate, a Material Adverse Effect on the Company. The Company is not subject to any agreement, order, judgment, decree, letter agreement or memorandum of agreement by or with any court,
Governmental Entity, Regulatory Agency or third party imposing any liability or obligation with respect to the foregoing environmental matters that would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect on the Company. There has been no written third-party environmental site assessment conducted since January 1, 2015 assessing the
presence of hazardous materials located on any property owned or leased by the Company or any Company Subsidiary that is within the possession or control of the Company or any of its Subsidiaries as
of the date of this Agreement that has not been delivered to Parent prior to the date of this Agreement.
3.17
Investment
Securities and Commodities.
(a)
Each
of the Company and its Subsidiaries has good and marketable title to all securities and commodities owned by it (except those sold under repurchase agreements),
free and clear of any Lien, except to the extent such securities or commodities are pledged in the ordinary course of business consistent with prudent business practices to secure obligations of the
Company or its Subsidiaries. Such securities and commodities are valued on the books of the Company in accordance with GAAP consistently applied.
(b) The
Company and its Subsidiaries and their respective businesses employ investment, securities, commodities, risk management and other policies, practices and
procedures that are prudent and reasonable in the context of such businesses, and the Company
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and
its Subsidiaries have, since January 1, 2015, been in material compliance with the terms of such policies, practices and procedures. Prior to the date of this Agreement, the Company has
made available to Parent the material terms of such policies, practices and procedures.
3.18
Real Property; Personal
Property.
(a)
Section 3.18(a)
of the Company Disclosure Schedules sets forth a complete and accurate list of all of the real properties owned by the Company or any Company
Subsidiary as of the date of this Agreement (the "
Company Owned Properties
").
(b)
Section 3.18(b)
of the Company Disclosure Schedules sets forth, as of the date of this Agreement, a complete and accurate list of all of the leases, subleases,
licenses or other occupancies to which the Company or any Company Subsidiary is a party as lessee or tenant for real property (the "
Company Leased Properties
" and,
collectively with the Company Owned Properties, the "
Company Real Property
"), true and correct copies of which have previously been made available to Parent.
(c)
The
Company or a Company Subsidiary (x) has good and marketable title to all the Company Owned Properties, free and clear of all Liens, except
(i) statutory Liens securing payments not yet due, (ii) Liens for real property Taxes not yet due and payable, (iii) easements, rights of way, and other similar encumbrances that
do not materially affect the value or use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties and (iv) Liens
identified in Section 3.18(c) of the Company Disclosure Schedules (collectively, "
Permitted Encumbrances
"), and (y) is the lessee of and has a valid
leasehold interest in all the Company Leased Properties, free and clear of all Liens of any nature whatsoever, except for Permitted Encumbrances, and is in possession of the properties purported to be
leased thereunder, and each such lease is valid, binding and enforceable in accordance with its terms and in full force and effect, the Company and each of its Subsidiaries and, to the knowledge of
the Company, each lessor, has performed all obligations required to be performed by it under each such lease, and no event or condition exists that constitutes or, after notice or lapse of time or
both, will constitute, a default on the part of the Company or any of its Subsidiaries or, to the knowledge of the Company, any lessor, under any such lease. There are no pending or, to the knowledge
of the Company, threatened condemnation proceedings against the Company Real Property. No person other than the Company and its Subsidiaries has any right in any of the Company Owned Properties or any
right to use or occupy any portion of the Company Owned Properties or any right to use or occupy any portion of the Company Leased Properties.
(d) (i)
The Company or a Company Subsidiary has good, valid and marketable title to all of the personal property of the Company and its Subsidiaries consisting of the trade
fixtures, shelving, furniture, on-premises ATMs, equipment, security systems, safe deposit boxes (exclusive of contents), vaults, sign structures and supplies excluding any items consumed or disposed
of, but including new items acquired or obtained, in the ordinary course of the operation of the business of the Company and its Subsidiaries ("
Personal Property
") and
(ii) each of the leases under which the Company or its Subsidiaries lease Personal Property is valid, and in full force and effect, without default thereunder by the lessee or, to the knowledge
of the Company, the lessor.
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(e) The
properties and assets of the Company and its subsidiaries (including the Company Real Property and the Personal Property) are in good condition and are sufficient
for the continued conduct of the business of the Company and its Subsidiaries after the Closing in substantially the same manner as conducted prior to the Closing and constitute all of the property
and assets necessary to conduct the business of the Company and its Subsidiaries as currently conducted.
3.19
Intellectual Property
.
The Company and each of its Subsidiaries owns, or is licensed to use (in each case, free and clear of any Liens), all Intellectual Property necessary for the conduct of its business as
currently conducted. Except as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on the Company: (i) (A) the use of any Intellectual
Property by the Company and its Subsidiaries does not infringe, misappropriate, interfere with or otherwise violate the rights of any person and is in accordance with any applicable license pursuant
to which the Company or any of its Subsidiaries acquired the right to use any Intellectual Property, and (B) no person has asserted to the Company that the Company or any of its Subsidiaries
has infringed, misappropriated, interfered with or otherwise violated the Intellectual Property rights of such person, (ii) no person is challenging, infringing on or otherwise violating or
interfering with any right of the Company or any of its Subsidiaries with respect to any Intellectual Property owned by and/or licensed to the Company or its Subsidiaries, and (iii) neither the
Company nor any of its Subsidiaries has received or sent any notice of any pending claim with respect to any Intellectual Property owned by and/or licensed to the Company or any of its Subsidiaries,
and the Company and its Subsidiaries have taken commercially reasonable actions to avoid the abandonment, cancellation or unenforceability of all Intellectual Property owned or licensed, respectively,
by the Company and its Subsidiaries. Neither the Company nor any of its Subsidiaries owes any material royalties or payments to any third party (including any affiliates of the Company) for using or
licensing to others any Intellectual Property. For purposes of this Agreement, "
Intellectual Property
" means any or all of the following and all rights in, arising out of
or associated with the following: trademarks, service marks, brand names, internet domain names, logos, symbols, certification marks, trade dress and other indications of origin, the goodwill
associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such
registration or application; inventions, discoveries and ideas, whether patentable or not, in any jurisdiction; patents, applications for patents (including divisions, continuations, continuations in
part and renewal applications), all improvements thereto, and any renewals, extensions, reexaminations, post-grant reviews,
inter partes
review, or
reissues thereof, in any jurisdiction; nonpublic information, trade secrets and know-how, including processes, technologies, protocols, formulae, prototypes and confidential information and rights in
any jurisdiction to limit the use or disclosure thereof by any person; writings and other works, whether copyrightable or not and whether in published or unpublished works, in any jurisdiction; and
registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; and any similar intellectual property or proprietary rights.
3.20
Related Party
Transactions
.
Except as set forth in Section 3.20 of the Company Disclosure Schedules, (i) there are no transactions or series of related transactions, agreements, arrangements or
understandings, nor are there any currently proposed transactions or series of related transactions, between the Company or any of its Subsidiaries, on the one hand,
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and
any current or former director or "executive officer" (as defined in Rule 3b-7 under the Exchange Act) of the Company or any of its Subsidiaries or any person who beneficially owns (as
defined in Rules 13d-3 and 13d-5 of the Exchange Act) five percent (5%) or more of the outstanding Company Common Stock (or any of such person's immediate family members or affiliates) (other
than Subsidiaries of the Company), on the other hand, except those of a type available to employees of the Company or its Subsidiaries generally, and (ii) there are no properties, rights or
assets that are used by the Company or any of its Subsidiaries and owned by any current or former director or "executive officer" (as defined in Rule 3b-7 under the Exchange Act) of the Company
or any of its Subsidiaries or any person who beneficially owns (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) five percent (5%) or more of the outstanding Company Common Stock (or
any of such person's immediate family members or affiliates) (other than Subsidiaries of the Company).
3.21
State Takeover Laws
.
The Board of Directors of the Company has approved this Agreement and the transactions contemplated hereby and has taken all such other necessary actions as required to render
inapplicable to such agreements and transactions, the provisions of any potentially applicable takeover laws of any state, including any "moratorium," "control share," "fair price," "takeover" or
"interested shareholder" law or any similar provisions of the Company Articles or Company Bylaws (collectively, "
Takeover Statutes
").
3.22
Reorganization
.
The
Company has not taken any action and is not aware of any fact or circumstance that could reasonably be
expected to prevent the Merger from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code.
3.23
Opinion
. Pri
or
to the execution of this Agreement, the Company has received an opinion (which if initially rendered verbally,
has been or will be confirmed by a written opinion as of the same date) from Sandler O'Neill & Partners, L.P., to the effect that, as of the date thereof and based upon and subject to
the matters set forth therein, the Merger Consideration is fair, from a financial point of view, to the holders of Company Common Stock. Such opinion has not been amended or rescinded as of the date
of this Agreement.
3.24
Company Information
.
The information relating to the Company and its Subsidiaries or that is provided by the Company or its Subsidiaries or representatives for inclusion in the Proxy Statement and the S-4,
or in any other application, notification or other document filed with any Regulatory Agency or other Governmental Entity in connection herewith, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Proxy Statement (except for such portions
thereof that relate only to Parent or any of its Subsidiaries) will comply in all material respects with applicable law.
3.25
Loan Portfolio.
(a) As
of the date hereof, except as set forth in Section 3.25(a) of the Company Disclosure Schedules, neither the Company nor any of its Subsidiaries is a party to
any written or oral (i) loan, loan agreement, note, extension of credit or borrowing arrangement (including leases, credit enhancements, commitments, guarantees and interest-bearing assets)
(collectively, "
Loans
") in which the Company or any Subsidiary of the Company is a creditor
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which
as of June 30, 2018, had an outstanding balance of $350,000 or more and under the terms of which the obligor was, as of June 30, 2018, over 90 days or more delinquent in
payment of principal or interest, or (ii) Loans with any director, executive officer or five percent (5%) or greater shareholder of the Company or any of its Subsidiaries, or to the knowledge
of the Company, any affiliate of any of the foregoing. Set forth in Section 3.25(a) of the Company Disclosure Schedules is a true, correct and complete list of (A) all of the Loans of
the Company and its Subsidiaries that, as of June 30, 2018, had an outstanding balance of $350,000 or more and (i) were on non-accrual status, (ii) were classified by the Company
as "Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss," "Classified," "Criticized," "Credit Risk Assets," "Concerned Loans," "Watch List" or words of similar
import, together with the principal amount of and accrued and unpaid interest on each such Loan, (iii) where the principal or interest rate terms had been reduced and/or the maturity dates had
been extended subsequent to the agreement under which the Loan was originally created (provided that this clause (iii) does not refer to Loans that are rolled over or renewed in the ordinary
course of business on terms similar to the agreements under which such Loans were originally issued and where the ability of the applicable borrowers to repay such Loans is not in doubt and has not
adversely changed in any material respect since such Loans were originally issued), (iv) where a specific reserve allocation existed in connection therewith or (v) that was required to
be accounted for as a troubled debt restructuring in accordance with ASC 310-40, together with the identity of the borrower thereunder, category of Loan
(
e.g.
, commercial, consumer, etc.), and the aggregate principal amount of
such Loans by category and (B) each asset of the Company or any of its Subsidiaries that, as of June 30, 2018, is classified as "Other Real Estate Owned" or classified as an asset to
satisfy Loans, including repossessed equipment, and with respect to each item on such list, the book value thereof.
(b)
Except
as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on the Company, (i) each Loan of the
Company or any of its Subsidiaries (A) is evidenced by notes, agreements or other evidences of indebtedness that are true, genuine and what they purport to be, (B) to the extent carried
on the books and records of the Company and its Subsidiaries as secured Loans, has been secured by valid charges, mortgages, pledges, security interests, restrictions, claims, liens or encumbrances,
as applicable, which have been perfected and (C) is the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to the Enforceability
Exceptions, (ii) no Loan of the Company or any of its Subsidiaries or servicing agreement relating to any such Loan requires the consent or approval of any third party which has not previously
been obtained, in connection with the execution and delivery by the Company of this Agreement or the consummation by the Company of the Merger and the other transactions contemplated hereby, and
(iii) no Loan of the Company or any of its Subsidiaries is subject to any participation interest or similar rights by any third party. The notes or other credit or security documents with
respect to each outstanding Loan of the Company or any of its Subsidiaries were in compliance in all material respects with applicable laws at the time of origination or purchase by the Company or
such Company Subsidiary and remain in such compliance and are complete and correct.
(c)
Except
as would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on the Company, each outstanding Loan of the
Company and its Subsidiaries (including Loans held for resale to investors) was solicited and
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originated,
and is and has been administered and, where applicable, serviced, and the relevant Loan files are being maintained in accordance with the relevant notes or other credit or security
documents, the written underwriting standards of the Company and its Subsidiaries (and, in the case of Loans held for resale to investors, the underwriting standards, if any, of the applicable
investors), customary industry practices and with all applicable federal, state and local laws, regulations and rules.
(d)
None
of the agreements pursuant to which the Company or any of its Subsidiaries has sold Loans or pools of Loans or participations in Loans or pools of Loans contains
any obligation to repurchase such Loans or interests therein solely on account of a payment default by the obligor on any such Loan, and to the knowledge of the Company, there are no such claims for
any such repurchase.
(e)
There
are no outstanding Loans made by the Company or any of its Subsidiaries to any "executive officer" or other "insider" or "principal shareholder" (as each such
term is defined in Regulation O promulgated by the Federal Reserve Board) of the Company or its Subsidiaries, other than Loans that are subject to and that were made and continue to be in
compliance with Regulation O or that are exempt therefrom.
(f)
Neither
the Company nor any of its Subsidiaries (i) is now nor has it ever been since January 1, 2015, subject to any fine, suspension, settlement or
other contract or other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Governmental Entity or Regulatory Agency relating to the origination, sale
or servicing of mortgage or consumer Loans or (ii) has knowledge of any claim, proceeding or investigation with respect thereto.
