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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Rule 14a-6(e)(2))
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[ ] Definitive Additional Materials
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Frontier Financial Corporation
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<PAGE> 2
FRONTIER FINANCIAL CORPORATION
332 S.W. EVERETT MALL WAY
P.O. BOX 2215
EVERETT, WASHINGTON 98203
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
TO THE SHAREOWNERS OF FRONTIER FINANCIAL CORPORATION:
The 1998 annual meeting of shareowners of Frontier Financial Corporation will be
held at Everett Golf & Country Club, 1500 52nd Street, Everett, Washington on
Thursday, April 16, 1998, at 7:30 p.m. for the following purposes:
(1) To elect fourteen (14) members of the Board of Directors.
(2) To consider and vote upon certain amendments to the Corporation's Articles
of Incorporation, as follows:
(a) An amendment to restate the objects and purposes of the Corporation
and to eliminate the provision relating to distributions;
(b) An amendment to increase the number of authorized shares of Common
Stock from 20,000,000 to 50,000,000 and to create a class of
preferred stock, with 10,000,000 shares authorized;
(c) An amendment to create a classified board of directors, and to
provide that a director may be removed only for cause; and
(d) An amendment to limit the personal liability of directors of the
Corporation to the full extent allowed under Washington law.
(3) To consider and vote upon an amendment to the Corporation's Incentive
Stock Option Plan.
(4) To act on such other matters as may properly come before the meeting.
Only shareowners of record at the close of business on March 10, 1998, and
certain beneficial owners, are entitled to notice of and to vote at the meeting
and/or any adjournment thereof.
Whether or not you plan to attend the meeting, you may vote by completing,
signing, dating, and promptly returning the accompanying proxy in the enclosed
postage-paid envelope. Your proxy may be revoked at any time prior to the time
it is voted.
By Order of the Board of Directors
James F. Felicetty
Secretary/Treasurer
Everett, Washington
March 20, 1998
PLACE AND TIME OF Everett Golf & Country Club
ANNUAL MEETING: 1500 52nd Street
Everett, Washington April 16, 1998,
7:30 p.m.
<PAGE> 3
FRONTIER FINANCIAL CORPORATION
332 S.W. EVERETT MALL WAY
P.O. BOX 2215
EVERETT, WASHINGTON 98203
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Frontier Financial Corporation (the "Corporation").
The proxy is to be voted at the annual meeting of the shareowners of the
Corporation on Thursday, April 16, 1998, at 7:30 p.m. at the Everett Golf &
Country Club, 1500 52nd Street, Everett, Washington, and any adjournment
thereof. If the enclosed proxy is properly completed in the appropriate spaces,
signed, dated, and returned, it will be voted as specified in the proxy. If no
specification is made on the proxy, it will be voted at the discretion of the
proxy holders in accordance with the recommendations of management on all
matters as may properly come before the meeting or any adjournment thereof. A
shareowner granting the enclosed proxy may revoke it prior to its exercise by
voting at the meeting in person, or by giving notice of his or her revocation of
the proxy to the Corporation's Secretary at the address shown on the Notice of
Meeting.
All costs of the solicitation of the proxies will be borne by the Corporation.
These proxy materials, together with the 1997 Annual Report to Shareowners, were
first mailed to shareowners of record on or about the 20th day of March, 1998.
PURPOSE OF THE MEETING
At the annual meeting, shareowners will be asked:
(1) To elect fourteen (14) members of the Board of Directors.
(2) To consider and vote upon certain amendments to the Corporation's
Articles of Incorporation, as follows:
(a) An amendment to restate the objects and purposes of the
Corporation and to eliminate the provision relating to
distributions;
(b) An amendment to increase the number of authorized shares of
Common Stock from 20,000,000 to 50,000,000 and to create a
class of preferred stock, with 10,000,000 shares authorized;
(c) An amendment to create a classified board of directors, and to
provide that a director may be removed only for cause; and
(d) An amendment to limit the personal liability of directors of
the Corporation to the full extent allowed under Washington
law.
(3) To consider and vote upon an amendment to the Corporation's
Incentive Stock Option Plan.
(4) To act on such other matters as may properly come before the
meeting.
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OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
As of March 10, 1998, the Corporation had 7,357,935 shares of Common Stock
("stock") outstanding, which represents the only class of stock of the
Corporation, and the only class of securities entitled to vote at the annual
meeting. Only shareowners of record at the close of business on March 10, 1998,
and certain beneficial owners will be entitled to notice of and to vote in
person at the meeting and/or any adjournment thereof. A majority of the
outstanding stock of the Corporation represented at the meeting in person or by
proxy shall constitute the quorum of shareowners necessary to transact business.
A plurality of the votes duly cast is required for the election of Directors
(i.e., the nominees receiving the greatest number of votes will be elected).
Shareowners are not entitled to cumulative voting rights in the election of
Directors. Abstentions from voting on the election of Directors have no effect
on the outcome of this proposal since the votes have not been cast in favor of
any nominee. The proposal to approve the amendment to the Corporation's
Incentive Stock Option Plan will be approved if the votes duly cast in favor of
the proposal exceed the votes duly cast against such proposal. Abstention from
voting and broker nonvotes on this proposal will have no impact on the outcome
of the proposal since no vote has been cast for or against it. Each of the
proposals to approve amendments to the Corporation's Articles of Incorporation
will be approved if a majority of the Corporation's outstanding shares entitled
to vote on the applicable proposal votes in favor of such proposal. Abstentions
from voting and broker nonvotes on these proposals have the effect of voting
against the applicable proposal since they are one less vote in favor of such
proposal.
ELECTION OF DIRECTORS
Assuming adoption and effectiveness of the Corporation's proposed amendment to
its Articles of Incorporation that provides for a classified Board of Directors,
the Board of Directors will be divided into three classes, each class to be as
nearly equal in number as possible. See "Proposals to Approve Amendments to
Articles of Incorporation -- (c) Amendment to Create a Classified Board of
Directors and to Provide that Directors may be removed only for Cause." As
indicated below, the Directors' terms will expire at the first, second or third
annual meeting of shareowners after their election by the shareowners. Fourteen
directors will be elected at the 1998 Annual Meeting, to be divided into the
classes and to hold office for the terms specified below. If, for any reason,
this proposed amendment to the Corporation's Articles of Incorporation does not
become effective, each director elected at the 1998 Annual Meeting will hold
office until the next annual meeting of shareowners, and until a successor has
been elected and qualified.
Management and the Board recommend the election of the nominees listed below. In
the event any nominee should not continue to be available for election, the
discretionary authority provided in the proxy will be exercised to vote for the
remainder of those nominated or for such other person or persons as may be
designated by the Board. The Board is not presently aware of any circumstances
that would render any nominee unavailable for election to serve as a director.
