<PAGE> 1
As filed with the Securities and Exchange Commission on ______________, 2000
Registration No. 333-__________
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
FRONTIER FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Washington 6022 91-1223535
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
332 S.W. Everett Mall Way
Everett, Washington 98204
(425) 514-0700
(Address, including ZIP code, and telephone number, including area code,
of Registrant's principal executive office)
---------------
Glen P. Garrison, Esq.
Daniel S. Friedberg, Esq.
Keller Rohrback, L.L.P.
1201 Third Avenue, Suite 3200
Seattle, Washington 98101-3052
(206) 623-1900
(Name and address, including ZIP code, and telephone number,
including area code, of agent for service)
---------------
with a copy to:
Jeffrey C. Gerrish, Esq.
J. Franklin McCreary, Esq.
Gerrish & McCreary, P.C.
222 Second Avenue North, Suite 424
Nashville, Tennessee 37201
(901) 767-0900
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE
TO THE PUBLIC: As soon as Practicable after the
effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities Being Registered(1) Offering Price Per Aggregate Offering Registration Fee(2)
Registered Unit(2) Price(2)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, No par 738,661 $6.65 $6,549,459 $1,729.06
value
===============================================================================================================
(1) Represents the estimated maximum number of shares of common stock, no par value per share, issuable by
Frontier Financial Corporation ("Frontier") upon consummation of the acquisition of Interbancorp, Inc.
("Interbancorp") by Frontier. Pursuant to Rule 416, this Registration Statement also covers an
indeterminate number of shares of common stock as may become issuable as a result of stock splits, stock
dividends or similar transactions.
(2) Pursuant to Rule 457(f)(2), the registration fee for the Frontier common stock is based on the book
value of the Interbancorp common stock, $1.00 par value per share, on October 31, 2000 ($6.65 per share)
and computed based on the estimated maximum number of such shares (984,881), including shares issuable
upon the exercise of employee and director stock options, that may be exchanged for the securities being
registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO
DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
</TABLE>
<PAGE> 2
PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED
YOUR VOTE IS VERY IMPORTANT
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Interbancorp, Inc. ("Interbancorp"), to be held at:
15305 Main Street N.E.
Duvall, Washington
_________________, 2000
___:00____.m.
At the Special Meeting, you will be asked to vote upon a proposal to
approve the Agreement and Plan of Mergers dated as of October 23, 2000 (the
"Merger Agreement") by and among Frontier Financial Corporation ("Frontier"),
Frontier Bank, Interbancorp and Inter Bank. The Merger Agreement provides that
Interbancorp will be merged with Frontier and that, thereafter, Inter Bank will
be merged with Frontier Bank, with Frontier and Frontier Bank as the surviving
entities.
If the Merger is approved, shareholders of Interbancorp will receive
three-quarters (0.75) of a share of Frontier common stock for each share of
Interbancorp common stock, plus cash for any fractional shares. The last
reported sale price of Frontier common stock on the Nasdaq National Market
(symbol: "FTBK") on _________, 2000 was $______ per share. You are urged to
review carefully the enclosed Prospectus/Proxy Statement, which contains a more
complete description of the terms of the Merger.
This Proxy Statement/Prospectus gives you detailed information about the
Merger and includes a copy of the Merger Agreement. You should read it
carefully. It is a proxy statement that Interbancorp, Inc. is using to solicit
proxies for use at its Special Meeting of Shareholders. It is also a prospectus
relating to Frontier's issuance of its shares of common stock in connection with
the Merger. BEFORE YOU MAKE A DECISION ON HOW TO VOTE ON THE MERGER, YOU SHOULD
CONSIDER THE "RISK FACTORS" ON PAGE 9 OF THE ATTACHED PROXY
STATEMENT/PROSPECTUS.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING,
REGARDLESS OF WHETHER YOU PLAN TO ATTEND IN PERSON. To assure that your shares
are represented, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY in the enclosed
postage-prepaid envelope. If you attend the Special Meeting, you may revoke your
proxy and vote your shares in person.
The Board of Directors is enthusiastic about the Merger and the strength
and capabilities expected from the combined company, and unanimously recommends
that you vote FOR approval of the Merger Agreement.
Sincerely,
Russell T. Anderson
President and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. any representation to the contrary is a
criminal offense. The securities offered through this document are not deposits,
savings accounts or other obligations of a depository institution and are not
insured by the federal deposit insurance corporation or any other governmental
agency.
This Proxy Statement/Prospectus is dated __________, 2000 and was first
mailed to shareholders on or about __________, 2000.
<PAGE> 3
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Frontier Financial Corporation from documents that are not included in or
delivered with this document. This information is available to you without
charge upon your written or oral request. You can obtain documents related to
Frontier Financial Corporation that are incorporated by reference in this
document by requesting them in writing or by telephone from:
FRONTIER FINANCIAL CORPORATION
332 S.W. EVERETT MALL WAY
P.O. BOX 2215
EVERETT, WA 98203
ATTN: CAROL FOX
(425) 514-0700
IF YOU WOULD LIKE TO REQUEST DOCUMENTS PLEASE DO SO BY __________, 2000,
IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
See "WHERE YOU CAN FIND MORE INFORMATION" on page 41.
<PAGE> 4
INTERBANCORP, INC.
15305 MAIN STREET N.E.
P. O. BOX 700
DUVALL, WA 98019
(425) 788-1177
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Interbancorp ("Interbancorp") will be held at 15305 Main Street N.E., Duvall,
Washington, on ____________, ____________, 2000, at __:00 _.m., for the
following purposes:
1. Agreement and Plan of Mergers. To consider and vote upon a proposal to
approve the Agreement and Plan of Mergers dated as of October 23, 2000 (the
"Merger Agreement") by and among Interbancorp ("Interbancorp"), Inter Bank,
Frontier Financial Corporation ("Frontier") and Frontier Bank, a copy of which
is set forth in Appendix A to the accompanying Prospectus/Proxy Statement,
pursuant to which Interbancorp will merge into Frontier and each outstanding
share of Interbancorp common stock will be converted into the right to receive
three-quarters (0.75) of a share of Frontier common stock, all on and subject to
the terms and conditions contained therein.
2. To consider and act upon such other matters as may properly come before
the meeting or any adjournments thereof.
Only those shareholders of record at the close of business on _________,
2000 shall be entitled to notice of, and to vote at, the meeting or any
adjournments thereof. The affirmative vote of the holders of two-thirds of the
outstanding shares of Interbancorp common stock is required for approval of the
Merger Agreement.
Interbancorp shareholders have the right to dissent from the Merger and
obtain payment of the fair value of their shares of Interbancorp common stock
under the applicable provisions of Washington law. In order to perfect
dissenters' rights, Interbancorp shareholders must send a notice to Interbancorp
before the Special Meeting on _______________, 2000 and must not vote in favor
of the Merger by proxy or otherwise. A copy of the applicable Washington
statutory provisions regarding dissenters' rights is set forth in Appendix B to
the accompanying Prospectus/Proxy Statement and a summary of such provisions is
set forth under "THE MERGER -- Dissenters' Rights" beginning on page 21. Further
information regarding voting rights and the business to be transacted at the
meeting is given in the accompanying Prospectus/Proxy Statement.
The Board of Directors of Interbancorp unanimously recommends that
shareholders vote "FOR" approval of the Merger Agreement.
Sincerely,
Russell T. Anderson
President and Chief Executive Officer
Your vote is important regardless of the number of shares you own. Whether
or not you expect to attend the meeting, please sign, date and promptly return
the accompanying proxy using the enclosed postage-prepaid envelope. If for any
reason you should desire to revoke your proxy, you may do so at any time before
it is voted at the meeting.
<PAGE> 5
QUESTIONS AND ANSWERS ABOUT THIS DOCUMENT AND THE MERGER
WHAT IS THE PURPOSE OF THIS PROXY STATEMENT/PROSPECTUS?
This document serves as both a proxy statement of Interbancorp and a
prospectus of Frontier. As a PROXY STATEMENT, it is being provided to you by
Interbancorp because the board of directors of Interbancorp is soliciting your
proxy to vote to approve the proposed merger of Interbancorp with and into
Frontier. As a PROSPECTUS, it is being provided to you by Frontier because
Frontier is offering you shares of its common stock in exchange for your shares
of Interbancorp common stock if the merger is completed.
DO I NEED TO READ THE ENTIRE DOCUMENT?
ABSOLUTELY. Parts of this document summarize information that is presented
in greater detail elsewhere in this document or in the appendices to this
document. Each summary discussion is qualified by reference to the full text.
For example, the summary of the terms of the Merger Agreement is qualified by
the actual terms of the Merger Agreement, a copy of which is included as an
appendix.
IS THERE OTHER INFORMATION I SHOULD CONSIDER?
YES. Much of the business and financial information about Frontier that
may be important to you is not included directly in this document. Instead, this
information is incorporated into this document by references to documents
separately filed by Frontier with the Securities and Exchange Commission
("SEC"). This means that Frontier may satisfy disclosure obligations to you by
referring you to one or more documents separately filed by them with the SEC.
See `WHERE YOU CAN FIND MORE INFORMATION" for instructions on how to obtain
copies of these documents. The documents are available to you without charge.
WHAT IF I CHOOSE NOT TO READ THE INCORPORATED DOCUMENTS?
Information contained in a document that is incorporated by reference is
part of this proxy statement/prospectus, unless it is superseded by information
contained directly in this proxy statement/prospectus or in documents filed with
the SEC after the date of this proxy statement/prospectus. Information that is
incorporated from another document is considered to have been disclosed to you
WHETHER OR NOT YOU CHOOSE TO READ THE DOCUMENT.
WHEN WILL THE MERGER OCCUR?
The merger will occur after approval of the stockholders of Interbancorp
is obtained and the other conditions of the merger are satisfied or waived.
Frontier and Interbancorp are working toward completing the merger as quickly as
possible.
WHAT DO I NEED TO DO NOW?
Following a review of this Proxy Statement/Prospectus, mail your signed
Proxy form in the enclosed return envelope as soon as possible so that your
shares can be voted at the Special Meeting of Interbancorp shareholders.
WHAT HAPPENS IF I RETURN MY PROXY BUT DO NOT INDICATE HOW TO VOTE?
If you sign your Proxy properly but do not indicate instructions on how to
vote, your shares will be voted "FOR" the merger.
WHAT HAPPENS IF I DO NOT VOTE?
If you do not vote by returning your Proxy or in person, it will have the
same effect as voting against the adoption of the Merger Agreement.
CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
Yes, you can change your vote at any time before your Proxy is voted at
the meeting. You can do this in one of three ways: first, you can send a written
notice to Interbancorp stating that
<PAGE> 6
you would like to revoke your Proxy; second, you can complete and submit a new
Proxy; and third, you can attend the meeting and vote in person.
WHEN AND WHERE WILL THE SHAREHOLDER MEETING TAKE PLACE?
Interbancorp will hold a Special Meeting of Shareholders on _____________,
local time, at 15305 Main Street N.E., Duvall, Washington.
IF MY BROKER HOLDS MY SHARES IN STREET NAME, WILL MY BROKER VOTE MY SHARES FOR
ME FOR THE MERGER PROPOSAL?
No. Your broker will not be able to vote your shares for the merger
proposal without instructions from you. If you do not provide your broker with
voting instructions, your shares will be considered present at the meeting for
purposes of determining a quorum, but will not be considered to have been voted
in favor of adoption of the merger. If you have instructed a broker to vote your
shares, you must follow directions received from your broker to change those
instructions.
SHOULD I SEND MY STOCK CERTIFI-CATE NOW?
No. If you hold Interbancorp stock certificates, after the merger is
completed, Frontier will send you written instructions for exchanging your
Interbancorp stock certificates for Frontier stock certificates.
WHAT RISKS SHOULD I CONSIDER?
You should review "RISK FACTORS" on page 9. You should also review the
factors considered by Interbancorp's Board of Directors. See "THE
MERGER--Background for the Merger" (page 12) and "THE MERGER--Reasons for the
Merger" (page 13).
WHO CAN HELP ANSWER MY QUESTIONS?
You can write or call Russ Anderson at 15305 Main Street N.E., Duvall,
Washington, (425) 788-1177, with any questions about the merger and the Special
Meeting of Shareholders.
This Prospectus/Proxy Statement does not cover any resale of the
securities to be received by shareholders of Interbancorp upon consummation of
the proposed transaction, and no person is authorized to make any use of this
Prospectus/Proxy Statement in connection with any such resale.
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS _____________, 2000.
<PAGE> 7
TABLE OF CONTENTS
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Page
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SUMMARY..................................................................... 1
SELECTED HISTORICAL FINANCIAL DATA.......................................... 4
COMPARATIVE MARKET PRICE DATA............................................... 7
RISK FACTORS................................................................ 9
THE SPECIAL MEETING......................................................... 10
Place, Time and Date..................................................... 10
Purpose.................................................................. 10
Record Date; Shares Entitled to Vote..................................... 10
Vote Required............................................................ 10
Proxies.................................................................. 10
THE MERGER.................................................................. 11
General.................................................................. 11
Merger Consideration..................................................... 11
Effective Date of the Merger............................................. 12
Exchange of Interbancorp Certificates.................................... 12
Background for the Merger................................................ 12
Reasons for the Merger................................................... 13
Opinion of Financial Advisor............................................. 15
Interests of Certain Persons in the Merger............................... 17
Certain Federal Income Tax Consequences.................................. 18
Conduct of Business Pending the Merger................................... 19
Conditions to Consummation of the Merger................................. 19
Consequences of Termination.............................................. 20
Regulatory Requirements.................................................. 21
Dissenters' Rights....................................................... 21
Amendment; Waiver; Termination........................................... 23
Termination Fee.......................................................... 24
Resale of Frontier Common Stock.......................................... 24
Accounting Treatment..................................................... 24
Expenses................................................................. 24
BUSINESS OF THE PARTIES TO THE MERGER....................................... 25
Frontier................................................................. 25
Interbancorp............................................................. 25
SUPERVISION AND REGULATION.................................................. 27
Introduction............................................................. 27
The Holding Companies.................................................... 27
The Banks................................................................ 29
Liquidity Requirements................................................... 32
VOTING SECURITIES OF INTERBANCORP AND PRINCIPAL HOLDERS THEREOF............. 34
DESCRIPTION OF FRONTIER CAPITAL STOCK....................................... 35
COMPARISON OF SHAREHOLDERS' RIGHTS.......................................... 37
LEGAL OPINIONS.............................................................. 40
EXPERTS..................................................................... 40
OTHER MATTERS............................................................... 40
WHERE YOU CAN FIND MORE INFORMATION......................................... 41
GLOSSARY OF KEY TERMS....................................................... 43
</TABLE>
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<PAGE> 8
Appendix A - Agreement and Plan of Mergers
Appendix B - Chapter 13 of the Washington Business Corporations Act
Appendix C - Fairness Opinion of Columbia Financial Advisors, Inc.
-ii-
<PAGE> 9
SUMMARY
This summary, together with the preceding section entitled "Questions and
Answers About This Document and The Merger," highlights selected information
about this Proxy Statement/Prospectus. We urge you to read carefully the entire
Proxy Statement/Prospectus and any other documents to which we refer to fully
understand the Merger. The Agreement and Plan of Mergers is attached as Appendix
A to this Proxy Statement/Prospectus.
WHAT WILL YOU RECEIVE AS MERGER CONSIDERATION.
Holders of Interbancorp common stock will receive three-quarters (0.75) of
a share of Frontier common stock in exchange for each of their shares of
Interbancorp common stock. Shareholders of Interbancorp common stock who would
otherwise be entitled to a fractional share shall receive cash in lieu of the
fractional share.
In addition, if, as of the Effective Date, Interbancorp has capital (less
capital contributions received upon exercise of Interbancorp options after
August 1, 2000) in excess of $5.3-million, Interbancorp may declare and pay a
cash dividend on the Effective Date in an amount equal to such excess.
GENERALLY, THE RECEIPT OF THE MERGER CONSIDERATION WILL BE A TAX-FREE
TRANSACTION TO INTERBANCORP SHAREHOLDERS.
The receipt of Frontier common stock by Interbancorp shareholders will be
tax-free to Interbancorp shareholders. Any cash received in lieu of fractional
shares will be taxable to the shareholder in the year received.
THE BOARD OF DIRECTORS OF INTERBANCORP UNANIMOUSLY RECOMMENDS SHAREHOLDER
APPROVAL.
The Interbancorp Board of Directors believes that the Merger is fair to
and in the best interests of the Interbancorp shareholders.
FINANCIAL ADVISOR SAYS MERGER CONSIDERATION IS FAIR TO INTERBANCORP
SHAREHOLDERS.
Columbia Financial Advisors, Inc. ("CFAI") have served as financial
advisor to Interbancorp in connection with the Merger and has rendered an
opinion to the Interbancorp Board of Directors that, as of September 21, 2000,
the merger consideration to be paid to Interbancorp shareholders is fair, from a
financial point of view, to Interbancorp shareholders.
You should read the opinion of CFAI completely in order to understand the
assumptions made, matters considered and limitations of the review undertaken in
providing the opinion. The opinion of CFAI is attached as Appendix C to this
Proxy Statement/Prospectus.
Interbancorp agreed to pay CFAI a fee equal to 1% of the gross aggregate
consideration (which is expected to be approximately $135,000).
INTERBANCORP SPECIAL MEETING.
Special Meeting to be held on _______ (see page 10).
The Interbancorp Special Meeting will be held at 15305 Main Street N.E.,
Duvall, Washington, on ________, 2000 at _______ p.m., local time. At the
meeting you will be asked:
1. To consider and approve a proposal to adopt the Agreement and Plan of
Mergers dated as of October 23, 2000, by and among Interbancorp, Inter Bank,
Frontier Financial Corporation ("Frontier") and Frontier Bank, pursuant to which
Interbancorp will be merged into Frontier, and each outstanding share of
Interbancorp common stock will be converted to the right to receive
three-quarters (0.75) of a share of Frontier common stock.
2. To consider and act upon such other
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<PAGE> 10
matters as may properly come before the meeting or any adjournment thereof.
RECORD DATE SET AT _______________; 66-2/3% AFFIRMATIVE VOTE OF OUTSTANDING
SHARES OF COMMON STOCK IS REQUIRED TO APPROVE THE MERGER AGREEMENT (SEE PAGE
10).
You can vote at the Interbancorp Special Meeting if you owned Interbancorp
common stock at the close of business on _____, 2000. As of that date there were
_______ shares of Interbancorp common stock entitled to be voted at the Special
Meeting. Approval of the Agreement and Plan of Mergers requires that 66-2/3% of
the outstanding shares of Interbancorp common stock be voted at the Special
Meeting in favor of the adoption of the Agreement and Plan of Mergers.
As of the date of this Proxy Statement/Prospectus, Directors and Executive
Officers of Interbancorp, and their affiliates, owned approximately 41.71%
(assuming exercise of all outstanding options) of the outstanding shares of
Interbancorp common stock. The Directors and Executive Officers have indicated
their intention and have contractually agreed, to vote the shares held by them
and their affiliates in favor of adoption of the Merger Agreement.
INFORMATION REGARDING INTERBANCORP, INC.
Interbancorp, Inc.
15305 Main Street N.E.
P.O. Box 700
Duvall, Washington 98109
(425) 788-1177
DISSENTERS' RIGHTS OF SHAREHOLDERS (SEE PAGE 21).
Under Washington law, Interbancorp shareholders have the right to dissent
from the Merger and receive cash for the fair value of their shares of
Interbancorp common stock.
To exercise dissenters' rights, an Interbancorp shareholder must not vote
for the adoption of the Agreement and Plan of Mergers and must strictly comply
with all the procedures required by Washington law. These procedures are
described more fully later in this document, and a copy of the relevant portions
of Washington law is attached as Appendix B to this Proxy Statement/Prospectus.
THE MERGER (SEE PAGE 11).
The proposal is to merge Interbancorp into Frontier, followed by a merger
of Inter Bank into Frontier Bank. Pursuant to the Merger Agreement, Frontier
will issue three-quarters (0.75) of a share of Frontier common stock in exchange
for each share of Interbancorp common stock.
The Board of Directors of Interbancorp believes that the merger offers
Interbancorp shareholders the opportunity to benefit from the synergies and
growth opportunities expected to result from combining the two companies. For a
more detailed discussion of the reasons for the Merger see pages 13 through 15.
CERTAIN MEMBERS OF THE MANAGEMENT AND DIRECTORS OF INTERBANCORP HAVE INTERESTS
IN THE MERGER (SEE PAGE 17).