(g) The
Company's allowance for loan and lease losses is, and will be as of the Effective Time, in compliance with its existing methodology for determining the adequacy of
its allowance for loan and lease losses as well as standards established by applicable Governmental Entities and the Financial Accounting Standards Board and is, and will be as of the Effective Time,
adequate under such standards.
3.26
Insurance
. T
rue
and correct copies of all policies ("
Insurance Policies
") of liability,
property, fire, casualty, business interruption, product liability, and other forms of insurance owned or held by the Company or any of its Subsidiaries or with respect to which the Company or any
Company Subsidiary is a beneficiary have previously been made available to Parent. Except as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse
Effect on the Company, (a) the Company and its Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of the Company reasonably has determined
to be prudent and consistent with industry practice, and the Company and its Subsidiaries are in compliance with their Insurance Policies and are not in default under any of the terms thereof,
(b) each such policy is outstanding and in full force and effect and, except for policies insuring against potential liabilities of officers, directors and employees of the Company and its
Subsidiaries, the Company or the relevant Subsidiary thereof is the sole beneficiary of such policies and (c) all premiums and other payments due under any such policy have been paid, and all
claims thereunder have been filed in due and timely fashion. There is no claim for coverage by the Company or any of its Subsidiaries pending under any
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Insurance
Policy as to which coverage has been questioned, denied or disputed by the underwriters of such Insurance Policies or in respect of which such underwriters have reserved their rights.
Neither the Company nor any of its Subsidiaries has received notice of any threatened termination of, material premium increase with respect to, or material alteration of coverage under, any Insurance
Policies.
3.27
Broker-Dealer, Investment
Advisory and Insurance Matters
.
(a)
None
of the Company, its Subsidiaries or, to the knowledge of the Company, any of their respective officers and employees are required to be registered, licensed or
qualified with the SEC or any securities or insurance commission or other Governmental Entity as a broker-dealer, investment adviser, futures commission merchant, municipal securities dealer,
registered principal, registered representative, agent, salesperson or investment adviser representative. Neither the Company nor any of its Subsidiaries has received any notice of proceedings
relating to any obligation to be so registered, licensed or qualified.
(b)
Neither
the Company nor any Subsidiary of the Company serves in a capacity described in Section 9(a) or 9(b) of the Investment Company Act of 1940, as amended,
nor acts as an "investment adviser" required to register as such under the Investment Advisers Act of 1940, as amended.
(c)
Neither
the Company nor any Subsidiary of the Company is required to be registered, licensed or qualified as an insurance agency or broker.
3.28
No Other Representations or
Warranties.
(a)
Except
for the representations and warranties made by the Company in this Article III, neither the Company nor any other person makes any express or implied
representation or warranty with respect to the Company, its Subsidiaries or their respective businesses, operations, assets, liabilities, or condition (financial or otherwise), and the Company hereby
disclaims any such other representations or warranties.
(b) The
Company acknowledges and agrees that neither Parent nor any other person has made or is making any express or implied representation or warranty other than those
contained in Article IV.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PARENT
Except
(A) as disclosed in the applicable section of the disclosure schedule delivered by Parent to the Company concurrently herewith (the "
Parent Disclosure
Schedules
");
provided
that (i) no such item is required to be set forth as an exception to a representation or warranty if its absence would not
result in the related representation or warranty being deemed untrue or incorrect, (ii) the mere inclusion of an item in the Parent Disclosure Schedules as an exception to a representation or
warranty shall not be deemed an admission by Parent that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse
Effect, and (iii) any disclosures made with respect to a
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section
of this Article IV shall be deemed to qualify (a) any other section of this Article IV specifically referenced or cross-referenced and (b) other sections of this
Article IV to the extent it is reasonably apparent on its face (notwithstanding the absence of a specific cross reference) from a reading of the disclosure that such disclosure applies to such
other sections, or (B) as disclosed in any Parent Reports filed by Parent since December 31, 2015, and prior to the date hereof (but disregarding risk factor disclosures contained under
the heading "Risk Factors," or disclosures of risks set forth in any "forward-looking statements" disclaimer), Parent hereby represents and warrants to the Company as follows:
4.1
Corporate
Organization.
(a)
Parent
is a corporation duly organized, validly existing and in good standing under the laws of the State of Washington and is a bank holding company duly registered
under the BHC Act. Parent has the corporate power and authority to own, lease or operate all of its properties and assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or
leased by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified or to be in good standing would not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent. True and complete copies of the Parent Articles and Parent Bylaws, as in effect as of the date of this Agreement, have previously
been made available by Parent to the Company. Parent is not in violation of any of the provisions of the Parent Articles or Parent Bylaws
(b)
Each
Subsidiary of Parent (a "
Parent Subsidiary
") (i) is duly organized and validly existing under the laws of its jurisdiction of
organization, (ii) is duly licensed or qualified to do business and, where such concept is recognized under applicable law, in good standing in all jurisdictions (whether federal, state, local
or foreign) in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary and in
which the failure to be so licensed or qualified or in good standing would reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Parent, and
(iii) has all requisite corporate power and authority to own, lease or operate its properties and assets and to carry on its business as now conducted. There are no restrictions on the ability
of any Subsidiary of Parent to pay dividends or distributions, except in the case of a Subsidiary that is a regulated entity, for restrictions on dividends or distributions generally applicable to all
such regulated entities. The deposit accounts of each Subsidiary of Parent that is an insured depository institution are insured by the FDIC through the Deposit Insurance Fund (as defined in
Section 3(y) of the Federal Deposit Insurance Act of 1950) to the fullest extent permitted by law, all premiums and assessments required to be paid in connection therewith have been paid when
due, and no proceedings for the termination of such insurance are pending or threatened. Section 4.1(b) of the Parent Disclosure Schedules sets forth a true and complete list of all
Subsidiaries of Parent as of the date hereof. No Parent Subsidiary is in violation of any of the provisions of the articles or certificate of incorporation or bylaws (or comparable organizational
documents) of such Parent Subsidiary.
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4.2
Capitalization.
(a) As
of the date of this Agreement, the authorized capital stock of Parent consists of 50,000,000 shares of Parent Common Stock, 5,000,000 shares of nonvoting common
stock, par value $0.01 per share, and 500,000 shares of serial preferred stock, par value $0.01 per share, of which no shares of preferred stock are issued or outstanding as of the date of this
Agreement. As of the date of this Agreement, there are (i) 32,328,149 shares of Parent Common Stock issued and outstanding (which number includes 104,123 shares of Parent Common Stock subject
to outstanding awards of restricted Parent Common Stock (together with the shares of Parent nonvoting common stock issued and outstanding described in clause (ii) below, "
Parent
Restricted Stock Awards
")), (ii) 74,933 shares of Parent nonvoting common stock issued and outstanding, (iii) no shares of Parent Common Stock held in treasury,
(iv) 179,167 shares of Parent Common Stock subject to outstanding restricted stock unit awards ("
Parent Restricted Stock Unit Awards
") (assuming applicable
performance conditions are satisfied at target levels), and (v) no other shares of capital stock or other voting securities or equity interests of Parent issued, reserved for issuance or
outstanding. All of the issued and outstanding shares of Parent Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. There are no bonds, debentures, notes or other indebtedness or instruments that have the right to vote on any matters on which shareholders of
Parent may vote. Other than Parent Restricted Stock Awards and Parent Restricted Stock Unit Awards issued on or prior to the date of this Agreement, as of the date of this Agreement, there are no
outstanding subscriptions, options, warrants, stock appreciation rights, phantom units, scrip, rights to subscribe to, preemptive rights, anti-dilutive rights, rights of first refusal or similar
rights, puts, calls, commitments or agreements of any character whatsoever relating to or securities or rights convertible into or exchangeable or exercisable for, shares of capital stock or other
voting or equity securities of or ownership interests in Parent, or contracts, commitments, understandings or arrangements by which Parent may become bound to issue additional shares of its capital
stock or other equity or voting securities of or ownership interests in Parent, or otherwise obligating Parent to issue, transfer, sell, purchase, redeem or otherwise acquire any such securities.
There are no voting trusts, shareholder agreements, proxies or other agreements in effect to which Parent or any of its Subsidiaries is a party with respect to the voting or transfer of the Parent
Common Stock, capital stock or other voting or equity securities or ownership interests of Parent.
(b)
Except
as set forth on Section 4.2(b) of the Parent Disclosure Schedules, Parent owns, directly or indirectly, all of the issued and outstanding shares of
capital stock or other equity ownership interests of each of the Parent Subsidiaries, free and clear of any Liens, and all of such shares or equity ownership interests are duly authorized and validly
issued and are fully paid, nonassessable (except, with respect to bank Subsidiaries, as provided under 12 U.S.C. § 55 or any comparable provision of applicable state law) and free
of preemptive rights, with no personal liability attaching to the ownership thereof. Other than the shares of capital stock or other equity ownership interests described in the previous sentence or
set forth on Section 4.2(b) of the Parent Disclosure Schedules, as of the date of this Agreement there are no outstanding subscriptions, options, warrants, stock appreciation rights, phantom
units, scrip, rights to subscribe to, preemptive rights, anti-dilutive rights, rights of first refusal or similar rights, puts, calls, commitments or agreements of any character whatsoever relating
to, or securities or rights convertible into or exchangeable or exercisable for, shares of capital stock or
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other
voting or equity securities of or ownership interests in any Parent Subsidiary, or contracts, commitments, understandings or arrangements by which any Parent Subsidiary may become bound to issue
additional shares of its capital stock or other equity or voting securities or ownership interests in such Parent Subsidiary, or otherwise obligating any Parent Subsidiary to issue, transfer, sell,
purchase, redeem or otherwise acquire an such securities.
4.3
Authority; No
Violation.
(a)
Parent
has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the Merger have been duly and validly approved by the Board of Directors of Parent. The Board of Directors of Parent has determined that the Merger, on the
terms and conditions set forth in this Agreement, is in the best interests of Parent and its shareholders. Except for the adoption and approval of the Bank Merger Agreement by the Board of Directors
of Parent Bank and Parent as its sole shareholder and the adoption of resolutions to give effect to the provisions of Section 6.11 in connection with the Closing, no other corporate proceedings
on the part of Parent are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and
(assuming due authorization, execution and delivery by the Company) constitutes a valid and binding obligation of Parent, enforceable against Parent in accordance with its terms (except in all cases
as such enforceability may be limited by the Enforceability Exceptions). The shares of Parent Common Stock to be issued in connection with the Merger have been validly authorized, when issued, will be
validly issued, fully paid and nonassessable, and no current or past shareholder of Parent will have any preemptive right or similar rights in respect thereof.
(b)
Neither
the execution and delivery of this Agreement by Parent, nor the consummation by Parent of the transactions contemplated hereby, nor compliance by Parent with
any of the terms or provisions hereof, will (i) violate any provision of the Parent Articles or the Parent Bylaws or the articles or certificate of incorporation or bylaws (or similar
organizational documents) of any Parent Subsidiary, or (ii) assuming that the consents and approvals referred to in Section 4.4 are duly obtained, (x) violate any law, statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Parent, any of its Subsidiaries or any of their respective properties or assets or (y) violate,
conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by or rights or obligations under, require consent under or result in the
creation of any Lien upon any of the respective properties or assets of Parent or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, contract agreement or other instrument or obligation to which Parent or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets
may be bound or affected, except (in the case of clause (y) above) for such violations, conflicts, breaches or defaults that, either individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Parent.
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Table of Contents
4.4
Consents and
Approvals
.
Except for (a) the filing of any required applications, filings and notices, as applicable, with the Federal Reserve Board under the BHC Act and approval of such applications,
filings and notices, (b) the filing of any required applications, filings or notices, as applicable, with the FDIC, the DFI and any state banking authorities listed on Section 3.4 of the
Company Disclosure Schedules or Section 4.4 of the Parent Disclosure Schedules, and approval of such applications, filings and notices, (c) the filing with the SEC of the S-4 in which
the Proxy Statement will be included as a prospectus, and declaration of effectiveness of the S-4, (d) the filing of the Articles of Merger with the Washington Secretary pursuant to the WBCA
and the filing of the Bank Merger Articles, (e) if required by the HSR Act, the filing of any notices or other filings under the HSR Act, (f) such filings and approvals as are required
to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of shares of Parent Common Stock pursuant to this Agreement and (g) the approval
of the listing of such shares of Parent Common Stock on the NASDAQ, no consents or approvals of or filings or registrations with any Governmental Entity are necessary in connection with (A) the
execution and delivery by Parent of this Agreement or (B) the consummation by Parent of the Merger and the other transactions contemplated hereby (including the Bank Merger). As of the date
hereof, Parent is not aware of any reason why the necessary regulatory approvals and consents will not be received to permit consummation of the Merger, the Bank Merger and the other transactions
contemplated by this Agreement on a timely basis.
4.5
Reports
.
Parent
and each of its Subsidiaries have timely filed (or furnished) all reports, forms, correspondence,
registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file (or furnish, as applicable) since January 1, 2015 with any
Regulatory Agencies, including any report, form, correspondence, registration or statement required to be filed (or furnished, as applicable) pursuant to the laws, rules or regulations of the United
States, any state, any foreign entity, or any Regulatory Agency, and have paid all fees and assessments due and payable in connection therewith, except where the failure to file (or furnish, as
applicable) such report, form, correspondence, registration or statement or to pay such fees and assessments, either individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Parent. Each such report, form, correspondence, registration or statement filed with (or furnished to, as applicable) any Regulatory Agency since January 1, 2015, as
of the date of its filing (or furnishing, as applicable) complied in all material respects with relevant legal requirements, including as to content. Except for normal examinations conducted by a
Regulatory Agency in the ordinary course of business of Parent and its Subsidiaries, no Regulatory Agency has initiated or has pending any proceeding or, to the knowledge of Parent, investigation into
the business or operations of Parent or any of its Subsidiaries since January 1, 2015. There (i) is no unresolved violation, criticism, or exception by any Regulatory Agency with respect
to any report or statement relating to any examinations or inspections of Parent or any of its Subsidiaries, and (ii) has been no formal or informal inquiries by, or disagreements or disputes
with, any Regulatory Agency with respect to the business, operations, policies or procedures of Parent or any of its Subsidiaries since January 1, 2015, in each case, which would reasonably be
expected to be material to Parent and its Subsidiaries, taken as a whole.
