EXHIBIT C
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement"), dated as of September 14,
1999, is between INTERWEST BANCORP, INC. ("InterWest") and LIBERTY BAY FINANCIAL
CORPORATION (the "Company").
RECITALS
The Company and InterWest have executed an Agreement and Plan of Merger
("Plan"), of even date with this Agreement, under which the Company will be
merged into InterWest and North Sound Bank, the wholly owned subsidiary of the
Company, will become a wholly owned subsidiary of InterWest upon completion of
the merger ("Merger") contemplated in the Plan.
By negotiating and executing the Plan and by taking actions necessary
or appropriate to effect the transactions contemplated by the Plan, InterWest
has incurred and will incur substantial direct and indirect costs (including,
without limitation, the costs of management and employee time) and will forgo
the pursuit of certain alternative investments and transactions.
AGREEMENT
THEREFORE, in consideration of the promises set forth in this Agreement
and in the Plan, the parties agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set forth in this
Agreement, the Company irrevocably grants an option ("Option") to
InterWest to purchase an aggregate of 56,663 [19.9% including the
Option] authorized but unissued shares of the Company's capital stock
("Common Stock") (which if issued, and assuming exercise of outstanding
options to acquire the Common Stock, would represent approximately
19.9% of total stock then issued and outstanding), at a per share price
of $175.00 ("Option Price").
2. EXERCISE OF OPTION. Subject to the provisions of this Section 2 and of
Section 13(a) of this Agreement, this Option may be exercised by
InterWest or any transferee as set forth in Section 5 of this
Agreement, in whole or in part, at any time, or from time to time in
any of the following circumstances:
(a) The Company or its board of directors enters into an agreement
or recommends to Company shareholders an agreement (other than
the Plan) under which any entity, person or group
(collectively "Person") other than InterWest or a subsidiary
of InterWest, within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"),
would: (1) merge or consolidate with, acquire 51% or more of
the assets or liabilities of, or enter into any similar
transaction with the Company, or (2) purchase or otherwise
acquire (including by merger, reorganization, consolidation,
share exchange or any similar transaction) securities
representing 10% or more of the Company's voting shares;
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(b) any Person (other than InterWest or any of its subsidiaries
and other than any Person owning as of the date of this
Agreement 10% or more of the Company's voting shares) acquires
the beneficial ownership or the right to acquire beneficial
ownership of securities which, when aggregated with other such
securities owned by such Person, represents 10% or more of the
voting shares of the Company (the term "beneficial ownership"
for purposes of this Agreement has the meaning set forth in
Section 13(d) of the Exchange Act, and the regulations
promulgated under the Exchange Act); notwithstanding the
foregoing, the Option will not be exercisable in the
circumstances described above in this subsection 2(b) if a
Person acquires the beneficial ownership of securities which,
when aggregated with other such securities owned by such
Person, represents 10% or more, but less than 25%, of the
Company's voting shares and the transaction does not result
in, and is not presumed to constitute, "control" as defined
under Section 7(j) of the Federal Deposit Insurance Act or 12
CFR Part 225 or as determined by the Board of Governors of the
Federal Reserve;
(c) failure of the board of directors of the Company to recommend,
or withdrawal by the board of directors of a prior
recommendation of, the Merger to the shareholders; or
(d) failure of the shareholders to approve the Merger by the
required affirmative vote at a meeting of the shareholders,
after any Person (other than InterWest or a subsidiary of
InterWest) announces publicly or communicates, in writing, to
the Company a proposal to (1) acquire the Company (by merger,
reorganization, consolidation, the purchase of 51% or more of
its assets or liabilities, or any other similar transaction),
(2) purchase or otherwise acquire securities representing 25%
or more of the voting shares of the Company or (3) change the
composition of the board of directors of the Company.
It is understood and agreed that the Option will become exercisable on
the occurrence of any of the above-described circumstances even though
the circumstance occurred as a result, in part or in whole, of the
Company's board's efforts to comply with its fiduciary duties.
NOTWITHSTANDING THE FOREGOING, the Option may not be exercised if
either (1) any applicable and required governmental approvals have not
been obtained with respect to such exercise or if such exercise would
violate any applicable regulatory restrictions, or (2) at the time of
exercise, InterWest is failing in any material respect to perform or
observe its material covenants or conditions under the Plan, unless the
reason for such failure is that the Company is failing to perform or
observe its covenants or conditions under the Plan.
3. NOTICE, TIME AND PLACE OF EXERCISE. Each time that InterWest or any
transferee wishes to exercise any portion of the Option, InterWest or
such transferee will give written notice
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of its intention to exercise the Option specifying the number of
shares as to which the Option is being exercised ("Option Shares")
and the place and date for the closing of the exercise (which date
may not be later than ten business days from the date such notice is
mailed). If any law, regulation or other restriction will not permit
such exercise to be consummated during this ten-day period, the date
for the closing of such exercise will be within five days following
the cessation of the restriction on consummation.
