AGREEMENT AND PLAN OF MERGER
between
PACIFIC FINANCIAL CORPORATION
and
BNW BANCORP, INC.
Dated as of October 22, 2003
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER....................................................1
1.1 The Holding Company Merger.......................................1
1.2 Effective Time; Closing..........................................1
1.3 Effects of the Merger............................................1
1.4 Conversion of NorthWest Common Stock.............................2
1.5 Pacific Common Stock.............................................2
1.6 Conversion of Options............................................2
1.7 Fractional Shares................................................3
1.8 Adjustment to Stock..............................................3
1.9 Articles of Incorporation........................................3
1.10 Bylaws...........................................................3
1.11 Directors and Officers...........................................3
1.12 Tax Consequences.................................................3
1.13 Banking Subsidiary Merger........................................3
ARTICLE II EXCHANGE OF SHARES............................................4
2.1 Pacific to Make Shares Available.................................4
2.2 Exchange of Shares...............................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF NORTHWEST...................6
3.1 Corporate Organization...........................................6
3.2 Capitalization...................................................7
3.3 Authority; No Violation..........................................7
3.4 Consents and Approvals...........................................8
3.5 Reports..........................................................9
3.6 Financial Statements.............................................9
3.7 Broker's Fees....................................................9
3.8 Absence of Certain Changes or Events............................10
3.9 Legal Proceedings...............................................10
3.10 Taxes and Tax Returns...........................................10
3.11 Employee Benefits...............................................11
3.12 Compliance With Applicable Law..................................12
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TABLE OF CONTENTS
(continued)
Page
3.13 Certain Contracts...............................................13
3.14 Properties......................................................14
3.15 Agreements With Regulatory Agencies.............................14
3.16 Undisclosed Liabilities.........................................14
3.17 Fiduciary Activities............................................14
3.18 Material Interests of Certain Persons...........................15
3.19 Registration Obligations........................................15
3.20 Patents, Trademarks and Trade Names.............................15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PACIFIC....................16
4.1 Corporate Organization..........................................16
4.2 Capitalization..................................................17
4.3 Authority; No Violation.........................................17
4.4 Consents and Approvals..........................................18
4.5 Reports.........................................................18
4.6 Financial Statements............................................18
4.7 Brokers' Fees...................................................19
4.8 Absence of Certain Changes or Events............................19
4.9 Legal Proceedings...............................................19
4.10 Taxes and Tax Returns...........................................19
4.11 Employee Benefits...............................................20
4.12 SEC Reports.....................................................21
4.13 Compliance With Applicable Law..................................22
4.14 Certain Contracts...............................................22
4.15 Properties......................................................23
4.16 Agreements With Regulatory Agencies.............................23
4.17 Undisclosed Liabilities.........................................24
4.18 Fiduciary Activities............................................24
4.19 Material Interests of Certain Persons...........................24
4.20 Patents, Trademarks and Trade Names.............................24
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS....................25
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TABLE OF CONTENTS
(continued)
Page
5.1 Conduct of NorthWest Businesses Prior to the Effective Time.....25
5.2 Negative Covenants..............................................25
5.3 Pacific Forbearances............................................26
ARTICLE VI ADDITIONAL AGREEMENTS........................................27
6.1 Regulatory Matters..............................................27
6.2 Access to Information...........................................28
6.3 Shareholders' Approvals.........................................29
6.4 Legal Conditions to Merger; Closing Documents...................29
6.5 Affiliates......................................................29
6.6 Employee Benefit Plans..........................................29
6.7 Indemnification; Directors' and Officers' Insurance.............30
6.8 Competing Transactions..........................................31
6.9 Additional Agreements...........................................32
6.10 Advice of Changes...............................................32
6.11 Advisory Board..................................................32
6.12 Publicity.......................................................33
6.13 Accruals and Reserves...........................................33
6.14 Approval of Bank Plan of Merger.................................33
6.15 Operation of Business...........................................33
ARTICLE VII CONDITIONS PRECEDENT.........................................33
7.1 Conditions to Each Party's Obligation to Effect the Merger......33
7.2 Conditions to Obligation of Pacific.............................34
7.3 Conditions to Obligation of NorthWest...........................36
ARTICLE VIII TERMINATION AND AMENDMENT....................................37
8.1 Termination.....................................................37
8.2 Termination Payment.............................................38
8.3 Effect of Termination...........................................38
8.4 Attorney Fees...................................................39
8.5 Amendment; Waiver...............................................39
ARTICLE IX GENERAL PROVISIONS...........................................40
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TABLE OF CONTENTS
(continued)
Page
9.1 Nonsurvival of Representations, Warranties, and Agreements......40
9.2 Expenses........................................................40
9.3 Notices.........................................................40
9.4 Interpretation..................................................41
9.5 Counterparts....................................................41
9.6 Entire Agreement................................................41
9.7 Governing Law...................................................41
9.8 Severability....................................................41
9.9 Assignment......................................................42
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 22, 2003, by and
between PACIFIC FINANCIAL CORPORATION, a Washington corporation ("Pacific"), and
BNW BANCORP, INC., a Washington corporation ("NorthWest").
WHEREAS the boards of directors of Pacific and NorthWest have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the merger provided for herein in which
NorthWest will, subject to the terms and conditions set forth herein, merge (the
"Merger") with and into Pacific, so that Pacific is the surviving corporation in
the Merger;
WHEREAS, as an inducement for Pacific to enter into this Agreement and
consummate the Merger, each of the directors of NorthWest has entered into or
will promptly hereafter enter into a Voting Agreement and Resignation dated as
of the date of this Agreement; and
WHEREAS the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Holding Company Merger. Subject to the terms and conditions of
--------------------------
this Agreement, NorthWest shall merge with and into Pacific at the Effective
Time (as defined in Section 1.2 hereof) in accordance with the Washington
Business Corporation Act (the "WBCA"). Pacific shall be the surviving
corporation (hereinafter sometimes called the "Surviving Corporation") in the
Merger, and shall continue its corporate existence under the laws of the State
of Washington. Upon consummation of the Merger, the separate corporate existence
of NorthWest shall terminate.
1.2 Effective Time; Closing. The Merger shall become effective as set
-----------------------
forth in articles of merger (the "Articles of Merger"), which shall be filed
with the Secretary of State of the State of Washington (the "Washington
Secretary"), on the Closing Date (as defined below). The date and time when the
Merger becomes effective, as set forth in the Articles of Merger, is herein
referred to as the "Effective Time." Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") will take place at a date,
time, and place to be specified by the parties, which date shall be no later
than five business days after the satisfaction or waiver of the latest to occur
of the conditions set forth in Article VII of this Agreement (the "Closing
Date").
1.3 Effects of the Merger. At and after the Effective Time, the Merger
---------------------
shall have the effects set forth in Section 23B.11.060 of the WBCA.
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1.4 Conversion of NorthWest Common Stock. At the Effective Time,
--------------------------------------
subject to Section 2.2(e) hereof, by virtue of the Merger, each share of the
common stock, $1.00 par value per share, of NorthWest ("NorthWest Common
Stock"), issued and outstanding immediately prior to the Effective Time (other
than shares ("Dissenting Shares") as to which a dissenting shareholder has taken
the actions required by Section 23B.13 of the WBCA relating to dissenters'
rights) shall be converted into the right to receive 0.85 shares (the "Exchange
Ratio") of common stock, $1.00 par value per share, of Pacific ("Pacific Common
Stock"), provided that any shares of NorthWest Common Stock owned by Pacific or
any of its Subsidiaries (other than in a fiduciary capacity) will not be
converted in the Merger but will be cancelled without consideration. Each
Dissenting Share shall be treated in accordance with the provisions of the WBCA
relating to dissenters' rights.
All of the shares of NorthWest Common Stock converted into Pacific
Common Stock pursuant to this Article I shall no longer be outstanding and shall
automatically be canceled and cease to exist as of the Effective Time, and each
certificate (each a "NorthWest Certificate") previously representing any such
shares of NorthWest Common Stock shall thereafter represent the right to receive
(i) a certificate representing the number of whole shares of Pacific Common
Stock and (ii) cash in lieu of fractional shares, in each case into which the
shares of NorthWest Common Stock represented by such NorthWest Certificate have
been converted pursuant to this Article I and Sections 1.7 and 2.2 of this
Agreement. NorthWest Certificates previously representing shares of NorthWest
Common Stock shall be exchanged for certificates representing whole shares of
Pacific Common Stock and cash in lieu of fractional shares without any interest
in accordance with Section 2.2 of this Agreement.
1.5 Pacific Common Stock. At and after the Effective Time, each share
--------------------
of Pacific Common Stock issued and outstanding immediately prior to the Closing
Date shall remain an issued and outstanding share of common stock of the
Surviving Corporation and shall not be affected by the Merger.
1.6 Conversion of Options. At the Effective Time of the Merger, each
---------------------
option to purchase shares of NorthWest Common Stock under any stock option plan
of NorthWest (collectively, the "NorthWest Stock Option Plans") which is
outstanding and unexercised immediately prior to the Effective Date of the
Merger (each, a "NorthWest Stock Option"), shall cease to represent a right to
acquire shares of NorthWest Common Stock and shall be converted automatically
into an option to purchase shares of Pacific Common Stock (each, a "Substitute
Option") in an amount and at an exercise price determined as provided below (and
otherwise subject to the terms of the NorthWest Stock Option Plans).
(a) The number of shares of Pacific Common Stock to be subject to the
Substitute Option shall be the product (rounded down to the nearest share) of
the number of shares of NorthWest Common Stock subject to the option and the
Exchange Ratio; and
(b) The exercise price per share of Pacific Common Stock under the
Substitute Option shall be equal to the result (rounded down to the nearest
cent) of dividing the exercise price per share of NorthWest Common Stock under
the option by the Exchange Ratio.
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1.7 Fractional Shares. No fractional shares of Pacific Common Stock
------------------
and no certificates therefor shall be issued to represent any fractional
interest, and any holder thereof shall be paid cash in lieu of fractional shares
pursuant to Section 2.2(e) of this Agreement equal to the product obtained by
multiplying the fractional share interest to which such holder is entitled by
$27.15.
1.8 Adjustment to Stock. If prior to the Effective Time (or as of a
-------------------
record date prior to the Effective Time) the outstanding shares of Pacific
Common Stock shall have been increased, decreased, changed into or exchanged for
a different number or kind of shares or securities as a result of a
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other similar change in Pacific's capitalization, then
an appropriate and proportionate adjustment shall be made to the Exchange Ratio.
1.9 Articles of Incorporation. At the Effective Time, the Articles of
-------------------------
Incorporation of Pacific, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation.
1.10 Bylaws. At the Effective Time, the Bylaws of Pacific, as in
------
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
1.11 Directors and Officers. From and after the Effective Time, the
----------------------
board of directors of the Surviving Corporation shall include the members of the
board of directors of Pacific as constituted immediately prior to the Effective
Time, together with Xxxx X. Xxxxxx, G. Xxxxxx Xxxxxx, and Xxxxxxx X. Xxxxxx, who
shall hold office until their successors are elected and qualified. The officers
of the Surviving Corporation from and after the Effective Time shall be the
officers of Pacific immediately prior to the Effective Time, together with such
additional officers as may thereafter be appointed, until such time as their
successors are appointed in accordance with the Bylaws of the Surviving
Corporation.
1.12 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.
1.13 Banking Subsidiary Merger.
--------------------------
(a) Upon performance of all of the covenants of the parties hereto and
fulfillment or waiver of all of the conditions contained herein, and at the
Effective Time, Bank NorthWest, a banking corporation organized under the laws
of the state of Washington and wholly owned subsidiary of Northwest ("Bank
Northwest"), will be merged (the "Bank Merger") with and into the Bank of the
Pacific, a banking corporation organized under the laws of the state of
Washington and wholly owned subsidiary of Pacific ("Bank of the Pacific"), in
accordance with the provisions of Washington banking law. An agreement of merger
in the form attached hereto as Exhibit 1.13 shall be filed with the appropriate
authorities in the state of Washington, including the director of the Department
of Financial Institutions (the "Washington Director"), and the Bank Merger
3
will be effective as of the date set forth in a certificate of merger issued by
the Washington Director.
(b) Upon effectiveness of the Bank Merger, each outstanding share of
Bank of the Pacific common stock shall remain outstanding as shares of the
resulting bank, the holder of such shares shall retain its rights with respect
to such shares as in effect prior to the Bank Merger, and each outstanding share
of Bank Northwest common stock will be cancelled.