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4.6
Financial
Statements.
(a) The
financial statements of Parent and its Subsidiaries included (or incorporated by reference) in the Parent Reports (including the related notes, where applicable)
(i) have been prepared from, and are in accordance with, the books and records of Parent and its Subsidiaries, (ii) fairly present in all material respects the consolidated results of
operations, cash flows, changes in shareholders' equity and consolidated financial position of Parent and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set
forth (subject in the case of unaudited statements to year-end audit adjustments normal and not material in nature and amount), (iii) complied, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and (iv) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case,
as indicated in such statements or in the notes thereto. The books and records of Parent and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and
any other applicable legal and accounting requirements and reflect only actual transactions. No independent public accounting firm of Parent has resigned (or informed Parent that it intends to resign)
or been dismissed as independent public accountants of Parent as a result of or in connection with any disagreements with Parent on a matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
(b)
Neither
Parent nor any of its Subsidiaries has any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become
due), except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Parent included in its Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2018 and for liabilities incurred in the ordinary course of business consistent with past practice since March 31, 2018, or as expressly contemplated by this Agreement, in each
case, which would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Parent.
(c)
The
records, systems, controls, data and information of Parent and its Subsidiaries are recorded, stored, maintained and operated under means (including any
electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of Parent or its Subsidiaries or accountants (including all means
of access thereto and therefrom), except for any non-exclusive ownership and non-direct control that would not reasonably be expected to have, either individually or in the aggregate, a Material
Adverse Effect on Parent. Parent (x) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material
information relating to Parent, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of Parent by others within those entities as reasonably
appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the
"
Sarbanes-Oxley Act
"), and (y) has disclosed, based on its most recent evaluation prior to the date hereof, to Parent's outside auditors and the audit committee of
Parent's Board of Directors (i) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f)
of the Exchange Act) which are reasonably likely to adversely affect Parent's ability to record, process, summarize and report financial information, and (ii) any fraud, whether or not
material, that involves
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management
or other employees who have a significant role in Parent's internal controls over financial reporting.
(d)
Since
January 1, 2015, (i) neither Parent nor any of its Subsidiaries, nor, to the knowledge of Parent, any director, officer, employee, auditor,
accountant or representative of Parent or any of its Subsidiaries, has received or otherwise has had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or
oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to loan loss reserves, write-downs, charge-offs and accruals) of Parent or any of its
Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that Parent or any of its Subsidiaries has engaged in questionable
accounting or auditing practices, and (ii) no employee of or attorney (whether or not employed by Parent or any of its Subsidiaries) representing Parent or any of its Subsidiaries has reported
evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by Parent or any of its Subsidiaries or any of their respective officers, directors, employees or
agents to the Board of Directors of Parent or any committee thereof or the Board of Directors or similar governing body of any Parent Subsidiary or any committee thereof, or to the knowledge of
Parent, to any director or officer of Parent or any Parent Subsidiary.
4.7
Broker's
Fees
.
With the exception of the engagement of D.A. Davidson & Co., neither Parent nor any Parent Subsidiary nor any of their respective officers or directors has employed any
broker, finder or financial advisor or incurred any liability for any broker's fees, commissions or finder's fees in connection with the Merger or related transactions contemplated by this Agreement.
4.8
Absence of
Certain Changes or Events.
(a)
Since
December 31, 2017, there has not been any effect, change, event, circumstance, condition, occurrence or development that has had or would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse Effect on Parent.
(b)
Since
December 31, 2017 through the date of this Agreement, Parent and its Subsidiaries have carried on their respective businesses in all material respects in
the ordinary course consistent with past practice.
4.9
Legal
Proceedings.
(a)
Except
as would not reasonably be expected, either individually or in the aggregate, to have a Material Adverse Effect on Parent, neither Parent nor any of its
Subsidiaries is a party to any, and there are no outstanding or pending or, to the knowledge of Parent, threatened, legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against Parent or any of its Subsidiaries or any of their current or former directors or executive officers or challenging the validity or
propriety of the transactions contemplated by this Agreement.
(b)
There
is no material injunction, order, judgment, decree, or regulatory restriction imposed upon Parent, any of its Subsidiaries or the assets of Parent or any of its
Subsidiaries.
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4.10
SEC
Reports
.
Parent has previously made available to the Company an accurate and complete copy of each registration statement, prospectus, report, schedule and proxy statement filed with or furnished
to the SEC since December 31, 2015 by Parent pursuant to the Securities Act or the Exchange Act (the "
Parent Reports
"), and no such Parent Report, as of the date
thereof (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), contained any untrue statement of a
material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading,
except that information filed or furnished as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. Since December 31, 2015, as of
their respective dates, all Parent Reports filed under the Securities Act and the Exchange Act complied as to form in all material respects with the published rules and regulations of the SEC with
respect thereto.
4.11
Compliance with Applicable
Law
.
Parent and each of its Subsidiaries hold, and have at all times since January 1, 2015, held, and been in compliance with, all licenses, registrations, franchises, certificates,
variances, permits, charters and authorizations necessary for the lawful conduct of their respective businesses and ownership of their respective properties, rights and assets under and pursuant to
each (and have paid all fees and assessments due and payable in connection therewith), except where neither the cost of failure to hold or be in compliance with, nor the cost of obtaining and holding
such license, registration, franchise, certificate, variance, permit, charter or authorization (nor the failure to pay any fees or assessments) would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect on Parent, and to the knowledge of Parent no suspension or cancellation of any such necessary license, franchise, permit, charter or
authorization is threatened. Parent and each of its Subsidiaries have complied in all material respects with and are not in material default or violation under any, applicable law, statute, order,
rule, regulation, policy and/or guideline of any Governmental Entity relating to Parent or any of its Subsidiaries, including all laws related to data protection or privacy, the USA PATRIOT Act, the
Bank Secrecy Act, the Equal Credit Opportunity Act and Regulation B, the Fair Housing Act, the Community Reinvestment Act, the Fair Credit Reporting Act, the Truth in Lending Act and
Regulation Z, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, any
regulations promulgated by the Consumer Financial Protection Bureau, the Interagency Policy Statement on Retail Sales of Nondeposit Investment Products, the SAFE Mortgage Licensing Act of 2008, the
Real Estate Settlement Procedures Act and Regulation X, Title V of the Gramm-Leach-Bliley Act and any other law, policy or guideline relating to bank secrecy, discriminatory lending, financing
or leasing practices, consumer protection, money laundering prevention, foreign assets control, U.S. sanctions laws and regulations, Sections 23A and 23B of the Federal Reserve Act, the
Sarbanes-Oxley Act, and all agency requirements relating to the origination, sale and servicing of mortgage and consumer loans. Parent Bank has a Community Reinvestment Act rating of "satisfactory" or
better. Without limitation, none of Parent, or any of its Subsidiaries, or to the knowledge of Parent, any director, officer, employee, agent or other person acting on behalf of Parent or any of its
Subsidiaries has, directly or indirectly, (i) used any funds of Parent or any of its Subsidiaries for unlawful contributions, unlawful gifts, unlawful entertainment or other expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic governmental officials or employees or to foreign or domestic political parties or
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campaigns
from funds of Parent or any of its Subsidiaries, (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any similar law, (iv) established or
maintained any unlawful fund of monies or other assets of Parent or any of its Subsidiaries, (v) made any fraudulent entry on the books or records of Parent or any of its Subsidiaries, or
(vi) made any unlawful bribe, unlawful rebate, unlawful payoff, unlawful influence payment, unlawful kickback or other unlawful payment to any person, private or public, regardless of form,
whether in money, property or services, to obtain favorable treatment in securing business to obtain special concessions for Parent or any of its Subsidiaries, to pay for favorable treatment for
business secured or to pay for special concessions
already obtained for Parent or any of its Subsidiaries, or is currently subject to any United States sanctions administered by the Office of Foreign Assets Control of the United States Treasury
Department. Except as would not be material to Parent and its Subsidiaries, taken as a whole, since January 1, 2015, Parent and each of its Subsidiaries have properly administered all accounts
for which Parent or any of its Subsidiaries acts as a fiduciary, including accounts for which Parent or any of its Subsidiaries serves as a trustee, agent, custodian, personal representative,
guardian, conservator or investment adviser, in compliance with the terms of the applicable governing documents and applicable law. None of Parent or any of its Subsidiaries, or any director, officer
or employee of Parent or any of its Subsidiaries, has committed any breach of trust with respect to any such fiduciary account that would be material to Parent and its Subsidiaries, taken as a whole,
and the accountings for each such fiduciary account are true and correct in all material respects and accurately reflect in all material respects the assets of such fiduciary account. As of the date
hereof, Parent, Parent Bank and each other insured depositary Subsidiary of Parent is "well-capitalized" (as that term is defined in the relevant regulation of the institution's primary bank
regulatory) and, as of the date hereof, neither Parent nor any of its Subsidiaries has received any indication from a Governmental Entity that its status as "well-capitalized" or that Parent Bank's
Community Reinvestment Act rating will change within one (1) year from the date of this Agreement.
4.12
Certain Contracts.
(a)
Each
contract, arrangement, commitment or understanding (whether written or oral) which is a "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) to which Parent nor any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries is bound as of the date hereof has been filed as an exhibit to
the most recent Annual Report on Form 10-K filed by Parent, or a Quarterly Report on Form 10-Q or Current Report on Form 8-K subsequent thereto (each, a "
Parent
Contract
").
(b) (i)
Each Parent Contract is valid and binding on Parent or one of its Subsidiaries, as applicable, and in full force and effect, except as, either individually or in
the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent, (ii) Parent and each of its Subsidiaries has performed and complied with all obligations required to
be performed by it under each Parent Contract, except where such noncompliance, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent,
(iii) to the knowledge of Parent, each third-party counterparty to each Parent Contract has performed and complied with all obligations required to be performed by it under such Parent
Contract, except where such noncompliance, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Parent, (iv) neither Parent nor any of
its Subsidiaries knows of, or has received notice of, any violation of any Parent
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Contract
by any of the parties thereto which would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on the Parent, and (v) no event or
condition exists that constitutes or, after notice or lapse of time or both, will constitute, a breach or default on the part of Parent or any of its Subsidiaries, or to the knowledge of Parent, any
other party thereto, of or under any such Parent Contract, except where such default, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on
Parent.
4.13
Agreements with Regulatory
Agencies
.
Neither Parent nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or
memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by,
or is subject to any policies, procedures or board resolutions at the request or suggestion of any Regulatory Agency or other Governmental Entity that restricts in any material respect the conduct of
its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each, whether or not
set forth in the Parent Disclosure Schedules, a "
Parent Regulatory Agreement
"), nor has Parent or any of its Subsidiaries been advised by any Regulatory Agency or other
Governmental Entity that it is currently considering issuing, initiating, ordering or requesting any such Parent Regulatory Agreement.
4.14
Reorganization
.
Parent
has not taken any action and is not aware of any fact or circumstance that could reasonably be
expected to prevent the Merger from qualifying as a "reorganization" within the meaning of Section 368(a) of the Code.
4.15
Opinion
. Pri
or
to the execution of this Agreement, Parent has received an opinion from D.A. Davidson & Co., to
the effect that, as of the date thereof and based upon and subject to the matters set forth therein, the Merger Consideration is fair from a financial point of view to Parent. Such opinion has not
been amended or rescinded as of the date of this Agreement.
4.16
Parent Information
.
The information relating to Parent and its Subsidiaries to be contained in the Proxy Statement and the S-4, and the information relating to Parent and its Subsidiaries or that is
provided by Parent or its Subsidiaries or representatives for inclusion in any other application, notification or document filed with any Regulatory Agency or other Governmental Entity in connection
herewith, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not
misleading. The S-4 (except for such portions thereof that relate only to the Company or any of its Subsidiaries) will comply in all material respects with the Securities Act and the rules and
regulations thereunder.
4.17
No Other
Representations or Warranties.
(a)
Except
for the representations and warranties made by Parent in this Article IV, neither Parent nor any other person makes any express or implied representation
or warranty with respect to Parent, its Subsidiaries, or their respective businesses, operations,
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assets,
liabilities, or condition (financial or otherwise), and Parent hereby disclaims any such other representations or warranties.
(b)
Parent
acknowledges and agrees that neither the Company nor any other person has made or is making any express or implied representation or warranty other than those
contained in Article III.
ARTICLE V
COVENANTS
RELATING TO CONDUCT OF BUSINESS
5.1
Conduct of Business of
the Company Prior to the Effective Time
.
During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as expressly contemplated or permitted by this Agreement
(including as set forth in Section 5.1 of the Company Disclosure Schedules), required by law or as consented to in writing by Parent (such consent not to be unreasonably withheld, conditioned
or delayed), the Company shall, and shall cause its Subsidiaries to, (a) conduct its business in the ordinary course consistent with past practice in all material respects, (b) use
reasonable best efforts to maintain and preserve intact its business organization, employees and business relationships with customers, regulators and other persons, and (c) take no action that
would reasonably be expected to materially and adversely affect or materially delay the ability to obtain any necessary approvals of any Regulatory Agency or other Governmental Entity required for the
transactions contemplated hereby or to perform the Company's covenants and agreements under this Agreement or to consummate the transactions contemplated hereby on a timely basis.
5.2
Company
Forbearances
.
