AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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WASHINGTON BANKING CO | FRONTIER FINANCIAL CORPORATION | Washington Whidbey Island Bank

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: Washington Date: 11/8/2007
Industry: Regional Banks Law Firm: Davis Wright Sector: Financial

AGREEMENT AND PLAN OF MERGER

Between

FRONTIER FINANCIAL CORPORATION
and
FRONTIER BANK

and

WASHINGTON BANKING COMPANY
and
WHIDBEY ISLAND BANK

Dated as of September 26, 2007

TABLE OF CONTENTS


RECITALS			1
DEFINITIONS			1
ARTICLE I.		THE MERGER	7
	1.1	THE CORPORATE MERGER	7
	1.2	THE BANK MERGER	7
	1.3	CONVERSION OF WBC COMMON STOCK	8
	1.4	ELECTION PROCEDURES	9
	1.5	WBC OPTIONS	11
	1.6	DISSENTING SHARES	12
	1.7	TAX CONSEQUENCES	13
ARTICLE II.		EXCHANGE OF SHARES	13
	2.1	FRONTIER TO MAKE SHARES AND CASH AVAILABLE	13
	2.2	EXCHANGE OF SHARES	13
ARTICLE III.		ACTIONS PENDING CLOSING	15
	3.1	ORDINARY COURSE	15
	3.2	CAPITAL STOCK	15
	3.3	DIVIDENDS	15
	3.4	INDEBTEDNESS; LIABILITIES	15
	3.5	OPERATING PROCEDURES; CAPITAL EXPENDITURES	15
	3.7	CONTINUANCE OF BUSINESS	15
	3.7	SUBSIDIARIES	16
	3.8	COMPENSATION; EMPLOYMENT AGREEMENTS	16
	3.9	HIRING	16
	3.10	BENEFIT PLANS	16
	3.11	CLAIMS	16
	3.12	AMENDMENTS	16
	3.13	CONTRACTS	16
	3.14	LOANS	16
	3.15	AGREEMENTS	17
ARTICLE IV.		FRONTIER FORBEARANCES	17
	4.1	AMENDMENTS	17
	4.2	REORGANIZATION	17
	4.3	CONDITIONS	17
	4.4	AGREEMENTS	17
	4.5	CERTAIN ACTIONS	17
ARTICLE V		REPRESENTATIONS AND WARRANTIES	17
	5.1	WBC AND WHIDBEY ISLAND BANK REPRESENTATIONS AND WARRANTIES	17
	5.2	FRONTIER AND FRONTIER BANK REPRESENTATIONS AND WARRANTIES	29
ARTICLE VI.		COVENANTS	34
	6.1	BEST EFFORTS	34


	6.2	PROXY STATEMENT; MEETING	34
	6.3	REGISTRATION STATEMENT COMPLIANCE WITH SECURITIES LAWS	35
	6.4	PUBLICITY; PRESS RELEASES	35
	6.5	ACCESS; INFORMATION	35
	6.6	AFFILIATE AGREEMENTS	36
	6.7	STATE TAKEOVER LAWS	36
	6.8	NO RIGHTS TRIGGERED	36
	6.9	SHARES LISTED	36
	6.10	REGULATORY APPLICATIONS	36
	6.11	INSURANCE	36
	6.12	CERTAIN ACTIONS	37
	6.13	ESTOPPEL LETTERS	37
ARTICLE VII.		CONDITIONS PRECEDENT	37
	7.1	CONDITIONS TO EACH PARTY'S OBLIGATIONS	37
	7.2	CONDITIONS TO OBLIGATIONS OF FRONTIER	38
	7.3	CONDITIONS TO OBLIGATIONS OF WBC	40
ARTICLE VIII.		TERMINATION AND AMENDMENT	41
	8.1	TERMINATION	41
	8.2	EFFECT OF TERMINATION	43
	8.3	AMENDMENT	44
	8.4	EXTENSION; WAIVER	44
ARTICLE IX.		ADDITIONAL AGREEMENTS	44
	9.1	ADDITIONAL AGREEMENTS	44
	9.2	BENEFIT PLANS	44
	9.3	CERTAIN ACTIONS	45
	9.4	EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS	46
	9.5	DIRECTORS OF WBC	46
	9.6	WBC MANAGEMENT	46
	9.7	AT-WILL EMPLOYEES	47
ARTICLE X.		GENERAL PROVISIONS	47
	10.1	CLOSING; EFFECTIVE TIME	47
	10.2	SURVIVAL	47
	10.3	COUNTERPARTS	47
	10.4	GOVERNING LAW; VENUE	47
	10.5	EXPENSES	47
	10.6	NOTICES	47
	10.7	ENTIRE UNDERSTANDING	48
	10.8	ENFORCEMENT PROCEEDINGS	48
	10.9	HEADINGS	48
	10.10	ENFORCEMENT OF CONFIDENTIALITY AGREEMENT	48
	10.11	SEVERABILITY	48
	10.12	ASSIGNMENT; NO THIRD PARTY BENEFICIARIES	49

AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER, dated as of the 26th day of September, 2007 (this “Agreement”), is by and among FRONTIER FINANCIAL CORPORATION (“Frontier”), FRONTIER BANK (“Frontier Bank”), WASHINGTON BANKING COMPANY (“WBC”) and WHIDBEY ISLAND BANK (“Whidbey Island Bank”).

RECITALS

(A) FRONTIER . Frontier is a corporation duly organized and existing under the laws of the State of Washington, with its principal executive offices located in Everett, Washington. Frontier is a registered financial holding company.

(B) FRONTIER BANK . Frontier Bank is a Washington state-chartered commercial bank duly organized and existing under the laws of the State of Washington.

(C) WASHINGTON BANKING COMPANY . Washington Banking Company is a corporation duly organized and existing under the laws of the State of Washington, with its principal executive offices located in Oak Harbor, Washington. WBC is a registered financial holding company.

(D) WHIDBEY ISLAND BANK . Whidbey Island Bank is a Washington state-chartered commercial bank duly organized and existing under the laws of the State of Washington. Whidbey Island Bank operates twenty-one Washington branches and loan production offices (each a “WBC Office”) under the tradenames, trademarks and logos of Whidbey Island Bank.

(E) VOTING, DIRECTORS’ AND NONCOMPETITION AGREEMENTS . As a condition and an inducement to Frontier’s and Frontier Bank’s willingness to enter into this Agreement, (x) the directors and certain Executive Officers of WBC have entered into agreements in the form attached to this Agreement as Exhibit A , pursuant to which, among other things, each such individual has agreed to vote his or her shares of WBC Common Stock in favor of approval of the actions contemplated by this Agreement at the Meeting (as defined below), (y) each director of WBC has entered into an agreement in the form attached to this Agreement as Exhibit B pursuant to which each such individual has agreed to refrain from competing with or soliciting the employees or customers of Frontier and Frontier Bank, and (z) certain Executive Officers of WBC have entered into agreements in the forms attached to this Agreement as Exhibits C-1 through C-4 pursuant to which each such individual has agreed to refrain from competing with or soliciting the employees or customers of Frontier and Frontier Bank.

In consideration of their mutual promises and obligations, the parties further agree as follows:

DEFINITIONS

(A) DEFINITIONS . Certain capitalized terms used in this Agreement have the following meanings:

“ Acquisition Agreement ” has the meaning assigned to such term in Section 8.1(F).

“ Acquisition Proposal ” has the meaning assigned to such term in Section 9.3(D).

“ Aggregate Consideration ” has the meaning assigned to such term in Section 1.3(A).




AGREEMENT AND PLAN OF MERGER		1

“ Agreement ” means this Agreement and Plan of Merger, together with all Exhibits and Schedules annexed to, and incorporated by specific reference as a part of, this Agreement.

“ Appraisal Laws ” has the meaning assigned to such term in Section 1.6.

“ Business Day ” means any day other than a Saturday, Sunday, or legal holiday in the State of Washington.

“ Certificate ” has the meaning assigned to such term in Section 1.3(C).

“ Closing ” has the meaning assigned to such term in Section 10.1.

“ Code ” has the meaning assigned to such term in Section 1.7.

“ Compensation and Benefit Plans ” has the meaning assigned to such term in Section 5.1(P)(1).

“ Confidentiality Agreement ” has the meaning assigned to such term in Section 6.5(B).

“ Control ” with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting interests, by contract, or otherwise.

“ Daily Sales Price ” for any Trading Day means the closing price per share of Frontier Common Stock as reported by Nasdaq.

“ Department ” means the Department of Financial Institutions of the State of Washington.

“ Derivatives Contract ” means an exchange-traded or over-the-counter swap, forward, future, option, cap, floor or collar financial contract or any other contract that: (1) is not included on the balance sheet of the WBC Financial Statements or the Frontier Financial Statements, as the case may be, and (2) is a derivative contract (including various combinations thereof).

“ Determination Date ” means the fifth business day immediately prior to the Effective Time.

“ Dissenting Shares ” means the shares of WBC Common Stock held by those shareholders of WBC who have timely and properly exercised their dissenters’ rights in accordance with the Appraisal Laws.

“ Effective Time ” has the meaning assigned to such term in Section 10.1.

“ Employment Agreements ” shall mean the agreements with certain officers of WBC described in Section 9.4.

“ Environmental Law ” means (1) any federal, state, and/or local law, statute, ordinance, rule, regulation, code, license, permit, order, authorization, approval, consent, judgment, decree, injunction, requirement or agreement with any governmental entity, relating to (a) the protection, preservation or restoration of the environment (including air, surface water, groundwater, drinking water supply, surface land, subsurface land) or to human health or safety, or (b) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Hazardous Material, in each case as amended and as now in effect, including the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Superfund Amendments and




AGREEMENT AND PLAN OF MERGER		2

Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Occupational Safety and Health Act of 1970, and (2) any common law or equitable doctrine (including injunctive relief and tort doctrines such as negligence, nuisance, trespass and strict liability) that would reasonably be expected to impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Material.

“ ERISA ” has the meaning assigned to such term in Section 5.1(P)(2).

“ ERISA Affiliate ” has the meaning assigned to such term in Section 5.1(P)(3).

“ ERISA Plans ” has the meaning assigned to such term in Section 5.1(P)(2).

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated under such statute.

“ Exchange Agent ” has the meaning assigned to such term in Section 2.1.

“ Exchange Fund ” has the meaning assigned to such term in Section 2.1.

“ Exchange Ratio ” has the meaning assigned to such term in Section 1.5(A).

“ Execution Date ” means the last date on which this Agreement is executed by each of the parties hereto.

“ Executive Officer ” has the meaning set forth in Rule 405 of Regulation C under the Securities Act.

“ FDIC ” means the Federal Deposit Insurance Corporation.

“ Federal Reserve Board ” means the Board of Governors of the Federal Reserve System.

“ Frontier ” has the meaning assigned in the introductory paragraph to this Agreement.

“ Frontier Average Share Price ” means the price equal to the average (rounded to the nearest ten-thousandth) of each Daily Sales Price of Frontier Common Stock for the twenty (20) Trading Days immediately preceding the Determination Date.

“ Frontier Bank ” has the meaning assigned in the introductory paragraph to this Agreement.

“ Frontier Common Stock ” has the meaning assigned to such term in Section 5.2(B)(2).

“ Frontier Financial Statements ” has the meaning assigned to such term in Section 5.2(G)(1).

“ Frontier Securities Documents ” has the meaning assigned to such term in Section 5.2(G)(2).