You should be aware that Directors and Executive Officers of Interbancorp
may have interests that are different from, or in addition to, your interests as
a shareholder.
If the Merger is completed:
o Russ Anderson, Tana Weisenbach and Ron Brown will receive employment
contracts with Frontier, which provide in part, that if they are
terminated during the initial year of their employment, they shall receive
compensation for the balance of the year. In addition, if they are
terminated during the second year, they shall receive four months prior
notice.
o Immediately prior to the Merger, each non-qualified stock option held by
the Directors of Interbancorp will be amended to provide that the option
can be exercised for a period up to three months after the Merger.
-2-
<PAGE> 11
Currently the options expire on the date of the Merger.
o Frontier will maintain directors and officers liability insurance of
$2-million for a period of three years following the Merger.
o Stock options held by Interbancorp officers, as well as other employees of
Interbancorp and its subsidiary Inter Bank, will be converted into stock
options to acquire Frontier common stock.
ACCOUNTING TREATMENT OF THE MERGER (PAGE 24).
Frontier will account for the Merger under the purchase method of
accounting.
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR (SEE PAGE 19).
Completion of the Merger is subject to various conditions, including:
o Receipt of all regulatory approvals that are necessary to permit the
completion of the Merger and expiration of any statutory waiting periods
required by law.
o Approval of the Merger Agreement by Interbancorp shareholders owning a
minimum of 66-2/3% of the common stock.
o Authorization for listing on the Nasdaq National Market of the shares of
common stock to be issued upon completion of the Merger, subject only to
official notice of issuance.
o Other usual conditions.
If the law permits, either Frontier or Interbancorp could choose to waive
a condition to its obligation to complete the Merger, even though the condition
has not been satisfied.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 20).
Frontier and Interbancorp can agree to abandon the Merger and terminate
the Merger Agreement at any time prior to the time the Merger is completed, even
if the requisite number of shareholders of Interbancorp have approved the Merger
Agreement. Also, either Frontier or Interbancorp can decide, without the consent
of the other, to abandon the Merger if any of the following occurs:
o The Merger has not been completed by April 15, 2001.
o The required approval of shareholders is not obtained at the Interbancorp
Special Meeting of Shareholders.
o The shares of Frontier common stock to be issued to Interbancorp
shareholders have not been approved for listing on the Nasdaq National
Market.
o Other usual conditions.
In addition, Frontier may elect to terminate the Merger, without the
consent of Interbancorp, if any of the following occurs: o If the
representations and warranties of Interbancorp or Inter Bank are not true and
correct in any material respects.
o There has been a material adverse change in the business, property assets,
or prospects of Interbancorp or Inter Bank.
o Shareholders of Interbancorp owning in the aggregate 20% or more of the
outstanding shares of Interbancorp have exercised their dissenters'
rights.
o The minimum capital of Interbancorp as of the Effective Date (less capital
contributions received upon the exercise of Interbancorp options after
August 1, 2000) is less than $5.3-million.
o The minimum allowance for possible loan and lease losses is less than
1.10% of Inter Bank's total outstanding loans and leases.
In addition, Interbancorp may elect to
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<PAGE> 12
terminate the Merger, without the consent of Frontier, if any of the following
occurs:
o If the representations and warranties of Frontier or Frontier Bank are
not true and correct in any material respects.
o There has been a material adverse change in the business, property assets,
or prospects of Frontier or Frontier Bank.
o The Frontier Average Closing Price is less than $14.50 per share. The
Average Closing Price is the average closing price of Frontier Common
Stock for the eleven consecutive trading days prior to and including the
10th day before the Merger is completed.
o The opinion of CFAI to the effect that the financial terms of the Merger
are fair from a financial point of view to Interbancorp shareholders has
not been withdrawn.
UNDER CERTAIN CIRCUMSTANCES, UPON TERMINATION, FRONTIER WOULD BE REQUIRED
TO PAY INTERBANCORP A TERMINATION FEE OF $350,000, AND, UNDER CERTAIN
CIRCUMSTANCES, INTERBANCORP WOULD BE REQUIRED TO PAY FRONTIER A TERMINATION FEE
OF $350,000. IF INTERBANCORP FAILS TO CLOSE SOLELY BECAUSE IT FAILS TO RECEIVE A
FAIRNESS OPINION, AND IF INTERBANCORP ENTERS INTO AN AGREEMENT TO BE ACQUIRED BY
ANOTHER PARTY WITHIN 12 MONTHS OF THE TERMINATION OF THIS TRANSACTION,
INTERBANCORP IS REQUIRED TO PAY FRONTIER A TERMINATION FEE OF $500,000.
----------
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical consolidated financial
data for Frontier. This information should be read in conjunction with the
historical financial statements of Frontier, including the respective notes
thereto, appearing elsewhere in this Prospectus/Proxy Statement and in the other
documents incorporated by reference herein. See "WHERE YOU CAN FIND MORE
INFORMATION".
The Frontier historical consolidated unaudited financial data as of and
for the nine months ended September 30, 1999 and 2000, have been prepared on the
same basis as the historical information derived from audited financial
statements, and in the opinion of management, contain all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of results of operations for such periods.
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<PAGE> 13
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED AT OR FOR THE YEARS
SEPTEMBER 30 ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- ------- ------- -------
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OPERATING DATA:
Interest income........ $105,606 $87,053 $118,584 $108,414 $97,295 $87,108 $80,239
Interest expense....... 45,565 33,294 45,453 43,355 39,601 37,202 35,744
-------- ------- -------- -------- ------- ------- -------
Net interest income 60,041 53,759 73,131 65,059 57,694 49,906 44,495
Provision for loan
losses................. (907) (1,739) (2,266) (2,230) (2,278) (2,358) (2,010)
-------- ------- -------- -------- ------- ------- -------
Net interest income
after provision for
loan losses.......... 59,134 52,020 70,865 62,829 55,416 47,548 42,485
Noninterest income...... 5,504 6,199 7,555 7,773 5,637 5,422 5,019
Noninterest expense..... 27,960 26,217 36,083 34,158 30,152 26,676 25,209
-------- ------- -------- -------- ------- ------- -------
Income before provision
for income taxes...... 36,678 32,002 42,337 36,444 30,901 26,294 22,295
Provision for income
taxes................. (12,470) (10,871) (14,039) (12,169) (10,109) (8,503) (7,054)
-------- ------- -------- -------- ------- ------- -------
Net Income............ $ 24,208 $21,131 $28,298 $24,275 $20,792 $17,791 $15,241
======== ======= ======== ======= ======= ======= =======
HISTORICAL PER SHARE
DATA:
Earnings per share......
Basic................ $ 1.23 $ 1.07 $ 1.43 $ 1.24 $ 1.07 $ 0.92 $ 0.79
Diluted.............. $ 1.22 $ 1.06 $ 1.42 $ 1.22 $ 1.05 $ 0.90 $ 0.78
Cash dividends declared
per share............ $ 0.30 $ 0.25
Shareholder's equity.... 185,579 162,490 168,260 148,166 123,502 102,895 85,416
SELECTED RATIOS:
Return on average
equity............... 17.86% 18.04% 17.78% 17.86% 18.25% 19.10% 19.71%
Return on average assets 2.06% 2.08% 2.06% 1.98% 1.92% 1.82% 1.71%
Net yield on interest
earning assets........ 5.48% 5.72% 5.74% 5.72% 5.79% 5.54% 5.44%
Average equity as a
percentage of
average assets........ 11.53% 11.55% 11.57% 11.07% 10.54% 9.52% 8.70%
Non-performing assets
as a percentage of
total assets.......... 0.23% 0.28% 0.19% 0.22% 0.65% 0.60% 0.69%
FINANCIAL CONDITION
DATA:
Total assets............ 1,625,213 1,449,804 1,425,420 1,334,486 1,141,293 1,032,352 954,369
Loans receivable, net... 1,356,262 1,143,127 1,166,284 987,282 837,579 752,034 633,674
Cash and due from
banks, federal funds
sold and investments.. 221,024 262,096 213,277 302,429 261,272 238,738 277,615
Deposits................ 1,296,090 1,139,142 1,123,717 1,092,643 959,963 872,519 835,834
Borrowings.............. $ 128,668 $ 136,919 $ 124,380 $ 82,198 $ 48,796 $ 49,762 $ 25,912
</TABLE>
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<PAGE> 14
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
CONDENSED CONSOLIDATED STATEMENT OF INCOME-QUARTERLY
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 QUARTER ENDED
(UNAUDITED)
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30
------------- ------------- -------------
<S> <C> <C> <C>
Interest Income....................... $32,800 $35,535 $37,271
Interest Expense...................... 13,701 15,188 16,656
------------- ------------- -------------
Net Interest Income............... 19,099 20,347 20,595
Provision for loan losses............. (292) (270) (345)
------------- ------------- -------------
Net interest income after provision
for loan losses................... 18,807 20,077 20,250
Noninterest income.................... 1,663 1,653 2,188
Noninterest expense................... 8,275 10,127 9,558
------------- ------------- -------------
Income before income taxes............ 12,195 11,603 12,880
Income tax............................ (4,137) (3,856) (4,477)
------------- ------------- -------------
Net Income............................ $8,058 $7,747 $8,403
============= ============= =============
Basic earnings per common share....... $0.41 $0.39 $0.43
Diluted earnings per common share..... $0.41 $0.39 $0.42
Average basic common shares
outstanding (in thousands)........ 19,772 19,712 19,719
Average diluted common shares
outstanding (in thousands)........ 19,892 19,800 19,809
</TABLE>
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<PAGE> 15
COMPARATIVE MARKET PRICE DATA
Frontier. Frontier Common Stock is quoted on the Nasdaq National Market
("Nasdaq") under the symbol "FTBK." The table below sets forth the high and low
sales prices of Frontier Common Stock as reported on Nasdaq since Frontier began
listing its shares on Nasdaq on April 16, 1998. Prior to that there was no
established trading market for Frontier Common Stock. Frontier Common Stock was
traded by individuals on a personal basis and was not listed on any exchange or
traded on the over-the-counter market, and the prices reported reflect only the
transactions known to management.
<TABLE>
<CAPTION>
FRONTIER COMMON STOCK
HIGH LOW
---------------------- ---------------------
<S> <C> <C>
1998
First Quarter.................. $21.25 $17.00
Second Quarter(1).............. $30.50 $17.50(2)
Third Quarter................ $30.91 $23.13
Fourth Quarter............... $24.75 $21.38
1999
First Quarter.................. $25.13 $19.00
Second Quarter................. $25.00 $20.50
Third Quarter.................. $25.50 $20.00
Fourth Quarter................. $26.00 $20.00
2000
First Quarter.................. $22.38 $17.00
Second Quarter................. $19.13 $16.25
Third Quarter.................. $19.75 $17.13
</TABLE>
(1) Frontier began listing its shares of Common Stock on Nasdaq on April 16,
1998.
(2) Excludes one transaction of which Frontier was aware that was traded at
$15.00 per share.
Frontier paid 7% stock dividends on March 18, 1996, March 17, 1997, and
March 16, 1998, and a two-for-one stock split on March 19, 1999. In 1999,
Frontier paid an annual cash dividend of $0.25 per share. In 2000, Frontier
commenced paying quarterly dividends, with the quarterly dividend increased by
$0.01 each quarter.
<TABLE>
<S> <C>
Dividend Payable Date
-------- ------------
$0.09 February 11, 2000
$0.10 May 15, 2000
$0.11 August 14, 2000
$0.12 October 23, 2000
</TABLE>
The timing and amount of future dividends paid by Frontier is subject to
determination by the Board of Directors of Frontier in its discretion and will
depend on earnings, cash requirements and the
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<PAGE> 16
financial condition of Frontier and its subsidiaries, applicable government
regulations and other factors deemed relevant by the Board of Directors.
As of October 31, 2000, the 19,727,089 outstanding shares of Frontier
Common Stock were held by approximately 3,522 holders of record.
Interbancorp. There is no established trading market for Interbancorp
Common Stock. No broker makes a market in Interbancorp Common Stock and trading
has not otherwise been extensive. The trades that have occurred cannot be
characterized as amounting to an established public trading market. Interbancorp
Common Stock is traded by individuals on a personal basis and is not listed on
any exchange or traded on the over-the-counter market, and the prices reported
reflect only the transactions known to management. Due to the limited
information available, the following data may not accurately reflect the actual
market value of Interbancorp Common Stock. The following data includes trades
between individual investors, as reflected in Interbancorp's stock transfer
records. On January 3, 1999, Interbancorp became the bank holding company for
Inter Bank and shares of Inter Bank were converted to shares of Interbancorp on
a one share for one share basis. The number of shares and share prices have been
adjusted for a 1-for-4 stock split in 1999.
<TABLE>
<CAPTION>
INTERBANCORP COMMON STOCK
-------------------------------------------------------------
NUMBER OF SHARES
REPORTED AS TRADED HIGH LOW
------------------- ------------------- -------------------
<S> <C> <C> <C>
1998
First Quarter....................... 2,390 $10.00 $10.00
Second Quarter...................... 2,233 $12.00 $10.00
Third Quarter....................... 4,320 $12.00 $11.00
Fourth Quarter...................... 4,384 $11.50 $10.00
1999
First Quarter....................... 6,590 $12.50 $11.00
Second Quarter...................... 330 $12.00 $12.00
Third Quarter....................... 1,540 $12.50 $10.00
Fourth Quarter...................... 4,150 $13.00 $11.50
2000
First Quarter....................... 4,369 $12.50 $11.00
Second Quarter...................... 4,653 $12.00 $11.00
Third Quarter....................... 532 $12.00 $12.00
</TABLE>
As of October 31, 2000, the 850,904 outstanding shares of Interbancorp
Common Stock were held by approximately 460 holders of record. Interbancorp
issued a 1-for-4 stock split in 1999 and a 1-for-5 stock split in 1997. No other
stock dividends or cash dividends were declared, issued or paid during the last
three years.
Recent Stock Price Data. The following table sets forth the closing price
per share for Frontier Common Stock, as reported on Nasdaq, and the equivalent
pro forma per share price for Interbancorp Common Stock on October 23, 2000, the
last full trading day prior to the public announcement of the execution of the
Merger Agreement, and on _________, 2000, which is the most recent date for
which it
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<PAGE> 17
was practicable to obtain market price data prior to the printing of this
Prospectus/Proxy Statement. HOLDERS OF INTERBANCORP COMMON STOCK ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF FRONTIER COMMON STOCK.
<TABLE>
<CAPTION>
October 23, 2000 November __, 2000
-------------------- -------------------
<S> <C> <C>
Closing price per share:
Frontier................................. $17.13
Interbancorp(1).......................... $12.00
Equivalent pro forma per share of
Interbancorp Common Stock(2)............. $12.84
</TABLE>
-----------------------
(1) There is no publicly available quotations of Interbancorp Common Stock,
and the market price per share as of the respective dates represent prices
known to Interbancorp's management to have been paid for the Interbancorp
Common Stock in the last transaction prior to such data.
(2) Computed by multiplying the Frontier Closing Price by the Exchange Ratio
of three-quarters (0.75) of a share of Frontier Common Stock for each
share of Interbancorp Common Stock.
RISK FACTORS
In addition to the other information included in this document, you should
consider the matters described below carefully in determining whether to approve
the Merger Agreement and the transactions contemplated by the Merger Agreement.
Since the market price of Frontier common stock will vary, Interbancorp
shareholders cannot be sure of the value of the Frontier common stock to be
received in the Merger.
The conversion ratio is based on the Frontier common stock average closing
price for the 11 consecutive trading days prior to and including the 10th
trading day before the day the Merger is completed. This means that at the time
of the Special Meeting, Interbancorp shareholders will not know the exact value
of the Frontier common stock that they will receive when the Merger is
completed. The market prices of Frontier common stock when the Merger takes
place may vary from its price at the date of this document and at the date of
the shareholder meeting. Such variations in the market prices of Frontier common
stock may result from changes in the business, operations or prospects of
Frontier or the combined company, market assessments of the likelihood that the
Merger will be consummated and the timing thereof, regulatory considerations,
general market and economic conditions and other factors.
We urge you to obtain current market quotations for Frontier common stock.
Frontier and Interbancorp may not successfully integrate their business
operations after the Merger.
Integrating the business operations of Frontier and Interbancorp after the
Merger may be difficult and time consuming. Successful integration of
Interbancorp operations will depend primarily on Frontier's ability to
consolidate operations, systems and procedures and to eliminate redundancies and
costs. Frontier may encounter difficulties in the integration process, such as
the loss of key employees and customers, the disruption of ongoing businesses or
possible inconsistencies in standards, controls, procedures and policies.
-9-
<PAGE> 18
THE SPECIAL MEETING
PLACE, TIME AND DATE
The Special Meeting will be held on ____________, ____________, 2000 at
__:00 _.m., local time, at 15305 Main Street N.E., Duvall, Washington. This
Prospectus/Proxy Statement is being sent to holders of Interbancorp Common Stock
and is accompanied by a form of proxy that is being solicited by the
Interbancorp Board for use at the Special Meeting and any adjournments or
postponements thereof.
PURPOSE
The purpose of the Special Meeting is: (i) to consider and vote upon a
proposal to approve the Merger Agreement described herein and (ii) to act upon
such other matters, if any, as may properly come before the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
The Interbancorp Board has fixed the close of business on ____________,
2000 as the Record Date for determining shareholders entitled to notice of and
to vote at the Special Meeting. Only those holders of Interbancorp Common Stock
of record on the Record Date will be entitled to notice of and to vote at the
Special Meeting. Each share of Interbancorp Common Stock will be entitled to one
vote. At the Record Date, there were _________ shares of Interbancorp Common
Stock outstanding and entitled to be voted at the Special Meeting.
VOTE REQUIRED
A majority of the shares entitled to vote, represented in person or by
proxy, will constitute a quorum of Interbancorp shareholders at the Special
Meeting. Valid proxies that are marked "Abstain," including proxies submitted by
brokers that are the record owners of shares (so-called "broker non-votes"),
will be considered present for purposes of determining whether a quorum exists.
Approval of the Merger Agreement requires the affirmative vote of the holders of
two-thirds of the outstanding shares of Interbancorp Common Stock. Abstentions
and broker non-votes will have the same effect as votes cast against approval of
the Merger Agreement.
As of the Record Date, the directors and executive officers of
Interbancorp and their affiliates beneficially owned an aggregate of 410,750
shares of Interbancorp Common Stock, which represents 41.71% (assuming exercise
of all outstanding options) of the shares entitled to be voted at the Special
Meeting. All of the directors and executive officers of Interbancorp have
entered into agreements with Frontier pursuant to which each individual has
agreed to vote his or her shares for approval of the Merger Agreement.
PROXIES
Holders of Interbancorp Common Stock may vote either in person or by
properly executed proxy. Shares of Interbancorp Common Stock represented by a
properly executed proxy received prior to or at the Special Meeting will, unless
such proxy is revoked, be voted in accordance with the instructions indicated on
such proxy. If no instructions are indicated on a properly executed proxy, the
shares covered thereby will be voted FOR the proposal to approve the Merger
Agreement. Failure to return the proxy or to vote in person at the Special
Meeting will have the effect of a vote cast against the Merger Agreement. If any
other matters are properly presented at the Special Meeting for consideration,
including, among other things, a motion to adjourn the Special Meeting to
another time and/or place (including, without
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<PAGE> 19
limitation, for the purpose of soliciting additional proxies), the persons named
in the proxy and acting thereunder will have discretion to vote on such matters
in accordance with their best judgment; provided, however, that no proxy which
is voted against the proposal to approve the Merger Agreement will be voted in
favor of any such adjournment or postponement. As of the date hereof, the Board
of Directors of Interbancorp knows of no such other matters.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the record holder of the shares at any time before it is voted by delivering
to the Secretary of Interbancorp, on or before the taking of the vote at the
Special Meeting, a written notice of revocation bearing a later date than the
proxy or a later dated proxy relating to the same shares of Interbancorp Common
Stock, or by attending the Special Meeting and voting in person. Attendance at
the Special Meeting will not in itself constitute revocation of a proxy.
The proxy for the Special Meeting is being solicited on behalf of the
Board of Directors of Interbancorp. The expense of soliciting proxies for the
Special Meeting will be borne by Interbancorp. All other costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby are to be paid by the party incurring such expenses.