4. PAYMENT AND DELIVERY OF CERTIFICATE(S). At any closing for an exercise
of the Option or any portion thereof, (a) InterWest and the Company
will each deliver to the other certificates as to the accuracy, as of
the closing date, of their respective representations and warranties
under this Agreement, (b) InterWest or the transferees will pay the
aggregate purchase price for the shares of Common Stock to be purchased
by delivery of a certified or bank cashier's check in immediately
available funds payable to the order of the Company, and (c) the
Company will deliver to InterWest or the transferees a certificate or
certificates representing the shares so purchased.
5. TRANSFERABILITY OF THE OPTION AND OPTION SHARES. Before the Option, or
a portion of the Option, becomes exercisable in accordance with the
provisions of Section 2 of this Agreement, neither the Option nor any
portion of the Option will be transferable. If any of the events or
circumstances set forth in Sections 2(a) through (d) above occur,
InterWest may freely transfer, subject to applicable federal and state
securities laws, the Option or any portion of the Option, or any of the
Option Shares.
For purposes of this Agreement, a reorganization or consolidation of
InterWest (whether or not InterWest is the surviving entity) or an
acquisition of InterWest will not be deemed a transfer.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
represents and warrants to InterWest as follows:
(a) DUE AUTHORIZATION. This Agreement has been duly authorized by
all necessary corporate action on the part of the Company, has
been duly executed by a duly authorized officer of the Company
and constitutes a valid and binding obligation of the Company.
No shareholder approval by Company shareholders is required by
applicable law or otherwise before the exercise of the Option
in whole or in part.
(b) OPTION SHARES. The Company has taken all necessary corporate
and other action to authorize and reserve and to permit it to
issue and, at all times from the date of this Agreement to
such time as the obligation to deliver shares under this
Agreement terminates, will have reserved for issuance, at the
closing(s) upon exercise of the Option, or any portion of the
Option, the Option Shares (subject to adjustment, as provided
in Section 8 below), all of which, upon issuance under this
Agreement, will be duly and validly issued, fully paid and
nonassessable, and will be delivered free and clear of all
claims, liens, encumbrances and security
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interests, including any preemptive right of any of the
shareholders of the Company.
(c) NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated by it will violate or result in any violation of
or be in conflict with or constitute a default under any term
of the articles of incorporation or bylaws of the Company or
any agreement, instrument, judgment, decree, law, rule or
order applicable to the Company or any subsidiary of the
Company or to which the Company or any such subsidiary is a
party.
(d) NOTIFICATION OF RECORD DATE. At any time from and after the
date of this Agreement until the Option is no longer
exercisable, the Company will give InterWest or any transferee
30 days prior written notice before setting the record date
for determining the holders of record of the Common Stock
entitled to vote on any matter, to receive any dividend or
distribution or to participate in any rights offering or other
matters, or to receive any other benefit or right, with
respect to the Common Stock.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF INTERWEST. InterWest
represents and warrants to the Company as follows:
(a) DUE AUTHORIZATION. This Agreement has been duly authorized by
all necessary corporate action on the part of InterWest, has
been duly executed by a duly authorized officer of InterWest
and constitutes a valid and binding obligation of InterWest.
(b) TRANSFERS OF COMMON STOCK. No shares of Common Stock acquired
upon exercise of the Option will be transferred except in a
transaction registered or exempt from registration under any
applicable securities laws.
(c) NO CONFLICTS. Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated by it will violate or result in any violation of
or be in conflict with or constitute a default under any term
of the articles of incorporation or bylaws of InterWest or any
agreement, instrument, judgment, decree, law, rule or order
applicable to InterWest or any subsidiary of InterWest or to
which InterWest or any such subsidiary is a party.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event of any change
in the Common Stock by reason of stock dividends, split-ups, mergers,
reorganizations, recapitalizations, combinations, exchanges of shares
or the like, the number and kind of shares or securities subject to the
Option and the purchase price per share of Common Stock will be
appropriately adjusted. If, before the Option terminates or is
exercised, the Company is acquired by another party, consolidates with
or merges into another corporation or liquidates, InterWest or any
transferee will thereafter receive, upon exercise of the Option, the
securities or properties to which a holder of the number of shares of
Common
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Stock then deliverable upon the exercise thereof would have been
entitled upon such acquisition, consolidation, merger, reorganization
or liquidation, and the Company will take all steps in connection with
such acquisition, consolidation, merger, reorganization or liquidation
as may be necessary to assure that the provisions of this agreement
will thereafter be applicable, as nearly as reasonably may be
practicable, in relation to any securities or property thereafter
deliverable upon exercise of the Option.
9. NONASSIGNABILITY. This Agreement binds and inures to the benefit of the
parties and their successors. This Agreement is not assignable by
either party, but InterWest may transfer the Option, the Option Shares
or any portion of the Option or Option Shares in accordance with
Section 5. A merger, reorganization or consolidation of InterWest
(whether or not InterWest is the surviving entity) or an acquisition of
InterWest will not be deemed an assignment or transfer.
