AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

EXECUTION COPY

 

 

AGREEMENT AND PLAN OF MERGER

 

dated as of November 29, 2005

 

by and between

 

AmericanWest Bancorporation

 

and

 

Columbia Trust Bancorp

 

TABLE OF CONTENTS

 

 

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AGREEMENT AND PLAN OF MERGER , dated as of November 29, 2005 (this “ Agreement ”), by and between Columbia Trust Bancorp, a Washington corporation (the “ Company ”), and AmericanWest Bancorporation, a Washington corporation (“ Parent ”).

 

RECITALS

 

A. The Company . The Company is a Washington corporation having its principal place of business in Pasco, Washington.

 

B. Parent . Parent is a Washington corporation, having its principal place of business in Spokane, Washington.

 

C. Board Action. The respective Boards of Directors of Parent and the Company have determined that it is in the best interests of their respective companies and their shareholders to consummate the merger of the Company with and into Parent (the “ Merger ”) and the merger of Columbia Trust Bank, a Washington banking corporation (“ Company Bank ”) with and into AmericanWest Bank, a Washington banking corporation (“ Parent Bank ”) (the “ Bank Merger ”).

 

D. Intentions of the Parties . It is the intention of the parties to this Agreement that the Merger be treated as a “reorganization” under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”).

 

E. Shareholder Agreements . As a condition to, and simultaneously with, the execution of this Agreement, each Shareholder (as defined herein) is entering into an agreement, in the form of Exhibit A hereto, (collectively, the “ Shareholder Agreements ”) pursuant to which he or she has agreed, solely in his or her capacity as a shareholder of the Company, among other things, to vote his or her shares in favor of the principal terms of the Merger.

 

F. Non-Competition Agreements . As a condition to, and simultaneously with, the execution of this Agreement, each director of the Company is entering into a non-competition and non-solicitation agreement with Parent in the form of Exhibit B hereto (collectively, the “ Non-Competition and Non-Solicitation Agreements ”).

 

NOW, THEREFORE , in consideration of the premises and of the mutual covenants, representations, warranties and agreements contained herein, the parties agree as follows:

 

ARTICLE I

 

CERTAIN DEFINITIONS

 

1.01. Certain Definitions . The following terms are used in this Agreement with the meanings set forth below:

 

“ Acquisition Proposal ” has the meaning set forth in Section 6.08.

 

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“ Agreement ” means this Agreement, as amended or modified from time to time in accordance with Section 9.02.

 

“ Agreement of Merger” means the agreement of merger to be filed with the Washington Secretary of State substantially in the form attached hereto as Exhibit D.

 

“ ALLL ” means the allowance for loan and lease losses, as determined in accordance with GAAP and regulatory accounting principles or RAP.

 

“Bank Insurance Fund ” means the Bank Insurance Fund maintained by the FDIC.

 

“ Bank Merger ” has the meaning set forth in the Recitals to this Agreement.

 

“ Bank Secrecy Act ” means the Currency and Foreign Transaction Reporting Act (31 U.S.C. Section 5311 et seq.) as amended.

 

“ Benefit Plans ” has the meaning set forth in Section 5.03(m).

 

“ BOLI ” has the meaning set forth in Section 5.03(m).

 

“ Business Combination ” has the meaning set forth in Section 3.07.

 

“ Business Day ” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the State of Washington are authorized or obligated to close.

 

“ Cash Consideration ” has the meaning set forth in Section 3.02(a).

 

“ Cash Election ” has the meaning set forth in Section 3.03(a).

 

“ Cash Election Number ” has the meaning set forth in Section 3.03(c).

 

“ Cash Election Shares ” has the meaning set forth in Section 3.03(d).

 

“ CIC Agreements ” has the meaning set forth in Section 6.12(f).

 

“ Code ” has the meaning set forth in the Recitals to this Agreement.

 

“ Combination Cash Election” has the meaning set forth in Section 3.03(a).

 

“ Combination Stock Election” has the meaning set forth in Section 3.03(a).

 

“ Community Reinvestment Act ” means the Community Reinvestment Act of 1977 (12 U.S.C. Section 2901 et seq .), as amended.

 

“ Company ” has the meaning set forth in the preamble to this Agreement.

 

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“ Company Affiliates ” has the meaning set forth in Section 6.06.

 

“ Company Articles ” means the Articles of Incorporation of the Company, as amended.

 

“Company Bank” has the meaning set forth in the Recitals to this Agreement.

 

“ Company Board ” means the Board of Directors of the Company.

 

“ Company By-Laws ” means the By-Laws of the Company.

 

“ Company Common Stock ” means the common stock, $0.50 par value per share, of the Company.

 

“ Company Common Stock Value ” has the meaning set forth in Section 3.02(a).

 

“ Company Disclosure Schedule ” has the meaning set forth in Section 5.01.

 

“ Company Intellectual Property Rights ” has the meaning set forth in Section 5.03(x).

 

“ Company Loan Property ” has the meaning set forth in Section 5.03(o).

 

“ Company Meeting ” has the meaning set forth in Section 6.02.

 

“Company Statutory Trust I” has the meaning set forth in Section 5.03(c).

 

“ Company Stock Options ” means, collectively or individually, the options to acquire Company Common Stock issued under the any of the Company’s Stock Option Plans.

 

“ Company Stock Option Plans ” means, collectively or individually, each of the Company Bank 1996 Employee Stock Option Plan and the Company Bank 1998 Non-Employee Director Stock Option Plan.

 

“ Company Subsidiary ” has the meaning set forth in Section 5.03(c).

 

“ Costs ” has the meaning set forth in Section 6.11(a).

 

“ Derivatives Contract ” has the meaning set forth in Section 5.03(q).

 

“ Dissenters’ Shares ” has the meaning set forth in Section 3.01(c).

 

“ Dissenting Shareholder ” means any holder of Dissenters’ Shares.

 

“ Effective Date ” has the meaning set forth in Section 2.02.

 

“ Effective Time ” has the meaning set forth in Section 2.02.

 

“ Election” has the meaning set forth in Section 3.03(a).

 

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“ Election Deadline” has the meaning set forth in Section 3.03(b).

 

“ Election Form” has the meaning set forth in Section 3.03(a).

 

“ Election Form Record Date ” has the meaning set forth in Section 3.03(a).

 

“ Employees ” has the meaning set forth in Section 5.03(m).

 

“ Environmental Laws ” has the meaning set forth in Section 5.03(o).

 

“ Equal Credit Opportunity Act ” means the Equal Credit Opportunity Act (15 U.S.C. Section 1691 et seq .) as amended.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1010 et seq .), as amended.

 

“ ERISA Affiliate ” has the meaning set forth in Section 5.03(m).

 

“ Exchange Act ” means the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq .), as amended, and the rules and regulations thereunder.

 

“ Exchange Agent ” has the meaning set forth in Section 3.03(a).

 

“ Exchange Fund ” has the meaning set forth in Section 3.06(a).

 

“ Exchange Ratio ” has the meaning set forth in Section 3.09(a).

 

“Failing Party” has the meaning set forth in Section 8.02(b).

 

“ Fair Housing Act ” means the Fair Housing Act (420 U.S.C. Section 3601 et seq .), as amended.

 

“ FDIC ” means the Federal Deposit Insurance Corporation.

 

“ Federal Reserve Act ” means the Federal Reserve Act, as amended.

 

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

 

“ GAAP ” means generally accepted accounting principles.

 

“ Governmental Authority ” means any court, administrative agency or commission or other federal, state or local governmental authority or instrumentality.

 

“ Hazardous Substance ” has the meaning set forth in Section 5.03(o).

 

“Home Mortgage Disclosure Act” means the Home Mortgage Disclosure Act (12 U.S.C. Section 2801 et seq. ), as amended.

 

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“In-the-Money Company Stock Options” has the meaning set forth in Section 3.02(a).