ARTICLE II
EXCHANGE OF SHARES
2.1 Pacific to Make Shares Available. At or prior to the Effective
----------------------------------
Time, Pacific will provide to Bank of the Pacific, acting as exchange agent for
the Merger (the "Exchange Agent"), for the benefit of the holders of NorthWest
Certificates, for exchange in accordance with this Article II, certificates
representing the shares of Pacific Common Stock and the cash in lieu of any
fractional shares (such cash and certificates for shares of Pacific Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section
1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding shares of
NorthWest Common Stock.
2.2 Exchange of Shares.
------------------
(a) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a NorthWest Certificate or
Certificates 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 NorthWest Certificates to the Exchange Agent) and
instructions for use in effecting the surrender of the NorthWest Certificates in
exchange for certificates representing the shares of Pacific Common Stock and
the cash in lieu of fractional shares, if any, into which the shares of
NorthWest Common Stock represented by such NorthWest Certificate or Certificates
shall have been converted pursuant to this Agreement. Upon proper surrender of a
NorthWest Certificate for exchange and cancellation to the Exchange Agent,
together with such properly completed letter of transmittal, duly executed, the
holder of such NorthWest Certificate shall be entitled to receive in exchange
therefor, as applicable, (i) a certificate representing shares of Pacific Common
Stock into which the shares of NorthWest Common Stock shall have been converted
and (ii) a check representing the amount of cash in lieu of fractional shares,
if any, that such holder has the right to receive in respect of the NorthWest
Certificate surrendered pursuant to the provisions of Section 1.7 of this
Agreement, and the NorthWest Certificate so surrendered shall be canceled. No
interest will be paid or accrued on the cash in lieu of fractional shares and
unpaid dividends and distributions, if any, payable to holders of NorthWest
Certificates.
(b) No dividends or other distributions declared after the Effective
Time with respect to Pacific Common Stock shall be paid to the holder of any
unsurrendered NorthWest Certificate until the holder thereof shall surrender
such NorthWest Certificate in
4
accordance with this Article II. After the surrender of a NorthWest Certificate
in accordance with this Article II, the record holder thereof shall be entitled
to receive any such dividends or other distributions, without any interest
thereon, that theretofore had become payable with respect to shares of Pacific
Common Stock represented by such NorthWest Certificate.
(c) If any certificate representing shares of Pacific 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 Pacific Common Stock in any name other
than that of the registered holder, 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 of the
shares of NorthWest Common Stock on the stock transfer books of NorthWest. If,
after the Effective Time, NorthWest Certificates representing such shares are
presented for transfer to the Exchange Agent, they shall be canceled and
exchanged for certificates representing shares of Pacific Common Stock and cash
in lieu of fractional shares, if any, as provided in this Article II.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of NorthWest for 12 months after the Effective Time shall be paid
to Pacific. Any shareholders of NorthWest who have not previously complied with
this Article II shall thereafter look only to Pacific for payment of the shares
of Pacific Common Stock, cash in lieu of any fractional shares and unpaid
dividends and distributions on the Pacific Common Stock deliverable in respect
of each share of NorthWest Common Stock that such shareholder is entitled to
receive pursuant to this Agreement, without any interest thereon.
Notwithstanding the foregoing, none of Pacific, NorthWest, the Exchange Agent,
or any other person shall be liable to any former holder of shares of NorthWest
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(f) In the event any NorthWest 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
Pacific, the posting by such person of a bond in such amount as Pacific may
determine is reasonably necessary as indemnity against any claim that may be
made against it with respect to such NorthWest Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed NorthWest Certificate
the shares of Pacific Common Stock and cash in lieu of fractional shares
deliverable in respect thereof pursuant to this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NORTHWEST
Except as set forth in the disclosure schedule of NorthWest delivered
to Pacific concurrently herewith (the "NorthWest Disclosure Schedule"),
NorthWest hereby represents and warrants to Pacific as follows:
3.1 Corporate Organization.
----------------------
(a) NorthWest is a corporation duly organized and validly existing
under the laws of the State of Washington. NorthWest has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have a Material Adverse Effect (as defined
below) on NorthWest. NorthWest is duly registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). As used
in this Agreement, the term "Material Adverse Effect" means, with respect to
Pacific, NorthWest or the Surviving Corporation, as the case may be, a material
adverse effect on the business, results of operations or financial condition or
prospects of such party and its Subsidiaries taken as a whole. NorthWest has
previously furnished Pacific true and correct copies of its Articles of
Incorporation and Bylaws as in effect as of the date of this Agreement.
(b) The NorthWest Disclosure Schedule sets forth a complete and
correct list of all NorthWest Subsidiaries (as defined below), all shares or
other ownership interests of which are owned by NorthWest free and clear of any
liens, charges, encumbrances, and security interests whatsoever. All of such
shares or other interests are duly authorized and validly issued and are fully
paid and free of preemptive rights, with no liability attaching to the ownership
thereof. No NorthWest Subsidiary has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock or
any other equity security of such Subsidiary or any securities representing the
right to purchase or otherwise receive any shares of capital stock or any other
equity security of such Subsidiary. As used in this Agreement, the word
"Subsidiary" means any bank, corporation, limited liability company, partnership
or other organization, whether incorporated or unincorporated, that is
consolidated with such party for financial reporting purposes.
(c) Each NorthWest Subsidiary (i) is duly organized and validly
existing as a bank, corporation or partnership under the laws of its
jurisdiction of organization, (ii) is duly qualified to do business in all
jurisdictions (whether federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have a Material
Adverse Effect on NorthWest, and (iii) has all requisite corporate power and
authority to own or lease its properties and assets and to carry on its business
as now conducted. Except as
6
set forth on the NorthWest Disclosure Schedule, NorthWest does not own
beneficially, directly or indirectly, more than 5 percent of any class of equity
securities or similar interests of any corporation, bank, business trust,
association, or similar organization, and is not, directly or indirectly, a
partner in any partnership or party to any joint venture.
(d) The minute books of NorthWest and each NorthWest Subsidiary
accurately reflect in all material respects all corporate actions of the
shareholders and board of directors (including committees of the board of
directors) of NorthWest or its Subsidiaries.
3.2 Capitalization. The authorized capital stock of NorthWest consists
--------------
of 1,500,000 shares of NorthWest Common Stock and 100,000 shares of preferred
stock ("NorthWest Preferred Stock"). At the close of business on October 21,
2003, there were 717,930 shares of NorthWest Common Stock and no shares of
NorthWest Preferred Stock outstanding. On October 21, 2003, no shares of
NorthWest Common Stock or NorthWest Preferred Stock were reserved for issuance
under outstanding agreements or other instruments, other than 100,048 shares of
NorthWest Common Stock issuable upon the exercise of outstanding stock options
pursuant to the NorthWest Stock Option Plans. All of the issued and outstanding
shares of NorthWest Common Stock have been duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights with no
liability attaching to the ownership thereof. Except as stated above, NorthWest
does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of NorthWest Common Stock or NorthWest
Preferred Stock or any securities representing the right to purchase or
otherwise receive any shares of NorthWest Common Stock or NorthWest Preferred
Stock. NorthWest has previously provided Pacific with a true and correct list of
the option holders, the date of each option to purchase NorthWest Common Stock
granted, the number of shares subject to each such option, the expiration date
of each such option, and the price at which each such option may be exercised
under the NorthWest Stock Option Plans. Except as set forth in the NorthWest
Disclosure Schedule, since January 1, 2003, no shares of NorthWest capital stock
have been purchased, redeemed or otherwise acquired, directly or indirectly, by
NorthWest or any NorthWest Subsidiary, and no dividends or other distributions
have been declared, set aside, made or paid to NorthWest shareholders.
3.3 Authority; No Violation.
-----------------------
(a) NorthWest has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
board of directors of NorthWest. The board of directors of NorthWest has
directed that this Agreement and the transactions contemplated hereby be
submitted to NorthWest's shareholders for approval at a meeting of such
shareholders and, except for the adoption of this Agreement by the affirmative
vote of the holders of a majority of the outstanding shares of NorthWest Common
Stock, no other corporate proceedings on the part of NorthWest are necessary to
approve this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by NorthWest and
(assuming due
7
authorization, execution and delivery by Pacific) constitutes a valid and
binding obligation of NorthWest, enforceable against NorthWest in accordance
with its terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement by NorthWest
nor the consummation by NorthWest of the transactions contemplated hereby, nor
compliance by NorthWest with any of the terms or provisions hereof, will (i)
violate any provision of the Articles of Incorporation or Bylaws of NorthWest or
(ii) assuming that the consents and approvals referred to in Section 3.4 are
duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to NorthWest or any of
its Subsidiaries or any of their respective properties or assets, or (y)
violate, conflict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event that, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the respective properties or assets of
NorthWest or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which NorthWest or any of
its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such violations, conflicts, breaches or defaults that, either
individually or in the aggregate, will not have or be reasonably likely to have
a Material Adverse Effect on NorthWest.
3.4 Consents and Approvals. Except for (i) the filing of applications,
----------------------
notices or requests for waiver, as applicable, with the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") under the BHC Act, (ii)
the filing of any requisite applications with the Federal Deposit Insurance
Corporation (the "FDIC") in connection with the Bank Merger, (iii) the filing of
any required applications or notices with any state agencies and approval of
such applications and notices with respect to the Merger and the Bank Merger
(the "State Approvals"), (iv) the filing with the SEC of a joint proxy statement
in definitive form relating to the meetings of Pacific's and NorthWest's
shareholders to be held in connection with approval of this Agreement and the
transactions contemplated hereby (the "Joint Proxy Statement") and the
registration statement on Form S-4 (the "S-4") in which the Joint Proxy
Statement will be included as a prospectus, (v) the filing of the Articles of
Merger with the Washington Secretary pursuant to the WBCA and an agreement of
merger with respect to the Bank Merger with the Washington Director, (vi) such
filings and approvals as are required to be made or obtained under the
securities or "Blue Sky" laws of various states in connection with the issuance
of the shares of Pacific Common Stock pursuant to this Agreement, (vii) the
approval of this Agreement by the shareholders of Pacific and NorthWest as
provided in Section 7.1(a) below, and (viii) the consents and approvals set
forth in the NorthWest Disclosure Schedule, no consents or approvals of or
filings or registrations with any court, administrative agency or commission or
other governmental authority or instrumentality (each a "Governmental Entity")
or with any third party are necessary in connection with (A) the execution and
delivery by
8
NorthWest of this Agreement and (B) the consummation by NorthWest of the Merger
and the other transactions contemplated hereby.
3.5 Reports. NorthWest and each NorthWest Subsidiary has timely and
-------
properly filed all material reports, registrations and statements, together with
any amendments required to be made with respect thereto, that they were required
to file since January 1, 2000, with (i) the Federal Reserve Board, (ii) any
state regulatory authority, (iii) the FDIC, and (iv) any self-regulatory
organization (collectively, "Regulatory Agencies"), and all other material
reports and statements required to be filed by them since January 1, 2000, and
have paid all fees and assessments due and payable in connection therewith. All
such reports and statements filed with any Regulatory Agency are collectively
referred to herein as the "NorthWest Reports." As of their respective dates, the
NorthWest Reports complied in all material respects with all the rules and
regulations promulgated by applicable Regulatory Agencies and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Copies of all the NorthWest Reports have been made available to
Pacific by NorthWest. Except for normal examinations conducted by a Regulatory
Agency in the regular course of the business of NorthWest and the NorthWest
Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the best
knowledge of NorthWest, investigation into the business or operations of
NorthWest or any of the NorthWest Subsidiaries since January 1, 2003. There is
no material unresolved violation, criticism, or exception by any Regulatory
Agency with respect to any report or statement relating to any examinations of
NorthWest or any of the NorthWest Subsidiaries.
3.6 Financial Statements. NorthWest has previously delivered to
---------------------
Pacific copies of (a) the consolidated balance sheets of NorthWest and NorthWest
Subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for 2000
through 2002, inclusive, in each case accompanied by the audit report of Xxxx
Xxxxx LLP, independent public accountants, and (b) the unaudited consolidated
balance sheets of NorthWest and the NorthWest Subsidiaries as of June 30, 2003,
and June 30, 2002, and the related unaudited consolidated statements of income,
cash flows and changes in shareholders' equity for the six-month periods then
ended. The financial statements referred to in this Section 3.6 (including the
related notes, where applicable) fairly present (subject, in the case of the
unaudited statements, to recurring audit adjustments normal in nature and
amount) the results of the consolidated operations and changes in shareholders'
equity and consolidated financial position of NorthWest and the NorthWest
Subsidiaries for the respective periods or as of the respective dates and each
of such statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except in each case as indicated in such statements or in the notes thereto. The
allowances for credit losses contained in the financial statements referred to
in this Section 3.6 were adequate as of their respective dates to absorb
reasonably anticipated losses in the loan portfolio of NorthWest and the
NorthWest Subsidiaries.