Proxies will be solicited principally by mail, but may also be solicited by the
directors, officers and other employees of Interbancorp in person or by
telephone, facsimile or other means of communication. Such directors, officers
and employees will receive no compensation therefor in addition to their regular
compensation, but may be reimbursed for out-of-pocket expenses in connection
with such solicitation. Brokers and others who hold Interbancorp Common Stock on
behalf of another will be asked to forward proxy material and related documents
to the beneficial owners of such stock, and Interbancorp will reimburse them for
their expenses in doing so.
THE MERGER
The descriptions in this Prospectus/Proxy Statement of the terms and
conditions of the Merger and related transactions are qualified in their
entirety by reference to the Merger Agreement, a copy of which is attached as
Appendix A to this Prospectus/Proxy Statement and is incorporated herein by
reference.
GENERAL
The Merger Agreement provides for the merger of Interbancorp with and into
Frontier followed by the merger of Inter Bank with and into Frontier Bank. The
separate existence of Interbancorp and Inter Bank will cease upon completion of
the mergers. After consummation of the transaction, the branches of Inter Bank
will operate and be known as branches of Frontier Bank. While Frontier and
Interbancorp believe that they will receive the requisite regulatory approvals
for the Merger, there can be no assurance that such approvals will be received
or, if received, as to the timing of such approvals or as to the ability to
obtain such approvals on satisfactory terms. See "-- Conditions to Consummation
of the Merger" and "-- Regulatory Requirements."
MERGER CONSIDERATION
Upon consummation of the Merger, the shareholders of Interbancorp, other
than Dissenting Shares, will receive for each share of Interbancorp Common Stock
the right to receive three-quarters (0.75) of a share of Frontier stock for each
share of Interbancorp owned. Interbancorp shareholders who would be entitled to
receive, following the conversion, a fractional share of Frontier Common Stock
will receive cash in lieu of such fractional share. The price for fractional
shares will be determined by multiplying such fraction by the average daily
sales price of Frontier Common Stock on the Nasdaq stock
-11-
<PAGE> 20
market reporting system for the trading days beginning on the twentieth day
immediately preceding the Effective Date of the mergers, through and including
the tenth day immediately preceding the Effective Date of the mergers.
EFFECTIVE DATE OF THE MERGER
Subject to the conditions to the obligations of the parties to complete
the Merger as set forth in the Merger Agreement, the Effective Date of the
Merger will occur as soon as practicable after such conditions have been
satisfied or waived. Subject to the foregoing, it is currently anticipated that
the Merger will be consummated by __________. Either Frontier or Interbancorp
may, subject to certain conditions, terminate the Merger Agreement if the
Effective Date does not occur on or before April 15, 2001.
EXCHANGE OF INTERBANCORP CERTIFICATES
As promptly as practicable after the Effective Date, Frontier will send to
each holder of record of Interbancorp Common Stock transmittal materials for use
in exchanging all of such holder's certificates representing Interbancorp Common
Stock for a certificate or certificates representing the Frontier Common Stock
to which such holder is entitled and a check or checks for such holder's
fractional share interests, as appropriate. The transmittal materials will
contain information and instructions with respect to the surrender and exchange
of such certificates.
DO NOT SEND IN YOUR INTERBANCORP CERTIFICATES UNTIL YOU RECEIVE
THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender of all of the certificates for Interbancorp Common Stock
registered in the name of a holder of such certificates (or indemnity
satisfactory to Frontier, if any of such certificates are lost, stolen or
destroyed), together with a properly completed letter of transmittal, such
exchange agent will mail to such holder a certificate or certificates
representing the number of shares of Frontier Common Stock to which such holder
is entitled, and, where applicable, a check for any fractional share interest
(without interest).
All shares of Frontier Common Stock issued to the holders of Interbancorp
Common Stock pursuant to the Merger will be deemed issued as of the Effective
Date. Frontier dividends having a record date after the Effective Date will
include dividends on all shares of Frontier Common Stock issued in the Merger,
but no dividend or other distribution payable to the holders of record of
Frontier Common Stock at or as of any time after the Effective Date will be
distributed to the holder of any Interbancorp Common Stock certificates until
such holder physically surrenders all such certificates as described above.
Promptly after such surrender, all undelivered dividends and other distributions
and, where applicable, a check for any fractional share interest, will be
delivered to such holder, in each case without interest. After the Effective
Date, the stock transfer books of Interbancorp will be closed, and there will be
no transfers on the transfer books of Interbancorp of the shares of Interbancorp
Common Stock that were outstanding immediately prior to the Effective Date.
BACKGROUND FOR THE MERGER
In April 2000, the Interbancorp Board of Directors retained the services
of Columbia Financial Advisors, Inc. ("CFAI") to explore the various strategic
options available to Interbancorp. Two options discussed by the Interbancorp
Board at an April 20, 2000 meeting were a merger with a publicly-traded bank
holding company and a merger with a publicly-traded thrift holding company. The
Interbancorp Board authorized CFAI to contact numerous parties to ascertain
their interest. After the execution of a
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<PAGE> 21
confidentiality agreement with each party, financial and other information
regarding Interbancorp was disclosed to each party.
On July 6, 2000, the Interbancorp Board reviewed seven different
non-binding indications of interest and selected Frontier due to the proposed
consideration and the perceived business and cultural fit between Interbancorp
and Frontier. Negotiations with Frontier ensued and resulted in a revised
proposal that was reviewed by the Interbancorp Board on July 20, 2000. On July
20, 2000, the Interbancorp Board unanimously approved and directed Interbancorp
management to retain Gerrish & McCreary, P.C. as Interbancorp's legal counsel
and to negotiate a definitive merger agreement with Frontier (the "Merger
Agreement").
On September 21, 2000, the Interbancorp Board carefully considered the
nature, value and prospects for future appreciation and liquidity of the shares
of Frontier Common Stock to be received by Interbancorp shareholders in the
proposed merger. A report from a financial point of view regarding the fairness
of the transaction was present by CFAI and a report of due diligence was
presented by Gerrish & McCreary, P.C. regarding their findings. The Interbancorp
Board, along with its counsel, Gerrish & McCreary, P.C., reviewed the Merger
Agreement and considered the potential benefits of the proposed merger to
Interbancorp and its shareholders, taking into account the financial and
valuation analyses of the Merger, and the terms of the Merger Agreement. The
terms of the Merger were incorporated into a definitive merger agreement that
was unanimously approved by the Interbancorp Board at this meeting and then
reaffirmed at a meeting on October 19, 2000, after minor adjustments to the
definitive agreement. The Merger Agreement was executed on October 23, 2000.
REASONS FOR THE MERGER
In reaching its determination to approve and adopt the Merger Agreement,
the Interbancorp Board consulted with Interbancorp's Management and its
financial and legal advisors and considered a number of factors, including,
without limitation, the following:
o The fact that Frontier Common Stock is traded on the NASDAQ - National
Market Systems, which is expected to provide liquidity to Interbancorp
shareholders in the Frontier Common Stock received in the Merger.
o The Interbancorp Board's thorough review of Interbancorp's business,
operations, financial condition and earnings on an historical and a
prospective basis;
o The Interbancorp Board's knowledge and review, based, in part, on
presentations by its financial advisors and Interbancorp's Management, of
the business, operations, financial condition and earnings of Frontier on
an historical and prospective basis and of the combined company on a pro
forma basis; and the historical stock price performance of Frontier's
Common Stock, the potential for increased earnings and dividends for
Interbancorp Shareholders as shareholders of the combined company, and
Frontier's substantial market capitalization.
o The terms of the Merger Agreement, including a provision for a fixed
Exchange Ratio of three-quarters (0.75) of a share of Frontier Common
Stock for each share of Interbancorp Common Stock, enabling Interbancorp
shareholders to benefit from any increase in the trading price of Frontier
Common Stock prior to the Merger;
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<PAGE> 22
o The terms of the Merger Agreement, including: (i) a provision permitting
Interbancorp to terminate the Merger Agreement if the Frontier Average
Closing Price of Common Stock is below $14.50, thereby limiting the risk
to Interbancorp shareholders of possible declines in Frontier Common
Stock; and (ii) an attractive premium for the holders of Interbancorp
Common Stock based on price to trailing 12 months earnings and price to
book value multiples of approximately 15.1x and 2.6x, respectively, at the
time of the execution of the Merger Agreement;
o The current and prospective economic and competitive environment facing
the financial services industry generally, and Interbancorp in particular,
including the continued rapid consolidation in the industry and the
increasing importance of operational scale and financial resources in
maintaining efficiency and remaining competitive over the long term, and
in being able to capitalize on technological developments which
significantly impact industry competition;
o The general impact that the Merger could be expected to have on the
constituencies served by Interbancorp, including its customers, employees
and communities. In this regard, Interbancorp noted that the combined
company could be expected to offer a more extensive range of financial
products and services to Interbancorp's existing customers, could provide
its customers with the added convenience of access to Frontier's extensive
branch system and could provide greater advancement opportunities for
Interbancorp employees;
o The Merger is anticipated to increase current shareholders' cash dividends
on a per-share basis;
o The expectation that the Merger will be tax-free for federal income tax
purposes to Interbancorp and Interbancorp shareholders;
o The common business philosophy and compatibility of the management and
staff of Interbancorp and Frontier;
o The review of proposals from seven financial institutions obtained and
CFAI's opinion that the proposed transaction with Frontier is fair, from a
financial point of view, to the Interbancorp shareholders.
o The fact that Russ Anderson, Interbancorp's President, will serve as a
Senior Vice President and that Tana Weisenbach and Ron Brown, both Senior
Vice Presidents of Interbancorp, will serve as Vice Presidents of Frontier
Bank after the Merger.
o The fact that Interbancorp's ability to further significantly penetrate
the markets it serves is limited by its ability to accumulate and attract
capital.
o The Board's review of the terms of the Merger Agreement at meetings held
on September 21, 2000, and October 19, 2000.
The foregoing discussion of the information and factors considered by the
Interbancorp Board is not intended to be exhaustive, but includes some of the
material factors considered by the Interbancorp Board. In reaching its
determination to approve and recommend the Merger Agreement, the Interbancorp
-14-
<PAGE> 23
Board did not assign any relative or specific weights to the factors considered
in reaching such determination, and individual Directors may have given
differing weights to differing factors.
FOR THE REASONS SET FORTH ABOVE, THE INTERBANCORP BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF
INTERBANCORP AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF
INTERBANCORP VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
CFAI has delivered a written opinion to the Interbancorp Board to the
effect that, as of the date of this Proxy Statement/Prospectus, the
Consideration to be received by Interbancorp common stockholders pursuant to the
terms of the Merger Agreement is fair to such stockholders from a financial
point of view. The Exchange Ratio of three-quarters (0.75) of a share of
Frontier Common Stock or cash for each Interbancorp share has been determined by
Interbancorp and Frontier Common Stock through negotiations. The CFAI Opinion is
directed only to the fairness, from a financial point of view, of the
Consideration to be received and does not constitute a recommendation to any
Interbancorp stockholder as to how such shareholder should vote at the Special
Meeting. As of October 24, 2000, the average Frontier Common Stock closing price
for the 20-day period starting September 27, 2000 and ending October 24, 2000
was $17.80, and the total purchase price is $13.35 per share in the form of FTBK
common stock and cash for all of the outstanding shares of Interbancorp.
Interbancorp retained CFAI as its exclusive financial advisor pursuant to
an engagement letter dated April 3, 2000 in connection with the Merger. CFAI is
a regionally recognized investment banking firm that is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions. The Interbancorp Board selected CFAI to act as Interbancorp's
exclusive financial advisor based on CFAI's experience in mergers and
acquisitions and in securities valuation generally.
On September 21, 2000, CFAI issued its Opinion to the Interbancorp Board
that, in its opinion as investment bankers, the terms of the Merger as provided
in the Merger Agreement are fair, from a financial view point, to Interbancorp,
Inter Bank and its shareholders. The full text of the CFAI Opinion, which sets
forth the assumptions made, matters considered, and limits on its review, is
attached hereto as Appendix C. The summary of the CFAI Opinion in this Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion. INTERBANCORP SHAREHOLDERS ARE URGED TO READ THE ENTIRE CFAI
OPINION.
In rendering its opinion to Interbancorp, CFAI reviewed, among other
things, historical financial data of Interbancorp, certain internal financial
data and assumptions of Interbancorp prepared for financial planning and
budgeting purposes furnished by the management of Interbancorp and, to the
extent publicly available, and the financial terms of certain change of control
transactions involving Northwest community banks. CFAI discussed with
Interbancorp's management the financial condition, current operating results,
and business outlook for Interbancorp. CFAI also reviewed certain publicly
available information concerning Frontier and certain financial and securities
data of Frontier and companies deemed similar to Frontier. CFAI discussed with
Frontier's management the financial condition, current operating results, and
business outlook for Frontier and Frontier's plans relating to Interbancorp. In
rendering its opinion, CFAI relied, without independent verification, on the
accuracy and completeness of all financial and other information reviewed by it
and did not attempt to verify or to make any independent evaluation or appraisal
of the assets of Interbancorp or Frontier nor was it furnished any such
appraisals. Interbancorp did not impose any limitations on the scope of the CFAI
investigation in arriving at its opinion.
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CFAI analyzed the total Purchase Price on a cash equivalent fair market
value basis using standard evaluation techniques (as discussed below) including
comparable sales multiples, net present value analysis, and net asset value
based on certain assumption of projected growth, earnings and dividends and a
range of discount rates from 18% to 20%.
Net Asset Value is the value of the net equity of a bank, including every
kind of property and value. This approach normally assumes the liquidation on
the date of appraisal with the recognition of the investment securities gains or
losses, real estate appreciation or depreciation, adjustments to the loan loss
reserve, discounts to the loan portfolio and changes in the net value of other
assets. As such, it is not the best evaluation approach when valuing a going
concern because it is based on historical costs and varying accounting methods.
Even if the assets and liabilities are adjusted to reflect prevailing market
prices and yields (which is often of limited accuracy due to the lack of readily
available data), it still results in a liquidation value. In addition, since
this approach fails to account for the values attributable to the going concern
such as the interrelationship among Interbancorp's assets and liabilities,
customer relations, market presence, image and reputation, staff expertise and
depth, little weight is given by CFAI to the net asset value approach to
valuation.
Market Value is generally defined as the price, established on an
"arms-length" basis, at which knowledgeable, unrelated buyers and sellers would
agree. The "hypothetical" market value for a small bank with a thin market for
its common stock is normally determined by comparison to the average price to
stockholders equity, price to earnings, and price to total assets, adjusting for
significant differences in financial performance criteria and for any lack of
marketability or liquidity of the buyer. The market value in connection with the
evaluation of control of a bank is determined by the previous sales of small
banks in the state or region. In valuing a business enterprise, when sufficient
comparable trade data are available, the market value approach deserves greater
weighting than the net asset value approach and similar weight as the investment
value approach as discussed below.
CFAI maintains a comprehensive database concerning prices paid for banking
institutions in the Northwest, particularly Western Washington and Western
Oregon banking institutions, during 1995 through 2000. This database provides
comparable pricing and financial performance data for banking institutions sold
or acquired. Organized by different peer groups, these data present medians of
financial performance and purchase price levels, thereby facilitating a valid
comparative purchase price analysis. In analyzing the transaction value of
Interbancorp, CFAI has considered the market approach and has evaluated price to
stockholders equity and price to earnings multiples and the price to total
assets percentage for transactions involving, Western Washington and Western
Oregon banking organizations with total assets less than $150-million that sold
from January 1995 to September 11, 2000.
Comparable Sales Multiples. CFAI calculated a "Merger Consideration-
Adjusted Book Value" for Interbancorp's June 30, 2000 stockholders equity and
the estimated December 31, 2000 stockholders' equity adjusted for the price to
stockholders equity ratios for a sample of Northwest banking institutions with
assets of less than $150-million which sold between January 1, 1995 through
September 11, 2000 and a sample of Northwest banking institutions with total
assets of less than $150-million which sold between January 1, 1998 and
September 11, 2000. The calculations are $7.20 and $8.35 per share,
respectively, for the December 31, 1999 stockholders' equity for the two
samples. For the estimated December 31, 2000 stockholders' equity, the
calculations are $8.06 and $9.35, respectively. For Interbancorp's 1999 net
income the calculations are $7.69 and $8.19, respectively, and for the twelve
months net income prior to June 30, 2000, the calculations are $10.07 and
$10.73, respectively.
Transaction Value as a Percentage of Total Assets. CFAI calculated the
percentage of total assets which the transaction represents as a price level
indicator. The transaction value as a percentage of total assets facilitates a
truer price level comparison with comparable banking organizations, regardless
of the
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differing levels of stockholders equity and earnings. In this instance, a
transaction value of $13.35 per Interbancorp share results in a transaction
value as a percentage of total assets of 18.99%. The median price as a
percentage of total assets for a sample of Northwest banking institutions with
assets of less than $150-million which sold between January 1, 1995 through
September 11, 2000 and a sample of Northwest banking institutions with total
assets of less than $150-million which sold between January 1, 1998 and
September 11, 2000 of 13.0% and 14.6%, respectively.
Investment Value is sometimes referred to as the income or earnings value.
One investment value method frequented used estimates the present value of an
institution's future earnings or cash flow which is discussed below.
Net Present Value Analysis. The investment or earnings value of any
banking organization's stock is an estimate of the present value of future
benefits, usually earnings, dividends, or cash flow, which will accrue to the
stock. An earnings value is calculated using an annual future earning stream
over a period of time of not less than five years and the residual or terminal
value of the earnings stream after five years, using Interbancorp's estimates of
future growth and an appropriate capitalization or discount rate. CFAI's
calculations were based on an analysis of the banking industry, Interbancorp's
earnings estimates for 2000-2004, historical levels of growth and earnings, and
the competitive situation in Interbancorp's market area. Using discount rates of
18% and 20%, acceptable discount rates considering the risk-return relationship
most investors would demand for an investment of this type as of the valuation
date, the "Net Present Value of Future Earnings" provided a range of $13.47 to
$15.77 per share.
When the net asset value, market value and investment value approaches are
subjectively weighed, using the appraiser's experience and judgment, it is
CFAI's opinion that the proposed transaction is fair, from a financial point of
view to the Interbancorp shareholders.
Pursuant to the terms of the Engagement Letter, Interbancorp has agreed to
pay CFAI a fee of one percent of the gross aggregate consideration for this
fairness opinion and other financial advisory services. In addition,
Interbancorp has agreed to reimburse CFAI for its reasonable out-of-pocket
expenses, including the fees and disbursements of its counsel, and to indemnify
CFAI against certain liabilities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The directors, executive officers and principal shareholders of
Interbancorp, together with their affiliates, beneficially owned, as of the
Record Date, a total of 410,750 shares of Interbancorp Common Stock
(representing 41.71% (assuming exercise of all outstanding options) of all
outstanding shares of Interbancorp Common Stock and options to purchase
Interbancorp Common Stock which will be immediately exercisable on the Effective
Date of the Merger). The directors and executive officers of Interbancorp will
receive the same consideration in the Merger for their shares as the other
shareholders of Interbancorp. Certain members of Interbancorp's Management and
the Interbancorp Board have other interests in the Merger, as described below,
that are in addition to their interests as Interbancorp shareholders. The
Interbancorp Board is aware of their interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Employment Agreements. Frontier Bank has entered into employment
agreements with Russ Anderson, the President and Chief Executive Officer of
Interbancorp, Tana Weisenbach, a Senior Vice President of Interbancorp, and Ron
Brown, a Senior Vice President of Interbancorp. The employment agreements will
take effect upon consummation of the Merger.
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Mr. Anderson will serve as a Senior Vice President of Frontier Bank, and
Ms. Weisenburger and Mr. Brown will serve as Vice Presidents of Frontier Bank.
Each of the employment agreements has a two-year term. The employment agreements
call for annual salaries for Mr. Anderson, Ms. Weisenbach and Mr. Brown of
$105,400, $70,400 and $70,000, respectively. Each employment agreement provides
that the executive will be paid the first year's salary in full if the
executive's employment is terminated voluntarily or involuntarily, at any time,
for any reason other than cause. After the first year, employment can be
terminated by Frontier Bank or the executive at any time upon 120 days' written
notice. Mr. Anderson has an employment agreement with Inter Bank which requires
120 days' written notice for termination. This agreement will automatically be
replaced by the employment agreement with Frontier Bank when the Merger becomes
effective.