 

“ Indemnified Party ” has the meaning set forth in Section 6.11(a).

 

“ Insurance Amount ” has the meaning set forth in Section 6.11(b).

 

“ Insurance Policies ” has the meaning set forth in Section 5.03(s).

 

“ Knowledge ” of the Company, any Company Subsidiary, Parent or any Parent Subsidiary, as the case may be, means (i) to the actual knowledge of any director and (ii) to the actual knowledge after reasonable investigation of any executive officer of the Company, the Company Subsidiaries, Parent or the Parent Subsidiaries, as the case may be, or any employee of the Company, the Company Subsidiaries, Parent or Parent Subsidiaries, as the case may be, with primary responsibility for the subject matter as to which knowledge is at issue.

 

“ Lien ” means any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance.

 

“ Mailing Date” has the meaning set forth in Section 3.03(a).

 

“ Material Adverse Effect ” means, with respect to Parent or the Company, any effect, circumstance, occurrence or change that (i) is material and adverse to the financial position, results of operations, business or prospects of Parent and its Subsidiaries taken as a whole or the Company and its Subsidiaries taken as a whole, as the case may be, or (ii) would materially impair the ability of either Parent or the Company, respectively, to perform its obligations under this Agreement or otherwise materially threaten or materially impede the consummation of the Merger and the other transactions contemplated by this Agreement; provided, however, that a Material Adverse Effect shall not be deemed to include the impact of (a) changes in banking and similar laws of general applicability or interpretations thereof by Governmental Authorities, (b) changes in GAAP or regulatory accounting requirements applicable to banks and their holding companies generally, (c) any modifications or changes to valuation policies and practices in connection with the Merger or restructuring charges taken in connection with the Merger, in each case in accordance with GAAP and (d) changes in economic conditions affecting financial institutions generally, except to the extent such changes disproportionately affect Parent and its Subsidiaries or the Company and its Subsidiaries, as the case may be.

 

“ Merger ” has the meaning set forth in the Recitals to this Agreement.

 

“ Merger Consideration ” has the meaning set forth in Section 3.02(a).

 

“ Nasdaq ” means The Nasdaq Stock Market, Inc.’s National Stock Market.

 

“ National Labor Relations Act ” means the National Labor Relations Act, as amended.

 

“ Non-Competition and Non-Solicitation Agreements ” has the meaning set forth in the Recitals to this Agreement.

 

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“ Parent ” has the meaning set forth in the preamble to this Agreement.

 

“ Parent Bank ” has the meaning set forth in the Recitals to this Agreement.

 

“ Parent Board ” means the Board of Directors of Parent.

 

“ Parent Common Stock ” means the common stock, no par value per share, of Parent.

 

“ Parent Disclosure Schedule ” has the meaning set forth in Section 5.01.

 

“ Parent Measuring Price ” means the average closing price of Parent Common Stock on the Nasdaq over the 20 consecutive day trading period ending on the fifth Business Day prior to the Effective Time, as reported on the website at http://www.nasdaq.com.

 

“ Parent Statutory Trust I ” has the meaning set forth in Section 5.04(c).

 

“ Parent Subsidiary ” has the meaning set forth in Section 5.04(c).

 

“ PBGC ” has the meaning set forth in Section 5.03(m).

 

“ Pension Plan ” has the meaning set forth in Section 5.03(m).

 

“ Person ” means any individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company or unincorporated organization.

 

“ Proxy Statement ” has the meaning set forth in Section 6.03(a).

 

“ Registration Statement ” has the meaning set forth in Section 6.03(a).

 

“ Regulatory Authorities ” has the meaning set forth in Section 5.03(i).

 

“Regulatory Filings” has the meaning set forth in Section 5.03(g).

 

“ Rights ” means, with respect to any Person, one or more the stock options, stock appreciation rights, restricted stock awards, warrants and any other securities or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, or any options, calls or commitments relating to, or any other instrument the value of which is determined in whole or in part by reference to the market price or value of, the capital stock of such Person.

 

“ SEC ” means the United States Securities and Exchange Commission.

 

“ SEC Documents ” has the meaning set forth in Section 5.04(g).

 

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

 

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“ Shareholder ” means director of the Company.

 

“ Shareholder Agreements ” has the meaning set forth in the Recitals to this Agreement.

 

“ Stock Consideration ” has the meaning set forth in Section 3.02(a).

 

“ Stock Election” has the meaning set forth in Section 3.03(a).

 

“ Stock Election Number ” has the meaning set forth in Section 3.03(c).

 

“ Stock Election Shares ” has the meaning set forth in Section 3.03(d).

 

“ Subsidiary ” has the meanings ascribed to such term in Rule 1-02 of Regulation S-X of the SEC.

 

“ Tax ” and “ Taxes ” mean all federal, state, local or foreign taxes, charges, fees, levies or other assessments, however denominated, including, without limitation, all net income, gross income, gains, gross receipts, sales, use, ad valorem, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, unemployment or other taxes, custom duties, fees, assessments or charges of any kind whatsoever, imposed by any taxing authority whether arising before, on or after the Effective Date, together with any interest, additions or penalties thereto and any interest in respect of such interest and penalties.

 

“ Tax Returns ” means any return, amended return or other report (including elections, declarations, disclosures, schedules, estimates and information returns) filed or required to be filed with any taxing authority including, without limitation, any documentation required to be filed with any taxing authority or to be retained by the Company or any Company Subsidiary in respect of information reporting requirements imposed by the Code or any similar foreign, state or local law.

 

“Termination Fee” has the meaning set forth in Section 8.02(b).

 

“ Third Party Intellectual Property Right ” has the meaning set forth in Section 5.03(x).

 

“ Treasury Shares ” has the meaning set forth in Section 3.01(d).

 

“ Trust Instrument ” has the meaning set forth in Section 5.03(t).

 

“ Trust Relationship ” has the meaning set forth in Section 5.03(t).

 

“Undesignated Shares” has the meaning set forth in Section 3.03(a).

 

“ USA Patriot Act ” means the USA Patriot Act (Pub. L. No. 107 56).

 

“ WBCA ” means the Washington Business Corporation Act.

 

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

 

ARTICLE II

 

THE MERGER

 

2.01. The Merger. (a)  The Combination . At the Effective Time, the Company shall merge with and into Parent , the separate corporate existence of the Company shall cease and Parent shall survive and continue to exist as a Washington corporation. Parent may, at any time prior to the Effective Time (including, to the extent permitted by applicable law, after the Company’s shareholders have approved the principal terms of the Merger) change the method of effecting the acquisition of the Company and the Company Subsidiaries (including, without limitation, the provisions of this Article II and including, without limitation, by electing not to merge the Company or any Company Subsidiary with Parent or any of its existing Subsidiaries, but rather with a merger subsidiary of Parent) if and to the extent it deems such change to be necessary, appropriate or desirable; provided, however, that no such change shall (i) alter or change the amount or kind of consideration to be issued to holders of Company Common Stock as provided for in this Agreement (the “ Merger Consideration ”), (ii) adversely affect the tax treatment of the Company’s shareholders as a result of receiving the Merger Consideration, (iii) materially impede or delay consummation of the transactions contemplated by this Agreement or (iv) otherwise be materially prejudicial to the interests of the shareholders of the Company.

 

(b) Articles of Incorporation and By-Laws . The articles of incorporation and by-laws of Parent immediately after the Effective Time shall be those of Parent as in effect immediately prior to the Effective Time.

 

(c) Directors and Officers of Parent . Except that the Parent Board shall be increased by one, such vacancy to be filled by a director of the Company selected by the Parent Board, the directors and officers of Parent immediately after the Effective Time shall be the directors and officers of Parent immediately prior to the Effective Time, until such time as their successors shall be duly elected and qualified.