3.7 Broker's Fees. Except for X. X. Xxxxxxxx & Co., neither NorthWest
-------------
nor any NorthWest Subsidiary 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.
9
3.8 Absence of Certain Changes or Events.
------------------------------------
(a) Since December 31, 2002, (i) neither NorthWest nor any NorthWest
Subsidiary has incurred any material liability, except in the ordinary course of
business consistent with past practices, and (ii) no event has occurred that has
had, or is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on NorthWest.
(b) Since June 30, 2003, neither NorthWest nor any of its Subsidiaries
has, except for normal increases in the ordinary course of business consistent
with past practice, increased the wages, salaries, compensation, pension, or
other fringe benefits or perquisites payable to any executive officer, employee,
or director, granted any severance or termination pay, entered into any contract
to make or grant any severance or termination pay, or paid any bonus other than
customary year-end bonuses.
3.9 Legal Proceedings. Neither NorthWest nor any NorthWest Subsidiary
-----------------
is a party to any, and there are no pending or, to the best of NorthWest's
knowledge, threatened, legal, administrative, arbitral or other proceedings or
investigations of any nature (i) against NorthWest or any NorthWest Subsidiary
or (ii) challenging the validity or propriety of the transactions contemplated
by this Agreement. There is no injunction, order, judgment, decree, or
regulatory restriction imposed upon NorthWest, any NorthWest Subsidiary or the
assets of NorthWest or any NorthWest Subsidiaries. The NorthWest Disclosure
Schedule includes a list of all litigation involving NorthWest that was material
to NorthWest's business taken as a whole and that has been active or been
threatened in writing since January 1, 2001.
3.10 Taxes and Tax Returns.
---------------------
(a) Each of NorthWest and the NorthWest Subsidiaries has filed all
federal, state, county, local and foreign tax returns (all such returns being
accurate and complete in all material respects) required to be filed by it on or
prior to the date hereof (and as of the date of any certificate delivered
pursuant to Section 7.2(a) of this Agreement) and has paid or made provisions
for the payment of all Taxes (as defined below) and other governmental charges
which have been incurred or are due or claimed to be due from it (including,
without limitation, if and to the extent applicable, those due in respect of its
properties, income, business, capital stock, deposits, franchises, licenses,
sales and payrolls) other than Taxes or other charges that (1) are not yet
delinquent or are being contested in good faith and (2) have not been finally
determined. There are no material disputes pending, or claims asserted for,
Taxes or assessments upon NorthWest or any NorthWest Subsidiary, nor has
NorthWest or any NorthWest Subsidiary been requested to give any currently
effective waivers extending the statutory period of limitation applicable to any
federal, state, county or local income tax return for any period. In addition,
(i) proper and accurate amounts have been withheld by NorthWest and each
NorthWest Subsidiary from their employees for all prior periods in compliance in
all material respects with the tax withholding provisions of applicable federal,
state and local laws, except where failure to do so would not have a Material
Adverse Effect on NorthWest, (ii) federal, state, county and local returns that
are accurate and complete in all material respects have been filed by NorthWest
and NorthWest Subsidiaries for all periods for which returns were due with
respect to income tax withholding,
10
Social Security and unemployment taxes, except where failure to do so would not
have a Material Adverse Effect on NorthWest, (iii) the amounts shown on such
federal, state, local or county returns to be due and payable have been paid in
full or adequate provision therefor has been included by NorthWest in its
consolidated financial statements and (iv) there are no tax liens upon any
property or assets of NorthWest or its Subsidiaries except liens for current
taxes not yet due.
(b) As used in this Agreement, the term "Tax" or "Taxes" means all
federal, state, county, local, and foreign income, excise, gross receipts, ad
valorem, profits, gains, property, sales, transfer, use, payroll, employment,
severance, withholding, duties, intangibles, franchise, and other taxes,
charges, levies or like assessments together with all penalties and additions to
tax and interest thereon.
(c) Any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of NorthWest or any of its
affiliates would not be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code).
(d) No disallowance of a deduction under Section 162(m) of the Code
for employee remuneration of any amount paid or payable by NorthWest or any
NorthWest Subsidiary under any contract, plan, program, arrangement or
understanding will occur as a result of payments made on or prior to the Closing
Date or the termination of this Agreement.
3.11 Employee Benefits.
-----------------
(a) The NorthWest Disclosure Schedule sets forth a true and complete
list of each material plan, arrangement or agreement regarding compensation or
benefits for any employees, former employees, directors, or former directors
that is maintained, sponsored or obligated to be contributed to as of the date
of this Agreement (the "NorthWest Benefit Plans") by NorthWest or any of its
Subsidiaries or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), all of which together or individually with NorthWest would be
deemed a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
(b) NorthWest has delivered to Pacific true and complete copies of
each of the NorthWest Benefit Plans and all related documents, including but not
limited to the most recent determination letter from the Internal Revenue
Service (if applicable) for such Plan.
(c) (i) Each of the NorthWest Benefit Plans has been operated and
administered in all material respects in compliance with its provisions and
applicable law, including but not limited to ERISA and the Code, (ii) each of
the NorthWest Benefit Plans intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified, (iii) with respect to each NorthWest
Benefit Plan that is subject to Title IV of ERISA, the present value of accrued
benefits under such NorthWest Benefit Plan did not,
11
as of its latest valuation date, exceed the then current market value of the
assets of such NorthWest Benefit Plan allocable to such accrued benefits, (iv)
no NorthWest Benefit Plan provides benefits, including, without limitation,
death or medical benefits (whether or not insured), with respect to current or
former employees of NorthWest, any NorthWest Subsidiary or any ERISA Affiliate
beyond their retirement or other termination of service, other than (w) coverage
mandated by applicable law other than as a result of having to follow the Plan's
terms, (x) death benefits or retirement benefits, (y) deferred compensation
benefits accrued as liabilities on the books of NorthWest, its Subsidiaries or
the ERISA Affiliates or (z) benefits the full cost of which is borne by the
current or former employee (or his beneficiary), (v) no liability under ERISA
has been incurred by NorthWest, its Subsidiaries or any ERISA Affiliate that has
not been satisfied in full, and no condition exists that presents a material
risk to NorthWest, its Subsidiaries or any ERISA Affiliate of incurring a
material liability thereunder, (vi) no NorthWest Benefit Plan is a
"multiemployer plan," as such term is defined in Section 3(37) of ERISA or a
"multiple employer welfare arrangement" as such term is defined in Section 3(40)
of ERISA, (vii) all contributions or other amounts payable by NorthWest or
NorthWest Subsidiaries as of the Effective Time with respect to each NorthWest
Benefit Plan in respect of current or prior plan years have been paid or accrued
in accordance with generally accepted accounting practices, ERISA and the Code,
(viii) neither NorthWest, its Subsidiaries nor any ERISA Affiliate has engaged
in a transaction which could result in either a material civil penalty or a
material tax, (ix) neither Northwest nor any Subsidiary or ERISA Affiliate are
members of an affiliated service group as defined in Code Section 414(m) or have
any leased employees as defined in Code Section 414(n), except as described in
the Northwest Disclosure Schedule, and (x) to the best knowledge of NorthWest,
there are no pending, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the NorthWest Benefit
Plans or any trusts related thereto.
(d) Except as set forth in the NorthWest Disclosure Schedule, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any material payment,
including, without limitation, severance, unemployment compensation, golden
parachute or otherwise, becoming due to any director, officer or any employee of
NorthWest or any of its affiliates, (ii) materially increase any benefits
otherwise payable under any NorthWest Benefit Plan or (iii) result in any
acceleration of the time of payment or vesting of any such benefits.
3.12 Compliance With Applicable Law.
------------------------------
(a) NorthWest and each NorthWest Subsidiary holds and has at all times
held all material licenses, franchises, permits and authorizations necessary for
the lawful conduct of their respective businesses under and pursuant to all, and
have complied with and are not in default in any material respect under any,
applicable laws, statutes, orders, rules, or regulations of any Governmental
Entity relating to NorthWest or any NorthWest Subsidiary, except where the
failure to hold such license, franchise, permit or authorization or such
noncompliance or default would not, individually or in the aggregate, have a
Material Adverse Effect on NorthWest, and neither NorthWest nor any
12
of its Subsidiaries knows of, or has received notice of, any material violations
of any of the above.
(b) Except as would not have a Material Adverse Effect, (i) no real
property presently or previously owned, operated, or leased by NorthWest or any
NorthWest Subsidiaries or, to the best of their knowledge, securing any
obligations owed to them has been used as a storage or disposal site for
hazardous substances within the meaning of any applicable federal, state, or
local statute, law, rule, or regulation, and no hazardous substances have been
transferred from or to such real property, (ii) no Governmental Entity has
issued any citation or notice of violation relating to any environmental matter
concerning any real property owned, operated, or leased by NorthWest or any
NorthWest Subsidiary or, to the best of their knowledge, securing any
obligations owed to them, and neither NorthWest nor any of its Subsidiaries has
received any notice that any such real property may or will be included on any
list of areas affected by any release of any hazardous substance or that it has
or may be named as a responsible or potentially responsible party with respect
to any hazardous substance site, and (iii) neither NorthWest nor any of its
Subsidiaries has received any notice of any threatened investigation,
proceeding, or litigation concerning any such real property with respect to any
environmental matter or knows of any basis for any such investigation,
proceeding, or litigation.
3.13 Certain Contracts. Except as set forth on the NorthWest
------------------
Disclosure Schedule,
(a) neither NorthWest nor any of its Subsidiaries is a party to or
bound by any contract, arrangement, commitment or understanding (whether written
or oral) (i) with respect to the employment of any directors, officers,
employees or consultants, (ii) that, upon the consummation of the transactions
contemplated by this Agreement will (either alone or upon the occurrence of any
additional acts or events) result in any payment (whether of severance pay or
otherwise) becoming due from NorthWest, Pacific, the Surviving Corporation, or
any of their respective Subsidiaries to any officer or employee thereof, (iii)
that is a material contract (as defined in Item 601(b)(10) of Regulation S-K of
the SEC), (iv) that restricts the conduct of any line of business by NorthWest,
(v) with or to a labor union or guild (including any collective bargaining
agreement) or (vi) (including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan) any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement, or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. NorthWest has previously
delivered to Pacific true and correct copies of all employment, consulting, and
compensation agreements that are in writing and a written summary of all such
contracts that are material to NorthWest and not in writing. Each contract,
arrangement, commitment or understanding of the type described in this Section,
whether or not set forth in the NorthWest Disclosure Schedule, is referred to
herein as a "NorthWest Contract." Neither NorthWest nor any of its Subsidiaries
knows of, or has received notice of, any violation of any NorthWest Contract by
any of the other parties
13
thereto that, individually or in the aggregate, would have a Material Adverse
Effect on NorthWest.
(b) (i) each NorthWest Contract is valid and binding and in full force
and effect, (ii) NorthWest and each NorthWest Subsidiary has in all material
respects performed all obligations required to be performed by it to date under
each NorthWest Contract, except where such noncompliance, individually or in the
aggregate, would not have a Material Adverse Effect on NorthWest, and (iii) no
event or condition exists that constitutes or, after notice or lapse of time or
both, would constitute, a material default on the part of NorthWest or any
NorthWest Subsidiary or, to the knowledge of NorthWest, on the part of any other
party under any such NorthWest Contract, except where such default, individually
or in the aggregate, would not have a Material Adverse Effect on NorthWest.
3.14 Properties. Except as disclosed or reserved against in its
----------
financial statements described in Section 3.6 of this Agreement, NorthWest and
its Subsidiaries have good and marketable title, free and clear of all liens,
pledges, security interests or other encumbrances or restrictions of any kind
(other than liens for current taxes not yet delinquent) to all of the properties
and assets, tangible or intangible, owned by it or its Subsidiaries as of the
date of this Agreement. All leased properties, whether real property, fixtures,
equipment or other property, are leased under leases or subleases that, if a
NorthWest Contract, would satisfy the requirements of Section 3.13(b) above and
that are enforceable in accordance with their respective terms (except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally or by general equity
principles).
