AGREEMENT AND PLAN OF MERGER Between FRONTIER FINANCIAL CORPORATION and FRONTIER BANK and BANK OF SALEM Dated as of July 25, 2007
______________________________________________
AGREEMENT
AND PLAN OF MERGER
Between
FRONTIER
FINANCIAL CORPORATION
and
FRONTIER
BANK
and
BANK
OF SALEM
______________________________________________
Dated
as of July 25, 2007
AGREEMENT
AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER, dated as of the 25th of July, 2007 (this
“Agreement”), is by and among FRONTIER FINANCIAL CORPORATION (“Frontier”),
FRONTIER BANK (“Frontier Bank”) and BANK OF SALEM (“Salem”).
(A) FRONTIER.
Frontier is a corporation duly organized and existing under the laws of the
State of Washington, with its principal executive offices located in Everett,
Washington. Frontier is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended, and a financial holding company under the
Xxxxx-Xxxxx-Xxxxxx Act.
(B) FRONTIER
BANK. Frontier Bank is a banking corporation duly organized and existing
under the laws of the State of Washington.
In
consideration of their mutual promises and obligations, the parties further
agree as follows:
“Acquisition
Agreement” has the meaning assigned to such term in Section 8.1(F).
“Acquisition
Proposal” has the meaning assigned to such term in Section 9.3(D).
“Agency”
means the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and the Department of Veteran’s Affairs.
“Agreement”
means this Agreement and Plan of Merger, together with all Exhibits and
Schedules annexed to, and incorporated by specific reference as a part of,
this
Agreement.
“Appraisal
Laws” has the meaning assigned to such term in Section 1.4.
“Business
Day” means any day other than a Saturday, Sunday, or legal holiday in the
State of Washington.
“Certificate”
has the meaning assigned to such term in Section 1.2(B).
“Code”
has the meaning assigned to such term in Section 1.5.
“Compensation
and Benefit Plans” has the meaning assigned to such term in Section 5.1(P)(1).
“Confidentiality
Agreement” has the meaning assigned to such term in Section 6.5(B).
“Control”
with respect to any Person means the possession, directly or indirectly, of
the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting interests, by contract, or
otherwise.
“Daily
Sales Price” for any Trading Day means the daily closing price per share of
Frontier Common Stock on the NASDAQ Stock Exchange, Inc., as reported on the
website of xxx.xxxxxx.xxx.
“Department”
means the Department of Financial Institutions of the State of Washington and/or
the banking division of the Department of Consumer and Business Services of
the
State of Oregon, as applicable.
“Derivatives
Contract” means an exchange-traded or over-the-counter swap, forward,
future, option, cap, floor or collar financial contract or any other contract
that: (1) is not included on the balance sheet of the Salem Financial Reports
or
the Frontier Financial Reports, as the case may be, and (2) is a derivative
contract (including various combinations thereof).
“Dissenting
Shares” means the shares of Salem Common Stock held by those shareholders of
Salem who have timely and properly exercised their dissenters’ rights in
accordance with the Appraisal Laws.
“Determination
Date” means the third calendar day immediately prior to the Effective
Date.
“DPC
Shares” has the meaning assigned to such term in Section 1.2(D).
“Effective
Date” has the meaning assigned to such term in Section 10.1.
“Employment
Agreements” shall mean the agreements with certain officers of Salem
described in Section 9.4.
“Environmental
Law” means (1) any federal, state, and/or local law, statute, ordinance,
rule, regulation, code, license, permit, authorization, approval, consent,
legal
doctrine, order, judgment, decree, injunction, requirement or agreement with
any
governmental entity, relating to (a) the protection, preservation or restoration
of the environment (including air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life
or
any other natural resource) or to human health or safety, or (b) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Material, in each case as amended and as now in effect, including the Federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
the Superfund Amendments and Reauthorization
Act,
the Federal Water Pollution Control Act of 1972, the Federal Clean Air Act,
the
Federal Clean Water Act, the Federal Resource Conservation and Recovery Act
of
1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Occupational Safety
and Health Act of 1970, and (2) any common law or equitable doctrine (including
injunctive relief and tort doctrines such as negligence, nuisance, trespass
and
strict liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to
any
Hazardous Material.
“ERISA”
has the meaning assigned to such term in Section 5.1(P)(2).
“ERISA
Affiliate” has the meaning assigned to such term in Section 5.1(P)(3).
“ERISA
Plans” has the meaning assigned to such term in Section 5.1(P)(2).
“Exception
Shares” means shares held by Salem or by Frontier or any of its
Subsidiaries, in each case other than Trust Account Shares and DPC
Shares.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, together with
the rules and regulations promulgated under such statute.
“Exchange
Agent” has the meaning assigned to such term in Section 2.1(A).
“Exchange
Ratio” has the meaning assigned to such term in Section 1.2(A).
“Execution
Date” means the last date on which this Agreement is executed by each of the
parties hereto.
“Executive
Officer” has the meaning set forth in Rule 405 of Regulation C under the
Securities Act.
“FDIC”
means the Federal Deposit Insurance Corporation.
“Federal
Reserve Board” means the Board of Governors of the Federal Reserve
System.
“Frontier”
means Frontier Financial Corporation, a Washington corporation and registered
bank holding company.
“Frontier
Average Closing Price” means the price equal to the average (rounded to the
nearest ten-thousandth) of each Daily Sales Price of Frontier Common Stock
for
the ten Trading Days immediately preceding the Determination Date.
“Frontier
Common Stock” has the meaning assigned to such term in Section
5.2(B).
“Frontier
Financial Reports” has the meaning assigned to such term in Section 5.2(F).
“Frontier’s
Knowledge,” “Knowledge of Frontier” or words of similar meaning means the
actual conscious knowledge as of the Execution Date, without any duty of
inquiry, of Frontier’s Executive Officers.
“GAAP”
means generally accepted accounting principles consistently applied in the
United States.
“Hazardous
Material” means any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law, whether by type or quantity, including
any oil or other petroleum product, toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste or
petroleum or any derivative or by-product thereof, radon, radioactive material,
asbestos, asbestos containing material, urea formaldehyde foam insulation,
lead
and polychlorinated biphenyl.
“Intellectual
Property” has the meaning assigned to such term in Section 5.1.
“Loan/Fiduciary
Property” means any property owned or controlled by a party or any of its
Subsidiaries or in which such party or any of its Subsidiaries holds a security
or other interest, and, where required by the context, includes any such
property where such party or any of its Subsidiaries constitutes the owner
or
operator of such property, but only with respect to such property.
“Material
Adverse Effect” means, with respect to any party to this Agreement, an
event, occurrence or circumstance (including (i) the making of any provisions
for possible loan and lease losses, write-downs of other real estate owned
and
taxes, and (ii) any breach of a representation or warranty contained in this
Agreement by such party) that (a) has or is reasonably likely to have a material
adverse effect on the financial condition, results of operations, business
or
prospects of such party and its Subsidiaries, taken as a whole, or (b) would
materially impair such party’s ability to perform its obligations under this
Agreement or the consummation of any of the transactions contemplated by this
Agreement.
“Meeting”
has the meaning assigned to such term in Section 6.2.
“Merger”
means the merger of Salem with and into Frontier Bank, in exchange for Frontier
Common Stock, as set forth in Section 1.2(A).
“Multiemployer
Plans” has the meaning assigned to such term in Section
5.1(P)(2).
“NASDAQ”
means the NASDAQ Stock Market LLC.
“Noncompetition
Agreements” has the meaning assigned to such term in Section 7.2(K).
“ORS”
means the Oregon Revised Statutes, as amended.
“Participation
Facility” means any building or other facility in which a party or any of
its Subsidiaries participates in the management and, where required by the
context, includes the owner or operator of such facility.
“Pension
Plan” has the meaning assigned to such term in Section 5.1(P)(2).
“Per
Share Merger Consideration” has the meaning assigned to such term in Section
1.2(A).
“Person”
means any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, governmental body, or
other entity.
“Previously
Disclosed” means information provided by a party in a Schedule that is
delivered by that party to the other party contemporaneously with the Execution
Date or documents that have been delivered to the other party prior to the
Execution Date.
“Proxy
Statement” has the meaning assigned to such term in Section 6.2.
“Registration
Statement” has the meaning assigned to such term in Section 6.2.
“Regulatory
Authorities” means federal or state governmental agencies, authorities or
departments charged with the supervision or regulation of depository
institutions or engaged in the insurance of deposits.
“Resulting
Bank” shall have the meaning assigned to such term in Section
1.1(A).
“RCW”
means the Revised Code of Washington, as amended.
“Rights”
has the meaning assigned to such term in Section 5.1(B).
“Salem”
means Bank of Salem, an Oregon state-chartered commercial bank.
“Salem
Common Stock” has the meaning assigned to such term in Section
5.1(B).
“Salem
Contract” has the meaning assigned to such term in Section 5.1(M).
“Salem
Financial Reports” has the meaning assigned to such term in Section 5.1(G).
“Salem
Option” has the meaning assigned to such term in Section
5.1(B)(2).
“Salem
Pool” has the meaning assigned to such term in Section 5.1(S).
“Salem
Reports” has the meaning assigned to such term in Section 5.1(FF).
“Salem’s
Knowledge,” “Knowledge of Salem” or words of similar meaning means the
actual conscious knowledge as of the Execution Date, without any duty of
inquiry, of Salem’s Executive Officers.
“Securities
Act” means the Securities Act of 1933, as amended, together with the rules
and regulations promulgated under such statute.
“SEC”
means the Securities and Exchange Commission.
“Subsidiary”
means, with respect to any entity, each partnership, limited liability company,
or corporation the majority of the outstanding partnership interests, membership
interests, capital stock or voting power of which is (or upon the exercise
of
all outstanding warrants, options and other rights would be) owned, directly
or
indirectly, at the time in question by such entity.
“Superior
Proposal” has the meaning assigned to such term in Section 9.3.
“Tax
Returns” has the meaning assigned to such term in Section 5.1(Z).
“Taxes”
means federal, state or local income, gross receipts, sales, use, license,
excise, franchise, employment, withholding or similar taxes imposed on the
income, properties or operations of the respective party or its Subsidiaries,
together with any interest, additions, or penalties with respect thereto and
any
interest in respect of such additions or penalties.
“Termination
Fee Amount” has the meaning assigned to such term in Section 8.2(B).
“Third
Party” means a person within the meaning of Sections 3(a)(9) and 13(d)(3) of
the Exchange Act, excluding: (1) Salem, and (2) Frontier, Frontier Bank or
any
other Subsidiary of Frontier.
“Total
Stock Amount” has the meaning assigned to such term in Section
1.2(A).
“Trading
Day” means a day that Frontier Common Stock is traded on
NASDAQ.
“Trust
Account Shares” has the meaning assigned to such term in Section 1.2(D).
1.1 THE
MERGER. Subject to the provisions of this
Agreement, on the Effective Date:
(A) RESULTING
BANK. Salem shall be merged with and into Frontier Bank pursuant to the
terms and conditions set forth herein. Upon consummation of the Merger, the
separate existence of Salem shall cease and Frontier Bank shall continue as
the
Resulting Bank.
(B) ARTICLES,
BYLAWS, DIRECTORS, OFFICERS. The Articles of Incorporation and Bylaws of the
Resulting Bank shall be those of Frontier Bank, as in effect immediately prior
to the Effective Date. The directors and officers of Frontier Bank in office
immediately prior to the Effective Date shall be the directors and officers
of
the Resulting Bank, together with such additional directors and officers as
may
thereafter be elected, who shall hold office until such time as their successors
are elected and qualified.
(C) RIGHTS,
ETC. The Resulting Bank shall thereupon and thereafter possess all of the
rights, privileges, immunities and franchises, of a public as well as of a
private nature, of each of the corporations so merged; and all property, real,
personal and mixed, and all debts due on whatever account, and all and every
other interest, of or belonging to or due to each of the corporations so merged,
shall be deemed to be vested in the Resulting Bank without further act or deed;
and the title to any real estate or any interest therein, vested in each of
such
institutions, shall not revert or be in any way impaired by reason of the
Merger.
(D) EFFECTS
OF THE MERGER. The separate existence of Salem shall cease, and Salem shall
be merged with and into Frontier Bank which, as the Resulting Bank, shall
thereupon and thereafter possess all of the assets, rights, privileges,
appointments, powers, licenses, permits and franchises of the two merged
corporations, whether of a public or a private nature, and shall be subject
to
all of the liabilities, restrictions, disabilities and duties of both Frontier
Bank and Salem.
(E) TRANSFER
OF ASSETS. All rights, assets, licenses, permits, franchises and interests
of Frontier Bank and Salem in and to every type of property, whether real,
personal, or mixed, whether tangible or intangible, shall be deemed to be vested
in Frontier Bank as the Resulting Bank by virtue of the Merger becoming
effective and without any deed or other instrument or act of transfer
whatsoever.
(F) ASSUMPTION
OF LIABILITIES. The Resulting Bank shall become and be liable for all debts,
liabilities, obligations and contracts of Frontier Bank as well as those of
Salem, whether the same shall be matured or unmatured; whether accrued,
absolute, contingent or otherwise; and whether or not reflected or reserved
against in the balance sheets, other financial statements, books of account
or
records of Frontier Bank or Salem.
1.2 CONVERSION
OF SALEM COMMON STOCK. Subject to the provisions
of this Agreement, on the Effective Date:
(A) OUTSTANDING
SALEM COMMON STOCK. Each share of Salem Common Stock issued and outstanding
at the Effective Date, including shares issued or to be issued with respect
to
Salem Options exercised on or prior to the close of business on the Effective
Date, shall, by virtue of the Merger, automatically and without any action
on
the part of the holder of such share, be converted into and exchangeable for
the
right to receive the Per Share Merger Consideration.
“Per
Share Merger Consideration” shall mean, subject to the limitations to the
Total Stock Amount set forth below, value of $21.00 in Frontier Common Stock,
based on the Frontier Average Closing Price.
“Exchange
Ratio” shall mean, subject to the limitations on the Total Stock Amount set
forth below, the quotient, rounded to the nearest ten-thousandth, obtained
by
dividing the Per Share Merger Consideration by the Frontier Average Closing
Price.
“Total
Stock Amount” shall mean the product of (x) the Exchange Ratio and (y) the
number of shares of Salem Common Stock outstanding as of the close of business
on the Effective Date; provided, however, that the number of shares to be issued
by Frontier on the Effective Date shall in no event be more than 3,230,589
( the
“Maximum Share Amount”) or less than 2,349,519 (the “Minimum Share Amount”). If
based on the Frontier Average Closing Price, (i) the number of shares to be
issued would exceed the Maximum Share Amount then the Total Stock Amount shall
be decreased to the Maximum Share Amount and (ii) if the number of shares would
be less than the Minimum Share Amount, then the Total Stock Amount shall be
increased to the Minimum Share Amount.
(B) All
of the shares of Salem Common Stock converted into the Merger Consideration
pursuant to this ARTICLE I shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and
each holder of a certificate (each a “Certificate”) previously representing any
such shares of Salem Common Stock shall thereafter cease to have any rights
with
respect to such securities, except the right to receive (1) the Per Share Merger
Consideration, (2) any dividends and other distributions in accordance with
Section 2.1(B) hereof, and (3) any cash to be paid
in lieu of any fractional share of Frontier Common Stock in accordance with
Section 2.1(D) hereof.
(C) If,
between the Execution Date and the Effective Date, the shares of Salem Common
Stock shall be changed into a different number or class of shares by reason
of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or a stock dividend thereon shall be declared with
a
record date within such period, appropriate adjustments shall be made to the
Exchange Ratio and the Total Stock Amount.
(D) As
of the Effective Date, all shares of Salem Common Stock that are owned directly,
or indirectly by Salem or Frontier or any of their respective Subsidiaries
[other than shares of Salem Common Stock (x) held directly or indirectly in
trust accounts, managed accounts and the like or otherwise held in a fiduciary
capacity for the benefit of third parties (any such shares, and shares of
Frontier Common Stock which are similarly held, whether held directly or
indirectly by Frontier or Salem, as the case may be, being referred to herein
as
“Trust Account Shares”) or (y) held by Frontier or Salem or any of their
respective Subsidiaries in respect of a debt previously contracted (any such
shares of Salem Common Stock, and shares of Frontier Common Stock which are
similarly held, whether held directly or indirectly by Frontier or Salem, being
referred to herein as “DPC Shares”)] shall be canceled and shall cease to exist
and no stock of Frontier, cash or other consideration shall be delivered in
exchange therefore.
(E) The
calculations required by Section 1.2(A) shall be prepared
jointly by Frontier and Salem
prior to the Effective Date.
1.3 UNEXERCISED
OPTIONS.
(A) Notwithstanding
anything to the contrary in this Agreement, and in addition to the Merger
Consideration, each holder of a Salem Option that is unexercised as of the
close
of business on the Effective Date, shall receive cash for each share of Salem
Common Stock into which the option is exercisable, equal in amount to the
difference or spread between the Per Share Merger Consideration and the exercise
price of such option.
(B) The
names of the holders, dates of issuance and expiration, the number of shares
subject to each such option, and the exercise price for all Salem Options as
of
the Execution Date are Previously Disclosed in Schedule 1.3(B). All such
Salem Options issued under Salem’s 1992 Combined Incentive and Non-Qualified
Stock Option Plan shall be 100% vested and exercisable thirty (30) days prior
to
the Effective Date and all such options issued under Salem’s 2003 Stock Option
Plan shall be 100% vested and exercisable fifteen (15) days prior to the
Effective Date, pursuant to the terms of such Plans. The Board of Directors
of
Salem shall notify all optionees in writing of such exercisability of their
options and the termination of their options after the Effective Date, at least
sixty (60) days prior to the Effective Date, pursuant to the 1992 Plan and
the
2003 Plan.
1.4 DISSENTING
SHARES. Notwithstanding anything to the contrary in this Agreement,
each Dissenting Share whose holder, as of the Effective Date of the Merger,
has
not effectively withdrawn or lost his dissenters’ rights under ORS 711.180 (the
“Appraisal Laws”) shall not be converted into or represent a right to receive
Frontier Common Stock, but the holder of such Dissenting Share shall be entitled
only to such rights as are granted by the Appraisal Laws, unless and until
such
holder shall have failed to perfect or shall have effectively withdrawn or
lost
the right to payment under the Appraisal Laws, in which case each such share
shall be deemed to have been converted at the Effective Date into the right
to
receive Frontier Common Stock without any interest thereon. Each holder of
Dissenting Shares who becomes entitled to payment for his Salem Common Stock
pursuant to the provisions of the Appraisal Laws shall receive payment for
such
Dissenting Shares from Frontier (but only after the amount thereof shall have
been agreed upon or finally determined pursuant to the Appraisal
Laws).
1.5 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.
2.1 EXCHANGE
PROCEDURES.
(A) As
soon as practicable after the Effective Date, Frontier or its designated
third-party transfer agent (the “Exchange Agent”) shall mail to each holder of
record of a 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 Certificates to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificates
in exchange for the Merger Consideration. Salem shall have the right to review
both the letter of transmittal and the instructions prior to the Effective
Date
and provide reasonable comments thereon. Upon surrender of a Certificate or
Certificates for exchange and cancellation to the Exchange Agent, together
with
a properly executed letter of transmittal, the holder of such Certificate or
Certificates shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Frontier Common Stock which such
holder of Salem Common Stock became entitled to receive pursuant to the
provisions of ARTICLE I hereof and (y) a check
representing the amount of cash in lieu of fractional shares, if any, which
such
holder has the right to receive in respect of the Certificate or Certificates
surrendered pursuant to the provisions of ARTICLE I,
and the Certificate or Certificates so surrendered shall forthwith be canceled.
No interest will be paid or accrued on the cash in lieu of fractional shares
or
the unpaid dividends and distributions, if any, payable to holders of
Certificates.
(B) No
dividends or other distributions declared after the Effective Date with respect
to Frontier Common Stock and payable to the holders of record thereof shall
be
paid to the holder of any unsurrendered Certificate until the holder thereof
shall surrender such Certificate in accordance with this ARTICLE II. After the surrender of a Certificate in
accordance with this ARTICLE II, the record holder
thereof shall be entitled to receive any such dividends or other distributions,
without any interest thereon, which theretofore has become payable with respect
to shares of Frontier Common Stock represented by such Certificate.
(C) If
any certificate representing shares of Frontier Common Stock is to be issued
in
a name other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of the issuance thereof that the
Certificate so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper form for transfer,
and that the person requesting such exchange shall pay to the Exchange Agent
in
advance any transfer or other taxes required by reason of the issuance of a
certificate representing shares of Frontier Common Stock in any name other
than
that of the registered holder of the Certificate surrendered, or required for
any other reason, or shall establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
(D) Notwithstanding
anything to the contrary contained herein, no certificates or scrip representing
fractional shares of Frontier Common Stock shall be issued upon the surrender
for exchange of Certificates, no dividend or distribution with respect to
Frontier Common Stock shall be payable on or with respect to any fractional
share, and such fractional share interests shall not entitle the owner thereof
to vote or to any other rights of a shareholder of Frontier. In lieu of the
issuance of any such fractional share, Frontier shall pay to each former
shareholder of Salem who otherwise would be entitled to receive a fractional
share of Frontier Common Stock an amount in cash determined by multiplying
(1)
the average of the Daily Sales Prices of Frontier Common Stock for the five
Trading Days immediately preceding the Effective Date by (2) the fraction of
a
share of Frontier Common Stock which such holder would otherwise be entitled
to
receive pursuant to Section 1.2 hereof.
(E) In
the event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate
to
be lost, stolen or destroyed and, if required by Frontier, the posting by such
person of a bond in such amount as Frontier may direct as indemnity against
any
claim that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate
the
Merger Consideration deliverable in respect thereof pursuant to this
Agreement.
(F) Certificates
surrendered for exchange by any person constituting an “affiliate” of Salem for
purposes of Rule 145 of the Securities Act shall not be exchanged for
certificates representing Frontier Common Stock until Frontier has received
a
written agreement from such person as specified in Section 6.7.
(A) After
the Effective Date, there shall be no transfers on the stock transfer books
of
Salem of the shares of Salem Common Stock which were issued and outstanding
immediately prior to the Effective Date. If, after the Effective Date,
Certificates representing such shares are presented for transfer to the Exchange
Agent, they shall be canceled and exchanged for certificates representing shares
of Frontier Common Stock and cash for any fractional shares, as provided in
this
ARTICLE II.