All of the nominees named below are members of the present Board of Directors of
the Corporation. All nominees have been engaged in the described principal
occupation during the past five (5) years.
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Nominees for Election -- Terms Expire in 1999 (Class 1). The following
individuals are the nominees of the Board of Directors to serve, following the
effectiveness of the proposal to amend and restate the Corporation's Articles of
Incorporation, until the 1999 annual meeting of shareowners:
<TABLE>
<CAPTION>
YEAR FIRST BECAME
NAME AGE A DIRECTOR PRINCIPAL OCCUPATION
---- --- ----------------- --------------------
<S> <C> <C> <C>
Robert J. Dickson 64 1978 President and Chief Executive Officer,
the Corporation and Frontier Bank
Edward D. Hansen 58 1978 Mayor of Everett; President, Golf N.W.
William H. Lucas 70 1978 Chiropractor
Edward J. Novack 71 1978 Attorney
Darrell J. Storkson 55 1997 Owner, Evergreen Lanes
</TABLE>
Nominees for Election -- Terms Expire in 2000 (Class 2). The following
individuals are the nominees of the Board of Directors to serve, following the
effectiveness of the proposal to amend and restate the Corporation's Articles of
Incorporation, until the 2000 annual meeting of shareowners:
<TABLE>
<CAPTION>
YEAR FIRST BECAME
NAME AGE A DIRECTOR PRINCIPAL OCCUPATION
---- --- ----------------- --------------------
<S> <C> <C> <C>
Lucy DeYoung 48 1997 President, DeYoung & Company (financial
investment advisory services)
J. Donald Regan 72 1983 Retired dairyman
Roy A. Robinson 70 1978 President, Roy Robinson Chevrolet
William J. Robinson 54 1978 Partner, Robinson Properties and
Investments (real estate development)
Edward C. Rubatino 67 1978 President, Rubatino Refuse Removal, Inc.
</TABLE>
Nominees for Election -- Terms Expire in 2001 (Class 3). The following
individuals are the nominees of the Board of Directors to serve, following the
effectiveness of the proposal to amend and restate the Corporation's Articles of
Incorporation, until the 2001 annual meeting of shareowners:
<TABLE>
<CAPTION>
YEAR FIRST BECAME
NAME AGE A DIRECTOR PRINCIPAL OCCUPATION
---- --- ----------------- --------------------
<S> <C> <C> <C>
George E. Barber 55 1997 Chairman, First Western Investments
(hospitality, retail and other real
estate investments)
David A. Dujardin 66 1978 President, Dujardin Custom Homes
James H. Mulligan 66 1989 President, Emerald Development Company,
Inc. (real estate development)
Roger L. Rice 73 1978 Retired dentist
</TABLE>
IT IS THE INTENTION OF THE PERSON NAMED IN THE PROXY TO VOTE FOR THE ELECTION OF
THE NOMINEES ABOVE.
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The Corporation's Board of Directors, once elected by the shareowners, will
appoint members of the Board of Directors of Frontier Bank and FFP, Inc., which
are each wholly subsidiaries of the Corporation. The present Board of Directors
of the Corporation has recommended that the above individuals be appointed
Directors of Frontier Bank and FFP, Inc.
DIRECTOR'S MEETINGS AND COMMITTEES
The Board of Directors of the Corporation held seven meetings in 1997. However,
since the Boards of Frontier Bank and the Corporation are the same, the
directors at each Board meeting of Frontier Bank, of which 12 were held in 1997,
review the financial records of the Corporation. Frontier Bank's Board of
Directors has established certain standing committees, including the Audit
Committee, and Personnel Committee. Each member of the Board of Directors
attended at least 75% of the Board and Committee meetings of which they were a
member.
Audit Committee. The main function performed by the Audit Committee includes
making or causing to be made suitable audits of the Corporation and its
subsidiaries; review with the independent public accountants, the plan, scope,
and results of the audit engagement; review of the Federal Deposit Insurance
Corporation and State examination reports, and reviewing the adequacy of
internal accounting systems and controls. The results of the audits and
recommendations are reported to the full Boards of Directors of the Corporation
and Frontier Bank. The membership of the Audit Committee during 1997 was Mr.
Rice, Chairman of the committee, Mr. Dujardin, Mr. Novack, Mr. Regan, Mr.
Rubatino, Mr. Storkson and Ms. DeYoung.
The committee held six meetings in 1997.
Personnel Committee. The functions of the Personnel Committee include
establishment of policies with respect to the compensation of officers and
employees of the Corporation and its subsidiaries. During 1997, the members of
the Personnel Committee were Mr. Novack, Chairman of the committee, Mr. Dickson,
Mr. Hansen, Mr. Lucas, Mr. Mulligan, Mr. Roy Robinson, and Mr. Storkson. The
Committee held one meeting in 1997.
No Nominating Committee has been established.
COMPENSATION OF DIRECTORS
For 1997, all Directors of the Corporation and Frontier Bank received an annual
retainer of $17,500 for service on the Corporation's board, and a fee of $1,800
for each Frontier Bank board meeting attended. Directors do not receive any fees
for attendance at committee meetings. The Chairman of the Board receives an
additional fee of $200 for each Frontier Bank board meeting attended.
PROPOSALS TO APPROVE AMENDMENTS TO ARTICLES OF INCORPORATION
The Board of Directors believe that the best interests of the Corporation and
its shareowners will be served by adopting several changes to the Corporation's
current Articles of Incorporation (the "Articles"), all of which are reflected
in the Amended and Restated Articles of Incorporation attached to this Proxy
Statement as Appendix A (the "Amended and Restated Articles"). In the event that
not all of the following amendments are approved by the Corporation's
shareowners, the Corporation's Amended and Restated Articles will reflect only
those changes that have been so approved. The Board's reasons for recommending
each of the various changes, and potential advantages and disadvantages of
implementing these changes, are described below. Two of the amendments described
below provide takeover protection for the Corporation. While these provisions
could have the effect of delaying, deterring or preventing a takeover of
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the Corporation, the Board believes that they are in the best interest of the
Corporation's shareowners because these provisions will give the Board
additional rights and power to use in negotiating with a potential acquirer. The
Board believes that it will thereby be able to more effectively fulfill its duty
to obtain the maximum value possible for shareowners in the event of a takeover
of the Corporation, and to limit the ability of potential acquirers of the
Corporation to employ abusive takeover tactics.