3.15 Agreements With Regulatory Agencies. Neither NorthWest nor any of
-----------------------------------
its Subsidiaries 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 supervisory letter from, or has adopted any board resolutions at the request
of (each, whether or not set forth in the NorthWest Disclosure Schedule, a
"Regulatory Agreement"), any Regulatory Agency or other Governmental Entity 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.
3.16 Undisclosed Liabilities. Except for those liabilities that are
------------------------
fully reflected or reserved against on the consolidated balance sheets of
NorthWest referenced in Section 3.6 and for liabilities incurred in the ordinary
course of business consistent with past practice, since December 31, 2002,
neither NorthWest nor any NorthWest Subsidiary has incurred any liability of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either alone or when combined with all
similar liabilities, has or could result in a liability in excess of $50,000.
3.17 Fiduciary Activities. NorthWest and each NorthWest Subsidiary has
--------------------
properly administered in all material respects, and which could reasonably be
expected to be material to the financial condition of NorthWest and its
Subsidiaries taken as a whole, all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves
14
as a trustee, agent, custodian, personal representative, guardian, conservator
or investment advisor, in accordance with the terms of the governing documents
and applicable state and federal law and regulation and common law. Neither
NorthWest, any NorthWest Subsidiary, nor any director, officer or employee of
NorthWest or any NorthWest Subsidiary has committed any breach of trust with
respect to any such fiduciary account which is material to, or could reasonably
be expected to be material to, the financial condition of NorthWest and
NorthWest Subsidiaries taken as a whole, and the accountings for each such
fiduciary account are true and correct in all material respects and accurately
reflect the assets of such fiduciary account.
3.18 Material Interests of Certain Persons. To the best knowledge of
--------------------------------------
NorthWest, no officer or director of NorthWest or any NorthWest Subsidiary, or
any "associate" (as such term is defined in Rule 14a-1 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of any such officer or
director, has any interest in any material contract or property (real or
personal), tangible or intangible, used in or pertaining to the business of
NorthWest or any NorthWest Subsidiary. The NorthWest Disclosure Schedule sets
forth a correct and complete list of any loan from NorthWest or any NorthWest
Subsidiary to any present officer, director, or employee, or any associate or
related interest of any such person, which was required under Regulation O of
the Federal Reserve Board to be approved by or reported to NorthWest's or a
NorthWest Subsidiary's board of directors.
3.19 Registration Obligations. Neither NorthWest nor any NorthWest
-------------------------
Subsidiary is under any obligation, contingent or otherwise, by reason of any
agreement to register any of its securities under the Securities Act of 1933, as
amended ("Securities Act").
3.20 Patents, Trademarks and Trade Names. The NorthWest Disclosure
-------------------------------------
Schedule sets forth a correct and complete list of (i) all patents, registered
trademarks, trade names and registered copyrights owned by NorthWest or any
NorthWest Subsidiary ("Northwest Proprietary Intellectual Property") and (ii)
all patents, registered trademarks, trade names, copyrights, technology and
processes used by NorthWest and the NorthWest Subsidiaries in their respective
businesses which are used pursuant to a license or other right granted by a
third party (together with the Northwest Proprietary Intellectual Property,
herein referred to as the "Northwest Intellectual Property"). NorthWest and each
NorthWest Subsidiary owns, or has the right to use pursuant to valid and
effective agreements, all Northwest Intellectual Property, and the consummation
of the transaction contemplated hereby will not alter or impair any such rights.
No claims are pending or, to the best knowledge of NorthWest, threatened against
NorthWest or any NorthWest Subsidiary by any person with respect to the use of
any Northwest Intellectual Property or challenging or questioning the validity
or effectiveness of any license or agreement relating to such Northwest
Intellectual Property. The current use by NorthWest and each NorthWest
Subsidiary of the Northwest Intellectual Property does not infringe on the
rights of any person, except for such infringements which in the aggregate could
not reasonably be expected to have a Material Adverse Effect on NorthWest.
15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PACIFIC
Except as set forth in the disclosure schedule of Pacific delivered to
NorthWest concurrently herewith (the "Pacific Disclosure Schedule"), Pacific
hereby represents and warrants to NorthWest as follows:
4.1 Corporate Organization.
----------------------
(a) Pacific is a corporation duly organized and validly existing under
the laws of the State of Washington. Pacific has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have a Material Adverse Effect on Pacific.
Pacific is duly registered as a bank holding company under the BHC Act. Pacific
has previously furnished NorthWest true and correct copies of its Articles of
Incorporation and Bylaws as in effect as of the date of this Agreement.
(b) The Pacific Disclosure Schedule sets forth a complete and correct
list of all Pacific Subsidiaries, all shares or other ownership interests of
which are owned by Pacific free and clear of any liens, charges, encumbrances,
and security interest whatsoever. All of such shares or other interests are duly
authorized and validly issued and are fully paid and free of preemptive rights,
with no liability attaching to the ownership thereof. No Pacific Subsidiary has
or is bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of capital stock or any other equity security of such Subsidiary
or any securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such Subsidiary.
(c) Each Pacific Subsidiary (i) is duly organized and validly existing
as a bank, corporation or partnership under the laws of its jurisdiction of
organization, (ii) is duly qualified to do business in all jurisdictions
(whether federal, state, local or foreign) where its ownership or leasing of
property or the conduct of its business requires it to be so qualified and in
which the failure to be so qualified would have a Material Adverse Effect on
Pacific, and (iii) has all requisite corporate power and authority to own or
lease its properties and assets and to carry on its business as now conducted.
Except as set forth on the Pacific Disclosure Schedule, Pacific does not own
beneficially, directly or indirectly, more than 5 percent of any class of equity
securities or similar interests of any corporation, bank, business trust,
association or similar organization, and is not, directly or indirectly, a
partner in any partnership or party to any joint venture.
(d) The minute books of Pacific and each Pacific Subsidiary accurately
reflect in all material respects all corporate actions of its shareholders and
board of directors (including committees of the board of directors).
16
4.2 Capitalization. (a) The authorized capital stock of Pacific
--------------
consists of (i) 25,000,000 shares of Pacific Common Stock, of which as of
September 30, 2003, 2,512,689 shares were issued and outstanding, and (ii) no
shares of Preferred Stock. As of September 30, 2003, no shares of Pacific Common
Stock were reserved for issuance under outstanding agreements or other
instruments, other than 241,800 shares of Pacific Common Stock issuable upon the
exercise of outstanding stock options pursuant to the Pacific Benefit Plans (as
defined in Section 4.11 below). All of the issued and outstanding shares of
Pacific Common Stock have been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no liability attaching
to the ownership thereof. Except as stated above, Pacific does not have and is
not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Pacific Common Stock or any other equity securities of Pacific
or any securities representing the right to purchase or otherwise receive any
shares of Pacific Common Stock. The shares of Pacific Common Stock to be issued
pursuant to the Merger will be duly authorized and validly issued and, at the
Effective Time, all such shares will be fully paid, nonassessable and free of
preemptive rights, with no liability attaching to the ownership thereof.
4.3 Authority; No Violation.
-----------------------
(a) Pacific has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
board of directors of Pacific. The board of directors of Pacific has directed
that this Agreement and the transactions contemplated hereby be submitted to
Pacific's shareholders for approval at a meeting of such shareholders and except
for the adoption of this Agreement by the affirmative vote of the holders of a
majority of the outstanding shares of Pacific Common Stock, no other corporate
proceedings on the part of Pacific are necessary to approve this Agreement and
to consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Pacific and (assuming due authorization,
execution and delivery by NorthWest) constitutes a valid and binding obligation
of Pacific, enforceable against Pacific in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement by Pacific,
nor the consummation by Pacific of the transactions contemplated hereby, nor
compliance by Pacific with any of the terms or provisions hereof, will (i)
violate any provisions of the Articles of Incorporation or Bylaws of Pacific or
(ii) assuming that the consents and approvals referred to in Section 4.4 are
duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Pacific or any Pacific
Subsidiaries or any of their respective properties or assets, or (y) violate,
conflict with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of time, or
both, would constitute a default) under, result in the termination of or a right
of termination or cancellation under, accelerate the performance required by, or
result in the creation of
17
any lien, pledge, security interest, charge or other encumbrance upon any of the
respective properties or assets of Pacific or any Pacific Subsidiary under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Pacific or any Pacific Subsidiary is a party, or by which they or any of
their respective properties or assets may be bound or affected, except (in the
case of clause (y) above) for such violations, conflicts, breaches or defaults
which either individually or in the aggregate will not have or be reasonably
likely to have a Material Adverse Effect on Pacific.
4.4 Consents and Approvals. Except for (i) the filing of applications
----------------------
and notices, as applicable, with the Federal Reserve Board under the BHC Act,
(ii) the filing of any requisite applications with the FDIC in connection with
the Bank Merger, (iii) the filing of the State Approvals, (iv) the filing with
the SEC of the Joint Proxy Statement and the S-4, (v) the filing of the Articles
of Merger with the Washington Secretary pursuant to the WBCA and an Agreement of
Merger with the Washington Director, (vi) such filings and approvals as are
required to be made or obtained under the securities or Blue Sky laws of various
states in connection with the issuance of the shares of Pacific Common Stock
pursuant to this Agreement, and (vii) the approval of this Agreement by the
shareholders of Pacific and NorthWest as provided in Section 7.1(a) below, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with (A) the
execution and delivery by Pacific of this Agreement and (B) the consummation by
Pacific of the Merger and the other transactions contemplated hereby.
4.5 Reports. Pacific and each Pacific Subsidiary has timely and
-------
properly filed all material reports, registrations and statements, together with
any amendments required to be made with respect thereto, that they were required
to file since January 1, 2000, with applicable Regulatory Agencies, and all
other material reports and statements required to be filed by them since January
1, 2000, and have paid all fees and assessments due and payable in connection
therewith. All such reports and statements filed with any Regulatory Agency are
collectively referred to herein as the "Pacific Reports." As of their respective
dates, the Pacific Reports complied in all material respects with all the rules
and regulations promulgated by applicable Regulatory Agencies, and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Copies of all the Pacific Reports have been made available to
NorthWest by Pacific. Except for normal examinations conducted by a Regulatory
Agency in the regular course of the business of Pacific and the Pacific
Subsidiaries, no Regulatory Agency has initiated any proceeding or, to the best
knowledge of Pacific, investigation into the business or operations of Pacific
or any of the Pacific Subsidiaries since January 1, 2000. There is no material
unresolved violation, criticism, or exception by any Regulatory Agency with
respect to any report or statement relating to any examinations of Pacific or
any of the Pacific Subsidiaries.
4.6 Financial Statements. Pacific has previously delivered to
----------------------
NorthWest copies of (a) the consolidated balance sheets of Pacific and the
Pacific Subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for 2000 through 2002, inclusive, in each case accompanied by the audit
report of McGladrey & Xxxxxx LLP, independent auditors, (b) the unaudited
18
consolidated balance sheets of Pacific and the Pacific Subsidiaries as of June
30, 2003, and June 30, 2002, and the related unaudited consolidated statements
of income, cash flows and changes in shareholders' equity for the six-month
periods then ended. The financial statements referred to in this Section 4.6
(including the related notes, where applicable) fairly present (subject, in the
case of the unaudited statements, to recurring audit adjustments normal in
nature and amount) the results of the consolidated operations and changes in
shareholders' equity and consolidated financial position of Pacific and the
Pacific Subsidiaries for the respective periods or as of the respective dates
and each of such statements (including the related notes, where applicable) has
been prepared in accordance with GAAP consistently applied during the periods
involved, except in each case as indicated in such statements or in the notes
thereto. The allowances for credit losses contained in the financial statements
referred to in this Section 4.6 were adequate as of their respective dates to
absorb reasonably anticipated losses in the loan portfolio of Pacific and the
Pacific Subsidiaries.
4.7 Brokers' Fees. Except for fees payable to Columbia Financial
--------------
Advisors, Inc., neither Pacific nor any Pacific Subsidiary 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.
4.8 Absence of Certain Changes or Events.
------------------------------------
(a) Since December 31, 2002, (i) neither Pacific nor any Pacific
Subsidiary has incurred any material liability, except in the ordinary course of
their business consistent with their past practices, and (ii) no event has
occurred that has had, or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Pacific.
(b) Since June 30, 2003, neither Pacific nor any of its Subsidiaries
has (i) suffered any strike, work stoppage, slowdown, or other labor disturbance
or (ii) been the subject of any organizing activities.