(B) Any
shareholder of Salem who has not theretofore complied with the exchange
procedures set forth in Section 2.1 shall thereafter look only to Frontier
for
payment of the Merger Consideration, the cash in lieu of fractional shares
and/or the unpaid dividends and distributions on the Frontier Common Stock
deliverable in respect of each share of Salem Common Stock such shareholder
holds as determined pursuant to this Agreement, in each case, without any
interest thereon. Notwithstanding the foregoing, none of Frontier, Frontier
Bank, Salem, the Exchange Agent or any other person shall be liable to any
former holder of shares of Salem Common Stock for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
Unless
otherwise agreed to in writing by Frontier, following the Execution Date until
the Effective Date, Salem shall conduct its business in the ordinary and usual
course consistent with past practice and shall use its best efforts to maintain
and preserve its business organization, employees and advantageous business
relationships and retain the services of its officers and key employees
identified by Frontier Bank, and Salem, without the prior written consent of
Frontier, will not:
3.1 CAPITAL
STOCK. Except for the exercise of outstanding
Salem Options, or as Previously Disclosed in Schedule 5.1(B), issue, sell or otherwise permit
to
become outstanding any additional shares of capital stock of Salem, or any
Rights with respect thereto, or enter into any agreement with respect to the
foregoing, or permit any additional shares of Salem Common Stock to become
subject to grants of stock options, warrants, stock appreciation rights, or
any
other stock-based employee compensation rights.
3.2 DIVIDENDS,
ETC. Make, declare or pay any dividend on or in
respect of, or declare or make any distribution on, or directly or indirectly
combine, split, subdivide, redeem, reclassify, purchase or otherwise acquire,
any shares of its capital stock or, other than as permitted in or contemplated
by this Agreement (and except for the acquisition of Trust Account Shares and
DPC Shares), authorize the creation or issuance of, or issue, any additional
shares of its capital stock or any Rights with respect thereto.
3.3 INDEBTEDNESS;
LIABILITIES; ETC. Other than in the ordinary
course of business consistent with past practice, incur any indebtedness for
borrowed money, assume, guarantee, endorse or otherwise as an accommodation
become responsible or liable for the obligations of any other individual,
corporation or other entity.
3.4 OPERATING
PROCEDURES; CAPITAL EXPENDITURES; ETC. Except as
may be directed by any regulatory agency, (A) change its lending, investment,
liability management or other material banking policies in any material respect,
or (B) commit to incur any further capital expenditures beyond those Previously
Disclosed in Schedule 3.4 other than in the ordinary course of business
and not exceeding $100,000 individually or $500,000 in the
aggregate.
3.5 SUBSIDIARIES.
Organize or acquire, directly or indirectly, any
Subsidiaries.
3.6 COMPENSATION;
EMPLOYMENT AGREEMENTS, ETC. Except as Previously
Disclosed in Schedule 3.6, enter into or amend any employment, severance
or similar agreement or arrangement with any of its directors, officers or
employees, or grant any salary or wage increase, amend the terms of any Salem
Option or increase any employee benefit (including incentive or bonus payments),
except normal individual increases in regular compensation to employees in
the
ordinary course of business consistent with past practice.
3.7 BENEFIT
PLANS. Except as Previously Disclosed in
Schedule 3.7,
enter into or
modify (except as may be required by Section 409A of the Code) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including taking any action that accelerates the vesting or exercise
of any benefits payable thereunder.
3.8 CONTINUANCE
OF BUSINESS. Dispose of or discontinue any portion
of its assets, business or properties that exceeds $25,000 in value or is
otherwise material to Salem’s business, or merge or consolidate with, or acquire
all or any portion of, the business or property of any other entity that exceeds
$25,000 in value or is otherwise material to Salem (except foreclosures or
acquisitions by Salem in its fiduciary capacity and loan participations, in
each
case in the ordinary course of business consistent with past
practice).
3.9 AMENDMENTS.
Amend its Articles of Incorporation or Bylaws.
3.10 CLAIMS.
Settle any claim, litigation, action or proceeding involving any
liability for money damages in excess of $25,000 or material restrictions upon
the operations of Salem.
3.11 CONTRACTS.
Except as previously disclosed on Schedule 3.11, enter into, renew,
terminate or make any
change in any Salem Contract involving future payments in excess of $25,000,
except in the ordinary course of business consistent with past practice with
respect to contracts, agreements and leases that are terminable by it without
penalty on no more than 30 days’ prior written notice.
3.12 LOANS.
Extend credit or account for loans and leases other than in accordance
with existing lending policies and accounting practices or, without prior notice
to and consultation with Frontier’s Chief Executive Officer, make any new loan
or renew any existing loan in a principal amount in excess of
$500,000.
3.13 AGREEMENTS.
Agree to, or make any commitment to, take any of the actions prohibited by
this
ARTICLE III.
Following
the Execution Date until the Effective Date, except as expressly contemplated
or
permitted by this Agreement, Frontier and Frontier Bank shall not, without
the
prior written consent of Salem:
4.1 AMENDMENTS.
Amend, repeal or otherwise modify any provision of Frontier’s articles of
incorporation or bylaws in a manner that would adversely affect Salem or the
transactions contemplated by this Agreement.
4.2 REORGANIZATION.
Take any action, or knowingly fail to take any action, which action or failure
to act is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
4.3 CONDITIONS.
Take any action that is intended or may reasonably be expected to result in
any
of the conditions to the Merger set forth in ARTICLE VII not being
satisfied.
4.4 AGREEMENTS.
Agree to take, make any commitment to take, or adopt any resolutions of its
board of directors in support of, any of the actions prohibited by this ARTICLE
IV. Subject to the foregoing limitations, it is understood that Frontier is
not
prohibited from pursuing or completing acquisitions of other banks and financial
institutions during the term of this Agreement.
5.1 SALEM
REPRESENTATIONS AND WARRANTIES. Salem hereby
represents and warrants to Frontier and Frontier Bank as follows:
(A) ORGANIZATION,
QUALIFICATION AND AUTHORITY. Salem is duly qualified to do business in each
state of the United States where the failure to be duly qualified is reasonably
likely to have a Material Adverse Effect on it. Salem has in effect all federal,
state and local governmental authorizations necessary for it to own or lease
its
properties and assets and to carry on its business as it is now conducted,
the
absence of which, individually or in the aggregate, is reasonably likely to
have
a Material Adverse Effect on it. Except as set forth in Schedule 5.1(A),
Salem is, and there has not been any event or occurrence since January 1, 2002
that could reasonably be expected to result in a determination that Salem is
not, “well capitalized” and “well managed” as a matter of federal banking law.
Salem has at least a “satisfactory” rating under the Community Reinvestment Act.
Salem is an “insured depository institution” as defined in the Federal Deposit
Insurance Act, as amended, and applicable regulations under such statute, and
its deposits are insured by the Bank Insurance Fund of the FDIC to the fullest
extent permitted by law and all premiums and assessments required to be paid
in
connection therewith have been paid.
(B) SHARES;
OPTIONS.
(1) As
of the Execution Date, (1) the outstanding shares of Salem’s capital stock are
validly issued and outstanding, fully paid and non-assessable, and subject
to no
preemptive rights, and (2) except as Previously Disclosed in Schedule 5.1(B),
there are no shares of capital stock or other equity securities of Salem
outstanding and no outstanding Rights with respect thereto.
(2) As
of the Execution Date, Salem has 10,000,000 authorized shares of common stock,
$1.25 par value (“Salem Common Stock”), of which 3,263,221 shares of Salem
Common Stock are issued and outstanding, no other class of capital stock being
authorized.
(3) As
of the Execution Date, Salem has 540,000 shares of Salem Common Stock reserved
for issuance under an employee stock option plan pursuant to which options
covering 52,059 shares of Salem Common Stock are outstanding (“Salem Options”),
at a weighted average exercise price of $14.46 per share.
(4) Except
as Previously Disclosed in Schedule 5.1(B), or as authorized by this Agreement,
there are no shares of capital stock of Salem authorized and reserved for
issuance; and Salem has no Rights issued or outstanding, and has no commitment
to authorize, issue or sell any such shares or any Rights. The term “Rights”
means securities or obligations convertible into or exchangeable for, or giving
any Person any right to subscribe for or acquire, or any options, warrants,
calls or commitments relating to, shares of capital stock. There are no
preemptive rights with respect to Salem Common Stock.
(C) SALEM
SUBSIDIARIES. Salem has no Subsidiaries. Except as previously disclosed in
Schedule 5.1(C),
Salem does not own beneficially, directly
or indirectly, any shares of any equity securities or similar interests of
any
corporation, bank, partnership, joint venture, business trust, association
or
other organization.
(D) CORPORATE
AUTHORITY. Subject to any necessary receipt of approval by its shareholders
referred to in Section 7.1(A), Salem 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, validly and unanimously approved by the Board of Directors of Salem.
The Board of Directors of Salem has determined that this Agreement and the
transactions contemplated hereby are advisable and in the best interests of
Salem and its shareholders, has directed that this Agreement be submitted to
Salem’s shareholders for approval and adoption at a duly held meeting of such
shareholders, has determined to recommend such approval and has adopted a
resolution to the foregoing effect. Except for the approval and adoption of
this
Agreement by the affirmative vote of the holders of two-thirds of the
outstanding shares of Salem Common Stock entitled to vote at such meeting,
no
other corporate proceedings on the part of Salem are necessary to approve this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Salem and (assuming due
authorization, execution and delivery by Frontier) constitutes the valid and
binding obligation of Salem, enforceable against Salem in accordance with its
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally
and
subject to general principles of equity).
(E) CORPORATE
MINUTES. The minute books of Salem Previously Disclosed to Frontier contain
true, complete and correct records of all meetings and other corporate actions
held or taken since December 31, 2002 of Salem’s shareholders and Board of
Directors (including committees of its Board of Directors).
(F) NO
DEFAULTS. Subject to the approval by its shareholders referred to in Section
7.1(A), the required regulatory approvals referred
to in Section 7.1(B), and the required filings
under federal and state securities laws, and except as Previously Disclosed
in
Schedule 5.1(F),
the execution, delivery and performance of
this Agreement and the consummation by Salem to the transactions contemplated
by
this Agreement do not and will not (1) constitute a breach or violation of,
or a
default under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or instrument of Salem
or to which Salem or its properties is subject or bound, which breach, violation
or default is reasonably likely, individually or in the aggregate, to have
a
Material Adverse Effect on it, (2) constitute a breach or violation of, or
a
default under, its Articles of Incorporation or Bylaws, or (3) require any
consent or approval under any such law, rule, regulation, judgment, decree,
order, governmental permit or license or the consent or approval of any other
party to any such agreement, indenture or instrument, other than any such
consent or approval that, if not obtained, would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on
it.
(G) FINANCIAL
REPORTS.
(1) Except
as Previously Disclosed in Schedule 5.1(G), (1) Salem’s audited balance
sheet as of December
31 for the fiscal years 2005 and 2006, and the related statements of income,
changes in shareholders’ equity and cash flows for the fiscal years ended 2004
through 2006, inclusive, and all subsequent unaudited quarterly financial
statements of Salem, and (2) its call report for the fiscal year ended
December 31, 2006, and all other financial reports filed or to be filed
subsequent to December 31, 2006, in the form filed with the FDIC and the
Department (in each such case under the foregoing clauses (1) and (2), the
“Salem Financial Reports”), did not and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading; and each of the balance sheets
in or
incorporated by reference into the Salem Financial Reports (including the
related notes and schedules thereto) fairly presents and will fairly present
the
financial position of the entity or entities to which it relates as of its
date,
and each of the statements of income and changes in shareholders’ equity and
cash flows or equivalent statements in the Salem Financial Reports (including
any related notes and schedules thereto) fairly presents and will fairly present
the results of operations, changes in shareholders’ equity and cash flows, as
the case may be, of the entity or entities to which it relates for the periods
set forth therein, in each case in accordance with GAAP during the periods
involved, except in each case as may be noted therein, and subject to recurring
year-end audit adjustments normal in nature and amount in the case of unaudited
statements. No Person has resigned or been dismissed as independent public
accountants of Salem as a result of or in connection with any disagreements
with
Salem on a matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
(2) Since
December 31, 2006, (i) through the date hereof, neither Salem nor, to the
knowledge of the officers of Salem, any director, officer, employee, auditor,
accountant or representative of Salem has received or otherwise had or obtained
knowledge of any material complaint, allegation, assertion or claim, whether
written or oral, regarding the accounting or auditing practices, internal
controls, procedures, methodologies or methods of Salem, including any material
complaint, allegation, assertion or claim that Salem has engaged in questionable
accounting or auditing practices, and (ii) no attorney representing Salem,
whether or not employed by Salem, has reported evidence of a material violation
of securities laws, breach of fiduciary duty or similar violation by Salem
or
any of its officers, directors, employees or agents to the Board of Directors
of
Salem or any committee thereof or to any director or officer of
Salem.
(H) ABSENCE
OF UNDISCLOSED LIABILITIES. Except as Previously Disclosed on
Schedule 5.1(H),
Salem has no obligation or liability
(contingent or otherwise) that, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on it, except (1) as reflected in
the
Salem Financial Reports prior to the Execution Date, and (2) for commitments
and
obligations made, or liabilities incurred, in the ordinary course of business
consistent with past practice. Except as Previously Disclosed on
Schedule 5.1(H),
since December 31, 2006, Salem has not
incurred or paid any obligation or liability (including any obligation or
liability incurred in connection with any acquisitions in which any form of
direct financial assistance of the federal government or any agency thereof
has
been provided to Salem) that, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on Salem.
(1) Except
as Previously Disclosed on Schedule 5.1(I), since December 31, 2006, no event
has
occurred that, individually or in the aggregate, is reasonably likely to have
a
Material Adverse Effect on it.
(2) Except
as set forth in Schedule 5.1(I), since December 31, 2006, through and including
the date of this Agreement, Salem has carried on its business in all material
respects in the ordinary course of business consistent with past
practice.
(3) Except
as set forth in Schedule 5.1(I), since December 31, 2006, Salem has not (i)
except for (A) normal increases for non-executive officer employees made in
the
ordinary course of business consistent with past practice, or (B) as required
by
applicable law, increased the wages, salaries, compensation, pension, or other
fringe benefits or perquisites payable to any executive officer, employee,
or
director from the amount thereof in effect as of December 31, 2006 (which
amounts have been Previously Disclosed to Frontier), granted any severance
or
termination pay, entered into any contract to make or grant any severance or
termination pay (except as required under the terms of the Employment
Agreements), or paid any bonus other than the customary year-end bonuses in
amounts consistent with past practice, (ii) granted any options to purchase
shares of Salem Common Stock, any restricted shares of Salem Common Stock or
any
right to acquire any shares of its capital stock to any executive officer,
director or employee other than grants to employees made in the ordinary course
of business consistent with past practice under Salem’s 1992 and 2003 Stock
Option Plans, (iii) made, changed or revoked any material Tax election or
changed any Tax or financial accounting methods, principles or practices of
Salem affecting its assets, liabilities or businesses, including any reserving,
renewal or residual method, practice or policy or (iv) suffered any strike,
work
stoppage, slow-down, or other labor disturbance.
(J) PROPERTIES.
Except as reserved against in the Salem Financial Reports, and as disclosed
in
title insurance policies held by Salem, Salem has good and marketable title,
free and clear of all liens, encumbrances, charges, defaults, or equities of
any
character (each an “Encumbrance”), to all of the properties and assets, tangible
and intangible, reflected in the Salem Financial Reports as being owned by
Salem
as of the dates thereof other than those Encumbrances that, individually or
in
the aggregate, are not reasonably likely to have a Material Adverse Effect
on
Salem and except those Encumbrances of record. All buildings and all material
fixtures, equipment, and other property and assets that are held under leases
or
subleases by Salem are held under valid leases or subleases enforceable in
accordance with their respective terms, other than any such exceptions to
validity or enforceability that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on it.
(K) LITIGATION;
REGULATORY ACTION. Except as Previously Disclosed in Schedule 5.1(K),
no
litigation, proceeding or controversy before any court or governmental agency
is
pending that, individually or in the aggregate, is reasonably likely to have
a
Material Adverse Effect on Salem or that alleges claims under any fair lending
law or other law relating to discrimination, including the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act and the
Home Mortgage Disclosure Act, and to Salem’s Knowledge, no such litigation,
proceeding or controversy has been threatened; and except as Previously
Disclosed in Schedule 5.1(K),
Salem is not subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter
from,
or has adopted any board resolutions at the request of (each, whether or nor
set
forth on Schedule 5.1(K),
a “Regulatory Agreement”), any Regulatory
Authority that restricts the conduct of its business or that in any manner
relates to its capital adequacy, its credit policies, its management or its
business, nor has Salem been advised by any Regulatory Authority that it is
considering issuing or requesting any Regulatory Agreement.
(1) Has
all permits, licenses, authorizations, orders and approvals of, and has made
all
filings, applications and registrations with, all Regulatory Authorities that
are required in order to permit it to own its businesses presently conducted
and
that are material to its business; all such permits, licenses, certificates
of
authority, orders and approvals are in full force and effect and, to Salem’s
Knowledge, no suspension or cancellation of any of them is threatened; and
all
such filings, applications and registrations are current;
(2) Has
received no notification or communication from any Regulatory Authority or
the
staff thereof (a) asserting that Salem is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory Authority enforces,
which, as a result of such noncompliance in any such instance, individually
or
in the aggregate, is reasonably likely to have a Material Adverse Effect on
Salem, (b) threatening to revoke any license, franchise, permit or governmental
authorization, which revocation, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on Salem, or (c) requiring any of
Salem
(or any of its officers, directors or controlling persons) to enter into a
cease
and desist order, agreement or memorandum of understanding (or requiring the
board of directors thereof to adopt any resolution or policy);
(3) Except
as has not had and would not reasonably be expected to have, individually or
in
the aggregate, a Material Adverse Effect on Salem: Salem has properly
administered all accounts for which it acts as a fiduciary, including accounts
for which it serves as a trustee, agent, custodian, personal representative,
guardian, conservator or investment advisor, in accordance with the terms of
the
governing documents, applicable state and federal law and regulation and common
law; and none of Salem, or any director, officer or employee of Salem has
committed any breach of trust or fiduciary duty with respect to any such
fiduciary account and the accountings for each such fiduciary account are true
and correct and accurately reflect the assets of such fiduciary
account;
(4) Schedule
5.1(L) sets forth, as of the date hereof, a schedule of all officers and
directors of Salem who have outstanding loans from Salem, and there has been
no
default on, or forgiveness or waiver of, in whole or in part, any such loan
during the two years immediately preceding the date hereof; and
(5) Is
in compliance in all material respects with all fair lending laws or other
laws
relating to discrimination, including the Equal Credit Opportunity Act, the
Fair
Housing Act, the Community Reinvestment Act and the Home Mortgage Disclosure
Act.
(M) MATERIAL
CONTRACTS.
(1) Except
as Previously Disclosed in Schedule 5.1(M), Salem is not a
party to or bound by any contract
(whether written or oral), including but not limited to any Compensation and
Benefit Plan, (i) with respect to the employment of any directors, officers,
employees or consultants, (ii) which, 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 or benefits (whether of
severance pay or otherwise) becoming due or increasing in amount, or the
acceleration or vesting of any rights to any payment or benefits, from Frontier,
Salem, the Resulting Bank or any of their respective Subsidiaries to any
officer, director, employee or consultant of Salem, (iii) which is a material
contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the Execution Date, (iv) which is a consulting agreement
(including data processing, software programming and licensing contracts) not
terminable on 30 days or less notice involving the payment of more than $25,000,
or (v) which materially restricts the conduct of any line of business by Salem.
Each contract, arrangement, commitment or understanding of the type described
in
this Section 5.1(M),
whether or not set forth in Schedule 5.1(M), is referred to
herein as a “Salem Contract.” Salem
has Previously Disclosed to Frontier true and correct copies of each material
contract, arrangement, commitment or understanding of the type described in
this
Section 5.1(M).
(2) Except
as set forth in Schedule 5.1(M), (i) each Salem
Contract is valid and binding and
in full force and effect, (ii) Salem has performed all obligations required
to
be performed by it to date under each Salem Contract, except where such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect, (iii) no event or condition exists which constitutes or, after
notice or lapse of time or both, would constitute, a default on the part of
Salem under any Salem Contract, and (iv) no other party to any Salem Contract
is, to Salem’s Knowledge, in default in any respect thereunder.
(N) REPORTS.
Since January 1, 2003, Salem has filed all reports and statements, together
with
any amendments required to be made with respect thereto, that it was required
to
file with (1) the Department, (2) the FDIC and (3) any other Regulatory
Authorities having jurisdiction with respect to Salem. As of their respective
dates (and without giving effect to any amendments or modifications filed after
the Execution Date with respect to reports and documents filed before the
Execution Date), each of such reports and documents, including the financial
statements, exhibits and schedules thereto, complied in all material respects
with all of the statutes, rules and regulations enforced or promulgated by
the
Regulatory Authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
(O) BROKERS
AND FINDERS. Neither Salem nor any of its respective
officers or directors has employed any broker or finder or incurred any
liability for any broker’s fees, commissions or finder’s fees in connection with
any of the transactions contemplated by this Agreement, except that Salem has
engaged, and will pay a fee or commission to, XxXxxxx Xxxxxx Xxxxx Incorporated
in accordance with the terms of a letter agreement between XxXxxxx Xxxxxx Xxxxx
Incorporated and Salem, a true and correct copy of which has been Previously
Disclosed by Salem to Frontier.
(1) Schedule
5.1(P)(1)
contains a complete list of all bonus, deferred
compensation, pension, retirement, profit-sharing, thrift savings, employee
stock ownership, stock bonus, stock purchase, restricted stock and stock option
plans, all employment or severance contracts, all medical, dental, health and
life insurance plans, all other employee benefit plans, contracts or
arrangements and any applicable “change of control” or similar provisions in any
plan, contract or arrangement maintained or contributed to by Salem for the
benefit of employees, former employees, directors, former directors or their
beneficiaries (the “Compensation and Benefit Plans”). True and complete copies
of all Compensation and Benefit Plans of Salem, including any trust instruments
and/or insurance contracts, if any, forming a part thereof, and all amendments
thereto, have been provided to Frontier.