(a) AMENDMENT TO RESTATE OBJECTS AND PURPOSES OF THE CORPORATION AND ELIMINATE
PROVISION RELATING TO DISTRIBUTIONS
The Corporation's Articles currently include a lengthy, detailed statement of
the objects and purposes for which the Corporation was created in 1983. Under
Washington law, a corporation may provide in its articles of incorporation that
it may engage in any lawful act or activity for which corporations may be
organized under such law. Accordingly, the Board has deemed it advisable to
amend the Articles to so as to give the Corporation the broadest authorization
possible under the law and to eliminate any doubt that might arise as to any
activity which the Corporation may want to undertake. Article II of the Amended
and Restated Articles reflects this amendment.
Similarly, the Corporation's Articles currently include a provision authorizing
the Board to make certain distributions to shareowners. Because under Washington
law the Board has the power to declare and make distributions to shareowners
without any specific authorization in the Corporation's Articles, and to
eliminate any doubt that might arise as to whether the provision in the
Corporation's Articles in any way limits the Board's ability to declare
distributions under Washington law, the Amended and Restated Articles do not
contain any provisions relating to distributions, and the Corporation's Board
accordingly will have the full power to declare and make distributions to
shareowners under Washington law.
(b) AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
20,000,000 TO 50,000,000 AND TO CREATE A CLASS OF PREFERRED STOCK
The Corporation's Articles currently authorize the issuance of up to 20,000,000
shares of common stock. Of these authorized shares, as of the Record Date for
the Annual Meeting there were 7,357,935 shares outstanding, and 124,940 shares
that are issuable upon exercise of outstanding options under the Corporation's
stock option plan. In addition, the Corporation has declared a 7% stock dividend
payable on March 16, 1998 (the "7% Stock Dividend"), which will increase the
number of outstanding shares by approximately 516,035 shares. Adoption of this
amendment would increase the total number of authorized shares of Common Stock
to 50,000,000 shares.
The Corporation's Articles do not currently authorize any Preferred Stock. Under
the Amended and Restated Articles, the Board would be authorized to issue up to
10,000,000 shares of Preferred Stock in one or more series and to fix the
powers, designations, preferences and relative, participating, optional or other
rights thereof, including dividend rights, conversion rights, voting rights,
redemption terms, liquidation preferences and the number of shares constituting
each such series, without any further vote or action by the Corporation's
shareowners. The proposed increase in the number of authorized shares of Common
Stock and the authorization of Preferred Stock will not change the number of
shares of Common Stock currently outstanding or the rights of the holders of
such stock, and will have no dilutive effect upon the proportionate voting power
of the present shareowners of the Corporation. However, to the extent that
shares are subsequently issued to persons other than the present shareowners
and/or in proportions other than the proportion that presently exists, such
issuance could have a dilutive effect on present shareowners.
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The Corporation does not currently have any specific plans with respect to
issuance of additional shares of Common Stock (except in connection with the 7%
Stock Dividend and for issuances pursuant to options currently outstanding and
to be granted in the future under the Corporation's stock option plan) or with
respect to issuance of shares of Preferred Stock. In recent years, the
Corporation has issued shares of Common Stock primarily in connection with stock
dividends, acquisitions, and upon exercise of options granted under the
Corporation's stock option plan. The issuance of additional shares of stock for
an acquisition may have a dilutive effect on earnings per share and book value
per share, as well as a dilutive effect on the voting power of existing
shareowners. The Corporation would expect that any such dilutive effect on
earnings per share and/or book value per share would be relatively short-term in
duration.
The Board believes that it is desirable to increase the number of authorized
shares of Common Stock and to authorize shares of Preferred Stock. This action
will provide the Corporation with flexibility in the future by assuring the
availability of sufficient authorized but unissued Common Stock and Preferred
Stock for valid corporate purposes such as stock dividends, mergers and
acquisitions and financings. The newly authorized shares of Common Stock and
Preferred Stock would be available for issuance without further action by
shareowners except as required by law or, upon the effectiveness of the
anticipated listing of the Corporation's Common Stock on the Nasdaq National
Market, the applicable rules of the Nasdaq National Market. For example, with
certain exceptions (such as stock splits) the current rules of the Nasdaq
National Market would require approval by the Corporation's shareowners for
sales or issuances by the Corporation of Common Stock (or securities convertible
into Common Stock) equal to 20% or more of the shares of Common Stock
outstanding immediately prior to such issuance.
The Corporation has no current plan or commitment to issue shares of stock for
purposes other than those discussed above, including any plan or intention to
issue such shares as a takeover defense. Nevertheless, the additional authorized
shares could be used to discourage persons from attempting to gain control of
the Corporation or make more difficult the removal of management. For example,
additional shares could be used to dilute the voting power of shares then
outstanding or could be issued to persons who would support the Board in
opposing a takeover bid or a solicitation in opposition to management.
Management is not currently aware of any specific effort to obtain control of
the Corporation by means of a merger, tender offer, solicitation in opposition
to management, or otherwise. See "--Advantages and Disadvantages of Takeover
Protections" below.
(c) AMENDMENT TO CREATE A CLASSIFIED BOARD OF DIRECTORS, AND TO PROVIDE THAT
DIRECTORS MAY BE REMOVED ONLY FOR CAUSE
Washington law authorizes corporations to stagger the terms of directors by
dividing the Board into two or three classes. The Amended and Restated Articles
provide that the Corporation's Board will be divided into three classes, with
one class elected each year, and the directors in that class being elected to
serve a three-year term. In order to implement the classified Board, the 14
nominees for the Board of Directors at the Annual Meeting would be assigned to
Class 1, Class 2 or Class 3, with those directors assigned to Class 1 initially
being elected to a one-year term, those directors assigned to Class 2 initially
being elected to a two-year term, and those directors assigned to Class 3 being
elected to a three-year term. In accordance with Washington law, in the event a
vacancy occurs on the Board, the Board may appoint a new director to fill such
vacancy until the next annual meeting of shareowners. The Amended and Restated
Articles also provide that a director may be removed from office only for cause
by shareowners of not less than two-thirds of the shares entitled to elect the
director or directors whose removal is sought.
The Board believes it is desirable to create a classified Board because it will
promote continuity
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of management and stability of the Corporation's traditional policies. The Board
believes that such continuity and stability enhance the ability of the
Corporation and its subsidiaries to attract and retain the competent and
qualified officers and employees necessary for continued success. The creation
of a classified Board will make it more difficult in the future for any group of
shareowners, including those holding a majority of the voting stock, to force an
immediate change the composition of the Board of Directors. Without a classified
Board, directors stand for election each year, so it would only take one year
for the entire Board to be replaced. Following the creation of a classified
Board, at least two annual meetings, or a special meeting called for the purpose
of removing directors, will be required to effect a change in the majority of
the Board of Directors. As a result, this format for election of directors could
have the effect of discouraging unsolicited takeover bids. See "--Advantages and
Disadvantages of Takeover Protections" below.