 

(d) Effect of the Merger . At the Effective Time, the effect of the Merger shall be as provided in Section 23B.11.060 of the WBCA, including any regulations or rules promulgated thereunder. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company shall vest in Parent, and all debts, liabilities, obligations, restrictions, disabilities and duties of the Company shall become the debts, liabilities, obligations, restrictions, disabilities and duties of Parent.

 

2.02. Effective Date and Effective Time . On such date as Parent selects (and promptly provides notice thereof to Company), which shall be within ten days after the last to occur of the expiration of all applicable waiting periods in connection with approvals of Governmental Authorities and the receipt of all approvals of Governmental Authorities and all conditions to the consummation of the Merger are satisfied or waived (or, at the election of Parent, on the last

 

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Business Day of the month in which such tenth day occurs or, if such tenth day occurs on one of the last five Business Days of such month, on the last Business Day of the succeeding month or, if such tenth day occurs in March 2006, then on the first Business Day in April 2006), or on such earlier or later date as may be agreed in writing by the parties, the Agreement of Merger shall be filed with the Washington Secretary of State, in accordance with all appropriate legal requirements together with such certificates or other documents executed as may be required by law, and the Merger provided for herein shall become effective upon such filing. The date of such filing is herein called the “ Effective Date .” The “ Effective Time ” of the Merger shall be the time of such filing.

 

ARTICLE III

 

CONSIDERATION; EXCHANGE PROCEDURES

 

3.01. Effect on Capital Stock . Subject to the other provisions of this Article III, at the Effective Time of the Merger, by virtue of the Merger and without any additional action on the part of the holders of shares of Parent Common Stock:

 

(a) Parent Common Stock . Each share of Parent Common Stock issued and outstanding immediately prior to the Effective Time shall remain an issued and outstanding share of common stock of Parent, and shall not be affected by the Merger;

 

(b) Company Common Stock . Each share of Company Common Stock, issued and outstanding immediately prior to the Effective Time of the Merger (other than Dissenters’ Shares and Treasury Shares, as defined below) shall be converted into the right to receive either Parent Common Stock or cash as provided in Section 3.02(a);

 

(c) Dissenter’s Shares . All shares of Company Common Stock as to which a shareholder has taken the actions required by Section 23B.13 of the WBCA relating to dissenters’ rights (“ Dissenters’ Shares ”) shall not be converted into or represent a right to receive Parent Common Stock or cash hereunder unless and until such shares have lost their status as dissenting shares, at which time such shares shall either be converted into cash or Parent Common Stock pursuant to Section 3.08; and

 

(d) Cancellation of Certain Shares . Any shares of Company Common Stock held by Parent or any Parent Subsidiary, or Company or any Company Subsidiary, other than those held in a fiduciary capacity or as a result of debts previously contracted (“ Treasury Shares ”), shall be cancelled and retired at the Effective Time of the Merger and no consideration shall be issued in exchange therefor.

 

3.02. Conversion of Company Common Stock.

 

(a) Subject to the other provisions of this Article III, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time of the Merger (other than Dissenters’ Shares and Treasury Shares) shall, by virtue of the Merger, be converted

 

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into the right to receive, at the election of the holder thereof as provided in Section 3.03, either (i) cash (the “ Cash Consideration ”) in an amount equal to the Company Common Stock Value (defined below) or (ii) a number of shares of Parent Common Stock (the “ Stock Consideration ”) equal to the Company Common Stock Value divided by the Parent Measuring Price (together, the “ Merger Consideration ”). “ Company Common Stock Value ” as calculated immediately prior to the Effective Time by Parent shall mean an amount equal to (i) the sum of (x) $37,750,000 plus (y) the aggregate exercise price of all Company Stock Options exercised by the holders after the date hereof and prior to the Effective Date, plus (z) the aggregate exercise price of all In-the-Money Company Stock Options (as defined below) outstanding immediately prior to the Effective Time, divided by (ii) the sum of (x) the total number of shares of Company Common Stock outstanding (which number includes restricted stock awards outstanding at the Effective Date) immediately prior to the Effective Time plus (y) the total number of shares of Company Common Stock subject to such In-the-Money Company Stock Options outstanding immediately prior to the Effective Time, rounded to the nearest cent. For the avoidance of doubt, the aggregate consideration for all of the Company Common Stock and Company Stock Options, in each case outstanding immediately prior to the Effective Time, shall be $37,750,000 if no Company Stock Options are exercised between the execution of this Agreement and the Effective Date, and up to a maximum of $39,858,090 if all holders of Company Stock Options exercise their options at or before the Effective Date, it being hereby agreed between Parent and Company that the difference between the final aggregate consideration paid and $37,750,000, if any, will be equal to the increase in the Company’s shareholders’ equity attributable to the exercise of Company Stock Options between the execution of this Agreement and the Effective Date. “ In-the-Money Company Stock Options” shall mean those Company Stock Options having an exercise price of less than $45.70 per share. A shareholder may elect to receive a combination of cash and Parent Common Stock in exchange for his or her shares of Company Common Stock; provided , however , that with respect to each individual share of Company Common Stock held, a shareholder must elect to receive either all cash or all Parent Common Stock.

 

(b) At the Effective Time of the Merger, the stock transfer books of the Company shall be closed as to holders of Company Common Stock immediately prior to the Effective Time of the Merger and no transfer of Company Common Stock by any such holder shall thereafter be made or recognized. If, after the Effective Time of the Merger, certificates representing shares of Company Common Stock are properly presented in accordance with Article III of this Agreement to the Exchange Agent (as defined in Section 3.03), such certificates shall be cancelled and exchanged for certificates representing the number of whole shares of Parent Common Stock into which such shares were converted, if any, and/or a check representing the amount of cash, if any, into which the Parent Common Stock represented thereby was converted in the Merger, plus any payment for a fractional share of Parent Common Stock.

 

3.03. Election and Proration Procedures .

 

(a) Election Forms and Types of Elections . An election form and other appropriate and customary transmittal materials (which shall specify that delivery shall be effected, and risk

 

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of loss and title to the certificates theretofore representing shares of Company Common Stock shall pass, only upon proper delivery of such certificates to the Exchange Agent selected by Parent (the “ Exchange Agent ”)) in such form and substance as designated by Parent (the “ Election Form ”) shall be mailed at Parent’s expense no less than 40 days prior to the Effective Time of the Merger or on such other date as Parent and the Company shall mutually agree (the “ Mailing Date ”) to each holder of record of Company Common Stock as of a date of Parent’s choice which is at least three Business Days prior to the Mailing Date (the “ Election Form Record Date ”). Parent shall make available one or more Election Forms as may be reasonably requested by all persons who become holders of Company Common Stock after the Election Form Record Date and prior to the Election Deadline (as defined in Section 3.03(b)), and the Company shall promptly provide or cause to be provided to the Exchange Agent all information reasonably necessary for the Exchange Agent to perform its obligations as specified herein. Each Election Form shall permit the holder (or the beneficial owner through appropriate and customary documentation and instructions) to elect (an “ Election ”) to receive either (i) Parent Common Stock (a “ Stock Election ”) with respect to all of such holder’s shares of Company Common Stock, (ii) cash (a “ Cash Election ”) with respect to all of such holder’s shares of Company Common Stock, or (iii) Parent Common Stock in exchange for a specified number of shares of Company Common Stock (a “ Combination Stock Election ”) and cash in exchange for a specified number of shares of Company Common Stock (a “ Combination Cash Election ”). Any shares of Company Common Stock (other than Dissenters’ Shares or Treasury Shares) with respect to which the holder (or indirectly the beneficial owner) shall not have submitted to the Exchange Agent an effective, properly completed Election Form, which was received prior to the Election Deadline, shall be deemed to be “Undesignated Shares” (each an “ Undesignated Share ”) hereunder.