(2) All
“employee benefit plans” within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), other than
“multiemployer plans” within the meaning of Section 3(37) of ERISA
(“Multiemployer Plans”), covering employees or former employees of Salem (the
“ERISA Plans”), to the extent subject to ERISA, are in substantial compliance
with ERISA. Except as Previously Disclosed in Schedule 5.1(P)(2) each ERISA Plan
which is an “employee pension benefit plan” within the meaning of Section 3(2)
of ERISA (“Pension Plan”) and which is intended to be qualified under the Code
has received a favorable determination letter from the Internal Revenue Service,
and it is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter or the inability
to receive such a favorable determination letter. There is no material pending
or, to its knowledge, threatened litigation relating to the ERISA Plans. Salem
has not engaged in a transaction with respect to any ERISA Plan that could
subject Salem to a tax or penalty imposed by either Section 4975 of the Code
or
Section 502(i) of ERISA in an amount which would be material.
(3) No
liability under Subtitle C or D of Title IV of ERISA has been or is expected
to
be incurred by Salem with respect to any ongoing, frozen or terminated
“single-employer plan,” within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or the single-employer plan
of
any entity which is considered one employer with Salem under Section 4001(a)(15)
of ERISA or Section 414 of the Code (an “ERISA Affiliate”). Salem does not
presently contribute to a Multiemployer Plan and has not contributed to such
a
plan within the past five calendar years. No notice of a “reportable event,”
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any Pension
Plan or by any ERISA Affiliate within the past 12-month period.
(4) All
contributions required to be made under the terms of any ERISA Plan have been
timely made. Neither any Pension Plan nor any single-employer plan of an ERISA
Affiliate has an “accumulated funding deficiency”(whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA. Salem has not
provided and is not required to provide, security to any Pension Plan or to
any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the
Code.
(5) Under
each Pension Plan which is a single-employer plan, as of the last day of the
most recent plan year, the actuarially determined present value of all “benefit
liabilities,” within the meaning of Section 4001(a)(16) of ERISA (as determined
on the basis of the actuarial assumptions contained in the plan’s most recent
actuarial valuation) did not exceed the then current value of the assets of
such
plan, and there has been no material change in the financial condition of such
plan since the last day of the most recent plan year.
(6) Salem
has no obligations for retiree health and life benefits under any plan, except
as set forth in Schedule 5.1(P)(6). There are no
restrictions on the rights of
Salem to amend or terminate any such plan without incurring any liability
thereunder.
(Q) APPROVALS.
As of the Execution Date, to Salem’s Knowledge, there is no reason why the
regulatory approvals referred to in Section 7.1(B)
should not be obtained.
(R) LABOR
AGREEMENTS. Salem is not a party to or bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union
or
labor organization, nor is Salem the subject of a proceeding asserting that
it
has committed an unfair labor practice (within the meaning of the National
Labor
Relations Act) or seeking to compel it to bargain with any labor organization
as
to wages and conditions of employment, nor is there any strike or other labor
dispute involving it pending nor, to Salem’s Knowledge, is there any activity
involving its employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
(S) LOAN
PORTFOLIO.
(1) Except
as Previously Disclosed in Schedule 5.1(S), Salem is not a
party to any written or oral (i)
loan agreement, note or borrowing arrangement (including, without limitation,
leases, credit enhancements, commitments, guarantees and interest-bearing
assets) (collectively, “Loans”), other than Loans the unpaid principal balance
of which does not exceed $50,000, under the terms of which the obligor was,
as
of June 30, 2007, over 90 days delinquent in payment of principal or interest
or
in default of any other provision, or (ii) Loan with any director, executive
officer or 5% or greater shareholder of Salem, or to Salem’s Knowledge, any
person, corporation or enterprise controlling, controlled by or under common
control with any of the foregoing. Schedule 5.1(S) sets forth (x) all
of the Loans of Salem that as of
June 30, 2007, were classified by any bank examiner (whether regulatory or
internal) as “Other Loans Specially Mentioned,” “Special Mention,”
“Substandard,” “Doubtful,” “Loss,” “Classified,” “Criticized,” “Credit Risk
Assets,” “Concerned Loans,” “Watch List” or words of similar import, together
with the principal amount of and accrued and unpaid interest on each such Loan,
the identity of the borrower thereunder, the aggregate principal amount of
such
Loans by category (e.g., commercial real estate, consumer, C&I) and the
amount of specific reserves with respect to each such category of Loan and
the
amount of reserves with respect to each such category of Loans, and (y) each
asset of Salem that as of June 30, 2007, was classified as “Other Real Estate
Owned” and the book value thereof.
(2) Except
where failure would not have a Material Adverse Effect on such Loan, each Loan
in original principal amount in excess of $50,000 (i) is evidenced by notes,
agreements or other evidences of indebtedness which are true, genuine and what
they purport to be, (ii) to the extent secured, has been secured by valid liens
and security interests which have been perfected and (iii) is the legal, valid
and binding obligation of the obligor named therein, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors’ rights
and to general equity principles.
(3) Except
as would not reasonably be expected to have, individually or in the aggregate,
a
Material Adverse Effect on Salem, all Loans originated by Salem, and all such
Loans purchased, administered or serviced by Salem (including Loans held for
resale to investors), were made or purchased and are administered or serviced,
as applicable, in accordance with customary lending standards of Salem (and
in
the case of Loans held for resale to investors, the lending standards, if any,
of such investors) and in accordance with applicable federal, state and local
laws, regulations and rules. All such Loans (and any related guarantees) and
payments due there under are, and on the Closing Date will be, free and clear
of
any lien, pledge, charge, security interest or other similar encumbrance, and
Salem has complied in all material respects, and on the Closing Date will have
complied in all material respects, with all laws and regulations relating to
such Loans.
(4) None
of the agreements pursuant to which Salem has sold Loans or pools of Loans
or
participations in Loans or pools of Loans contains any obligation to repurchase
such Loans or interests therein solely on account of a payment default by the
obligor on any such Loan.
(5) Salem
is not now nor has it ever been since January 1, 2003 subject to any material
fine, suspension, settlement or other agreement or other administrative
agreement or sanction by, or any material reduction in any loan purchase
commitment from any Agency or any federal or state agency relating to the
origination, sale or servicing of mortgage or consumer Loans. Salem has not
received any notice, nor does it have any reason to believe, that any Agency
proposes to limit or terminate the underwriting authority of Salem or to
increase the guarantee fees payable to any such Agency.
(6) Salem
is in compliance in all material respects with all applicable federal, state
and
local laws, rules and regulations, including the Truth-In-Lending Act and
Regulation Z, the Equal Credit Opportunity Act and Regulation B, the Real Estate
Settlement Procedures Act and Regulation X, the Fair Credit Reporting Act,
the
Fair Debt Collection Practices Act and all Agency and other investor and
mortgage insurance company requirements relating to the origination, sale and
servicing of mortgage and consumer Loans.
(7) To
the Knowledge of Salem, each Loan included in a pool of Loans originated,
acquired or serviced by Salem (a “Salem Pool”) meets all eligibility
requirements (including all applicable requirements for obtaining mortgage
insurance certificates and loan guaranty certificates) for inclusion in such
Salem Pool. All such Salem Pools have been finally certified or, if required,
recertified in accordance with all applicable laws, rules and regulations,
except where the time for certification or recertification has not yet expired.
To the Knowledge of Salem, no Salem Pools have been improperly certified, and
no
Loan has been bought out of a Salem Pool without all required approvals of
the
applicable investors.
(T) ALLOWANCE
FOR POSSIBLE LOAN LOSSES. The allowance for possible loan losses shown on
the consolidated balance sheets in the December 31, 2006 Financial Reports
of
Salem was, and the allowance for possible loan losses to be shown on subsequent
Financial Reports of Salem was and will be adequate in the opinion of the Board
of Directors of Salem to provide for possible losses, net of recoveries relating
to loans previously charged off, on loans outstanding (including accrued
interest receivable) as of the date thereof.
(U) INSURANCE.
Salem has taken all requisite action (including the making of claims and the
giving of notices) pursuant to its directors’ and officers’ liability insurance
policy or policies in order to preserve all rights there under with respect
to
all matters that are Known to Salem, except for such matters that, individually
or in the aggregate, are not reasonably likely to have a Material Adverse Effect
on Salem. Set forth in Schedule 5.1(U)
is a list of all insurance policies
maintained by or for the benefit of Salem or its directors, officers, employees
or agents.
(V) AFFILIATES.
Except as Previously Disclosed in Schedule 5.1(V),
to
the Knowledge of Salem, there is no person who, as of the Execution Date, may
be
deemed to be an “affiliate” of Salem as that term is used in Rule 145 under the
Securities Act.
(W) STATE
TAKEOVER LAWS; ARTICLES OF INCORPORATION; BYLAWS. Salem has taken all
necessary action to exempt this Agreement and the transactions contemplated
by
this Agreement from, and this Agreement and such transactions are exempt from
any restrictive provisions of (1) any applicable moratorium, control share,
fair
price, business combination, or other federal or state anti-takeover laws and
regulations, and (2) the Articles of Incorporation or Bylaws of
Salem.
(X) NO
FURTHER ACTION. The entering into of this Agreement and the consummation of
the transactions contemplated by this Agreement, do not and will not (1) require
a vote of shareholders (other than as set forth in Section 7.1(A)), or (2) except as contemplated under this
Agreement, result in the grant of any rights to any Person under the Articles
of
Incorporation or Bylaws of Salem or under any agreement to which Salem is a
party, or (3) restrict or impair in any way the ability of the other parties
to
exercise the rights granted under this Agreement.
(1) To
Salem’s Knowledge, the Participation Facilities and the Loan/Fiduciary
Properties are, and have been, in compliance with all Environmental Laws, except
for instances of noncompliance that are not reasonably likely, individually
or
in the aggregate, to have a Material Adverse Effect on Salem.
(2) There
is no proceeding pending or, to Salem’s Knowledge, threatened before any court,
governmental agency or board or other forum in which Salem or any Participation
Facility has been, or with respect to threatened proceedings, reasonably would
be expected to be, named as a defendant or potentially responsible party (a)
for
alleged noncompliance (including by any predecessor) with any Environmental
Law,
or (b) relating to the release or threatened release into the environment of
any
Hazardous Material, whether or not occurring at or on a site owned, leased
or
operated by Salem or any Participation Facility, except for such proceedings
pending or threatened that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Salem or have been Previously
Disclosed in Schedule 5.1(Y)(2).
(3) There
is no proceeding pending or, to Salem’s Knowledge, threatened before any court,
governmental agency or board or other forum in which any Loan/Fiduciary Property
(or Salem in respect of any Loan/Fiduciary Property) has been, or with respect
to threatened proceedings, reasonably would be expected to be, named as a
defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law, or (b) relating
to
the release or threatened release into the environment of any Hazardous
Material, whether or not occurring at or on a Loan/Fiduciary Property, except
for such proceedings pending or threatened that are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Salem
or
have been Previously Disclosed in Schedule 5.1(Y)(3).
(4) To
Salem’s Knowledge, there is no reasonable basis for any proceeding of a type
described in subparagraph (2) or (3) of this paragraph (Y), except as has
been Previously Disclosed in Schedule 5.1(Y)(4).
(5) To
Salem’s Knowledge, during the period of (a) ownership or operation by Salem of
any of its current properties, (b) participation in the management of any
Participation Facility by Salem, or (c) holding of a security or other interest
in a Loan/Fiduciary Property by Salem, there have been no releases of Hazardous
Material in, on, under or affecting any such property, Participation Facility
or
Loan/Fiduciary Property, except for such releases that are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on
Salem or have been Previously Disclosed in Schedule 5.1(Y)(5).
(6) To
Salem’s Knowledge, prior to the period of (a) ownership or operation by Salem of
any of its current properties, (b) participation in the management of any
Participation Facility by Salem, or (c) holding of a security or other interest
in a Loan/Fiduciary Property by Salem, there were no releases of Hazardous
Material in, on, under or affecting any such property, Participation Facility
or
Loan) Fiduciary Property, except for such releases that are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on
Salem or have been Previously Disclosed in Schedule 5.1(Y)(6).
(Z) TAX
REPORTS. Except as Previously Disclosed in Schedule 5.1(Z),
(1)
all federal and state reports and returns and, to Salem’s Knowledge, all other
reports and returns with respect to Taxes that are required to be filed by
or
with respect to Salem, including federal income tax returns of Salem
(collectively, the “Tax Returns”), have been duly filed, or requests for
extensions have been timely filed and have not expired, for periods ended on
or
prior to the most recent fiscal year-end, except to the extent all such failures
to file, taken together, are not reasonably likely to have a Material Adverse
Effect on Salem, and such Tax Returns were true, complete and accurate in all
material respects, (2) all Taxes shown to be due on the Tax Returns have been
paid in full, (3) the Tax Returns have been examined by the Internal Revenue
Service or the appropriate state, local or foreign taxing authority, or the
period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, (4) all Taxes due with respect to completed
and settled examinations have been paid in full, (5) no issues have been raised
by the relevant taxing authority in connection with the examination of any
of
the Tax Returns which are reasonably likely, individually or in the aggregate,
to result in a determination that would have a Material Adverse Effect on Salem,
except as reserved against in the Salem Financial Reports, and (6) no
waivers of statutes of limitations (excluding such statutes that relate to
years
under examination by the Internal Revenue Service) have been given by or
requested with respect to any Taxes of Salem.
(AA) ACCURACY
OF INFORMATION. The statements with respect to Salem contained in this
Agreement, the Schedules and any other written documents executed and delivered
by or on behalf of Salem pursuant to the terms of or relating to this Agreement
are true and correct in all material respects, and such statements and documents
do not omit any material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
(BB) DERIVATIVES
CONTRACTS. Salem is not a party to and has not agreed to enter into a
Derivatives Contract or owns securities that are referred to as “structured
notes” except for those Derivatives Contracts and structured notes Previously
Disclosed in Schedule 5.1(BB). Schedule
5.1(BB)
includes a list of any assets of Salem that are
pledged as security for each such Derivatives Contract.
(CC) ACCOUNTING
CONTROLS. Salem has devised and maintained systems of internal accounting
controls sufficient to provide reasonable assurances that (1) all material
transactions are executed in accordance with management’s general or specific
authorization, (2) all material transactions are recorded as necessary to permit
the preparation of financial statements in conformity with GAAP, and to maintain
proper accountability for items, (3) access to the material property and assets
of Salem is permitted only in accordance with management’s general or specific
authorization, and (4) the recorded accountability for items is compared with
the actual levels at reasonable intervals and appropriate action is taken with
respect to any differences.
(DD) FAIRNESS
OPINION. Prior to the Execution Date, Salem has received an opinion from
XxXxxxx Xxxxxx Xxxxx Incorporated to the effect that as of the date thereof
and
based upon and subject to the matters set forth therein, the Merger
Consideration to be received by the shareholders of Salem is fair to such
shareholders from a financial point of view. Such opinion has not been amended
or rescinded as of the Execution Date.
(EE) REORGANIZATION.
As of the Execution Date, to Salem’s Knowledge, there is no reason to believe
that the Merger will fail to qualify as a reorganization under Section 368(a)
of
the Code.
(FF) FDIC
REPORTS. Salem has Previously Disclosed to Frontier a true and correct copy
of each material communication relating to financial performance mailed by
Salem
to its shareholders since January 1, 2003 (the “Salem Reports”), and no such
Salem Report 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 in 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.
(GG) INVESTMENT
SECURITIES.
(1) Salem
has good title to all securities owned by it (except those sold under repurchase
agreements or held in any fiduciary or agency capacity as set forth in
Schedule 5.1(GG)), free and clear of any lien, pledge, charge, security
interest or similar encumbrance, except to the extent such securities are
pledged in the ordinary course of business to secure obligations of Salem as
set
forth in Schedule 5.1(GG). Such securities are valued on the books of
Salem in accordance with GAAP in all material respects.
(2) Salem
employs investment, securities, risk management and other policies, practices
and procedures which Salem believes are prudent and reasonable in the context
of
its business. Prior to the date hereof, Salem has made available to Frontier
in
writing the material policies, practices and procedures.
(HH) INTELLECTUAL
PROPERTY. Except as set forth in Schedule 5.1(HH) and except as would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Salem, (a) Salem owns, or is licensed to use (in each case,
free and clear of any lien, pledge, charge, security interest or similar
encumbrance), all Intellectual Property used in or necessary for the conduct
of
its business as currently conducted; (b) the use of any Intellectual Property
by
Salem does not, to the knowledge of Salem, infringe on or otherwise violate
the
rights of any person and is in accordance with any applicable license pursuant
to which Salem acquired the right to use any Intellectual Property; (c) no
person is challenging, infringing on or otherwise violating any right of Salem
with respect to any Intellectual Property owned by and/or licensed to Salem;
(d)
Salem has not received any written notice of any pending claim with respect
to
any Intellectual Property used by Salem and no Intellectual Property owned
and/or licensed by Salem is being used or enforced in a manner that would be
expected to result in the abandonment, cancellation or enforceability of such
Intellectual Property. For purposes of this Agreement, “Intellectual
Property” means trademarks, service marks, brand names, certification marks,
trade dress or other indications of origin, the goodwill associated with the
foregoing and restrictions in any jurisdiction of, and applications in any
jurisdiction to register, the foregoing, including any extension, modification
or renewal of any such registration or application; inventions, discoveries
and
ideas, whether patentable or not, in any jurisdiction; patents, applications
for
patents (including divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; nonpublic information, trade secrets and confidential information
and rights in any jurisdiction to limit the use or disclosure thereof by any
person; writings and other works, whether copyrightable or not, in any
jurisdiction; and registrations or applications for registration of copyrights
in any jurisdiction, and any renewals or extensions thereof; and any similar
intellectual property or proprietary rights.
5.2 FRONTIER
AND FRONTIER BANK REPRESENTATIONS AND WARRANTIES.
Frontier and Frontier Bank each hereby represent
and warrant to Salem
as follows:
(A) ORGANIZATION,
QUALIFICATION AND AUTHORITY. Each of Frontier and Frontier Bank is duly
qualified to do business in the States of the United States where the failure
to
be duly qualified is reasonably likely to have a Material Adverse Effect on
it.
Each of Frontier and its Subsidiaries has in effect all federal state, local,
and foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now conducted,
the
absence of which, individually or in the aggregate, is reasonably likely to
have
a Material Adverse Effect on Frontier. As of March 31, 2007, Frontier Bank
is
“well capitalized” and “well managed” as a matter of federal banking law.
Frontier Bank has at least a “satisfactory” rating under the Community
Reinvestment Act. Frontier Bank is an “insured depository institution” as
defined in the Federal Deposit Insurance Act, as amended, and applicable
regulations under such statute, and its deposits are insured by the Bank
Insurance Fund of the FDIC to the fullest extent permitted by law, and all
premiums and assessments required to be paid in connection therewith have been
paid.
(B) SHARES.
(1) The
outstanding shares of Frontier’s capital stock are validly issued and
outstanding, fully paid and non-assessable, and subject to no preemptive rights.
Except as Previously Disclosed in Schedule 5.2(B), there are no shares
of capital stock or other
equity securities of it or its Subsidiaries outstanding and no outstanding
Rights with respect thereto as of the Execution Date.
(2) As
of the Execution Date, Frontier has 100,000,000 authorized shares of common
stock, no par value per share (“Frontier Common Stock”), of which approximately
44,506,185 shares of Frontier Common Stock are issued and outstanding, and
10,000,000 shares of preferred stock, no par value per share, of which no shares
are issued and outstanding.
(3) As
of the Execution Date, Frontier Bank has 83,029 authorized shares of common
stock, $37.50 par value per share (no other class of capital stock being
authorized), of which 72,600 shares are issued and outstanding and owned by
Frontier, the sole shareholder of Frontier Bank.
(C) FRONTIER
SUBSIDIARIES. Frontier has Previously Disclosed in Schedule 5.2(C)
a list
of all of its Subsidiaries. Each of its Subsidiaries that is a bank is an
“insured depository institution” as defined in the Federal Deposit Insurance
Act, as amended, and applicable regulations under such statute, and the deposits
of such Subsidiaries are insured by the Bank Insurance Fund of the FDIC. All
of
the shares of capital stock of each of its Subsidiaries held by Frontier or
one
of its Subsidiaries are fully paid and non-assessable and are owned by Frontier
or one of its Subsidiaries free and clear of any charge, mortgage, pledge,
security interest, restriction, claim, lien or encumbrance. Each of its
Subsidiaries is duly organized and existing under the laws of the jurisdiction
in which it is incorporated or organized, and is duly qualified to do business
in the jurisdictions where the failure to be duly qualified is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on
it. Except as Previously Disclosed in Schedule 5.2(C),
Frontier does not own beneficially, directly or indirectly, any shares of any
equity securities or similar interests of any corporation, bank, partnership,
joint venture, business trust, association or other organization.
(D) CORPORATE
AUTHORITY. Frontier 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, validly and unanimously
approved by the Board of Directors of Frontier. The Board of Directors of
Frontier has determined that this Agreement and the transactions contemplated
hereby are advisable and in the best interests of Frontier and its shareholders.
No other corporate proceedings on the part of Frontier are necessary to approve
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Frontier and
(assuming due authorization, execution and delivery by Salem) constitutes the
valid and binding obligation of Frontier, enforceable against Frontier in
accordance with its terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and subject to general principles of equity).
(E) NO
DEFAULTS. Subject to receipt of the required regulatory approvals referred
to in Section 7.1(B), and the required filings
under federal and state securities laws, and except as Previously Disclosed
in
Schedule 5.2(E), the execution,
delivery and performance of its obligation under this Agreement and the
consummation by Frontier and each of its Subsidiaries of the transactions
contemplated by this Agreement do not and will not (1) constitute a breach
or
violation of, or a default
under,
any law, rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, indenture or instrument of Frontier or of any of
its
Subsidiaries or to which Frontier or any of its Subsidiaries or its or their
properties is subject or bound, which breach, violation or default is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on
Frontier, (2) constitute a breach or violation of, or a default under, the
Articles of Incorporation or Bylaws of its or any of its Subsidiaries, or (3)
require any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the consent or approval of
any
other party to any such agreement, indenture or instrument, other than any
such
consent or approval that, if not obtained, would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on
Frontier.