“ Frontier Transaction ” means: (1) a merger, consolidation or similar transaction involving Frontier, where Frontier is not the corporation surviving such transaction or where a change of control of Frontier is otherwise effected, (2) the disposition, by sale, lease, exchange or otherwise, of assets or




AGREEMENT AND PLAN OF MERGER		3

deposits of Frontier or any of its significant Subsidiaries representing in either case 25% or more of the consolidated assets or deposits of Frontier and its Subsidiaries, or (3) the issuance, sale or other disposition (including by way of merger, consolidation, share exchange or any similar transaction) of securities representing 25% or more of the voting power of Frontier or any of its significant Subsidiaries other than the issuance of Frontier Common Stock upon the exercise of outstanding options or the conversion of outstanding convertible securities of Frontier.

“ GAAP ” means generally accepted accounting principles consistently applied in the United States.

“ Governmental Authority ” means any federal, state or local court, administrative agency or commission or other governmental authority or instrumentality or self-regulatory organization having jurisdiction over the Person to whom the term is applied.

“ Hazardous Material ” means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, under any Environmental Law, whether by type or quantity, including any oil or other petroleum product, toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos, asbestos containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl.

“ Intellectual Property ” has the meaning assigned to such term in Section 5.1(Z).

“ Knowledge” or words of similar meaning means the actual conscious knowledge as of the Execution Date, without any duty of inquiry, of any officer, director or manager of the Person to whom the term applies.

“ Loan/Fiduciary Property ” means any property owned or controlled by a party or any of its Subsidiaries or in which such party or any of its Subsidiaries holds a security or other interest, and, where required by the context, includes any such property where such party or any of its Subsidiaries constitutes the owner or operator of such property, but only with respect to such property.

“ Material Adverse Effect ” means, with respect to any party to this Agreement, an event, occurrence or circumstance that (a) has or is reasonably likely to have a material adverse effect on the financial condition, results of operations, business or prospects of such party and its Subsidiaries, taken as a whole, or (b) would materially impair such party’s ability to perform its obligations under this Agreement or the consummation of any of the transactions contemplated by this Agreement.

“ Measurement Period ” has the meaning assigned to such term in Section 8.1(G).

“ Meeting ” has the meaning assigned to such term in Section 6.2(A).

“ Merger ” means (i) the merger of WBC with and into Frontier pursuant to Section 1.1 in exchange for cash and Frontier Common Stock as set forth in Section 1.3, and (ii) the merger of Whidbey Island Bank with and into Frontier Bank pursuant to Section 1.2.

“ Merger Consideration ” has the meaning assigned to such term in Section 1.3(A).

“ Multiemployer Plans ” has the meaning assigned to such term in Section 5.1(P)(2).




AGREEMENT AND PLAN OF MERGER		4

“ Nasdaq ” means the Nasdaq Global Select Market™.

“ Noncompetition Agreements ” has the meaning assigned to such term in Section 7.2(K).

“ Participation Facility ” means any building or other facility in which a party or any of its Subsidiaries participates in the management and, where required by the context, includes the owner or operator of such facility.

“ Pension Plan ” has the meaning assigned to such term in Section 5.1(P)(2).

“ Per Share Cash Consideration ” has the meaning assigned to such term in Section 1.3(A).

“ Per Share Consideration ” has the meaning assigned to such term in Section 1.3(A).

“ Per Share Stock Consideration ” has the meaning assigned to such term in Section 1.3(A).

“ Person ” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, governmental body, or other entity.

“ Previously Disclosed ” means information that is either (i) disclosed by a party in a Schedule that is delivered by that party to the other party contemporaneously with the Execution Date, or (ii) disclosed in, or filed or furnished as an exhibit to, the WBC Securities Documents (in the case of WBC) or the Frontier Securities Documents (in the case of Frontier).

“ Prospectus/Proxy Statement ” has the meaning assigned to such term in Section 6.2.

“ RCW ” means the Revised Code of Washington, as amended.

“ Registration Statement ” has the meaning assigned to such term in Section 6.2.

“ Regulatory Agreement ” has the meaning assigned to such term in Section 5.1(K).

“ Regulatory Authorities ” means federal or state governmental agencies, authorities or departments charged with the supervision or regulation of depository institutions or engaged in the insurance of deposits.

“ Resulting Bank ” has the meaning assigned to such term in Section 1.2(A).

“ Rights ” has the meaning assigned to such term in Section 5.1(B).

“ Securities Act ” means the Securities Act of 1933, as amended, together with the rules and regulations promulgated under such statute.

“ SEC ” means the Securities and Exchange Commission.

“ Subsidiary ” means, with respect to any entity, each partnership, limited liability company, or corporation the majority of the outstanding partnership interests, membership interests, capital stock or voting power of which is (or upon the exercise of all outstanding warrants, options and other rights would be) owned, directly or indirectly, at the time in question by such entity.




AGREEMENT AND PLAN OF MERGER		5

“ Superior Proposal ” has the meaning assigned to such term in Section 9.3.

“ Surviving Corporation ” has the meaning assigned to such term in Section 1.1(A).

“ Taxes ” means federal, state or local income, gross receipts, sales, use, license, excise, franchise, employment, withholding or similar taxes imposed on the income, properties or operations of the respective party or its Subsidiaries, together with any interest, additions, or penalties with respect thereto and any interest in respect of such additions or penalties.

“ Termination Fee Amount ” has the meaning assigned to such term in Section 8.2(B).

“ Third Party ” means a person within the meaning of Sections 3(a)(9) and 13(d)(3) of the Exchange Act, excluding: (1) WBC, Whidbey Island Bank or any other Subsidiary of WBC, and (2) Frontier, Frontier Bank or any other Subsidiary of Frontier.

“ Total Cash Amount ” has the meaning assigned to such term in Section 1.3(A).

“ Total Stock Consideration ” has the meaning assigned to such term in Section 1.3(A).

“ Trading Day ” means a day that Frontier Common Stock is traded on Nasdaq.

“ WBC ” has the meaning assigned in the introductory paragraph to this Agreement.

“ WBC Common Stock ” has the meaning assigned to such term in Section 5.1(B).

“ WBC Contract ” has the meaning assigned to such term in Section 5.1(M).

“ WBC Financial Statements ” has the meaning assigned to such term in Section 5.1(G).

“ WBC Office ” has the meaning assigned to such term in Recital (D).

“ WBC Option ” has the meaning assigned to such term in Section 5.1(B)(4).

“ WBC Stock Option Plans ” has the meaning assigned to such term in Section 1.5(C).

“ WBC Securities Documents ” has the meaning assigned to such term in Section 5.1(G)(2).

“ WBC Tax Returns ” has the meaning assigned to such term in Section 5.1(V).

“ Whidbey Island Bank ” has the meaning assigned in the introductory paragraph to this Agreement.

“ Whidbey Island Bank Common Stock ” has the meaning assigned to such term in Section 5.1(B).

(B) GENERAL INTERPRETATION . Except as otherwise expressly provided in this Agreement or unless the context clearly requires otherwise, the terms defined in this Agreement include the plural as well as the singular; the words “hereof,” “herein,” “hereunder,” “in this Agreement” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; and references in this Agreement to Articles, Sections, Schedules and Exhibits refer to Articles and Sections of and Schedules and Exhibits to this Agreement. Unless otherwise stated, references to Subsections refer to the Subsections of the Section in which the reference




AGREEMENT AND PLAN OF MERGER		6

appears. General references to a “party” hereunder, unless the context requires otherwise, shall be construed to relate to Frontier and its Subsidiaries, on the one hand, and WBC and its Subsidiaries, on the other hand. All pronouns used in this Agreement include the masculine, feminine and neuter gender, as the context requires. All accounting terms used in this Agreement that are not expressly defined in this Agreement have the respective meanings given to them in accordance with GAAP.

ARTICLE I. THE MERGER

1.1 THE CORPORATE MERGER . Subject to the provisions of this Agreement, at the Effective Time:

(A) SURVIVING CORPORATION . WBC shall be merged with and into Frontier pursuant to the terms and conditions set forth herein (the “Corporate Merger”). Upon consummation of the Corporate Merger, the separate existence of WBC shall cease and Frontier shall continue as the surviving corporation within the meaning of RCW 23B.11.010(2)(a) (the “Surviving Corporation”).

(B) ARTICLES, BYLAWS, DIRECTORS, OFFICERS . The Articles of Incorporation and Bylaws of the Surviving Corporation shall be those of Frontier, as in effect immediately prior to the Effective Time. Except as set forth in Section 9.5, the directors and officers of Frontier in office immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, together with such additional directors and officers as may thereafter be elected, who shall hold office until such time as their successors are elected and qualified.

(C) RIGHTS OF SURVIVING CORPORATION . Frontier, as the Surviving Corporation, shall thereupon and thereafter possess all of the rights, privileges, immunities and franchises, of a public as well as of a private nature, of each of the corporations so merged; and all property, real, personal and mixed, and all debts due on whatever account, and all and every other interest, of or belonging to or due to each of the corporations so merged, shall be deemed to be vested in the Surviving Corporation without further act or deed; and the title to any real estate or any interest therein, vested in each of such corporations, shall not revert or be in any way impaired by reason of the Corporate Merger.

(D) ASSUMPTION OF LIABILITIES . The Surviving Corporation shall become and be liable for all debts, liabilities, obligations and contracts of Frontier as well as those of WBC, whether the same shall be matured or unmatured; whether accrued, absolute, contingent or otherwise; and whether or not reflected or reserved against in the balance sheets, other financial statements, books of account or records of Frontier or WBC.

1.2 THE BANK MERGER . Subject to the provisions of this Agreement, at the Effective Time:

(A) RESULTING BANK . Whidbey Island Bank shall be merged with and into Frontier Bank pursuant to the terms and conditions set forth herein. Upon consummation of the Bank Merger, the separate existence of Whidbey Island Bank shall cease and Frontier Bank shall continue as the resulting bank for purposes of RCW 30.49.010 (the “Resulting Bank”).

(B) ARTICLES, BYLAWS, DIRECTORS, OFFICERS . The Articles of Incorporation and Bylaws of the Resulting Bank shall be those of Frontier Bank, as in effect immediately prior to the Effective Time. The directors and officers of Frontier Bank in office immediately prior to the Effective Time shall be the directors and officers of the Resulting Bank, together with such additional




AGREEMENT AND PLAN OF MERGER		7

directors and officers as may thereafter be elected, who shall hold office until such time as their successors are elected and qualified.

(C) RIGHTS OF RESULTING BANK . Frontier Bank, as the Resulting Bank, shall thereupon and thereafter possess all of the rights, privileges, immunities and franchises, of a public as well as of a private nature, of each of the institutions so merged; and all property, real, personal and mixed, and all debts due on whatever account, and all and every other interest, of or belonging to or due to each of the institutions so merged, shall be deemed to be vested in the Resulting Bank without further act or deed; and the title to any real estate or any interest therein, vested in each of such institutions, shall not revert or be in any way impaired by reason of the Bank Merger.

(D) ASSUMPTION OF LIABILITIES . The Resulting Bank shall become and be liable for all debts, liabilities, obligations and contracts of Frontier Bank as well as those of Whidbey Island Bank, whether the same shall be matured or unmatured; whether accrued, absolute, contingent or otherwise; and whether or not reflected or reserved against in the balance sheets, other financial statements, books of account, or records of Frontier Bank or Whidbey Island Bank.