10. REGULATORY RESTRICTIONS. The Company will use its best efforts to
obtain or to cooperate with InterWest or any transferee in obtaining
all necessary regulatory consents, approvals, waivers or other action
(whether regulatory, corporate or other) to permit the acquisition of
any or all Option Shares by InterWest or any transferee.
11. REMEDIES. The Company agrees that if for any reason InterWest or any
transferee will have exercised its rights under this Agreement and the
Company will have failed to issue the Option Shares to be issued upon
such exercise or to perform its other obligations under this Agreement,
unless such action would violate any applicable law or regulation by
which the Company is bound, then InterWest or any transferee will be
entitled to specific performance and injunctive and other equitable
relief. InterWest agrees that if it fails to perform any of its
obligations under this Agreement, then the Company will be entitled to
specific performance and injunctive and other equitable relief. This
provision is without prejudice to any other rights that the Company or
InterWest or any transferee may have against the other party for any
failure to perform its obligations under this Agreement.
12. NO RIGHTS AS SHAREHOLDER. This Option, before it is exercised, will not
entitle its holder to any rights as a shareholder of the Company at law
or in equity. Specifically, this Option, before it is exercised, will
not entitle the holder to vote on any matter presented to the
shareholders of the Company or, except as provided in this Agreement,
to any notice of any meetings of shareholders or any other proceedings
of the Company.
13. MISCELLANEOUS.
(a) TERMINATION. This Agreement and the Option, to the extent not
previously exercised, will terminate upon the earliest of (1)
September 30, 2000; (2) the mutual agreement of the parties to
this Agreement; (3) 31 days after the date on which any
application for regulatory approval for the Merger has been
denied, but if before the expiration of the 31-day period, the
Company or InterWest is engaged in litigation or an appeal
procedure relating to an attempt to obtain
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approval of the Merger, this Agreement will not terminate
until the earlier of (i) September 30, 2000, or (ii) 31 days
after the completion of the litigation and appeal procedure;
(4) the 30th day following the termination of the Plan for
any reason other than a material noncompliance or default by
InterWest with respect to its obligations under it; or (5)
the date of termination of the Plan if the termination is
due to a material noncompliance or default by InterWest with
respect to its obligations under it; but if the Option has
been exercised, in whole or in part, before the termination
of this Agreement, then the exercise will close under
Section 4 of this Agreement, even though that closing date
is after the termination of this Agreement; and if the
Option is sold before the termination of this Agreement, the
Option may be exercised by the transferee at any time within
31 days after the date of termination even though such
exercise or the closing of such exercise occurs after the
termination of this Agreement.
(b) AMENDMENTS. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties.
(c) SEVERABILITY OF TERMS. Any provision of this Agreement that is
invalid, illegal or unenforceable is ineffective only to the
extent of the invalidity, illegality or unenforceability
without affecting in any way the remaining provisions or
rendering any other provisions of this Agreement invalid,
illegal or unenforceable. Without limiting the generality of
the foregoing, if the right of InterWest or any transferee to
exercise the Option in full for the total number of shares of
Common Stock or other securities or property issuable upon the
exercise of the Option is limited by applicable law, or
otherwise, InterWest or any transferee may, nevertheless,
exercise the Option to the fullest extent permissible.
(d) NOTICES. All notices, requests, claims, demands and other
communications under this Agreement must be in writing and
must be given (and will be deemed to have been duly received
if so given) by delivery, by cable, telecopies or telex, or by
registered or certified mail, postage prepaid, return receipt
requested, to the respective parties at the addresses below,
or to such other address as either party may furnish to the
other in writing. Change of address notices will be effective
upon receipt.
If to the Company to:
Liberty Bay Financial Corporation XX Xxx
0000 00000 0xx Xxxxxx XX (98370-8786)
Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxxx, President & Chief
Executive Officer
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With a copy to:
Xxxx X. Xxxxxxxx, Esq.
Xxxxxx Xxxxxxxx LLP
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000-0000
If to InterWest, to:
InterWest Bancorp, Inc.
000 X.X. Xxxxxxx Xxx
Xxx Xxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, President & Chief
Executive Officer
With a copy to:
Xxxxxxx X. Xxxxx, Esq.
Xxxxxx & Xxxx, P.C.
0000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, XX 00000-0000
(e) GOVERNING LAW AND VENUE. The parties intend this Agreement and
the Option, in all respects, including all matters of
construction, validity and performance, to be governed by the
laws of the State of Washington, without giving effect to
conflicts of law principles. Any actions brought by either
party against the other arising under this Agreement must be
filed in Island County, Washington, and each party consents to
personal jurisdiction in Island County.
(f) COUNTERPARTS. This Agreement may be executed in several
counterparts, including facsimile counterparts, each of which
is an original, and all of which together constitute one and
the same agreement.
(g) EFFECTS OF HEADINGS. The section headings in this Agreement
are for convenience only and do not affect the meaning of its
provisions.
[Signatures on next page]
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Dated September 14, 1999:
INTERWEST BANCORP, INC.
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------
Xxxxxxx X. Xxxxx
Its:Vice Chairman/Commercial Banking
LIBERTY BAY FINANCIAL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxx
Its:President and CEO
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