(F) FINANCIAL
REPORTS.
(1) Except
as Previously Disclosed in Schedule 5.2(F), (1) Frontier’s audited
consolidated balance sheet as of December 31 for the fiscal years 2005 and
2006,
and the related statements of income, changes in shareholders’ equity and cash
flows for the fiscal years ended 2004 through 2006, inclusive, as reported
in
Frontier’s Annual Report on Form 10-K for the fiscal year ended December 31,
2006, filed with the SEC under the Exchange Act, and all subsequent unaudited
quarterly financial statements of Frontier, and (2) Frontier Bank’s call report
for the fiscal year ended December 31, 2006, in the form filed with the FDIC
and
the Department (in each such case under the foregoing clauses (1) and (2),
the
“Frontier Financial Reports”), did not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and each of the
balance sheets in or incorporated by reference into the Frontier Financial
Reports (including the related notes and schedules thereto) fairly presents
and
will fairly present the financial position of the entity or entities to which
it
relates as of its date, and each of the statements of income and changes in
shareholders’ equity and cash flows or equivalent statements in the Frontier
Financial Reports (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
shareholders’ equity and changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein, in
each case in accordance with GAAP during the periods involved, except in each
case as may be noted therein, and subject to recurring year-end audit
adjustments normal in nature and amount in the case of unaudited statements.
No
Person has resigned or been dismissed as independent public accountants of
Frontier as a result of or in connection with any disagreements with Frontier
on
a matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure.
(2) Since
December 31, 2006, (i) through the date hereof, neither Frontier nor, to the
knowledge of the officers of Frontier, any director, officer, employee, auditor,
accountant or representative of Frontier has received or otherwise had or
obtained knowledge of any material complaint, allegation, assertion or claim,
whether written or oral, regarding the accounting or auditing practices,
internal controls, procedures, methodologies or methods of Frontier, including
any material complaint, allegation, assertion or claim that Frontier has engaged
in questionable accounting or auditing practices, and (ii) no attorney
representing Frontier, whether or not employed by Frontier, has reported
evidence of a material violation of securities laws, breach of fiduciary duty
or
similar violation by Frontier or any of its officers, directors, employees
or
agents to the Board of Directors of Frontier or any committee thereof or to
any
director or officer of Frontier.
(G) ABSENCE
OF UNDISCLOSED LIABILITIES. Except as Previously Disclosed on
Schedule 5.2(G),
Frontier has no obligation or liability
(contingent or otherwise) that, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on it, except (1) as reflected in
the
Frontier Financial Reports prior to the Execution Date, and (2) for commitments
and obligations made, or liabilities incurred, in the ordinary course of
business consistent with past practice. Except as Previously Disclosed on
Schedule 5.2(G),
since December 31, 2006, Frontier has
not incurred or paid any obligation or liability (including any obligation
or
liability incurred in connection with any acquisitions in which any form of
direct financial assistance of the federal government or any agency thereof
has
been provided to Frontier) that, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on Frontier.
(H) ABSENCE
OF CERTAIN CHANGES OR EVENTS. Except as Previously Disclosed on Schedule 5.2(H), since December
31,
2006, no event has occurred which is reasonably likely to have a Material
Adverse Effect on it. Except as set forth in Schedule 5.2(H), since
December 31, 2006, Frontier has not (i) made, changed or revoked any material
Tax election or changed any Tax or financial accounting methods, principles
or
practices of Frontier affecting its assets, liabilities or businesses, including
any reserving, renewal or residual method, practice or policy or (ii) suffered
any strike, work stoppage, slow-down, or other labor disturbance.
(I) LITIGATION;
REGULATORY ACTION. Except as Previously Disclosed in Schedule 5.2(I) no litigation, proceeding
or
controversy before any court or governmental agency is pending that,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on Frontier or its Subsidiaries or that alleges claims under
any
fair lending law or other law relating to discrimination, including the Equal
Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act
and
the Home Mortgage Disclosure Act, and, to Frontier’s Knowledge, no such
litigation, proceeding or controversy has been threatened; and except as
Previously Disclosed in Schedule 5.2 (J), neither Frontier nor
any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or
is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient
of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth on Schedule 5.2(J), a
“Regulatory Agreement,” any Regulatory Authority that restricts the conduct of
its business or that in any manner related to its capital adequacy, its credit
policies, its management or its business, nor has Frontier or any of its
Subsidiaries been advised by any Regulatory Authority that is considering
issuing or requesting any Regulatory Agreement.
(J) COMPLIANCE
WITH LAWS. Except as Previously Disclosed in Schedule 5.2(J), each of Frontier
and its
Subsidiaries:
(1) Has
all permits, licenses, authorizations, orders and approvals of, and has made
all
filings, applications and registrations with, all Regulatory Authorities that
are required in order to permit it to own its businesses presently conducted
and
that are material to the business of it and its Subsidiaries taken as a whole;
all such permits, licenses, certificates of authority, orders and approvals
are
in full force and effect and, to Frontier’s Knowledge, no suspension or
cancellation of any of them is threatened; and all such filings, applications
and registrations are current;
(2) Has
received no notification or communication from any Regulatory Authority or
the
staff thereof (a) asserting that Frontier or any of its Subsidiaries is not
in
compliance with any of the statutes, regulations or ordinances which such
Regulatory Authority enforces, which, as a result of such noncompliance in
any
such instance, individually or in the aggregate, is reasonably likely to have
a
Material Adverse Effect on Frontier or its Subsidiaries, (b) threatening to
revoke any license, franchise, permit or governmental authorization, which
revocation, individually or in the aggregate, is reasonably likely to have
a
Material Adverse Effect on Frontier or its Subsidiaries, or (c) requiring any
of
Frontier or its Subsidiaries (or any of its or their officers, directors or
controlling persons) to enter into a cease and desist order, agreement or
memorandum of understanding (or requiring the board of directors thereof to
adopt any resolution or policy); and
(3) Is
in compliance in all material respects with all fair lending laws or other
laws
relating to discrimination, including the Equal Credit Opportunity Act, the
Fair
Housing Act, the Community Reinvestment Act and the Home Mortgage Disclosure
Act.
(K) REPORTS.
Since January 1, 2003, each of Frontier and its Subsidiaries has filed all
reports and statements, together with any amendments required to be made with
respect thereto, that it was required to file with (1) the FDIC, (2) the
Department, (3) the Federal Reserve Board, and (4) any other Regulatory
Authorities having jurisdiction with respect to Frontier and its Subsidiaries.
As of their respective dates (and without giving effect to any amendments or
modifications filed after the Execution Date with respect to reports and
documents filed before the Execution Date), each of such reports and documents,
including the financial statements, exhibits and schedules thereto, complied
in
all material respects with all of the statutes, rules and regulations enforced
or promulgated by the Regulatory Authority with which they were filed and did
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(L) APPROVALS.
As of the Execution Date, to Frontier’s Knowledge, there is no reason why the
regulatory approvals referred to in Section 7.1(B)
should not be obtained.
(M) ACCURACY
OF INFORMATION. The statements with respect to Frontier and its Subsidiaries
contained in this Agreement, the Schedules and any other written documents
executed and delivered by or on behalf of Frontier pursuant to the terms of
or
relating to this Agreement are true and correct in all material respects, and
such statements and documents do not omit any material fact necessary to make
the statements contained therein, in light of the circumstances under which
they
were made, not misleading.
Salem
hereby covenants to Frontier and Frontier Bank, and each of Frontier and
Frontier Bank hereby covenants to Salem, that:
6.1 BEST
EFFORTS. Subject to the terms and conditions of
this Agreement and, in the case of Salem, to the exercise by its Board of
Directors of such Board’s fiduciary duties, each party shall use its reasonable
best efforts in good faith to take, or cause to be taken, all actions, and
to
do, or cause to be done, all things necessary, proper or desirable, or advisable
under applicable laws, so as to permit consummation of the Merger as soon as
practicable, and in any event by March 31, 2008, and to
otherwise
enable consummation of the transactions contemplated by this Agreement, and
shall cooperate fully with the other parties to that end (it being understood
that any amendments to the Registration Statement or a re-solicitation of
proxies as a consequence of a Frontier Transaction shall not violate this
covenant).
6.2 PROXY
STATEMENT; MEETING. Salem agrees to promptly
assist Frontier in the preparation of a proxy statement (the “Proxy Statement”)
to be mailed to the holders of Salem Common Stock in connection with the
transactions contemplated by this Agreement and to be filed by Frontier in
a
registration statement (the “Registration Statement”) with the SEC as provided
in Section 6.6, and Salem shall take all steps
necessary to duly call, give notice of, convene and hold a meeting (the
“Meeting”) of the holders of Salem Common Stock to be held as soon as
practicable after the date on which the Registration Statement becomes effective
for purposes of voting upon the approval of this Agreement and the consummation
of the transactions contemplated hereby. Subject to the exercise of its
fiduciary duties, the Board of Directors of Salem shall recommend approval
of
this Agreement and the transactions contemplated hereby and such other matters
as may be submitted to its shareholders in connection with this Agreement and,
unless this Agreement has been terminated as provided herein, Salem shall use
its reasonable best efforts to solicit and obtain votes of the holders of Salem
Common Stock in favor of the approval of this Agreement and the transactions
contemplated by this Agreement.
6.3 REGISTRATION
STATEMENT COMPLIANCE WITH SECURITIES LAWS. When
the Registration Statement or any post-effective amendment or supplement thereto
shall become effective, and at all times subsequent to such effectiveness,
up to
and including the date of the Meeting, such Registration Statement, and all
amendments or supplements thereto, with respect to all information set forth
therein furnished or to be furnished by or on behalf of Salem relating to Salem
and by or on behalf of Frontier relating to Frontier or its Subsidiaries, (A)
will comply in all material respects with the provisions of the Securities
Act
and any other applicable statutory or regulatory requirements, and (B) will
not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements contained
therein not misleading; provided, however, in no event shall any party
be liable for any untrue statement of a material fact or omission to state
a
material fact in the Registration Statement made in reliance upon, and in
conformity with, written information concerning another party furnished by
or on
behalf of such other party specifically for use in the Registration
Statement.
6.4 PUBLICITY;
PRESS RELEASES. Except as expressly permitted by
this Agreement or otherwise required by law or the rules of NASDAQ, so long
as
this Agreement is in effect, neither Frontier nor Salem 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.
6.5 ACCESS;
INFORMATION.
(A) Upon
reasonable notice and subject to applicable laws relating to the exchange of
information, each party shall, and shall cause each of its 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 Date, to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and other
representatives and, during such period, it shall, and shall cause its
Subsidiaries to, make available to the other party all information concerning
its business, properties and personnel as the other party may reasonably
request. Neither party nor any of its Subsidiaries shall be required to provide
access to or to disclose information where such
access
or disclosure would violate or prejudice the rights of its customers, jeopardize
any attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to
the
Execution Date. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(B) All
information furnished to Frontier or Salem by the other party hereto pursuant
to
Section 6.5(A) shall be
subject to, and the parties shall hold all such information in confidence in
accordance with, the provisions of the confidentiality agreement, dated May
29,
2007 (the “Confidentiality Agreement”), between Frontier and Salem.
6.7 AFFILIATE
AGREEMENTS. Salem will use its best efforts to
induce each person who may be deemed to be an “affiliate” of Salem for purposes
of Rule 145 under the Securities Act, to execute and deliver to Frontier on
or
before the mailing of the Proxy Statement for the Meeting, an agreement in
the
form attached hereto as Exhibit D restricting the disposition of the
shares of Frontier Common Stock to be received by such person in exchange for
such person’s shares of Salem Common Stock. Frontier agrees to use its best
efforts to maintain the availability of Rule 145 for use by such
“affiliates.”
6.8 STATE
TAKEOVER LAWS. No party shall take any action that
would cause the transactions contemplated by this Agreement to be subject to
any
applicable state takeover statute, and each party shall take all necessary
steps
to exempt (or ensure the continued exemption of) the transactions contemplated
by this Agreement from, or, if necessary, challenge the validity or
applicability of, any applicable state takeover law.
6.9 NO
RIGHTS TRIGGERED. Except for those consents of
Third Parties Previously Disclosed on Schedule 5.1(F), Salem shall take all necessary
steps to
ensure that the entering into of this Agreement and the consummation of the
transactions contemplated by this Agreement (including the Merger) and any
other
action or combination of actions, or any other transactions contemplated by
this
Agreement, do not and will not (A) result in the grant of any rights to any
Person under the Articles of Incorporation or Bylaws of Salem or under any
agreement to which Salem is a party (other than rights pursuant to agreements
or
arrangements listed or described on Schedules 3.6 and 9.4, or
(B) restrict or impair in any way the ability of Frontier or Frontier Bank
to exercise the rights granted under this Agreement.
6.10 SHARES
LISTED. Frontier shall use its best efforts to
cause to be listed, prior to the Effective Date, on the NASDAQ Global Select
Market upon official notice of issuance the shares of Frontier Common Stock
to
be issued to the holders of Salem Common Stock.
6.11 REGULATORY
APPLICATIONS. Frontier and Frontier Bank, each
shall (A) promptly prepare and submit all necessary notices and applications
to
the appropriate Regulatory Authorities for approval of the Merger and other
transactions contemplated by this Agreement, and (B) promptly make all other
appropriate filings to secure all other approvals, consents and rulings that
are
necessary for the consummation of the Merger by Frontier Bank.
6.12 CURRENT
INFORMATION.
(A) During
the period from the Execution Date to the Effective Date, each of Salem and
Frontier shall, and shall cause its representatives to, confer on a regular
and
frequent basis with representatives of the other.
(B) Each
of Salem and Frontier shall promptly notify the other of (1) any material change
in the business or operations of it or its Subsidiaries, (2) any material
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) of any Regulatory Authority relating to it or its
Subsidiaries, (3) the initiation or threat of material litigation involving
or
relating to it or its Subsidiaries, or (4) any event or condition that might
reasonably be expected to cause any of its representations or warranties set
forth in this Agreement not to be true and correct in all material respects
as
of the Effective Date or prevent it or its Subsidiaries from fulfilling its
or
their obligations under this Agreement.
6.13 INSURANCE. Frontier
will cause the persons serving as officers and directors of Salem immediately
prior to the Effective Date to be covered for a period of three (3) years after
the Effective Date by the current policies of directors and officers liability
insurance maintained by Salem (or at Frontier’s option, under comparable
policies maintained by Frontier) with respect to acts or omissions of officers
and directors, in their capacity as such, occurring on or prior to the Effective
Date.
6.14 TAX.
Neither Salem nor Frontier, nor any of their Subsidiaries shall
take or cause to be taken any action which would or could reasonably be expected
to prevent the Merger from qualifying as a reorganization under Section 368(a)
of the Code.
7.1 CONDITIONS
TO EACH PARTY’S OBLIGATIONS. The obligation of
each party to consummate the transactions contemplated hereby shall be subject
to the fulfillment, at or prior to the Effective Date, of the following
conditions:
(A) SHAREHOLDER
VOTE. This Agreement and the transactions contemplated hereby shall have
been duly approved by the requisite vote of Salem’s shareholders.
(B) REGULATORY
APPROVALS. The parties shall have procured all necessary regulatory consents
and approvals by the appropriate Regulatory Authorities, and any waiting periods
relating thereto shall have expired; provided, however, that no such
approval or consent shall have imposed any condition or requirement not normally
imposed in such transactions that, in the opinion of
Frontier,
would deprive Frontier of the material economic or business benefits of the
transactions contemplated by this Agreement.
(C) NO
PENDING OR THREATENED CLAIMS. No claim, action, suit, investigation or other
proceeding shall be pending or threatened before any court or governmental
agency which presents a substantial risk of the restraint or the prohibition
of
the transactions contemplated by this Agreement or the obtaining of material
damages or other relief in connection therewith.
(D) NO
INJUNCTION. There shall not be in effect any order, decree or injunction of
any court or agency of competent jurisdiction that enjoins or prohibits
consummation of any of the transactions contemplated by this
Agreement.
(E) EFFECTIVE
REGISTRATION STATEMENT. The Registration Statement shall have become
effective and no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have
been initiated or threatened by the SEC or any other Regulatory
Authority.
(F) TAX
OPINION. Frontier and Salem shall have received an opinion from Xxxxxx
Xxxxxxxx L.L.P. (“Frontier’s Counsel”) in the form of Exhibit E(3) dated
the Effective Date, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are consistent
with the state of facts existing at the Effective Date, the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code.
In
rendering such opinion, Frontier’s Counsel may require and rely upon
representations and covenants, including those contained in certificates of
officers of Frontier, Salem and others, reasonably satisfactory in form and
substance to such counsel.
(G) NASDAQ
LISTING. The shares of Frontier Common Stock to be issued pursuant to this
Agreement shall have been approved for listing on the NASDAQ Global Select
Market subject only to official notice of issuance.
7.2 CONDITIONS
TO OBLIGATIONS OF FRONTIER. Unless waived in
writing by Frontier and Frontier Bank, the obligations of Frontier and Frontier
Bank to consummate the transactions contemplated by this Agreement are subject
to the satisfaction at or prior to the Effective Date of the following
conditions:
(A) PERFORMANCE.
Each of the material acts, covenants and undertakings of Salem to be performed
at or before the Effective Date shall have been duly performed in all material
respects.
(B) REPRESENTATIONS
AND WARRANTIES. The representations and warranties of Salem contained in
this Agreement shall be true and correct on and as of the Effective Date with
the same effect as though made on and at the Effective Date, except for any
such
representations and warranties that specifically relate to an earlier date,
which shall be true and correct as of such earlier date; provided in each case
that any such failure to be true and correct, individually or in the aggregate,
would have a Material Adverse Effect on Salem.
(C) OFFICER’S
CERTIFICATE. In addition to the documents described elsewhere in this
Agreement, Frontier and Frontier Bank shall have received the following
documents and instruments:
(1) A
certificate signed by the secretary or assistant secretary of Salem certifying
that: (i) Salem’s Board of Directors and shareholders have duly adopted
resolutions (copies of which shall be attached to such certificate) approving
this Agreement and authorizing the consummation of the transactions contemplated
by this Agreement and certifying that such resolutions have not been amended
and
remain in full force and effect; (ii) each person executing this Agreement
on
behalf of Salem is an officer of Salem, holding the office or offices specified
therein, with full power and authority to execute this Agreement and any and
all
other documents in connection with the Agreement, and the signature of each
person on such documents is his or her genuine signature; and (iii) the Articles
of Incorporation and Bylaws of Salem (copies of which shall be attached to
such
certificate) remain in full force and effect; and
(2) A
certificate signed by the president, chief financial officer, and chief lending
officer of Salem dated the Effective Date stating that the conditions set forth
in Sections 7.2(A); 7.2(B),
7.2(E),
7.2(F),
7.2(H),
and 7.2(L)of this
Agreement have been satisfied as of the Effective Date.
(D) LEGAL
OPINION. Frontier shall have received a legal opinion, dated the Effective
Date, from Xxxxxx Pepper LLP, substantially in the form of Exhibit
E(2).
(E) NO
MATERIAL ADVERSE CHANGE. During the period from the Execution Date to the
Effective Date, there shall have occurred or be threatened no change relative
to: (1) the business, property, assets (including loan portfolios), liabilities
(whether absolute, contingent or otherwise), prospects, operations, liquidity,
income or condition (financial or otherwise) of Salem which is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on
Salem, other than any such effect attributable to or resulting from (i) any
change in banking or similar laws, rules or regulations of general applicability
or interpretations thereof by courts or governmental authorities, (ii) any
change in GAAP (as defined herein) or regulatory accounting principles
applicable to banks or their holding companies generally, (iii) changes
attributable to or resulting from changes in general economic conditions,
including changes in the prevailing level of interest rates, (iv) any action
or
omission of Salem or Frontier or any Subsidiary of either of them taken with
the
prior written consent of the other party hereto, or (v) any expenses incurred
by
such party in connection with this Agreement or the transactions contemplated
hereby; or (2) the ability of Salem to consummate the transactions contemplated
hereby.
(F) OTHER
BUSINESS COMBINATIONS, ETC. Other than as contemplated hereunder, subsequent
to the Execution Date, Salem shall not have entered into any agreement, letter
of intent, understanding or other arrangement pursuant to which Salem would
merge, consolidate with, effect a business combination with, or sell any
substantial part of Salem’s assets; acquire a significant part of the shares or
assets of any other person or entity (financial or otherwise); or adopt any
“poison pill” or other type of anti-takeover arrangement, any shareholder rights
provision, or any “golden parachute” or similar program which would have the
effect of materially decreasing the value of Salem or the benefits of acquiring
Salem Common Stock.
(G) RECEIPT
OF AFFILIATE AGREEMENTS. Frontier shall have received from each affiliate of
Salem the agreement referred to in Section 6.7.
(H) DISSENTERS’
RIGHTS. The number of shares of Salem Common Stock for which cash is to be
paid because dissenters’ rights of appraisal under the Appraisal Laws shall have
been effectively preserved as of the Effective Date shall not exceed in the
aggregate ten percent (10%) of the outstanding shares of Salem Common
Stock.
(I) VOTING
AGREEMENT. Frontier shall have received from each director and each
shareholder of Salem who as of the date hereof controls more than five percent
(5%) of the issued and outstanding shares of Salem Common Stock and their
respective affiliates, the Voting Agreement in substantially the same form
set
forth as Exhibit A.
(J) DIRECTOR’S
AGREEMENT. Frontier shall have received from each director of Salem the
Director’s Agreement in substantially the same form set forth as Exhibit
B.
(K) NONCOMPETITION
AGREEMENTS. Frontier shall have received the noncompetition and
nonsolicitation agreements from Xxx X. Xxxxxxx, Xxxxx XxXxxxxx and Xxxxx Xxxxxxx
with Frontier and Frontier Bank to be effective as of the Closing (the
“Noncompetition Agreements”) substantially in the form of Exhibits C1, C2 and
C3.
(L) TRANSACTION
EXPENSES. Salem shall not have incurred expenses in connection with the
transactions contemplated by this Agreement that exceed $950,000 in the
aggregate. This figure includes potential change of control payments, legal
and
accounting fees, but does not include the investment banking fee payable to
XxXxxxx Xxxxxx Xxxxx Incorporated at closing (estimated at $25,000) and costs
or
expenses that may be incurred in conjunction with the closing of the Merger,
such as conforming to accounting adjustments in connection with Closing or
the
Merger or conversion and integration costs incurred with respect to any data
systems conversion.