1.3 CONVERSION OF WBC COMMON STOCK . Subject to the provisions of this Agreement, at the Effective Time:

(A) OUTSTANDING WBC COMMON STOCK . Each share of WBC Common Stock issued and outstanding at the Effective Time shall, by virtue of the Merger, automatically and without any action on the part of the holder of such share, cease to be outstanding and shall then and thereafter be converted into and exchangeable for the right to receive, at the election of the holder thereof as provided in and subject to the provisions of Section 1.4, either: (1) a number of shares of Frontier Common Stock equal to the Per Share Stock Consideration; or (2) cash in an amount equal to the Per Share Consideration (the “Per Share Cash Consideration”). The Per Share Stock Consideration and the Per Share Cash Consideration are referred to herein collectively as the “Merger Consideration.” Shares of WBC Common Stock held by Frontier immediately prior to the Effective Time shall be deemed canceled and retired without additional consideration and shall be excluded from any calculation based upon the number of shares of WBC Common Stock outstanding pursuant to this Section and excluded from the election and exchange procedures set forth in Section 1.4.

For purposes of this Section 1.3(A):

“Aggregate Consideration” shall mean the sum, expressed as a dollar amount, of (x) the Total Stock Consideration and (y) the Total Cash Amount.

“Per Share Consideration” shall mean the quotient, expressed as a dollar amount and rounded to the nearest tenth-thousandth, obtained by dividing the Aggregate Consideration by the total number of shares of WBC Common Stock outstanding as of the close of business on the Execution Date.

“Per Share Stock Consideration” shall mean the quotient, rounded to the nearest ten-thousandth, obtained by dividing the Per Share Consideration by the Frontier Average Share Price

“Per Share Cash Consideration” shall mean the quotient, expressed as a dollar amount and rounded to the nearest ten-thousandth, obtained by dividing the Aggregate Consideration by the total number of shares of WBC Common Stock outstanding as of the close of business on the Execution Date.




AGREEMENT AND PLAN OF MERGER		8

“Total Cash Amount” shall mean an amount equal to $42,864,003 subject to the following paragraph defining the Total Stock Amount.

“Total Stock Amount” shall mean 5,916,430 shares of Frontier Common Stock plus the product of 0.90 times the increase in the number of shares of WBC Common Stock outstanding by virtue of the exercise of any stock option, warrant, or other derivative security between the Execution Date and the Effective Time (the “Base Stock Amount”); provided, however, that (i) if the Frontier Average Share Price is less than $21.00 then the number of shares of Frontier Common Stock and/or the Total Cash Amount may (under the circumstances and subject to the limitations set forth in Section 8.1(G) only) be increased by Frontier so that the Merger Consideration is not less than $19.41 (and only to the extent necessary), and (ii) if the Frontier Average Share Price is more than $27.00 then the number of shares of Frontier Common Stock shall equal the Base Stock Amount multiplied by the quotient of $27.00 as the numerator and the Frontier Average Share Price as the denominator so that the Merger Consideration is not more than $23.54 (and only to the extent necessary). An illustration of the calculations of the Merger Consideration and the Aggregate Consideration and the effect of the foregoing “Collar” is attached as Exhibit F to this Agreement.

“Total Stock Consideration” shall mean the product, expressed as a dollar amount, obtained by multiplying (x) the Total Stock Amount and (y) the Frontier Average Share Price.

(B) Notwithstanding Section 1.3(A) above, at least fifty percent (50%) of the Aggregate Consideration shall be paid in Frontier Common Stock. If and to the extent that such limitation would not otherwise be satisfied, then a portion of the amount otherwise payable under Section 1.3(A) shall instead be paid to such holders on a pro rata basis in Frontier Common Stock (based on the Frontier Average Share Price).

(C) All of the shares of WBC Common Stock converted into the Merger Consideration pursuant to this ARTICLE I shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate (each a “Certificate”) previously representing any such shares of WBC Common Stock shall thereafter cease to have any rights with respect to such securities, except the right to receive (1) the Merger Consideration, (2) any dividends and other distributions in accordance with Section 2.2(B) hereof, and (3) any cash to be paid in lieu of any fractional share of Frontier Common Stock in accordance with Section 2.2(E) hereof.

(D) The calculations required by Section 1.3(A) shall be prepared jointly by Frontier and WBC prior to the Effective Time.

1.4 ELECTION PROCEDURES.

(A) An election form and other appropriate and customary transmittal materials (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates theretofore representing shares of WBC Common Stock shall pass, only upon proper delivery of such Certificates, or customary affidavits and indemnification regarding the loss or destruction of such certificates, to the Exchange Agent) in such form as WBC and Frontier shall mutually agree (the “Election Form”) shall be mailed with the Proxy Statement on the date of mailing of the Proxy Statement or on such other date as Frontier and WBC shall mutually agree (the “Mailing Date”) to each holder of record of WBC Common Stock as of the close of business on the fifth business day prior to the Mailing Date (the “Election Form Record Date”).




AGREEMENT AND PLAN OF MERGER		9

(B) Each Election Form shall permit the holder (or the beneficial owner through appropriate and customary documentation and instructions) to (x) elect to receive (1) the Per Share Stock Consideration in respect of all of such holder’s WBC Common Stock (“Stock Election Shares”); (2) the Per Share Cash Consideration in respect of all of such holder’s WBC Common Stock (“Cash Election Shares”); or (3) the Per Share Stock Consideration in respect of that portion to such holder’s shares of WBC Common Stock equal to the Stock Percentage (as defined below), rounded to the nearest whole share (the “Mixed Stock Shares”), and the Per Share Cash Consideration in respect of that portion of such holder’s shares of WBC Common Stock equal to the Cash Percentage (as defined below), rounded to the nearest whole share (the “Mixed Cash Shares,” and together with the Mixed Stock Shares, the “Mixed Election Shares”); or (y) to make no election with respect to such holder’s WBC Common Stock (“No Election Shares”). Any WBC Common Stock with respect to which the Exchange Agent has not received an effective, properly completed Election Form on or before 5:00 p.m., Pacific Time, on the date prior to the Determination Date (or such other time and date as Frontier and WBC may mutually agree) (the “Election Deadline”) shall also be deemed to be “No Election Shares.” The term “Cash Percentage” shall mean the quotient, rounded to the nearest thousandth, obtained by dividing (x) the quotient obtained by dividing the Total Cash Amount by the Per Share Consideration, by (y) the total number of shares of WBC Common Stock outstanding as of the close of business on the Determination Date. “Stock Percentage” shall mean the amount equal to one (1) minus the Cash Percentage.

(C) Frontier shall make available one or more Election Forms as may reasonably be requested from time to time by all persons who become holders (or beneficial owners) of WBC Common Stock between the Election Form Record Date and the close of business on the business day prior to the Election Deadline, and WBC shall provide to the Exchange Agent all information reasonably necessary for it to perform as specified herein.

(D) Any such election shall have been properly made only if the Exchange Agent shall have actually received a properly completed Election Form by the Election Deadline. An Election Form shall be deemed properly completed only if accompanied by one or more certificates (or customary affidavits and indemnification regarding the loss or destruction of such certificates or the guaranteed delivery of such certificates) representing all shares of WBC Common Stock covered by such Election Form, together with duly executed transmittal materials included in the Election Form. Any Election Form may be revoked or changed by the person submitting such Election Form at or prior to the Election Deadline. In the event an Election Form is revoked prior to the Election Deadline, the shares of WBC Common Stock represented by such Election Form shall become No Election Shares and Frontier shall cause the certificates representing WBC Common Stock to be promptly returned without charge to the Person submitting the Election Form upon written request to that effect from the holder who submitted the Election Form. Subject to the terms of this Agreement and of the Election Form, the Exchange Agent shall have reasonable discretion to determine whether any election, revocation or change has been properly or timely made and to disregard immaterial defects in the Election Forms, and any good faith decisions of Frontier regarding such matters shall be binding and conclusive.

(E) Within ten (10) business days after the Election Deadline, unless the Effective Time has not yet occurred, in which case as soon thereafter as practicable, Frontier shall cause the Exchange Agent to effect the allocation among the holders of WBC Common Stock of rights to receive Frontier Common Stock or cash in the Merger as follows:

(1) Cash Election Shares Plus Mixed Cash Shares More Than Total Cash Amount . If the aggregate cash amount that would be paid upon the conversion in the Merger for the Cash Election Shares and the Mixed Cash Shares is greater than the Total Cash Amount, then:




AGREEMENT AND PLAN OF MERGER		10

(i) all Stock Election Shares, Mixed Stock Shares and No Election Shares shall be converted into the right to receive the Per Share Stock Consideration;

(ii) the Exchange Agent shall then select first from among the Cash Election Shares and then (if necessary) from the Mixed Cash Election Shares, by a pro rata selection process, a sufficient number of shares (“Stock Designated Shares”) such that the aggregate cash amount that will be paid in the Merger equals as closely as practicable, but in no event less than, the Total Cash Amount, and all Stock Designated Shares shall be converted into the right to receive the Per Share Stock Consideration; and

(iii) the Cash Election Shares and Mixed Cash Shares that are not Stock Designated Shares will be converted into the right to receive the Per Share Cash Consideration.

(2) Cash Election Shares Plus Mixed Cash Shares Less Than Total Cash Amount . If the aggregate cash amount that would be paid upon the conversion in the Merger for the Cash Election Shares and the Mixed Cash Shares is less than the Total Cash Amount, then:

(i) all Cash Election Shares and Mixed Cash Shares shall be converted into the right to receive the Per Share Cash Consideration;

(ii) the Exchange Agent shall then select first from among the No Election Shares and second (if necessary) from among the Stock Election Shares and finally (if necessary) from the Mixed Stock Election Shares, by a pro rata selection process, a sufficient number of shares (“Cash Designated Shares”) such that the aggregate cash amount that will be paid in the Merger equals as closely as practicable the Total Cash Amount, and all Cash Designated Shares shall be converted into the right to receive the Per Share Cash Consideration; and

(iii) the Stock Election Shares, No Election Shares and Mixed Stock Shares that are not Cash Designated Shares shall be converted into the right to receive the Per Share Stock Consideration.

(3) Cash Election Shares Plus Mixed Cash Shares Equal to Total Cash Amount . If the aggregate cash amount that would be paid upon conversion in the Merger for the Cash Election Shares and the Mixed Cash Shares is equal or nearly equal (as determined by the Exchange Agent) to the Total Cash Amount, then subparagraphs (1) and (2) above shall not apply, and all Cash Election Shares and Mixed Cash Shares shall be converted into the right to receive the Per Share Cash Consideration, and all Stock Election Shares, Mixed Stock Shares, and No Election Shares shall be converted into the right to receive the Per Share Stock Consideration.

(F) The pro rata selection process to be used by the Exchange Agent shall consist of such equitable pro ration processes as shall be determined by Frontier and reasonably satisfactory to WBC.

1.5 WBC OPTIONS . Notwithstanding anything to the contrary in this Agreement, and in addition to the Aggregate Consideration:

(A) Unexercised Options .