Stock Options. At the Effective Date of the Merger, Interbancorp options
to purchase Interbancorp Common Stock held by each Interbancorp employee and
each Interbancorp director will immediately and automatically become fully
vested and converted into options to purchase Frontier Common Stock based on the
exchange ratio of three-quarters (0.75) of a share of Frontier Common Stock for
each Interbancorp share. As of the date of this Prospectus/Proxy Statement, the
employees of Interbancorp held options to acquire 96,777 shares of Interbancorp
Common Stock and the directors of Interbancorp held options to acquire 37,200
shares of Interbancorp Common Stock. At the exchange ratio of three-quarters
(0.75) of a share of Frontier Common Stock for each share of Interbancorp Common
Stock, these options will be converted to options to purchase 100,482 shares of
Frontier Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger that are generally applicable to Interbancorp
shareholders. This discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), existing regulations
thereunder (including final, temporary or proposed) and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences
described herein. The following discussion is intended only as a general summary
of the material federal income tax consequences of the Merger and is not a
complete analysis or listing of all potential tax effects relevant to a decision
on whether to vote in favor of approval of the Merger Agreement.
Consummation of the Merger is conditioned upon the receipt by Frontier and
Interbancorp of an opinion of Keller Rohrback, L.L.P., special counsel to
Frontier, to the effect that if the Merger is consummated in accordance with the
terms set forth in the Merger Agreement: (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; and (ii) no
gain or loss will be recognized by Interbancorp shareholders as a result of
receiving shares of Frontier Common Stock in exchange for their shares of
Interbancorp Common Stock. The opinion will not bind the Internal Revenue
Service (the "IRS") or preclude the IRS from adopting a contrary position.
Frontier and Interbancorp may waive receipt of such tax opinion as a condition
to consummating the Merger; provided, however, that if the anticipated material
federal income tax consequences of the Merger are significantly different than
those described herein, Interbancorp will resolicit the approval of its
shareholders. Neither Frontier nor Interbancorp has requested or will request a
ruling from the IRS with regard to the federal income tax consequences of the
Merger.
RECEIPT OF FRONTIER COMMON STOCK IN EXCHANGE FOR INTERBANCORP COMMON
STOCK. No gain or loss will be recognized by a holder who receives solely shares
of Frontier Common Stock (except for cash received in lieu of fractional shares,
as discussed below) in exchange for all of his or her shares of Interbancorp
Common Stock. The tax basis of the shares of Frontier Common Stock received by a
holder in such exchange will be equal (except for the basis attributable to any
fractional shares of Frontier
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Common Stock, as discussed below) to the basis of the Interbancorp Common Stock
surrendered in exchange therefor. The holding period of the Frontier Common
Stock received will include the holding period of shares of Interbancorp Common
Stock surrendered in exchange therefor, provided that such shares were held as
capital assets of the holder at the Effective Date of the Merger.
CASH IN LIEU OF FRACTIONAL SHARES. An Interbancorp shareholder who
receives cash in lieu of a fractional share interest in Frontier Common Stock
will be treated as having received such cash in full payment for such fractional
share of stock, and will incur capital gain or loss to the extent the cash
payment exceeds or is less than the holder's basis in such fractional share.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO INTERBANCORP SHAREHOLDERS, WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. BECAUSE TAX CONSEQUENCES OF THE MERGER VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, EACH INTERBANCORP SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING SUCH SHAREHOLDER'S SPECIFIC
TAX SITUATION AND STATUS, INCLUDING THE SPECIFIC APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN LAWS TO SUCH SHAREHOLDER AND THE POSSIBLE EFFECT OF
CHANGES IN FEDERAL AND OTHER TAX LAWS.
CONDUCT OF BUSINESS PENDING THE MERGER
Interbancorp has agreed in the Merger Agreement not to take certain
actions relating to its operations without the prior approval of Frontier
pending consummation of the Merger. The Merger Agreement provides that, except
with the written consent of Frontier, each of Interbancorp and Inter Bank,
respectively, may not, among other things: (i) amend its articles of
incorporation or bylaws; (ii) impose any lien on any share of stock held by it;
(iii) repurchase any of its capital stock, split or otherwise subdivide its
capital stock, recapitalize in any way or declare a cash or stock dividend on
Interbancorp Common Stock; provided, however, that if, as of the Effective Date,
Interbancorp has Capital (less capital contributions received upon the exercise
of Interbancorp Options after August 1, 2000) in excess of $5.3-million,
Interbancorp may declare and pay a cash dividend on the Effective Date in an
amount equal to such excess; (iv) incur any additional debt except in the
ordinary course of business; (v) with certain specified exceptions, increase
compensation, pay bonuses or enter into severance arrangements; (vi) amend any
existing employment contract with any person or enter into any new employment
contract; (vii) adopt any new employee benefit plan or make any material change
to an existing employee benefit plan; (viii) enter into any new material service
contract, purchase or sale agreement or lease agreement; (ix) make any capital
expenditures exceeding $15,000 individually or $25,000 in the aggregate; (x)
enter into, renew or terminate any material contract or agreement or make any
changes in any material lease or contract; (xi) settle any claim for money
damages, (xii) enter into any new activities or lines of business, cease any
material activities or lines of business or conduct any material business
activity not consistent with past practice; (xiii) extend credit or account for
loans and leases other than in accordance with existing lending policies and
accounting practices, except that Inter Bank shall not, without the prior
consent of Frontier's Chief Executive Officer or Chief Credit Administrator make
any new loan or renew any existing loan in excess of $500,000; and (xiv) enter
into any transactions other than in the ordinary course of business. Moreover,
Interbancorp is required, among other things, to operate its businesses in the
usual, regular and ordinary course and to use its best efforts to preserve its
business relationships and to retain key employees.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Interbancorp and Frontier to consummate the Merger are
subject to, among other things, the satisfaction of the following conditions:
(i) approval of the Merger Agreement by the holders of not less than two-thirds
of the outstanding shares of Interbancorp Common Stock; (ii) receipt
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of all applicable regulatory approvals and the expiration of all required
waiting periods; (iii) no proceeding pending or threatened before any court or
governmental agency which presents a substantial risk of restraint or
prohibition of the Merger; (iv) receipt by Frontier and Interbancorp of the
opinion of Keller Rohrback L.L.P., dated as of the Effective Date, as to certain
federal income tax consequences of the Merger; (v) the shares of Frontier Common
Stock to be issued pursuant to the Merger Agreement being approved for listing
on the National Market; and (vi) the Commission declaring the effectiveness of
the Registration Statement for the shares of Frontier Common Stock to be issued
in the merger.
The obligations of Frontier are subject to the satisfaction of certain
additional conditions, including: (i) the delivery by Interbancorp of opinions
of its legal counsel and certificates executed by certain of its executive
officers as to compliance with the Merger Agreement; (ii) the accuracy of the
representations and warranties, and compliance with the agreements and covenants
of Interbancorp; (iii) Russell T. Anderson, Tana D. Weisenbach and Ronald O.
Brown having entered into employment agreements with Frontier Bank and/or
Frontier; (iv) the absence of any material adverse change in the financial
position or results of operations of Interbancorp; (v) the number of Dissenting
Shares not exceeding 20% of the outstanding shares of Interbancorp Common Stock;
and (vi) Interbancorp's Capital shall not be less than $5.3-million (not
including capital contributions upon exercise of outstanding Interbancorp
Options after August 1, 2000) on the Effective Date.
The obligations of Interbancorp are also subject to the satisfaction of
certain additional conditions, including: (i) the delivery by Frontier of
opinions of its legal counsel and certificates executed by certain of its
executive officers as to compliance with the Merger Agreement; (ii) the accuracy
of the representations and warranties, and compliance with the agreements and
covenants of Frontier; (iv) Russell T. Anderson, Tana D. Weisenbach and Ronald
O. Brown having entered into employment agreements with Frontier Bank and/or
Frontier; (iv) the absence of any material adverse change in the financial
position or results of operations of Frontier; (v) the receipt of an opinion
from CFAI prior to the mailing of this proxy statement to the effect that the
financial terms of the merger are fair to Interbancorp shareholders and (vi) the
Frontier Average closing Price is equal to or greater than $14.50.
Frontier and Interbancorp may waive certain of the conditions to their
respective obligations to consummate the Merger, other than conditions required
by law.
CONSEQUENCES OF TERMINATION
NO TERMINATION FEE. The Merger may be terminated prior to the Effective
Date, either before or after receipt of the required shareholder approval,
without any termination fee if the termination is due to (i) mutual consent;
(ii) failure of the Merger to be consummated by April 15, 2001, provided such
delay is not due to failure of the party seeking to terminate to perform its
obligations in a timely manner or a material breach by the party seeking to
terminate; (iii) failure to secure the required regulatory approvals; or (iv) by
Interbancorp, within five days after the end of the trading period used to
determine the Frontier Average Closing Price, if the Frontier Average Closing
Price is less than $14.50.
FEE PAYABLE TO FRONTIER. Under certain circumstances, set forth in Article
VII of the Merger Agreement attached hereto as Appendix A, if the Merger is not
consummated, Interbancorp will be required to pay Frontier a termination fee of
$350,000. These circumstances include, but are not limited to, the failure of
Interbancorp to use its best efforts to consummate the transaction contemplated
by the Merger Agreement, a material breach by Interbancorp of any
representation, warranty, covenant or agreement which cannot be cured within
thirty (30) days, failure of Interbancorp to receive the requisite shareholder
vote, or the exercise of dissenters' rights by shareholders owning over 20% of
the outstanding shares of Interbancorp Common Stock. In addition, if
Interbancorp elects not to proceed with the transaction because it has failed to
receive a fairness opinion and enters into an agreement to be acquired
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by another party within 12 months of the termination of this transaction,
Interbancorp will pay a termination fee to Frontier of $500,000. Any termination
fee payable shall be due and owing even though the event or condition which
caused the fee to be payable is the result (in part or in whole) of the
directors of Interbancorp complying with their fiduciary duties.
FEE PAYABLE TO INTERBANCORP. Under certain circumstances, set forth in
Article VII of the Merger Agreement attached hereto as Exhibit A, if the Merger
is not consummated, Frontier will be required to pay Interbancorp a termination
fee of $350,000. These circumstances include, but are not limited to, the
failure of Frontier to use its best efforts to consummate the transaction
contemplated by the Merger Agreement or a material breach by Frontier of any
representation, warranty, covenant or agreement which cannot be cured within
thirty (30) days. Any termination fee payable shall be due and owing even though
the event or condition which caused the fee to be payable is the result (in part
or in whole) of the directors of Frontier complying with their fiduciary duties.
REGULATORY REQUIREMENTS
The merger of Frontier and Interbancorp is subject to prior approval by
the Federal Reserve and the Washington Department of Financial Institutions
Division of Banks (the "DFI"). An application for approval of the merger of
Frontier and Interbancorp was filed with the Federal Reserve on ________, 2000
and the DFI on ________, 2000. The merger of Frontier Bank and Inter Bank is
subject to the receipt of certain prior approvals from the Federal Deposit
Insurance Corporation ("FDIC") and the DFI. An application for such merger was
filed with the FDIC and the DFI on ________, 2000.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which do not include review of the transaction from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed transaction.
Frontier and Interbancorp are not aware of any governmental approvals or
compliance with banking laws and regulations that are required for consummation
of the transactions contemplated by the Merger Agreement other than as described
above. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained and, if
such approvals or actions are obtained, there can be no assurance as to the
timing thereof. The Merger cannot proceed in the absence of all requisite
regulatory approvals. See "-- Effective Date of the Merger," "-- Conditions to
Consummation of the Merger," and "-- Amendment; Waiver; Termination."
The Merger Agreement provides that if the Merger has not been consummated
on or before April 15, 2001, the Merger Agreement may be terminated, subject to
certain conditions, by Frontier or Interbancorp. Since there is the possibility
that regulatory approval may not be obtained for a substantial period of time
after approval of the Merger Agreement by Interbancorp's shareholders, there can
be no assurance that the Merger will be consummated by April 15, 2001. In
addition, should regulatory approval require any material change, a
resolicitation of shareholders may be required if regulatory approval is
obtained after shareholder approval of the Merger Agreement.
DISSENTERS' RIGHTS
In accordance with Chapter 13 of the WBCA (Chapter 23B.13 of the Revised
Code of Washington), Interbancorp's shareholders have the right to dissent from
the Merger and to receive payment in cash for the "fair value" of their
Interbancorp Common Stock.
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If Interbancorp shareholders perfect dissenters' rights with respect to
more than 20% of the outstanding shares of Interbancorp Common Stock, Frontier
may elect not to consummate the Merger. Interbancorp shareholders electing to
exercise dissenters' rights must comply with the provisions of Chapter 13 in
order to perfect their rights. Interbancorp and Frontier will require strict
compliance with the statutory procedures. The following is intended as a brief
summary of the material provisions of the Washington statutory procedures
required to be followed by a Interbancorp shareholder in order to dissent from
the Merger and perfect the shareholder's dissenters' rights. This summary,
however, is not a complete statement of all applicable requirements and is
qualified in its entirety by reference to Chapter 13 of the WBCA, the full text
of which is set forth in Appendix B.
A shareholder who wishes to assert dissenters' rights must (a) deliver to
Interbancorp before the vote is taken by Interbancorp shareholders written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the Merger is effected, and (b) not vote such shares in favor of the
Merger. A shareholder wishing to deliver such notice should hand deliver or mail
such notice to Interbancorp at the following address within the requisite time
period:
Interbancorp, Inc.
15305 Main Street N.E.
P. O. Box 700
Duvall, WA 98019
Attn: Russell T. Anderson, President
A shareholder who wishes to exercise dissenters' rights generally must
dissent with respect to all the shares the shareholder owns or over which the
shareholder has power to direct the vote. However, if a record shareholder is a
nominee for several beneficial shareholders some of whom wish to dissent and
some of whom do not, then the record holder may dissent with respect to all the
shares beneficially owned by any one person by notifying Interbancorp in writing
of the name and address of each person on whose behalf the record shareholder
asserts dissenters' rights. A beneficial shareholder may assert dissenters'
rights directly by submitting to Interbancorp the record shareholder's written
consent and by dissenting with respect to all the shares of which such
shareholder is the beneficial shareholder or over which such shareholder has
power to direct the vote.
A shareholder who does not deliver to Interbancorp prior to the vote being
taken by Interbancorp shareholders a written notice of the shareholder's intent
to demand payment for the "fair value" of the shares will lose the right to
exercise dissenters' rights. In addition, any shareholder electing to exercise
dissenters' rights must either vote against the Merger or abstain from voting.
If the Merger is effected, Frontier as the surviving corporation shall,
within ten days after the Effective Date of the Merger, deliver a written notice
to all shareholders who properly perfected their dissenters' rights in
accordance with Chapter 13 of the WBCA. Such notice will, among other things:
(a) state where the payment demand must be sent and where and when certificates
for certificated shares must be deposited; (b) inform holders of uncertificated
shares to what extent transfer of the shares will be restricted after the
payment demand is received; (c) supply a form for demanding payment; and (d) set
a date by which Frontier must receive the payment demand, which date will be
between 30 and 60 days after notice is delivered.
A shareholder wishing to exercise dissenters' rights must timely file the
payment demand and deliver share certificates as required in the notice. Failure
to do so will cause such person to lose his or her dissenters' rights.
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Within 30 days after the Merger occurs or receipt of the payment demand,
whichever is later, Frontier shall pay each dissenter with properly perfected
dissenters' rights Frontier's estimate of the "fair value" of the shareholder's
interest, plus accrued interest from the Effective Date of the Merger. With
respect to a dissenter who did not beneficially own Interbancorp shares prior to
the public announcement of the Merger, Frontier is required to make the payment
only after the dissenter has agreed to accept the payment in full satisfaction
of the dissenter's demands. "Fair value" means the value of the shares
immediately before the Effective Date of the Merger, excluding any appreciation
or depreciation in anticipation of the Merger. The rate of interest is generally
required to be the rate at which Frontier can borrow money from other banks.
A dissenter who is dissatisfied with Frontier's estimate of the fair value
or believes that interest due is incorrectly calculated may notify Frontier of
the dissenter's estimate of the fair value and amount of interest due. If
Frontier does not accept the dissenter's estimate and the parties do not
otherwise settle on a fair value then Frontier must within 60 days petition a
court to determine the fair value.
In view of the complexity of Chapter 13 of the WBCA and the requirement
that shareholders must strictly comply with the provisions of Chapter 13 of the
WBCA, shareholders of Interbancorp who may wish to dissent from the Merger and
pursue appraisal rights should consult their legal advisors.
AMENDMENT; WAIVER; TERMINATION
Frontier may elect to modify the structure of the Merger; provided,
however, that Frontier shall not have the right to make any revision to the
structure of the Merger which changes the amount or kind of the consideration
which the Interbancorp shareholders are entitled to receive, or adversely
affects the intended tax-free treatment to Interbancorp shareholders as a result
of receiving such consideration or terminate the Merger Agreement because of a
delay caused by such a revision in structure. Prior to the Effective Date of the
Merger, any condition of the Merger Agreement may (to the extent allowed by law)
be waived in writing by the party benefited by the provision or may be amended
or modified by an agreement in writing approved by the Boards of Directors of
Frontier and Interbancorp. After approval of the Merger Agreement by the
shareholders of Interbancorp, the Merger Agreement will not, without further
approval of such shareholders, be amended in any manner that would decrease the
consideration to be received by Interbancorp shareholders in exchange for their
Interbancorp Common Stock or that would adversely affect the intended tax-free
treatment to Interbancorp shareholders. For a discussion of this intended
tax-free treatment see "THE MERGER--Certain Federal Income Tax Consequences."
The Merger Agreement may be terminated at any time prior to the Effective
Date of the Merger, either before or after approval by the Interbancorp
shareholders, as follows: (i) by the mutual consent of Frontier and
Interbancorp, if the Board of Directors of each so determines by vote of a
majority of the members of its entire board; (ii) by either party if the Merger
is not consummated on or before April 15, 2001; (iii) by either party if the
other party has committed a material breach that has not been cured within 30
days after the giving of written notice of such breach; (iv) by Frontier if
Interbancorp enters any agreement with a view toward being acquired or effecting
a business combination with any other person; or (v) by either party in the
event the requisite shareholder approval by Interbancorp shareholders is not
obtained.
In the event of the valid termination of the Merger Agreement by either
Frontier or Interbancorp, the obligations of the parties to the Merger Agreement
shall terminate, and there will be no liability on the part of either party or
their officers or directors, except for the potential of a termination fee as
described in the next section.
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TERMINATION FEE
As a condition and inducement to Frontier's entering into the Merger
Agreement and in consideration thereof, each party has agreed to pay to the
other a termination fee under certain circumstances. Interbancorp has agreed to
pay to Frontier a termination fee of $350,000 in the event that: (i) the Merger
Agreement is terminated because Interbancorp and Inter Bank do not use their
best efforts to consummate the Merger in accordance with the terms of the Merger
Agreement; or (ii) Interbancorp terminates the Merger Agreement for any reason
other than the grounds for termination for Mutual Consent, Breach or Delay.
Frontier has agreed to pay to Interbancorp a termination fee of $350,000 in the
event that: (i) the Merger Agreement is terminated because Frontier does not use
its best efforts to consummate the Merger in accordance with the terms of the
Merger Agreement; or (ii) Frontier terminates the Merger Agreement for any
reason other than the grounds for termination for Mutual Consent, Breach or
Delay.
RESALE OF FRONTIER COMMON STOCK
The shares of Frontier Common Stock to be issued to shareholders of
Interbancorp upon consummation of the Merger have been registered under the
Securities Act. Such shares may be traded freely and without restriction by
those shareholders not deemed to be "affiliates" of Interbancorp or Frontier as
that term is defined in the rules under the Securities Act. Frontier Common
Stock received by those shareholders of Interbancorp who are deemed to be
"affiliates" of Interbancorp on the date of the Special Meeting may be resold
without registration only to the extent provided for by Rule 145, or as
otherwise permitted under the Securities Act. Persons who may be deemed to be
affiliates of Interbancorp generally include individuals or entities that
control, are controlled by or are under common control with, Interbancorp, and
may include the executive officers and directors of Interbancorp and certain of
their affiliates as well as certain principal shareholders of Interbancorp. In
the Merger Agreement, Interbancorp has agreed to use its best efforts to cause
each person who may be deemed to be an affiliate of Interbancorp to enter into
an agreement with Frontier providing that such affiliate will not sell,
transfer, or otherwise dispose of the shares of Frontier Common Stock to be
received by such person in the Merger except in compliance with the applicable
provisions of the Securities Act and the rules and regulations promulgated
thereunder. This Prospectus/Proxy Statement does not cover any resales of
Frontier Common Stock received by affiliates of Interbancorp.