7.3 CONDITIONS
TO OBLIGATIONS OF SALEM. Unless waived in writing
by Salem, the obligation of Salem to consummate the transactions contemplated
by
this Agreement is subject to the satisfaction at or prior to the Effective
Date
of the following conditions:
(A) PERFORMANCE.
Each of the material acts, covenants and undertakings of Frontier and Frontier
Bank to be performed at or before the Effective Date shall have been duly
performed in all material respects.
(B) REPRESENTATIONS
AND WARRANTIES. The representations and warranties of Frontier and Frontier
Bank contained in this Agreement shall be true and correct on and as of the
Effective Date with the same effect as though made on and at the Effective
Date,
except for any such representations and warranties that specifically relate
to
an earlier date, which shall be true and correct as of such earlier date;
provided in each case that any such failure to be true and correct, individually
or in the aggregate, would have a Material Adverse Effect on
Frontier.
(C) OFFICER’S
CERTIFICATE. In addition to the documents described elsewhere in this
Agreement, Salem shall have received the following documents and
instruments:
(1) A
certificate signed by the secretary or assistant secretary of Frontier and
Frontier Bank certifying that: (i) the Board of Directors of each of Frontier
and Frontier Bank has duly adopted resolutions (copies of which shall be
attached to such certificate) approving this Agreement and authorizing the
consummation of the transactions contemplated by this Agreement and certifying
that such resolutions have not been amended and remain in full force and effect;
(ii) each person executing this Agreement on behalf of Frontier or Frontier
Bank
is an officer of Frontier or Frontier Bank, respectively, holding the office
or
offices specified therein, with full power and authority to execute this
Agreement and any and all other documents in connection with the Agreement,
and
the signature of each person on such documents is his or her genuine signature;
and (iii) the Articles of Incorporation and Bylaws of Frontier and Frontier
Bank
(copies of which shall be attached to such certificate) remain in full force
and
effect; and
(2) A
certificate signed by the President, Chief Financial Officer and Chief Lending
Officer of Frontier and Frontier Bank dated the Effective Date stating that
the
conditions set forth in Sections 7.3(A); 7.3(B)
and 7.3(E) of this Agreement
have been satisfied as of the
Effective Date.
(D) LEGAL
OPINION. Salem shall have received a legal opinion, dated the Effective
Date, from Xxxxxx Xxxxxxxx L.L.P. in substantially the form of Exhibit
E(1).
(E) NO
MATERIAL ADVERSE CHANGE. During the period from the Execution Date to the
Effective Date, there shall have occurred or be threatened no change relative
to: (1) the business, property, assets (including loan portfolios), liabilities
(whether absolute, contingent or otherwise), prospects, operations, liquidity,
income or condition (financial or otherwise) of Frontier and/or its Subsidiaries
which is reasonably likely, individually or in the aggregate to have a Material
Adverse Effect on Frontier and/or its Subsidiaries, other than any such effect
attributable to or resulting from (i) any change in banking or similar laws,
rules or regulations of general applicability or interpretations thereof by
courts or governmental authorities, (ii) any change in GAAP (as defined herein)
or regulatory accounting principles applicable to banks, thrifts or their
holding companies generally, (iii) changes attributable to or resulting from
changes in general economic conditions, including changes in the prevailing
level of interest rates, (iv) any action or omission of Salem or Frontier or
any
Subsidiary of either of them taken with the prior written consent of the other
party hereto, or (v) any expenses incurred by such party in connection with
this
Agreement or the transactions contemplated hereby; or (2) the ability of
Frontier and/or its Subsidiaries to consummate the transactions contemplated
hereby.
(F) REORGANIZATION.
Nothing shall have come to Salem’s attention to cause it to have the reasonable
belief, after consultation with its legal advisors, that the Merger will not
be
treated as a reorganization within the meaning of Section 368(a) of the
Code.
(G) FAIRNESS
OPINION. Salem’s financial advisor, XxXxxxx Xxxxxx Xxxxx Incorporated, shall
not have withdrawn its fairness opinion described in Section 5.1(DD), prior
to
the Effective Date.
8.1 TERMINATION.
This Agreement may be terminated at any time prior to the Effective
Date, before or after approval of the matters presented in connection with
the
Merger by the holders of Salem Common Stock, under each of the following
conditions:
(A) MUTUAL
CONSENT. By the mutual consent of Frontier and Salem, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire board.
(B) DELAY.
By Frontier or Salem in the event the Merger is not consummated by March 31,
2008, unless the failure of the consummation of the transactions to occur shall
be due to the failure of the party seeking to terminate this Agreement to
perform its obligations hereunder in a timely manner; provided,
however, that a party may not terminate the Agreement pursuant to this
Section 8.1(B) if it is
in material breach of any of the provisions of the Agreement.
(C) NO
REGULATORY APPROVALS. By Frontier or Salem, in the event that any of the
required regulatory approvals set forth in Section 7.1(B) are denied (or should any such required
approval be conditioned upon a substantial deviation from the transactions
contemplated); provided however, that either party may extend the term
of this Agreement for a sixty (60) day period to prosecute diligently and
overturn such denial provided that such denial has been appealed within fourteen
(14) business days of the receipt thereof.
(D) BREACH
OF WARRANTY. By either Frontier or Salem (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 representations or warranties set forth in this Agreement on
the
part of the other party, which breach is not cured within thirty days following
written notice to the party committing such breach, or which breach, by its
nature, cannot be cured prior to the Effective Date; provided, however,
that neither party shall have the right to terminate this Agreement pursuant
to
this Section 8.1(D)
unless the breach of representation or warranty, together with all other such
breaches, would entitle the party receiving such representation not to
consummate the transactions contemplated hereby under Section 7.2(B) (in the case of a breach of representation or
warranty by Salem) or Section 7.3(B) (in the case
of a breach of representation or warranty by Frontier).
(E) BREACH
OF COVENANT. By either Frontier or Salem (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 set forth in this Agreement on the part
of
the other party, which breach shall not have been cured within thirty days
following receipt by the breaching party of written notice of such breach from
the other party hereto, or which breach, by its nature, cannot be cured prior
to
the Effective Date.
(F) SUPERIOR
PROPOSAL. By Salem, in the event that the Board of Directors of Salem
determines in good faith, after consultation with its financial adviser and
outside counsel, that in light of a Superior Proposal (as defined in Section
9.3) it would not be consistent with its fiduciary
duties to Salem and to Salem's shareholders under applicable law to continue
with the transactions contemplated under this Agreement; provided,
however, that the Board of Directors of Salem may terminate this Agreement
pursuant to this Section 8.1(F) solely in order
to concurrently enter into a letter
of intent, agreement in principle, acquisition agreement or other similar
agreement (each, an “Acquisition
Agreement”)
related to a Superior Proposal; provided further, however, that this Agreement
may be terminated pursuant to this Section 8.1(F) only after the fifth
day following Frontier's
receipt of written notice advising Frontier that the Board of Directors of
Salem
is prepared to accept a Superior Proposal, and only if, during such five-day
period, if Frontier so elects, Salem and its advisors shall have negotiated
in
good faith with Frontier to make such adjustments in the terms and conditions
of
this Agreement as would enable Frontier to proceed with the transactions
contemplated herein on such adjusted terms.
(G) SHAREHOLDER
APPROVAL. By either Frontier or Salem if the approval of the shareholders of
Salem 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
such shareholders or at any adjournment or postponement thereof.
(H) FRONTIER
CONDITIONS PRECEDENT. By Frontier as a result of (1) a Material Adverse
Change in Salem as set forth in Section 7.2(E), or
(2) exercised dissenters’ rights exceeding 10% as set forth in Section 7.2(H).
(I) SALEM
CONDITIONS PRECEDENT. By Salem as a result of a Material Adverse Change in
Frontier as set forth in Section 7.3(E), or if the
condition set forth in Section 7.3(F)
cannot be satisfied.
(J) NO
FAIRNESS OPINION. By Salem in the event the fairness opinion described in
Section 7.3(G) is withdrawn; provided, however, if this Agreement is
terminated in reliance upon this Section 8.1(J) and Salem enters into any
Acquisition Agreement providing for any transaction described in clause (1)
or
clause (2) of Section 9.3(D) within twenty four (24) months of the termination
of this Agreement pursuant to this Section 8.1(J), Salem shall pay Frontier
$1,000,000.
(A) In
the event of termination of this Agreement by either Frontier or Salem as
provided in Section 8.1, this Agreement shall
forthwith become void and have no effect except (1) Sections 6.5(B), 8.1(C), 8.1(J),
8.2
and 9.3 shall
survive any termination of this Agreement, and (2) that, notwithstanding
anything to the contrary contained in this Agreement, no party shall be relieved
or released from any liabilities or damages arising out of its willful breach
of
any provision of this Agreement.
(B) If
(i) Salem terminates this Agreement pursuant to Section 8.1(F), (ii) Frontier terminates this Agreement
pursuant to Section 8.1(D) or
Section 8.1(E),
or (iii) either party
terminates this Agreement pursuant to Section 8.1(G), Salem shall pay to Frontier
a
termination fee equal to $1,000,000 (the “Termination Fee Amount”) by wire
transfer of same day funds on the date of termination. The Termination Fee
Amount shall also be payable by Salem under the circumstances set forth in
Section 8.1(J) and Section 8.2(C).
(C) In
the event that an Acquisition Proposal with respect to Salem shall have been
made known to Salem and shall have been publicly announced or otherwise become
public, or shall have been made to the shareholders of Salem, and thereafter
(1)
this Agreement is terminated by either Frontier or Salem pursuant to either
(i)
Section 8.1(B) hereof and prior to
such termination the shareholders of Salem shall not have previously approved
the Merger, or (ii) Section 8.1(G)
hereof as a result of the failure of the shareholders of Salem to approve the
Merger, and (2) within twenty-four (24) months of such termination Salem enters
into any Acquisition Agreement providing for any transaction
described
in clause (1) or clause (2) of Section 9.3(D), then upon the first occurrence
of an
event contemplated by this clause (2) Salem shall pay Frontier the Termination
Fee Amount.
(D) If
Salem terminates this Agreement pursuant to Section 8.1(D) or Section 8.1(E),
Frontier shall pay to Salem a
termination fee equal to $1,000,000 by wire transfer of same day funds on the
date of termination.
(E) The
parties agree that the agreements contained in Sections 8.2(B),
8.2(C)
and
8.2(D) above are integral parts of
the transactions contemplated by this Agreement and constitute liquidated
damages and not a penalty.
8.3 AMENDMENT.
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 date before or after approval of the matters presented in
connection with the Merger by the shareholders of Salem; provided,
however, that after any approval of the transactions contemplated by this
Agreement by Salem's shareholders, there may not be, without further approval
of
such shareholders, any amendment of this Agreement which reduces the amount
or
changes the form of the consideration to be delivered to Salem 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.
8.4 EXTENSION;
WAIVER. At any time prior to the Effective Date,
each of the parties hereto, by action taken or authorized by its Board 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 of the other
party contained herein or in any document delivered pursuant hereto and (C)
waive compliance with any of the agreements or conditions of the other party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or
other failure.
9.1 ADDITIONAL
AGREEMENTS. In case at any time after the
Effective Date any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Resulting Bank with full title to
all
properties, assets, rights, approvals, immunities and franchise 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 the other party.
9.2 BENEFIT
PLANS.
(A) Upon
consummation of the Merger, except as provided in the Employment Agreements,
entered into with certain officers of Salem, all employees of Salem shall be
deemed to be at-will employees of Frontier and its Subsidiaries. From and after
the Effective Date, employees of Salem shall be entitled to participate in
the
pension, employee benefit and similar plans (including stock option, bonus
or
other incentive plans) on substantially the same terms and conditions as
similarly situated employees of Frontier and its Subsidiaries. For the purpose
of determining eligibility to participate in such plans and the vesting and
related calculations of benefits under such plans (but not for the vesting
under
Frontier’s 2006 Stock Incentive Plan or accrual of benefits under any such
plan), Frontier shall give effect to years of service with Salem as if such
service were with Frontier or its Subsidiaries.
(B) As
of or prior to the Effective Date, Salem shall adopt the relevant resolutions
of
its Board of Directors necessary to terminate the Salem 401(k) Plan (the “Salem
401(k) Plan”). In connection with such termination, the Salem 401(k) Plan shall
be submitted to the Internal Revenue Service for a determination regarding
its
qualification upon termination and, upon receipt of a favorable determination
letter, distributions shall be made to participants in accordance with ERISA,
the Code, and the Salem 401(k) Plan as soon as practicable after the receipt
of
the determination letter. Neither Frontier, nor Frontier Bank, shall have any
obligation to make contributions to the Salem 401(k) Plan after the Effective
Date. Participants in the Salem 401(k) Plan who become employees of Frontier
or
Frontier Bank will be permitted, subject to the terms of the Salem 401(k) Plan,
to rollover such distributions to Frontier’s 401(k) Plan.
9.3 CERTAIN
ACTIONS.
(A) Except
with respect to this Agreement and the transactions contemplated hereby, neither
Salem nor any of its directors, officers, agents, affiliates (as such term
is
used in Rule 12b-2 under the Exchange Act) or representatives (collectively,
“Representatives”) shall, directly or indirectly, initiate, solicit, encourage
or facilitate (including by way of furnishing information) any inquiries with
respect to or the making of any Acquisition Proposal (as defined
below).
(B) Notwithstanding
anything herein to the contrary, Salem and its Board of Directors shall be
permitted (i) to comply with Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal, (ii) to engage in any
discussions or negotiations with, or provide any information to, any person
in
response to an unsolicited bona fide written Acquisition Proposal by any such
person, if and only to the extent that (a) Salem’s Board of Directors concludes
in good faith and consistent with its fiduciary duties to Salem’s shareholders
under applicable law that such Acquisition Proposal may result in a Superior
Proposal (as defined below), (b) prior to providing any information or data
to
any person in connection with an Acquisition Proposal by any such person,
Salem’s Board of Directors receives from such person an executed confidentiality
agreement containing terms at least as stringent as those contained in the
Confidentiality Agreement, and (c) prior to providing any information or data
to
any person or entering into discussions or negotiations with any person, Salem’s
Board of Directors notifies Frontier promptly of such inquiries, proposals,
or
offers received by, any such information requested from, or any such discussions
or negotiations sought to be initiated or continued with, any of its
Representatives.
(C) Salem
agrees that it will, and will cause its Representatives to, immediately cease
and cause to be terminated any activities, discussions, or negotiations existing
as of the Execution Date with any parties conducted heretofore with respect
to
any Acquisition Proposal, and shall use reasonable best efforts to cause all
persons other than Frontier who have been furnished confidential information
regarding Salem in connection with the solicitation of or discussions regarding
an Acquisition Proposal within the 12 months prior to the date hereof promptly
to return or destroy such information. Salem agrees not to release any third
party from the confidentiality and standstill provisions of any agreement to
which Salem is or may become a party, and shall immediately take all steps
necessary to terminate any approval that may have been heretofore given under
any such provisions authorizing any person to make an Acquisition
Proposal.
(D) For
purposes of this Section 9.3:
(1) The
term “Acquisition Proposal” means any tender offer or exchange offer or any
proposal for a merger, reorganization, consolidation, share exchange,
recapitalization, liquidation, dissolution or other business combination
involving Salem or any proposal or offer to acquire a substantial equity
interest in (other than as part of a public offering to raise capital that
does
not require shareholder approval), or (other than in the ordinary course of
business) a substantial portion of the assets of, Salem, other than the
transaction contemplated or permitted by this Agreement.
(2) The
term “Superior Proposal” means, with respect to Salem, any written Acquisition
Proposal made by a person other than Frontier which is for (i) (a) a merger,
reorganization, consolidation, share exchange, business combination,
recapitalization or similar transaction involving Salem, (b) a sale, lease,
exchange, transfer, or other disposition of at least 25% of the assets of Salem,
taken as a whole, in a single transaction or a series of related transactions,
or (c) the acquisition, directly or indirectly, by a person of beneficial
ownership of 25% or more of the Salem Common Stock whether by merger,
consolidation, share exchange, business combination, tender, or exchange offer
or otherwise, and (ii) which is otherwise on terms which the Board of Directors
of Salem in good faith concludes (after consultation with its financial advisors
and outside counsel), taking into account, among other things, all legal,
financial, regulatory, and other aspects of the proposal and the person making
the proposal, (a) would, if consummated, result in a transaction that is more
favorable to its shareholders (in their capacities as shareholders), from a
financial point of view, than the transactions contemplated by this Agreement,
and (b) is reasonably capable of being completed.
9.4 EMPLOYMENT
AND CHANGE IN CONTROL AGREEMENTS. As of the
Effective Date, Frontier shall assume and honor and shall cause Frontier Bank
to
assume and to honor in accordance with their terms (i) the change of control
agreements with Xxx X. Xxxxxxx, Xxxxx XxXxxxxx and Xxxxx Xxxxxxx as described
in
Schedule 9.4 and as amended as of the Closing by the Noncompetition Agreement,
and (ii) to the extent the Effective Date occurs prior to December 31, 2007,
the
employment agreement with Xxxxxxx X. Xxxxx as described in Schedule 9.4 which
terminates December 31, 2007 (collectively, the “Employment Agreements”).
Frontier acknowledges and agrees that the Merger will constitute a merger,
sale
or a change in control of Salem for all purposes under such Employment
Agreements.
10.1 CLOSING;
EFFECTIVE DATE. Subject to the terms and
conditions of this Agreement, the closing of the Merger (the “Closing”) will
take place at 10:00 a.m. on the first day which is at least one business day
after the satisfaction or waiver (subject to applicable law) of the latest
to
occur of the conditions set forth in ARTICLE VII
(other than those conditions which relate to actions to be taken at the Closing)
(the “Effective Date”), at the offices of Xxxxxx Xxxxxxxx L.L.P., unless another
time, date or place is agreed to in writing by the parties hereto. On the
Effective Date, a certificate of merger will be issued by the Department of
Financial Institutions of the State of Washington in accordance with applicable
law.
10.2 SURVIVAL.
Only those agreements and covenants in this Agreement that by their
express terms apply in whole or in part after the Effective Date shall survive
the Effective Date. All other
representations,
warranties, and covenants shall be deemed only to be conditions of the Merger
and shall not survive the Effective Date.
10.3 COUNTERPARTS.
This Agreement may be executed in one or more facsimile counterparts,
each of which shall be deemed to constitute an original. This Agreement shall
become effective when one counterpart has been signed by each
party.
10.4 GOVERNING
LAW; VENUE. This Agreement shall be governed by,
and interpreted in accordance with, the laws of the State of Washington, without
regard to any applicable conflict of law, and venue of any legal action or
proceeding between the parties related to this Agreement shall be in Seattle,
Washington.
10.5 EXPENSES.
Each party will bear all expenses incurred by it in connection with
this Agreement and the transactions contemplated by this Agreement.
10.6 NOTICES.
All notices, requests and other communications hereunder to a “party”
shall be in writing and shall be deemed to have been duly given when
delivered
by hand, telegram, certified or registered mail, overnight courier, telecopy
or
telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the
parties.
If
to Frontier or Frontier Bank to:
FRONTIER
FINANCIAL
CORPORATION
000
X.X. Xxxxxxx Xxxx Xxx
X.X.
Xxx 0000
Xxxxxxx,
XX 00000
Telephone: (000)
000-0000
Fax: (000)
000-0000
Attn:
Xxxx X. Xxxxxxx, President and CEO
With
a copy
to: Xxxxxx
Xxxxxxxx L.L.P.
0000
Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx,
XX 00000-0000
Telephone: (000)
000-0000
Fax: (000)
000-0000
If
to Salem,
to:
BANK OF SALEM
0000
Xxxxxxxxxx Xxxxxx XX
Xxxxx,
XX 00000
Telephone: (000)
000-0000
Fax: (000)
000-0000
Attn:
Xxx X. Xxxxxxx, President and CEO
With
a copy
to: Xxxxxx
Pepper LLP
000
XX 0xx Xxxxxx, Xxxxx 0000
Xxxxxxxx,
XX 00000-0000
Telephone: (000)
000-0000
Fax: (000)
000-0000
Toll
Free: (000)
000-0000
Attn:
Xxxxxx X. Xxxx
10.7 ENTIRE
UNDERSTANDING. This Agreement (which includes the
Exhibits and Schedules thereto) represents the entire understanding of the
parties with reference to transactions contemplated by this Agreement and
supersedes any and all other oral or written agreements previously made, other
than the Confidentiality Agreement between Frontier and Salem.
10.8 ENFORCEMENT
PROCEEDINGS. In any action or proceeding in
connection with the enforcement of this Agreement, the prevailing party will
be
entitled to reimbursement of its reasonable attorneys’ fees and expenses from
the non-prevailing party.
10.9 HEADINGS.
The headings contained in this Agreement are for reference purposes
only and are not part of this Agreement.
10.10 ENFORCEMENT
OF CONFIDENTIALITY AGREEMENT. The parties hereto
agree that irreparable damage would occur in the event that the provisions
contained in Section 6.5(B) of this Agreement were
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or
injunctions to prevent breaches of Section 6.5(B)
of this Agreement and to enforce specifically the terms and provisions thereof
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or in
equity.
10.11 SEVERABILITY.
Any term or provision of this Agreement which 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 provisions
of
this Agreement or affecting the validity or enforceability of any of the terms
or provisions of this Agreement in any other jurisdiction. If any provision
of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
10.12 ASSIGNMENT;
NO THIRD PARTY BENEFICIARIES. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. 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 expressly provided herein, 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.
FRONTIER
FINANCIAL CORPORATION
By:
/s/ Xxxx X.
Xxxxxxx
Xxxx
X. Xxxxxxx
President
and Chief Executive
Officer
FRONTIER
BANK
By:
/s/ Xxxx X.
Xxxxxxx
Xxxx
X. Xxxxxxx
Chief
Executive Officer
BANK
OF SALEM
By:
/s/ Xxx X.