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(1) At the Effective Time, each WBC Option that is unexercised by the Effective Time shall be converted into a fully vested option to acquire a number of shares of Frontier Common Stock equal to the product (rounded down to the nearest whole number) of (x) the number of shares of WBC Common Stock subject to the WBC Option immediately prior to the Effective Time and (y) the Exchange Ratio (defined below), at an exercise price per share (rounded up to the nearest whole cent) equal to (A) the exercise price per share of WBC Common Stock of such WBC Option immediately prior to the Effective Time divided by (B) the Exchange Ratio; provided, however, that the exercise price and the number of shares of Frontier Common Stock purchasable pursuant to the WBC Options shall be determined in a manner consistent with the requirements of Section 409A of the Code; provided, further, that in the case of any WBC Option to which Section 422 of the Code applies, the exercise price and the number of shares of Frontier Common Stock purchasable pursuant to such option shall be determined in accordance with the foregoing, subject to such adjustments as are necessary in order to satisfy the requirements of Section 424(a) of the Code. Except as specifically provided above, following the Effective Time, each WBC Option shall continue to be governed by the same terms and conditions as were applicable under such WBC Option immediately prior to the Effective Time. For purposes of this Agreement, the “Exchange Ratio” shall be equal to the fraction having a numerator equal to the Per Share Consideration and having a denominator equal to the Frontier Average Share Price.

(2) As soon as practicable after the Effective Time, Frontier will prepare and file with the SEC a Registration Statement on Form S-8 covering shares of Frontier Common Stock to be issued upon the exercise of stock options assumed by Frontier pursuant to this Section 1.5(A).

(3) At or prior to the Effective Time, WBC, the WBC Board and the compensation committee of the WBC Board, as applicable, shall adopt any resolutions and take any actions which are necessary to effectuate the provisions of this Section 1.5(A). WBC shall take all actions necessary to ensure that, from and after the Effective Time, Frontier will not be required to deliver WBC Common Stock or other capital stock of WBC to any Person pursuant to or in settlement of WBC Options.

(B) The names of the holders, dates of issuance and expiration, the number of shares subject to each such option, and the exercise price for all WBC Options as of the Execution Date are set forth in Schedule 1.5(B) . All such WBC Options shall be 100% vested and exercisable at the Effective Time pursuant to the 2005 Stock Incentive Plan, the 1998 Stock Option and Restricted Stock Award Plan, the 1993 Director Stock Option Plan and the 1992 Stock Option Plan (collectively, the “WBC Stock Option Plans”).

1.6 DISSENTING SHARES . Notwithstanding anything to the contrary in this Agreement, each Dissenting Share whose holder, as of the Effective Time of the Merger, has not effectively withdrawn or lost his or her dissenters’ rights under Ch. 23B.13 RCW (the “Appraisal Laws”) shall not be converted into or represent a right to receive the Per Share Cash Consideration or Frontier Common Stock, but the holder of such Dissenting Share shall be entitled only to such rights as are granted by the Appraisal Laws, unless and until such holder shall have failed to perfect or shall have effectively withdrawn or lost the right to payment under the Appraisal Laws, in which case each such share shall be deemed to have been converted at the Effective Time into the right to receive cash and/or Frontier Common Stock (based on the Per Share Stock Consideration defined in Section 1.3(A)) without any interest thereon, in the same proportions determined under Section 1.5(A) with respect to WBC Options that are unexercised by the Effective Time. Each holder of Dissenting Shares who becomes entitled to




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payment for his WBC Common Stock pursuant to the provisions of the Appraisal Laws shall receive payment for such Dissenting Shares from Frontier (but only after the amount thereof shall have been agreed upon or finally determined pursuant to the Appraisal Laws).

1.7 TAX CONSEQUENCES . It is intended that the Merger shall constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”) and that this Agreement shall constitute a plan of reorganization for the purposes of Section 368 of the Code.

ARTICLE II. EXCHANGE OF SHARES

2.1 FRONTIER TO MAKE SHARES AND CASH AVAILABLE . On or before the Effective Time, Frontier shall deposit, or shall cause to be deposited, with American Stock Transfer & Trust Company (the “Exchange Agent”), for the benefit of the holders of WBC Common Stock as of the Effective Time, for exchange in accordance with this ARTICLE II: (A) certificates or electronic indicia of ownership representing the shares of Frontier Common Stock to be issued pursuant to Section 1.3 and Section 2.2(A) in exchange for outstanding shares of WBC Common Stock; (B) cash in the amount of the Total Cash Consideration; and (C) the cash in lieu of fractional shares to be paid in accordance with Section 2.2(E). Such cash and shares of Frontier Common Stock, together with any dividends or distributions with respect to such Frontier Common Stock, are hereinafter referred to as the “Exchange Fund.”

2.2 EXCHANGE OF SHARES.

(A) As soon as practicable after the Effective Time, and in no event more than five (5) business days thereafter, the Exchange Agent shall mail to each holder of record of a Certificate or Certificates who theretofore has not submitted such holder’s Certificate or Certificates with an Election Form, a form letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates or customary affidavits and indemnification regarding the loss or destruction of such certificates or the guaranteed delivery of such certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. After completion of the allocation procedure set forth in Section 1.4 and upon surrender of a Certificate or Certificates for exchange and cancellation to the Exchange Agent, together with a properly executed letter of transmittal or Election Form, as the case may be, the holder of such Certificate or Certificates shall be entitled to receive in exchange therefor (x) a certificate representing that number of whole shares of Frontier Common Stock which such holder of WBC Common Stock became entitled to receive pursuant to the provisions of ARTICLE I hereof and/or (y) a check representing the aggregate Per Share Cash Consideration and/or the amount of cash in lieu of fractional shares, if any, which such holder has the right to receive in respect of the Certificate or Certificates surrendered pursuant to the provisions of ARTICLE I, and the Certificate or Certificates so surrendered shall forthwith be canceled. No interest will be paid or accrued on the Per Share Cash Consideration, the cash in lieu of fractional shares or the unpaid dividends and distributions, if any, payable to holders of Certificates.

(B) No dividends or other distributions declared after the Effective Time with respect to Frontier Common Stock and payable to the holders of record thereof shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this ARTICLE II. After the surrender of a Certificate in accordance with this ARTICLE II, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any




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interest thereon, which theretofore has become payable with respect to shares of Frontier Common Stock represented by such Certificate.

(C) If any certificate representing shares of Frontier Common Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the Certificate 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 to the Exchange Agent in advance any transfer or other taxes required by reason of the issuance of a certificate representing shares of Frontier Common Stock in any name other than that of the registered holder of the Certificate surrendered, or required for any other reason, or shall establish to the satisfaction of 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 WBC of the shares of WBC Common Stock which were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be canceled and exchanged for certificates representing shares of Frontier Common Stock or cash or both, as provided in this ARTICLE II.

(E) Notwithstanding anything to the contrary contained herein, no certificates or scrip representing fractional shares of Frontier Common Stock shall be issued upon the surrender for exchange of Certificates, no dividend or distribution with respect to Frontier 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 Frontier. In lieu of the issuance of any such fractional share, Frontier shall pay to each former shareholder of WBC who otherwise would be entitled to receive a fractional share of Frontier Common Stock an amount in cash determined by multiplying (1) the Frontier Average Share Price by (2) the fraction of a share of Frontier Common Stock which such holder would otherwise be entitled to receive pursuant to Section 1.3 hereof.

(F) Frontier (through the Exchange Agent, if applicable) shall be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement to any holder of shares of WBC Common Stock such amounts as Frontier is required under the Code or any state, local or foreign tax law or regulation thereunder to deduct and withhold with respect to the making of such payment. Any amounts so withheld shall be treated for all purposes of this Agreement as having been paid to the holder of WBC Common Stock in respect of which such deduction and withholding was made by Frontier.

(G) Any portion of the Exchange Fund that remains unclaimed by the shareholders of WBC for twelve (12) months after the Effective Time shall be paid to Frontier. Any shareholders of WBC who have not theretofore complied with this ARTICLE II shall thereafter look only to Frontier for payment of the Merger Consideration, the cash in lieu of fractional shares and/or the unpaid dividends and distributions on the Frontier Common Stock deliverable in respect of each share of WBC Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Frontier, Frontier Bank, WBC, Whidbey Island Bank, the Exchange Agent or any other person shall be liable to any former holder of shares of WBC Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

(H) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Frontier, the posting by such person of a bond in such reasonable amount as Frontier




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may direct 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 deliverable in respect thereof pursuant to this Agreement.

ARTICLE III. ACTIONS PENDING CLOSING

Following the Execution Date until the Effective Time, WBC and Whidbey Island Bank shall not, without the prior written consent of Frontier:

3.1 ORDINARY COURSE . Conduct its business other than in the ordinary and usual course consistent with past practice or fail to use reasonable best efforts to preserve its business organization, keep available the present services of its employees and preserve for itself and Frontier the goodwill of the customers of WBC and its Subsidiaries and others with whom business relations exist.

3.2 CAPITAL STOCK . Except for the exercise of outstanding WBC Options, or as disclosed in Schedule 5.1(B) , issue, sell or otherwise permit to become outstanding any additional shares of capital stock of WBC, or any Rights with respect thereto, or enter into any agreement with respect to the foregoing, or permit any additional shares of WBC Common Stock to become subject to grants of stock options, warrants, stock appreciation rights, or any other stock-based employee compensation rights.

3.3 DIVIDENDS . Make, declare or pay any dividend on or in respect of, or declare or make any distribution on, or directly or indirectly combine, split, subdivide, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock or, other than as permitted in or contemplated by this Agreement (and except for the payment of regular quarterly cash dividends of not more than 6¢ per share through the calendar quarter in which the Effective Time occurs and which shall in lieu of a quarterly dividend from Frontier with respect to such calendar quarter), authorize the creation or issuance of, or issue, any additional shares of its capital stock or any Rights with respect thereto. This Section 3.3 shall not preclude dividends from Whidbey Island Bank to WBC made in the ordinary course of business and consistent with past practice.

3.4 INDEBTEDNESS; LIABILITIES . Other than in the ordinary course of business consistent with past practice, incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise as an accommodation become responsible or liable for the obligations of any other individual, corporation or other entity.

3.5 OPERATING PROCEDURES; CAPITAL EXPENDITURES . Except as may be directed by any Governmental Authority, (A) change its lending, investment, underwriting, pricing, servicing, risk and asset liability management or other material banking policies in any material respect, or (B) commit to incur any further capital expenditures exceeding $50,000 individually or $100,000 in the aggregate, except budgeted items disclosed in Schedule 3.5 , or (C) change the manner in which its investment securities or loan portfolio is classified or reported; or invest in any mortgage-backed or mortgage-related security that would be considered “high risk” under applicable regulatory guidance; or file any application or enter into any contract with respect to the opening, relocating or closing of, or open, relocate or close, any WBC Office.

3.6 CONTINUANCE OF BUSINESS . Except for budgeted items Previously Disclosed in Schedule 3.5 , dispose of or discontinue any portion of its assets, business or properties that exceeds $50,000 individually or $100,000 in the aggregate in value or is otherwise material to WBC’s business,




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or merge or consolidate with, or acquire all or any portion of, the business or property of any other entity that exceeds $50,000 individually or $100,000 in the aggregate in value or is otherwise material to WBC (except foreclosures or acquisitions by WBC in its fiduciary capacity and loan participations, in each case in the ordinary course of business consistent with past practice).

3.7 SUBSIDIARIES . Organize or acquire, directly or indirectly, any Subsidiaries.

3.8 COMPENSATION; EMPLOYMENT AGREEMENTS . Except as set forth in Schedule 3.8 , and for salary increase and bonuses Previously Disclosed to go into effect on or about January 1, 2008, enter into or amend any employment, severance or similar agreement or arrangement with any of its directors, officers or employees, or grant any salary or wage increase, amend the terms of any WBC Option or increase any employee benefit (including incentive or bonus payments), except normal individual increases in regular compensation to employees in the ordinary course of business consistent with past practice, and provided, however, that an automatic rollover or extension of term of an Employment Agreement described in Section 9.4 shall not be deemed an amendment for purposes of this Section 3.8.