 

(b) Proper and Timely Election . Any Election shall have been properly made and effective only if the Exchange Agent shall have actually received a properly completed Election Form by 5:00 P.M. Pacific Time on the 30th day following the Mailing Date (or such other time and date as the Company and Parent may mutually agree) (the “ Election Deadline ”). An Election Form shall be deemed properly completed only if an Election is indicated for each share of Company Common Stock covered by such Election Form and 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 Company Common Stock covered by such Election Form, together with duly executed transmittal materials included in or required by the Election Form. Any Election Form may be revoked or changed by the person submitting such Election Form prior to the Election Deadline. In the event an Election Form is revoked prior to the Election Deadline, the shares of Company Common Stock represented by such Election Form shall automatically become Undesignated Shares unless and until a new Election is properly and timely made with respect to such shares on or before the Election Deadline, and Parent shall cause the certificates representing such shares of Company Common Stock to be promptly returned without charge to the person submitting the revoked Election Form upon written request to that effect from the holder who submitted such 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

 

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Election Forms, and any decisions of Parent and Company required by the Exchange Agent and made in good faith in determining such matters shall be binding and conclusive. Neither Parent nor the Exchange Agent shall be under any obligation to notify any person of any defect in an Election Form.

 

(c) Allocation . Notwithstanding anything in this Agreement to the contrary, the number of shares of Company Common Stock to be converted into the right to receive Cash Consideration in the Merger (the “ Cash Election Number ”) shall be equal to 50% of the difference between (i) the total number of shares of Company Common Stock outstanding immediately prior to the Effective Time and (ii) the sum of (A) the number of Dissenters’ Shares, if any, and (B) the number of Treasury Shares. The number of shares of Company Common Stock to be converted into the right to receive Stock Consideration in the Merger (the “ Stock Election Number ”) shall be equal to the number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time of the Merger less the sum of (i) the Cash Election Number, (ii) the number of Dissenters’ shares, if any, and (iii) the number of Treasury Shares.

 

(d) Payment and Proration . As promptly as practicable but not later than five Business Days after the Effective Time of the Merger, Parent shall cause the Exchange Agent to effect the allocation among the holders of Company Common Stock of rights to receive Parent Common Stock or cash in the Merger in accordance with the Election Forms as follows:

 

(i) In the event that the aggregate number of shares of Company Common Stock in respect of which Cash Elections and Combination Cash Elections have been made (collectively, the “ Cash Election Shares ”) exceeds the Cash Election Number, all shares in respect of which Stock Elections and Combination Stock Elections have been made (the “ Stock Election Shares ”) and all Undesignated Shares in respect of which Stock Elections are deemed to have been made (it being understood that in such case all Undesignated Shares shall be deemed to be shares in respect of which Stock Elections have been made) shall be converted into the right to receive Stock Consideration, and all Cash Election Shares shall be converted into the right to receive Stock Consideration or Cash Consideration in the following manner:

 

(A) Cash Election Shares shall be deemed converted to Stock Election Shares, on a pro-rata basis for each record holder of shares of Company Common Stock with respect to those shares, if any, of such record holder that are Cash Election Shares, so that the number of Cash Election Shares so converted, when added to the existing Stock Election Shares, shall equal as closely as practicable the Stock Election Number, and all such Cash Election Shares so converted shall be converted into the right to receive Stock Consideration (and cash in lieu of fractional interests); and

 

(B) any remaining Cash Election Shares shall be converted into the right to receive Cash Consideration.

 

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(ii) In the event that the aggregate number of Stock Election Shares exceeds the Stock Election Number, all Cash Election Shares and all Undesignated Shares in respect of which Cash Elections are deemed to have been made (it being understood that in such case all Undesignated Shares shall be deemed to be shares in respect of which Cash Elections have been made) shall be converted into the right to receive Cash Consideration, and all Stock Election Shares shall be converted into the right to receive Stock Consideration or Cash Consideration in the following manner:

 

(A) Stock Election Shares shall be deemed converted into Cash Election Shares, on a pro-rata basis for each record holder of shares of Company Common Stock with respect to those shares, if any, of such record holder that are Stock Election Shares, so that the number of Stock Election Shares so converted, when added to the existing Cash Election Shares, shall equal as closely as practicable the Cash Election Number, and all such Stock Election Shares so converted shall be converted into the right to receive Cash Consideration; and

 

(B) the remaining Stock Election Shares shall be converted into the right to receive Stock Consideration (and cash in lieu of fractional interests).

 

(iii) In the event that neither clause (i) nor clause (ii) of this Section 3.03(d) is applicable, on a pro-rata basis, Undesignated Shares shall be deemed Stock Election Shares such that the total number of Stock Election Shares equals the Stock Election Number and any remaining Undesignated Shares shall be deemed Cash Election Shares and (A) all Cash Election Shares and all Undesignated Shares in respect of which Cash Elections are deemed to have been made shall be converted into the right to receive Cash Consideration, and (B) all Stock Election Shares and all Undesignated Shares in respect of which Stock Elections are deemed to have been made shall be converted into the right to receive Stock Consideration (and cash in lieu of fractional interests).

 

(e) Calculations . Any calculation of a portion of a share of Parent Common Stock shall be rounded to the nearest ten-thousandth of a share, and any cash payment shall be rounded to the nearest cent.

 

3.04. Rights as Shareholders; Stock Transfers . At the Effective Time, holders of Company Common Stock shall cease to be, and shall have no rights as, shareholders of the Company other than to receive the consideration provided under this Article III. After the Effective Time, there shall be no transfers on the stock transfer books of the Company of shares of Company Common Stock.

 

3.05. No Fractional Shares . Notwithstanding any other provision hereof, no fractional shares of Parent Common Stock and no certificates or scrip therefor, or other evidence of ownership thereof, will be issued in the Merger; instead, Parent shall pay to each holder of Company Common Stock who would otherwise be entitled to a fractional share of Parent Common Stock (after taking into account all certificates of Company Common Stock delivered by such holder) an amount in cash (without interest) determined by multiplying such fraction by

 

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the Parent Measuring Price. No holder will be entitled to dividends, voting rights or any other rights as a shareholder in respect of any fractional share of Parent Common Stock.

 

3.06. Exchange Procedures .

 

(a) Exchange Agent . No later than the Effective Time of the Merger, Parent shall deposit with the Exchange Agent certificates representing the number of shares of Parent Common Stock issuable in the Merger and the amount of cash payable in the Merger (the “ Exchange Fund ”). The Exchange Agent shall not be entitled to vote or exercise any rights of ownership with respect to Parent Common Stock held by it from time to time hereunder, except that it shall receive and hold all dividends or other distributions paid or distributed with respect to such shares for the account of the persons entitled thereto.

 

(b) Exchange of Certificates and Cash . After completion of the allocation procedure set forth in Section 3.03, each holder of a certificate formerly representing shares of Company Common Stock (other than Dissenters’ Shares or Treasury Shares) who surrenders or has surrendered such certificate (or customary affidavits and indemnification regarding the loss or destruction of such certificate), together with duly executed transmittal materials included in or required by the Election Form, to the Exchange Agent shall, upon acceptance thereof, be entitled to a certificate representing Parent Common Stock and/or cash into which the shares of Company Common Stock shall have been converted pursuant hereto, as well as cash in lieu of any fractional shares of Parent Common Stock to which such holder would otherwise be entitled. The Exchange Agent shall accept such certificate representing shares of Company Common Stock upon compliance with such reasonable and customary terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal practices. Until surrendered as contemplated by this Section 3.06, each certificate representing shares of Company Common Stock shall be deemed from and after the Effective Time of the Merger to evidence only the right to receive cash and/or Parent Common Stock, as the case may be, upon such surrender. Parent shall not be obligated to deliver the consideration to which any former holder of Company Common Stock is entitled as a result of the Merger until such holder surrenders his certificate or certificates representing shares of Company Common Stock for exchange as provided in this Article III. If any certificate for shares of Company Common Stock, or any check representing cash and/or declared but unpaid dividends, is to be issued in a name other than that in which a certificate surrendered for exchange is issued, the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and the person requesting such exchange shall affix any requisite stock transfer tax stamps to the certificate surrendered or provide funds for their purchase or establish to the satisfaction of the Exchange Agent that such taxes are not payable.