Xxxxxxx
Xxx
X. Xxxxxxx
President
and Chief Executive
Officer
EXHIBIT
A
VOTING
AGREEMENT
Frontier
Financial Corporation
000
XX Xxxxxxx Xxxx Xxx
Xxxxxxx,
XX 00000
Gentlemen:
In
order to induce you to enter into an Agreement and Plan of Merger (the “Merger
Agreement”) dated of even date herewith by and among Frontier Financial
Corporation (“Frontier”), Frontier Bank and Bank of Salem (“Salem”), the
undersigned, for himself, his heirs and legal representatives, hereby agrees,
represents, warrants and covenants with and to Frontier as follows:
1. The
undersigned beneficially owns1 the shares
of common stock of Salem (“Salem Common Stock”) set forth beneath the
undersigned’s name below and no other shares of Salem Common Stock. Such shares
are owned free and clear of any lien, right or encumbrance whatsoever, except
for any pledge of such shares to secure a loan to the undersigned, and no
proxy
has been granted with respect thereto and the undersigned has full capacity,
power and authority to vote such shares without the consent or approval of
any
other party in the absence of a default under any such loan secured by such
shares. If any of such shares are currently pledged to secure a loan to the
undersigned, the undersigned (i) represents and warrants that such loan is
not
in default and no event or condition exists that with notice, lapse of time
or
both would constitute such a default, and (ii) agrees to take all such action
as
may be necessary to prevent any such default, event or condition to exist
in
order to prevent the lender from taking title to such shares and to continue
to
enable the undersigned to vote such shares as hereinafter set
forth.
2. The
undersigned hereby agrees to vote the undersigned'sshares in favor of approval
of the Merger Agreement unlessthe Merger Agreement has been terminated prior
to
the Meeting (as defined in the Merger Agreement).
3. The
undersigned covenants that, until the earlier of the consummation of the
Merger
or the termination of the Merger Agreement, the undersigned will not sell,
permit a lien or other encumbrance to exist with respect to (except as
hereinabove provided), or grant any proxy in respect of (except as hereinabove
provided and for proxies solicited by the Board of Directors of Salem in
connection with the Meeting to vote on the approval of the Merger Agreement),
the shares of Salem Common Stock set forth below, unless all the other parties
to any such sale or other transaction enter into an agreement in form and
substance satisfactory to Frontier embodying the benefits and rights contained
herein.
4. The
undersigned covenants that the undersigned will not, unless the Merger Agreement
is terminated in accordance with the provisions thereof: (i) make any public
announcement with respect to the Merger; (ii) submit or seek any other person
or
entity to submit a proposal for a tender offer, merger or similar transaction
with Salem; or (iii) vote the shares owned or controlled by the undersigned
in
favor of, solicit proxies or seek another person or entity to solicit proxies
on
behalf of, a proposal, the purpose of which is to oppose or nullify the
Merger.
Very
truly yours,
______________________________________
Print
Name: ____________________________
NUMBER
OF SHARES:
_________ Dated: ____________________,
2007
1
Beneficial ownership
is defined by SEC rules, to include Salem shares held by the undersigned,
his
spouse and dependents and their controlled trusts and other entities over
which
the undersigned has voting or investment power with respect to the Salem
Common
Stock.
EXHIBIT
B
DIRECTOR’S
AGREEMENT
This
Agreement, dated as of __________________, 2007, is between FRONTIER FINANCIAL
CORPORATION, a Washington corporation (“Frontier”), FRONTIER BANK, a Washington
state chartered bank (“Frontier Bank”), and _________________________
(“Director”), a director of BANK OF SALEM, an Oregon state chartered bank
(“Salem”).
1. Pursuant
to the terms of the Agreement and Plan of Merger dated as of July _____,
2007
(the “Merger Agreement”), between Frontier, Frontier Bank and Salem, Salem will
be merged into Frontier Bank, with Frontier Bank as the continuing
corporation.
2. Frontier’s
and Frontier Bank’s obligations to consummate the transactions contemplated by
the Merger Agreement are conditioned upon their receipt of noncompetition
and
nonsolicitation agreements from all directors of Salem.
3. Director
is a director of Salem.
In
consideration of Frontier’s and Frontier Bank’s performance under the Merger
Agreement, Director agrees that for a period of two years after the Effective
Date of the Merger, Director will not, without Frontier or Frontier Bank’s prior
written consent, by himself or through associates, agents, employees or others,
directly or indirectly, (i) become involved in, as a principal shareholder,
director, officer, founder, employee, consultant or other agent (each of
the
foregoing relationships, hereinafter referred to as an “Affiliate”) of any
Financial Institution (as defined below) in the counties of Washington, Xxxx,
Xxxxxx or Multnomah, in the state of Oregon, or (ii) have any responsibility
for
a Financial Institution’s organization or operation within the counties of
Washington, Xxxx, Xxxxxx or Multnomah, in the state of Oregon; provided,
however, that Director may acquire and passively own an interest not exceeding
2% of the total equity interest in any Financial Institution in the counties
of
Washington, Xxxx, Xxxxxx or Multnomah, in the state of Oregon that is traded
on
NASDAQ or another U.S. stock exchange.
Director
also agrees that for a period of two years after the Effective Date of the
Merger, Director will not, by himself or through associates, agents, employees
or others, directly or indirectly, (a) solicit or attempt to solicit (i)
any
employee of Frontier, Frontier Bank, or any of their subsidiaries or affiliates
(including, but not limited to, any employees of Salem who became an employee
of
Frontier as a result of the Merger), to leave their employment or (ii) any
customers of Frontier, Frontier Bank, or any of their subsidiaries or affiliates
(including, but not limited to, any customer of Salem who became a customer
of
Frontier as a result of the Merger) to remove or transfer any of their business
from Frontier, Frontier Bank, or any of their subsidiaries or affiliates,
or (b)
otherwise interfere with, disrupt or attempt to disrupt the relationship,
contractual or otherwise, between Frontier or Frontier Bank and any of their
customers or employees. Solicitation prohibited under this section includes
solicitation by any
means,
including, without limitation, meetings, telephone calls, letters or other
mailings, electronic communication of any kind, and Internet
communications.
Further,
anything to the contrary herein notwithstanding, neither Director nor any
firm,
company, trust or other entity of which Director is an Affiliate shall ever
(i)
use, register or claim any right or interest in any Intellectual Property
or
Confidential Information of Frontier or Frontier Bank, including but not
limited
to the Intellectual Property and Confidential Information of Bank of Salem
acquired pursuant to the Merger Agreement, or (ii) use the tradename “Bank of
Salem,” “Bank of Tigard” or “Bank of Portland,” or any similar name or
derivation thereof, in connection with the banking, financial, lending or
mortgage industries.
For
purposes of this Agreement, the term “Financial Institution” means any bank
holding company or financial holding company, state or national bank, state
or
federal savings and loan association, mutual savings bank, or state or federal
credit union, trust company or mortgage company (including without limitation,
any organizing entity of any such financial institution) located in the counties
of Washington, Xxxx, Xxxxxx or Multnomah, in the state of Oregon. Capitalized
terms used as defined terms, but not defined in this Director’s Agreement, have
the meanings assigned to those terms in the Merger Agreement.
Director
recognizes and agrees that any breach of this Agreement by Director will
entitle
Frontier, Frontier Bank and their successors or assigns to injunctive relief,
as
well as any other legal or equitable remedies to which such entities may
otherwise be entitled, including, but not limited to damages.
If
the Merger Agreement expires or is terminated for any reason before the
consummation of the transactions contemplated thereunder, this Agreement
will
automatically terminate and be of no further force and effect.
In
any action or proceeding in connection with the enforcement of this Agreement,
the prevailing party will be entitled to reimbursement of its reasonable
attorneys’ fees and expenses from the non-prevailing party. Exclusive
jurisdiction and venue shall lie with the competent state or federal court
in
Washington state, unless otherwise elected by Frontier, Frontier Bank, their
successors or assigns.
|
FRONTIER
FINANCIAL CORPORATION
By:
/s/ Xxxx X.
Xxxxxxx
Xxxx
X. Xxxxxxx, President/CEO
|
DIRECTOR
Print
Name:
____________________
|
|
FRONTIER
BANK
By: /s/
Xxxx
X. Xxxxxxx
Xxxx
X. Xxxxxxx, CEO
|
EXHIBIT
C-1
NONCOMPETITION
AND
NONSOLICITATION
AGREEMENT
This
Noncompetition and Nonsolicitation Agreement dated _______________, 2007
(this
“Agreement”) is entered into by and between FRONTIER FINANCIAL CORPORATION,
FRONTIER BANK and their subsidiaries and affiliates (collectively, “Frontier”),
and XXX X. XXXXXXX (“Executive”), to be effective on the Effective Date of the
Merger of Frontier Bank and Bank of Salem (“Salem”).
WHEREAS,
Frontier and Salem are entering into an Agreement and Plan of Merger (“the
Merger Agreement”), pursuant to which Salem will be merged into Frontier Bank
(the “Merger”); and
WHEREAS,
Executive is currently employed as _________________________ of Salem and
has
knowledge of certain Confidential Information of Salem, and Frontier Financial
Corporation and Frontier Bank are executing the Merger Agreement conditioned
upon Executive’s agreement not to compete with Frontier in the counties of
Washington, Xxxx, Xxxxxx and Multnomah, in the state of Oregon and not to
solicit employees and customers of Frontier (including the employees and
customers of Salem who become employees and customers of Frontier following
the
Merger), for a specified period of time following the Merger, all as further
described below; and
NOW
THEREFORE, Frontier and Executive agree as follows:
1. Effective
Date. This Agreement shall become effective on the Effective Date
of the Merger, as set forth in the Merger Agreement.
2. Prior
Agreements. By entering into this Agreement, Executive does not
relinquish any rights to payments or benefits of any kind pursuant to his
change
in control agreement with Salem dated ____________________ (“Change of Control
Agreement”), as amended pursuant to Section 8 below, which shall terminate upon
payment by Frontier or Salem of the benefits due thereunder, whether paid
prior
to or after the Effective Date.
3. Noncompetition
and Xxxxxxxxxxxxxxx.Xx consideration for this Agreement and to
protect the business and goodwill purchased by Frontier, Executive agrees
that
he will not, by himself or through associates, agents, employees, or others,
directly or indirectly, do any of the following for a two-year period commencing
on the first day after the Effective Date of the Merger.
3.1 (a)
become involved in, as a principal shareholder, director, officer, founder,
employee, consultant or other agent (each of the foregoing relationships,
hereinafter referred to as an “Affiliate”) of any Financial Institution (as
defined below) in the counties of Washington, Xxxx, Xxxxxx or Multnomah,
in the
state of Oregon, or (b) have any responsibility for a Financial Institution’s
organization or operation within the counties of Washington, Xxxx,
Xxxxxx
or Multnomah, in the state of Oregon; provided, however, that Executive may
acquire and passively own an interest not exceeding 2% of the total equity
interest in any Financial Institution in the counties of Washington, Xxxx,
Xxxxxx or Multnomah, in the state of Oregon that is traded on NASDAQ or another
U.S. stock exchange.
3.2 (a)
solicit or attempt to solicit (i) any employees of Frontier to leave their
employment, or (ii) any customers of Frontier to remove or transfer any of
their
business from Frontier, or (b) otherwise interfere with, disrupt or attempt
to
disrupt the relationship, contractual or otherwise, between Frontier and
any of
Frontier’s customers or employees. Solicitation prohibited under this section
includes solicitation by any means, including, without limitation, meetings,
letters or other mailings, electronic communications of any kind, and Internet
communications.
For
purposes of this Agreement, the term “Financial Institution” means any bank
holding company or financial holding company, state or national bank, state
or
federal savings and loan association, mutual savings bank, or state or federal
credit union, trust company or mortgage company (including without limitation,
any organizing entity of any such Financial Institution) located in the counties
of Washington, Xxxx, Xxxxxx or Multnomah, in the state of Oregon. Capitalized
terms used as defined terms, but not defined in this Agreement, have the
meanings assigned to those terms in the Merger Agreement.
4. Intellectual
Property/Confidential Information. Further, anything to the
contrary herein notwithstanding, neither Director nor any firm, company,
trust
or other entity of which Director is an Affiliate shall ever (i) use, register
or claim any right or interest in any Intellectual Property or Confidential
Information of Frontier, including but not limited to the Intellectual Property
and Confidential Information of Bank of Salem acquired pursuant to the Merger
Agreement, or (ii) use the tradename “Bank of Salem,” “Bank of Tigard” or “Bank
of Portland,” or any similar name or derivation thereof, in connection with the
banking, financial, lending or mortgage industries.
5. No
Employee Contract Rights. Nothing contained in this Agreement shall
be construed to abrogate, limit or affect the powers, rights and privileges
of
Frontier to remove Executive as an employee of Frontier, with or without
cause.
6.1 Frontier
and Executive stipulate that, in light of all of the facts and circumstances
of
the relationship between Frontier and Executive, the agreements referred
to in
sections 3 and 4 (including without limitation their scope, duration and
geographic extent) are fair and reasonably necessary for the protection of
Frontier’s confidential information, goodwill and other protectable interests.
If a court of competent jurisdiction should decline to enforce any of those
covenants and agreements, Frontier and Executive request the court to reform
these provisions to restrict Executive’s use of confidential information and
Executive’s ability to compete with Frontier to the maximum extent, in time,
scope of activities and geography, the court finds enforceable.
6.2 Executive
acknowledges that Frontier will suffer immediate and irreparable harm that
will
not be compensable by damages alone, if Executive repudiates or breaches
any of
the provisions of sections 3 or 4 or threatens
or attempts to do so. For this reason, under these circumstances, Frontier,
in
addition to and without limitation of any other rights, remedies or damages
available to it at law or in equity, will be entitled to obtain temporary,
preliminary and permanent injunctions in order to prevent or restrain the
breach, and Frontier will not be required to post a bond as a condition for
the
granting of this relief.
6.3 In
the event Executive breaches this Agreement, which breach is not corrected
within 15 days of notice by the Bank to Executive of such breach, Executive
shall in addition to the remedies available to the Bank under section 6.2,
forfeit all right to receive all benefits or other payments remaining unpaid
on
the date of any such breach, and shall refund any payments received pursuant
to
section 8.2 hereof.
7. Adequate
Consideration. Executive specifically acknowledges the receipt of
adequate consideration for the covenants contained in sections 3 and 4 above and that Frontier is entitled
to require
his to comply with said sections 3 and 4, which
paragraph will survive termination of this Agreement. Executive represents
that
if his employment is terminated, whether voluntarily or involuntarily, he
has
the experience and capabilities sufficient to enable him to obtain employment
in
areas which do not violate this Agreement, and that Frontier’s enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood.
8. Amendments
to Change of Control Agreement. Executive’s change in control
agreement is amended as of the Effective Date of this Merger, as
follows.
8.1 Definitions.
The following definitions shall govern and be controlling:
“Change
in Control” means the Merger.
“Bank”
means Frontier, its successors or assigns.
8.2 Payment
Obligations. Section 3.1, Payment Triggers, and section 3.2, Payment Amount,
of the Change of Control Agreement, are superseded and replaced by the
following:
3.1 If
Executive is an employee of the Bank of Salem on the Effective Date, the
Bank
will pay Executive 50% of his Change in Control Payment, less statutory payroll
deductions, in cash upon Closing of the Merger.
3.2 If
Executive remains an employee of the Bank on the first anniversary of the
Effective Date or within 12 months after the Change in Control, the Bank
terminates Executive’s employment other than termination for Cause, or Executive
terminates his employment with the Bank for Good Reason, Executive shall
receive
the balance of his Change in Control Payment, less
statutory
payroll deductions, within 30 days following such anniversary date or the
date
of termination of employment.
8.3 The
definition of Good Reason in section 5.2 of the Change of Control Agreement
is
superseded and replaced by the following:
“Good
Reason” means the occurrence of one or more of the following conditions arising
without the consent of Executive, after the Effective Time:
(i) A
material diminution in his Total Monthly Compensation.
(ii) A
material diminution in his authority, duties, or responsibilities.
(iii) A
material change in the geographic location at which Executive must perform
the
services.
8.4 Where
required, the provisions of this agreement are intended to comply with the
requirements of section 409A of the Code. Notwithstanding any other provision
of
this agreement, this agreement shall be interpreted and administered in
accordance with the requirements of section 409A of the Code.
8.5 Xxxxxxx
0, Xxxxxxxxxxx of Agreement, Section 6, Arbitration, and Section 9.7, Governing
Laws and Venue, of the Change of Control Agreement, are deleted.
8.6 Any
payment to Executive under Section 8.2 hereof shall be conditioned upon receipt
by the Bank of an executed release of all claims against the Bank, satisfactory
to the Bank and its counsel.
9.1 Defined
Terms. Capitalized terms used as defined terms, but not defined in
this Agreement, will have the meanings assigned to those terms in the Merger
Agreement.
9.2 Independent
Legal Counsel. Executive acknowledges that he has had the opportunity to
review and consult with his own personal legal counsel regarding this
Agreement.
9.3 Binding
Effect. This Agreement will bind and inure to the benefit of Frontier’s and
Executive’s heirs, legal representatives, successors and assigns.
9.4 Costs
of Legal Actions and Proceedings. In any dispute between the parties arising
out of or under this Agreement, whether or not a lawsuit is commenced, the
nonprevailing party shall pay the prevailing party’s reasonable attorneys’ fees
and costs.
9.5 Governing
Law. This Agreement shall be construed in accordance with and governed and
enforced in all respects by the laws of the State of Washington. The parties
agree that venue of any legal action between the parties arising out of or
in
connection with this Agreement shall be with the competent state or federal
court in Washington state, unless otherwise elected by Frontier, its successors
or assigns.
9.6 Entire
Agreement. This Agreement contains the entire agreement of the parties with
respect to its subject matter, and supersedes all prior representations and
understandings, whether oral or written. It may be changed only by an agreement
in writing signed by the party against whom enforcement of any waiver,
amendment, modification, extension or discharge is sought.
9.7 Waiver.
No waiver of any term, condition or provision shall be effective for any
purpose
whatsoever unless such waiver is in writing and signed by the
parties.
9.8 Severability.
The provisions of this Agreement are severable. The invalidity of any provision
will not affect the validity of other provisions of this Agreement.
9.9 Notice.
Any notice to be delivered under this Agreement shall be given in writing
and
delivered personally or by certified mail, postage prepaid, addressed to
Frontier or to Executive at their last known address.
9.10 Counterparts.
This Agreement may be executed in one or more counterparts, each of which
will
be deemed an original, but all of which taken together will constitute one
and
the same instrument.
|
FRONTIER
BANK
By: /s/
Xxxx X.
Xxxxxxx
Xxxx
X. Xxxxxxx, CEO
|
EXECUTIVE
/s/
Xxx X. Xxxxxxx
Xxx
X. Xxxxxxx
|
EXHIBIT
C-2
NONCOMPETITION
AND
NONSOLICITATION
AGREEMENT
This
Noncompetition and Nonsolicitation Agreement dated _______________, 2007 (this
“Agreement”) is entered into by and between FRONTIER FINANCIAL CORPORATION,
FRONTIER BANK and their subsidiaries and affiliates (collectively, “Frontier”),
and XXXXX XXXXXXX (“Executive”), to be effective on the Effective Date of the
Merger of Frontier Bank and Bank of Salem (“Salem”).
WHEREAS,
Frontier and Salem are entering into an Agreement and Plan of Merger (“the
Merger Agreement”), pursuant to which Salem will be merged into Frontier Bank
(the “Merger”); and
WHEREAS,
Executive is currently employed as _________________________ of Salem and has
knowledge of certain Confidential Information of Salem, and Frontier Financial
Corporation and Frontier Bank are executing the Merger Agreement conditioned
upon Executive’s agreement not to compete with Frontier in the counties of
Washington, Xxxx, Xxxxxx and Multnomah, in the state of Oregon and not to
solicit employees and customers of Frontier (including the employees and
customers of Salem who become employees and customers of Frontier following
the
Merger), for a specified period of time following the Merger, all as further
described below; and
NOW
THEREFORE, Frontier and Executive agree as follows:
1. Effective
Date. This Agreement shall become effective on the Effective Date
of the Merger, as set forth in the Merger Agreement.
2. Prior
Agreements. By entering into this Agreement, Executive does not
relinquish any rights to payments or benefits of any kind pursuant to his change
in control agreement with Salem dated ____________________ (“Change of Control
Agreement”), as amended pursuant to Section 8 below, which shall terminate upon
payment by Frontier or Salem of the benefits due thereunder, whether paid prior
to or after the Effective Date.
3. Noncompetition
and Nonsolicitation. In consideration for this Agreement and to
protect the business and goodwill purchased by Frontier, Executive agrees that
he will not, by himself or through associates, agents, employees, or others,
directly or indirectly, do any of the following for a two-year period commencing
on the first day after the Effective Date of the Merger.
3.1 (a)
become involved in, as a principal shareholder, director, officer, founder,
employee, consultant or other agent (each of the foregoing relationships,
hereinafter referred to as an “Affiliate”) of any Financial Institution (as
defined below) in the counties of Washington, Xxxx, Xxxxxx or Multnomah, in
the
state of Oregon, or (b) have any responsibility for a Financial Institution’s
organization or operation within the counties of Washington, Xxxx,
Xxxxxx
or Multnomah, in the state of Oregon; provided, however, that Executive may
acquire and passively own an interest not exceeding 2% of the total equity
interest in any Financial Institution in the counties of Washington, Xxxx,
Xxxxxx or Multnomah, in the state of Oregon that is traded on NASDAQ or another
U.S. stock exchange.
3.2 (a)
solicit or attempt to solicit (i) any employees of Frontier to leave their
employment, or (ii) any customers of Frontier to remove or transfer any of
their
business from Frontier, or (b) otherwise interfere with, disrupt or attempt
to
disrupt the relationship, contractual or otherwise, between Frontier and any
of
Frontier’s customers or employees. Solicitation prohibited under this section
includes solicitation by any means, including, without limitation, meetings,
letters or other mailings, electronic communications of any kind, and Internet
communications.
For
purposes of this Agreement, the term “Financial Institution” means any bank
holding company or financial holding company, state or national bank, state
or
federal savings and loan association, mutual savings bank, or state or federal
credit union, trust company or mortgage company (including without limitation,
any organizing entity of any such Financial Institution) located in the counties
of Washington, Xxxx, Xxxxxx or Multnomah, in the state of Oregon. Capitalized
terms used as defined terms, but not defined in this Agreement, have the
meanings assigned to those terms in the Merger Agreement.