(d) AMENDMENT TO LIMIT PERSONAL LIABILITY OF DIRECTORS
Under Washington law, a corporation may provide in its articles of incorporation
for the elimination or limitation of personal liability of directors to the
corporation or its shareowners for monetary damages for their conduct as
directors, and the Amended and Restated Articles contain such a provision. In
accordance with Washington law, this provision does not eliminate or limit the
liability of a director for acts or omissions that involve intentional
misconduct, a knowing violation of law, conduct regarding liability for unlawful
distributions, or for any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled. The Board believes that the large majority of Washington
public companies provide for this limitation on personal liability of directors,
and that this provision will aid the Corporation in attracting and retaining the
services of qualified directors.
ADVANTAGES AND DISADVANTAGES OF TAKEOVER PROTECTIONS
Public companies are potentially subject to attempts by various individuals and
entities to acquire significant positions in the company with the intent of
either obtaining actual control of the company by electing their own slate of
directors, or of achieving some other goal, such as the repurchase of their
shares by the company at a premium. Public companies are also potentially
subject to inadequately priced or coercive bids for control. Provisions in the
Corporation's Articles, such as the provisions for the classified Board of
Directors and the increase in authorized common stock and preferred stock
described above, can provide protection for the Corporation's shareowners from
such abusive tactics by giving the Board additional rights and power to use in
negotiating with a potential acquirer. The Board believes that these takeover
protections will enable it to more effectively fulfill its duty to obtain the
maximum value possible for shareowners in the event of a takeover of the
Corporation, and to limit the ability of potential acquirers of the Corporation
to employ abusive takeover tactics. However, these takeover protections can also
have the effect of delaying, deterring or preventing certain mergers, tender
offers and other takeover attempts, or the removal of incumbent management, one
or more of which some or a majority of the holders of the Corporation's voting
stock may deem to be in their best interest.
CERTAIN WASHINGTON LAW PROVISIONS
As described above, certain of the changes that would be effected by the
approval of the amendments to the Corporation's Articles proposed above may have
the effect of impeding a hostile takeover of the Corporation. In addition,
Washington law contains certain provisions that may have the effect of delaying,
deterring or preventing a takeover or change in control of the Corporation.
Chapter 23B.19 of the Washington Act prohibits the company, with certain
exceptions, from engaging in certain significant business transactions with an
"acquiring person" (defined as a person who acquires 10% or more of the
Corporation's voting securities without the prior approval of the Corporation's
Board of Directors) for a
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period of five years after such acquisition. The prohibited transactions
include, among others, a merger with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person, or otherwise allowing the
acquiring person to receive any disproportionate benefit as a shareowner. After
the five-year period, the Corporation may engage in otherwise proscribed
transactions, so long as the transaction complies with certain fair price
provisions of the statute or is approved by a majority of disinterested
shareowners within each voting group entitled to vote separately. The
Corporation may not exempt itself from coverage of this statute.
In addition, under Washington law the affirmative vote of at least two-thirds of
the outstanding voting shares of a company are required for the approval of
certain fundamental corporate transactions, including certain mergers or share
exchanges, a sale of substantially all of a company's assets, and dissolution.
However, public companies may in their articles provide that a lower vote
requirement (but not less than a majority) is applicable to these corporate
transactions. The Corporation has not provided for such a reduced vote
requirement in its Articles, and is not at this time proposing to amend its
Articles to provide for such a reduced vote requirement. These statutory
provisions may have the effect of delaying, deterring or preventing a change in
control of the Corporation.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE FOREGOING AMENDMENTS TO THE
CORPORATION'S ARTICLES OF INCORPORATION.
PROPOSAL TO APPROVE AMENDMENT TO INCENTIVE STOCK OPTION PLAN
The Corporation's Incentive Stock Option Plan (the "Option Plan") provides a
means whereby selected key management officers and employees may be granted
incentive stock options ("ISOs") to purchase shares of the Corporation's Common
Stock. The Option Plan was originally adopted by the Corporation's Board of
Directors on March 18, 1992, and was approved by the Corporation's shareowners
on April 22, 1992. The Option Plan previously provided that the number of shares
that may be granted under the Option Plan is 10% of the authorized shares of the
Corporation's Common Stock. As of the date the Option Plan was originally
adopted, the Corporation had 3,000,000 shares of Common Stock authorized and
therefore 300,000 shares were available for issuance pursuant to the Plan. On
February 23, 1998, the Board of Directors adopted an amendment to the Option
Plan that would, subject to shareowner approval, establish 750,000 as the
maximum number of shares of Common Stock that may be issued under the Option
Plan. As of December 31, 1997, a total of 223,817 shares of Common Stock had
been issued pursuant to options granted under the Option Plan, or were subject
to issuance upon exercise of outstanding options. As of December 31, 1997, the
fair market value of the Corporation's Common Stock was $37.00 per share. The
Option Plan expires on March 18, 2002, and no additional options may be granted
under the Option Plan after that date.
The Board of Directors believes that establishing the number of shares to be
issued under the Option Plan at 750,000 would, among other things, promote the
interests of the Corporation and its shareowners by assisting the Corporation in
attracting, retaining and stimulating the performance of key management officers
and employees. The Board believes that existing option grants have contributed
substantially to the successful achievement of these objectives and that the
granting of stock options for these purposes is comparable with similar
financial institutions.
DESCRIPTION OF THE OPTION PLAN
The Compensation (Personnel) Committee of the Board is currently the
administrator of the Option Plan (the "Option Plan Administrator"). Subject to
the terms of the Option Plan, the Option Plan Administrator
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determines the terms and conditions of options granted under the Option Plan,
including the exercise price. All options granted under the Option Plan are
intended to qualify as incentive stock options under the Internal Revenue Code
(the "Code"). The Option Plan provides that the Option Plan Administrator must
establish an exercise price for options that is not less than the fair market
value per share at the date of grant. Each option must expire within ten years
of the date of grant. However, if options are granted to persons owning more
than 10% of the voting stock of the Corporation, the Option Plan and the tax
laws for ISOs provide that the exercise price may not be less than 110% of the
fair market value per share at the date of grant and that the term of the ISOs
may not exceed five years. Unless otherwise provided by the Option Plan
Administrator, options granted under the Option Plan are fully vested upon
grant, but may not be exercised until six months from the date of grant.
No option may be transferred by the optionee except that upon the death of an
optionee, the optionee's spouse and/or children or personal representative has
the right to exercise the unexpired option for a period of six months. Options
granted under the Option Plan terminate and expire upon the termination of the
optionee's employment by the optionee or by the Corporation for any reason
(other than death or disability), unless the optionee has retired or been
terminated with the approval of the Board of Directors, in which case the Board
may allow the optionee to exercise the options for a six-month period following
such cessation of employment (unless such options terminate or expire sooner by
their terms).