3.9 HIRING . Hire any person as an employee of WBC or any of its Subsidiaries or promote any employee, except (i) to satisfy contractual obligations existing as of the date hereof and set forth on Schedule 3.8 and (ii) persons hired to fill any vacancies existing or arising after the date hereof and whose employment is terminable at the will WBC or a Subsidiary of WBC, as applicable, and who are not subject to or eligible for any severance or similar benefits or payments

3.10 BENEFIT PLANS . Except as set forth in Schedule 3.10, enter into or modify (except as may be required by Section 409A of the Code) any pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement related thereto, in respect of any of its directors, officers or other employees, including taking any action that accelerates the vesting or exercise of any benefits payable thereunder.

3.11 CLAIMS . Settle any claim, litigation, action or proceeding involving any liability for money damages in excess of $50,000 or material restrictions upon the operations of WBC.

3.12 AMENDMENTS . Amend its Articles of Incorporation or Bylaws.

3.13 CONTRACTS . Except as set forth on Schedule 3.13 , enter into, renew, terminate or make any change in any WBC Contract involving future payments in excess of $50,000, except in the ordinary course of business consistent with past practice with respect to contracts, agreements and leases that are terminable by it without penalty on no more than 30 days’ prior written notice. Further, WBC shall not enter into, renew, terminate or make any change in any information technology, third-party service, lease or other contract involving payments of more than $50,000 or that is material to WBC’s operations or the integration and conversion process of Frontier, without the consent of Frontier.

3.14 LOANS . Extend credit or account for loans and leases other than in accordance with existing lending policies and accounting practices or, without prior notice to and consultation with Frontier’s chief executive officer or chief credit officer, (i) make any new loan or renew or extend any existing loan in a principal amount in excess of $1,500,000, (ii) restructure the payments or amount of any loan or release any collateral or guaranty with respect to any loan, other than in the ordinary course of business, or (iii) enter into any loan securitization or create any special purpose funding entity. During the term of this Agreement, WBC will provide a schedule of all new or renewed loans of more than




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$50,000 for the previous month to Frontier’s chief credit officer within fifteen (15) days after the end of the

3.15 AGREEMENTS . Agree to, or make any commitment to, take any of the actions prohibited by this ARTICLE III.

ARTICLE IV. FRONTIER FORBEARANCES

Following the Execution Date until the Effective Time, Frontier and Frontier Bank shall not, without the prior written consent of WBC:

4.1 AMENDMENTS . Amend, repeal or otherwise modify any provision of Frontier’s articles of incorporation or bylaws in a manner that would adversely affect WBC, Whidbey Island Bank or the transactions contemplated by this Agreement.

4.2 REORGANIZATION . Take any action, or knowingly fail to take any action, which action or failure to act is reasonably likely to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.

4.3 CONDITIONS . Take any action that is intended or may reasonably be expected to result in any of the conditions to the Merger set forth in ARTICLE VII not being satisfied.

4.4 AGREEMENTS . Agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by this ARTICLE IV. Subject to the foregoing limitations, it is understood that Frontier is not prohibited from pursuing or completing acquisitions of other banks and financial institutions during the term of this Agreement.

4.5 CERTAIN ACTIONS. Take any action that would cause any of Frontier’s representations, warranties or covenants contained hereto be invalid or inaccurate in any material respect, other than representations, warranties and covenants of Frontier that speak only as of a particular date or period, under circumstances which would not cause a material failure of such representations, warranties or covenants as of such dates or during such periods.

ARTICLE V. REPRESENTATIONS AND WARRANTIES

5.1 WBC AND WHIDBEY ISLAND BANK REPRESENTATIONS AND WARRANTIES . WBC and Whidbey Island Bank, jointly and severally, hereby represent and warrant to Frontier and Frontier Bank as follows:

(A) ORGANIZATION, QUALIFICATION AND AUTHORITY . Each of WBC and Whidbey Island Bank is duly qualified to do business in each state of the United States where the failure to be duly qualified is reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island Bank. Each of WBC and Whidbey Island Bank has in effect all federal, state and local governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now conducted, the absence of which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island Bank. Whidbey Island Bank is an “insured depository institution” as defined in the Federal Deposit Insurance Act, as amended, and applicable regulations under such statute, and its deposits are insured by the Bank Insurance Fund of the FDIC to the fullest extent permitted by law and all premiums and assessments required to be paid in connection therewith have been paid.




AGREEMENT AND PLAN OF MERGER		17

(B) SHARES; OPTIONS .

(1) As of the Execution Date, (1) the outstanding shares of WBC’s capital stock are validly issued and outstanding, fully paid and non-assessable, and subject to no preemptive rights, and (2) except as set forth on Schedule 5.1(B) , there are no shares of capital stock or other equity securities of WBC outstanding and no securities convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, or any options, warrants, calls or commitments with respect thereto (collectively, “Rights”).

(2) As of the Execution Date, WBC has 13,679,757 authorized shares of common stock, no par value (“WBC Common Stock”), of which 9,391,159 shares are issued and outstanding, and 20,000 authorized shares of preferred stock, no par value, of which none are issued and outstanding, no other class of capital stock being authorized.

(3) As of the Execution Date, Whidbey Island Bank has 18,640 authorized shares of common stock, $20 par value per share (“Whidbey Island Bank Common Stock”) (no other class of capital stock being authorized), of which 18,640 shares are issued and outstanding, all of which are owned by WBC.

(4) As of the Execution Date, WBC has 287,717 shares of WBC Common Stock reserved for issuance under the WBC Stock Option Plans pursuant to which options covering 255,391 shares of WBC Common Stock are outstanding, at a weighted average exercise price of $8.41 per share, and pursuant to which 17,815 restricted stock units are outstanding (collectively “WBC Options”). As of the Execution date WBC has outstanding common stock equivalents under equity compensation arrangements other than the WBC Options as described in Schedule 5.1(B) . All WBC Options were granted at “fair market value” as of the date of the grant, within the meaning of the regulations promulgated under Section 409A of the Code, or are exempt from the application of Section 409A.

(C) WBC AND WHIDBEY ISLAND BANK SUBSIDIARIES . WBC has no Subsidiaries other than Whidbey Island Bank, which has no Subsidiaries. Except as disclosed in Schedule 5.1(C) , WBC and Whidbey Island Bank do not own beneficially, directly or indirectly, any shares of any equity securities of any corporation, bank, partnership, joint venture, business trust, association or other organization, other than shares held as trustee or nominee or shares held as collateral.

(D) CORPORATE AUTHORITY . Subject to any necessary receipt of approval by its shareholders referred to in Section 7.1(A), WBC and Whidbey Island Bank have 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 transactions contemplated hereby have been duly and validly approved by the Boards of Directors of WBC and Whidbey Island Bank. This Agreement has been duly and validly executed and delivered by WBC and Whidbey Island Bank and (assuming due authorization, execution and delivery by Frontier and Frontier Bank) constitutes the valid and binding obligation of WBC and Whidbey Island Bank, enforceable against WBC and Whidbey Island Bank in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity).

(E) CORPORATE MINUTES . The minute books of WBC and Whidbey Island Bank Previously Disclosed to Frontier contain true, complete and correct records of all meetings and other




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corporate actions held or taken since December 31, 2002 of WBC’s and Whidbey Island Bank’s shareholders and Boards of Directors (including committees of their Boards of Directors).

(F) NO DEFAULTS . Subject to the approval by their shareholders referred to in Section 7.1(A), the required regulatory approvals referred to in Section 7.1(B), and the required filings under federal and state securities laws, and except as set forth on Schedule 5.1(F) , the execution, delivery and performance of this Agreement and the consummation by WBC and Whidbey Island Bank of the transactions contemplated by this Agreement will not, as of the Effective Time (1) constitute a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or any WBC Contract, which breach, violation or default is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on WBC or Whidbey Island Bank, (2) constitute a breach or violation of, or a default under, their Articles of Incorporation or Bylaws, or (3) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license or the consent or approval of any other party to any such WBC Contract, other than any such consent or approval that, if not obtained, would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on WBC or Whidbey Island Bank.

(G) FINANCIAL REPORTS AND SECURITIES DOCUMENTS .

(1) Except as disclosed in Schedule 5.1(G) , WBC’s audited consolidated balance sheet as of December 31 for the fiscal years 2005 and 2006, and the related statements of income, changes in shareholders’ equity and cash flows for the fiscal years ended 2004 through 2006, inclusive, as reported in WBC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the SEC under the Exchange Act, and subsequent annual and quarterly financial statements of WBC presented in the WBC Securities Documents filed with the SEC after December 31, 2006, present fairly as of the dates and during the periods covered thereby the information purported to be presented therein, are in conformity with GAAP as in effect on the date of such financial statements, and comply in all material respects with the regulations of the SEC relating to such financial statements as of the dates and during the periods covered thereby. References in this Agreement to the term “WBC Financial Statements” shall mean the audited consolidated balance sheet of WBC and Subsidiaries as of December 31, 2005 and 2006, the audited consolidated statements of operations, cash flows, and changes in shareholder equity for the fiscal years then ended, the unaudited consolidated balance sheets of WBC dated June 30, 2007 and 2006, the unaudited consolidated statements of operations, cash flows, and changes in shareholder equity for the six month periods then ended, and subsequent annual and quarterly financial statements in each case as presented (and as and to the extent amended or restated) in the WBC Securities Documents.

(2) WBC’s Annual Report on Form 10-K for the year ended December 31, 2006 and all other reports, registration statements, definitive proxy statements or information statements filed by WBC subsequent to December 31, 2003 under the Securities Act or under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act in the form filed with the SEC (collectively, “WBC Securities Documents”), as of the date filed and as amended prior to the date hereof, (A) complied in all material respects as to form with the applicable regulations of the SEC, and (B) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. WBC has filed all forms, reports, statements, certifications and other documents (including all exhibits, amendments and supplements thereto) required to be filed by it with the SEC since December 31, 2003. Whidbey Island Bank is not required to file periodic reports with the SEC pursuant to the Exchange Act.




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WBC has Previously Disclosed to Frontier true, correct and complete copies of all written correspondence between the SEC, WBC or Whidbey Island Bank, occurring since December 31, 2003. As of the date of this Agreement, there are no outstanding or unresolved comments in comment letters received from the SEC staff with respect to the WBC Securities Documents. To WBC’s Knowledge, none of the WBC Securities Documents is the subject of ongoing SEC review.

(3) Since the enactment of the Sarbanes-Oxley Act, neither WBC nor any of its Subsidiaries nor, to the knowledge of WBC, any director, officer, employee, auditor, accountant or representative of WBC or any of its Subsidiaries, has received or otherwise 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 of WBC or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that WBC or any of its Subsidiaries has engaged in questionable accounting or auditing practices.

(H) ABSENCE OF UNDISCLOSED LIABILITIES . Except as set forth on Schedule 5.1(H) , neither WBC nor Whidbey Island Bank has any obligation or liability (contingent or otherwise) that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the business of WBC or Whidbey Island Bank, except (1) as reflected in the WBC Financial Statements prior to the Execution Date, and (2) for commitments and obligations made, or liabilities incurred, in the ordinary course of business consistent with past practice. Except as disclosed on Schedule 5.1(H) , since December 31, 2006, neither WBC nor Whidbey Island Bank has incurred or paid any obligation or liability (including any obligation or liability incurred in connection with any acquisitions in which any form of direct financial assistance of the federal government or any agency thereof has been provided to WBC and Whidbey Island Bank) that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on it.