 

(c) Affiliates . Certificates surrendered for exchange by any person constituting an “affiliate” of the Company for purposes of Rule 145 under the Securities Act shall not be exchanged for certificates representing whole shares of Parent Common Stock until Parent has received a written agreement from such person as provided in Section 6.06.

 

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(d) No Liability . Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto shall be liable to any former holder of Company Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

 

(e) Voting and Dividends . Former shareholders of record of the Company shall not be entitled to vote after the Effective Time of the Merger at any meeting of Parent shareholders until such holders have exchanged their certificates representing Company Common Stock for certificates representing Parent Common Stock in accordance with the provisions of this Agreement. Until surrendered for exchange in accordance with the provisions of this Section 3.06, each certificate theretofore representing shares of Company Common Stock (other than Dissenters’ Shares and Treasury Shares) shall from and after the Effective Time of the Merger represent for all purposes only the right to receive shares of Parent Common Stock, cash in lieu of fractional shares and/or cash, as set forth in this Agreement. No dividends or other distributions declared or made after the Effective Time of the Merger with respect to Parent Common Stock with a record date after the Effective Time of the Merger shall be paid to the holder of any unsurrendered certificate of Company Common Stock with respect to the shares of Parent Common Stock represented thereby, until the holder of such certificate of Company Common Stock shall surrender such certificate. Subject to the effect of applicable laws, following surrender of any such certificates of Company Common Stock for which shares of Parent Common Stock are to be issued, there shall be paid to the holder of the certificates without interest, (i) the amount of any cash payable with respect to a fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 3.05 and the amount of dividends or other distributions with a record date after the Effective Time of the Merger theretofore paid with respect to such whole shares of Parent Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time of the Merger but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Parent Common Stock.

 

(f) Unclaimed Portion of Exchange Fund . Any portion of the Exchange Fund that remains unclaimed by the shareholders of the Company for six months after the Effective Time shall be paid to Parent. Any shareholders of the Company who have not theretofore complied with this Article III shall thereafter look only to Parent for payment of cash, shares of Parent Common Stock, cash in lieu of any fractional shares and unpaid dividends and distributions on Parent Common Stock deliverable in respect of each share of Company Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon; provided that subject to applicable state escheat law or unclaimed property law, any holder of a certificate formerly representing shares of Company Common Stock later surrenders such certificate (or customary affidavits and indemnification regarding a loss or destruction of such certificate) to the Parent shall, upon acceptance thereof, be entitled to receive a certificate representing Parent Common Stock and/or cash into which the shares of Common Stock shall have been converted pursuant to this agreement as well as cash in lieu of any fractional shares of Parent Common Stock to which such holder would otherwise be entitled and any unpaid dividends and distributions on Parent Common Stock to which owner is entitled.

 

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(g) Withholding Rights . Parent or the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as Parent or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent or the Exchange Agent.

 

3.07. Anti-Dilution Provisions . In the event Parent or the Company changes (or establishes a record date for changing) the number of shares of Parent Common Stock or Company Common Stock issued and outstanding prior to the Effective Date as a result of a stock split, stock dividend, recapitalization or similar transaction with respect to the outstanding Parent Common Stock or Company Common Stock, as the case may be, and the record date therefor shall be prior to the Effective Date, the amount of Cash Consideration and Stock Consideration per share shall be proportionately adjusted. If, between the date hereof and the Effective Time, Parent shall merge, be acquired or consolidate with, by or into any other corporation (a “ Business Combination ”) and the terms thereof shall provide that Parent Common Stock shall be converted into or exchanged for the shares of any other corporation or entity, then provision shall be made as part of the terms of such Business Combination so that shareholders of the Company who would be entitled to receive shares of Parent Common Stock pursuant to this Agreement shall be entitled to receive, in lieu of each share of Parent Common Stock issuable to such shareholders as provided herein, the same kind and amount of securities or assets as shall be distributable upon such Business Combination with respect to one share of Parent Common Stock (provided that nothing herein shall be construed so as to release the acquiring entity in any such Business Combination from its obligations under this Agreement as the successor to Parent).

 

3.08. Dissenters’ Rights . (a) Any Dissenting Shareholder who shall be entitled to be paid the value of such shareholder’s shares of Company Common Stock, as provided in Section 23B.13 of the WBCA, shall not be entitled to Merger Consideration in respect thereof provided for under Section 3.01 unless and until such Dissenting Shareholder shall have failed to perfect or shall have effectively withdrawn or lost such Dissenting Shareholder’s right to dissent from the Merger under the WBCA, and shall be entitled to receive only the payment provided for by Section 23B.13 of the WBCA with respect to such Dissenters’ Shares.

 

(b) If any Dissenting Shareholder shall fail to perfect or shall have effectively withdrawn or lost such right to dissent, each share of Company Common Stock of such Dissenting Shareholder shall be deemed to be an Undesignated Share and shall be converted at Parent’s discretion into the right to receive the Cash Consideration or the Stock Consideration.

 

3.09. Company Stock Options . (a) At the Effective Time, each Company Stock Option shall be converted into a fully vested option to acquire a number of shares of Parent Common Stock equal to the product (rounded down to the nearest whole number) of (x) the number of Company Common Stock subject to the Company Stock Option immediately prior to the Effective Time and (y) the Exchange Ratio (defined below), at an exercise price per share

 

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(rounded up to the nearest whole cent) equal to (A) the exercise price per Company Common Stock of such Company Stock 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 Parent Common Stock purchasable pursuant to the Company Stock 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 Company Stock Option to which Section 422 of the Code applies, the exercise price and the number of shares of Parent Company 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 Company Stock Option shall continue to be governed by the same terms and conditions as were applicable under such Company Stock 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 Company Common Stock Value and having a denominator equal to the Parent Measuring Price.

 

(b) Within fifteen (15) days following the Effective Time, Parent will prepare and file with the SEC a Registration Statement on Form S-8 covering shares of Parent Common Stock to be issued upon the exercise of stock options assumed by Parent pursuant to this Section 3.09.

 

(c) At or prior to the Effective Time, the Company, Company Board and the compensation committee of the Company Board, as applicable, shall adopt any resolutions and take any actions which are necessary to effectuate the provisions of this Section 3.09. The Company shall take all actions necessary to ensure that, from and after the Effective Time, Parent will not be required to deliver Company Common Stock or other capital stock of the Company to any Person pursuant to or in settlement of Company Stock Options after the Effective Time.

 

ARTICLE IV

 

ACTIONS PENDING ACQUISITION

 

4.01. Forbearances of the Company . From the date hereof until the Effective Time, except as expressly contemplated by this Agreement, without the prior written consent of Parent, the Company will not, and will not permit any of the Company Subsidiaries to:

 

(a) Ordinary Course . Conduct the business of the Company or any of the Company Subsidiaries other than in the ordinary and usual course or fail to use its best efforts to preserve intact its business organizations and assets and maintain its rights, franchises and existing goodwill and relations with customers, suppliers, employees and business associates, take any action that would adversely affect or delay the ability of the Company, any Company Subsidiary, Parent or any Parent Subsidiary to perform any of their obligations on a timely basis under this Agreement, or take any action that could be expected to have a Material Adverse Effect on the Company or any of the Company Subsidiaries.

 

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(b) Capital Stock . Other than pursuant to the Rights set forth in Schedule 4.01(b) of the Company Disclosure Schedule and outstanding on the date hereof (i) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of stock or any Rights, (ii) enter into any agreement with respect to the foregoing or (iii) permit any additional shares of stock to become subject to grants of employee or director stock options, other Rights or similar stock-based employee rights.