In the event of a merger or consolidation in which the Corporation is the
surviving entity, any option granted under the Option Plan automatically
pertains to the securities to which a holder of the number of shares of Common
Stock subject to the option would have been entitled. In the event of a
dissolution or liquidation of the Corporation or a merger or consolidation in
which the Corporation is not the surviving entity, all outstanding options will
terminate, and immediately prior to such dissolution, liquidation, merger or
consolidation each holder of options under the Option Plan may exercise his or
her options in full, whether or not any vesting requirements relating to such
options have been met.
FEDERAL INCOME TAX CONSEQUENCES
The material U.S. federal income tax consequences to the Corporation and to any
person granted an option under the Option Plan who is subject to taxation in the
United States under the existing applicable provisions of the Code and the
underlying Treasury Regulations are substantially as follows. The following
summary does not address state, local or foreign tax consequences, nor does it
address all issues that may be material to an optionee based on his or her
particular circumstances. It is based on the Code, the Treasury Regulations
proposed or promulgated thereunder and administrative interpretations as in
effect on the date hereof and judicial precedents relating thereto, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax considerations discussed herein.
Under present law and regulations, no income will be recognized by a participant
upon the grant of stock options.
Upon the exercise of an ISO during employment or within three months after the
optionee's termination of employment (12 months in the case of permanent and
total disability), for regular tax purposes the optionee will recognize no
income at the time of exercise (although the optionee may generally have income
for alternative minimum income tax purposes at that time equal to the excess of
the fair market value of the shares over the exercise price). If the acquired
shares are sold or exchanged after the later of (a) one year from the date of
exercise of the option and (b) two years from the date of grant of the option,
the difference between the amount realized by the optionee on that sale or
exchange and the option exercise price will be taxed to the optionee as capital
gain or loss. Whether any such capital gain is short-term, mid-term
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<PAGE> 12
or long-term or any such capital loss is short-term or long-term will depend on
the optionee's holding period with respect to the shares. If the shares are
disposed of before the later of (a) or (b) above, then the optionee will
recognize taxable ordinary income in the year of disposition in an amount equal
to the excess of the fair market value on the exercise date of the shares
received over the option price paid (or generally, if less, the excess of the
amount realized on the sale of the shares over the option price), and the
optionee will have capital gain or loss in an amount equal to the difference
between (i) the amount realized by the optionee upon that disposition of the
shares and (ii) the option price paid by the optionee increased by the amount of
ordinary income, if any, so recognized by the optionee. The Corporation will be
entitled to a deduction at the same time and in the same amount as the
participant recognizes ordinary income, subject to certain limitations. Among
these limitations is Section 162(m) of the Code, under which certain
compensation payments in excess of $1 million are not deductible by the
Corporation.
If the optionee uses already-owned shares to pay the exercise price of an
option, the transaction will not be considered to be a taxable disposition of
the already-owned shares. The optionee's tax basis (increased by any
compensation recognized by the optionee) and holding period of the already-owned
shares will be carried over to the equivalent number of shares received upon
exercise. The tax basis of the additional shares received upon exercise will be
zero, and the holding period for such additional shares will begin on the day
after the exercise date. Special considerations apply to the use of
already-owned stock that was itself received upon the exercise of an ISO to pay
the exercise price of a subsequently exercised ISO, and an optionee considering
the use of such shares to pay the exercise price of an option is urged to
consult with his or her tax advisor.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENT TO THE
CORPORATION'S INCENTIVE STOCK OPTION PLAN.
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<PAGE> 13
STOCK OWNERSHIP OF OFFICERS AND DIRECTORS
The beneficial ownership by executive officers and directors of the
Corporation's stock, and the percentages of such ownership to the total amount
of the Corporation's stock outstanding as of December 31, 1997, is set forth in
the following table:
<TABLE>
<CAPTION>
NAME OF NUMBER OF COMMON SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED (1) OUTSTANDING STOCK
- ---------------- ---------------------- -----------------
<S> <C> <C>
Directors:
George E. Barber 63,726 *
Lucy DeYoung 313 *
Robert J. Dickson 282,950 (2) 3.85%
David A. Dujardin 21,583 *
Edward D. Hansen 123,201 1.68%
William H. Lucas 42,763 *
James H. Mulligan 76,556 1.04%
Edward J. Novack 123,595 1.68%
J. Donald Regan 98,563 1.34%
Roger L. Rice 94,323 1.28%
Roy A. Robinson 109,160 1.49%
William J. Robinson 139,932 1.90%
Edward C. Rubatino 121,644 1.65%
Darrell J. Storkson 119,265 1.62%
All directors and executive
officers as a group (16 in 1,431,371 19.47%
number) (2)(3)
</TABLE>
- ----------
* Less than 1%.
(1) Includes shares, if any, held by spouse, held by or for the benefit of the
director or one or more members of the immediate family.
(2) Includes 17,761 shares to which Mr. Dickson has the right to acquire by
virtue of options granted pursuant to the Corporation's Stock Option Plan.
(3) Includes 4,719 shares which the Corporation's executive officers (other
than Mr. Dickson) have the right to acquire by virtue of options granted
pursuant to the Corporation's Stock Option Plan.
As of March 1, 1998, there was no individual or entity known to the Corporation
to be the beneficial owner of more than 5% of the outstanding shares of its
stock.
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<PAGE> 14
EXECUTIVE OFFICERS
The following table shows the name of each executive officer of the Corporation,
his age, and the offices he holds with the Corporation and Frontier Bank. All
offices are held at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE OFFICE AND YEAR ASSUMED OFFICE
---- --- ------------------------------
<S> <C> <C>
Robert J. Dickson 64 President and Chief Executive Officer of the
Corporation (1983) and Frontier Bank (1978)
James F. Felicetty 54 Secretary and Treasurer of the Corporation (1983)
F. Earl Carey 64 Vice President of the Corporation (1985) and Senior
Vice President of Frontier Bank (1986)
</TABLE>
COMPENSATION OF EXECUTIVES
The following table sets forth certain compensation information with respect to
the Corporation's Chief Executive Officer for the fiscal years ended December
31, 1997, 1996 and 1995. No other executive officer of the Corporation received
compensation in excess of $100,000 during the fiscal year ended December 31,
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) OPTIONS(#) ($)(2)
------------------ ---- ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Dickson 1997 $240,000 $139,612 $65,785 2,700 $4,800
President and CEO 1996 225,000 111,416 68,390 3,200 4,500
1995 200,000 83,118 56,674 3,500 4,500
</TABLE>
- ----------
(1) Includes Board fees and amounts paid pursuant to profit sharing and
purchase plans. Does not include earnings on prior years contributions to
retirement plans.