Without limiting the foregoing, during the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as set forth in
Section 5.2 of the Company Disclosure Schedules, as expressly contemplated or permitted by this Agreement or as required by law, the Company shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of Parent (such consent not to be unreasonably withheld, conditioned or delayed):
(a)
other
than (i) federal funds borrowings and Federal Home Loan Bank borrowings, in each case with a maturity not in excess of six (6) months, and
(ii) deposits, in the case of each of (i) and (ii), in the ordinary course of business consistent with past practice, incur any indebtedness, or assume, guarantee, endorse or otherwise
as an accommodation become responsible for the obligations of any other person, corporation or other entity;
(b) (i)
adjust,
split, combine or reclassify any capital stock or other equity interest;
(ii)
make,
declare or pay or set a record date for any dividend, or any other distribution on, or directly or indirectly redeem, purchase or otherwise acquire, or register
under the Securities Act any shares of its capital stock or other equity or voting securities or any securities or obligations convertible (whether
currently convertible or convertible only after the passage of time or the occurrence of certain events) or exchangeable into, or exercisable for, any shares of its capital stock or other equity or
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voting
securities, including any Company Securities or Company Subsidiary Securities (except (A) dividends paid by any of the Subsidiaries of the Company to the Company or any of its wholly
owned Subsidiaries, (B) quarterly dividends at a rate not in excess of $1.50 per share of Company Common Stock, (C) a special cash dividend declared and paid in accordance with
Section 1.13(a) and 6.17, and (D) the acceptance of shares of Company Common Stock as payment for the exercise price of Company Options or for withholding taxes incurred in connection
with the exercise of Company Options or the vesting or settlement of Company Equity Awards outstanding as of the date hereof, in each case, in accordance with past practice and the terms of the
applicable award agreements as in effect on the date hereof);
(iii) grant
any Company Equity Awards or any stock options, stock appreciation rights, performance shares, restricted stock units, restricted shares or other equity or
equity-based awards or interests, or grant any person, corporation or other entity any right to acquire any Company Securities or Company Subsidiary Securities;
(iv) issue,
sell, transfer, dispose of, mortgage, encumber or otherwise permit to become outstanding any shares of capital stock, voting securities or equity interests, or
securities convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain events) or exchangeable into, or exercisable for, any shares of its
capital stock or other equity or voting securities, including any Company Securities or Company Subsidiary Securities, or any options, warrants, or other rights of any kind to acquire any shares of
capital stock or other equity or voting securities, including any Company Securities or Company Subsidiary Securities, except pursuant to the exercise, vesting or settlement of Company Equity Awards
outstanding as of the date hereof in accordance with their terms as in effect on the date hereof;
(c)
sell,
transfer, mortgage, encumber or otherwise dispose of any of its properties or assets to any individual, corporation or other entity other than a wholly owned
Subsidiary, or cancel, release or assign any indebtedness to any such person or any claims held by any such person, in each case other than in the ordinary course of business consistent with past
practice;
(d)
except
for foreclosure or acquisitions of control in a fiduciary or similar capacity or in satisfaction of debts previously contracted in good faith in the ordinary
course of business consistent with past practice, (i) acquire (whether by merger or consolidation, acquisition of stock or assets or by formation of a joint venture or otherwise) any other
person or business or any material assets, deposits or properties of any other person, or (ii) make any material investment either by purchase of stock or securities, contributions to capital,
property transfers, or purchase of any property or assets of any other person, corporation or other entity;
(e)
terminate,
amend, or waive any provision of, any Company Contract, or make any change in any instrument or agreement governing the terms of any of its securities, or
material lease or contract, other than normal renewals of contracts and leases in the ordinary course of business consistent with past practice without material changes of terms with respect to
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the
Company and in consultation with Parent, or enter into any contract that would constitute a Company Contract if it were in effect on the date of this Agreement;
(f)
except
as required under the terms of any Company Benefit Plan existing as of the date hereof, (i) enter into, adopt, amend or terminate any collective
bargaining agreement, any Company Benefit Plan or any employee benefit or compensation plan, program, policy or arrangement that would be a Company Benefit Plan if in effect on the date hereof,
(ii) increase the compensation or benefits payable to any current or former employee, officer, director or consultant, (iii) pay or award, or commit to pay or award, any bonuses or
incentive compensation, other than the payment of bonuses based on actual performance in accordance with the terms of the applicable Company Benefit Plans as in effect on the date hereof (true and
complete copies of which have been made available to Parent) in the ordinary course of business, consistent with past practice, (iv) grant or accelerate the vesting of any equity or
equity-based awards, (v) grant any rights with respect to severance, change in control, retention, or similar compensation, (vi) fund any rabbi trust or similar arrangement,
(vii) terminate the employment or services of any officer or any employee whose annual base salary is greater than $150,000, other than for cause, or (viii) hire any officer, employee,
independent contractor or consultant whose annual base salary would be greater than $150,000;
(g)
settle
any claim, suit, action or proceeding, except in the ordinary course of business involving solely monetary remedies in an amount and for consideration not in
excess of $250,000 individually or $500,000 in the aggregate and which would not impose any material restriction on, or create any adverse precedent that would be material to, the business of it or
its Subsidiaries or the Surviving Corporation;
(h)
take
any action or knowingly fail to take any action where such action or failure to act could reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code;
(i)
amend
its articles of incorporation, its bylaws or comparable governing documents of its Subsidiaries;
(j)
merge
or consolidate itself or any of its Subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve it or any of
its Subsidiaries;
(k)
materially
restructure or materially change its investment securities or derivatives portfolio or its interest rate exposure, through purchases, sales or otherwise, or
the manner in which the portfolio is classified or reported or purchase any security rated below investment grade;
(l)
implement
or adopt any change in its accounting principles, practices or methods, other than as may be required by law or GAAP as concurred in by its independent
auditors;
(m) (i)
enter into any new line of business or change in any material respect its lending, investment, underwriting, risk and asset liability management, interest rate, fee
pricing and other banking and operating, securitization and servicing policies, except as required by
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applicable
law, regulation or policies imposed by any Governmental Entity or (ii) make or acquire any Loans or extensions of credit outside of the ordinary course of business consistent with
past practice and the Company's lending policies and procedures in effect as of the date of this Agreement or that exceed the Company's internal lending limits such that the Loan or extension of
credit would require approval by the Company's Directors Loan Committee, unless in the case of this clause (ii) the Company has notified and provided the relevant Loan package to Parent
(through Parent's Chief Executive Officer, Chief Credit Officer or such other representative as may be designated by Parent) and thereafter has consulted with Parent for at least two
(2) business days after the relevant Loan package is provided to Parent;
(n)
make
any material changes in its policies and practices with respect to (i) underwriting, pricing, originating, acquiring, selling, servicing, or buying or
selling rights to service, Loans or (ii) its hedging practices and policies, in each case except as required by law or requested by a Regulatory Agency;
(o)
make,
or commit to make, any capital expenditures that exceed by more than 5% in the aggregate the capital expenditures budget of the Company in effect on the date
hereof (a copy of which has been previously made available to Parent);
(p)
make,
change or revoke any Tax election, change an annual Tax accounting period, adopt or change any Tax accounting method, file any amended Tax Return, enter into any
closing agreement with respect to Taxes, or settle any Tax claim, audit, assessment or dispute or surrender any right to claim a refund of Taxes;
(q)
make
application for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production office or other significant office or
operations facility of it or its Subsidiaries;
(r)
materially
reduce the amount of its insurance coverage;
(s)
amend
in a manner that adversely impacts in any material respect the ability to conduct its business, terminate or allow to lapse any material permits; or
(t)
agree
to take, make any commitment to take, or adopt any resolutions of its board of directors or similar governing body authorizing any of the actions prohibited by
this Section 5.2.
5.3
Parent
Forbearances
.
During the period from the date of this Agreement to the Effective Time or earlier termination of this Agreement, except as set forth in Section 5.3 of the Parent Disclosure
Schedules, as expressly contemplated or permitted by this Agreement or as required by law, Parent shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of the
Company (such consent not to be unreasonably withheld, conditioned or delayed):
(a)
amend
the Parent Articles or Parent Bylaws in a manner that would adversely affect the holders of Company Common Stock disproportionately relative to other holders of
Parent Common Stock;
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(b)
adjust,
split, combine or reclassify any capital stock of Parent;
(c)
take
any action that would reasonably be expected to materially and adversely affect or materially delay the ability to obtain any necessary approvals of any
Regulatory Agency or other Governmental Entity required for the transactions contemplated hereby or to perform Parent's covenants and agreements under this Agreement or to consummate the transactions
contemplated hereby on a timely basis;
(d)
take
any action or knowingly fail to take any action where such action or failure to act could reasonably be expected to prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368(a) of the Code; or
(e)
agree
to take, make any commitment to take, or adopt any resolutions of its board of directors or similar governing body authorizing any of the actions prohibited by
this Section 5.3.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1
Regulatory
Matters.
(a)
Parent
and the Company shall promptly prepare and file with the SEC the Proxy Statement, and Parent shall promptly prepare and file with the SEC the S-4, in which the
Proxy Statement will be included as a prospectus. Each of Parent and the Company shall use their reasonable best efforts to have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing, and the Company shall thereafter mail or deliver the Proxy Statement to its shareholders. Parent shall also use its reasonable best efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement. The Company shall furnish all information concerning the Company and the
holders of Company Common Stock as may be reasonably requested by Parent in connection with any of the foregoing.
(b) The
parties hereto shall cooperate with each other and use their reasonable best efforts to promptly (and in the case of the applications, notices, petitions and
filings in respect of the Requisite Regulatory Approvals, within thirty (30) business days of the date of this Agreement) prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this Agreement (including the Merger and the Bank Merger), and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Entities. Parent and the Company shall have the right to review in advance, and, to the extent practicable, each will consult the other
on, in each case subject to applicable laws relating to the exchange of information, all the information relating to the Company or Parent, as the case may be, and any of their respective
Subsidiaries, which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this
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Agreement.
In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as practicable. The parties hereto agree that they will consult with each other with
respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by
this Agreement, and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein, subject to applicable law.
(c)
Each
of Parent and the Company shall use its reasonable best efforts to resolve any objections that may be asserted by any Governmental Entity with respect to this
Agreement or the transactions contemplated hereby. Notwithstanding the foregoing or anything to the contrary contained in this Agreement, under no circumstances shall Parent or any of its Subsidiaries
be required, and the Company and its Subsidiaries shall not be permitted (without Parent's written consent), to take any action, or commit to take any action, or agree to any condition or restriction,
in connection with obtaining the foregoing permits, consents, approvals and authorizations of Governmental Entities that would reasonably be expected to be materially burdensome on, or impair in any
material respect the benefits of the transactions contemplated by this Agreement to, Parent, the Surviving Corporation or their Subsidiaries, or have a material and adverse effect on Parent, the
Surviving Corporation and their respective Subsidiaries, taken as a whole, or the Company and its Subsidiaries, taken as a whole (in each case, measured on a scale relative to the Company and its
Subsidiaries, taken as a whole), after giving effect to the Merger (any of the foregoing, a "
Materially Burdensome Regulatory Condition
").
(d)
Parent
and the Company shall, upon request, promptly furnish each other with all information concerning themselves, their Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement, the S-4 or any other statement, filing, notice or application made by or on
behalf of Parent, the Company or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger and the Bank Merger and the other transactions contemplated by this
Agreement.
(e)
Parent
and the Company shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for
consummation of the transactions contemplated by this Agreement that causes such party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval will not be obtained, or
will be obtained subject to a Materially Burdensome Regulatory Condition, or that the receipt of any such approval will be materially delayed.
6.2
Access to
Information; Confidentiality.
(a)
Without
limiting Parent's rights pursuant to Section 1.12(d), upon reasonable notice and subject to applicable laws, each of Parent and the Company, for the
purposes of verifying the representations and warranties of the other and preparing for the Merger and the other matters contemplated by this Agreement, shall, and shall cause each of their respective
Subsidiaries to, afford to the officers, employees, accountants, counsel, advisors and other representatives of the other party, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments, personnel, information technology systems, and records, and each shall cooperate with the other
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party
in preparing to execute after the Effective Time conversion or consolidation of systems and business operations generally, and, during such period, each of Parent and the Company shall, and
shall cause its respective Subsidiaries to, make available to the other party (i) a copy of each report, schedule and other document filed or received by it during such period pursuant to the
requirements of federal or state banking laws (other than reports or documents which Parent or the Company, as the case may be, is not permitted to disclose under applicable law), and (ii) all
other information concerning its business, properties and personnel as such party may reasonably request. Neither Parent nor the Company nor any of their respective Subsidiaries shall be required to
provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of Parent's or the Company's, as the case may be, customers, jeopardize the
attorney-client privilege of the institution in possession or control of such information (after giving due consideration to the existence of any common interest, joint defense or similar agreement
between the parties) or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will
make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
(b)
Each
of Parent and the Company shall hold all information furnished by or on behalf of the other party or any of such party's Subsidiaries or representatives pursuant
to Section 6.2(a) in confidence to the extent required by, and in accordance with, the provisions of the confidentiality agreement, dated March 29, 2018, between Parent and the Company
(the "
Confidentiality Agreement
").
(c)
No
investigation by either of the parties or their respective representatives shall affect or be deemed to modify or waive the representations and warranties of the
other set forth herein. Nothing contained in this Agreement shall give either party, directly or indirectly, the right to control or direct the operations of the other party prior to the Effective
Time. Prior to the Effective Time, each party shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its and its Subsidiaries' respective
operations.
6.3
Shareholder
Approval
.
(a) The
Company shall call a meeting of its shareholders (the "
Company Meeting
") to be held as soon as reasonably practicable after the S-4 is
declared effective, for the purpose of obtaining the Requisite Company Vote required in connection with this Agreement and the Merger, and, if so desired and mutually agreed, upon other matters of the
type customarily brought before a meeting of shareholders to approve a merger agreement or the transactions contemplated thereby, and the Company shall use its reasonable best efforts to cause the
Company Meeting to occur as soon as reasonably practicable. The Company and its Board of Directors shall use their reasonable best efforts to obtain from the shareholders of the Company the Requisite
Company Vote, including by communicating to its shareholders its recommendation (and including such recommendation in the Proxy Statement) that they adopt and approve this Agreement and the
transactions contemplated hereby (the "
Company Board Recommendation
"), and shall not (i) withhold, withdraw, modify or qualify in a manner adverse to Parent the
Company Board Recommendation, (ii) fail to make the Company Board Recommendation in the Proxy Statement, (iii) adopt, approve, recommend or endorse an Acquisition Proposal or publicly
announce an intention to adopt, approve, recommend or endorse
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an
Acquisition Proposal, (iv) fail to publicly, finally and without qualification (A) recommend against any Acquisition Proposal or (B) reaffirm the Company Board Recommendation,
in each case within ten (10) business days after such Acquisition Proposal is made public or any request by Parent to do so (which request may be made once per Acquisition Proposal, and any
material change thereto) (or such fewer number of days as remains prior to Company Meeting), or (v) publicly propose to do any of the foregoing (any of the foregoing, a
"
Recommendation Change
").