ACCOUNTING TREATMENT
The acquisition of Interbancorp will be accounted for under the "purchase"
method of accounting, as this term is used under generally accepted accounting
principles, commonly referred to as "GAAP." Interbancorp's assets and
liabilities will be adjusted to their estimated fair value as of the closing
date of the Merger and combined with the historical book values of the assets
and liabilities of Frontier. The difference between the estimated fair value of
the assets and liabilities and the purchase price will be recorded as an
intangible asset and amortized against the combined company's earnings following
completion of the Merger.
EXPENSES
The Merger Agreement provides that Frontier and Interbancorp each will pay
their own expenses in connection with the Merger Agreement and the transactions
contemplated thereby.
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BUSINESS OF THE PARTIES TO THE MERGER
FRONTIER
Frontier is a Washington corporation registered as a bank holding company
under the Bank Holding Company Act of 1956. Frontier is primarily engaged in the
business of planning, directing, and coordinating the business activities of its
wholly owned subsidiaries, Frontier Bank, which is engaged in a general banking
business and businesses related to banking, and FFP, Inc., a nonbank corporation
which leases property to Frontier Bank. Frontier Bank conducts business from its
main office in Everett, Washington and its 34 branch offices located in Kitsap,
Jefferson, Clallam, Pierce, Snohomish, King, Whatcom and Skagit Counties.
Frontier Bank, incorporated in 1978, is a Washington state-chartered
commercial bank that serves individuals and businesses throughout Washington.
Frontier Bank provides a full range of consumer banking services including
savings accounts, checking accounts, installment and commercial lending, safe
deposit facilities, time deposits and other consumer and business related
financial services. In addition to consumer oriented activities, Frontier Bank
maintains a strong commercial lending program, servicing businesses
headquartered throughout Kitsap, Snohomish, King, Whatcom, and Skagit Counties.
Frontier Bank offers discount brokerage services and operates a Real Estate
Division that provides a broad range of home, construction and commercial
long-term financing. Frontier Bank's Trust Department offers a full array of
trust services and its Private Banking Office gives personal service to select
customers. Frontier Bank also has an Insurance and Investment Center that
markets annuities, life insurance products, and mutual funds to Frontier Bank
customers and the general public.
Frontier Bank's 34 locations include four offices in Everett, two offices
in Poulsbo and one office each in Arlington, Bainbridge Island, Bellingham,
Bothell, Buckley, Burlington, Kent, Edmonds, Lake City (North Seattle), Lake
Stevens, Lynnwood, Marysville, Meridian Place (Puyallup), Mill Creek, Monroe,
Mount Vernon, Orting, Port Angeles, Port Hadlock, Port Townsend, Redmond,
Sequim, Silverdale, Smokey Point, Snohomish, Stanwood, Sumner and Woodinville.
Financial and other information relating to Frontier is set forth in
Frontier's Annual Report on Form 10-K for the year ended December 31, 1999, and
the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
Information regarding the names, ages, positions and business backgrounds of the
executive officers and directors of Frontier, as well as additional information,
including executive compensation, security ownership of certain beneficial
owners and management and certain relationships and related transactions, is set
forth in or incorporated by reference in Frontier's Annual Report on Form 10-K
for the year ended December 31, 1999 and Frontier's Proxy Statement dated April
20, 2000 for its Annual Meeting of Shareholders. Copies of this information may
be obtained from Frontier as indicated under "WHERE YOU CAN FIND MORE
INFORMATION."
INTERBANCORP
Inter Bank was incorporated as Valley Community Bank in September 1989 and
opened for business in Duvall, Washington as a state-chartered/FDIC-insured bank
in January 1990. In 1994, Inter Bank expanded into Kirkland, Washington, to
participate in the growing eastside economy, to fill a community bank void in
that market and to also help mitigate the slower than anticipated growth in the
Snoqualmie Valley due in part to a two year building moratorium put in effect by
the City of Duvall late in 1990. It was during that time that Inter Bank changed
its charter name to Inter Bank and began operating its two offices under the
names "Valley Community Bank" and "Kirkland Bank of Commerce." During 1999,
Interbancorp Inc. was formed to become the holding company for Inter Bank. The
holding company was activated on January 3, 2000, with the acquisition of Inter
Bank.
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Inter Bank offers a full range of consumer and business banking services
including deposit and lending services with emphasis toward small to medium
businesses. Services include checking, savings and time deposit accounts; real
estate, consumer and commercial loans; safe deposit boxes, wire transfers and
electronic banking products. Inter Bank's main office and administrative offices
are in Duvall, Washington.
As of October 31, 2000, Interbancorp had total assets of approximately
$73.2 million, outstanding net loans of approximately $55.3 million, total
deposits of approximately $66.3 million, and stockholders' equity of
approximately $5.7 million.
COMPETITION
Inter Bank's primary market area consists of east King County, Washington,
specifically, the cities of Duvall and Kirkland. Other financial institutions
operate in these areas and Inter Bank faces strong competition, both in
attracting deposits and originating loans. The only other bank competitor in
Duvall is Bank of America. Inter Bank's primary community bank competitors in
the Kirkland market are Redmond National Bank, InterWest Bank, Frontier Bank and
Banner Bank. Other Regional and National banks include: Bank of America,
Washington Mutual Bank, U.S. Bank, Keybank, Washington Federal S & L, and Wells
Fargo Bank. These and many other competitors are larger and more substantially
capitalized than Inter Bank. They have established positions and have greater
resources than Inter Bank for lending and to pay for advertising, physical
facilities, personnel and interest on deposited funds.
The primary factors affecting competition for deposits and loans are
interest rates, terms and fees. Inter Bank relies on its close proximity to
numerous local businesses, personal contacts, and referrals by its officers,
directors, employees, shareholders and customers and its reputation in the
community to compete effectively.
FACILITIES
Inter Bank operates out of two offices and is currently developing a third
branch. Following are Inter Bank's facilities at each location:
Inter Bank's main office (Valley Community Bank) is located at 15305 Main
Street NE, Duvall, Washington and consists of 4,600 square feet on the ground
floor with 1,850 square feet of unfinished space on the second floor. The
building was constructed in 1992 on a 30,000 square foot site with a two lane
drive-up window. The facility is owned by Inter Bank.
The Kirkland Bank of Commerce office is located at 132 Kirkland Avenue in
a two-story masonry and wood building of approximately 4,640 square feet. This
building was constructed in 1975 and completely renovated in 1995 when Inter
Bank purchased the building. The first floor has 3,008 square feet with the
second floor consisting of 1,632 square feet. Inter Bank's mortgage division is
currently housed on the second floor. The site contains 10,652 square feet with
nine parking spaces and a "grandfathered" two lane drive-up window.
Effective July 1, 2000 Inter Bank leased an approximately 4,200 square
foot facility at 12507 116th Avenue NE, Kirkland, Washington (Totem Lake). The
facility is currently being renovated. It is anticipated the site will house a
full service banking facility with one drive-up lane. The State of Washington
Department of Financial Institutions Division of Banks and the Federal Deposit
Insurance Corporation have approved Inter Bank's application to establish a
branch at this site.
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EMPLOYEES
As of October 31, 2000, Inter Bank had 24 full-time employees and one
part-time employee. Inter Bank provides a variety of benefits to its employees
and believes employee relations are good.
LEGAL PROCEEDINGS
There are no threatened or pending legal proceedings against Interbancorp
or Inter Bank which, if determined adversely, would, in the opinion of
Management, have a material adverse effect on the business or financial position
of Interbancorp and its subsidiaries on a consolidated basis.
SUPERVISION AND REGULATION
INTRODUCTION
The following generally refers to certain statutes and regulations
affecting the banking industry. These references are only intended to provide
brief summaries and therefore, are not complete and are qualified by the
statutes and regulations referenced. In addition, due to the numerous statutes
and regulations which apply to and regulate the operation of the banking
industry, many are not referenced below.
THE HOLDING COMPANIES
General
Frontier and Interbancorp are bank holding companies by virtue of their
respective ownership of Frontier Bank and Inter Bank, and are registered as such
with the Federal Reserve. As bank holding companies, Frontier and Interbancorp
are subject to the Bank Holding Company Act of 1956, as amended (the "BHCA"),
which governs and subjects each of them and their respective subsidiaries to
supervision and examination by the Federal Reserve. Under the BHCA, Frontier and
Interbancorp file with the Federal Reserve annual reports of their operations
and such additional information as the Federal Reserve may require.
Bank Holding Company Structure
In general, the BHCA limits bank holding company business to owning or
controlling banks and engaging in other banking-related activies. Certain recent
legislation designed to expand interstate branching and relax federal
restrictions on interstate banking may expand opportunities for bank holding
companies (see below under "Regulation of Banking Subsidiaries - Recent Federal
Legislation - Interstate Banking and Branching").
Federal Reserve Regulation. Bank holding companies must obtain the Federal
Reserve's approval before they: (1) acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, they would
own or control, directly or indirectly, more than 5% of the voting shares of
such bank; (2) merge or consolidate with another bank holding company; and (3)
acquire substantially all of the assets of any additional banks. Until September
1995, the BHCA also prohibited bank holding companies from acquiring any such
interest in any bank or bank holding company located in a state other than the
state in which the bank holding company was located, unless the laws of both
states expressly authorized the acquisition. Now, subject to certain state
restrictions, such as age and contingency laws, a bank holding company that is
adequately capitalized and adequately managed may acquire the assets of an
out-of-state bank.
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Control of Nonbanks. With certain exceptions, the BHCA also prohibits bank
holding companies from acquiring direct or indirect ownership or control of
voting shares in any company other than a bank or a bank holding company unless
the Federal Reserve finds the company's business to be incidental to the
business of banking. When making this determination, the Federal Reserve in part
considers whether allowing a bank holding company to engage in those activies
would offer advantages to the public that would outweigh possible adverse
effects.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("Econmic Growth Act") amended the BHCA to eliminate the requirement that a bank
holding company seek Federal Reserve approval before engaging de novo in
permissible nonbanking activities, if the holding company is well capitalized
and meets certain other criteria specified in the same statute. A bank holding
company meeting the specifications is now required only to notify the Federal
Reserve within 10 business days after the activity has begun.
Control Transactions. The Change in Bank Control Act of 1978, as amended,
requires a person or group of persons acquiring "control" of a bank holding
company to provide the FRB with at least 60 days' prior written notice of the
proposed acquisition. Following receipt of this notice, the Federal Reserve has
60 days to issue a notice disapproving the proposed acquisition, but the Federal
Reserve may extend this time period for up to another 30 days. An acquisition
may be completed before the disapproval period expires if the Federal Reserve
issues written notice of its intent not to disapprove the action. Under a
rebuttable presumption established by the Federal Reserve, the acquisition of
10% or more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended ("Exchange Act") would, under the circumstances set forth in the
presumption, constitute the acquisition of control. In addition, any "company"
would be required to obtain the approval of the Federal Reserve under the BHCA
before acquiring 25% (5% if the "company" is a bank holding company) or more of
the outstanding shares of Frontier, or otherwise obtain control over Frontier.
Transactions with Affiliates
Frontier and its subsidiaries, and likewise Interbancorp and Inter Bank,
are deemed affiliates within the meaning of the Federal Reserve Act, and
transactions between affiliates are subject to certain restrictions. Generally,
Sections 23A and 23B of the Federal Reserve Act: (1) limit the extent to which
the financial institution or its subsidiaires may engage in "covered
transactions" with an affiliate, as defined, to an amount equal to 10% of such
institution's capital and surplus and an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such capital and
surplus, and (2) require all transactions with an affiliate, whether or not
"covered transactions," to be on terms substantially the same, or at least as
favorable to the institution or subsidiary, as those provided to non-affiliate.
The term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and other similar types of transactions.
Regulations of Management
Federal law: (1) sets forth the circumstances under which officers or
directors of a financial institution may be removed by the institution's federal
supervisory agency; (2) places restraints on lending by an institution to its
executive oficers, directors, principal shareholders, and their related
insterests; and (3) prohibits management personnel from serving as a director or
in other management positions of another financial institution whose assets
exceed a specified amount or which has an office within a specified geographic
area.
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FIRREA
The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") became effective on August 9, 1989. Among other things, this
far-reaching legislation (1) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (2) created two deposit insurance
pools within the FDIC, one to insure commercial bank and savings bank deposits
and the other to insure savings association deposits; (3) for the first time,
permitted bank holding companies to acquire healthy savings associations; (4)
permitted commercial banks that meet certain housing-related asset requirements
to secure advances and other federal services from their local Federal Home Loan
Banks; and (5) greatly enhanced the regulators' enforcement powers by removing
procedural barriers and sharply increasing the civil and criminal penalities for
violating statutes and regulations.
Tie-In Arrangements
Frontier, Interbancorp and their subsidiaries, are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, sale or lease of property or furnishing of services. For example, with
certain exceptions, neither Frontier, Interbancorp nor their subsidiaries may
condition an extension of credit on either (1) a requirement that the customer
obtain additional services provided by it or (2) an agreement by the customer to
refrain from obtaining other services from a competitor. Effective April 1997,
the Federal Reserve has adopted significant amendments to its anti-tying rules
that: (1) remove Federal Reserve-imposed anti-tying restrictions on bank holding
companies and their non-bank subsidiaries; (2) create exemptions from the
statutory restriction on bank tying arrangements to allow banks greater
flexibility to package products with their affiliates; and (3) establish a safe
harbor from the tying restrictions for certain foreign transactions. These
amendments are designed to enhance competition in banking and nonbanking
products and allow banks and their affiliates to provide more efficient and
lower-cost service to customers. However, the impact of the amendments on
Frontier, Interbancorp and their subsidiaries is unclear at this time.
State Law Restrictions
As corporations chartered under the laws of the State of Washington,
Frontier and Interbancorp may be subject to certain limitations and restrictions
as provided under applicable Washington corporate laws.
Securities Registration and Reporting
The Frontier Common Stock is registered as a class with the SEC under the
Securities Act and thus is subject to the periodic reporting and proxy
solicitation requirements and the insider-trading restrictions of that Act. The
periodic reports, proxy statements, and other information filed by Frontier
under that Act can be inspected and copied at or obtained from the Washington,
D.C., office of the SEC. In addition, the securities issued by Frontier are
subject to the registration requirements of the Securities Act and applicable
state securities laws unless exemptions are available.
THE BANKS
General
Applicable federal and state statutes and regulations governing a bank's
operations relate, among other matters, to capital requirements, required
reserves against deposits, investments, loans, legal lending limits, certain
interest rates payable, mergers and consolidations, borrowings, issuance of
securities, payment of dividends (see below), establishment of branches, and
dealings with affiliated persons. The
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FDIC has authority to prohibit banks under their supervision from engaging in
what they consider to be an unsafe and unsound practice in conducting their
business.
Frontier Bank and Inter Bank are state-chartered commercial banks subject
to extensive regulation and supervision by the Washington Department of
Financial Institutions Division of Banks (the "DFI"). Frontier Bank and Inter
Bank (the "Banks") are also subject to regulation and examination by the FDIC,
which insures their respective deposits to the maximum extent permitted by law.
The federal laws that apply to the Banks regulate, among other things, the scope
of their business, their investments, their reserves against deposits, the
timing of the availability of deposited funds and the nature and amount of and
collateral for loans. The laws and regulations governing the Banks generally
have been promulgated to protect depositors and not to protect shareholders of
such institutions or their holding companies.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal banking regulators to adopt regulations or
guidelines in a number of areas to ensure bank safety and soundness, including:
internal controls; credit underwriting; asset growth; management compensation;
ratios of classified assets to capital; and earnings. FDICIA also contains
provisions which are intended to change independent auditing requirements;
restrict the activities of state-chartered insured banks; amend various consumer
banking laws; limit the ability of "undercapitalized banks" to borrow from the
Federal Reserve's discount window; and require regulators to perform periodic
on-site bank examinations and set standards for real estate lending.
Loans-To-One Borrower
Each of the Banks is subject to limitations on the aggregate amount of
loans that it can make to any one borrower, including related entities.
Applicable regulations generally limit loans-to-one borrower to 20% of
unimpaired capital. Each of the Banks is in compliance with applicable
loans-to-one borrower requirements.
FDIC Insurance
Generally, customer deposit accounts in banks are insured by the FDIC for
up to a maximum amount of $100,000. The FDIC has adopted a risk-based insurance
assessment system under which depository institutions contribute funds to the
BIF and/or the SAIF, as applicable, based on their risk classification.
In September of 1996, the Deposit Insurance Funds Act of 1996 ("Funds
Act") was enacted. The Funds Act provided, among other things, for the
recapitalization of the SAIF through a special assessment on all depository
institutions that hold SAIF insured deposits. The one-time assessment was
designed to place the SAIF at its 1.25 reserve ratio goal.
The Funds Act, for the three-year period beginning in 1997, subjects BIF
insured deposits to a Financing Corporation ("FICO") premium assessment on
domestic deposits at one-fifth the premium rate (approximately 1.3 basis points)
imposed on SAIF insured deposits (approximately 6.5 basis points). Beginning in
the year 2000, BIF insured institutions will be required to pay the FICO
obligations on a pro-rata basis with all thrift institutions; annual assessments
are expected to equal approximately 2.4 basis points until 2017, to be phased
out completely by 2019.
Until further action by the FDIC, BIF premiums will be maintained at their
current level. Accordingly, institutions in the lowest risk category will
continue to pay no premiums, and other institutions will be assessed based on a
range of rates, with those in the highest risk category paying 27
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cents for every $100 of BIF insured deposits. Rates in the SAIF assessment
schedule, previously ranging from 4 to 31 basis points, have been adjusted by 4
basis points to a range of 0 to 27 basis points.
The Funds Act provides for the merger of the BIF and SAIF on January 1,
1999, only if no thrift institutions exist on that date. It is expected that
Congress will continue to address comprehensive legislation on the merger of the
funds and elimination of the thrift charter. The merger of the BIF and the SAIF
has not yet occurred.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law. The insurance may be
terminated permanently, if the institution has no tangible capital. If deposit
insurance is terminated, the accounts at the institution at the time of the
termination, less subsequent withdrawals, will continue to be insured for a
period of six months to two years, as determined by the FDIC.
Capital Requirements
Capital Adequacy Requirements. The Federal Reserve and the FDIC
(collectively, the "Agencies") have adopted risk-based capital guidelines for
banks and bank holding companies that are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies and account for off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios in excess
of the minimums. Failure to achieve and maintain adequate capital levels may
give rise to supervisory action through the issuance of a capital directive to
ensure the maintenance of required capital levels.
The current guidelines require all federally-regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier 1 capital. Tier 1 capital includes common shareholders' equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
the allowance for loan and lease losses. Tier 2 capital includes the excess of
any preferred stock not included in Tier 1 capital, mandatory convertible
securities, hybrid capital instruments, subordinated debt and intermediate
term-preferred stock, up to 45% of pretax net unrealized holding gains of equity
securities, and general reserves for loan and lease losses up to 1.25% of
risk-weighted assets. Neither of the Banks have received any notice indicating
that it will be subject to higher capital requirements.
Under these guidelines, banks' assets are given risk-weights of 0%, 20%,
50% or 100%. Most loans are assigned to the 100% risk category, except for first
mortgage loans fully secured by residential property and, under certain
circumstances, residential construction loans (both carry a 50% rating). Most
investment securities are assigned to the 20% category, except for municipal or
state revenue bonds (which have a 50% rating) and direct obligations of or
obligations guaranteed by the United States Treasury or United States Government
Agencies (which have a 0% rating).
The Agencies have also implemented a leverage ratio, which is equal to
Tier 1 capital as a percentage of average total assets less intangibles, to be
used as a supplement to the risk-based guidelines. The principal objective of
the leverage ratio is to limit the maximum degree to which a bank may leverage
its equity capital base. The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an additional
cushion of at least 100 to 200 basis points. Any institution operating at or
near the 3% level is expected to be a strong banking organization without any
supervisory, financial or operational weaknesses or deficiencies. Any
institutions experiencing or
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anticipating significant growth would be expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels.