 

(c) Dividends; Etc. (i) Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on, any shares of stock or (ii) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock.

 

(d) Compensation; Employment Agreements; Etc. Enter into, renew, make any new grants of awards under, amend or otherwise modify any employment, consulting, severance, termination or similar agreements or arrangements with, or grant any new stock options to, any director, officer or employee of the Company or any of the Company Subsidiaries or grant any salary or wage increase or increase any employee benefit (including incentive or bonus payments), except (i) for normal individual increases in compensation to employees who are not officers in the ordinary course of business consistent with past practice, provided that no such increase shall result in an annual adjustment of more than 3%, (ii) for other changes that are required by applicable law or (iii) to satisfy contractual obligations existing as of the date hereof and set forth in Section 4.01(d) of the Company Disclosure Schedule.

 

(e) Hiring . Hire any person as an employee of the Company or any of the Company Subsidiaries or promote any employee, except (i) to satisfy contractual obligations existing as of the date hereof and set forth in Section 4.01(e) of the Company Disclosure Schedule and (ii) persons hired to fill any vacancies arising after the date hereof and whose employment is terminable at the will of the Company or any of the Company Subsidiaries; provided, that no person may be hired without the consent of Parent who would have a base salary, including any guaranteed bonus or any similar bonus, considered on an annual basis of more than $50,000.

 

(f) Benefit Plans . Enter into, establish, adopt, terminate or amend (except (i) as may be required by applicable law or (ii) to satisfy contractual obligations existing as of the date hereof and set forth in Section 4.01(f) of the Company Disclosure Schedule) 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 (or similar arrangement) related thereto, in respect of any current or former director, officer, employee or consultant of the Company or any of the Company Subsidiaries or take any action to accelerate the vesting or exercisability of stock options, restricted stock or other compensation or benefits payable thereunder; or change any actuarial or other assumptions used to calculate funding obligations with respect to any Benefit Plan; or change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP; or forgive any loans to directors, officers or employees of the Company or any of the Company Subsidiaries.

 

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(g) Dispositions . Sell, transfer, mortgage, pledge, encumber or otherwise dispose of or discontinue any of its assets, deposits, business or properties except in the ordinary course of business and in a transaction that, together with all other such transactions, is not material to the Company or any of the Company Subsidiaries.

 

(h) Acquisitions . Acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice) all or any portion of the assets, business, deposits or properties of any other entity except in the ordinary course of business consistent with past practice and in a transaction that, together with all other such transactions, is not material to the Company or any of the Company Subsidiaries.

 

(i) Capital Expenditures . Except as set forth in Section 4.01(i) of the Company Disclosure Schedule, make any capital expenditures other than capital expenditures in the ordinary course of business consistent with past practice in amounts not exceeding $25,000 individually or $100,000 in the aggregate.

 

(j) Governing Documents . Amend the Company Articles or Company By-Laws or the equivalent organizational documents of any of the Company Subsidiaries.

 

(k) Accounting Methods . Implement or adopt any change in its accounting principles, practices or methods, other than as may be required by GAAP.

 

(l) Contracts . Except as set forth in Section 4.01(l) of the Company Disclosure Schedule, enter into, renew or terminate, or make any payment not then required under, any contract or agreement that calls for aggregate annual payments of $25,000 or more and which is not terminable at will or with 90 days or less notice without payment of a premium or penalty, other than loans and other transactions made in the ordinary course of the banking business.

 

(m) Claims . Enter into any settlement or similar agreement with respect to, or take any other significant action with respect to the conduct of, any action, suit, proceeding, order or investigation to which the Company or any of the Company Subsidiaries is or becomes a party on or after the date of this Agreement, which settlement, agreement or action involves payment by the Company or any of the Company Subsidiaries of an amount, individually or for all such settlements, that exceeds $25,000 and/or would impose any material restriction on the business of the Company or any of the Company Subsidiaries or create precedent for claims that are reasonably likely to be material to the Company or any of the Company Subsidiaries.

 

(n) Adverse Actions . Knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in Article VII not being satisfied or (iii) a material violation of any provision of this Agreement except as may be required by applicable law or regulation.

 

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(o) Risk Management . Except as required by applicable law or regulation or the Federal Reserve Board, the FDIC or the WDFI, (i) implement or adopt any material change in its interest rate and other risk management policies, procedures or practices, (ii) fail to follow its existing policies or practices with respect to managing its exposure to interest rate and other risk or (iii) fail to use commercially reasonable means to avoid any material increase in its aggregate exposure to interest rate risk.

 

(p) Indebtedness . Incur any indebtedness for borrowed money (other than deposits and Federal Funds borrowings) or assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other Person.

 

(q) Loans . Make any loan or loan commitment (other than a renewal or extension of an existing loan) to any Person which would, when aggregated with all outstanding loans, commitments for loans or renewals or extensions thereof made to such Person and any affiliate or immediate family member of such Person, exceed $500,000 without submitting at least four Business Days prior to take such action complete loan package information to the chief credit officer of Parent for review with a right of comment within two full Business Days prior to taking such action.

 

(r) Investments . Other than in the ordinary course of business consistent with past practice in individual amounts not to exceed $250,000, make any investment either by contributions to capital, property transfers or purchase of any property or assets of any Person; provided, however, that in the case of investment securities, the Company or any of the Company Subsidiaries may purchase investment securities if, within five Business Days after the Company or any of the Company Subsidiaries requests in writing (which shall describe in detail the investment securities to be purchased and the price thereof) that Parent consent to the making of any such purchase, Parent has approved such request in writing or has not responded in writing to such request.

 

(s) Taxes . Settle any material audit, make or change any material tax election or method of tax accounting, file any amended Tax Return, request any private letter or similar ruling from any taxing authority, take any action which would have a Material Adverse Effect on the tax position of the Company, any of the Company Subsidiaries or their respective successors after the Merger or take any other action with respect to Taxes that is outside the ordinary course of business or inconsistent with past practice.

 

(t) USA Patriot Act . Take any action or omit to take any action that may result, individually or in the aggregate with any other actions or omissions, in a material violation of the USA Patriot Act, the Bank Secrecy Act or any other anti-money laundering laws and regulations or the Company’s policies and procedures with respect to the foregoing.

 

(u) Commitments . Agree or commit to do any of the foregoing.

 

4.02. Forbearances of Parent . From the date hereof until the Effective Time, except as expressly contemplated by this Agreement, without the prior written consent of the Company, Parent will not, and will cause each of Parent Subsidiary not to:

 

(a) Ordinary Course . Take any action reasonably likely to have an adverse effect on Parent’s ability to perform any of its material obligations under this Agreement.

 

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(b) Adverse Actions . Knowingly take any action that is intended or is reasonably likely to result in (i) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (ii) any of the conditions to the Merger set forth in Article VII not being satisfied or (iii) a material violation of any provision of this Agreement, except as may be required by applicable law or regulation.

 

(c) Tax-Free Reorganization . Take any action that would prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.

 

(d) Commitments . Agree or commit to do any of the foregoing.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES

 

5.01. Disclosure Schedules . At least one Business Day prior to the date hereof, the Company shall have delivered to Parent a schedule (the “ Company Disclosure Schedule ” ) and Parent shall have delivered to Company a schedule (the “ Parent Disclosure Schedule”) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in Sections 5.03 and 5.04 or to one or more of its covenants contained in Article IV.

 

5.02. Standard . No representation or warranty of the Company or Parent contained in Section 5.03 or 5.04, respectively, shall be deemed untrue or incorrect, and no party hereto shall be deemed to have breached a representation or warranty, as a consequence of the existence of any fact, event or circumstance unless such fact, circumstance or event, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty contained in Section 5.03 or 5.04, has had or is reasonably likely to have a Material Adverse Effect on the party making such representation or warranty.