4. Intellectual
Property/Confidential Information. Further, anything to the
contrary herein notwithstanding, neither Director nor any firm, company, trust
or other entity of which Director is an Affiliate shall ever (i) use, register
or claim any right or interest in any Intellectual Property or Confidential
Information of Frontier, including but not limited to the Intellectual Property
and Confidential Information of Bank of Salem acquired pursuant to the Merger
Agreement, or (ii) use the tradename “Bank of Salem,” “Bank of Tigard” or “Bank
of Portland,” or any similar name or derivation thereof, in connection with the
banking, financial, lending or mortgage industries.
5. No
Employee Contract Rights. Nothing contained in this Agreement shall
be construed to abrogate, limit or affect the powers, rights and privileges
of
Frontier to remove Executive as an employee of Frontier, with or without
cause.
6.1 Frontier
and Executive stipulate that, in light of all of the facts and circumstances
of
the relationship between Frontier and Executive, the agreements referred to
in
sections 3 and 4 (including without limitation their scope, duration and
geographic extent) are fair and reasonably necessary for the protection of
Frontier’s confidential information, goodwill and other protectable interests.
If a court of competent jurisdiction should decline to enforce any of those
covenants and agreements, Frontier and Executive request the court to reform
these provisions to restrict Executive’s use of confidential information and
Executive’s ability to compete with Frontier to the maximum extent, in time,
scope of activities and geography, the court finds enforceable.
6.2 Executive
acknowledges that Frontier will suffer immediate and irreparable harm that
will
not be compensable by damages alone, if Executive repudiates or breaches any
of
the provisions of sections 3 or 4 or threatens
or attempts to do so. For this reason, under these circumstances, Frontier,
in
addition to and without limitation of any other rights, remedies or damages
available to it at law or in equity, will be entitled to obtain temporary,
preliminary and permanent injunctions in order to prevent or restrain the
breach, and Frontier will not be required to post a bond as a condition for
the
granting of this relief.
6.3 In
the event Executive breaches this Agreement, which breach is not corrected
within 15 days of notice by the Bank to Executive of such breach, Executive
shall in addition to the remedies available to the Bank under section 6.2,
forfeit all right to receive all benefits or other payments remaining unpaid
on
the date of any such breach, and shall refund any payments received pursuant
to
section 8.2 hereof.
7. Adequate
Consideration. Executive specifically acknowledges the receipt of
adequate consideration for the covenants contained in sections 3 and 4 above and that Frontier is entitled to
require
his to comply with said sections 3 and 4, which
paragraph will survive termination of this Agreement. Executive represents
that
if his employment is terminated, whether voluntarily or involuntarily, he has
the experience and capabilities sufficient to enable him to obtain employment
in
areas which do not violate this Agreement, and that Frontier’s enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood.
8. Amendments
to Change of Control Agreement. Executive’s change in control
agreement is amended as of the Effective Date of this Merger, as
follows.
8.1 Definitions.
The following definitions shall govern and be controlling:
“Change
in Control” means the Merger.
“Bank”
means Frontier, its successors or assigns.
8.2 Payment
Obligations. Section 3.1, Payment Triggers, and section 3.2, Payment Amount,
of the Change of Control Agreement, are superseded and replaced by the
following:
3.1 If
Executive is an employee of the Bank of Salem on the Effective Date, the Bank
will pay Executive 50% of his Change in Control Payment, less statutory payroll
deductions, in cash upon Closing of the Merger.
3.2 If
Executive remains an employee of the Bank on the first anniversary of the
Effective Date or within 12 months after the Change in Control, the Bank
terminates Executive’s employment other than termination for Cause, or Executive
terminates his employment with the Bank for Good Reason, Executive shall receive
the balance of his Change in Control Payment, less
statutory
payroll deductions, within 30 days following such anniversary date or the date
of termination of employment.
8.3 The
definition of Good Reason in section 5.2 of the Change of Control Agreement
is
superseded and replaced by the following:
“Good
Reason” means the occurrence of one or more of the following conditions arising
without the consent of Executive, after the Effective Time:
(i) A
material diminution in his Total Monthly Compensation.
(ii) A
material diminution in his authority, duties, or responsibilities.
(iii) A
material change in the geographic location at which Executive must perform
the
services.
8.4 Where
required, the provisions of this agreement are intended to comply with the
requirements of section 409A of the Code. Notwithstanding any other provision
of
this agreement, this agreement shall be interpreted and administered in
accordance with the requirements of section 409A of the Code.
8.5 Xxxxxxx
0, Xxxxxxxxxxx of Agreement, Section 6, Arbitration, and Section 9.7, Governing
Laws and Venue, of the Change of Control Agreement, are deleted.
8.6 Any
payment to Executive under Section 8.2 hereof shall be conditioned upon receipt
by the Bank of an executed release of all claims against the Bank, satisfactory
to the Bank and its counsel.
9.1 Defined
Terms. Capitalized terms used as defined terms, but not defined in
this Agreement, will have the meanings assigned to those terms in the Merger
Agreement.
9.2 Independent
Legal Counsel. Executive acknowledges that he has had the opportunity to
review and consult with his own personal legal counsel regarding this
Agreement.
9.3 Binding
Effect. This Agreement will bind and inure to the benefit of Frontier’s and
Executive’s heirs, legal representatives, successors and assigns.
9.4 Costs
of Legal Actions and Proceedings. In any dispute between the parties arising
out of or under this Agreement, whether or not a lawsuit is commenced, the
nonprevailing party shall pay the prevailing party’s reasonable attorneys’ fees
and costs.
9.5 Governing
Law. This Agreement shall be construed in accordance with and governed and
enforced in all respects by the laws of the State of Washington. The parties
agree that venue of any legal action between the parties arising out of or
in
connection with this Agreement shall be with the competent state or federal
court in Washington state, unless otherwise elected by Frontier, its successors
or assigns.
9.6 Entire
Agreement. This Agreement contains the entire agreement of the parties with
respect to its subject matter, and supersedes all prior representations and
understandings, whether oral or written. It may be changed only by an agreement
in writing signed by the party against whom enforcement of any waiver,
amendment, modification, extension or discharge is sought.
9.7 Waiver.
No waiver of any term, condition or provision shall be effective for
any purpose whatsoever unless such waiver is in writing and signed by the
parties.
9.8 Severability.
The provisions of this Agreement are severable. The invalidity of any provision
will not affect the validity of other provisions of this Agreement.
9.9 Notice.
Any notice to be delivered under this Agreement shall be given in writing and
delivered personally or by certified mail, postage prepaid, addressed to
Frontier or to Executive at their last known address.
9.10 Counterparts.
This Agreement may be executed in one or more counterparts, each of which will
be deemed an original, but all of which taken together will constitute one
and
the same instrument.
|
FRONTIER
BANK
By: /s/
Xxxx X.
Xxxxxxx
Xxxx
X. Xxxxxxx, CEO
|
EXECUTIVE
/s/
Xxxxx Xxxxxxx
Xxxxx
Xxxxxxx
|
EXHIBIT
C-3
NONCOMPETITION
AND
NONSOLICITATION
AGREEMENT
This
Noncompetition and Nonsolicitation Agreement dated _______________, 2007 (this
“Agreement”) is entered into by and between FRONTIER FINANCIAL CORPORATION,
FRONTIER BANK and their subsidiaries and affiliates (collectively, “Frontier”),
and XXXXX XXXXXXXX (“Executive”), to be effective on the Effective Date of the
Merger of Frontier Bank and Bank of Salem (“Salem”).
WHEREAS,
Frontier and Salem are entering into an Agreement and Plan of Merger (“the
Merger Agreement”), pursuant to which Salem will be merged into Frontier Bank
(the “Merger”); and
WHEREAS,
Executive is currently employed as _________________________ of Salem and has
knowledge of certain Confidential Information of Salem, and Frontier Financial
Corporation and Frontier Bank are executing the Merger Agreement conditioned
upon Executive’s agreement not to compete with Frontier in the counties of
Washington, Xxxx, Xxxxxx and Multnomah, in the state of Oregon and not to
solicit employees and customers of Frontier (including the employees and
customers of Salem who become employees and customers of Frontier following
the
Merger), for a specified period of time following the Merger, all as further
described below; and
NOW
THEREFORE, Frontier and Executive agree as follows:
1. Effective
Date. This Agreement shall become effective on the Effective Date
of the Merger, as set forth in the Merger Agreement.
2. Prior
Agreements. By entering into this Agreement, Executive does not
relinquish any rights to payments or benefits of any kind pursuant to his change
in control agreement with Salem dated ____________________ (“Change of Control
Agreement”), as amended pursuant to Section 8 below, which shall terminate upon
payment by Frontier or Salem of the benefits due thereunder, whether paid prior
to or after the Effective Date.
3. Noncompetition
and Nonsolicitation. In consideration for this Agreement and to
protect the business and goodwill purchased by Frontier, Executive agrees that
he will not, by himself or through associates, agents, employees, or others,
directly or indirectly, do any of the following for a one-year period commencing
on the first day after the Effective Date of the Merger.
3.1 (a)
become involved in, as a principal shareholder, director, officer, founder,
employee, consultant or other agent (each of the foregoing relationships,
hereinafter referred to as an “Affiliate”) of any Financial Institution (as
defined below) in the counties of Washington, Xxxx, Xxxxxx or Multnomah, in
the
state of Oregon, or (b) have any responsibility for a Financial Institution’s
organization or operation within the counties of Washington, Xxxx,
Xxxxxx
or Multnomah, in the state of Oregon; provided, however, that this Section
3.1
shall not apply if Executive is terminated by Frontier without Cause (as such
term is defined in section 5.1 of Executive’s Change of Control Agreement) and
Executive may acquire and passively own an interest not exceeding 2% of the
total equity interest in any Financial Institution in the counties of
Washington, Xxxx, Xxxxxx or Multnomah, in the state of Oregon that is traded
on
NASDAQ or another U.S. stock exchange.
3.2 (a)
solicit or attempt to solicit (i) any employees of Frontier to leave their
employment, or (ii) any customers of Frontier to remove or transfer any of
their
business from Frontier, or (b) otherwise interfere with, disrupt or attempt
to
disrupt the relationship, contractual or otherwise, between Frontier and any
of
Frontier’s customers or employees. Solicitation prohibited under this section
includes solicitation by any means, including, without limitation, meetings,
letters or other mailings, electronic communications of any kind, and Internet
communications.
For
purposes of this Agreement, the term “Financial Institution” means any bank
holding company or financial holding company, state or national bank, state
or
federal savings and loan association, mutual savings bank, or state or federal
credit union, trust company or mortgage company (including without limitation,
any organizing entity of any such Financial Institution) located in the counties
of Washington, Xxxx, Xxxxxx or Multnomah, in the state of Oregon. Capitalized
terms used as defined terms, but not defined in this Agreement, have the
meanings assigned to those terms in the Merger Agreement.
4. Intellectual
Property/Confidential Information. Further, anything to the
contrary herein notwithstanding, neither Director nor any firm, company, trust
or other entity of which Director is an Affiliate shall ever (i) use, register
or claim any right or interest in any Intellectual Property or Confidential
Information of Frontier, including but not limited to the Intellectual Property
and Confidential Information of Bank of Salem acquired pursuant to the Merger
Agreement, or (ii) use the tradename “Bank of Salem,” “Bank of Tigard” or “Bank
of Portland,” or any similar name or derivation thereof, in connection with the
banking, financial, lending or mortgage industries.
5. No
Employee Contract Rights. Nothing contained in this Agreement shall
be construed to abrogate, limit or affect the powers, rights and privileges
of
Frontier to remove Executive as an employee of Frontier, with or without
cause.
6.1 Frontier
and Executive stipulate that, in light of all of the facts and circumstances
of
the relationship between Frontier and Executive, the agreements referred to
in
sections 3 and 4 (including without limitation their scope, duration and
geographic extent) are fair and reasonably necessary for the protection of
Frontier’s confidential information, goodwill and other protectable interests.
If a court of competent jurisdiction should decline to enforce any of those
covenants and agreements, Frontier and Executive request the court to reform
these provisions to restrict Executive’s use of confidential information and
Executive’s ability to compete with Frontier to the maximum extent, in time,
scope of activities and geography, the court finds enforceable.
6.2 Executive
acknowledges that Frontier will suffer immediate and irreparable harm that
will
not be compensable by damages alone, if Executive repudiates or breaches any
of
the provisions of sections 3 or 4 or threatens
or attempts to do so. For this reason, under these circumstances, Frontier,
in
addition to and without limitation of any other rights, remedies or damages
available to it at law or in equity, will be entitled to obtain temporary,
preliminary and permanent injunctions in order to prevent or restrain the
breach, and Frontier will not be required to post a bond as a condition for
the
granting of this relief.
6.3 In
the event Executive breaches this Agreement, which breach is not corrected
within 15 days of notice by the Bank to Executive of such breach, Executive
shall in addition to the remedies available to the Bank under section 6.2,
forfeit all right to receive all benefits or other payments remaining unpaid
on
the date of any such breach, and shall refund any payments received pursuant
to
section 8.2 hereof.
7. Adequate
Consideration. Executive specifically acknowledges the receipt of
adequate consideration for the covenants contained in sections 3 and 4 above and that Frontier is entitled to
require
his to comply with said sections 3 and 4, which
paragraph will survive termination of this Agreement. Executive represents
that
if his employment is terminated, whether voluntarily or involuntarily, he has
the experience and capabilities sufficient to enable him to obtain employment
in
areas which do not violate this Agreement, and that Frontier’s enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood.
8. Amendments
to Change of Control Agreement. Executive’s change in control
agreement is amended as of the Effective Date of this Merger, as
follows.
8.1 Definitions.
The following definitions shall govern and be controlling:
“Change
in Control” means the Merger.
“Bank”
means Frontier, its successors or assigns.
8.2 Payment
Obligations. Section 3.1, Payment Triggers, and section 3.2, Payment Amount,
of the Change of Control Agreement, are superseded and replaced by the
following:
3.1 If
Executive is an employee of the Bank of Salem on the Effective Date, the Bank
will pay Executive 50% of his Change in Control Payment, less statutory payroll
deductions, in cash upon Closing of the Merger.
3.2 If
Executive remains an employee of the Bank on the first anniversary of the
Effective Date or within 12 months after the Change in Control, the Bank
terminates Executive’s employment other than termination for Cause, or Executive
terminates his employment with the Bank for Good Reason, Executive shall receive
the balance of his Change in Control Payment, less
statutory
payroll deductions, within 30 days following such anniversary date or the date
of termination of employment.
8.3 The
definition of Good Reason in section 5.2 of the Change of Control Agreement
is
superseded and replaced by the following:
“Good
Reason” means the occurrence of one or more of the following conditions arising
without the consent of Executive, after the Effective Time:
(i) A
material diminution in his Total Monthly Compensation.
(ii) A
material diminution in his authority, duties, or responsibilities.
(iii) A
material change in the geographic location at which Executive must perform
the
services.
8.4 Where
required, the provisions of this agreement are intended to comply with the
requirements of section 409A of the Code. Notwithstanding any other provision
of
this agreement, this agreement shall be interpreted and administered in
accordance with the requirements of section 409A of the Code.
8.5 Xxxxxxx
0, Xxxxxxxxxxx of Agreement, Section 6, Arbitration, and Section 9.7, Governing
Laws and Venue, of the Change of Control Agreement, are deleted.
8.6 Any
payment to Executive under Section 8.2 hereof shall be conditioned upon receipt
by the Bank of an executed release of all claims against the Bank, satisfactory
to the Bank and its counsel.
9.1 Defined
Terms. Capitalized terms used as defined terms, but not defined in
this Agreement, will have the meanings assigned to those terms in the Merger
Agreement.
9.2 Independent
Legal Counsel. Executive acknowledges that he has had the opportunity to
review and consult with his own personal legal counsel regarding this
Agreement.
9.3 Binding
Effect. This Agreement will bind and inure to the benefit of Frontier’s and
Executive’s heirs, legal representatives, successors and assigns.
9.4 Costs
of Legal Actions and Proceedings. In any dispute between the parties arising
out of or under this Agreement, whether or not a lawsuit is commenced, the
nonprevailing party shall pay the prevailing party’s reasonable attorneys’ fees
and costs.
9.5 Governing
Law. This Agreement shall be construed in accordance with and governed and
enforced in all respects by the laws of the State of Washington. The parties
agree that venue of any legal action between the parties arising out of or
in
connection with this Agreement shall be with the competent state or federal
court in Washington state, unless otherwise elected by Frontier, its successors
or assigns.
9.6 Entire
Agreement. This Agreement contains the entire agreement of the parties with
respect to its subject matter, and supersedes all prior representations and
understandings, whether oral or written. It may be changed only by an agreement
in writing signed by the party against whom enforcement of any waiver,
amendment, modification, extension or discharge is sought.
9.7 Waiver.
No waiver of any term, condition or provision shall be effective for
any purpose whatsoever unless such waiver is in writing and signed by the
parties.
9.8 Severability.
The provisions of this Agreement are severable. The invalidity of any provision
will not affect the validity of other provisions of this Agreement.
9.9 Notice.
Any notice to be delivered under this Agreement shall be given in writing and
delivered personally or by certified mail, postage prepaid, addressed to
Frontier or to Executive at their last known address.
9.10 Counterparts.
This Agreement may be executed in one or more counterparts, each of which will
be deemed an original, but all of which taken together will constitute one
and
the same instrument.
|
FRONTIER
BANK
By: /s/
Xxxx X.
Xxxxxxx
Xxxx
X. Xxxxxxx, CEO
|
EXECUTIVE
/s/
Xxxxx XxXxxxxx
Xxxxx
XxXxxxxx
|
EXHIBIT
D
_______________,
2007
Frontier
Financial Corporation
0000
Xxxxx Xxxxxx
Xxxxxxx,
XX 00000
Ladies
and Gentlemen:
I
have been advised that as of the date hereof I may be deemed an “affiliate” of
Bank of Salem (“Salem”), as the term “affiliate” is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the “Rules and
Regulations”) under the Securities Act of 1933, as amended (the “Act”). Pursuant
to the terms of the Agreement and Plan of Merger among Frontier (“Frontier”),
Frontier Bank and Salem (the “Agreement”), Salem will be merged into Frontier
Bank (the “Merger”). As a result of the Merger, I will receive shares
of common stock of Frontier (“Frontier Common Stock”) in exchange for shares of
common stock of Salem (“Salem Common Stock”) owned by me.
In
connection with the above, I represent and warrant to Frontier and agree
that:
A. I
will not make any sale, transfer or other disposition of the shares of
Frontier
Common Stock that I receive in the Merger in violation of the Act or the
Rules
and Regulations.
B. I
have no present plan or intent to dispose of Frontier Common Stock acquired
by
me pursuant to the Merger.
C. I
have been advised that the issuance of shares of Frontier Common Stock
to me
pursuant to the Merger has been or will be registered with the Securities
and
Exchange Commission under the Act on Form S-4. I have also been
advised, however, that since I may be deemed to be an affiliate of Salem
at the
time the Agreement is submitted for a vote of the shareholders of Salem,
I may
not sell, transfer or otherwise dispose of the shares of Frontier Common
Stock
issued to me in the Merger unless (i) such sale, transfer or other disposition
has been registered under the Act, (ii) such sale, transfer or other disposition
is made in conformity with the volume and other limitations of Rule 145
under
the Act, or (iii) in the opinion of counsel acceptable to Frontier, some
other
exemption from registration under the Act is available with respect to
any such
proposed sale, transfer or other disposition of the shares of Frontier
Common
Stock.
D. I
have carefully read this letter and the Agreement and have discussed their
requirements and other applicable limitations upon my ability to sell,
transfer
or otherwise dispose of the shares of Frontier Common Stock, to the extent
I
felt necessary, with my counsel or counsel for Salem.
E. I
understand that Frontier is under no obligation to register the shares
of
Frontier Common Stock for sale, transfer or other disposition by me or
on my
behalf under the Act or to take any other action necessary in order to
make
compliance with an exemption from registration available, except that Frontier
has agreed to use its best efforts to maintain the availability of Rule
145 for
use by affiliates such as me.
F. I
understand that stop transfer instructions will be given to the registrar
of the
certificates for the shares of Frontier Common Stock and there will be
placed on
the certificates for the shares of Frontier Common Stock, or any substitutions
therefor, legends stating in substance:
The
shares represented by this certificate were issued in a merger (the acquisition
of Bank of Salem) to which Rule 145 promulgated under the Securities Act
of
1933, as amended (the “Act”), applies and may be sold or otherwise transferred
only in compliance with the limitation of such Rule 145, or upon receipt
by
Frontier of an opinion of counsel acceptable to it that some other exemption
from registration under the Act is available, or pursuant to a registration
statement under the Act.
G. I
hereby agree that, for a period of one (1) year following the effective
date of
the Merger, I will obtain an agreement similar to this agreement from each
transferee of the shares of Frontier Common Stock sold or otherwise transferred
by me, but only if such transfer is effected other than in a merger involving
a
registered public offering or as a sale pursuant to Rule 145.
It
is understood and agreed the legend set forth in Paragraph F above will
be
removed by delivery of substitute certificates without such legend if such
legend is not required for purposes of the Act or this Agreement. It
is understood that such legend and stop order referred to above will be
removed
if (i) one year shall have elapsed from the date the undersigned acquired
Frontier Common Stock received in the Merger and the provisions of Rule
145(d)(2) are then available to the undersigned; (ii) two years shall have
elapsed from the date the undersigned acquired Frontier Common Stock received
in
the Merger and the provisions of Rule 145(d)(3) are then available to the
undersigned; or (iii) Frontier has received either an opinion of counsel,
which
opinion and counsel shall be reasonably satisfactory to Frontier, or a
“no
action” letter obtained by the undersigned from the staff of the Securities and
Exchange Commission, to the effect that the restrictions imposed by Rule
145
under the Act no longer apply to the undersigned.
This
letter agreement shall be binding on my heirs, legal representatives and
successors.
Very
truly yours,
_________________________________________
Print
Name:
_______________________________
Accepted
this ____ day of ________________, 2007:
FRONTIER
FINANCIAL CORPORATION
By: /s/ Xxxx
X.