(2) With respect to the year ended December 31, 1997, represents $4,800 paid
for a matching contribution to the Corporation's 401(k) plan.
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<PAGE> 15
OPTION GRANTS
The following table sets forth certain information regarding options to purchase
shares of the Corporation's Common Stock granted to the Corporation's Chief
Executive Officer during the fiscal year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL
SECURITIES TOTAL RATE OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------
NAME (#) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------ --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Dickson 2,700(1) 19.0% $37.00 2007 $62,827 $159,215
</TABLE>
- ----------
(1) The exercise price of the options is the fair market value of the Common
Stock on the date of the grant, and the options are fully exercisable six
months from the date of grant.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth certain information regarding options exercised
in during the fiscal year ended December 31, 1997, and options held as of
December 31, 1997 by the Corporation's Chief Executive Officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END (#) YEAR END ($)
----------------- -----------------
SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) (1) REALIZED ($) (1) UNEXERCISABLE UNEXERCISABLE
---- ------------------ ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Robert J. Dickson 4,153 $120,661 17,761/2,700 $304,457/0
</TABLE>
- ----------
(1) The shares exercised were granted in 1990 and 1991 at the price of the
stock at that time. Any shareowner who purchased stock at that time would
have the same value realized in their holdings. The value realized is
based on the difference between the exercise price of the options and the
value of the Corporation's Common Stock on the date of exercise, and is
not reduced to reflect taxes payable with respect to such amount.
-13-
<PAGE> 16
COMPENSATION (PERSONNEL) COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONS
The following directors were members of the Personnel (Compensation) Committee
during 1997, some of whom had loan transactions with Frontier Bank during the
year, and had outstanding balances at year-end 1997 as follows:
<TABLE>
<S> <C>
Robert J. Dickson, Director, President & CEO $ 44,856
Edward D. Hansen, Director 731,017
William H. Lucas, Director 625,735
James H. Mulligan, Director 3,186,402
Edward J. Novack, Director and Secretary of the Board of 223,172
Frontier Bank
Roy A. Robinson, Director --
Darrell J. Storkson, Director 5,453,275
</TABLE>
The only director who is an officer of Frontier Bank is Mr. Dickson. The above
directors are not compensated for Personnel Committee meetings.
BOARD COMPENSATION (PERSONNEL) COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The policy of the Committee with respect to executive compensation is that such
compensation should (a) assist the Corporation in attracting, retaining and
motivating key executives, (b) align the interests of executives with the
interests of shareowners, (c) reflect the Corporation's performance, and (d)
reward executives for their individual performance. Executive compensation
includes base salary, bonuses and stock option grants. These programs are
designed to provide incentives for both short- and long-term performance.
In setting the compensation of the Corporation's CEO and other executive
officers, the Compensation Committee considers, among other things, the
financial performance of the Corporation, the return to shareowners, the level
of compensation paid by other similar size financial corporations, and
individual responsibility and performance. Base salaries are reviewed on an
annual basis, and adjusted as the Committee determines is appropriate.
In reviewing Mr. Dickson's performance for 1997, the Committee particularly took
into consideration the Corporation's increased profits and the increase in the
stock price for 1997. Net income in 1997 reached $16.9 million, or $2.28 per
fully diluted share, an increase of 15.6% over 1996. The value of the
Corporation's common stock appreciated 27.7% in 1997, increasing in price from
$29.00 per share to $37.00 per share (as adjusted to reflect the 7% stock
dividend paid in March 1997). Other accomplishments for the year included the
continued expansion of the Corporation's market area with the opening of the
Redmond, Washington office of the Bank, and the opening of a commercial banking
office, also in Redmond. Additionally, the Corporation continued to maintain a
quality loan portfolio and paid its sixteenth stock dividend to shareowners
since its inception. Also for the year, total assets increased $79.3 million, or
9.9%, and total loans increased $64.9 million, or 10.8%. The Corporation was
able to maintain a net interest margin for the year of 5.38%, which the
Compensation Committee considered to be high compared to industry standards.
Accordingly, the Compensation Committee increased Mr. Dickson's base salary by
$15,000 to $240,000, and awarded him a bonus of approximately $140,000. In
addition,
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<PAGE> 17
Mr. Dickson was awarded a stock option grant to purchase 2,700 shares of common
stock. Mr. Dickson does not participate in deliberations of the Compensation
Committee relating his compensation.
Submitted by Members of the Compensation Committee
Robert J. Dickson Edward J. Novack
Edward D. Hansen Roy A. Robinson
William H. Lucas Darrell J. Storkson
James H. Mulligan
FIVE YEAR PERFORMANCE COMPARISON
TOTAL CUMULATIVE RETURN TO SHAREOWNERS
The graph below provides a comparison of the cumulative shareowner returns on
the Corporation's Common Stock as compared with the cumulative total return of
the S&P 500 and the S&P Major Regional Banks (MRB) index.
FRONTIER FINANCIAL CORPORATION
HISTORICAL PERFORMANCE COMPARISON
TOTAL CUMULATIVE RETURN TO SHAREOWNERS
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FFC 100 137.50 217.80 263.10 310.64 396.72
Major Regional Banks 100 105.37 96.07 151.34 206.84 313.84
S&P 500 100 110.01 108.32 149.03 183.28 246.57
</TABLE>
The above presentation assumes $100 was invested on January 1, 1993 in the
Corporation's Common Stock, the S&P 500 index, and the S&P Major Regional Banks
index.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Corporation's executive officers, directors and greater than 10% shareowners, if
any, to file reports of ownership and changes in ownership with the Securities
and Exchange Commission (the "Commission"). Officers, directors and greater than
10% shareowners are required by Commission regulation to furnish the Corporation
with copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms received by the Corporation, or representations from
certain reporting persons, the Corporation believes that during 1997 all filing
requirements applicable to its officers and directors were complied with by such
persons.
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<PAGE> 18
MISCELLANEOUS TRANSACTIONS
WITH DIRECTORS AND OFFICERS
The Corporation's subsidiary has as banking customers many of the Corporation's
directors and officers, as well as the businesses with which they are
associated. All loans made to such persons and entities during the past year
were made in Frontier Bank's ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time of comparable transactions with other persons. These loans do not
involve more than a normal risk of collectability, nor do they present any other
unfavorable feature. See "Compensation (Personnel) Committee Interlocks and
Insider Participations."