4.9 Legal Proceedings. Neither Pacific nor any Pacific Subsidiary is a
-----------------
party to any and there are no pending or, to the best of Pacific's knowledge,
threatened, material legal, administrative, arbitral or other proceedings or
investigations of any nature (i) against Pacific or any Pacific Subsidiary or
(ii) challenging the validity or propriety of the transactions contemplated by
this Agreement. There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Pacific, any Pacific Subsidiary or the assets of
Pacific or any Pacific Subsidiary. The Pacific Disclosure Schedule includes a
list of all litigation involving Pacific that was material to Pacific's business
taken as a whole and that has been active or been threatened in writing since
January 1, 2001.
4.10 Taxes and Tax Returns.
---------------------
(a) Each of Pacific and the Pacific Subsidiaries has filed all
federal, state, county, local and foreign tax returns (all such returns being
accurate and complete in all material respects) required to be filed by it on or
prior to the date hereof (and as of the date of any certificate delivered
pursuant to Section 7.3(a) of this Agreement) and has
19
paid or made provisions for the payment of all Taxes (as defined below) and
other governmental charges which have been incurred or are due or claimed to be
due from it (including, without limitation, if and to the extent applicable,
those due in respect of its properties, income, business, capital stock,
deposits, franchises, licenses, sales and payrolls) other than Taxes or other
charges (1) that are not yet delinquent or are being contested in good faith and
(2) have not been finally determined. There are no material disputes pending, or
claims asserted for, Taxes or assessments upon Pacific or any Pacific
Subsidiary, nor has Pacific or any Pacific Subsidiary been requested to give any
currently effective waivers extending the statutory period of limitation
applicable to any federal, state, county or local income tax return for any
period. In addition, (i) proper and accurate amounts have been withheld by
Pacific and each Pacific Subsidiary from their employees for all prior periods
in compliance in all material respects with the tax withholding provisions of
applicable federal, state and local laws, except where failure to do so would
not have a Material Adverse Effect on Pacific, (ii) federal, state, county and
local returns that are accurate and complete in all material respects have been
filed by Pacific and the Pacific Subsidiaries for all periods for which returns
were due with respect to income tax withholding, Social Security and
unemployment taxes, except where failure to do so would not have a Material
Adverse Effect on Pacific, (iii) the amounts shown on such federal, state, local
or county returns to be due and payable have been paid in full or adequate
provision therefor has been included by Pacific in its consolidated financial
statements and (iv) there are no Tax liens upon any property or assets of
Pacific or its Subsidiaries except liens for current taxes not yet due.
(b) Any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of Pacific or any of its
affiliates would not be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code).
(c) No disallowance of a deduction under Section 162(m) of the Code
for employee remuneration of any amount paid or payable by Pacific or any
Subsidiary of Pacific under any contract, plan, program, arrangement or
understanding will occur as a result of the transactions contemplated by this
Agreement.
4.11 Employee Benefits.
-----------------
(a) The Pacific Disclosure Schedule sets forth a true and complete
list of each material plan, arrangement or agreement regarding compensation or
benefits for any employees, former employees, directors, or former directors
that is maintained, sponsored or obligated to be contributed to as of the date
of this Agreement (the "Pacific Benefit Plans") by Pacific, any of its
Subsidiaries or by any trade or business, whether or not incorporated (a
"Pacific ERISA Affiliate"), all of which together or individually with Pacific
would be deemed a "single employer" within the meaning of Section 4001 of ERISA.
(b) Pacific has made available to NorthWest true and complete copies
of each of the Pacific Benefit Plans and all related documents, including but
not limited to the
20
most recent determination letter from the Internal Revenue Service (if
applicable) for such Pacific Benefit Plan.
(c) (i) Each of the Pacific Benefit Plans has been operated and
administered in all material respects in compliance with its provisions and
applicable law, including but not limited to ERISA and the Code, (ii) each of
the Pacific Benefit Plans intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified, (iii) with respect to each Pacific
Benefit Plan that is subject to Title IV of ERISA, the present value of accrued
benefits under such Pacific Benefit Plan, as of its latest valuation date,
exceed the then current market value of the assets of such Pacific Benefit Plan
allocable to such accrued benefits, (iv) no Pacific Benefit Plan provides
benefits, including without limitation death or medical benefits (whether or not
insured), with respect to current or former employees of Pacific, any Pacific
Subsidiary or any Pacific ERISA Affiliate beyond their retirement or other
termination of service, other than (w) coverage mandated by applicable law other
than as a result of having to follow the Plan's terms, (x) death benefits or
retirement benefits, (y) deferred compensation benefits accrued as liabilities
on the books of Pacific, Pacific Subsidiaries or the Pacific ERISA Affiliates or
(z) benefits the full cost of which is borne by the current or former employee
(or his beneficiary), (v) no liability under ERISA has been incurred by Pacific,
its Subsidiaries or any Pacific ERISA Affiliate that has not been satisfied in
full, and no condition exists that presents a material risk to Pacific, its
Subsidiaries or any Pacific ERISA Affiliate of incurring a material liability
thereunder, (vi) no Pacific Benefit Plan is a "multiemployer plan," as such term
is defined in Section 3(37) of ERISA or a "multiple employer welfare
arrangement" as such term is defined in Section 3(40) of ERISA, (vii) all
contributions or other amounts payable by Pacific or its Subsidiaries as of the
Effective Time with respect to each Pacific Benefit Plan in respect of current
or prior plan years have been paid or accrued in accordance with GAAP, ERISA and
the Code, (viii) neither Pacific, its Subsidiaries nor any Pacific ERISA
Affiliate has engaged in a transaction which could result in either a material
civil penalty or a material tax, (ix) neither Pacific nor any Subsidiary or
ERISA Affiliate are members of an affiliated service group as defined in Code
Section 414(m) or have any leased employees as defined in Code Section 414(n),
except as described in the Pacific Disclosure Schedule, and (x) to the best
knowledge of Pacific, there are no pending, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against any of the
Pacific Benefit Plans or any trusts related thereto.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any director or any
employee of Pacific or any of its affiliates from Pacific or any of its
affiliates under any Pacific Benefit Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any Pacific Benefit Plan, or (iii) result
in any acceleration of the time of payment or vesting of any such benefits to
any material extent.
4.12 SEC Reports. Pacific has previously made available to NorthWest
-----------
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule
21
and definitive proxy statement filed since January 1, 2001, by Pacific with the
SEC pursuant to the Securities Act or the Exchange Act (the "Pacific Filings")
and prior to the date hereof and (b) communication mailed by Pacific to its
shareholders since January 1, 2001, and prior to the date hereof, and no such
registration statement, prospectus, report, schedule, proxy statement or
communication contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except that information as of a later date shall be deemed
to modify information as of an earlier date. Pacific has timely filed all
Pacific Filings and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Pacific Filings complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
4.13 Compliance With Applicable Law.
------------------------------
(a) Pacific and each Pacific Subsidiary holds, and has at all times
held, all material licenses, franchises, permits and authorizations necessary
for the lawful conduct of their respective businesses under and pursuant to all,
and have complied with and are not in default in any material respect under any,
applicable laws, statutes, orders, rules, or regulations of any Governmental
Entity relating to Pacific or any of its Subsidiaries, except where the failure
to hold such license, franchise, permit or authorization or such noncompliance
or default would not, individually or in the aggregate, have a Material Adverse
Effect on Pacific, and neither Pacific nor any of its Subsidiaries knows of, or
has received notice of, any material violations of any of the above.
(b) Except as would not have a Material Adverse Effect, (i) no real
property presently or previously owned, operated, or leased by Pacific or any of
its Subsidiaries or, to the best of their knowledge, securing any obligations
owed to them has been used as a storage or disposal site for hazardous
substances within the meaning of any applicable federal, state, or local
statute, law, rule, or regulation, and no hazardous substances have been
transferred from or to such real property, (ii) no Governmental Entity has
issued any citation or notice of violation relating to any environmental matter
concerning any real property owned, operated, or leased by Pacific or any of its
Subsidiaries or, to the best of their knowledge, securing any obligations owed
to them, and neither Pacific nor any of its Subsidiaries has received any notice
that any such real property may or will be included on any list of areas
affected by any release of any hazardous substance or that it has or may be
named as a responsible or potentially responsible party with respect to any
hazardous substance site, and (iii) neither Pacific nor any Pacific Subsidiary
has received any notice of any threatened investigation, proceeding, or
litigation concerning any such real property with respect to any environmental
matter or knows of any basis for any such investigation, proceeding, or
litigation.
4.14 Certain Contracts. Except as set forth on the Pacific Disclosure
-----------------
Schedule or in a Pacific Filing,
(a) neither Pacific nor any of its Subsidiaries is a party to or bound
by any contract, arrangement, commitment or understanding (whether written or
oral) (i) with respect to the employment of any directors, officers, employees
or consultants, (ii) that,
22
upon the consummation of the transactions contemplated by this Agreement, will
(either alone or upon the occurrence of any additional acts or events) result in
any payment (whether of severance pay or otherwise) becoming due from Pacific,
NorthWest, the Surviving Corporation, or any of their respective Subsidiaries to
any officer or employee thereof, (iii) that is a material contract (as defined
in Item 601(b)(10) of Regulation S-K of the SEC), (iv) that restricts the
conduct of any line of business by Pacific, (v) with or to a labor union or
guild (including any collective bargaining agreement), or (vi) (including any
stock option plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan) any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. Each contract, arrangement, commitment or
understanding of the type described in this Section, whether or not set forth in
the Pacific Disclosure Schedule or an SEC filing, is referred to herein as a
"Pacific Contract." Neither Pacific nor any of its Subsidiaries knows of, or has
received notice of, any violation of any Pacific Contract by any of the other
parties thereto that, individually or in the aggregate, would have a Material
Adverse Effect on Pacific.
(b) (i) each Pacific Contract is valid and binding and in full force
and effect, (ii) Pacific and each of its Subsidiaries has in all material
respects performed all obligations required to be performed by it to date under
each Pacific Contract, except where such noncompliance, individually or in the
aggregate, would not have a Material Adverse Effect on Pacific, and (iii) no
event or condition exists that constitutes or, after notice or lapse of time, or
both, would constitute, a material default on the part of Pacific or any of its
Subsidiaries or, to the knowledge of Pacific, on the part of any other party
under any such Pacific Contract, except where such default, individually or in
the aggregate, would not have a Material Adverse Effect on Pacific.
4.15 Properties. Except as disclosed or reserved against in its
----------
financial statements described in Section 4.6 of this Agreement, Pacific and its
Subsidiaries have good and marketable title, free and clear of all liens,
pledges, security interests or other encumbrances or restrictions of any kind
(other than liens for current taxes not yet delinquent) to all of the properties
and assets, tangible or intangible, owned by it or its Subsidiaries as of the
date of this Agreement. All leased properties, whether real property, fixtures,
equipment or other property, are leased under valid leases or subleases that, if
a Pacific Contract, would satisfy the requirements of Section 4.14(b) above and
that are enforceable in accordance with their respective terms (except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally or by general equity
principles).
4.16 Agreements With Regulatory Agencies. Neither Pacific nor any of
------------------------------------
its Subsidiaries 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 supervisory letter from, or has adopted any board resolutions at the request
of any Regulatory Agency or other Governmental Entity that restricts the conduct
of its business or
23
that in any manner relates to its capital adequacy, its credit policies, its
management or its business.
4.17 Undisclosed Liabilities. Except for those liabilities that are
------------------------
fully reflected or reserved against on the consolidated balance sheets of
Pacific referenced in Section 4.6 and for liabilities incurred in the ordinary
course of business consistent with past practice, since December 31, 2002,
neither Pacific nor any of its Subsidiaries has incurred any liability of any
nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether due or to become due) that, either alone or when combined with all
similar liabilities, has had, or could reasonably be expected to have, a
Material Adverse Effect on Pacific.
4.18 Fiduciary Activities. Pacific and each Pacific Subsidiary has
---------------------
properly administered in all respects material and which could reasonably be
expected to be material to the financial condition of Pacific and its
Subsidiaries taken as a whole all accounts for which it acts as a fiduciary,
including but not limited to 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 and applicable state and
federal law and regulation and common law. Neither Pacific, any Pacific
Subsidiary, nor any director, officer or employee of Pacific or any Pacific
Subsidiary has committed any breach of trust with respect to any such fiduciary
account which is material to, or could reasonably be expected to be material to,
the financial condition of Pacific and its Subsidiaries taken as a whole, and
the accountings for each such fiduciary account are true and correct in all
material respects and accurately reflect the assets of such fiduciary account.