Prompt Corrective Action. Regulations adopted by the Agencies as required
by FDICIA impose even more stringent capital requirements. The FDIC and other
Agencies must take certain "prompt corrective action" when a bank fails to meet
capital requirements. The regulations establish and define five capital levels:
(1) "well-capitalized," (2) "adequately capitalized," (3) "undercapitalized,"
(4) "significantly undercapitalized" and (5) "critically undercapitalized." To
qualify as "well-capitalized," an institution must maintain at least 10% total
risk-based capital, 6% Tier 1 risk-based capital, and a leverage ratio of no
less than 5%. Increasingly severe restrictions are imposed on the payment of
dividends and management fees, asset growth and other aspects of the operations
of institutions that fall below the category of being "adequately capitalized"
(which requires at least 8% total risk-based capital, 4% Tier 1 risk-based
capital, and a leverage ratio of at least 4%). Undercapitalized institutions are
required to develop and implement capital plans acceptable to the appropriate
federal regulatory agency. Such plans must require that any company that
controls the undercapitalized institution must provide certain guarantees that
the institution will comply with the plan until it is adequately capitalized. As
of the date of this Prospectus/Proxy statement, neither Frontier, Interbancorp,
nor their respective subsidiaries were subject to any regulatory order,
agreement, or directive to meet and maintain a specific capital level for any
capital measure.
LIQUIDITY REQUIREMENTS
Restrictions on Capital Distributions
Dividends paid to Frontier by its subsidiaries are the material source of
Frontier's cash flow. Likewise, dividends paid to Interbancorp by Inter Bank are
the material source of Interbancorp's cash flow. Various federal and state
statutory provisions limit the amount of dividends Frontier's and Interbancorp's
banking subsidiaries are permitted to pay to Frontier and Interbancorp,
respectively, without regulatory approval. Federal Reserve policy further limits
the circumstances under which bank holding companies may declare dividends. For
example, a bank holding company should not continue its existing rate of cash
dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality, and overall financial condition.
If, in the opinion of the applicable federal banking agency, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), the agency may require,
after notice and hearing, that such institution cease and desist from such
practice. In addition, the Federal Reserve and the FDIC have issued policy
statements which provide that insured banks and bank holding companies should
generally pay dividends only out of current operating earnings.
Under Washington law, the Banks may not declare or pay a cash dividend on
their capital stock if it would cause its net worth to be reduced below (1) the
amounts required for liquidation accounts or (2) the net worth requirements, if
any, imposed by the Director of the DFI. Dividends on Frontier Bank's capital
stock may not be paid in an aggregate amount greater than the aggregate retained
earnings of Frontier Bank, without the approval of the DFI.
Federal Reserve System
The Federal Reserve requires all depository institutions to maintain
reserves against their transaction accounts (primarily checking accounts) and
non-personal time deposits. Currently, reserves of
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3% must be maintained against total transaction accounts of $49.8-million or
less (after a $4.2-million exemption), and an initial reserve of 10% (subject to
adjustment by the Federal Reserve to a level between 8% and 14%) must be
maintained against that portion of total transaction accounts in excess of such
amount. Both of the Banks are in compliance with applicable requirements.
The balances maintained to meet the reserve requirements imposed by the
Federal Reserve may be used to satisfy applicable liquidity requirements.
Because required reserves must be maintained in the form of vault cash or a
non-interest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the earning assets of Frontier and
Interbancorp's banking subsidiaries.
Recent Federal Legislation
Interstate Banking and Branching: The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Act") generally permits nationwide
interstate banking and branching by relaxing federal law restrictions on
interstate banking and providing general authorization for interstate branching.
Subject to certain state laws, such as age and contingency laws, the Interstate
Act allows adequately capitalized and adequately managed bank holding companies
to purchase the assets of out-of-state banks). Additionally, since June 1, 1997,
the Interstate Act permits interstate bank mergers, subject to these state laws,
unless the home state of either merging bank has "opted-out" of these provisions
by enacting "opt-out" legislation. The Interstate Act does allow states to
impose certain conditions on interstate bank mergers within their borders; for
example, states may require that the in-state merging bank exist for up to five
years before the interstate merger. Under the Interstate Act, states may also
"opt-in" to de novo branching, allowing out-of-state banks to establish de novo
branches within the state.
In 1996, Washington enacted "opting in" legislation authorizing interstate
mergers pursuant to the Interstate Act. Accordingly, as of June 6, 1996, an
out-of-state bank holding company may now acquire more than 5% of the voting
shares of a Washington-based bank, regardless of reciprocity, provided such bank
or its predecessor has been doing business for at least five years prior to the
acquisition. Further, an out-of-state bank may engage in banking in Washington
if the requirements of Washington's interstate banking statute are met, and the
bank either (1) was lawfully engaged in banking in Washington on June 6, 1996,
(2) resulted from an interstate combination pursuant to Washington law, (3)
resulted from a relocation of a head office of a state bank or a main office of
a national bank pursuant to federal law, or (4) resulted from the establishment
of a savings bank branch in compliance with applicable Washington law.
Additionally, the Director of the Division may approve interstate combinations
if the basis for such approval does not discriminate against out-of-state banks,
out-of-state holding companies, or their subsidiaries.
The Agencies recently adopted regulations, under which banks are
prohibited from using their interstate branches primarily for deposit
production. The Agencies have accordingly implemented a loan-to-deposit ratio
screen to ensure compliance with this prohibition.
Regulatory Improvement. In 1994, Congress enacted the Community
Development and Regulatory Improvement Act ("Regulatory Improvement Act"), with
the intent of, among other things, reducing the regulatory burden on financial
institutions. This Act is intended to streamline certain regulatory procedures
and relax certain regulatory compliance requirements. In addition, the
Regulatory Improvement Act specifically directs each federal banking agency to
review and streamline its regulations and written supervisory policies.
Financial Services Modernization. In 1999, the Financial Services
Modernization Act was enacted which: (1) repealed historical restrictions on
preventing banks from affiliating with securities firms, (2) broadens the
activities that may be conducted by national banks and banking subsidiaries of
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holding companies, and (3) provides an enhanced framework for protecting the
privacy of consumers' information. In addition, bank holding companies may be
owned, controlled or acquired by any company engaged in financially related
activities, as long as such company meets regulatory requirements. To the extent
that this legislation permits banks to affiliate with financial services
companies, the banking industry may experience further consolidation, although
the impact of this legislation on Frontier and Interbancorp is unclear at this
time.
Regulatory Enforcement Authority
The enforcement powers available to federal banking regulators are
substantial and include, among other things, the ability to assess civil
monetary penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, enforcement actions must be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions, or inactions, may provide the basis for enforcement action, including
misleading or untimely reports filed with regulatory authorities. Applicable law
also requires public disclosure of final enforcement actions by the federal
banking agencies.
VOTING SECURITIES OF INTERBANCORP AND
PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of the Record Date, information as to
the shares of Interbancorp Common Stock beneficially owned by each person who,
to the knowledge of Interbancorp, is the owner of more than 5% of the
outstanding shares of Interbancorp Common Stock, by each director of
Interbancorp, and by the executive officers and directors of Interbancorp as a
group.
<TABLE>
<CAPTION>
Number of Common Percentage of
Shares Beneficially Outstanding
Owned(1) Shares*
------------------- -------------
<S> <C> <C>
Russell T. Anderson 25,260(2) 2.56%
Samuel Castillo 26,520(3) 2.69%
Francis W. Cox 30,053(4) 3.05%
Kenneth H. Davidson 21,964(5) 2.23%
Leroy M. Johnson 16,774(6) 1.70%
James I. Mock 7,116(7) .72%
Herb F. Mueller 59,489(8) 6.04%
James Roetcisoender 47,423(9) 4.82%
Loran Thompson 29,166(10) 2.96%
Fred Weisenburger 43,109(11) 4.38%
</TABLE>
* Based on 850,904 shares outstanding, plus 133,977 stock options granted to
Interbancorp's directors, officers and employees, for a total of 984,881
shares outstanding, assuming the exercises of all outstanding options.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any share of
Interbancorp Common Stock if he or she has voting and/or investment power
with respect to such security. The table includes shares owned by spouses,
other immediate family members in trust, shares held in retirement
accounts or funds for the benefit of the named individuals and other forms
of ownership, over which shares the persons named in the table possess
voting and/or investment power.
(2) Includes 24,000 shares Mr. Anderson will have the fully-vested right to
acquire on the Effective Date of the Merger pursuant to the Employee Stock
Option Plan.
(3) Includes 1,915 shares owned by Mr. Castillo's spouse, 11,536 shares owned
jointly with his spouse and 6,000 shares Mr. Castillo will have the
fully-vested right to acquire on the Effective Date of the Merger pursuant
to the Directors' Nonqualified Option Plan.
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(4) Includes 7,625 shares owned by Mr. Cox's spouse, 10,820 shares owned
jointly with his spouse and 4,200 shares Mr. Cox will have the
fully-vested right to acquire on the Effective Date of the Merger pursuant
to the Directors' Nonqualified Option Plan.
(5) Includes 1,800 shares owned jointly by Mr. Davidson with his spouse,
11,010 shares owned by Mr. Davidson's law firm's pension plan, which Mr.
Davidson has the right to vote, and 4,200 shares Mr. Davidson has the
fully-vested right to acquire on the Effective Date of the Merger pursuant
to the Directors' Nonqualified Option Plan.
(6) Includes 2,723 shares owned by Mr. Johnson's spouse and 4,200 shares Mr.
Johnson will have the fully-vested right to acquire on the Effective Date
of the Merger pursuant to the Directors' Nonqualified Option Plan.
(7) Shares are held by Mr. Mock jointly with his spouse.
(8) Includes 31,152 shares Mr. Mueller has the fully-vested right to acquire
pursuant to the Employee Stock Option Plan, and 8,749 shares held by the
Mueller Living Trust which Mr. Mueller has the right to vote.
(9) Includes 31,885 shares held by Mr. Roetcisoender jointly with his spouse,
and 4,200 shares Mr. Roetcisoender will have the fully-vested right to
acquire on the Effective Date of the Merger pursuant to the Directors'
Nonqualified Stock Option Plan.
(10) Includes 1,366 shares owned by Mr. Thompson's spouse and 4,200 shares Mr.
Thompson will have the fully-vested right to acquire on the Effective Date
of the Merger pursuant to the Directors' Nonqualified Stock Option Plan.
(11) Includes 1,661 shares owned by Mr. Weisenburger's spouse, and 4,200 shares
Mr. Weisenburger will have the fully-vested right to acquire on the
Effective Date of the Merger pursuant to the Directors' Nonqualified Stock
Option Plan.
<TABLE>
<CAPTION>
Number of Common Percentage of
Shares Beneficially Outstanding
Owned(1) Shares*
------------------- -------------
<S> <C> <C>
Lawrence W. Whitfield 30,146(2) 3.06%
Directors and Executive Officers
(as a Group) (3) 356,300 36.18%
Robert Funk (Principal Shareholder) 54,450 5.53%
Total Directors, Executive Officers
and Principal Shareholders 410,750 41.71%
</TABLE>
* Based on 850,904 shares outstanding, plus 133,977 stock options granted to
Interbancorp's directors, officers and employees, for a total of 984,881
shares outstanding, assuming the exercises of all outstanding options.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any share of
Interbancorp Common Stock if he or she has voting and/or investment power
with respect to such security. The table includes shares owned by spouses,
other immediate family members in trust, shares held in retirement
accounts or funds for the benefit of the named individuals and other forms
of ownership, over which shares the persons named in the table possess
voting and/or investment power.
(2) Includes 2,071 shares owned by Mr. Whitfield's spouse, 20,066 shares owned
by Mr. Whitfield jointly with his spouse, and 6,000 shares Mr. Whitfield
will have the fully-vested right to acquire on the Effective Date of the
Merger pursuant to the Directors' Nonqualified Stock Option Plan.
(3) Includes 19,280 shares two executive officers own or will have the
fully-vested right to acquire on the Effective Date of the Merger pursuant
to the Employee Stock Option Plan.
DESCRIPTION OF FRONTIER CAPITAL STOCK
Frontier is authorized to issue 100,000,000 shares of Common Stock and
10,000,000 shares of preferred stock, no par value per share. Frontier Common
Stock is listed for trading on the Nasdaq National Market under the symbol
"FTBK." Each share of Frontier Common Stock has the same relative
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<PAGE> 44
rights and is identical in all respects with every other share of Frontier
Common Stock. The following summary is not a complete description of the
applicable provisions of the Frontier Articles of Incorporation and Bylaws or of
applicable statutory or other law, and is qualified in its entirety by reference
thereto. See "WHERE YOU CAN FIND MORE INFORMATION."
COMMON STOCK
Voting Rights. The holders of Frontier Common Stock possess exclusive
voting rights in Frontier. Each holder of Frontier Common Stock is entitled to
one vote for each share held of record on all matters submitted to a vote of
holders of Frontier Common Stock. Holders of shares of Frontier Common Stock are
not entitled to cumulate votes for the election of directors.
Dividends. The holders of Frontier Common Stock are entitled to such
dividends as the Frontier Board may declare from time to time out of funds
legally available therefor. Dividends from Frontier depend upon the receipt by
Frontier of dividends from its subsidiaries because Frontier has no source of
income other than dividends from its subsidiaries.
Liquidation. In the event of liquidation, dissolution or winding up of
Frontier, the holders of shares of Frontier Common Stock are entitled to share
ratably in all assets remaining after payment of all debts and other liabilities
of Frontier.
Other Characteristics. Holders of Frontier Common Stock do not have any
preemptive, conversion or other subscription rights with respect to any
additional shares of Frontier Common Stock which may be issued. Therefore, the
Board of Directors of Frontier may authorize the issuance and sale of shares of
common stock of Frontier without first offering them to existing shareholders of
Frontier. Frontier Common Stock is not subject to any redemption or sinking fund
provisions. The outstanding shares of Frontier Common Stock are, and the shares
to be issued in the Merger will be, fully paid and non-assessable.
PREFERRED STOCK
Frontier's Articles of Incorporation authorize the Board of Directors of
Frontier to issue from time to time one or more series of preferred stock with
such designations and preferences, relative, participating, optional and other
special rights and qualifications, limitations and restrictions thereon, as
permitted by law and as fixed from time to time by resolution of the Board of
Directors. Because of its broad discretion with respect to the creation and
issuance of any series of preferred stock without shareholder approval, the
Board of Directors could adversely affect the voting power of the holders of
common stock, and by issuing shares of preferred stock with certain voting,
conversion and/or redemption rights, could discourage any attempt to obtain
control of Frontier in any transaction not approved by the Board of Directors of
Frontier. As of the Record Date, there are no outstanding shares of preferred
stock of Frontier.
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<PAGE> 45
COMPARISON OF SHAREHOLDERS' RIGHTS
Frontier is incorporated under the laws of the State of Washington and,
accordingly, the rights of Frontier's shareholders are governed by Frontier's
Articles of Incorporation, Bylaws and the WBCA. Interbancorp is incorporated
under the laws of the State of Washington and, accordingly, the rights of
Interbancorp's shareholders are governed by Interbancorp's Articles of
Incorporation, Bylaws and the WBCA.
Upon consummation of the Merger, shareholders of Interbancorp will become
shareholders of Frontier and, as such, their rights will be governed by
Frontier's Articles of Incorporation, Bylaws and the WBCA. The following is a
summary of material differences between the rights of a Frontier shareholder
under Frontier's Articles of Incorporation and Bylaws, and the rights of a
Interbancorp shareholder under Interbancorp's Articles of Incorporation and
Bylaws. This discussion is not intended to be a complete statement of the
differences affecting the rights of shareholders and is qualified in its
entirety by reference to governing law and the articles of incorporation and
bylaws of each corporation. See "WHERE YOU CAN FIND MORE INFORMATION."
BOARD OF DIRECTORS
Frontier. Frontier's Amended and Restated Articles of Incorporation
provide that its Board of Directors shall consist of not less than 5 nor more
than 25 directors, divided into three classes, with members of each class of
directors being elected for a term of three years. The current number of
directors is set at 14. Because a certain number, but not all, of the directors
are elected on a rotating basis each year, a change in the composition of the
Board of Directors, and a potential change in control of a corporation, becomes
a lengthier and more difficult process. Since the terms of only one-third of the
incumbent directors expire each year, there must be at least two annual
elections for the shareholders to change a majority of the directors. Cumulative
voting is not permitted in the election of directors.
Interbancorp. Interbancorp's Articles of Incorporation provide that its
Board of Directors shall consist of not less than 5 nor more than 15 directors
divided into three classes. The current number of directors is set at 11.
Cumulative voting is not permitted in the election of directors.
REMOVAL OF DIRECTORS
Frontier. Frontier's Amended and Restated Articles of Incorporation
provide that any director or the entire Board of Directors may be removed by the
shareholders only for cause and only by a vote of the holders of at least
two-thirds of the shares then entitled to vote at such meeting. The requirement
that directors may be removed only for cause and only upon an two-thirds vote
makes it difficult for a person or entity immediately to acquire control of the
Frontier Board through the removal of existing directors and the election of
such person's or entity's nominees to fill the newly created vacancies.
Interbancorp. Interbancorp's bylaws provide that at any special meeting
called for the purpose of removing or electing directors, the entire Board of
Directors, or a class of the Board, where the Board is classified with respect
to the power to elect directors, or any individual director may be removed from
office without assigning any cause, by a vote of the holders of a majority of
the shares then entitled to vote at an election of directors or of such class of
directors. In case the Board or such class of the board or any one or more
directors is so removed, new directors may be elected at the same meeting. If
the shareholders fail to elect persons to fill the unexpired term or terms of
the director or directors removed, such unexpired terms shall be considered
vacancies on the Board to be filled by the remaining directors.
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<PAGE> 46
VACANCIES ON THE BOARD OF DIRECTORS
Frontier. The Amended and Restated Articles of Incorporation of Frontier
provide that any vacancy on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors, and any director so
appointed is to hold office for a term expiring at the annual meeting of
shareholders at which the term of the class to which the director has been
chosen expires.
Interbancorp. Interbancorp's Articles of Incorporation provide that
vacancies in the Board of Directors, however caused, and newly created
directorships shall be filled by a vote of two-thirds (2/3) of the directors
then in office, whether or not a quorum, and any director so chosen shall hold
office for a term expiring at the annual meeting of shareholders at which the
term of the class to which the director has been chosen expires and when the
director's successor is elected and qualified.
SPECIAL MEETINGS OF SHAREHOLDERS AND ACTION WITHOUT A MEETING
Frontier. The Bylaws of Frontier provide that special meetings of
shareholders may be called by the President, the Board of Directors or at the
request of shareholders holding 10% of all the outstanding shares of Frontier.
This restriction on the calling of special shareholders' meetings may deter
hostile takeovers of Frontier by making it more difficult for a person or entity
to obtain immediate control of Frontier between one annual meeting and the next.
Interbancorp. The Bylaws of Interbancorp provide that special meetings of
shareholders may be called by the President, the Board of Directors or
shareholders holding one-third (1/3) of the shares entitled to vote at the
meeting.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND LIMITATION OF LIABILITY
Frontier. Pursuant to Frontier's Bylaws, Frontier will, to the fullest
extent permitted by the WBCA, indemnify the directors and officers of Frontier
for expenses, judgments, fines and amounts paid in settlement incurred by such
person in connection with any action, suit or proceeding by reason of the fact
that such person is or was a director or officer of Frontier. The Board of
Directors of Frontier may approve indemnification of any other person which
Frontier has the power to indemnify under the WBCA. Frontier's Articles of
Incorporation provide that the directors of Frontier shall not be personally
liable for monetary damages to Frontier for conduct as directors, except for
liabilities that involve intentional misconduct by the director, a knowing
violation of law by the director, conduct violating provisions of the WBCA
relating to unlawful distributions by Frontier, or any transaction from which
the director will personally receive a benefit in money, property or services to
which the director is not legally entitled. This provision might, in certain
instances, discourage or deter shareholders or management from bringing a
lawsuit against directors for a breach of their duties even though such an
action, if successful, might have benefited Frontier.