FINANCIAL INFORMATION
The Corporation's 1997 Annual Report, which contains the Corporation's financial
statements, is being sent to the shareowners with this Proxy Statement, and is
hereby incorporated by reference in its entirety.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The independent public accounting firm of Moss Adams audited the Corporation's
consolidated financial statements for the year 1997, and has been similarly
engaged in 1998. Representatives from Moss Adams are expected to be present at
the Annual Meeting of Shareowners, and given the opportunity to make a statement
if they desire to do so. They will be available to respond to appropriate
questions.
OTHER BUSINESS
The Board of Directors of the Corporation is not presently aware of any other
business to come before the Annual Meeting, as of the date of the preparation of
this Proxy Statement, no shareowner has submitted to the Board any proposal to
be acted on at the meeting. If any matters come before the meeting, not referred
to in the enclosed Proxy, including matters incident to the conduct of the
meeting, the proxy holders will vote the shares represented by the proxies in
accordance with their best judgment.
SHAREOWNER PROPOSALS FOR
1999 ANNUAL MEETING
In order for shareowner proposals to be included in the 1999 proxy materials,
and considered at the 1999 Annual Meeting of Shareowners, proposals must be
received by the Secretary of the Corporation at the address shown on the Notice
of Meeting no later than November 20, 1998.
IT IS EXTREMELY IMPORTANT THAT YOUR VOTE BE COUNTED AT THIS MEETING.
THE ENCLOSED PROXY SHOULD BE COMPLETED, DATED, SIGNED, AND RETURNED IN THE
ENCLOSED ENVELOPE, FOR WHICH POSTAGE HAS BEEN PAID. PROMPT MAILING OF THE PROXY
WILL BE APPRECIATED.
By Order of the Board of Directors,
James F. Felicetty, Secretary
-16-
<PAGE> 19
------------------
The Corporation will furnish without charge to any shareowner submitting a
written request, a copy of the Corporation's Form 10-K Annual Report for 1997 to
the Securities and Exchange Commission, including the financial statements and
schedules thereto. Such written request should be addressed to James F.
Felicetty, Secretary/Treasurer, Frontier Financial Corporation, 332 S.W. Everett
Mall Way, P.O. Box 2215, Everett, Washington 98203.
-17-
<PAGE> 20
APPENDIX A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
FRONTIER FINANCIAL CORPORATION
Frontier Financial Corporation, a Washington corporation, by its
President, hereby submits the following Amended and Restated Articles of
Incorporation of said corporation, pursuant to provisions of RCW 23B.10.070, and
a resolution duly adopted by the Board of Directors on February 23, 1998 and the
Shareowners on _____________. These Amended and Restated Articles of
Incorporation supersede the original Articles of Incorporation and all
amendments and prior restatements thereto as of the date of their adoption.
ARTICLE I. NAME
The name of the corporation is Frontier Financial Corporation.
ARTICLE II. PURPOSES AND POWERS
This corporation is organized to engage in any business, trade or activity
which may lawfully be conducted by a corporation organized under the Washington
Business Corporation Act. This corporation shall have the authority to engage in
any and all such activities as are incidental or conducive to the attainment of
the foregoing purpose of this corporation and to exercise any and all powers
authorized or permitted under any laws that may now or hereafter be applicable
or available to this corporation.
ARTICLE III. EXISTENCE
The existence of this corporation is perpetual.
ARTICLE IV. SHARES
4.1 AUTHORIZED CAPITAL
The total number of shares which the corporation is authorized to issue is
60,000,000, consisting of 50,000,000 shares of Common Stock without par value
and 10,000,000 shares of Preferred Stock without par value. The Common Stock is
subject to the rights and preferences of the Preferred Stock as hereinafter set
forth.
4.2 ISSUANCE OF PREFERRED STOCK IN SERIES
The Preferred Stock may be issued from time to time in one or more series
in any manner permitted by law and the provisions of these Articles of
Incorporation of the corporation, as determined from time to time by the Board
of Directors and stated in the resolution or resolutions providing for the
issuance thereof, prior to the issuance of any shares thereof. The Board of
Directors shall have the
<PAGE> 21
authority to fix and determine and to amend, subject to the provisions hereof,
the designation, preferences, limitations and relative rights of the shares of
any series that is wholly unissued or to be established. Unless otherwise
specifically provided in the resolution establishing any series, the Board of
Directors shall further have the authority, after the issuance of shares of a
series whose number it has designated, to amend the resolution establishing such
series to decrease the number of shares of that series, but not below the number
of shares of such series then outstanding.
4.5 DIVIDENDS
The holders of shares of the Preferred Stock shall be entitled to receive
dividends, out of the funds of the corporation legally available therefor, at
the rate and at the time or times, whether cumulative or noncumulative, as may
be provided by the Board of Directors in designating a particular series of
Preferred Stock. If such dividends on the Preferred Stock are cumulative, then
if dividends have not been paid, the deficiency shall be fully paid or the
dividends declared and set apart for payment at such rate, but without interest
on cumulative dividends, before any dividends on the Common Stock may be paid or
declared and set apart for payment. The holders of the Preferred Stock shall not
be entitled to receive any dividends thereon other than the dividends referred
to in this section.
4.6 REDEMPTION
The Preferred Stock may be redeemable at such price, in such amount, and
at such time or times as may be provided by the Board of Directors in
designating a particular series of Preferred Stock. In any event, such Preferred
Stock may be repurchased by the corporation to the extent legally permissible.
4.7 LIQUIDATION
In the event of any liquidation, dissolution, or winding up of the affairs
of the corporation, whether voluntary or involuntary, then, before any
distribution is made to the holders of the Common Stock, the holders of the
Preferred Stock at the time outstanding shall be entitled to be paid the
preferential amount or amounts per share as may be provided by the Board of
Directors in designating a particular series of Preferred Stock and dividends
accrued thereon to the date of such payment. The holders of the Preferred Stock
will not be entitled to receive any distributive amounts upon the liquidation,
dissolution, or winding up of the affairs of the corporation other than the
distributive amounts referred to in this section, unless otherwise provided by
the Board of Directors in designating a particular series of Preferred Stock.
4.8 CONVERSION
Shares of Preferred Stock may be convertible into Common Stock of the
corporation upon such terms and conditions, at such rate and subject to such
adjustments as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
4.9 VOTING RIGHTS
Holders of Preferred Stock shall have such voting rights as may be
provided by the Board of Directors in designating a particular series of
Preferred Stock.
-2-
<PAGE> 22
ARTICLE V. PREEMPTIVE RIGHTS
No shareowners shall have preemptive rights to acquire unissued shares of
the corporation.
ARTICLE VI. CUMULATIVE VOTING
Each share of Common Stock, when issued, shall be entitled to one vote.
Cumulative voting for directors shall not be allowed.