(b)
Notwithstanding
anything in this Agreement to the contrary, prior to the time the Requisite Company Vote is obtained, the Board of Directors of the Company may make a
Recommendation Change if and only if (i) the Company and its Subsidiaries and Representatives have complied with their obligations under Section 6.12, (ii) an unsolicited
bona fide
written Acquisition Proposal is made to the Company after the date of this Agreement by a third party, and such Acquisition Proposal is not
withdrawn, (iii) the Board of Directors of the Company has concluded in good faith (after consultation with its outside legal counsel and financial advisors) that such Acquisition Proposal
constitutes a Superior Proposal, (iv) the Board of Directors of the Company has concluded in good faith (after consultation with its outside legal counsel) that failure to make a Recommendation
Change would reasonably be expected to be inconsistent with the directors' fiduciary duties under applicable law, (v) prior to effecting the Recommendation Change, three (3) business
days shall have elapsed since the Company has given written notice to Parent advising Parent that the Company intends to take such action and specifying in reasonable detail the reasons therefor,
including the terms and conditions of, and the identity of the person making, any such Acquisition Proposal that is the basis of the Recommendation Change (it being understood that any amendment or
change to any material term of such Acquisition Proposal shall require a new notice and the provisions of this Section 6.3(b) shall apply anew), (vi) during such three
(3) business day period, the Company has considered, and engaged in good-faith discussions with Parent regarding, any adjustment or modification of the terms of this Agreement proposed by
Parent and (vii) the Board of Directors of the Company, following such three (3)-business day period, again reasonably determines in good faith (after consultation with its outside legal
counsel and financial advisors, and taking into account any adjustment or modification of the terms of this Agreement proposed by Parent and delivered to the Company in writing) that such Acquisition
Proposal nonetheless continues to constitute a Superior Proposal and that failure to make a Recommendation Change would reasonably be expected to be inconsistent with the directors' fiduciary duties
under applicable law.
(c)
The
Company shall adjourn or postpone the Company Meeting if, as of the time for which such meeting is originally scheduled, there are insufficient shares of Company
Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting, or if on the date of such meeting the Company has not received proxies
representing a sufficient number of shares necessary to obtain the Requisite Company Vote;
provided
, that no such adjournment or postponement shall delay the Company
Meeting by more than ten (10) days from the prior-scheduled date or to a date on or after the fifth (5th) business day preceding the Termination Date. Except as described in the preceding
sentence, the Company shall not adjourn or postpone the Company Meeting without Parent's written consent (which consent shall not be unreasonably withheld, conditioned or delayed).
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(d)
Notwithstanding
anything to the contrary herein, unless this Agreement has been terminated in accordance with its terms (i) the Company Meeting shall be convened
and this Agreement shall be submitted to the shareholders of the Company at the Company Meeting for the purpose of voting on the approval of this Agreement, and nothing contained herein shall be
deemed to relieve the Company of such obligations, and (ii) the Company shall not submit to the vote of its shareholders any Acquisition Proposal or any transaction contemplated thereby.
6.4
Legal
Conditions to Merger
.
Subject in all respects to Section 6.1 of this Agreement, each of Parent and the Company shall, and shall cause its Subsidiaries to, use their reasonable best efforts
(a) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on such party or its Subsidiaries with respect
to the Merger and the Bank Merger and, subject to the conditions set forth in Article VII hereof, to consummate the transactions contemplated by this Agreement, and (b) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party that is advisable or required to be
obtained by the Company or Parent or any of their respective Subsidiaries in connection with the Merger, the Bank Merger and the other transactions contemplated by this Agreement.
6.5
Stock Exchange
Listing
.
Parent shall file with the NASDAQ a notification form for the listing of all shares of Parent Common Stock to be delivered as Merger Consideration prior to the Effective Time and shall
use its reasonable best efforts to cause such shares of Parent Common Stock to be listed on the NASDAQ, subject to official notice of issuance, prior to the Effective Time.
6.6
Employee
Benefit Plans.
(a)
During
the period commencing at the Effective Time and ending on the first anniversary thereof, Parent shall provide, or cause to be provided, to each employee of the
Company and its Subsidiaries who continues to be employed by Parent or its Subsidiaries immediately following the Effective Time (collectively, the "
Continuing
Employees
"), while employed by Parent and its Subsidiaries after the Effective Time, (i) a base salary or wage rate that is no less favorable than the base salary or wage rate
provided by the Company or any such Subsidiary, as applicable, to such Continuing Employee immediately prior to the Effective Time, (ii) an annual cash incentive compensation opportunity that
is no less favorable than that provided to similarly situated employees of Parent and its Subsidiaries, and (iii) employee benefits that are substantially comparable in the aggregate to the
employee benefits provided to similarly situated employees of Parent and its Subsidiaries;
provided
that Parent may satisfy its obligation under Section 6.6(a)(iii)
by providing such Continuing Employees with employee benefits that are substantially comparable in the aggregate to the employee benefits provided by the Company or its Subsidiaries to such Continuing
Employees immediately prior to the Effective Time until such time as such Continuing Employees commence participation in the applicable employee benefit plans of Parent and its Subsidiaries. Parent
shall honor all change-in-control or severance agreements set forth in Section 6.6(a) of the Company Disclosure Schedules in accordance with their respective terms. In addition, Parent shall,
or shall cause the Surviving Corporation or one of its Subsidiaries to, provide to each Continuing Employee whose employment terminates during the 12-month period following the Closing Date and who is
not
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party
to an individual change-in-control or severance agreement with severance benefits equal to the severance benefits for which such Continuing Employee would be eligible under the severance plans
or policies of Parent or its affiliates after providing recognition of service to the Company and its Subsidiaries in accordance with Section 6.6(b).
(b)
Following
the Effective Time, Parent shall, or shall cause the Surviving Corporation to, cause any employee benefit plans sponsored or maintained by Parent or the
Surviving Corporation or their Subsidiaries in which the Continuing Employees are eligible to participate following the Effective Time (collectively, the "
Parent Plans
")
to recognize and provide credit for the service of each Continuing Employee with the Company and its Subsidiaries (and any predecessor thereto) prior to the Effective Time for purposes of eligibility,
vesting and level of benefits under such Parent Plans;
provided
that such recognition of and credit for service shall not (i) apply for purposes of any Parent Plan
that is a defined benefit retirement plan or any Parent Plan that provides retiree welfare benefits, (ii) operate to duplicate any benefits of a Continuing Employee with respect to the same
period of service, or (iii) apply for purposes of any plan, program or arrangement (A) under which similarly situated employees of Parent and its Subsidiaries do not receive recognition
or credit for prior service or (B) that is grandfathered or frozen, either with respect to level of benefits or participation. With respect to any Parent Plan that provides medical, dental or
vision insurance benefits, for the plan year in which such Continuing Employee is first eligible to participate, Parent shall use commercially reasonable efforts to (1) cause any preexisting
condition limitations or eligibility waiting periods under such plan to be waived with respect to such Continuing Employee to the extent such limitation would have been waived or satisfied under the
Company Benefit Plan in which such Continuing Employee participated immediately prior to the Effective Time, and (2) credit each Continuing Employee for any co-payments, deductibles or
out-of-pocket expenses incurred by such Continuing Employee and his or her eligible dependents in such plan year for purposes of any applicable co-payment, deductible and annual out-of-pocket expense
requirements under any such Parent Plan. Parent and its Subsidiaries, as applicable, shall assume and honor, under the sick leave and vacation policies of the Company and its Subsidiaries as set forth
on Section 6.6(b) of the Company Disclosure Schedules, the accrued but unused sick leave and vacation time of the Continuing Employees prior to the Effective Time.
(c)
If
requested by Parent at least fifteen (15) days prior to the Effective Time, the Company shall cause any 401(k) plan sponsored or maintained by the Company or
any of its Subsidiaries (each, a "
Company 401(k) Plan
") to be terminated effective as of the day immediately prior to the Closing Date and contingent upon the occurrence
of the Closing. In the event that Parent so requests that any Company 401(k) Plan be terminated, (i) the Company shall provide Parent with evidence that such plan has been terminated (the form
and substance of which shall be subject to reasonable review and approval by Parent) not later than two (2) days immediately preceding the Closing Date; and (ii) Parent shall permit
(and, to the extent necessary, shall amend Parent's existing 401(k) Plan(s) to permit) the Continuing Employees who are participants in such Company 401(k) Plan and then actively employed to make
rollover contributions of "eligible rollover distributions" (within the meaning of Section 401(a)(31) of the Code, inclusive of loans but excluding any shares of Parent Common Stock) in cash or
notes (in the case of loans) in an amount equal to the full account balance distributed to any such Company Employee from the Company 401(k) Plan(s) to Parent's existing 401(k) plan(s).
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(d)
Nothing
in this Agreement shall confer upon any employee, officer, director or consultant of the Company or any of its Subsidiaries or affiliates any right to continue
in the employ or service of the Surviving Corporation, the Company or any Subsidiary or affiliate thereof, or shall interfere with or restrict in any way the rights of the Surviving Corporation, the
Company, Parent or any Subsidiary or affiliate thereof to discharge or terminate the services of any employee, officer, director or consultant of the Company or any of its Subsidiaries or affiliates
at any time for any reason whatsoever, with or without cause. Nothing in this Agreement shall be deemed to (i) establish, amend, or modify any Company Benefit Plan, Parent Plan or any other
employee benefit or employment plan, program, agreement or arrangement, or (ii) alter or limit the ability of the Surviving Corporation or any of its Subsidiaries or affiliates to amend, modify
or terminate any particular Company Benefit Plan, Parent Plan or any other employee benefit or employment plan, program, agreement or arrangement after the Effective Time. Without limiting the
generality of Section 9.9, nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties hereto, including any current or former employee,
officer, director or consultant of the Company or any of its Subsidiaries or affiliates, any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
6.7
Indemnification;
Directors' and Officers' Insurance.
(a) For
a period of six (6) years from and after the Effective Time, to the fullest extent permitted by applicable law, the Surviving Corporation shall indemnify and
hold harmless, to the extent such persons are indemnified as of the date of this Agreement by the Company pursuant to the Company Articles and the Company Bylaws, or pursuant to any other agreements
in effect on the date hereof and disclosed in Section 6.7(a) of the Company Disclosure Schedules (and shall also advance expenses as incurred to the extent provided under the Company Articles
and Company Bylaws (or such agreements listed in Section 6.7(a) of the Company Disclosure Schedules) as in effect as of the date of this Agreement), each present and former director and officer
of the Company and its Subsidiaries (in each case, when acting in such capacity) (collectively, the "
Company Indemnified Parties
") against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, damages or liabilities incurred in connection with any threatened or actual claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, whether arising before or after the Effective Time, arising out of the fact that such person is or was a director or officer of the Company or any of its
Subsidiaries and pertaining to matters existing or occurring at or prior to the Effective Time, including the transactions contemplated by this Agreement;
provided
, that
the Company Indemnified Party to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Company Indemnified Party is not entitled to
indemnification.
(b) For
a period of six (6) years after the Effective Time, the Surviving Corporation shall cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (
provided
, that the Surviving Corporation may substitute therefor policies with substantially comparable insurer of
at least the same coverage and amounts containing terms and conditions which are no less advantageous to the insured) with respect to claims arising from facts or events which occurred at or before
the Effective Time;
provided
,
however
, that in no event shall the Surviving Corporation be obligated to
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expend,
on an annual basis, an amount in excess of 250% of the current annual premium paid as of the date hereof by the Company for such insurance (the "
Premium Cap
"), and
if such premiums for such insurance would at any time exceed the Premium Cap, then the Surviving Corporation shall cause to be maintained policies of insurance which, in the Surviving Corporation's
good faith determination, provide the maximum coverage available at an annual premium not exceeding the Premium Cap. In lieu of the foregoing, Parent or the Company, in consultation with, but only
upon the consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed), may (and at the request of Parent, the Company shall) obtain at or prior to the Effective Time a
six-year "tail" policy under the Company's existing directors' and officers' liability insurance policy providing equivalent coverage to that described in the preceding sentence, if and to the extent
that the same may be obtained for an amount that, in the aggregate, does not exceed the Premium Cap.
(c)
The
provisions of this Section 6.7 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Company
Indemnified Party and his or her heirs and representatives. In the event the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties or assets to any person,
then, and in each such case, the Surviving Corporation shall cause proper provision to be made so that the successors and assigns of the Surviving Corporation will expressly assume the obligations set
forth in this Section 6.7.
6.8
Additional
Agreements
.
In case at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement (including any merger between a Subsidiary of
Parent, on the one hand, and a Subsidiary of the Company, on the other hand) or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and
franchises of any of the parties to the Merger, the proper officers and directors of each party to this Agreement and their respective Subsidiaries shall take all such necessary action as may be
required or reasonably requested by Parent or the Company.
6.9
Advice of
Changes
.