Interbancorp. Interbancorp's Articles of Incorporation provide that
Interbancorp shall provide indemnification to any person made a party to any
proceeding, including a proceeding by or in the right of Interbancorp, by reason
of the fact that such person was or is a director, officer, trustee, employee or
agent of Interbancorp, or any subsidiary, partnership, joint venture trust,
employee benefit plan or other enterprise of or on the behalf of Interbancorp,
against judgments, penalties, fines, settlements and reasonable expense,
including atrtorney's fees, actually incurred by such person in connection with
such proceeding, provided such person conducted himself or herself in good
faith, and (a) in the case of conduct in his or her official capacity with
Interbancorp, he or she reasonably believed his or her conduct to be in the best
interest of Interbancorp, or (b) in all other cases, he or she reasonably
believed his or her conduct to be at least not opposed to the best interests of
Interbancorp; provided, however, that no
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indemnification shall be made in respect to any proceeding in which such person
shall have been adjudged to be liable to Interbancorp. Interbancorp's Articles
of Incorporation contain a provision eliminating directors' liability for
monetary damages that is substantially the same as the provision in Frontier's
Articles of Incorporation. In any event, indemnification allowed hereunder shall
be to the extent as allowed by the provisions of Chapter 23B.08 of the Revised
Code of Washington as now established or hereafter amended.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
Frontier. Frontier's Amended and Restated Articles of Incorporation may be
amended by the vote of the holders of a majority of the outstanding shares of
Frontier Common Stock. Frontier's Bylaws may be amended by a majority vote of
the Board of Directors or by the holders of a majority of the outstanding shares
of Frontier.
Interbancorp. Interbancorp's Articles of Incorporation are silent on the
requirements for amending the Articles of Incorporation and are therefore
governed by RCW 23B.10.020 and RCW 23B.10.030, which require an amendment to the
Articles of Incorporation be approved by holders of two-thirds (2/3) of the
outstanding shares of Interbancorp common stock. Interbancorp's Bylaws may be
amended or replaced, or new Bylaws may be adopted, either (a) by an affirmative
vote of the shareholders entitled to cast at least a majority of the votes which
all shareholders are entitled to cast thereon at any duly organized annual or
special meeting of shareholders, or (b) with respect to those matters which are
not by statute reserved exclusively to the shareholders, by an affirmative vote
of a two-thirds (2/3) of the Board of Directors in office at any regular or
special meeting of directors.
POTENTIAL ANTI-TAKEOVER PROVISIONS
Frontier. Frontier's Amended and Restated Articles of Incorporation
contain provisions that may have the effect of discouraging persons from
acquiring large blocks of Frontier Common Stock or delaying or preventing a
change of control in Frontier. One provision is the classification of the
Frontier Board into three classes with the term on only one class expiring each
year. (see, "Classified Board of Directors.") Another provision in Frontier's
Articles of Incorporation authorizes Frontier's Board to issue up to 10,000,000
shares of Frontier Preferred Stock in one or more series and to fix the powers
and rights thereto, including dividend rights, conversion rights, redemption
terms, liquidation rights and voting rights without any further vote of
Frontier's shareholders. See, "DESCRIPTION OF FRONTIER CAPITAL STOCK--Preferred
Stock."
The WBCA imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Subject to certain exceptions,
pursuant to the Fair Price Provision, a merger, share exchange, sale of assets
other than in the regular course of business, or dissolution of a corporation
involving an Interested Shareholder owning beneficially 20% or more of the
corporation's voting securities must be approved by the holders of two-thirds of
the corporation's outstanding voting securities, other than those shares held by
an Interested Shareholder. This restriction does not apply if a majority of the
Board of Directors, excluding Interest Directors, determine that the fair market
value of the consideration received as a result of the transaction by
shareholders who are not Interested Shareholders is not less than the highest
consideration paid by the Interested Shareholder for the corporation's shares
during the preceding two years or if the transaction is approved by a majority
of directors who are not affiliated with the Interested Shareholder.
The WBCA also prohibits a "target corporation," with certain exceptions,
from engaging in certain "significant business transactions" with a person or
group of persons who beneficially owns 10% or more of the voting securities of a
target corporation (an "Acquiring Person") for a period of five years
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<PAGE> 48
after the acquisition of such securities, unless the transaction or acquisition
of shares is approved by a majority of the members of the target corporation's
Board of Directors prior to the date of the acquisition. The significant
business transactions include, among others, a merger or consolidation with,
disposition of assets to or with, or issuance or redemption of stock to or from,
the Acquiring Person, termination of 5% or more of the employees of the target
corporation employed in the State of Washington as a result of the Acquiring
Person's acquisition of 10% or more of the shares or allowing the Acquiring
Person to receive any disproportionate benefit as a shareholder. Target
corporations include domestic corporations with either their principal executive
offices in Washington or a majority of their employees resident in Washington.
Frontier currently meets these standards and is subject to these limitations.
Interbancorp. Interbancorp's Articles of Incorporation contain provisions
that may have the effect of discouraging persons from acquiring large blocks of
Interbancorp Common Stock or delaying or preventing a change of control in
Interbancorp. The affirmative vote of not less than seventy-five (75%) of the
total shares which are entitled to be voted in an election of the directors is
required for the approval of any business combination (i.e. merger,
consolidation, sale of substantially all assets, etc.). However, the requirement
of at least a (75%) vote is not required if either: (a) the business combination
is approved by a vote of at least 75% of the Board of Directors; or (b) both of
the following conditions occur: (i) the consideration received per share in the
business combination by holders of the common stock of the corporation is not
less than the highest price per share paid by such offeror in acquiring any of
its holdings of the corporation's common stock; and (ii) a proxy statement
responsive to the requirements of the Securities Exchange Act of 1934 is mailed
to the stockholders of the corporation for the purpose of soliciting stockholder
acceptance of such business combination.
LEGAL OPINIONS
The validity of the Frontier Common Stock to be issued in the Merger is
being passed upon for Frontier by Keller Rohrback L.L.P., Seattle, Washington.
Keller Rohrback L.L.P. will deliver an opinion concerning certain federal income
tax consequences of the Merger.
EXPERTS
The consolidated financial statements incorporated in this
Prospectus/Proxy Statement by reference from Frontier's Annual Report on Form
10-K for the year ended December 31, 1999 have been audited by Moss Adams, LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
OTHER MATTERS
The Interbancorp Board is not aware of any business to come before the
Interbancorp Special Meeting other than those matters described above in this
Prospectus/Proxy Statement. However, if any other matters should properly come
before the Interbancorp Special Meeting, it is intended that proxies in the
accompanying form will be voted in respect thereof in accordance with the
judgment of the person or persons voting the proxies.
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WHERE YOU CAN FIND MORE INFORMATION
Frontier files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC" or the
"Commission"). You may read and copy such reports, statements and information at
the SEC's public reference room in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. In addition, materials filed by
Frontier are available for inspection at the offices of The Nasdaq Stock Market,
1735 K Street, N.W., Washington, D.C. 20006. Reports, proxy statements and other
information filed by Frontier are also available on the Internet at the
Commission's World Wide Web site at "http://www.sec.gov."
Frontier has filed a Registration Statement on Form S-4 to register with
the SEC the shares of Frontier to be issued to Interbancorp shareholders. This
Prospectus/Proxy Statement is part of the Registration Statement and constitutes
a prospectus of Frontier and a proxy statement for Interbancorp for the Special
Meeting. As allowed by the SEC, this Prospectus/Proxy Statement does not contain
all the information that shareholders can find in the Registration Statement or
the exhibits to the Registration Statement.
The SEC allows Frontier to "incorporate by reference" information into
this Prospectus/Proxy Statement, which means that Frontier can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be a part of this Prospectus/Proxy Statement, except for any information
superseded by information contained directly in the Prospectus/Proxy Statement.
This Prospectus incorporates by reference the following documents that Frontier
has filed with the SEC:
1. Frontier's Annual Report on Form 10-K for the year ended December 31,
1999;
2. Frontier's Proxy Statement, dated March 24, 2000 for its Annual Meeting
of Shareholders held on April 20, 2000 that has been incorporated by reference
in the 1999 Frontier Form 10-K;
3. Frontier's Quarterly Report on Form 10-Q for the quarters ended March
31, 2000, June 30, 2000 and September 30, 2000; and
4. Frontier's Current Reports on Form 8-K filed on March 17, 2000; July
27, 2000, September 13, 2000 and October 27, 2000.
Frontier incorporates by reference additional documents that it may file
with the SEC between the date of this Prospectus/Proxy Statement and the date of
the Special Meeting. These include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES BY REFERENCE IMPORTANT
BUSINESS AND FINANCIAL INFORMATION THAT IS NOT INCLUDED WITH THESE DOCUMENTS.
THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO SHAREHOLDERS UPON WRITTEN OR
ORAL REQUEST TO: CAROL FOX, ADMINISTRATIVE SECRETARY, FRONTIER FINANCIAL
CORPORATION, 332 SW EVERETT MALL WAY, EVERETT, WASHINGTON 98204 (TELEPHONE
NUMBER (425) 514-0700). TO OBTAIN TIMELY DELIVERY, SHAREHOLDERS MUST REQUEST
THIS INFORMATION NO LATER THAN FIVE BUSINESS DAYS BEFORE THE DATE THEY MUST MAKE
THEIR INVESTMENT DECISION. THE DATE BY WHICH SHAREHOLDERS MUST REQUEST THIS
INFORMATION IS ___________, 2000.
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<PAGE> 50
Frontier has supplied all information contained or incorporated by
reference in this Prospectus/Proxy Statement relating to Frontier and Frontier
Bank. Interbancorp has supplied all information contained or incorporated by
reference in this Prospectus/Proxy Statement relating to Interbancorp and Inter
Bank.
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<PAGE> 51
<TABLE>
<CAPTION>
GLOSSARY OF KEY TERMS
<S> <C>
Code......................................... Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
Commission................................... The Securities and Exchange Commission.
DFI.......................................... Department of Financial Institutions of the
State of Washington.
Effective Date............................... The time the closing of the Merger will be
effective pursuant to the Merger Agreement.
Exchange Ratio............................... The number of shares of Frontier Common Stock
that the shareholders of Interbancorp, other
than the Dissenting Shareholders, will
receive for each share of Interbancorp Common
Stock upon consummation of the Merger.
FDIC......................................... Federal Deposit Insurance Corporation.
Federal Reserve.............................. The Board of Governors of the Federal Reserve
System.
Frontier Board............................... Board of Directors of Frontier.
Frontier Common Stock........................ Frontier's common stock, no par value.
Frontier..................................... Frontier Financial Corporation, a Washington
Bank Holding Company.
Interested Shareholder....................... Shareholders with conflicting interests who
may not be counted in certain shareholder
votes as described in the WBCA 8.730(2).
Merger Agreement............................. The Agreement and Plan of Mergers, dated as
of October 23, 2000, between Frontier,
Interbancorp, Frontier Bank, and Inter Bank.
Merger....................................... The merger of Interbancorp with and into
Frontier and the subsequent merger of Inter
Bank with and into Frontier Bank in
accordance with the Merger Agreement.
Nasdaq....................................... The Nasdaq national market.
Prospectus/Proxy Statement................... The statement which is to be mailed to
Interbancorp and Inter Bank's shareholders,
together with any amendments and supplements.
RCW.......................................... Revised Code of Washington.
Record Date.................................. ____________, 2000.
SEC.......................................... The Securities and Exchange Commission.
Securities Act............................... The Securities Act of 1933, as amended.
</TABLE>
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<TABLE>
<S> <C>
Special Meeting.............................. The special meetings of shareholders of
Interbancorp to be held at the time and at
the place specified in the Notice of
Special Meeting of Shareholders attached
to the Prospectus/Proxy Statement.
Interbancorp................................. Interbancorp, a Washington Bank Holding
Company.
Interbancorp Board........................... Board of Directors of Interbancorp.
Interbancorp Common Stock.................... Interbancorp's common stock, par value of
$1.00 per share.
WBCA......................................... The Washington Business Corporations Act.
</TABLE>
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APPENDIX A
==============================================
AGREEMENT AND PLAN OF MERGERS
BETWEEN
FRONTIER FINANCIAL CORPORATION
AND
FRONTIER BANK
AND
INTERBANCORP, INC.
AND
INTER BANK
==============================================
DATED AS OF OCTOBER 23, 2000
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
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RECITALS.................................................................... 1
DEFINITIONS................................................................. 2
I. MERGERS............................................................. 7
1.1 THE CORPORATE MERGER......................................... 7
1.2 THE BANK MERGER.............................................. 8
1.3 DISSENTING SHARES............................................ 9
1.4 EFFECTIVE DATE............................................... 9
II. CONSIDERATION....................................................... 9
2.1 EXCHANGE CONSIDERATION....................................... 9
2.2 FRACTIONAL SHARES............................................ 9
2.3 SHAREHOLDER RIGHTS; STOCK TRANSFERS.......................... 10
2.4 EXCHANGE PROCEDURES.......................................... 10
2.5 EXCHANGE RATIO/FRONTIER AVERAGE CLOSING PRICE ADJUSTMENTS.... 10
2.6 EXCEPTION SHARES............................................. 10
2.7 RESERVATION OF RIGHT TO REVISE TRANSACTION................... 10
2.8 OPTIONS...................................................... 11
III. ACTIONS PENDING CONSUMMATION........................................ 11
3.1 CAPITAL STOCK................................................ 11
3.2 DIVIDENDS, ETC............................................... 11
3.3 INDEBTEDNESS; LIABILITIES; ETC............................... 12
3.4 LINE OF BUSINESS; OPERATING PROCEDURES; ETC.................. 12
3.5 LIENS AND ENCUMBRANCES....................................... 12
3.6 COMPENSATION; EMPLOYMENT AGREEMENTS; ETC..................... 12
3.7 BENEFIT PLANS................................................ 12
3.8 CONTINUANCE OF BUSINESS...................................... 12
3.9 AMENDMENTS................................................... 12
3.10 CLAIMS....................................................... 12
3.11 CONTRACTS.................................................... 12
3.12 LOANS........................................................ 13
IV. REPRESENTATIONS AND WARRANTIES...................................... 13
4.1 INTERBANCORP AND INTER BANK REPRESENTATIONS AND WARRANTIES... 13
4.2 FRONTIER AND FRONTIER BANK REPRESENTATIONS AND WARRANTIES.... 22
V. COVENANTS........................................................... 25
5.1 BEST EFFORTS................................................. 25
5.2 THE PROXY.................................................... 25
5.3 REGISTRATION STATEMENT COMPLIANCE WITH SECURITIES LAWS....... 25
5.4 REGISTRATION STATEMENT EFFECTIVENESS......................... 26
5.5 PRESS RELEASES............................................... 26
5.6 ACCESS; INFORMATION.......................................... 26
</TABLE>
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<TABLE>
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5.7 STANDSTILL................................................... 26
5.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION.................................................. 27
5.9 BLUE-SKY FILINGS............................................. 27
5.10 AFFILIATE AGREEMENTS......................................... 27
5.11 CERTAIN POLICIES OF INTERBANCORP AND INTER BANK.............. 27
5.12 STATE TAKEOVER LAW........................................... 27
5.13 NO RIGHTS TRIGGERED.......................................... 28
5.14 SHARES LISTED................................................ 28
5.15 REGULATORY APPLICATIONS...................................... 28
5.16 REGULATORY DIVESTITURES...................................... 28
5.17 CURRENT INFORMATION.......................................... 28
5.18 INSURANCE.................................................... 28
5.19 POST-MERGER ACTIONS.......................................... 29
VI. CONDITIONS TO CONSUMMATION OF THE MERGERS........................... 29
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS....................... 29
6.2 CONDITIONS TO OBLIGATIONS OF FRONTIER........................ 30
6.3 CONDITIONS TO OBLIGATIONS OF INTERBANCORP AND INTER BANK..... 32
6.4 CONSEQUENCES OF FAILING TO CLOSE............................. 33
VII. TERMINATION......................................................... 33
7.1 CONSEQUENCES OF TERMINATION.................................. 33
7.2 TERMINATION WITHOUT FEE...................................... 33
7.3 TERMINATION FEE.............................................. 34
VIII. OTHER MATTERS....................................................... 35
8.1 SURVIVAL..................................................... 35
8.2 WAIVER; AMENDMENT............................................ 35
8.3 COUNTERPARTS................................................. 35
8.4 GOVERNING LAW................................................ 35
8.5 EXPENSES..................................................... 36
8.6 CONFIDENTIALITY.............................................. 36
8.7 NOTICES...................................................... 36
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES........... 36
8.9 ENFORCEMENT PROCEEDINGS...................................... 36
8.10 BENEFIT PLANS................................................ 36
8.11 HEADINGS..................................................... 37
</TABLE>
LIST OF EXHIBITS
LIST OF SCHEDULES
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AGREEMENT AND PLAN OF MERGERS
AGREEMENT AND PLAN OF MERGERS, dated as of the 23rd of October, 2000 (this
"Plan"), is by and among INTERBANCORP, INC. ("Interbancorp"), INTER BANK,
FRONTIER FINANCIAL CORPORATION ("Frontier") and FRONTIER BANK.
RECITALS
(A) INTERBANCORP. Interbancorp is a corporation duly organized and
existing in good standing under the laws of the State of Washington, with its
principal executive offices located in Duvall, Washington. Interbancorp is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended. As of the date of this Plan, Interbancorp has 10,000,000 authorized
shares of common stock, $1.00 par value ("Interbancorp Common Stock"), of which
844,041 shares of Interbancorp Common Stock are issued and outstanding, no other
class of capital stock being authorized. As of September 30, 2000, Interbancorp
had capital of $5,564,787, divided into common stock of $844,041, surplus of
$2,377,043, and retained earnings of $2,343,343. As of the date of this Plan,
Interbancorp has 112,715 shares of Interbancorp Common Stock reserved for
issuance under an Employee Stock Option Plan pursuant to which options covering
101,840 shares of Interbancorp Common Stock are outstanding. As of the date of
this Plan, Interbancorp has 66,600 shares of Interbancorp Common Stock reserved
for issuance under a Director Stock Option pursuant to which options covering
39,000 shares of Interbancorp Common Stock are outstanding.
(B) INTER BANK. Inter Bank is a banking corporation duly organized and
existing in good standing under the laws of the State of Washington. Inter Bank
conducts business under the trade names of Valley Community Bank and Kirkland
Bank of Commerce. As of the date of this Plan, Inter Bank has 10,000,000
authorized shares of common stock, $1.00 par value per share ("Inter Bank Common
Stock") (no other class of capital stock being authorized), of which 832,603
shares of Inter Bank Common Stock are issued and outstanding. All of the issued
and outstanding shares of Inter Bank Common Stock are owned by Interbancorp, the
sole shareholder of Inter Bank.
(C) FRONTIER. Frontier is a corporation duly organized and existing in
good standing 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. As of
September 30, 2000, Frontier had capital of $185.6-million, divided into common
stock of $93.6-million, comprehensive income/surplus of $4.2-million, and
retained earnings of $87.8-million. As of the date of this Plan, Frontier has
100,000,000 authorized shares of common stock, no par value per share ("Frontier
Common Stock"), of which 19,725,457 shares of Frontier Common Stock are issued
and outstanding, and has 10,000,000 authorized shares of preferred stock, no par
value per share ("Frontier Preferred Stock"), of which no shares are issued and
outstanding.
(D) FRONTIER BANK. Frontier Bank is a banking corporation duly organized
and existing in good standing under the laws of the State of Washington. As of
the date of this Plan, Frontier Bank has 83,029 authorized shares of common
stock, $37.50 par value per share ("Frontier Bank Common Stock") (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.
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<PAGE> 57
(E) VOTING AGREEMENT. As a condition and an inducement to Frontier's and
Frontier Bank's willingness to enter into this Plan, the directors and officers
of Inter Bank and Interbancorp have entered into agreements in the forms
attached to this Plan as Exhibit A and Exhibit B, pursuant to which, among other
things, each such individual has agreed to vote his or her shares of
Interbancorp Common Stock in favor of approval of the actions contemplated by
this Plan at the Meeting (as defined below) and to refrain from competing with
Frontier and Frontier Bank.
(F) RIGHTS, ETC. Except as Previously Disclosed (as defined below) in
Schedule 4. l(C), or paragraph (A) of the Recitals to this Plan, or as
authorized by this Plan, there are no shares of capital stock of Interbancorp or
Inter Bank authorized and reserved for issuance; neither Interbancorp nor Inter
Bank has any Rights (as defined below) issued or outstanding; and neither
Interbancorp nor Inter Bank has any 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, calls or commitments relating to,
shares of capital stock. There are no preemptive rights with respect to
Interbancorp Common Stock.
(G) APPROVALS. At meetings of the respective Boards of Directors of
Interbancorp, Inter Bank, Frontier and Frontier Bank, each such Board has
approved and authorized the execution of this Plan in counterparts.
In consideration of their mutual promises and obligations, the Parties
further agree as follows:
DEFINITIONS
(A) DEFINITIONS. Capitalized terms used in this Plan have the following
meanings:
"Appraisal Laws" has the meaning assigned to such term in Section 1.2(D).