ARTICLE VII. CERTAIN TRANSACTIONS
No contracts or other transactions between the corporation any other
corporation (or partnership) and no act of the corporation shall in any way be
affected or invalidated by the fact that any of the directors of this
corporation are pecuniarily interested in, or are directors or officers of such
other corporation (or partnership): any director individually, or any firm of
which any director may be a member, may be a party to or may be pecuniarily or
otherwise interested in any contracts or transactions of the corporation,
provided that the fact that he or she or such corporation is so interested is
disclosed or known to the Board of Directors or a majority thereof; and any
director of the corporation who is also a director or officer of such other
corporation or who is so interested may be counted in determining the existence
of a quorum at any meeting of the Board of Directors of the corporation which
authorizes any such contracts or transactions with like form and effect as if he
or she were not such director or officer of such other corporation or not so
interested.
ARTICLE VIII. DIRECTORS
8.1 NUMBER AND TENURE
The directors who shall manage the affairs of the corporation shall not be
less than five (5) nor more than twenty-five (25) in number to be elected by the
common shareowners. The exact number shall be determined from time to time by a
resolution of the Board of Directors. In case of vacancies in the Board of
Directors by death, resignation or otherwise a majority of the remaining
directors may elect directors to fill the vacancies. Prior to the 1998 annual
election of Directors, unless a Director earlier dies, resigns or is removed,
his or her term of office shall expire at the next annual meeting of
shareowners. At the 1998 annual election of Directors, the Board of Directors
shall be divided into three classes, with said classes to be as equal in number
as may be possible, with any Director or Directors in excess of the number
divisible by three being assigned to Class 1 and Class 2, as the case may be. At
the first election of Directors to such classified Board of Directors, each
Class 1 Director shall be elected to serve until the next ensuing annual meeting
of shareowners, each Class 2 Director shall be elected to serve until the second
ensuing annual meeting of shareowners and each Class 3 Director shall be elected
to serve until the third ensuing annual meeting of shareowners. At each annual
meeting of shareowners following the meeting at which the Board of Directors is
initially classified, the number of Directors equal to the number of Directors
in the class whose term expires at the time of such meeting shall be elected to
serve until the third ensuing annual meeting of shareowners. Notwithstanding any
of the foregoing provisions of this Article, Directors shall serve until their
successors are elected and qualified or until their earlier death, resignation
or removal from office, or until there is a decrease in the number of Directors.
-3-
<PAGE> 23
8.2 REMOVAL FOR CAUSE
The Directors of this corporation may be removed only for cause by the
holders of not less than two-thirds of the shares entitled to elect the Director
or Directors whose removal is sought in the manner provided by the Bylaws.
ARTICLE IX. BY-LAWS
The Board of Directors has the power and authority to make, alter, amend
or repeal By-Laws of this corporation, subject to the power of the shareowners
having voting power to alter, amend or repeal the By-Laws.
ARTICLE X. EXECUTIVE COMMITTEE
The Board of Directors may by resolution passed by a majority of the
entire board of Directors designate one or more directors to constitute an
executive committee, which shall have and exercise the authority of the Board of
Directors in the management of the business of the corporation to the extent
provided in the resolution.
ARTICLE XI. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of Directors, a Director of this corporation shall
not be liable to this corporation or its shareowners for monetary damages for
conduct as a Director. Any amendments to or repeal of this Article 11 shall not
adversely affect any right or protection of a Director of this corporation for
or with respect to any acts or omissions of such Director occurring prior to
such amendment or repeal.
-4-
<PAGE> 24
PROXY
This proxy is solicited by the Board of Directors
FRONTIER FINANCIAL CORPORATION
PROXY FOR 1998 ANNUAL MEETING OF SHAREOWNERS
The undersigned, having received the Notice of Meeting and Proxy Statement
dated March 20, 1998, hereby appoint Robert J. Dickson and William J. Robinson,
and each of them, proxies of the undersigned, with full power of substitution,
to attend the 1998 annual meeting of the shareowners of the Corporation to be
held at Everett Golf & Country Club, Everett, Washington, on Thursday, April 16,
1998, at 7:30 p.m., and any at adjournment or postponements thereof, and thereat
to vote as designated below, all of the shares of stock of the undersigned in
the Corporation which the undersigned would be entitled to vote if personally
present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM (1),
"FOR" ITEMS (2)(a), (b), (c) AND (d), AND "FOR" ITEM (3).
(1) To elect Directors to serve for the terms stated in the Proxy
Statement (or, in the event item (2)(c) below is not approved, until
the next annual meeting of shareowners).
[ ] FOR ALL nominees listed below.
[ ] WITHHOLD AUTHORITY to vote for ALL nominees listed below.
[ ] WITHHOLD AUTHORITY to vote for ANY INDIVIDUAL nominee(s).
To withhold authority to vote for any individual
nominee(s), strike a line through the nominee's name in the
list below:
George E. Barber Edward J. Novack
Lucy DeYoung J. Donald Regan
Robert J. Dickson Roger J. Rice
David A. Dujardin Roy A. Robinson
Edward D. Hansen William J. Robinson
William H. Lucas Edward C. Rubatino
James H. Mulligan Darrell J. Storkson
(2) To consider and vote upon certain amendments to the Corporation's
Articles of Incorporation, as follows:
(a) An amendment to restate the objects and purposes of the
Corporation and to eliminate the provision relating to
distributions;
[ ] For [ ] Against [ ]Abstain
(b) An amendment to increase the number of authorized shares of
Common Stock from 20,000,000 to 50,000,000 and to create a
class of preferred stock, with 10,000,000 shares authorized;
[ ] For [ ] Against [ ]Abstain
(c) An amendment to create a classified board of directors, and to
provide that a director may be removed only for cause; and
[ ] For [ ] Against [ ]Abstain
(d) An amendment to limit the personal liability of directors of
the Corporation to the full extent allowed under Washington
law.
[ ] For [ ] Against [ ]Abstain
(3) To consider and vote upon an amendment to the Corporation's
Incentive Stock Option Plan.
[ ] For [ ] Against [ ]Abstain
This proxy will be voted as directed, or if no such direction is
indicated, it will be voted "FOR ALL nominees" in item (1), "For" items (2)(a),
(b), (c) and (d), "For" item (3), and will be voted in the discretion of the
proxies upon all other matters which may properly come before the meeting or any
adjournment or postponement thereof.
Holder ID: 1
Dated: ____________________, 1998
___________________________________
___________________________________
Signature(s)
Note: Please date, sign exactly as name or names appear hereon, and return in
the enclosed pre-paid envelope. When signing as Attorney, Executor, Trustee,
Guardian or Officer of a corporation, please give title as such.