 

5.03. Representations and Warranties of the Company . Subject to Sections 5.01 and 5.02 and except as set forth in the corresponding sections or subsections of the Company Disclosure Schedule, the Company hereby represents and warrants to Parent:

 

(a) Organization, Standing and Authority . The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Washington. The Company Bank is a Washington state-chartered banking corporation and its deposits are insured by the FDIC through the Bank Insurance Fund in the manner and to the fullest extent provided by law. Company Statutory Trust I is duly organized, validly existing and in good standing under the laws of the state of Washington. Each of the Company and Company Subsidiaries is

 

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duly qualified to do business and is in good standing in the State of Washington and any other foreign jurisdictions where its ownership or leasing of property or assets or the conduct of its business requires it to be so qualified. Each of the Company and Company 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 Company has made available to Parent a complete and correct copy of each of the Company’s and Company Subsidiaries’ articles of incorporation and by-laws, each as amended to date.

 

(b) Company Capital Stock . The authorized capital stock of the Company consists solely of 2,000,000 shares of Company Common Stock, of which 773,542 shares are issued and outstanding. No shares of the Company Stock are held in treasury by the Company or otherwise owned directly or indirectly by the Company. The outstanding shares of Company Common Stock have been duly authorized and are validly issued and outstanding, and subject to no preemptive rights (and were not issued in violation of any preemptive rights). No more than 98,620 shares of Company Common Stock are issuable upon exercise of Company Stock Options or other Rights. There are up to an additional 24,400 shares of Company Common Stock available for issuance under the Company Stock Option Plans. Section 5.03(b) of the Company Disclosure Schedule sets forth for each Company Stock Option and each other Right, as applicable, the name of the grantee or holder, the date of the grant, the expiration date of such Right, the vesting schedule, the type of grant, the status of the option grant as qualified or non-qualified under Section 422 of the Code if such Right is a Company Stock Option, the number of shares of Company Common Stock subject to such Right, the number and type of shares subject to such Rights that are currently exercisable and the exercise price per share. Except as set forth above, as of the date hereof, there are no shares of Company Common Stock authorized and reserved for issuance, the Company does not have any other Rights issued or outstanding with respect to Company Common Stock, and the Company does not have any commitment to authorize, issue or sell any Company Common Stock or Rights, except pursuant to this Agreement.

 

(c) Subsidiaries . The Company has two Subsidiaries: the Company Bank and Columbia Trust Statutory Trust I (the “ Company Statutory Trust I ”) (each a “ Company Subsidiary ” and collectively, the “ Company Subsidiaries ”). The Company owns all the issued and outstanding equity securities of the Company Bank and all the issued and outstanding common stock of the Company Statutory Trust I. No equity securities of any Company Subsidiary are or may become required to be issued by reason of any Right or otherwise. There are no contracts, commitments, understandings or arrangements by which any Company Subsidiary is or may be bound to sell or otherwise transfer any of its equity securities. There are no contracts, commitments, understandings, or arrangements relating to the Company’s rights to vote or to dispose of such securities. All the equity securities of each of Company Subsidiaries owned by the Company are fully paid, nonassessable and owned free and clear of any Liens.

 

(i) Except as set forth in Section 5.03(c)(i) of the Company Disclosure Schedule, the Company does not own, directly or indirectly, any equity securities or similar interests of any Person or any interests of any Person or any interest in a partnership or joint venture of any kind, other than those of the Company Subsidiaries.

 

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(ii) Each of the Company Subsidiaries has been duly organized and is validly existing in good standing under the laws of the State of Washington, and is duly qualified to do business and in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified.

 

(d) Corporate Power . Each of the Company and the Company Subsidiaries has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets; and the Company has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

 

(e) Corporate Authority . Subject in the case of this Agreement to the receipt of any required approval of the principal terms of the Merger by the holders of two-thirds of the outstanding shares of Company Common Stock, the Company’s board of directors, by resolutions duly adopted by unanimous vote at a meeting duly called and held, has duly (i) determined that this Agreement and the Merger are advisable and fair to and in the best interests of the Company and its shareholders, (ii) approved this Agreement and the Merger and (iii) recommended that its shareholders approve this Agreement and the Merger and that such matter be submitted for consideration by its shareholders at a meeting of such shareholders. The Company has duly executed and delivered this Agreement and this Agreement is a valid and legally binding obligation of the Company, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).

 

(f) Regulatory Approvals; No Violations .

 

(i) No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by the Company or any Company Subsidiary in connection with the execution, delivery or performance by the Company of this Agreement or to consummate the Merger or the Bank Merger except for (A) filings of applications or notices with, and approvals or waivers by, the Federal Reserve Board, the FDIC and the WDFI, (B) filings with the SEC, and state securities authorities and the approval of the principal terms of the Merger by the holders of two-thirds of the outstanding shares of the Company Common Stock and (C) the filing of an executed Agreement of Merger substantially in the form of Exhibit D hereto with the Washington Secretary of State pursuant to the WBCA. As of the date hereof, the Company is not aware of any reason why the approvals set forth in this Section 5.03(f) and in Section 7.01(b) will not be received without the imposition of a condition, restriction or requirement of the type described in Section 7.01(b).

 

(ii) Subject to receipt of the approvals referred to in the preceding paragraph, and the expiration of related waiting periods, and required filings under federal and state securities laws, the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby and thereby do

 

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not and will not (A) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of the Company or to which the Company or any of its respective properties is subject or bound, (B) constitute a breach or violation of, or a default under, the articles of incorporation or by-laws (or similar governing documents) of the Company or any Company Subsidiary or (C) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument.

 

(g) Financial Reports; Undisclosed Liabilities . (i) The Company’s audited consolidated financial statements at and for the fiscal years ended September 30, 2004 and 2003 and unaudited consolidated financial statements at and for the fiscal year ended September 30, 2005 (including the related notes and schedules thereto, if any), fairly present the financial position of the Company on a consolidated basis as of such dates and the results of operations, retained earnings, changes in stockholders’ equity and cash flows, as the case may be, of the Company on a consolidated basis for the periods to which they relate, in each case in accordance with GAAP consistently applied during the periods involved. For each fiscal period subsequent to September 30, 2005, each of the Company’s consolidated balance sheets will fairly present the financial position of the Company as of its date, and each of the consolidated statements of income, consolidated changes in shareholders’ equity and consolidated cash flows or equivalent statements (including any related notes and schedules thereto) will fairly present the results of operations, changes in shareholders’ equity and cash flows, as the case may be, of the Company, on a consolidated basis, for the periods set forth therein, in each case in accordance with GAAP during the periods involved, subject to normal and recurring year-end audit adjustments in the case of unaudited statements. The books and records of each of the Company and the Company Subsidiaries have been, and are being, maintained in accordance with GAAP or, to the extent inconsistent with GAAP, in accordance with any other applicable legal and accounting requirements. Neither the Company nor any of the Company Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar contract or arrangement relating to any transaction or relationship between or among the Company or any of the Company Subsidiaries, on the one hand, and any unconsolidated affiliate, including any structured finance, special purpose or limited purpose Person, on the other hand, or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC), except with respect to outstanding trust preferred securities as disclosed on the Company Disclosure Schedule.

 

(ii) Each of the Company and the Company Subsidiaries has timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that it was required to file since September 30, 2004 with (A) the Federal Reserve Board, (B) the FDIC, (C) the WDFI and (D) any other Regulatory Authority (collectively, the “ Regulatory Filings ”), and all other reports and statements required to be filed by it since September 30, 2004, including, without limitation, any report or statement required to be filed pursuant to the laws of the United States or the State of Washington and the rules and regulations of the Federal Reserve Board, the

 

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FDIC, the WDFI or any other Regulatory Authority, and have paid all fees and assessments due and payable in connection therewith. As of their respective dates, such reports, registrations and statements complied in all material respects with all the laws, rules and regulations of the applicable Regulatory Agency with which they were filed.