Parent and the Company shall each promptly advise the other party of any fact, effect, change, event, circumstance, condition, occurrence or development that (i) has had or is
reasonably likely, either individually or in the aggregate, to have a Material Adverse Effect on it or (ii) would or would be reasonably likely to cause or constitute a material breach of any
of its representations, warranties, covenants or agreements contained herein or that reasonably could be expected to give rise, individually or in the aggregate, to the failure of a condition in
Article VII; provided, that any failure to give notice in accordance with the foregoing with respect to any breach shall not be deemed to constitute a violation of this Section 6.9 or
the failure of any condition set forth in Section 7.2 or 7.3 to be satisfied, or otherwise constitute a breach of this Agreement by the party failing to give such notice, in each case unless
the underlying breach would independently result in a failure of the conditions set forth in Section 7.2 or 7.3 to be satisfied; and provided, further, that the delivery of any notice pursuant
to this Section 6.9 shall not cure any breach of, or noncompliance with, any other provision of this Agreement or limit the remedies available to the party receiving such notice.
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6.10
Shareholder
Litigation
. The Company shall give Parent prompt notice of any shareholder litigation
against the Company and/or its directors or officers relating to the transactions contemplated by this Agreement and shall give Parent an opportunity to participate in the defense or settlement of any
such litigation. The Company shall give Parent the right to review and comment on all filings or responses to be made by the Company in connection with any such litigation, and the Company will in
good faith take such comments into account, and no settlement of any such shareholder litigation shall be offered or agreed to without Parent's prior written consent (such consent not to be
unreasonably withheld, conditioned or delayed).
6.11
Governance
Matters.
(a) The
directors of Parent at the Effective Time shall be the directors of the Surviving Corporation from and after the Effective Time until their successors are duly
elected or appointed;
provided
, that effective immediately following the Effective Time, Parent shall take such action as is necessary to appoint Cheryl Bishop to the
Board of Directors of the Surviving Corporation.
(b) The
officers of Parent at the Effective Time shall be the officers of the Surviving Corporation from and after the Effective Time until their successors are duly
elected or appointed, together with such additional persons as may thereafter be elected or appointed.
6.12
Acquisition
Proposals
. Except as expressly permitted by this Section 6.12, the Company agrees that it will not, and
will cause each of its Subsidiaries and its and their respective officers, directors, employees, agents, advisors, financing sources, investment bankers, attorneys and other representatives
(collectively, "
Representatives
") not to, directly or indirectly, (i) initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or proposals
regarding, or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any Acquisition Proposal, (ii) engage or participate in any negotiations with any
person concerning any Acquisition Proposal, (iii) disclose or provide any confidential or nonpublic information to, have or participate in any discussions with or otherwise cooperate in any way
with, any person in connection with or relating to any Acquisition Proposal (including by affording access to the personnel, properties, books, records or assets of the Company or its Subsidiaries) or
(iv) unless this Agreement has been terminated in accordance with its terms, approve or enter into any term sheet, letter of intent, commitment, memorandum of understanding, agreement in
principle, acquisition agreement, merger agreement, or other agreement (whether written or oral, binding or nonbinding) (other than a confidentiality agreement referred to and entered into in
accordance with this Section 6.12) in connection with or relating to any Acquisition Proposal. Notwithstanding the foregoing, prior to the receipt of the Requisite Company Vote and subject to
compliance with this Section 6.12, in the event the Company receives an unsolicited
bona fide
written Acquisition Proposal after the date of this
Agreement that did not result from a breach of this Section 6.12, it may, and may permit its Subsidiaries and its and its Subsidiaries' Representatives to, furnish or cause to be furnished
confidential or nonpublic information or data and participate in such negotiations or discussions with the person making the Acquisition Proposal if and only if its Board of Directors determines in
good faith (after consultation with its outside legal counsel and financial advisors) that such Acquisition Proposal constitutes or is reasonably likely to result in a Superior Proposal and that the
failure to take such actions would reasonably be expected to be inconsistent with the
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directors'
fiduciary duties under applicable law; provided, further, that prior to providing any confidential or nonpublic information permitted to be provided pursuant to the foregoing proviso or
participating in such negotiations or discussions, the Company shall have given Parent at least five (5) business days' prior written notice and shall have entered into a confidentiality
agreement with such third party on terms no less favorable to it than the Confidentiality Agreement, which confidentiality agreement shall not provide such person with any exclusive right to negotiate
with the Company. The Company shall provide Parent with a copy of any confidential or nonpublic information provided to any person pursuant to the prior sentence prior to or simultaneously with
furnishing such information to such person (to the extent not previously provided). The Company will, and will cause its Representatives to, immediately cease and cause to be terminated any
activities, discussions or negotiations conducted before the date of this Agreement with any person other than Parent with respect to any Acquisition Proposal and will request the return or
destruction of any information provided to any such person in connection therewith. The Company will promptly (and within twenty-four (24) hours) advise Parent following receipt of any
Acquisition Proposal or any inquiry which could reasonably be expected to lead to an Acquisition Proposal, and the substance thereof (including the terms and conditions of and the identity of the
person making such inquiry or Acquisition Proposal) and will provide Parent an unredacted copy of such Acquisition Proposal and any draft agreements, proposals or other materials or correspondence
received in connection with such inquiry or Acquisition Proposal, and will keep Parent apprised of any related developments, discussions and negotiations on a current basis, including any amendments
to or revisions of the terms of such inquiry or Acquisition Proposal (including providing an unredacted copy of such amended or revised Acquisition Proposal and any further or revised draft
agreements, proposals or other materials or correspondence received in connection with such inquiry or Acquisition Proposal). The Company shall enforce any existing confidentiality agreements to which
it or any of its Subsidiaries is a party in accordance with the terms thereof and will not release any third party from, or waive any provisions of, any such agreements. As used in this Agreement,
"
Acquisition Proposal
" shall mean, other than the transactions contemplated by this Agreement, any offer, proposal or inquiry relating to, or any third party indication of
interest in, (i) any acquisition or purchase, direct or indirect, of fifteen percent (15%) or more of the consolidated assets of the Company and its Subsidiaries or fifteen percent (15%) or
more of any class of equity or voting securities of the Company or its Subsidiaries whose assets, individually or in the aggregate, constitute fifteen percent (15%) or more of the consolidated assets
of the Company, (ii) any tender offer (including a self-tender offer), exchange offer or other acquisition of equity or voting securities that, if consummated, would result in such third party
beneficially owning fifteen percent (15%) or more of any class of equity or voting securities of the Company or its Subsidiaries whose assets, individually or in the aggregate, constitute fifteen
percent (15%) or more of the consolidated assets of the Company or (iii) a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation,
dissolution or other similar transaction involving the Company or its Subsidiaries. As used in this Agreement, "
Superior Proposal
" means an unsolicited,
bona fide
written Acquisition Proposal
made by a third party to acquire, directly or indirectly, pursuant to a tender offer, exchange offer, merger,
consolidation or other business combination or acquisition transaction, all or substantially all of the consolidated assets of the Company and its Subsidiaries or all of the outstanding shares of
Company Common Stock, and which the Board of Directors of the Company has in good faith determined (after consultation with its outside legal counsel and financial advisors, and taking
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into
account the terms and conditions of such Acquisition Proposal and this Agreement (as it may be proposed to be amended by Parent) and all legal, financial, timing, regulatory and other aspects of
such Acquisition Proposal and the person making the proposal), to be more favorable, from a financial point of view, to the Company's shareholders than the Merger and the transactions contemplated by
this Agreement (as it may be proposed to be amended by Parent) and to be reasonably likely to be consummated on a timely basis on the terms proposed.
6.13
Public
Announcements
. The parties hereto agree that the initial press release with respect to the execution and delivery of
this Agreement shall be a release mutually agreed to by Parent and the Company. Thereafter, each of the parties agrees that no public release or announcement or statement concerning this Agreement or
the transactions contemplated hereby shall be issued by any party without the prior written consent of the other party (which consent shall not be unreasonably withheld, conditioned or delayed),
except as required by applicable law or the rules or regulations of any applicable Governmental Entity or stock exchange to which the relevant party is subject, in which case the party required to
make the release or announcement shall consult with the other party about, and allow the other party reasonable time to comment on, such release or announcement in advance of such issuance.
6.14
Change
of Method
. Parent shall be empowered, at any time prior to the Effective Time, to change the method or structure of
effecting the combination of the Company and Parent (including the provisions of Article I), and the Company agrees to enter into such amendments to this Agreement as Parent may reasonably
request to give effect to such restructuring; provided, however, that no such change or amendment shall (i) alter or change the amount or kind of the Merger Consideration provided for in this
Agreement, (ii) adversely affect the Tax treatment of the Merger with respect to either party or its shareholders or (iii) impede or materially delay the consummation of the transactions
contemplated by this Agreement or the receipt of the Requisite Regulatory Approvals.
6.15
Restructuring
Efforts
. If the Company shall have failed to obtain the Requisite Company Vote at the duly convened Company
Meeting or any adjournment or postponement thereof, unless this Agreement has been validly terminated in accordance with Section 8.1, each of the parties shall in good faith use its reasonable
best efforts to negotiate a restructuring of the transactions provided for herein (it being understood that neither party shall have any obligation to alter or change any material terms, including the
amount or kind of the Merger Consideration, in a manner adverse to such party or its shareholders or to agree to any change that would adversely affect the Tax treatment of the Merger with respect to
such party or its shareholders) and/or resubmit this Agreement and the transactions contemplated hereby (or as restructured pursuant to this Section 6.15) to the Company's shareholders for
approval.
6.16
Takeover
Statutes
. None of the Company, Parent or their respective Boards of Directors shall take any action that would cause
any Takeover Statute to become applicable to this Agreement, the Merger or any of the other transactions contemplated hereby, and each shall take all necessary steps to exempt (or ensure the continued
exemption of) the Merger and the other transactions contemplated hereby from any applicable Takeover Statute now or hereafter in effect. If any Takeover Statute may become, or may purport to be,
applicable to the transactions contemplated hereby, each party and their respective Boards of Directors will grant such approvals and take such actions as are necessary so that the transactions
contemplated
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by
this Agreement may be consummated as promptly as practicable on the terms contemplated hereby and thereby and otherwise act to eliminate or minimize the effects of any Takeover Statute on any of
the transactions contemplated by this Agreement, including, if necessary, challenging the validity or applicability of any such Takeover Statute.
6.17
Special
Dividend
. After Adjusted Shareholders' Equity has been finally determined pursuant to Section 1.12, to the
extent Adjusted Shareholders' Equity, as so determined, exceeds $80,000,000, the Board of Directors of the Company may, upon written notice to Parent and effective immediately prior to the Closing,
declare and pay a special dividend in an amount not to exceed such excess.
ARTICLE VII
CONDITIONS PRECEDENT
7.1
Conditions to Each
Party's Obligation to Effect the Merger
.
The respective obligations of the parties to effect the Merger shall be subject to the satisfaction, or waiver (subject to applicable law) by Parent and the Company, at or prior to the
Effective Time of the following conditions:
(a)
Shareholder
Approval
. This Agreement shall have been approved by the shareholders of the Company by the Requisite Company
Vote.
(b)
NASDAQ
Listing
. Parent shall have filed with the NASDAQ a notification form for the listing of all shares of Parent Common
Stock to be delivered as Merger Consideration, and the NASDAQ shall not have objected to the listing of such shares of Parent Common Stock.
(c)
Regulatory
Approvals
. All regulatory authorizations, consents, orders or approvals required to consummate the transactions
contemplated by this Agreement (including the Merger and the Bank Merger) from the Federal Reserve Board, the FDIC, the DFI and, if required by the HSR Act, under the HSR Act, and any other
authorizations, consents, orders or approvals from Governmental Entities required to consummate the transactions contemplated by this Agreement (including the Merger and the Bank Merger) shall have
been obtained and shall remain in full force and effect, and all statutory waiting periods in respect thereof shall have expired or been terminated (such authorizations, consents, orders or approvals
and the expiration of such waiting periods being referred to herein as the "
Requisite Regulatory Approvals
") and (ii) in the case of the obligation of Parent to
effect the Merger, no such Requisite Regulatory Approval shall contain or shall have resulted in, or would reasonably be expected to result in, the imposition of any Materially Burdensome Regulatory
Condition.
(d)
S-4
. The
S-4 shall have become effective under the Securities Act and no stop order suspending the effectiveness of the S-4
shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC and not withdrawn.
(e)
No
Injunctions or Restraints; Illegality
. No order, injunction or decree issued by any court or Governmental Entity of
competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger, the Bank Merger or any of the other
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transactions
contemplated by this Agreement shall be in effect. No law, statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits or makes illegal consummation of the Merger, the Bank Merger or any of the other transactions contemplated by this Agreement.
(f)
Finally
Determined Adjusted Shareholders' Equity
. Adjusted Shareholders' Equity shall have been finally determined pursuant to
Section 1.12.
7.2
Conditions
to Obligations of Parent
. The obligation of Parent to effect the Merger is also subject to the satisfaction, or
waiver (subject to applicable law) by Parent, at or prior to the Effective Time, of the following conditions:
(a)
Representations
and Warranties
. The representations and warranties of the Company set forth in Sections 3.2, 3.3(a),
3.7, 3.8(a) and 3.23 (in each case after giving effect to the lead in to Article III) shall be true and correct (other than, in the case of Section 3.2, such failures to be true and
correct as are
de minimis
), in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date
(except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date), and the representations and warranties of the Company set forth in
Section 3.1 (in each case, after giving effect to the lead in to Article III) shall be true and correct in all material respects, in each case as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date). All other
representations and warranties of the Company set forth in this Agreement (read without giving effect to any qualification as to materiality or Material Adverse Effect set forth in such
representations or warranties but, in each case, after giving effect to the lead in to Article III) shall be true and correct in all respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of an earlier date, in which case as of such earlier date);
provided
,
however
, that for purposes of this sentence, such representations and warranties shall be deemed to be true and correct unless the
failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, and without giving effect to any qualification as to materiality or
Material Adverse Effect set forth in such representations or warranties, has had or would reasonably be expected to have a Material Adverse Effect on the Company or the Surviving Corporation. Parent
shall have received a certificate dated as of the Closing Date and signed on behalf of the Company by the Chief Executive Officer or the Chief Financial Officer of the Company to the foregoing effect.