(I) ABSENCE OF CERTAIN CHANGES OR EVENTS . Except for salary increases and bonuses Previously Disclosed to go into effect on or about January 1, 2008, or as set forth in Schedule 5.1(I) , since December 31, 2006, except for (A) normal increases for non-executive officer employees made in the ordinary course of business consistent with past practice, or (B) as required by applicable law, increased the wages, salaries, compensation, pension, or other fringe benefits or perquisites payable to any executive officer, employee, or director from the amount thereof in effect as of December 31, 2006 (which amounts have been Previously Disclosed to Frontier), WBC and Whidbey Island Bank have not (i) granted any severance or termination pay, entered into any contract to make or grant any severance or termination pay (except as required under the terms of the Employment Agreements), or paid any bonus other than the customary year-end bonuses in amounts consistent with past practice, (ii) granted any options to purchase shares of WBC Common Stock, any restricted shares of WBC Common Stock or any right to acquire any shares of its capital stock to any executive officer, director or employee other than grants to employees made in the ordinary course of business consistent with past practice under WBC’s Stock Option Plans, (iii) except pursuant to AICPA, FCAOTS or SEC guidance, made, changed or revoked any material Tax election or changed any Tax or financial accounting methods, principles or practices of WBC or Whidbey Island Bank affecting their assets, liabilities or businesses, including any reserving, renewal or residual method, practice or policy, or (iv) suffered any strike, work stoppage, slow-down, or other labor disturbance.

(J) PROPERTIES . Except as reserved against in the WBC Financial Statements, and as disclosed in title insurance policies held by WBC and Whidbey Island Bank, WBC and Whidbey Island Bank each has good and marketable title, free and clear of all liens, encumbrances, charges,




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defaults, or equities of any character (each an “Encumbrance”), to all of the properties and assets, tangible and intangible, reflected in the WBC Financial Statements as being owned by WBC or Whidbey Island Bank as of the dates thereof other than those Encumbrances that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island Bank and except those Encumbrances of record. All buildings and all material fixtures, equipment, and other property and assets that are held under leases, subleases or licenses by WBC and Whidbey Island Bank are held under valid leases, subleases or licenses enforceable in accordance with their respective terms, other than any such exceptions to validity or enforceability that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island Bank.

(K) LITIGATION; REGULATORY ACTION . Except as disclosed in Schedule 5.1(K) , no litigation, proceeding or controversy before any court or governmental agency is pending that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island Bank, and to the Knowledge of WBC, no such litigation, proceeding or controversy has been threatened. Neither WBC nor Whidbey Island Bank is subject to any cease-and-desist or other order 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 is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of (each a “Regulatory Agreement”), any Regulatory Authority that restricts the conduct of its business or that in any manner relates to its capital adequacy, its credit policies, its management or its business, nor has WBC or Whidbey Island Bank been advised by any Regulatory Authority that it is considering issuing or requesting any Regulatory Agreement.

(L) COMPLIANCE WITH LAWS . Except as disclosed in Schedule 5.1(L) , and except as would not reasonably be expected to have a Material Adverse Effect, each of WBC and Whidbey Island Bank:

(1) Is and at all times since December 31, 2003 has been in material compliance with all applicable federal, state, local and foreign statutes, laws, codes, regulations, ordinances, rules, judgments, injunctions, orders, decrees of any Governmental Authority applicable to the operation of its business or to the employees conducting such businesses, including, without limitation, Sections 23A and 23B of the Federal Reserve Act and FRB regulations pursuant thereto, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act, the USA Patriot Act, all other applicable fair lending laws and other laws relating to discriminatory business practices and Environmental Laws and all written policies of WBC and its Subsidiaries related to customer data, privacy and security;

(2) Has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Regulatory Authorities that are required in order to permit it to operate its businesses as presently conducted and that are material to its business; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the Knowledge of WBC, no suspension or cancellation of any of them is threatened; and all such filings, applications and registrations are current;

(3) Has received no notification or communication from any Regulatory Authority or the staff thereof (a) asserting that WBC or Whidbey Island Bank is not in compliance with any of the statutes, regulations or ordinances which such Regulatory Authority enforces, which, as a result of such noncompliance in any such instance, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island




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Bank, (b) threatening to revoke any license, franchise, permit or governmental authorization, which revocation, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island Bank, or (c) requiring WBC or Whidbey Island Bank (or any of their officers, directors or controlling persons) to enter into a cease and desist order, agreement or memorandum of understanding (or requiring the board of directors thereof to adopt any resolution or policy).

(4) Has devised and maintained systems of internal accounting controls sufficient to provide reasonable assurances that (1) all material transactions are executed in accordance with management’s general or specific authorization, (2) all material transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP, and to maintain proper accountability for items, (3) access to the material property and assets of WBC and Whidbey Island Bank is permitted only in accordance with management’s general or specific authorization, and (4) the recorded accountability for items is compared with the actual levels at reasonable intervals and appropriate action is taken with respect to any differences.

(5) All offers and sales of WBC Common Stock by WBC were at all relevant times exempt from or complied with the registration requirements of the Securities Act.

(6) Neither WBC, none of WBC’s Subsidiaries, nor, to WBC’s knowledge, (a) any director or executive officer of WBC or of a WBC Subsidiary, (b) any person related to any such director or officer by blood, marriage or adoption and residing in the same household and (c) any person who has been knowingly provided material nonpublic information by any one or more of these persons, has purchased or sold, or caused to be purchased or sold, any shares of WBC Common Stock or other securities issued by WBC (i) during any period when such Person was in possession of material nonpublic information or (ii) in violation of any applicable provision of the Exchange Act or the rules and regulations of the SEC thereunder.

(7) Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on WBC or Whidbey Island Bank: Whidbey Island Bank has properly administered all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents, applicable state and federal law and regulation and common law; and none of WBC or Whidbey Island Bank, or any director, officer or employee of WBC or Whidbey Island Bank has committed any breach of trust or fiduciary duty with respect to any such fiduciary account and the accountings for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.

(8) As of June 30, 2007, WBC and Whidbey Island Bank are “well capitalized” and “well managed” as a matter of federal banking law. Whidbey Island Bank has at least a “satisfactory” rating under the Community Reinvestment Act.

(M) MATERIAL CONTRACTS .

(1) Except as Previously Disclosed, or as set forth in Schedule 5.1(M) , WBC is not a party to or bound by any contract (whether written or oral), including but not limited to any Compensation and Benefit Plan, (A) with respect to the employment of any directors, officers, employees or consultants, (B) which, upon the consummation of the




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transactions contemplated by this Agreement, will (either alone or upon the occurrence of any additional acts or events) result in any payment or benefits (whether of severance pay or otherwise) becoming due or increasing in amount, or the acceleration or vesting of any rights to any payment or benefits, from Frontier, WBC, the Surviving Corporation, the Resulting Bank or any of their respective Subsidiaries to any officer, director, employee or consultant of WBC or Whidbey Island Bank, (C) which is a material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) to be performed after the Execution Date and is not a Loan, (D) which is a consulting agreement (including data processing, software programming and licensing contracts) not terminable on 30 days or less notice involving the payment of more than $50,000, or (E) which materially restricts the conduct of any line of business by WBC or Whidbey Island Bank. Each contract, arrangement, commitment or understanding of the type described in this Section 5.1(M), whether or not set forth in Schedule 5.1(M) , is referred to herein as a “WBC Contract.”

(2) Except as set forth in Schedule 5.1(M) , to the Knowledge of WBC (i) each WBC Contract is valid and binding and in full force and effect, (ii) WBC and Whidbey Island Bank have performed all obligations required to be performed by them to date under each WBC Contract, except where such noncompliance, individually or in the aggregate, would not have a Material Adverse Effect, (iii) no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute, a default on the part of WBC or Whidbey Island Bank under any WBC Contract, and (iv) no other party to any WBC Contract is in default in any respect thereunder.

(N) REGULATORY REPORTS . Since January 1, 2003, WBC and Whidbey Island Bank have filed all reports and statements, together with any amendments required to be made with respect thereto, that they were required to file with (1) the Department, (2) the Federal Reserve Board or (3) the FDIC. As of their respective dates (and without giving effect to any amendments or modifications filed after the Execution Date with respect to reports and documents filed before the Execution Date), each of such reports and documents, including the financial statements, exhibits and schedules thereto, complied as to form, and were timely filed with the Regulatory Authority with which they were filed.

(O) BROKERS AND FINDERS . Neither WBC, Whidbey Island Bank nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with any of the transactions contemplated by this Agreement, except that WBC has engaged, and will pay a fee or commission to, RBC Dain Rauscher, Incorporated and Sandler O’Neill & Partners, LP in accordance with the terms of their respective letter agreements between such firms and WBC, true and correct copies of which has been Previously Disclosed by WBC to Frontier.

(P) EMPLOYEE BENEFIT PLANS .

(1) Schedule 5.1(P)(1) contains a complete list of all bonus, deferred compensation, pension, retirement, profit-sharing, thrift savings, employee stock ownership, stock bonus, stock purchase, restricted stock and stock option plans, all employment or severance contracts, all medical, dental, health and life insurance plans, all other employee benefit plans, contracts or arrangements and any applicable “change of control” or similar provisions in any plan, contract or arrangement maintained or contributed to by WBC or Whidbey Island Bank for the benefit of employees, former employees, directors, former directors or their beneficiaries (the “Compensation and Benefit Plans”). True and complete copies of all Compensation and Benefit Plans of WBC and Whidbey Island Bank, including any trust instruments and/or insurance




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contracts, if any, forming a part thereof, and all amendments thereto, have been provided to Frontier.

(2) All “employee benefit plans” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), other than “multiemployer plans” within the meaning of Section 3(37) of ERISA (“Multiemployer Plans”), covering employees or former employees of WBC or Whidbey Island Bank (the “ERISA Plans”), to the extent subject to ERISA, are in substantial compliance with ERISA. Except as Previously Disclosed in Schedule 5.1(P)(2) each ERISA Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA (“Pension Plan”) and which is intended to be qualified under the Code has received a favorable determination letter from the Internal Revenue Service (or has applied for a favorable determination letter and is waiting for a response, or utilizes a prototype that allows for reliance on the opinion letter of the sponsor of the prototype or volume submitter document), and it is not aware of any circumstances reasonably likely to result in the revocation or denial of any such favorable determination letter or the inability to receive such a favorable determination letter. There is no material pending or, to its knowledge, threatened litigation relating to the ERISA Plans. Neither WBC nor Whidbey Island Bank has engaged in a transaction with respect to any ERISA Plan that could subject WBC or Whidbey Island Bank to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be material.

(3) No liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by WBC or Whidbey Island Bank with respect to any ongoing, frozen or terminated “single-employer plan,” within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them, or the single-employer plan of any entity which is considered one employer with WBC or Whidbey Island Bank under Section 4001(a)(14) of ERISA or Section 414 of the Code (a “ERISA Affiliate”). Neither WBC nor Whidbey Island Bank presently contributes to a Multiemployer Plan and they have not contributed to such a plan within the past five calendar years. No notice of a “reportable event,” within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA Affiliate within the past 12-month period.

(4) All contributions required to be made under the terms of any ERISA Plan have been timely made. Neither any Pension Plan nor any single-employer plan of a ERISA Affiliate has an “accumulated funding deficiency”(whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. WBC and Whidbey Island Bank have not provided and are not required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code.