 

(iii) Since September 30, 2004, neither the Company nor any Company Subsidiary has incurred any liability other than in the ordinary course of business consistent with past practice.

 

(iv) Since September 30, 2004, (A) each of the Company and the Company Subsidiaries has conducted their respective businesses in the ordinary and usual course consistent with past practice (excluding the incurrence of expenses related to this Agreement and the transactions contemplated hereby) and (B) no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events (described in any paragraph of this Section 5.03 or otherwise), has had or could be reasonably likely to have a Material Adverse Effect with respect to the Company or any Company Subsidiary.

 

(h) Litigation . Except as set forth in Section 5.03(h) of the Company Disclosure Schedule, no litigation, claim, action, suit, hearing, investigation or other proceeding before any court or Governmental Authority is pending against the Company or any Company Subsidiary and, to the Company’s Knowledge, no such litigation, claim, action, suit, hearing, investigation or other proceeding has been threatened and there are no facts (including, but not limited to, any facts of a nature similar to those set forth in the counterclaims against Company Bank in Columbia Trust Bank v. Cervantes Orchards & Vineyards LLC currently pending before the Yakima County Superior Court, No. 05-2-01435-0) which could reasonably give rise to such litigation, claim or other proceeding.

 

(i) Regulatory Matters . (i) Except as set forth in Section 5.03(i) of the Company Disclosure Schedule, none of the Company, any Company Subsidiary, nor any of the Company’s or the Company Subsidiaries’ property is, directly or indirectly, party to or is subject to any order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, any federal or state Governmental Authority charged with the supervision or regulation of financial institutions or issuers of securities or engaged in the insurance of deposits or the supervision or regulation of it (collectively, the “ Regulatory Authorities ”). Each of the Company and the Company Subsidiaries has paid all assessments made or imposed by any Regulatory Authority.

 

(ii) The Company and the Company Subsidiaries have not been advised by, and do not have any Knowledge of facts which could give rise to an advisory notice by, any Regulatory Authority that such Regulatory Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.

 

(j) Compliance With Laws . Each of the Company and the Company Subsidiaries:

 

(i) to its Knowledge, is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act, Title III of the USA Patriot Act and all fair lending laws and other laws relating to discriminatory business practices;

 

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(ii) has adopted such procedures and policies as are, in the reasonable judgment of Company management, necessary or appropriate to comply with Title III of the USA Patriot Act and, to the Knowledge of the Company or any Company Subsidiary, is in such compliance;

 

(iii) has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit it to own or lease its properties and to conduct its businesses as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the Company’s or any Company Subsidiary’s Knowledge, no suspension or cancellation of any of them is threatened; and

 

(iv) has received, since September 30, 2004, no notification or communication from any Governmental Authority (A) asserting that the Company or any Company Subsidiary is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces or (B) threatening to revoke any license, franchise, permit or governmental authorization (nor, to the Company’s or any Company Subsidiary’s Knowledge, do any grounds for any of the foregoing exist).

 

(k) Material Contracts; Defaults . Except as set forth in Section 5.03(k) of the Company Disclosure Schedule, to the Knowledge of the Company and the Company Subsidiaries, neither the Company nor any Company Subsidiary is a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding (whether written or oral) (i) that is (or would be if the Company were a registrant under the Exchange Act) a “material contract” within the meaning of Item 601(b)(10) of the SEC’s Regulation S-K with respect to such entity or (ii) that materially restricts the conduct of business by the Company or by any Company Subsidiary. Neither the Company nor any Company Subsidiary is in default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its assets, business, or operations may be bound or affected, or under which it or its assets, business, or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. No power of attorney or similar authorization given directly or indirectly by the Company or by any Company Subsidiary is currently outstanding. Section 5.03(k) of the Company Disclosure Schedule sets forth a true and complete list of all third party consents or waivers required to be obtained so as not to be in default under any contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which the Company is a party as a result of the transactions contemplated hereby.

 

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(l) No Brokers . The Company Board has received the written opinion of D.A. Davidson & Co. to the effect that as of the date hereof the Merger Consideration is fair to the holders of Company Common Stock from a financial point of view. Except for the fees and related costs paid or to be paid to D.A. Davidson & Co., no action has been taken by the Company that would give rise to any valid claim against any party hereto for a brokerage commission, finder’s fee or other like payment with respect to the transactions contemplated by this Agreement.

 

(m) Employee Benefit Plans . (i) All benefit and compensation plans, contracts, policies (including bank owned life insurance policies, or “ BOLI ”) or arrangements covering current or former employees of the Company and any Company Subsidiary (collectively, the “ Employees ”) and current or former directors of the Company and any Company Subsidiary including, but not limited to, “employee benefit plans” within the meaning of Section 3(3) of ERISA, and deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans (the “ Benefit Plans ”), are set forth in Section 5.03(m) to the Company Disclosure Schedule and each Benefit Plan which has received a favorable opinion letter from the Internal Revenue Service National Office, including any master or prototype plan, has been separately identified. True and complete copies of all Benefit Plans including, but not limited to, any trust instruments and insurance contracts forming a part of any Benefit Plans and all amendments thereto have been provided or made available to Parent.

 

(ii) All Benefit Plans, to the extent subject to ERISA, are in substantial compliance with ERISA, the Code and other applicable law. Each Benefit 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 Section 401(a) of the Code, has received a favorable determination letter from the Internal Revenue Service covering all tax law changes prior to the Economic Growth and Tax Relief Reconciliation Act of 2001, and neither the Company nor any Company Subsidiary is aware of any circumstances likely to result in revocation of any such favorable determination letter or the loss of the qualification of such Pension Plan under Section 401(a) of the Code. There is no material pending or threatened litigation relating to the Benefit Plans. Neither the Company nor any Company Subsidiary has engaged in a transaction with respect to any Benefit Plan or Pension Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject the Company or any Company Subsidiary 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. Neither the Company nor any Company Subsidiary has incurred or reasonably expects to incur a material tax or penalty imposed by Section 4980F of the Code or Section 502 of ERISA.

 

(iii) No liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by the Company 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 the Company or any Company Subsidiary, or the single-employer plan of any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an “ ERISA Affiliate ”). Neither

 

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the Company nor any Company Subsidiary has incurred, nor do they expect to incur, any withdrawal liability with respect to a multiemployer plan under Subtitle E of Title IV of ERISA (regardless of whether based on contributions of an ERISA Affiliate). No notice of a “reportable event”, within the meaning of Section 4043 of ERISA for which the reporting requirement has not been waived or extended, other than pursuant to Pension Benefit Guaranty Corporation (“ PBGC ”) Reg. Section 4043.33 or 4043.66, has been required to be filed for any Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof or will be required to be filed in connection with the transaction contemplated by this Agreement. No notices have been required to be sent to participants and beneficiaries or the PBGC under Section 302 or 4011 of ERISA or Section 412 of the Code.

 

(iv) All contributions required to be made under the terms of any Benefit Plan have been timely made and all obligations in respect of each Benefit Plan have been properly accrued. Neither any Pension Plan nor any single-employer plan of an 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 and no ERISA Affiliate has an outstanding funding waiver. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has been required to file information pursuant to Section 4010 of ERISA for the current or most recently completed plan year. It is not reasonably anticipated that required minimum contributions to any Pension Plan under Section 412 of the Code will be materially increased by application of Section 412(l) of the Code. Neither the Company nor any Company Subsidiary has provided, nor is either 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.

 

(v) Under each Pension Plan which is a single-employer plan, as of the last day of the most recent plan year ended prior to the date hereof, 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 Pension Plan’s most recent actuarial valuation), did not exceed the then current value of the assets of such Pension 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.

 

(vi) Neither the Company nor any Company Subsidiary has any obligations for retiree health and life benefits under any Benefit Plan. Any Benefit Plan may be amended or terminated a