(b)
Performance
of Obligations of the Company
. The Company shall have performed and complied with in all material respects the
obligations, covenants and agreements required to be performed and complied with by it under this Agreement at or prior to the Effective Time, and Parent shall have received a certificate dated as of
the Closing Date and signed on behalf of the Company by the Chief Executive Officer or the Chief Financial Officer of the Company to such effect.
(c)
Federal
Tax Opinion
. Parent shall have received the opinion of Wachtell, Lipton, Rosen & Katz, in form and substance
reasonably satisfactory to Parent, dated as of the Closing Date, to the effect that, on the basis of facts, representations and assumptions set forth or
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referred
to in such opinion, the Merger shall qualify as a "reorganization" within the meaning of Section 368(a) of the Code. In rendering such opinion, counsel may require and rely upon
representations contained in certificates of officers of Parent and the Company, reasonably satisfactory in form and substance to such counsel.
(d)
Dissenting
Shares
. Holders of not more than 10% of the outstanding shares of Company Common Stock shall have exercised their
dissenters' rights pursuant to the WBCA.
7.3
Conditions
to Obligations of the Company
. The obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver (subject to applicable law) by the Company at or prior to the Effective Time of the following conditions:
(a)
Representations
and Warranties
. The representations and warranties of Parent set forth in Sections 4.2, 4.3(a), 4.7,
4.8(a) and 4.15 (in each case, after giving effect to the lead in to Article IV) shall be true and correct (other than, in the case of Section 4.2, such failures to be true and correct
as are
de minimis
), in each case as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the
extent such representations and warranties speak as of an earlier date, in which case as of such earlier date), and the representations and warranties of Parent set forth in Section 4.1 (in
each case, after giving effect to the lead in to Article IV) shall be true and correct in all material respects, in each case as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent such representations and
warranties speak as of an earlier date, in which case as of such earlier date). All other representations and warranties of Parent set forth in this Agreement (read without giving effect to any
qualification as to materiality or Material Adverse Effect set forth in such representations or warranties but, in each case, after giving effect to the lead in to Article IV) shall be true and
correct in all respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties speak as of
an earlier date, in which case as of such earlier date),
provided
,
however
, that for purposes of this sentence, such representations and
warranties shall be deemed to be true and correct unless the failure or failures of such representations and warranties to be so true and correct, either individually or in the aggregate, and without
giving effect to any qualification as to materiality or Material Adverse Effect set forth in such representations or warranties, has had or would reasonably be expected to have a Material Adverse
Effect on Parent. The Company shall have received a certificate dated as of the Closing Date and signed on behalf of Parent by the Chief Executive Officer or the Chief Financial Officer of Parent to
the foregoing effect.
(b)
Performance
of Obligations of Parent
. Parent shall have performed and complied with in all material respects the obligations,
covenants and agreements required to be performed and complied with by it under this Agreement at or prior to the Effective Time, and the Company shall have received a certificate dated as of the
Closing Date and signed on behalf of Parent by the Chief Executive Officer or the Chief Financial Officer of Parent to such effect.
(c)
Federal
Tax Opinion
. The Company shall have received the opinion of Miller Nash Graham & Dunn LLP, in form and
substance reasonably satisfactory to the Company, dated as of the Closing Date, to the effect that, on the basis of facts, representations
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and
assumptions set forth or referred to in such opinion, the Merger shall qualify as a "reorganization" within the meaning of Section 368(a) of the Code. In rendering such opinion, counsel may
require and rely upon representations contained in certificates of officers of Parent and the Company, reasonably satisfactory in form and substance to such counsel.
ARTICLE VIII
TERMINATION
AND AMENDMENT
8.1
Termination
.
This
Agreement may be terminated at any time prior to the Effective Time, whether before or after receipt of the
Requisite Company Vote:
(a) by
mutual written consent of Parent and the Company;
(b) by
either Parent or the Company, if any Governmental Entity that must grant a Requisite Regulatory Approval has denied approval of the Merger or the Bank Merger or any
of the other transactions contemplated by this Agreement and such denial has become final and nonappealable or any Governmental Entity of competent jurisdiction shall have issued a final nonappealable
order, injunction, decree, or other legal restraint or prohibition permanently enjoining or otherwise prohibiting or making illegal the consummation of the Merger or the Bank Merger, or any of the
other transactions contemplated by this Agreement;
(c)
by
either Parent or the Company, if the Merger shall not have been consummated on or before April 25, 2019 (the "
Termination
Date
"), unless the failure of the Closing to occur by such date shall be due to the failure of the party seeking to terminate this Agreement to perform or comply with the obligations,
covenants and agreements of such party set forth herein;
(d) by
either Parent or the Company (
provided
, that the terminating party is not then in material breach of any representation, warranty,
obligation, covenant or other agreement contained herein), if there shall have been a breach of any of the obligations, covenants or agreements or any of the representations or warranties (or any such
representation or warranty shall cease to be true) set forth in this Agreement on the part of the Company, in the case of a termination by Parent, or Parent, in the case of a termination by the
Company, which breach or failure to be true, either individually or in the aggregate with all other breaches by such party (or failures of such representations or warranties to be true), would
constitute, if occurring or continuing on the Closing Date, the failure of a condition set forth in Section 7.2, in the case of a termination by Parent, or Section 7.3, in the case of a
termination by the Company, and which is not cured within thirty (30) days following written notice to the Company, in the case of a termination by Parent, or Parent, in the case of a
termination by the Company, or by its nature or timing cannot be cured during such period (or such fewer days as remain prior to the Termination Date);
(e) by
the Company if (i) the Company shall have complied in all material respects with its obligations under Section 6.3 (including with respect to any
requested adjournment or postponement requested under Section 6.3(c)) and Section 6.12, (ii) the Company Meeting (including any postponements or adjournments thereof) shall have
concluded
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with
the vote contemplated by Section 6.3(a) having been taken and the Requisite Company Vote shall not have been obtained and (iii) prior to the Company Meeting, the Company shall have
received a Superior Proposal which did not result from a breach of Section 6.3 or Section 6.12 and the Board of Directors of the Company shall have determined to enter into a definitive
agreement providing for such Superior Proposal upon termination of this Agreement in accordance with this Section 8.1(e) and shall have entered into such agreement concurrently with such
termination;
provided
, that (x) following such Company Meeting (including any postponements or adjournments thereof) and prior to such termination, the Company and
the Board of Directors of the Company shall have complied with their respective obligations pursuant to Sections 6.3(b)(v), 6.3(b)(vi) and 6.3(b)(vii), which shall be deemed to apply to a
termination pursuant to this Section 8.1(e)
mutatis mutandis
(it being understood that references to "Recommendation Change" therein shall, for
purposes of this clause (x), be deemed to be references to a termination pursuant to this Section 8.1(e)) and (y) concurrently with and as a condition to the effectiveness of such
termination the Company shall pay Parent the Termination Fee pursuant to Section 8.2(d);
(f)
by
Parent if the Company Meeting (including any postponements or adjournments thereof) shall have concluded with the vote contemplated by Section 6.3(a) having
been taken and the Requisite Company Vote shall not have been obtained; or
(g) by
Parent, prior to the Requisite Company Vote having been obtained, if the Company or the Board of Directors of the Company shall have (i) made a Recommendation
Change or (ii) breached its obligations under Section 6.3 or 6.12 in any material respect.
8.2
Effect
of Termination
.
(a) In
the event of termination of this Agreement by either Parent or the Company as provided in Section 8.1, this Agreement shall forthwith become void and have no
effect, and none of Parent, the Company, any of their respective Subsidiaries or any of the officers or directors of any of them shall have any liability of any nature whatsoever hereunder, or in
connection with the transactions contemplated hereby, except that (i) Section 6.2(b) (Access to Information; Confidentiality), Section 6.13 (Public Announcements),
Section 8.1 (Termination), this Section 8.2 (Effect of Termination) and Article IX (General Provisions) shall survive any termination of this Agreement, and
(ii) notwithstanding anything to the contrary contained in this Agreement, neither Parent nor the Company shall be relieved or released from any liabilities or damages arising out of its fraud
or willful and material breach of any provision of this Agreement.
(b) In
the event that, after the date of this Agreement and prior to the termination of this Agreement, (i) a
bona
fide
Acquisition Proposal shall have been communicated to or otherwise made known to the Board of Directors or senior management of the Company or shall have been made directly
to the shareholders of the Company, or any person shall have publicly announced an Acquisition Proposal, with respect to the Company, (ii) thereafter this Agreement is terminated (A) by
either Parent or the Company pursuant to Section 8.1(c) (if the Requisite Company Vote has not theretofore been obtained but all other conditions set forth in Sections 7.1 and 7.3 had
been satisfied or were capable of being satisfied prior to such termination) or (B) by Parent (x) pursuant to Section 8.1(d) or (y) pursuant to Section
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8.1(f),
and (iii) prior to the date that is twelve (12) months after the date of such termination, the Company enters into a definitive agreement or consummates a transaction with
respect to an Acquisition Proposal (whether or not the same Acquisition Proposal as that referred to above), then the Company shall, on the earlier of the date it enters into such definitive agreement
and the date of consummation of such transaction, pay Parent, by wire transfer of same-day funds, a fee equal to $7,750,000 (the "
Termination Fee
");
provided
, that for purposes of this Section 8.2(b), all references in the definition of Acquisition Proposal to "fifteen percent (15%)" shall instead refer to
"fifty percent (50%)."
(c)
In
the event that this Agreement is terminated by Parent pursuant to Section 8.1(g), then the Company shall pay Parent, by wire transfer of same day funds, the
Termination Fee within two business days of the date of termination.
(d) In
the event that this Agreement is terminated by the Company pursuant to Section 8.1(e), then the Company shall, concurrently with and as a condition to such
termination, pay Parent the Termination Fee by wire transfer of same day funds.
(e) The
Company acknowledges that the agreements contained in this Section 8.2 are an integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent would not enter into this Agreement; accordingly, if the Company fails to pay the amount due pursuant to this Section 8.2 when required, and, in order to obtain
such payment, Parent commences a suit which results in a judgment against the Company for the Termination Fee or any portion thereof, the Company shall pay the costs and expenses of Parent (including
attorneys' fees and expenses) in connection with such suit. In addition, if the Company fails to pay the amounts payable pursuant to this Section 8.2 when required, then the Company shall pay
interest on such overdue amounts (for the period commencing as of the date that such overdue amount was originally required to be paid and ending on the date that such overdue amount is actually paid
in full) at a rate per annum equal to the "prime rate" published in
The Wall Street Journal
on the date such payment was required to be made
plus
300 basis
points for the period commencing as of the date that such overdue amount was originally required to be paid. The amounts payable by the
Company pursuant to this Section 8.2 constitute liquidated damages and not a penalty, and, except in the case of fraud or willful and material breach of this Agreement, shall be the sole
monetary remedy of Parent in the event of a termination of this Agreement specified in such section. In no event shall the Company be required to pay the Termination Fee more than once.
8.3
Amendment
.
Subject
to compliance with applicable law, this Agreement may be amended by the parties hereto, at any time before
or after receipt of the Requisite Company Vote; provided, however, that after the receipt of the Requisite Company Vote, there may not be, without further approval of such shareholders, any amendment
of this Agreement that requires such further approval under applicable law. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.
8.4
Extension;
Waiver
. At any time prior to the Effective Time, the parties hereto may, to the extent legally allowed,
(a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered
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by
such other party pursuant hereto and (c) waive compliance with any of the agreements or satisfaction of any conditions for its benefit contained herein. Any agreement on the part of a party
hereto to any
such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL
PROVISIONS
9.1
Nonsurvival
of Representations, Warranties and Agreements
. None of the representations, warranties, obligations, covenants and
agreements in this Agreement shall survive the Effective Time, except for those obligations, covenants and agreements contained herein which by their terms apply or are to be performed in whole or in
part after the Effective Time.
9.2
Expenses
.
Except
as otherwise expressly provided in this Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense.
9.3
Notices
.
All
notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally,
by e-mail or facsimile transmission (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified by like notice):
(a) if
to the Company, to:
|
|
|
|
|
|
|
Skagit Bancorp, Inc.
323 East Fairhaven Avenue
Burlington, WA 98233
|
|
|
Attention:
|
|
Cheryl Bishop
|
|
|
E-mail:
|
|
crb@skagitbank.com
|
|
|
with a copy (which shall not constitute notice) to:
|
|
|
Miller Nash Graham & Dunn LLP
2801 Alaskan Way, Suite 300
Seattle, WA 98121
|
|
|
Attention:
|
|
Stephen M. Klein, Esq.
David G. Post, Esq.
|
|
|
Facsimile:
|
|
(206) 340-9599
|
|
|
E-mail:
|
|
steve.klein@millernash.com
david.post@millernash.com
|
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and
(b) if
to Parent, to:
|
|
|
|
|
|
|
Banner Corporation
3001 112
th
Avenue NE, Suite 100
Bellevue, WA 98004
|
|
|
Attention:
|
|
Craig Miller
|
|
|
E-mail:
|
|
craig.miller@bannerbank.com
|
|
|
with a copy (which shall not constitute notice) to:
|
|
|
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
|
|
|
Attention:
|
|
Matthew M. Guest, Esq.
Jacob A. Kling, Esq.
|
|
|
Facsimile:
|
|
(212) 403-2000
|
|
|
E-mail:
|
|
MGuest@wlrk.com
JAKling@wlrk.com
|
9.4
Interpretation
.