(5) Under each Pension Plan which is a single-employer plan, as of the last day of the most recent plan year, the actuarially determined present value of all “benefit liabilities,” within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions contained in the plan’s most recent actuarial valuation) did not exceed the then current value of the assets of such plan, and there has been no material change in the financial condition of such plan since the last day of the most recent plan year.

(6) WBC and Whidbey Island Bank have no obligations for retiree health and life benefits under any plan, except as set forth in Schedule 5.1(P)(6) , or as required by law pursuant to COBRA continuation requirements. There are no restrictions on the rights of WBC




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or Whidbey Island Bank to amend or terminate any such plan without incurring any liability thereunder.

(Q) LABOR AGREEMENTS . Neither WBC nor Whidbey Island Bank is a party to or bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is WBC or Whidbey Island Bank the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel it to bargain with any labor organization as to wages and conditions of employment, nor is there any strike or other labor dispute involving it pending nor, to WBC’s or Whidbey Island Bank’s Knowledge, is there any activity involving its employees seeking to certify a collective bargaining unit or engaging in any other organization activity.

(R) LOAN PORTFOLIO .

(1) Except as Previously Disclosed or as set forth in Schedule 5.1(R) , neither WBC nor Whidbey Island Bank is a party to any written or oral (i) loan agreement, note or borrowing arrangement (including, without limitation, leases, credit enhancements, commitments, guarantees and interest-bearing assets) (collectively, “Loans”), other than Loans the unpaid principal balance of which does not exceed $50,000, under the terms of which the obligor was, as of June 30, 2007, over 90 days delinquent in payment of principal or interest or in default of any other provision, or (ii) Loan with any director, executive officer or 5% or greater shareholder of WBC or Whidbey Island Bank, or to the Knowledge of WBC or Whidbey Island Bank, any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing. Schedule 5.1(R) sets forth (x) all of the Loans of WBC and Whidbey Island Bank that as of June 30, 2007, were classified by any bank examiner (whether regulatory or internal) as “Other Loans Specially Mentioned,” “Special Mention,” “Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk Assets,” “Concerned Loans,” or “Watch List”, together with the principal amount of and accrued and unpaid interest on each such Loan, the identity of the borrower thereunder, the aggregate principal amount of such Loans by category (e.g., commercial real estate, consumer, C&I) and the amount of specific reserves with respect to each such category of Loan and the amount of reserves with respect to each such category of Loans, and (y) each asset of WBC or Whidbey Island Bank that as of June 30, 2007, was classified as “Other Real Estate Owned” and the book value thereof.

(2) Except where failure would not have a Material Adverse Effect on such Loan, each Loan in original principal amount in excess of $50,000 (i) is evidenced by notes, agreements or other evidences of indebtedness, (ii) to the extent secured, has been secured by valid liens and security interests which have been perfected against the relevant borrower or guarantor and (iii) is the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

(3) Except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on WBC or Whidbey Island Bank, all Loans originated by WBC and Whidbey Island Bank, and all such Loans purchased, administered or serviced by WBC or Whidbey Island Bank (including Loans held for resale to investors), were made or purchased and are administered or serviced, as applicable, in accordance with customary lending standards of WBC or Whidbey Island Bank and in accordance with applicable federal, state and local laws, regulations and rules. All such Loans (and any related guarantees) and payments due




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thereunder are, and on the Closing Date will be, free and clear of any lien, pledge, charge, security interest or other similar encumbrance, and WBC and Whidbey Island Bank have complied in all material respects, and on the Closing Date will have complied in all material respects, with all lending laws and regulations relating to such Loans.

(4) Except as set forth in Schedule 5.1(R)(4) , no agreement pursuant to which any Loans or other assets have been sold by WBC or its Subsidiaries entitled the buyer of such Loans or other assets, unless there is material breach of a representation or covenant by WBC or its Subsidiaries, to cause WBC or Whidbey Island Bank to repurchase such loan or other asset or the buyer to pursue any other form of recourse against WBC or Whidbey Island Bank.

(5) Neither WBC nor Whidbey Island Bank is now nor has it ever been since January 1, 2003 subject to any material fine, suspension, settlement or other agreement or other administrative agreement or sanction by, or any material reduction in any loan purchase commitment from any federal or state agency relating to the origination, sale or servicing of mortgage or consumer Loans. WBC and Whidbey Island Bank have not received any notice, and to WBC’s and Whidbey Island Bank’s Knowledge, no Agency proposes to limit or terminate the underwriting authority of WBC or Whidbey Island Bank or to increase the guarantee fees payable to any such Agency.

(6) Schedule 5.1(R)(6) sets forth, as of the date hereof, a schedule of all officers and directors of WBC and Whidbey Island Bank who have outstanding loans from WBC or Whidbey Island Bank, and there has been no default on, or forgiveness or waiver of, in whole or in part, any such loan during the two (2) years immediately preceding the date hereof.

(S) INSURANCE . WBC and Whidbey Island Bank have taken all requisite action (including the making of claims and the giving of notices) pursuant to its directors’ and officers’ liability insurance policy or policies in order to preserve all rights thereunder with respect to all matters that are Known to WBC or Whidbey Island Bank, except for such matters that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island Bank. Set forth in Schedule 5.1(S) is a list of all insurance policies maintained by WBC and Whidbey Island Bank.

(T) STATE TAKEOVER LAWS; ARTICLES OF INCORPORATION; BYLAWS . WBC has taken all necessary action to exempt this Agreement and the transactions contemplated by this Agreement from, (1) any applicable state takeover laws, including but not limited to RCW Ch. 23B.19, as amended, and (2) any takeover related provisions of the Articles of Incorporation or Bylaws of WBC.

(U) ENVIRONMENTAL MATTERS .

(1) To the Knowledge of WBC and Whidbey Island Bank, the Participation Facilities and the Loan/Fiduciary Properties are, and have been, in compliance with all Environmental Laws, except for instances of noncompliance that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on WBC or Whidbey Island Bank.

(2) There is no proceeding pending or, to the Knowledge of WBC and Whidbey Island Bank, threatened before any court, governmental agency or board or other forum in which WBC, Whidbey Island Bank or any Participation Facility has been, or with respect to threatened proceedings, reasonably would be expected to be, named as a defendant or potentially




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responsible party (a) for alleged noncompliance (including by any predecessor) with any Environmental Law, or (b) relating to the release or threatened release into the environment of any Hazardous Material, whether or not occurring at or on a site owned, leased or operated by WBC, Whidbey Island Bank or any Participation Facility, except for such proceedings pending or threatened that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on WBC, Whidbey Island Bank or have been disclosed in Schedule 5.1(U)(2) .

(3) There is no proceeding pending or, to the Knowledge of WBC and Whidbey Island Bank, threatened before any court, Governmental Authority in which any Loan/Fiduciary Property (or WBC or Whidbey Island Bank in respect of any Loan/Fiduciary Property) has been, or with respect to threatened proceedings, reasonably would be expected to be, named as a defendant or potentially responsible party (a) for alleged noncompliance (including by any predecessor) with any Environmental Law, or (b) relating to the release or threatened release into the environment of any Hazardous Material, whether or not occurring at or on a Loan/Fiduciary Property, except for such proceedings pending or threatened that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on WBC or Whidbey Island Bank or have been disclosed in Schedule 5.1(U)(3) .

(4) To the Knowledge of WBC and Whidbey Island Bank, there is no reasonable basis for any proceeding of a type described in subparagraph (2) or (3) of this paragraph (U), except as has been Previously Disclosed or as set forth in Schedule 5.1(U)(4) .

(5) To the Knowledge of WBC and Whidbey Island Bank, during the period of (a) ownership or operation by WBC or Whidbey Island Bank of any of its current properties, (b) participation in the management of any Participation Facility by WBC or Whidbey Island Bank, or (c) holding of a security or other interest in a Loan/Fiduciary Property by WBC or Whidbey Island Bank, there have been no releases of Hazardous Material in, on, under or affecting any such property, Participation Facility or Loan/Fiduciary Property, except for such releases that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on WBC or Whidbey Island Bank or have been Previously Disclosed in Schedule 5.1(U)(5) .

(6) To the Knowledge of WBC and Whidbey Island Bank, prior to the period of (a) ownership or operation by WBC or Whidbey Island Bank of any of its current properties, (b) participation in the management of any Participation Facility by WBC or Whidbey Island Bank, or (c) holding of a security or other interest in a Loan/Fiduciary Property by WBC or Whidbey Island Bank, there were no releases of Hazardous Material in, on, under or affecting any such property, Participation Facility or Loan) Fiduciary Property, except for such releases that are not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on WBC or Whidbey Island Bank or have been Previously Disclosed in Schedule 5.1(U)(6) .

(V) TAX REPORTS . Except as Previously Disclosed or as set forth in Schedule 5.1(V) , (1) all federal and state reports and returns and, to the Knowledge of WBC, all other reports and returns with respect to Taxes that are required to be filed by or with respect to WBC or Whidbey Island Bank, including federal income tax returns of WBC and Whidbey Island Bank (collectively, the “WBC Tax Returns”), have been duly filed, or requests for extensions have been timely filed and have not expired, for periods ended on or prior to the most recent fiscal year-end, except to the extent all such failures to file, taken together, are not reasonably likely to have a Material Adverse Effect on WBC or Whidbey Island Bank, and such WBC Tax Returns were true, complete and accurate in all material respects, (2) all Taxes shown to be due on the WBC Tax Returns have been paid in full, (3) all Taxes due




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with respect to completed and settled examinations have been paid in full, (4) no issues have been raised by the relevant taxing authority in connection with the examination of any of the WBC Tax Returns which are reasonably likely, individually or in the aggregate, to result in a determination that would have a Material Adverse Effect on WBC or Whidbey Island Bank, except as reserved against in the WBC Financial Statements, and (5) no waivers of statutes of limitations (excluding such statutes that relate to years under examination by the Internal Revenue Service) have been given by or requested with respect to any Taxes of WBC or Whidbey Island Bank.

(W) ACCURACY OF INFORMATION . The statements with respect to WBC and Whidbey Island Bank contained in this Agreement, the Schedules and any other written documents executed and delivered by or on behalf of WBC and Whidbey Island Bank pursuant to the terms of or relating to this Agreement are true and correct in all material respects, and such statements and documents do not omit any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

(X) DERIVATIVES CONTRACTS . Neither WBC nor Whidbey Island Bank is a party to or has agreed to enter into a Derivatives Contract or owns securities that are referred to as “structured notes” except for those Derivatives Contracts and structured notes Previously Disclosed in Schedule 5.1(X) . Schedule 5.1(X) includes a list of any assets of WBC or Whidbey Island Bank that are pledged as security for each such Derivatives Contract.

(Y) INVESTMENT SECURITIES .

(1) WBC and Whidbey Island Bank have good title to all securities owned by them (except those sold under repurchase agreements or held in any fiduciary or agency capacity as set forth in Schedule 5.1(Y) ), free and clear of any lien, pledge, charge, security interest or similar encumbrance, except to the extent such securities are pledged in the ordinary course of business to secure obligations of WBC or Whidbey Island Bank or as set forth in Schedule 5.1(Y) . Such securities are valued on the books of WBC and Whidbey Island Bank in accordance with GAAP in all material respects.

(2) WBC and Whidbey Island Bank employ investment, securities, risk management and other policies, practices and procedures which they believe are prudent and reasonable in the context of their business. Prior to the date hereof, WBC and Whidbey Island Bank have made available to Frontier in writing the material policies, practices and procedures.