4.19 Material Interests of Certain Persons. To the best knowledge of
--------------------------------------
Pacific, no officer or director of Pacific or any Pacific Subsidiary, or any
"associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of
any such officer or director, has any interest in any material contract or
property (real or personal), tangible or intangible, used in or pertaining to
the business of Pacific or any Pacific Subsidiary. The Pacific Disclosure
Schedule sets forth a correct and complete list of any loan from Pacific or any
Pacific Subsidiary to any present officer, director, or employee, or any
associate or related interest of any such person, which was required under
Regulation O of the Federal Reserve Board to be approved by or reported to
Pacific's or a Pacific Subsidiary's board of directors.
4.20 Patents, Trademarks and Trade Names. The Pacific Disclosure
--------------------------------------
Schedule sets forth a correct and complete list of (i) all patents, registered
trademarks, trade names and registered copyrights owned by Pacific or any
Pacific Subsidiary ("Pacific Proprietary Intellectual Property") and (ii) all
patents, registered trademarks, trade names, copyrights, technology and
processes used by Pacific and the Pacific Subsidiaries in their respective
businesses which are used pursuant to a license or other right granted by a
third party (together with the Pacific Proprietary Intellectual Property, herein
referred to as the "Pacific Intellectual Property"). Pacific and each Pacific
Subsidiary owns, or has the right to use pursuant to valid and effective
agreements, all Pacific Intellectual Property, and the consummation of the
transaction contemplated hereby will not alter or impair any such rights. No
claims are pending or, to the best knowledge of Pacific, threatened against
Pacific or any Pacific Subsidiary by any person with respect to the use of any
Pacific Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement relating to such Pacific Intellectual
24
Property. The current use by Pacific and each Pacific Subsidiary of the Pacific
Intellectual Property does not infringe on the rights of any person, except for
such infringements which in the aggregate could not reasonably be expected to
have a Material Adverse Effect on Pacific.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Conduct of NorthWest Businesses Prior to the Effective Time.
----------------------------------------------------------------
During the period from the date of this Agreement to the Effective Time, except
as expressly contemplated or permitted by this Agreement or with the prior
written consent of Pacific, NorthWest shall, and shall cause its Subsidiaries
to, (i) conduct its business in the usual, regular and ordinary course
consistent with past practice and maintain its corporate existence in good
standing, (ii) use reasonable best efforts to maintain and preserve intact its
business organization and advantageous business relationships and retain the
services of its officers and key employees, (iii) maintain proper business and
accounting records in accordance with GAAP and past practices, (iv) use all
commercially reasonable efforts to obtain any approvals or consents required to
maintain existing contracts in effect following the Merger, and (v) take no
action that would adversely affect or delay the ability of NorthWest or Pacific
to obtain any Requisite Regulatory Approvals (as defined in Section 6.1(b)
below) or to perform its covenants and agreements under this Agreement.
5.2 Negative Covenants. During the period from the date of this
-------------------
Agreement to the Effective Time, except as expressly contemplated or permitted
by this Agreement, NorthWest shall not, and shall not permit any NorthWest
Subsidiary to, without the prior written consent of Pacific:
(a) 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 for the obligations of any
other individual, corporation or other entity, or make any loan or advance;
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, or grant or issue any stock appreciation rights or
any right to acquire any shares of its capital stock; or issue any additional
shares of capital stock or securities or obligations convertible into or
exchangeable for shares of its capital stock except pursuant to the exercise of
stock options outstanding as of the date hereof;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets, or cancel, release or assign any indebtedness to any
such person or any claims held by any such person, except in the ordinary course
of business consistent with past practice or pursuant to contracts or agreements
in force at the date of this Agreement;
25
(d) except for transactions in the ordinary course of business
consistent with past practice, make any material investment either by purchase
of stock or securities, contributions to capital, property transfers, or
purchase of any property or assets of any other individual, corporation or other
entity other than a wholly owned NorthWest Subsidiary;
(e) enter into or terminate any contract or agreement, or make any
change in any of its leases or contracts, other than (i) renewals of contracts
and leases without material adverse changes of terms, (ii) extensions of loans
or other credit facilities in the ordinary course of business consistent with
past practice and in an amount as to any individual transaction not exceeding
$1,000,000, (iii) any contract listed in the NorthWest Disclosure Schedule as an
exception to this covenant, and (iv) other leases or contracts involving the
payment or receipt, as to any individual lease or contract, of an amount not
exceeding $25,000;
(f) increase or accelerate in any manner the compensation or fringe
benefits of any of its employees other than increases for employees in the
ordinary course of business consistent with past practice; become a party to,
amend or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement; or enter into or commit itself to enter into any
employment agreement with or for the benefit of any employee or potential
employee other than an employment agreement with any individual listed in the
Northwest Disclosure Schedule as an exception to this covenant;
(g) make any contribution to any benefit plan except as required by
the terms of such plan in effect as of the date of this Agreement;
(h) settle any claim, action or proceeding involving material money
damages;
(i) amend its articles of incorporation or its bylaws;
(j) other than in prior consultation with Pacific, restructure or
materially change its investment securities portfolio or its gap position,
through purchases, sales or otherwise, or the manner in which the portfolio is
classified or reported;
(k) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions to the Merger set forth in Article
VII not being satisfied or in a violation of any provision of this Agreement,
except, in every case, as may be required by applicable law; or
(l) agree to take any of the actions prohibited by this Section 5.2.
5.3 Pacific Forbearances. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated or permitted
by this Agreement, Pacific shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of NorthWest:
26
(a) reclassify any of its capital stock or make, declare, or pay any
dividend or make any other distribution on, any shares of its capital stock or
any securities or obligations, convertible into or exchangeable for any shares
of its capital stock (except for regular cash dividends declared in December of
each year at a rate not in excess of $1.42 per share and except for dividends
paid by any of its wholly owned Subsidiaries);
(b) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions of the Merger set forth in Article
VII not being satisfied or in a violation of any provision of this Agreement,
except, in every case, as may be required by applicable law;
(c) take any action that would adversely affect or delay its ability
to obtain any Requisite Regulatory Approvals or to perform its covenants and
agreements under this Agreement;
(d) amend its articles of incorporation or bylaws; or
(e) agree to take any of the actions prohibited by this Section 5.3.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters.
------------------
(a) Pacific and NorthWest shall promptly prepare the Joint Proxy
Statement and Pacific shall promptly prepare and file with the SEC the S-4, in
which the Joint Proxy Statement will be included as a prospectus. Each of
Pacific and NorthWest shall use all reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such filing,
and Pacific and NorthWest shall thereafter mail the Joint Proxy Statement to
their respective shareholders. Pacific shall also use all reasonable efforts to
obtain all necessary state securities law or Blue Sky permits and approvals
required to carry out the transactions contemplated by this Agreement, and
NorthWest shall furnish all information concerning NorthWest and the holders of
NorthWest Common Stock as may be reasonably requested in connection with any
such action, all of which information will be true and correct as of the date
provided.
(b) The parties hereto shall cooperate with each other and use their
reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings and to
obtain as promptly as practicable all waivers, permits, consents, approvals and
authorizations of all Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (all such waivers,
permits, consents, approvals and authorizations being referred to herein as the
"Requisite Regulatory Approvals"), and to comply with the terms and conditions
of all Requisite Regulatory Approvals, and to obtain as promptly as practicable
all consents of third parties which are necessary or advisable to consummate the
transactions contemplated by this Agreement. Pacific and NorthWest shall have
the
27
right to review in advance, and to the extent practicable each will consult
the other on, in each case subject to applicable laws relating to the exchange
of information, all the information relating to NorthWest or Pacific, as the
case may be, and any of their respective Subsidiaries, which appear in any
filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto shall
act reasonably and as promptly as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining of all Requisite
Regulatory Approvals and all consents of third parties necessary or advisable to
consummate the transactions contemplated by this Agreement and each party will
keep the other apprised of the status of matters relating to completion of the
transactions contemplated herein.
(c) Pacific and NorthWest shall, upon request, furnish each other with
all information concerning themselves, their Subsidiaries, directors, officers
and shareholders and such other matters as may be reasonably necessary or
advisable in connection with the Joint Proxy Statement, the S-4, or any other
statement, filing, notice or application made by or on behalf of Pacific,
NorthWest or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
(d) Pacific and NorthWest shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval will not be obtained or that
the receipt of any such approval will be materially delayed.
6.2 Access to Information.
---------------------
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, each of Pacific and NorthWest shall, and shall
cause each of their respective Subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives of the other party,
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and records (other
than reports or documents which Pacific or NorthWest, as the case may be, is not
permitted to disclose under applicable law) and all other information concerning
its business, properties and personnel as such party may reasonably request.
Neither Pacific nor NorthWest nor any of their respective Subsidiaries shall be
required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of Pacific's or NorthWest's, as
the case may be, customers, jeopardize the attorney-client privilege of the
institution in possession or control of such information or contravene any law,
rule, regulation, order, judgment, decree, fiduciary duty or binding agreement
entered into prior to the date of this Agreement.
(b) Each of Pacific and NorthWest shall hold all information furnished
by the other party or any of such party's Subsidiaries or representatives
pursuant to
28
Section 6.2(a) in confidence to the extent required by, and in accordance with,
the provisions of the joint confidentiality agreement, dated September 4, 2003,
between Pacific and NorthWest (the "Confidentiality Agreement").
(c) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties of the other set
forth herein.
6.3 Shareholders' Approvals. Each of Pacific and NorthWest shall call
-----------------------
a meeting of its shareholders to be held as soon as practicable for the purpose
of submitting this Agreement and the Merger to shareholders for approval, and
each shall use its best efforts to cause such meetings to occur on the same
date. Subject to fiduciary requirements under applicable law, the boards of
directors of NorthWest and Pacific shall recommend such approval to their
respective shareholders and shall use reasonable efforts to solicit such
approval.
6.4 Legal Conditions to Merger; Closing Documents. Each of Pacific and
---------------------------------------------
NorthWest shall, and shall cause its Subsidiaries to, use their reasonable best
efforts (a) to take, or cause to be taken, all actions necessary, proper, or
advisable to comply promptly with all legal requirements which may be imposed on
such party or its Subsidiaries with respect to the Merger and, subject to the
conditions set forth in Article VII hereof, to consummate the transactions
contemplated by this Agreement, (b) to obtain (and to cooperate with the other
party to obtain) all Requisite Regulatory Approvals and the consent of any other
third party which is required to be obtained by NorthWest or Pacific or any of
their respective Subsidiaries in connection with the Merger and the merger or
mergers of Subsidiaries of Pacific and NorthWest and the other transactions
contemplated by this Agreement, and (c) to deliver at the Closing all opinions,
certificates, and other documents required to be delivered by it at the Closing.
6.5 Affiliates. Each director, executive officer and other person who
----------
is an "affiliate" (for purposes of Rule 145 under the Securities Act) of
NorthWest has delivered or will deliver a written agreement, in the form of
Exhibit 6.5 hereto, providing that such person will not sell, pledge, transfer
or otherwise dispose of any shares of Pacific Common Stock held by such
"affiliate" as and to the extent described in the Agreement. Notwithstanding any
other provision of this Agreement, no certificate for Pacific Common Stock shall
be delivered in exchange for NorthWest Certificates held by any such "affiliate"
who shall not have executed and delivered such an agreement.
6.6 Employee Benefit Plans.
----------------------
(a) NorthWest and each NorthWest Subsidiary will take all action
necessary or required to terminate or amend, if requested by Pacific, all
qualified retirement and welfare benefit plans and all non-qualified benefit
plans and compensation arrangements as of the Effective Date of the Merger.
(b) Within a reasonable time after the Effective Time, and subject to
applicable law, Pacific shall provide to the employees of Pacific and its
Subsidiaries who formerly were employees of NorthWest and its Subsidiaries
employee benefits substantially the same as those provided to similarly situated
employees of Pacific and its Subsidiaries. From and after the Effective Time,
employees of Pacific or its Subsidiaries
29
who were employees of NorthWest and its Subsidiaries immediately prior to the
Effective Time shall receive full credit for all purposes under any qualified
retirement and welfare benefit plans, non-qualified benefit plans, and
compensation plans of Pacific, except the accrual of benefits, for their length
of service prior to the Effective Time with NorthWest or any of its Subsidiaries
(and any predecessors thereto) to the extent such service would be recognized
under such plans, if such service had been with Pacific and its Subsidiaries and
to the extent that service credit would not violate any applicable income tax
qualification rule.
(c) NorthWest shall take all action necessary to cause each
outstanding option to purchase NorthWest Common Stock held by directors or
employees of NorthWest and its Subsidiaries, together with the NorthWest Stock
Option Plans, to be amended at or prior to the Effective Time so that from and
after the Effective Time, there shall be substituted for each such option an
option to purchase shares of Pacific Common Stock rather than NorthWest Common
Stock as provided in Section 1.6 of this Agreement.