The
parties have participated jointly in negotiating and drafting this Agreement. In the event
that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any provision of this Agreement. When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference shall
be to an Article or Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." The word "or" shall not be exclusive. References to "the date hereof" shall mean the date of this Agreement. As used in this Agreement, the "knowledge" of the Company
means the actual knowledge of any of the officers of the Company listed on Section 9.4 of the Company Disclosure Schedules, and the "knowledge" of Parent means the actual knowledge of any of
the officers of Parent listed on Section 9.4 of the Parent Disclosure Schedules. As used herein, (i) the term "person" means any individual, corporation (including not-for-profit),
general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature, (ii) an
"affiliate" of a specified person is any person that directly or indirectly controls, is controlled by, or is under common control with, such specified person and (iii) the term "made
available" means any document or other information that was (a) provided by one party or its representatives to the other party and its representatives at least one business day prior to the
date hereof, (b) included in the virtual data room of a party at least one business day prior to the date hereof or (c) filed by a party with the SEC and publicly available on EDGAR at
least one business day prior to the date hereof. The Company Disclosure Schedules and the Parent Disclosure Schedules, as well as all other
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schedules
and all exhibits hereto, shall be deemed part of this Agreement and included in any reference to this Agreement.
9.5
Counterparts
. This
Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
9.6
Entire
Agreement
.
This Agreement (including the Voting Agreements and the other documents and instruments referred to herein) together with the Confidentiality Agreement constitutes the entire agreement
among the parties and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.
9.7
Governing Law;
Jurisdiction
.
(a)
This
Agreement shall be governed and construed in accordance with the laws of the State of Washington, without regard to any applicable conflicts of law.
(b)
Each
party agrees that it will bring any action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated
hereby exclusively in any federal or state court of competent jurisdiction located in the State of Washington (the "
Chosen Courts
"), and, solely in connection with claims
arising under this Agreement or the transactions that are the subject of this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any
objection to laying venue in any such action or proceeding in the Chosen Courts, (iii) waives any objection that the Chosen Courts are an inconvenient forum or do not have jurisdiction over any
party and (iv) agrees that service of process upon such party in any such action or proceeding will be effective if notice is given in accordance with Section 9.3.
9.8
Waiver of Jury
Trial
.
EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE EXTENT PERMITTED BY LAW AT THE TIME OF INSTITUTION OF THE APPLICABLE LITIGATION, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER,
(II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.8.
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9.9
Assignment;
Third Party Beneficiaries
.
Neither this Agreement nor any of the rights, interests or obligations shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written
consent of the other party. Any purported assignment in contravention hereof shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and assigns. Except as otherwise specifically provided in Section 6.7, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder, including the right to rely upon the representations and warranties set
forth herein. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties. Any inaccuracies in such
representations and warranties are subject to waiver by the parties hereto in accordance herewith without notice or liability to any other person. In some instances, the representations and warranties
in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other
than the parties may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.
9.10
Specific Performance
.
The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and, accordingly, that the parties
shall be entitled to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof (including
the parties' obligation to consummate the Merger), in addition to any other remedy to which they are entitled at law or in equity. Each of the parties hereby further waives (a) any defense in
any action for specific performance that a remedy at law would be adequate and (b) any requirement under any law to post security or a bond as a prerequisite to obtaining equitable relief.
9.11
Severability
.
Whenever
possible, each provision or portion of any provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement
shall be reformed, construed and enforced in such jurisdiction such that the invalid, illegal or unenforceable provision or portion thereof shall be interpreted to be only so broad as is enforceable.
9.12
Confidential Supervisory
Information
.
Notwithstanding any other provision of this Agreement, no disclosure, representation or warranty shall be made (or other action taken) pursuant to this Agreement that would involve the
disclosure of confidential supervisory information (including confidential supervisory information as defined in 12 C.F.R. § 261.2(c) and as identified in
12 C.F.R. § 309.5(g)(8)) of a Governmental Entity by any party to this Agreement to the extent prohibited by applicable law. To the extent legally permissible,
appropriate substitute disclosures or actions shall be made or taken under circumstances in which the limitations of the preceding sentence apply.
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9.13
Delivery by Facsimile or
Electronic Transmission
.
This Agreement and any signed agreement or instrument entered into in connection with this Agreement, and any amendments or waivers hereto or thereto, to the extent signed and delivered
by means of a facsimile machine or by e-mail delivery of a ".pdf" format data file, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have
the same binding legal effect as if it were the original signed version thereof delivered in person. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine
or e-mail delivery of a ".pdf" format data file to deliver a signature to this Agreement or any amendment hereto or the fact that any signature or agreement or instrument was transmitted or
communicated through the use of a facsimile machine or e-mail delivery of a ".pdf" format data file as a defense to the formation of a contract and each party hereto forever waives any such defense.
[Signature Page Follows]
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IN WITNESS WHEREOF, Parent and the Company have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the
date first
above written.
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SKAGIT BANCORP, INC.
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By:
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/s/ Cheryl R. Bishop
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Name:
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Cheryl R. Bishop
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Title:
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President and Chief Executive Officer
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BANNER CORPORATION
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By:
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/s/ Mark J. Grescovich
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Name:
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Mark J. Grescovich
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Title:
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President & Chief Executive Officer
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Table of Contents
Annex B
July 25,
2018
Board
of Directors
Skagit Bancorp, Inc.
301 East Fairhaven Avenue
Burlington, WA 98233
Ladies
and Gentlemen:
Skagit
Bancorp, Inc. ("Company") and Banner Corporation ("Parent") are proposing to enter into an Agreement and Plan of Merger (the "Agreement") pursuant to which Company will,
subject to the terms and conditions set forth in the Agreement, merge with and into Parent with Parent being the surviving entity (the "Merger"). Pursuant to the terms and conditions of the Agreement,
at the Effective Time, each share of Company's common stock, no par value ("Company Common Stock"), issued and outstanding immediately prior to the Effective Time, except for certain shares of Company
Common Stock as specified in the Agreement, will be converted into and become the right to receive 5.6664 shares (the "Exchange Ratio") of Parent common stock, par value $0.01 per share ("Parent
Common Stock"), subject to possible adjustment as set forth in the Agreement. The Agreement provides, generally, that if the Company's Adjusted Shareholders' Equity (i) is greater than or equal
to $80,000,000, there shall be no adjustment to the Exchange Ratio, and to the extent Adjusted Shareholders' Equity exceeds $80,000,000, Company may declare and pay a special cash dividend immediately
prior to the Closing, in an amount not to exceed such excess, or (ii) is less than $80,000,000, the Exchange Ratio shall be reduced by the Exchange Ratio Reduction Amount. Capitalized terms
used herein without definition shall have the meanings assigned to them in the Agreement. The terms and conditions of the Merger are more fully set forth in the Agreement. You have requested our
opinion as to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Company Common Stock.
Sandler
O'Neill & Partners, L.P. ("Sandler O'Neill", "we" or "our"), as part of its investment banking business, is regularly engaged in the valuation of financial
institutions and their securities in connection with mergers and acquisitions and other corporate transactions. In connection with this opinion, we have reviewed and considered, among other things:
(i) a draft of the Agreement, dated July 23, 2018; (ii) certain publicly available financial statements and other historical financial information of Company that we deemed
relevant; (iii) certain publicly available financial statements and other historical financial information of Parent that we deemed relevant; (iv) certain internal financial projections
for Company for the year ending December 31, 2018, as provided by the senior management of Company, as well as a long-term earnings per share growth rate and dividend payout ratio for the years
thereafter, as directed by the senior management of Company; (v) publicly available consensus analyst net income estimates for Parent for the second half of the year ending December 31,
2018 and the full year ending December 31, 2019, as well as a long-term earnings per share growth rate
SANDLER O'NEILL + PARTNERS, L.P.
555 California Street, Suite 1925, San Francisco, CA 94104
T: (415) 978-5000 / (800) 456-2027
www.sandleroneill.com
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for
the years thereafter and dividend payout ratio for the years ending December 31, 2018 through December 31, 2022, as directed by the senior management of Parent; (vi) the pro
forma financial impact of the Merger on Parent based on certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as well as estimated revenue impacts
following the closing of the Merger, as directed by the senior management of Parent; (vii) the publicly reported historical price and trading activity for Parent Common Stock, including a
comparison of certain stock market information for Parent Common Stock and certain stock indices as well as publicly available information for certain other similar companies, the securities of which
are publicly traded; (viii) a comparison of certain financial information for Company and Parent with similar financial institutions for which information is publicly available; (ix) the
financial terms of certain recent business combinations in the banking industry (on a nationwide basis), to the extent publicly available; (x) the current market environment generally and the
banking environment in particular; and (xi) such other information, financial studies, analyses and investigations and financial, economic and market criteria as we considered relevant. We also
discussed with certain members of the management of Company and its representatives the business, financial condition, results of operations and prospects of Company and held similar discussions with
certain members of the management of Parent and its representatives regarding the business, financial condition, results of operations and prospects of Parent.
In
performing our review, we have relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by us from public sources,
that was provided to us by Company or Parent or their respective representatives, or that was otherwise reviewed by us, and we have assumed such accuracy and completeness for purposes of rendering
this opinion without any independent verification or investigation. We have relied on the assurances of the respective managements of Company and Parent that they are not aware of any facts or
circumstances that would make any of such information inaccurate or misleading. We have not been asked to and have not undertaken an independent verification of any of such information and we do not
assume any responsibility or liability for the accuracy or completeness thereof. We did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing
assets or the liabilities (contingent or otherwise) of Company or Parent or any of their respective subsidiaries, nor have we been furnished with any such evaluations or appraisals. We render no
opinion or evaluation on the collectability of any assets or the future performance of any loans of Company or Parent. We did not make an independent evaluation of the adequacy of the allowance for
loan losses of Company or Parent, or of the combined entity after the Merger, and we have not reviewed any individual credit files relating to Company or Parent. We have assumed, with your consent,
that the respective allowances for loan losses for both Company and Parent are adequate to cover such losses and will be adequate on a pro forma basis for the combined entity.
In
preparing its analyses, Sandler O'Neill used certain internal financial projections for Company for the year ending December 31, 2018, as provided by the senior management of
Company, as well as a long-term earnings per share growth rate and dividend payout ratio for the years thereafter, as directed by the senior management of Company. In addition, Sandler O'Neill used
publicly available consensus analyst net income estimates for Parent for the second half of the year ending December 31, 2018 and the full year ending December 31, 2019, as well as a
long-term earnings per share growth rate for the years thereafter and dividend payout ratio for the years ending December 31, 2018 through December 31, 2022, as directed by the senior
management of Parent. Sandler O'Neill also received and used in its pro forma analyses certain assumptions relating to purchase accounting adjustments, cost savings and transaction expenses, as well
as estimated revenue impacts following the closing of the Merger, as directed by the senior management of Parent. With respect to the foregoing information, the respective senior managements of
Company and Parent confirmed to us that such information reflected (or, in the case of the publicly available consensus analyst estimates referred to above, were consistent with) the best currently
available projections, estimates and judgments of those respective managements as to the future financial performance of Company and Parent, respectively, and the
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other
matters covered thereby, and we assumed that the future financial performance reflected in such information would be achieved. We express no opinion as to such information, or the assumptions on
which such information is based. We have also assumed that there has been no material change in the respective assets, financial condition, results of operations, business or prospects of Company or
Parent since the date of the most recent financial statements made available to us. We have assumed in all respects material to our analysis that Company and Parent will remain as going concerns for
all periods relevant to our analysis.
We
have also assumed, with your consent, that (i) each of the parties to the Agreement will comply in all material respects with all material terms and conditions of the Agreement
and all related agreements, that all of the representations and warranties contained in such agreements are true and correct in all material respects, that each of the parties to such agreements will
perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements are not
and will not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the Merger, no delay, limitation, restriction or
condition will be imposed that would have an adverse effect on Company, Parent, the Merger or any related transactions, and (iii) the Merger and any related transactions will be consummated in
accordance with the terms of the Agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other
requirements. Finally, with your consent, we have relied upon the advice that Company has received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to
the Merger and the other transactions contemplated by the Agreement. We express no opinion as to any such matters.
Our
opinion is necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Events
occurring after the date hereof could materially affect this opinion. We have not undertaken to update, revise, reaffirm or withdraw this opinion or otherwise comment upon events occurring after the
date hereof. We express no opinion as to the trading value of Parent Common Stock at any time or what the value of Parent Common Stock will be once it is actually received by the holders of Company
Common Stock.
We
have acted as Company's financial advisor in connection with the Merger and will receive a fee for our services, which fee is contingent upon closing of the Merger. We will also
receive a fee for rendering this opinion, which opinion fee will be credited in full towards the transaction fee which will become payable to Sandler O'Neill on the day of closing of the Merger.
Company has also agreed to indemnify us against certain claims and liabilities arising out of our engagement and to reimburse us for certain of our out-of-pocket expenses incurred in connection with
our engagement. In the two years preceding the date hereof we have not provided any other investment banking services to Company, nor has Sandler O'Neill provided any investment banking services to
Parent in the two years preceding the date hereof. In the ordinary course of our business as a broker-dealer, we may purchase securities from and sell securities to Parent and its affiliates. We may
also actively trade the equity and debt securities of Parent and its affiliates for our own account and for the accounts of our customers.
Our
opinion is directed to the Board of Directors of Company in connection with its consideration of the Agreement and the Merger and does not constitute a recommendation to any
shareholder of Company as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the Agreement and the Merger. Our opinion is directed
only to the fairness, from a financial point of view, of the Exchange Ratio to the holders of Company Common Stock and does not address the underlying business decision of Company to engage in the
Merger, the form or structure of the Merger or any other transactions contemplated in the Agreement, the relative merits of the Merger as compared to any other alternative transactions or business
strategies that might exist for Company or the effect of any other transaction in which Company might engage. We also do not express any opinion as to the fairness of the amount or nature of the
compensation to be received
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in
the Merger by any officer, director or employee of Company or Parent, or any class of such persons, if any, relative to the compensation to be received in the Merger by any other shareholder. This
opinion has been approved by Sandler O'Neill's fairness opinion committee. This opinion may not be reproduced without Sandler O'Neill's prior written consent;
provided,
however, Sandler O'Neill will
provide its consent for the opinion to be included in regulatory filings to be completed in connection with the
Merger.
Based
upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair to holders of Company Common Stock from a financial point of view.
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Very truly yours,
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/s/ Sandler O'Neill & Partners, L.P.
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Annex C