(Z) INTELLECTUAL PROPERTY . Except as set forth in Schedule 5.1(Z) and except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on WBC or Whidbey Island Bank, (a) each of WBC and Whidbey Island Bank owns, or is licensed to use (in each case, free and clear of any lien, pledge, charge, security interest or similar encumbrance), all Intellectual Property used in or necessary for the conduct of its business as currently conducted; (b) the use of any Intellectual Property by WBC or Whidbey Island Bank does not, to the Knowledge of WBC or Whidbey Island Bank, infringe on or otherwise violate the rights of any person and is in accordance with any applicable license pursuant to which WBC or Whidbey Island Bank acquired the right to use any Intellectual Property; (c) to the Knowledge of WBC or Whidbey Island Bank, no person is challenging, infringing on or otherwise violating any right of WBC or Whidbey Island Bank with respect to any Intellectual Property owned by and/or licensed to WBC or Whidbey Island Bank; (d) WBC and Whidbey Island Bank have not received any written notice of any pending claim with respect to any Intellectual Property used by WBC or Whidbey Island Bank and no Intellectual Property owned and/or licensed by WBC or Whidbey Island Bank is being used or enforced in a manner that would be expected




AGREEMENT AND PLAN OF MERGER		28

to result in the abandonment, cancellation or enforceability of such Intellectual Property. For purposes of this Agreement, “Intellectual Property” means any material trademarks, service marks, brand names, certification marks, trade dress or other indications of origin, the goodwill associated with the foregoing and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; patents, applications for patents (including divisions, continuations, continuations in part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction; trade secrets and registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof.

(AA) FAIRNESS OPINION. Prior to the Execution Date, WBC has received an opinion from Sandler O’Neill & Partners, LP to the effect that as of the date thereof and based upon and subject to the matters set forth therein, the Merger Consideration to be received by the shareholders of WBC is fair to such shareholders from a financial point of view. Such opinion has not been amended or rescinded as of the Execution Date.

5.2 FRONTIER AND FRONTIER BANK REPRESENTATIONS AND WARRANTIES . Frontier and Frontier Bank each hereby represent and warrant to WBC and Whidbey Island Bank as follows:

(A) ORGANIZATION, QUALIFICATION AND AUTHORITY . Each of Frontier and Frontier Bank is duly qualified to do business and is in good standing in the States of the United States and foreign jurisdictions where the failure to be duly qualified, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on it. Each of Frontier and its Subsidiaries has in effect all federal state, local, and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now conducted, the absence of which, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on Frontier. Frontier Bank is an “insured depository institution” as defined in the Federal Deposit Insurance Act, as amended, and applicable regulations under such statute, and its deposits are insured by the Bank Insurance Fund of the FDIC to the fullest extent permitted by law, and all premiums and assessments required to be paid in connection therewith have been paid.

(B) SHARES .

(1) The outstanding shares of Frontier’s capital stock are validly issued and outstanding, fully paid and non-assessable, and subject to no preemptive rights. Except as disclosed in Schedule 5.2(B) , there are no shares of capital stock or other equity securities of it or its Subsidiaries outstanding and no outstanding securities convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, or any options, warrants, calls or commitments with respect thereto as of the Execution Date.

(2) As of the Execution Date, Frontier has 100,000,000 authorized shares of common stock, no par value per share (“Frontier Common Stock”), of which approximately 44,506,185 shares of Frontier Common Stock are issued and outstanding, and 10,000,000 shares of preferred stock, no par value per share, of which no shares are issued and outstanding.

(3) As of the Execution Date, Frontier Bank has 83,029 authorized shares of common stock, $37.50 par value per share (no other class of capital stock being authorized), of which 72,600 shares are issued and outstanding and owned by Frontier, the sole shareholder of Frontier Bank.




AGREEMENT AND PLAN OF MERGER		29

(C) FRONTIER SUBSIDIARIES . Schedule 5.2(C) sets forth a list of all of Frontier’s and Frontier Bank’s Subsidiaries. Each of Frontier’s Subsidiaries that is a bank is an “insured depository institution” as defined in the Federal Deposit Insurance Act, as amended, and applicable regulations under such statute, and the deposits of such Subsidiaries are insured by the Bank Insurance Fund of the FDIC. There are no contract or commitments, understandings or arrangements by which any of its Subsidiaries is or may be bound to sell or otherwise issue any shares of such Subsidiary’s capital stock, and there are no contracts, commitments, understandings or arrangements relating to the rights of Frontier or its Subsidiaries, as applicable to vote or to dispose of such shares. All of the shares of capital stock of each of its Subsidiaries held by Frontier or one of its Subsidiaries are fully paid and non-assessable and are owned by Frontier or one of its Subsidiaries free and clear of any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance. Each of its Subsidiaries is duly organized and existing under the laws of the jurisdiction in which it is incorporated or organized, and is duly qualified to do business in the jurisdictions where the failure to be duly qualified is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on it. Except as set forth in Schedule 5.2(C) , Frontier does not own beneficially, directly or indirectly, any shares of any equity securities or similar interests of any corporation, bank, partnership, joint venture, business trust, association or other organization, other than shares held as trustee or nominee or share held as collateral.

(D) CORPORATE AUTHORITY . Frontier and Frontier Bank have 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 transactions contemplated hereby have been duly and validly approved by the Board of Directors of Frontier and Frontier Bank. This Agreement has been authorized by all necessary corporate action of Frontier and Frontier Bank, and has been duly and validly executed and delivered by Frontier and Frontier Bank and (assuming due authorization, execution and delivery by WBC and Whidbey Island Bank) constitutes the valid and binding obligation of Frontier and Frontier Bank, enforceable against Frontier and Frontier Bank in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity).

(E) CORPORATE MINUTES . The minute books of Frontier and Frontier Bank Previously Disclosed to WBC contain true, complete and correct records of all meetings and other corporate actions held or taken since December 31, 2002 of Frontier’s and Frontier Bank’s shareholders and Boards of Directors (including committees of their Boards of Directors).

(F) NO DEFAULTS . Subject to receipt of the required regulatory approvals referred to in Section 7.1(B), and the required filings under federal and state securities laws, and except as set forth in Schedule 5.2(F) , the execution, delivery and performance of its obligation under this Agreement and the consummation by Frontier and each of its Subsidiaries of the transactions contemplated by this Agreement do not and will not (1) constitute a breach or violation of, or a default under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of Frontier or of any of its Subsidiaries or to which Frontier or any of its Subsidiaries or its or their properties is subject or bound, which breach, violation or default is reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Frontier, (2) constitute a breach or violation of, or a default under, the Articles of Incorporation or Bylaws of Frontier or any of its Subsidiaries, or (3) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license or the consent or approval of any other party to any such agreement, indenture or instrument, other than any such consent or approval that, if not obtained, would not be reasonably likely, individually or in the aggregate, to have a Material Adverse Effect on Frontier.




AGREEMENT AND PLAN OF MERGER		30

(G) FINANCIAL REPORTS AND SECURITIES DOCUMENTS .

(1) Except as disclosed in Schedule 5.2(G) , Frontier’s audited consolidated balance sheet as of December 31 for the fiscal years 2005 and 2006, and the related statements of income, changes in shareholders’ equity and cash flows for the fiscal years ended 2004 through 2006, inclusive, as reported in Frontier’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the SEC under the Exchange Act, and subsequent annual and quarterly financial statements of Frontier presented in the Frontier Securities Documents filed with the SEC after December 31, 2006, present fairly as of the dates and during the periods covered thereby the information purported to be presented therein, are in conformity with GAAP as in effect on the date of such financial statements, and comply in all material respects with the regulations of the SEC relating to such financial statements as of the dates and during the periods covered thereby. References in this Agreement to the term “Frontier Financial Statements” shall mean the audited consolidated balance sheet of Frontier and Subsidiaries as of December 31, 2005 and 2006, the audited consolidated statements of operations, cash flows, and changes in shareholder equity for the fiscal years then ended, the unaudited consolidated balance sheets of Frontier dated June 30, 2007 and 2006, the unaudited consolidated statements of operations, cash flows, and changes in shareholder equity for the six month periods then ended, and subsequent annual and quarterly financial statements in each case as presented (and as and to the extent amended or restated) in the Frontier Securities Documents.

(2) Frontier’s Annual Report on Form 10-K for the year ended December 31, 2006 and all other reports, registration statements, definitive proxy statements or information statements filed by it subsequent to December 31, 2003 under the Securities Act or under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act in the form filed or to be filed with the SEC (collectively, “Frontier Securities Documents”), as of the date filed and as amended prior to the date hereof, (A) complied or will comply in all material respects as to form with the applicable regulations of the SEC, as the case may be, and (B) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Frontier has filed all forms, reports, statements, certifications and other documents (including all exhibits, amendments and supplements thereto) required to be filed by it with the SEC since December 31, 2003. None of Frontier’s Subsidiaries is required to file periodic reports with the SEC pursuant to the Exchange Act. Frontier has Previously Disclosed to WBC true, correct and complete copies of all written correspondence between the SEC, on the one hand, and Frontier and any of its Subsidiaries, on the other hand, occurring since December 31, 2003. As of the date of this Agreement, there are no outstanding or unresolved comments in comment letters received from the SEC staff with respect to the Frontier Securities Documents. To Frontier’s Knowledge, none of the Frontier Securities Documents is the subject of ongoing SEC review or outstanding SEC comment.

(3) Since June 30, 2007, no event has occurred or circumstances arisen that, individually or taken together with all other facts, circumstances and events (described in any paragraph of this Section 5.2 or otherwise), is reasonably likely to have a Material Adverse Effect with respect to Frontier.

(H) ABSENCE OF UNDISCLOSED LIABILITIES . Except as disclosed on Schedule 5.2(H) , Frontier has no obligation or liability (contingent or otherwise) that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on it, except (1) as reflected in the Frontier Financial Statements prior to the Execution Date, and (2) for commitments and obligations made,




AGREEMENT AND PLAN OF MERGER		31

or liabilities incurred, in the ordinary course of business consistent with past practice. Except as disclosed on Schedule 5.2(H) , since December 31, 2006, Frontier has not incurred or paid any obligation or liability (including any obligation or liability incurred in connection with any acquisitions in which any form of direct financial assistance of the federal government or any agency thereof has been provided to Frontier) that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on Frontier.

(I) LITIGATION; REGULATORY ACTION . Except as disclosed in Schedule 5.2(I) no litigation, proceeding or controversy before any court or governmental agency is pending that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on Frontier or its Subsidiaries, and, to the Knowledge of Frontier, no such litigation, proceeding or controversy has been threatened. Neither Frontier nor any of its Subsidiaries is subject to any cease-and-desist or other order issued by, or is a party to any Regulatory Agreement, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of any Regulatory Authority that restricts the conduct of its business or that in any manner related to its capital adequacy, its credit policies, its management or its business, nor has Frontier or any of its Subsidiaries been advised by any Regulatory Authority that is considering issuing or requesting any Regulatory Agreement.

(J) COMPLIANCE WITH LAWS . Except as set forth in Schedule 5.2(J) , each of Frontier, Frontier Bank and their Subsidiaries:

(1) Is and at all times since December 31, 2003 has been in material compliance with all applicable federal, state, local and foreign statutes, laws, codes, regulations, ordinances, rules, judgments, injunctions, orders, or decrees of any Governmental Authority applicable to the operation of its business or to the employees conducting such businesses, including, without limitation, Sections 23A and 23B of the Federal Reserve Act and FRB regulations pursuant thereto, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act, the USA Patriot Act, all other applicable fair lending laws and other laws relating

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