6.7 Indemnification; Directors' and Officers' Insurance.
--------------------------------------------------------------
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation in which any person who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior to the Effective
Time, a director or officer of NorthWest or any of its Subsidiaries (the
"Indemnified Parties") is, or is threatened to be, made a party based in whole
or in part on (i) the fact that he is or was a director or officer of NorthWest,
any NorthWest Subsidiary or any of their respective predecessors or (ii) this
Agreement or any of the transactions contemplated by this Agreement, whether
asserted or arising before or after the Effective Time, the parties hereto agree
to cooperate and use their best efforts to defend against and respond thereto.
It is understood and agreed that after the Effective Time, Pacific shall
indemnify and hold harmless, as and to the fullest extent permitted by law, each
such Indemnified Party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorney fees) and amounts paid in settlement in
connection with any such threatened or actual claim, action, suit, proceeding or
investigation.
(b) Any Indemnified Party wishing to claim indemnification under
Section 6.7(a), upon learning of any claim, action, suit, proceeding or
investigation, shall promptly notify Pacific thereof, provided that the failure
to so notify shall not affect the obligations of Pacific under this Section 6.7
except to the extent such failure to notify materially prejudices Pacific. In
the event of any such threatened or actual claim, action, suit, proceeding, or
investigation, (1) Pacific shall have the right to assume the defense thereof
and upon such assumption Pacific shall not be liable to any Indemnified Party
for any legal expenses of other counsel or any other expenses subsequently
incurred by any Indemnified Party in connection with the defense thereof, except
that if Pacific elects not to assume such defense or counsel for the Indemnified
Parties reasonably advises the Indemnified Parties that there are issues which
raise conflicts of interest between Pacific and the Indemnified Parties, the
Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Pacific, and Pacific shall pay the reasonable fees and
expenses of such counsel for the Indemnified Parties; provided, however, that
30
Pacific shall be obligated pursuant to this paragraph to pay for only one firm
of counsel for all Indemnified Parties, unless an Indemnified Party shall have
reasonably concluded, based on the advice of counsel, that the use of one
counsel would present such counsel with a conflict of interest, and (2) such
Indemnified Party shall cooperate fully in the defense of such matter. Pacific
shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld), and Pacific shall
have no obligation to any Indemnified Party if a court of competent jurisdiction
shall determine that indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. Notwithstanding the
foregoing, Pacific shall have no obligation to indemnify the Indemnified Parties
except to the extent they would be entitled to such indemnification under the
provisions of Pacific's articles of incorporation or bylaws or any agreement to
which Pacific is a party as in effect on the date of this Agreement if such
Indemnified Parties had been officers or directors of Pacific at the time of the
event giving rise to such indemnification.
(c) For a period of three years from the Effective Time, Pacific shall
use its best efforts to cause to be maintained in effect the current policies of
directors and officers' insurance maintained by NorthWest (provided that Pacific
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions that are not substantially less advantageous
than such policy) with respect to claims arising from acts or omissions
occurring prior to the Effective Time which were committed by such officers and
directors in their capacity as such; provided, however, that in no event shall
Pacific be required to expend more than 200 percent of the current amount
expended by NorthWest (the "Insurance Amount") to maintain or procure insurance
coverage pursuant hereto and further provided that if Pacific is unable to
maintain or obtain the insurance called for by this Section 6.7(c), Pacific
shall use its best efforts to obtain as much comparable insurance as is
available for the Insurance Amount.
(d) In the event Pacific or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Pacific
assume the obligations set forth in this Section 6.7.
(e) The provisions of this Section 6.7 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
6.8 Competing Transactions. Neither NorthWest, nor any NorthWest
-----------------------
Subsidiary, nor any director, officer, representative or agent thereof, will,
directly or indirectly, solicit, authorize the solicitation of, or, except to
the extent that the board of directors of NorthWest shall conclude in good
faith, after taking into account the written advice of its outside counsel, that
to fail to do so could reasonably be determined to violate its fiduciary
obligations under applicable law, enter into any discussions with any other
entity or group concerning any offer or possible offer (i) to purchase any
shares of common stock, any option or warrant to purchase any shares of common
stock, any securities convertible into any shares of such common stock, or any
other equity security of NorthWest or any NorthWest Subsidiary, (ii) to
31
make a tender or exchange offer for any shares of such common stock or other
equity security of NorthWest or any NorthWest Subsidiary, (iii) to purchase,
lease or otherwise acquire the assets of NorthWest or any NorthWest Subsidiary
except in the ordinary course of business, or (iv) to merge, consolidate or
otherwise combine with NorthWest or any NorthWest Subsidiary. Notwithstanding
anything herein to the contrary, NorthWest and its board of directors shall be
permitted to comply with Rule 14e-2 promulgated under the Exchange Act with
respect to any such acquisition proposal. If any corporation, partnership,
person or other entity or group makes an offer or inquiry to NorthWest or any
NorthWest Subsidiary concerning any of the foregoing, NorthWest or such
Subsidiary will promptly disclose such offer or inquiry to Pacific.
6.9 Additional Agreements. In case at any time after the Effective
----------------------
Time any further action is necessary or desirable to carry out the purposes of
this Agreement (including, without limitation, any merger between a Subsidiary
of Pacific and a Subsidiary of NorthWest) or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of any of the parties to the Merger, the proper officers and
directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by, and at
the sole expense of, Pacific. Pending the Effective Time, Pacific and NorthWest
shall consult with one another and cooperate as reasonably requested by Pacific
to facilitate the integration of their respective operations as promptly as
practicable after the Effective Time. Such cooperation shall include, if
requested, the entering into of merger agreements between or among their
respective Subsidiaries and the filing of appropriate regulatory applications
with respect thereto (conditioned upon the effectiveness of the Merger),
communicating with employees, consultation regarding material contracts,
renewals, and capital commitments to be entered into by NorthWest and its
Subsidiaries, making arrangements for employee training prior to the Effective
Time, and taking action to facilitate an orderly conversion of data processing
operations to occur promptly following the Effective Time.
6.10 Advice of Changes. Pacific and NorthWest shall each promptly
------------------
advise the other party of any change or event having, or that would be
reasonably likely to have, a Material Adverse Effect on it or which it believes
would or would be reasonably likely to cause or constitute a material breach of
any of its representations, warranties or covenants contained herein.
6.11 Advisory Board. Pacific shall, effective as of the Effective
---------------
Date, cause each individual who is currently serving as a director of NorthWest
(other than members of the Northwest board of directors who become directors of
the Surviving Corporation as provided in Section 1.11 above), if such persons
are willing to so serve, to be elected or appointed as members of an advisory
board ("Advisory Board") established by Pacific, the function of which shall be
to advise Pacific with respect to deposit and lending activities in NorthWest's
former market area and to maintain and develop customer relationships. The
members of the Advisory Board initially shall be elected or appointed for a term
of two years; provided, however, that any Advisory Board member may be removed
by Pacific if Pacific makes a good faith determination that such member has a
conflict of interest. The Advisory Board will meet at least quarterly. Each
member of the Advisory Board shall receive a fee of $125 for each meeting of the
Advisory Board that he or she attends. Service on the Advisory Board shall
constitute continued
32
service as a director for purposes of the Pacific Options received by members of
the Board of Directors of NorthWest in exchange for NorthWest Options.
6.12 Publicity. Except as otherwise required by applicable law,
---------
neither Pacific nor NorthWest shall, or shall permit any of its Subsidiaries to,
issue or cause the publication of any press release or other public announcement
with respect to, or otherwise make any public statement concerning, the
transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld.
6.13 Accruals and Reserves. To the extent permitted by GAAP, NorthWest
---------------------
will establish, immediately prior to the Effective Time of the Merger, such
additional accruals and reserves as may be necessary (a) to conform NorthWest's
accounting and credit loss reserve practices and methods to those of Pacific and
(b) to provide for the costs and expenses relating to the consummation by
NorthWest of the Merger and the other transactions contemplated by this
Agreement.
6.14 Approval of Bank Plan of Merger. Promptly following execution of
-------------------------------
this Agreement, Pacific and Northwest will each execute written shareholder
consents to approve the Bank Merger.
6.15 Operation of Business. Following the Effective Time and for a
---------------------
period of at least two years thereafter, Pacific will operate the business,
including present or future branches, of NorthWest's former banking subsidiary
in Whatcom County under the name "Bank NorthWest."
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
-----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite affirmative vote of the holders of
NorthWest Common Stock. In addition, this Agreement and the Merger shall have
been approved by the affirmative vote of a majority of the votes cast on a
proposal to approve this Agreement at a meeting of the holders of Pacific Common
Stock.
(b) Other Approvals. All Requisite Regulatory Approvals shall have
been obtained and remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired, and all other material consents
or approvals of any third party required in connection with the consummation of
the Merger as set forth in the NorthWest Disclosure Schedule shall have been
obtained.
(c) Registration Statement; Blue Sky. The S-4 shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the S-4 shall have been issued and no proceedings for that
purpose shall have been initiated or
33
threatened by the SEC. Pacific shall have received all state securities law or
Blue Sky authorizations necessary to carry out the transactions contemplated by
this Agreement.
(d) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger or any of the
other transactions contemplated by this Agreement shall be in effect. No
statute, rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any Governmental Entity which prohibits,
restricts or makes illegal consummation of the Merger.
7.2 Conditions to Obligation of Pacific. The obligation of Pacific to
-----------------------------------
effect the Merger is also subject to the satisfaction or waiver by Pacific at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of NorthWest set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date. Pacific shall have
received a certificate signed on behalf of NorthWest by the Chief Executive
Officer and the Chief Financial Officer of NorthWest to the foregoing effect.
(b) Performance of Obligations of NorthWest. NorthWest shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Pacific shall have
received a certificate signed on behalf of NorthWest by the Chief Executive
Officer and the Chief Financial Officer of NorthWest to such effect.
(c) Number of Outstanding Shares. The total number of shares of
NorthWest Common Stock outstanding and subject to issuance upon exercise of all
warrants, options, conversion rights, and share-equivalents shall not have
exceeded 825,000.
(d) No Casualty Losses, Etc. NorthWest and its Subsidiaries considered
as a whole shall not have sustained from the date of this Agreement any material
loss or interference with their business from any civil disturbance or any fire,
explosion, flood or other calamity, whether or not covered by insurance, which
has had or could reasonably be expected to have a Material Adverse Effect.
(e) No Material Adverse Change. Since December 31, 2002, no change
shall have occurred and no circumstances shall exist which have had or might
reasonably be expected to have a Material Adverse Effect on NorthWest.
(f) Resignations. NorthWest shall have delivered the resignations of
each member of its board of directors as of the Effective Time, and such
resignations shall not have been withdrawn.
34
(g) Comfort Certificate. Pacific shall have received from the Chief
Executive Officer and Chief Financial Officer of NorthWest a letter, dated as of
the effective date of the S-4 and updated as of the Closing Date, to the effect
that:
(i) the interim quarterly consolidated financial statements
of NorthWest are prepared in accordance with GAAP applied on a basis
consistent with the audited consolidated financial statements of
NorthWest;
(ii) from the date of the most recent unaudited consolidated
financial statements of NorthWest and its Subsidiaries to a date five
days prior to the effective date of the S-4 and to a date five days
prior to the Closing, there are no increases in long-term debt,
changes in the capital stock or decreases in shareholders' equity of
NorthWest and NorthWest's Subsidiaries, except in each case for
changes, increases or decreases which the S-4 discloses have occurred
or may occur or which are described in such letters;
(iii) they are responsible for establishing and maintaining
internal controls;
(iv) they have designed such internal controls to ensure
that material information relating to NorthWest and its Subsidiaries
is made known to them by others within those entities;
(v) they have evaluated the effectiveness of NorthWest's
internal controls as of September 30, 2003;
(vi) they have disclosed to NorthWest's auditors, to the
audit committee of NorthWest's board of directors, and to Pacific:
(A) all significant deficiencies in the design or
operation of internal controls that could adversely affect
NorthWest's ability to record, process, summarize, and
report financial data and any material weaknesses in
internal controls; and
(B) to the best of their knowledge, any fraud,
whether or not material, that involves management or other
employees who have a significant role in NorthWest's
internal controls.
(h) Legal Opinion. Pacific shall have received an opinion of Xxxxxx &
Xxxx, P.C. substantially in the form attached as Exhibit 7.2 and dated as of the
Closing Date.