Xxxxxxx
Xxxx
X. Xxxxxxx, President/CEO
_______________,
2007
Bank
of Salem
0000
Xxxxxxxxxx Xxxxxx XX
Xxxxx,
XX 00000
Ladies
and Gentlemen:
We
have acted as counsel to Frontier Financial Corporation (“Frontier”) and its
wholly owned subsidiary, Frontier Bank, in connection with the Plan and
Agreement of Merger (the “Agreement”), dated as of July 25, 2007, between
Frontier, Frontier Bank and Bank of Salem (“Salem”), and the transactions
contemplated by the Agreement.
This
firm has represented Frontier and Frontier Bank in connection with the
negotiation of the Agreement and matters related to such negotiation and with
respect to certain limited matters as to which we have been consulted by them.
We are familiar with the corporate proceedings taken by Frontier and Frontier
Bank in connection with the Agreement, and we are rendering this opinion
pursuant to Section 7.3(D) of the Agreement. Capitalized terms used, but not
defined, in this opinion letter shall have the meanings assigned to them in
the
Agreement.
In
rendering the opinions expressed below, we have examined and relied upon such
records, documents, instruments, certificates of public officials and
certificates of officers and employees of and accountants for Frontier and
Frontier Bank as we have deemed appropriate, including:
A. The
Articles of Incorporation and Bylaws of Frontier and Frontier Bank, as amended
through the date of this opinion letter;
B. Minutes
of meetings of the Boards of Directors and shareholders of Frontier and Frontier
Bank;
C. The
Agreement, including the representations, warranties and covenants made by
Frontier and Frontier Bank in the Agreement;
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D.
|
The
Proxy Statement; and
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|
E.
|
Certificate
of existence or authorization dated _______________, 2007, issued
by the
Washington Secretary of State with respect to Frontier, and certificate
of
existence or authorization dated ______________, 2007, issued by
the
Washington Department of Financial Institutions with respect to Frontier
Bank.
|
Whenever
any statement in this opinion letter is qualified by the phrase “to our
knowledge” or “known to us” or similar phrases, it is intended to indicate that,
during the course of our representation of Frontier and Frontier Bank in
connection with the transactions contemplated by the Agreement, no information
that would give us actual knowledge of the inaccuracy of such statement has
come
to the attention of the attorneys presently in this firm who are actively
engaged in the representation of Frontier and Frontier Bank. We have not
undertaken any independent investigation or review (including any investigation
or review of our files) in
connection
with any such matters to determine the accuracy of any such statement, and
any
limited inquiry undertaken by us during the preparation of this opinion letter
should not be regarded as such investigation or review.
In
conducting our examination, we have assumed, without investigation, the
genuineness of all signatures, the legal capacity of natural persons, the
correctness of all certificates, the authenticity of all documents and
instruments submitted to us as originals, the conformity to original documents
and instruments of all such documents and instruments submitted to us as
certified or photostatic or facsimile copies and the authenticity of the
originals of such copies, and the accuracy and completeness of all records
made
available to us by Frontier and Frontier Bank. We also have assumed, without
investigation, that (i) each party to such documents and instruments has the
power and capacity to execute, deliver and perform all of its obligations under
the documents and instruments, has duly authorized the execution, delivery
and
performance of its obligations under the Agreement, and has duly executed and
delivered the documents and instruments; (ii) all terms, provisions, and
conditions of, or relating to, the Agreement are correctly and completely
reflected in the Agreement, and all statements, representations, and warranties
as to factual matters made by officers and employees of and accountants for,
Frontier and its Subsidiaries and by public officials are accurate; and
(iii) the Agreement is binding upon and enforceable in accordance with its
terms against Salem.
The
opinions expressed below are subject to the following
qualifications:
A. Our
opinion as to the legal, valid and binding nature of the Agreement and the
enforceability of the Agreement in paragraphs 4, 5 and 6 below is subject to
the
following: (i) the effect of applicable bankruptcy, insolvency, reorganization,
receivership, fraudulent conveyance, moratorium or other similar laws affecting
the rights of creditors generally, including without limitation such laws and/or
regulations specifically applicable to institutions the deposits of which are
insured by the Federal Deposit Insurance Corporation (“Insured Institutions”),
now or subsequently in effect; (ii) limitations imposed by laws and judicial
decisions relating to or affecting creditors of Insured Institutions, or by
general principles of equity (regardless of whether enforcement is considered
in
proceedings at law or in equity), upon the provisions of the Agreement and/or
the other related documents or upon the availability of injunctive relief or
other equitable remedies; and (iii) our assumption that Salem and any of its
successors in interest will seek to enforce any of its rights in connection
with
the Agreement only in circumstances and in a manner in which it is commercially
reasonable to do so.
B. We
express no opinion as to: (i) the enforceability of any provision or
accumulation of provisions that may be deemed to be unconscionable; (ii) any
antitrust, securities or tax laws; (iii) provisions that purport to establish
evidentiary standards; (iv) provisions relating to venue, jurisdiction,
governing law, waiver of remedies (or the delay or omission of enforcement
of
such provisions), or disclaimers or liability limitations with respect to third
parties; (v) the enforceability of any requirement in the Agreement or related
documents specifying that provisions of such documents may only be waived in
writing, to the extent that an oral agreement or an implied agreement by trade
practice or course of conduct has been created modifying any provision of the
Agreement; (vi) provisions for payment or reimbursement of costs and expenses
(including, without limitation, attorneys fees) in excess of statutory limits
or
amounts determined to be reasonable by any court or other tribunal, and any
provision for payment of attorneys fees other than to the prevailing party;
(vii) severability and
indemnification
provisions; (viii) availability of equitable remedies; and (ix) any reservation
of the right to pursue inconsistent or cumulative remedies.
C. Our
opinions below are limited to the matters expressly set forth in this opinion
letter, and no opinion is to be implied or may be inferred beyond the matters
expressly so stated.
D. We
disclaim any obligation to update this opinion letter for events occurring
after
the date of this opinion letter.
E. Our
opinions below are limited to the effect of the laws of the United States of
America and the State of Washington. We express no opinion with respect to
the
effect of the laws of any other jurisdiction on the transactions contemplated
by
the Agreement.
F. A
Washington court, or federal court applying Washington law, may consider
extrinsic evidence or the circumstances surrounding the making of the Agreement
to ascertain the intent of the parties using the language employed in the
Agreement, regardless of whether or not the language used is plain and
unambiguous on its face, and may incorporate additional or supplementary terms
into the Agreement.
Based
upon and subject to the foregoing, we are of the opinion that:
1. Frontier
is a corporation validly existing under the laws of the State of Washington
and
has the corporate power to own or lease its properties and assets and to carry
on its business as such properties; assets and business are described in the
Proxy Statement.
2. Frontier
Bank is a banking corporation validly existing under the laws of the State
of
Washington and has the corporate power to own or lease its properties and assets
and to carry on its business as such properties; assets and business are
described in the Proxy Statement.
3. The
execution and delivery of the Agreement and the consummation of the Merger
have
been duly and validly authorized by the Boards of Directors of Frontier and
Frontier Bank.
4. The
Agreement constitutes a valid and binding obligation of Frontier and Frontier
Bank, enforceable against Frontier and Frontier Bank in accordance with its
terms.
5. No
consent or approval that has not already been obtained from any federal or
state
regulatory authority is required for the execution and delivery by Frontier
and
Frontier Bank of the Agreement or any of the documents to be executed and
delivered by Frontier and Frontier Bank in connection with the Agreement or
for
the consummation of the Merger.
6. Neither
the execution delivery or performance of the Agreement by Frontier and Frontier
Bank nor the consummation of the Merger will: (a) violate any provision of
the
articles or bylaws of Frontier or Frontier Bank; or (b) to our knowledge,
violate any order, judgment or decree to which Frontier or Frontier Bank is
a
party or by which any of its properties or assets is bound.
7. The
shares of Frontier Common Stock to be issued pursuant to the Agreement to the
shareholders of Salem will, upon issuance in accordance with the Agreement,
be
duly authorized, validly issued, fully paid and non-assessable and issued in
compliance with all registration requirements or exemptions therefrom under
applicable federal and state securities laws..
8. The
Registration Statement registering the shares of Frontier Common Stock to be
issued to shareholders of Salem pursuant to the Agreement has become effective
under the Securities Act of 1933, as amended (the “Securities Act”), and, to our
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and, to our knowledge, no proceedings for that purpose
have been instituted or are pending or contemplated by the Securities and
Exchange Commission or any state securities or other regulatory
authority.
9. To
our knowledge there is no suit, action, investigation or proceeding, legal,
quasi-judicial, administrative or otherwise, pending or threatened against,
or
affecting Frontier or Frontier Bank or any of their directors, officers,
employees or agents, acting in their capacities as such, that is seeking
equitable relief or damages against Frontier or Frontier Bank or any of their
directors, officers, employees or agents acting in their capacities that would
materially affect the ability of Frontier or Frontier Bank to consummate the
transactions contemplated by the Agreement or that seeks to enjoin consummation
of the transactions contemplated by the Agreement.
In
the course of the preparation of the Proxy Statement, we have considered the
information set forth in the Proxy Statement, and have participated in
conferences with officers and other representatives of Frontier and Frontier
Bank, during the course of which the contents of the Proxy Statement and related
matters were discussed. We have not independently checked the accuracy or
completeness of, or otherwise verified, and accordingly are not passing upon,
and do not assume any responsibility for, the accuracy, completeness or fairness
of the statements contained in the Proxy Statement. We have relied as to
materiality upon the judgment of officers and representatives of Frontier and
Frontier Bank. On the basis of the foregoing, we confirm that nothing has come
to our attention that would lead us to believe that the Proxy Statement, insofar
as it relates to Frontier and Frontier Bank, on the mailing date of the Proxy
Statement, contained any statement that, at the time and in light of the
circumstances in which it was made, was false or misleading with respect to
any
material fact or omitted to state any material fact necessary to make such
statements not false or misleading. We make no statement with respect to (a)
material in the Proxy Statement insofar as it includes or reflects any
information relating to or supplied by entities other than Frontier and Frontier
Bank, or (b) any financial statements or other financial or accounting data
contained in the Proxy Statement.
The
foregoing is rendered solely for your benefit in connection with the
above-described transactions. You may not, without our prior express written
approval, deliver copies of this letter or extracts from it to any other person,
and no one other than you is entitled to rely upon this opinion
letter.
Very
truly yours,
/s/
Xxxxxx Xxxxxxxx L.L.P.
XXXXXX
XXXXXXXX L.L.P.
EXHIBIT
E-2
_______________,
2007
Frontier
Financial Corporation
Frontier
Bank
000
X.X. Xxxxxxx Xxxx Way
P.O.
Box 2215
Xxxxxxx,
XX 00000
Ladies
and Gentlemen:
We
have acted as counsel to Bank of Salem (“Salem”) in connection with the
Agreement and Plan of Merger dated as of July 25, 2007 (the “Agreement”),
between Frontier Financial Corporation (“Frontier”), Frontier Bank and Salem,
and the transactions contemplated by the Agreement.
This
firm has represented Salem in connection with the negotiation of the Agreement
and matters related to such negotiation. We are familiar with the corporate
proceedings taken by Salem in connection with the Agreement, and we are
rendering this opinion pursuant to Section 7.2(D) of the Agreement. Capitalized
terms used, but not defined in this opinion letter, shall have the meanings
assigned to them in the Agreement.
In
rendering the opinions expressed below, we have examined and relied upon
such
records, documents, instruments, certificates of public officials and
certificates of officers and employees of and accountants for Salem as we
have
deemed appropriate, including:
A. The
Articles of Incorporation and Bylaws of Salem, as amended through the date
of
this opinion letter;
B. Minutes
of meetings of the Boards of Directors and shareholders of Salem;
C. The
Agreement, including the representations, warranties and covenants of Salem
contained in the Agreement;
D. The
Proxy Statement;
E. Certificate
of existence or authorization dated ____________, 2007, issued by the Oregon
Secretary of State with respect to Salem, certificate of existence or
authorization dated ____________, 2007, issued by the Oregon Department of
Consumer and Business Services with respect to Salem, and certification of
Salem
as an insured depository institution under the Federal Deposit Insurance
Act,
from the Federal Deposit Insurance Corporation dated ____________, 2007;
and
F. Certificate
of Officers of Salem dated ____________, 2007, as to certain factual matters
contained in the opinion.
Whenever
any statement in this opinion letter is qualified by the phrase “to our
knowledge” or “known to us” or similar phrases, it is intended to indicate that,
during the course of our representation of Salem in connection with the
transactions contemplated by the Agreement, no information that would give
us
actual knowledge of the inaccuracy of such statement has come to the attention
of the attorneys presently in this firm who are actively engaged in the
representation of Salem on this matter. We have not undertaken any independent
investigation or review (including any investigation or review of our files)
in
connection with any such matters to determine the accuracy of any such
statement, and any limited inquiry undertaken by us during the preparation
of
this opinion letter should not be regarded as such investigation or
review.
In
conducting our examination, we have assumed, without investigation, the
genuineness of all signatures, the legal capacity of natural persons, the
correctness of all certificates, the authenticity of all documents and
instruments submitted to us as originals, the conformity to original documents
and instruments of all such documents and instruments submitted to us as
certified or photostatic or facsimile copies and the authenticity of the
originals of such copies, and the accuracy and completeness of all records
made
available to us by Salem. We also have assumed, without investigation, that
(i) each party to such documents and instruments has the power and capacity
to execute, deliver and perform all of its obligations under the documents
and
instruments, has duly authorized the execution, delivery and performance
of its
obligations under the Agreement, and has duly executed and delivered such
documents and instruments; (ii) all terms, provisions, and conditions of,
or relating to, the Agreement are correctly and completely reflected in the
Agreement, and all statements, representations, and warranties as to factual
matters made by officers and employees of, and accountants for, Salem and
by
public officials are accurate, and (iii) the Agreement is binding upon and
enforceable in accordance with its terms against Frontier and Frontier
Bank.
The
opinions expressed below are subject to the following
qualifications:
A. Our
opinion as to the legal, valid and binding nature and the enforceability
of the
Agreement in paragraphs 3, 4 and 5 below is subject to the following: (i)
the
effect of applicable bankruptcy, insolvency, reorganization, receivership,
fraudulent conveyance, moratorium or other similar laws affecting the rights
of
creditors generally, including without limitation such laws and/or regulations
specifically applicable to institutions the deposits of which are insured
by the
Federal Deposit Insurance Corporation (“Insured Institutions”), now or
subsequently in effect; (ii) limitations imposed by laws and judicial
decisions relating to or affecting creditors of Insured Institutions, or
by
general principles of equity (regardless of whether enforcement is considered
in
proceedings at law or in equity), upon the provisions of the Agreement and/or
the other related documents or upon the availability of injunctive relief
or
other equitable remedies; and (iii) our assumption that Frontier, Frontier
Bank and any of their successors in interest will seek to enforce any of
its
rights in connection with the Agreement only in circumstances and in a manner
in
which it is commercially reasonable to do so.
B. We
express no opinion as to: (i) the enforceability of any provision or
accumulation of provisions that may be deemed to be unconscionable;
(ii) any antitrust, securities or tax laws; (iii) provisions that
purport to establish evidentiary standards; (iv) provisions relating to
venue, jurisdiction, governing law, waiver of remedies (or the delay or omission
of enforcement of such provisions), or disclaimers or liability limitations
with
respect to third parties; (v) the enforceability of any requirement in the
Agreement or related documents specifying that provisions of such documents
may
only be waived in writing, to the extent that an oral agreement or an implied
agreement by trade practice or course of conduct has been created modifying
any
provision of the Agreement; (vi) provisions for payment or reimbursement of
costs and expenses (including, without limitation, attorneys fees) in excess
of
statutory limits or amounts determined to be reasonable by any court or other
tribunal, and any provision for payment of attorneys fees other than to the
prevailing party; (vii) severability and indemnification provisions;
(viii) availability of equitable remedies; and (ix) any reservation of
the right to pursue inconsistent or cumulative remedies.
C. Our
opinions below are limited to the matters expressly set forth in this opinion
letter, and no opinion is to be implied or may be inferred beyond the matters
expressly so stated.
D. We
disclaim any obligation to update this opinion letter for events occurring
after
the date of this opinion letter.
E. Our
opinions below are limited to the effect of the laws of the United States
of
America and the States of Washington and Oregon. We express no opinion with
respect to the effect of the laws of any other jurisdiction on the transactions
contemplated by the Agreement.
F. A
Washington court, or federal court applying Washington law, may consider
extrinsic evidence of the circumstances surrounding the making of the Agreement
to ascertain the intent of the parties using the language employed in the
Agreement, regardless of whether or not the language used is plain and
unambiguous on its face, and may incorporate additional or supplementary
terms
into the Agreement.
Based
upon and subject to the foregoing, we are of the opinion that:
|
1.
|
Salem
is a banking corporation validly existing under the laws of the
State of
Oregon and has the corporate power to own or lease its properties
and
assets and to carry on its business as such properties; assets
and
business are described in the Proxy
Statement.
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|
2.
|
The
execution and delivery of the Agreement and the consummation of
the Merger
have been duly and validly authorized by the Board of Directors
and the
shareholders of Salem.
|
|
3.
|
The
Agreement constitutes a valid and binding obligation of Salem,
enforceable
against Salem in accordance with the terms of the
Agreement.
|
|
4.
|
No
consent or approval from any federal regulatory authority that
has not
already been obtained is required for the execution and delivery
by Salem
of any of the documents to be executed and delivered by Salem in
connection with the Agreement or for the consummation of the
Merger.
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5.
|
Neither
the execution, delivery or performance of the Agreement by Salem
nor the
consummation of the Merger will (a) violate any provision of the
Articles
of Incorporation or Bylaws of Salem, or (b) to our knowledge, violate
any
order, judgment or decree to which Salem are parties or by which
they or
any of their properties or assets are
bound.
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6.
|
The
issued and outstanding shares of common stock of Salem have been
duly
authorized and validly issued and are fully paid and
nonassessable.
|
|
7.
|
To
our knowledge there is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or
threatened
against, or affecting Salem or any of their directors, officers,
employees
or agents, acting in their capacities as such, that is seeking
equitable
relief or damages against Salem or any of their directors, officers,
employees or agents acting in their capacities that would materially
affect the ability of Salem to consummate the transactions contemplated
by
the Agreement or that seeks to enjoin consummation of the transactions
contemplated by the Agreement.
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In
the course of the preparation of the Proxy Statement, we have considered
the
information set forth in the Proxy Statement, and have participated in
conferences with officers and other representatives of Salem, during the
course
of which the contents of the Proxy Statement and related matters were discussed.
We have not independently checked the accuracy or completeness of, or otherwise
verified, and accordingly are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Proxy Statement. We have relied as to materiality upon the
judgment of officers and representatives of Salem. On the basis of the
foregoing, we confirm that nothing has come to our attention that would lead
us
to believe that the Proxy Statement, insofar as it relates to Salem, on the
mailing date of the Proxy Statement, contained any statement that, at the
time
and in light of the circumstances in which it was made, was false or misleading
with respect to any material fact or omitted to state any material fact
necessary to make such statements not false or misleading. We make no statement
with respect to (a) material in the Proxy Statement insofar as it includes
or
reflects any information relating to or supplied by entities other than Salem,
or (b) any financial statements or other financial or accounting data contained
in the Proxy Statement.
The
foregoing is rendered solely for your benefit in connection with the
above-described transactions. You may not, without our prior express written
approval, deliver copies of this letter or extracts from this letter to any
other person, and no one other than you is entitled to rely upon the opinions
set forth above.
Very
truly yours,
/s/
Xxxxxx Pepper L.L.P.
XXXXXX
PEPPER L.L.P.
______________________________
AGREEMENT
AND PLAN OF MERGER
Index
to Schedules
Frontier
Financial Corporation
|
SCHEDULES
|
|||
|
5.2(B)
|
Shares
|
||
|
5.2(C)
|
Frontier
Subsidiaries
|
||
|
5.2(E)
|
No
Defaults
|
||
|
5.2(F)
|
Frontier
Financial Reports
|
||
|
5.2(G)
|
Absence
of Undisclosed Liabilities
|
||
|
5.2(H)
|
No
Events Causing Material Adverse Effect
|
||
|
5.2(I)
|
Litigation,
Regulatory Action
|
||
|
5.2(J)
|
Compliance
with Laws
|
||
|
SCHEDULES
|
|||
|
1.3(B)
|
Unexercised
Options
|
||
|
3.4
|
Capital
Expenditures
|
||
|
3.6
|
Compensation;
Employment Agreements, Etc.
|
||
|
3.7
|
|||
|
3.9
|
|||
|
3.11
|
|||
|
5.1(A)
|
Organization,
Qualification and Authority
|
||
|
5.1(B)
|
Shares
|
||
|
5.1(C)
|
Salem
Subsidiaries
|
||
|
5.1(F)
|
No
Defaults
|
||
|
5.1(G)
|
Financial
Reports
|
||
|
5.1(H)
|
Absence
of Undisclosed Liabilities
|
||
|
5.1(I)
|
Absence
of Certain Changes or Events
|
||
|
5.1(K)
|
Litigation;
Regulatory Action
|
||
|
5.1(L)
|
Compliance
With Laws
|
||
|
5.1(M)
|
||
|
5.1(P)(1)
|
Employee
Benefit Plans (1)
|
|
|
5.1(P)(2)
|
Employee
Benefit Plans (2)
|
|
|
5.1(P)(6)
|
Employee
Benefit Plans (6)
|
|
|
5.1(S)
|
Loan
Portfolio
|
|
|
5.1(U)
|
Insurance
|
|
|
5.1(V)
|
Affiliates
|
|
|
5.1(Y)(2)
|
Environmental
Matters (2)
|
|
|
5.1(Y)(3)
|
Environmental
Matters (3)
|
|
|
5.1(Y)(4)
|
Environmental
Matters (4)
|
|
|
5.1(Y)(5)
|
Environmental
Matters (5)
|
|
|
5.1(Y)(6)
|
Environmental
Matters (6)
|
|
|
5.1(Z)
|
Tax
Reports
|
|
|
5.1(BB)
|
Derivatives
Contracts
|
|
|
5.1(GG)
|
Investment
Securities
|
|
|
5.1(HH)
|
Intellectual
Property
|
|
|
9.4
|
Employment
and Change in Control Agreements
|