(i) Dissenters' Rights. The number of Dissenting Shares shall not
exceed in the aggregate fifteen percent (15%) of the outstanding shares of
NorthWest Common Stock.
(j) Corporate Documentation. NorthWest shall have delivered the
following to Pacific no later than the Closing:
35
(A) Certified copies of the articles of
incorporation and bylaws of NorthWest and each Subsidiary;
(B) Certificate of Good Standing of NorthWest
issued by the Washington Secretary of State within 10 days
of the Closing;
(C) Stock certificates for all of the issued and
outstanding capital stock of each direct and indirect
NorthWest Subsidiary; and
(D) Such books and records of NorthWest and its
Subsidiaries as Pacific may reasonably request.
7.3 Conditions to Obligation of NorthWest. The obligation of NorthWest
--------------------------------------
to effect the Merger is also subject to the satisfaction or waiver by NorthWest
at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Pacific set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date. NorthWest shall have received
a certificate signed on behalf of Pacific by the Chief Executive Officer and the
Chief Financial Officer of Pacific to the foregoing effect.
(b) Performance of Obligations of Pacific. Pacific shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and NorthWest shall
have received a certificate signed on behalf of Pacific by the Chief Executive
Officer and the Chief Financial Officer of Pacific to such effect.
(c) Fairness Opinion. The opinion of X. X. Xxxxxxxx & Co. dated on or
prior to the date hereof to the effect that the consideration to be received by
shareholders of NorthWest pursuant to the Merger is fair from a financial point
of view shall not have been withdrawn. NorthWest has provided a copy of such
opinion to Pacific.
(d) No Material Adverse Change. Since December 31, 2002, no change
shall have occurred and no circumstances shall exist which have had or may
reasonably be expected to have a Material Adverse Effect on Pacific.
(e) Legal Opinion. NorthWest shall have received an opinion of Xxxxxx
Xxxx LLP substantially in the form attached as Exhibit 7.3(e) and dated as of
the Closing Date.
(f) Federal Tax Opinion. NorthWest shall have received an opinion of
Xxxxxx Xxxx LLP substantially in the form attached as Exhibit 7.3(f) and dated
as of the Closing Date to the effect that the Merger will be treated for federal
income tax purposes as part of one or more reorganizations within the meaning of
Section 368 of the Code. In rendering such opinion, Xxxxxx Xxxx LLP may require
and rely upon representations contained in certificates of officers of Pacific,
NorthWest and others.
36
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of NorthWest or Pacific:
(a) by mutual written consent of Pacific and NorthWest;
(b) by either the board of directors of Pacific or the board of
directors of NorthWest (i) if any Governmental Entity which must grant a
Requisite Regulatory Approval has denied approval of the Merger or the Bank
Merger and such denial has become final and nonappealable or (ii) any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement;
(c) by either the board of directors of Pacific or the board of
directors of NorthWest if the Merger shall not have been consummated on or
before May 31, 2004, unless the failure of the Closing to occur by such date
shall be due to the breach by the party seeking to terminate this Agreement of
any representation, warranty, covenant, or other agreement of such party set
forth herein;
(d) by either the board of directors of Pacific or the board of
directors of NorthWest (provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other agreement
contained herein) if there shall have been a material breach of any of the
covenants or agreements or any of the representations or warranties set forth in
this Agreement on the part of the other party, which breach is not cured within
30 days following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the Closing;
(e) by either Pacific or NorthWest if any approval of the shareholders
of Pacific or NorthWest required for the consummation of the Merger shall not
have been obtained by reason of the failure to obtain the required vote at a
duly held meeting of shareholders or at any adjournment or postponement thereof
(unless Section 8.1(g) shall apply, in which case it shall control);
(f) by the board of directors of NorthWest upon written notice to
Pacific if the board of directors of NorthWest shall in good faith determine
that a Takeover Proposal (as defined below) constitutes a Superior Proposal (as
defined below); provided, however, that NorthWest shall not be permitted to
terminate this Agreement pursuant to this Section 8.1(f) unless (i) it has not
breached any covenant contained in this Agreement, (ii) concurrently with such
notice of termination it has entered into a letter of intent, acquisition
agreement or similar agreement relating to such Superior Proposal, (iii) it has
provided Pacific at least five days' prior written notice advising Pacific that
the board of directors of Northwest is prepared to accept a Superior Proposal
and given Pacific, if it so elects, an opportunity to amend the terms of this
Agreement (and negotiated with Pacific in good faith with respect to such terms)
in such a manner as
37
would enable Northwest's board of directors to proceed with the transactions
contemplated by this Agreement, and (iv) it delivers to Pacific simultaneously
with such notice of termination the fee referred to in Section 8.2 below. As
used in this Agreement: "Takeover Proposal" means a bona fide proposal or offer
by a person to make a tender or exchange offer, or to engage in a merger,
consolidation or other business combination involving NorthWest or to acquire in
any manner a substantial equity interest in, or all or substantially all of the
assets of, NorthWest; and "Superior Proposal" means a bona fide proposal or
offer made by a person to acquire NorthWest pursuant to a tender or exchange
offer for all of the outstanding NorthWest Common Stock, a merger, consolidation
or other business combination, or an acquisition of all or substantially all of
the assets of NorthWest and NorthWest Subsidiaries, on terms which the board of
directors of NorthWest shall determine in good faith, after taking into account
the advice of counsel, to be more favorable to NorthWest and its shareholders
than the transactions contemplated hereby; or
(g) by Pacific upon written notice to NorthWest if (A) the board of
directors of NorthWest fails to recommend, withdraws, or modifies in a manner
materially adverse to Pacific, its approval or recommendation of this Agreement
or the transactions contemplated hereby, or (B) after a third party shall have
made a proposal to NorthWest or its shareholders to engage in or entered into an
agreement with respect to an Acquisition Event (as defined below) or an
Acquisition Event shall have occurred, the transactions contemplated hereby are
not approved at the meeting of NorthWest shareholders contemplated by this
Agreement. "Acquisition Event" means any of the following: (i) a merger,
consolidation or similar transaction involving NorthWest or any successor, (ii)
a purchase, lease or other acquisition in one or a series of related
transactions of assets of NorthWest or any of the NorthWest Subsidiaries
representing 25 percent or more of the consolidated assets of NorthWest and its
Subsidiaries or (iii) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or any similar transaction) in one or a
series of related transactions of beneficial ownership of securities represent
25 percent or more of the voting power of NorthWest or its Subsidiaries, in each
case with or by a person or entity other than Pacific or an affiliate of
Pacific.
8.2 Termination Payment. If (a) this Agreement is terminated pursuant
--------------------
to Section 8.1(f), or (b) this Agreement is terminated pursuant to Section
8.1(g) and prior to or within 12 months after such termination, NorthWest or
Bank NorthWest shall enter into an agreement or publicly announce an intention,
to engage in an Acquisition Event, or an Acquisition Event shall have occurred,
then NorthWest shall promptly pay to Pacific a fee equal to $1,000,000.
8.3 Effect of Termination. In the event of termination of this
-----------------------
Agreement by either Pacific or NorthWest as provided in Section 8.1, none of
Pacific, NorthWest, any of their respective Subsidiaries or any of the officers
or directors of any of them shall have any liability or further obligation of
any nature whatsoever hereunder, or in connection with the transactions
contemplated hereby, except the following provisions shall apply:
38
(a) Sections 6.2(b), 8.2, 8.4, 9.1 and 9.2 shall survive any
termination of this Agreement;
(b) In the event of a termination by Pacific under Section 8.1(d) or
failure by NorthWest to use reasonable efforts to consummate the Merger in
accordance with the terms of this Agreement, NorthWest shall promptly, but in no
event later than five business days after termination, pay to Pacific a fee of
$250,000;
(c) In the event of a termination by NorthWest under Section 8.1(d) or
failure by Pacific to use reasonable efforts to consummate the Merger in
accordance with the terms of this Agreement, Pacific shall promptly, but in no
event later than five business days after termination, pay to NorthWest a fee of
$250,000; and
(d) Notwithstanding anything to the contrary contained in this
Agreement, neither Pacific nor NorthWest shall be relieved or released from any
liabilities or damages arising out of a willful breach of any provision of this
Agreement.
8.4 Attorney Fees. In the event any party shall seek enforcement of
--------------
any provision of this Article VIII, the party that substantially prevails in
such enforcement proceeding shall be entitled to recover reasonable costs and
attorney fees (including at trial and on appeal). The prevailing party shall be
the party which prevails affirmatively or defensively on claims having the
greatest value or importance as determined by the court.
8.5 Amendment; Waiver.
-----------------
(a) Subject to compliance with applicable law, this Agreement may be
amended by the parties hereto, by action taken or authorized by their respective
boards of directors, at any time before or after approval of the matters
presented in connection with the Merger by the shareholders of NorthWest;
provided, however, that after any approval of the transactions contemplated by
this Agreement by NorthWest's shareholders, there may not be, without further
approval of such shareholders, any amendment of this Agreement that reduces the
amount or changes the form of the consideration to be delivered to the NorthWest
shareholders hereunder other than as contemplated by this Agreement. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
(b) At any time prior to the Effective Time, the parties hereto, by
action taken or authorized by their respective boards of directors, may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, and (c) waive compliance with any of the agreements
or conditions contained herein; provided, however, that after any approval of
the transactions contemplated by this Agreement by NorthWest's shareholders,
there may not be, without further approval of such shareholders, any extension
or waiver of this Agreement or any portion thereof which reduces the Exchange
Ratio or changes the form of the consideration to be delivered to the NorthWest
shareholders hereunder. Any agreement on the part of a party hereto to any
39
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party, but such extension or waiver or
failure to insist on strict compliance with an obligation, covenant, agreement
or condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties, and Agreements. None
-----------------------------------------------------------
of the representations, warranties, covenants, and agreements in this Agreement,
including any rights arising out of any breach of such representations,
warranties, covenants, and agreements, shall survive the Effective Time, except
for those covenants and agreements that by their terms apply in whole or in part
after the Effective Time.
9.2 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense; provided, however, that the costs and expenses of
printing and mailing the Joint Proxy Statement shall be borne equally by Pacific
and NorthWest.
9.3 Notices. All notices and other communications hereunder shall be
-------
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt
requested), or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Pacific, to:
Pacific Financial Corporation
000 X. Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxx, President
with copies to:
Xxxxxx Xxxx LLP
000 X.X. Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxx Xxx Xxxxxx, Esq.
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and
(b) if to NorthWest, to:
BNW Bancorp, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxxxxxxxx
with copies to:
Xxxxxx & Xxxx, P.C.
Pier 70
0000 Xxxxxxx Xxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
9.4 Interpretation. When a reference is made in this Agreement to
--------------
Sections, Exhibits, or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes," and "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." No provision of this Agreement shall be construed to require
NorthWest, Pacific, or any of their respective Subsidiaries or affiliates to
take any action that would violate any applicable law, rule, or regulation.
9.5 Counterparts. This Agreement may be executed in counterparts, all
------------
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.6 Entire Agreement. This Agreement (including the documents and the
----------------
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof other than the Confidentiality
Agreement.
9.7 Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Washington, without regard to any
applicable conflicts of law rules thereof.
9.8 Severability. Any term or provision of this Agreement that is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provision of this Agreement in any other jurisdiction. If any provision of this
Agreement is so
41
broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.9 Assignment. Neither this Agreement nor any of the rights,
----------
interests, or obligations hereunder shall be assigned by either of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by the parties
and their respective successors and assigns. Except as otherwise specifically
provided in Section 6.7, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
IN WITNESS WHEREOF, Pacific and NorthWest have caused this Agreement
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
PACIFIC FINANCIAL CORPORATION
By /s/ Xxxxxx X. Xxxx
------------------------------
Title President and Chief Financial Officer
BNW BANCORP, INC.
By /s/ Xxxxxx Xxxxxxxxx
------------------------------
Title President and Chief Financial Officer
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EXHIBITS AND DISCLOSURE SCHEDULES
EXHIBITS
1.13 Agreement of Merger
6.5 Affiliate Agreements
7.2(h) Opinion of Xxxxxx & Xxxx, P.C.
7.3(e) Opinion of Xxxxxx Xxxx LLP
7.3(f) Federal Tax Opinion of Xxxxxx Xxxx LLP
NORTHWEST DISCLOSURE SCHEDULE
PACIFIC DISCLOSURE SCHEDULE
All exhibits and disclosure schedules have been omitted. Copies will be
furnished to the Commission supplementally upon request.
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