"Asset Classification" has the meaning assigned to such term in Section
4.1(T).
"Bank Financial Reports" has the meaning assigned to such term in Section
4.1(H).
"Bank Merger" has the meaning assigned to such term in Section 1.2.
"Business Day" means any day other than a Saturday, Sunday, or legal
holiday in the State of Washington.
"Capital" means capital stock, surplus and retained earnings determined in
accordance with GAAP. Unrealized gains or losses in investment securities will
be included when determining Capital.
"Code" has the meaning assigned to such term in Section 4.1(Q)(2).
"Compensation and Benefit Plans" has the meaning assigned to such term in
Section 4.1(Q)(1).
"Continuing Corporation" has the meaning assigned to such term in Section
1.1(A).
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"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.
"Corporate Merger" has the meaning assigned to such term in Section 1.1.
"Daily Sales Price" for any Trading Day shall be equal to the average
(rounded to three decimals) of the daily closing price per share of Frontier
Common Stock on the NASDAQ Stock Market reporting system, as reported on the
website of www.nasdaq.com.
"Department" means the Department of Financial Institutions of the State
of Washington.
"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 Holding Company
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 Interbancorp Common Stock held by
those shareholders of Interbancorp who have timely and properly exercised their
dissenters' rights in accordance with the Appraisal Laws.
"Effective Date" has the meaning assigned to such term in Section 1.4.
"Eligible Interbancorp Common Stock" means shares of Interbancorp Common
Stock other than Exception Shares and Dissenting Shares.
"Employment Agreement(s)" shall mean Exhibit C.
"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, and the Federal Insecticide, Fungicide and Rodenticide
Act, 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 4.1(Q)(2).
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<PAGE> 59
"ERISA Affiliate" has the meaning assigned to such term in Section
4.1(Q)(3).
"ERISA Plans" has the meaning assigned to such term in Section 4.1(Q)(2).
"Exception Shares" means shares held by any of Interbancorp's Subsidiaries
or by Frontier or any of its Subsidiaries, in each case other than in a
fiduciary capacity or as a result of debts previously contracted.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated under such statute.
"Exchange Ratio" has the meaning assigned to such term in Section 2.1(B).
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Reports" has the meaning assigned to such term in Section
4.1(H).
"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 three decimals) of each Daily Sales Price of Frontier Common Stock
for the Trading Days beginning on the twentieth Trading Day immediately
preceding the Effective Date through and including the tenth Trading Day
immediately preceding the Effective Date.
"Frontier Bank Common Stock" has the meaning assigned to such term in
paragraph (D) of the Recitals.
"Frontier Common Stock" has the meaning assigned to such term in paragraph
(C) of the Recitals.
"Frontier Financial Reports" has the meaning assigned to such term in
Section 4.2(G).
"Frontier Transaction" means: (1) a merger, consolidation or similar
transaction involving Frontier, where Frontier is not the corporation surviving
such transaction or where a change of control of Frontier is otherwise effected,
(2) the disposition, by sale, lease, exchange or otherwise, of assets or
deposits of Frontier or any of its significant subsidiaries representing in
either case 25 percent or more of the consolidated assets or deposits of
Frontier and its Subsidiaries, or (3) the issuance, sale or other disposition
(including by way of merger, consolidation, share exchange or any similar
transaction) of securities representing 25 percent or more of the voting power
of Frontier or any of its significant subsidiaries other than the issuance of
Frontier Common Stock upon the exercise of outstanding options or the conversion
of outstanding convertible securities of Frontier.
"GAAP" means generally accepted accounting principles consistently
applied.
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"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. "Holding Company Financial
Reports" has the meaning assigned to such term in Section 4.1(H).
"Inter Bank Common Stock" has the meaning assigned to such term in
paragraph (B) of the Recitals.
"Interbancorp" means Interbancorp, Inc., a Washington corporation and
registered bank holding company.
"Interbancorp Common Stock" has the meaning assigned to such term in
paragraph (A) of the Recitals.
"Interbancorp Option" has the meaning assigned to such term in Section
2.8.
"Loan/Fiduciary Property" means any property owned or controlled by
Interbancorp or any of its Subsidiaries or in which Interbancorp or any of its
Subsidiaries holds a security or other interest, and, where required by the
context, includes any such property where Interbancorp 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, 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
Plan 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
Plan or the consummation of any of the transactions contemplated by this Plan.
"Meeting" has the meaning assigned to such term in Section 5.2.
"Mergers" means the merger of Interbancorp with and into Frontier, and
Inter Bank with and into Frontier Bank.
"Multiemployer Plans" has the meaning assigned to such term in Section
4.1(Q)(2).
"NASDAQ" means the National Association of Securities Dealers Automated
Quotations system.
"Participation Facility" means any facility in which Interbancorp or any
of its Subsidiaries participates in the management and, where required by the
context, includes the owner or operator of such facility.
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"Party" means a party to this Plan.
"Pension Plan" has the meaning assigned to such term in Section 4.1(Q)(2).
"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.
"Plan" means this Agreement and Plan of Mergers, together with all
Exhibits and Schedules annexed to, and incorporated by specific reference, as a
part of this Plan.
"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 of this Plan.
"Proxy Statement" has the meaning assigned to such term in Section 5.2.
"Registration Statement" has the meaning assigned to such term in Section
5.2.
"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.
"RCW" means the Revised Code of Washington, as amended.
"Rights" has the meaning assigned to such term in paragraph (F) of the
Recitals to this Plan.
"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.
"Tax Returns" has the meaning assigned to such term in Section 4.1(AA).
"Taxes" means federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, production, 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 Date" has the meaning assigned to such term in Section 1.4.
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"Third Party" means a person within the meaning of Sections 3(a)(9) and
13(d)(3) of the Exchange Act, excluding: (1) Interbancorp or any Subsidiary of
Interbancorp, and (2) Frontier or any Subsidiary of Frontier.
"Trading Day" means a day that Frontier Common Stock is exchanged on
NASDAQ.
(B) GENERAL INTERPRETATION. Except as otherwise expressly provided in
this Plan or unless the context clearly requires otherwise, the terms defined in
this Plan include the plural as well as the singular; the words "hereof,"
"herein," "hereunder," "in this Plan" and other words of similar import refer to
this Plan as a whole and not to any particular Article, Section or other
subdivision; and references in this Plan to Articles, Sections, Schedules, and
Exhibits refer to Articles and Sections of and Schedules and Exhibits to this
Plan. Unless otherwise stated, references to Subsections refer to the
Subsections of the Section in which the reference appears. All pronouns used in
this Plan include the masculine, feminine and neuter gender, as the context
requires. All accounting terms used in this Plan that are not expressly defined
in this Plan have the respective meanings given to them in accordance with GAAP.
ARTICLE I. MERGERS
1.1 THE CORPORATE MERGER. Subject to the provisions of this Plan, on the
Effective Date:
(A) CONTINUING CORPORATION. Interbancorp shall be merged with and
into Frontier pursuant to the terms and conditions set forth herein. Upon
consummation of the Corporate Merger, the separate existence of Interbancorp
shall cease and Frontier shall continue as the Continuing Corporation.
(B) ARTICLES, BYLAWS, DIRECTORS, OFFICERS. The Articles of
Incorporation and Bylaws of the Continuing Corporation shall be those of
Frontier, as in effect immediately prior to the Corporate Merger becoming
effective. The directors and officers of Frontier in office immediately prior to
the Corporate Merger becoming effective shall be the directors and officers of
the Continuing Corporation, 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 Continuing Corporation 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 Continuing
Corporation 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 Corporate Merger.
(D) EFFECTS OF THE CORPORATE MERGER. The separate existence of
Interbancorp shall cease, and Interbancorp shall be merged with and into
Frontier which, as the Continuing Corporation, 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
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public or a private nature, and shall be subject to all of the liabilities,
restrictions, disabilities and duties of both Frontier and Interbancorp.
(E) TRANSFER OF ASSETS. All rights, assets, licenses, permits,
franchises and interests of Frontier and Interbancorp in and to every type of
property, whether real, personal, or mixed, whether tangible or intangible,
shall be deemed to be vested in Frontier as the Continuing Corporation by virtue
of the Corporate Merger becoming effective and without any deed or other
instrument or act of transfer whatsoever.
(F) ASSUMPTION OF LIABILITIES. The Continuing Corporation shall
become and be liable for all debts, liabilities, obligations and contracts of
Frontier as well as those of Interbancorp, whether the same shall be matured or
un-matured; 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 or Interbancorp.
1.2 THE BANK MERGER. As soon as practicable following the Effective Date:
(A) CONTINUING BANK. Inter Bank shall be merged with and into
Frontier Bank pursuant to the terms and conditions set forth herein. Upon
consummation of the Bank Merger, the separate existence of Inter Bank shall
cease and Frontier Bank shall continue as the Continuing Bank.
(B) ARTICLES, BYLAWS, DIRECTORS, OFFICERS. The Articles of
Incorporation and Bylaws of the Continuing Bank shall be those of Frontier Bank,
as in effect immediately prior to the Bank Merger becoming effective. The
directors and officers of Frontier Bank in office immediately prior to the Bank
Merger becoming effective shall be the directors and officers of the Continuing
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 Continuing 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 institutions 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
institutions so merged, shall be deemed to be vested in the Continuing 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 Bank Merger.
(D) EFFECTS OF THE BANK MERGER. The separate existence of Inter Bank
shall cease, and Inter Bank shall be merged with and into Frontier Bank which,
as the Continuing Bank, shall thereupon and thereafter possess all of the
assets, rights, privileges, appointments, powers, licenses, permits and
franchises of the two merged banks, 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 Inter Bank.
(E) TRANSFER OF ASSETS. All rights, assets, licenses, permits,
franchises and interests of Frontier Bank and Inter Bank 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 Continuing Bank by virtue
of the Bank Merger becoming effective and without any deed or other instrument
or act of transfer whatsoever.
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(F) ASSUMPTION OF LIABILITIES. The Continuing Bank shall become and be
liable for all debts, liabilities, obligations and contracts of Frontier Bank as
well as those of Inter Bank, whether the same shall be matured or un-matured;
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 Inter Bank.
1.3 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Plan, each Dissenting Share whose holder, as of the Effective Date of the
Corporate Merger, has not effectively withdrawn or lost his dissenters' rights
under RCW 23B.13 (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 Interbancorp 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).
1.4 EFFECTIVE DATE. Unless the Parties agree upon another date, the
"Effective Date" will be the tenth Business Day after the fulfillment or waiver
of each condition precedent set forth in, and the granting of each approval (and
expiration of any waiting period) required by, ARTICLE VI. If the Corporate
Merger is not consummated in accordance with this Plan on or prior to April 15,
2001 (the "Termination Date"), Interbancorp or Frontier may terminate this Plan
in accordance with ARTICLE VII. On the Effective Date, Articles of Merger will
be filed by the Secretary of State of the State of Washington in accordance with
applicable law.
ARTICLE II. CONSIDERATION
2.1 EXCHANGE CONSIDERATION. Subject to the provisions of this Plan, on the
Effective Date:
(A) OUTSTANDING FRONTIER COMMON STOCK. The shares of Frontier Common
Stock issued and outstanding immediately prior to the Effective Date shall, on
and after the Effective Date, remain as issued and outstanding shares of
Frontier Common Stock.
(B) OUTSTANDING INTERBANCORP COMMON STOCK. Each share of Eligible
Interbancorp Common Stock issued and outstanding immediately prior to 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 the right to
receive three-quarters (0.75) of a share of Frontier Common Stock (the "Exchange
Ratio").
2.2 FRACTIONAL SHARES. Notwithstanding any other provision of this Plan,
no fractional shares of Frontier Common Stock and no certificates, scrip or
other evidence of ownership of fractional shares will be issued in the Merger.
Frontier shall pay to each holder of Interbancorp Common Stock who would
otherwise be entitled to a fractional share an amount in cash determined by
multiplying such fraction by the Frontier Average Closing Price.
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2.3 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, holders of
Interbancorp Common Stock shall cease to be, and shall have no rights as,
shareholders of Interbancorp, other than to receive the consideration provided
under this ARTICLE II. After the Effective Date, there shall be no transfers on
the stock transfer books of Interbancorp or the Continuing Corporation of the
shares of Interbancorp Common Stock that were issued and outstanding immediately
prior to the Effective Date.
2.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, Frontier shall send or cause to be sent to each former shareholder of
Interbancorp of record immediately prior to the Effective Date transmittal
materials for use in exchanging such shareholder's certificates for Interbancorp
Common Stock for the consideration set forth in this ARTICLE II. The
certificates representing the shares of Frontier Common Stock into which shares
of such shareholder's Interbancorp Common Stock are converted on the Effective
Date, any fractional share checks that such shareholder shall be entitled to
receive, and any dividends paid on such shares of Frontier Common Stock for
which the record date for determination of shareholders entitled to such
dividends is on or after the Effective Date, will be delivered to such
shareholder only upon delivery to Frontier of the certificates representing all
of such shares of Interbancorp Common Stock (or indemnity satisfactory to
Frontier, in its judgment, if any of such certificates are lost, stolen or
destroyed). No interest will be paid on any such fractional share checks or
dividends to which the holder of such shares shall be entitled to receive upon
such delivery. Certificates surrendered for exchange by any person constituting
an "affiliate" of Interbancorp 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 5.10.
2.5 EXCHANGE RATIO/FRONTIER AVERAGE CLOSING PRICE ADJUSTMENTS. In the
event Frontier changes the number of shares of Frontier Common Stock issued and
outstanding prior to the Effective Date as a result of a stock split, stock
dividend, recapitalization or similar transaction with respect to the
outstanding Frontier Common Stock and the record date therefor shall be prior to
the Effective Date, the Exchange Ratio and the Frontier Average Closing Price
shall be adjusted proportionately.
2.6 EXCEPTION SHARES. Each of the Exception Shares of Interbancorp Common
Stock shall be canceled and retired upon consummation of the Corporate Merger,
and no consideration shall be issued in exchange therefor.
2.7 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion,
and notwithstanding any other provision in this Plan to the contrary, Frontier
may at any time change the method of effecting its acquisition of Interbancorp
and Inter Bank; provided, however, that (A) no such change shall alter or change
the amount or kind of consideration to be issued to holders of Interbancorp
Common Stock as provided for in this Plan, (B) no such change shall adversely
affect the tax treatment to Interbancorp shareholders as a result of receiving
such consideration, and (C) no delay caused by such a change shall be the basis
upon which Frontier terminates this Plan pursuant to Section 7.2(B). If Frontier
elects to change the method of acquisition, Interbancorp and Inter Bank will
cooperate with and assist Frontier and Frontier Bank with any necessary
amendment to this Plan, and with the preparation and filing of such
applications, documents, instruments and notices as may be necessary or
desirable, in the opinion of counsel for Frontier, to obtain all necessary
shareholder approvals and approvals of any regulatory agency, administrative
body or other governmental entity.
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2.8 OPTIONS. On the Effective Date, by virtue of the Corporate Merger, and
without any action on the part of any holder of an option, each employee and
each director option granted by Interbancorp to purchase shares of Interbancorp
Common Stock ("Interbancorp Option") that is then outstanding and unexercised
shall immediately and automatically be fully vested and converted into and
become an option to purchase Frontier Common Stock ("Frontier Option") on the
same terms and conditions as are in effect with respect to Interbancorp Option
immediately prior to the Effective Date, except that (A) each such Frontier
Option may be exercised solely for shares of Frontier Common Stock, (B) the
number of shares of Frontier Common Stock subject to such Frontier Option shall
be equal to the number of shares of Interbancorp Common Stock subject to such
Interbancorp Option immediately prior to the Effective Date multiplied by the
Exchange Ratio, the product being rounded, if necessary, up or down to the
nearest whole share, and (C) the per share exercise price under each such
Frontier Option shall be adjusted by dividing the per share exercise price of
Interbancorp Option by the Exchange Ratio, and rounding up or down to the
nearest cent. The number of shares of Interbancorp Common Stock that are
issuable upon exercise of Interbancorp Options as of the date of this Plan are
Previously Disclosed in Schedule 2.8. Following the Effective Date, Frontier
shall promptly prepare and file with the SEC a Registration Statement on Form
S-8 covering shares of Frontier Common Stock to be issued upon the exercise of
stock options assumed by Frontier pursuant to this Section 2.8.
ARTICLE III. ACTIONS PENDING CONSUMMATION
Unless otherwise agreed to in writing by Frontier, Interbancorp and Inter
Bank shall each conduct its and each of its Subsidiaries' business in the
ordinary and usual course consistent with past practice and shall use its best
efforts to maintain and preserve its and each of its Subsidiaries' business
organization, employees and advantageous business relationships and retain the
services of its and each of its Subsidiaries' officers and key employees
identified by Frontier Bank, and neither Interbancorp nor Inter Bank, without
the prior written consent of Frontier, will (or cause or allow any of it
Subsidiaries to):
3.1 CAPITAL STOCK. Except for the exercise of outstanding Interbancorp
Options, or as Previously Disclosed in Schedule 4.1(C), issue, sell or otherwise
permit to become outstanding any additional shares of capital stock of
Interbancorp, Inter Bank or any of their Subsidiaries, or any Rights with
respect thereto, or enter into any agreement with respect to the foregoing, or
permit any additional shares of Interbancorp Common Stock to become subject to
grants of employee stock options, stock appreciation rights or similar
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
Plan, authorize the creation or issuance of, or issue, any additional shares of
its capital stock or any Rights with respect thereto.
If, as of the Effective Date, Interbancorp has Capital (less capital
contributions received upon the exercise of Interbancorp Options after August 1,
2000) in excess of $5.3-million, Interbancorp may declare and pay a cash
dividend on the Effective Date in an amount equal to such excess. The foregoing
notwithstanding, Interbancorp shall not pay any cash dividend that would violate
applicable state or federal laws.
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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 LINE OF BUSINESS; OPERATING PROCEDURES; 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, except
such changes as are in accordance and in an effort to comply with Section 5.11,
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 $15,000 individually or $25,000 in the aggregate.
3.5 LIENS AND ENCUMBRANCES. Impose, or suffer the imposition, on any
shares of stock of any of its Subsidiaries, any lien, charge or encumbrance, or
permit any such lien, charge or encumbrance to exist.
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
Interbancorp 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 applicable law) 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 is material to Interbancorp and its
Subsidiaries taken as a whole, or merge or consolidate with, or acquire all or
any portion of, the business or property of any other entity that is material to
Interbancorp and its Subsidiaries taken as a whole (except foreclosures or
acquisitions by Inter Bank in its fiduciary capacity, 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 material money damages or restrictions upon the operations of
Interbancorp or any of its Subsidiaries.
3.11 CONTRACTS. Except as previously disclosed on Schedule 3.11, enter
into, renew, terminate or make any change in any material contract, agreement or
lease (excluding agreements and loans permitted under Section 3.12), 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 60 days prior written notice.
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3.12 LOANS. Extend credit or account for loans and leases other than in
accordance with existing lending policies and accounting practices, except that
Inter Bank shall not, without the prior notice and consultation with Frontier's
Chief Executive Officer or Chief Credit Administrator make any new loan or renew
any existing loan in a principal amount in excess of $500,000.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
4.1 INTERBANCORP AND INTER BANK REPRESENTATIONS AND WARRANTIES.
Interbancorp and Inter Bank each hereby represent and warrant to Frontier and
Frontier Bank as follows:
(A) RECITALS. The facts set forth in the Recitals of this Plan with
respect to Interbancorp and its Subsidiaries are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Each of Interbancorp and
its Subsidiaries is duly qualified to do business and is in good standing in the
States of the United States and foreign jurisdictions where the failure to be
duly qualified, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on it. Each of Interbancorp 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 it. Inter
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.
(C) SHARES. The outstanding shares of Interbancorp and its
Subsidiaries' capital stock are validly issued and outstanding, fully paid and
non-assessable, and subject to no preemptive rights. Except as Previously
Disclosed in Schedule 4.1(C) and paragraph (A) of the Recitals, there are no
shares of capital stock or other equity securities of Interbancorp or its
Subsidiaries outstanding and no outstanding Rights with respect thereto.
(D) INTERBANCORP SUBSIDIARIES. Interbancorp has Previously Disclosed
in Schedule 4.1(D) 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. No equity securities of any of its Subsidiaries are or may become
required to be issued (other than to Interbancorp or one of its Subsidiaries) by
reason of any Rights with respect thereto. There are no contracts, commitments,
understandings or arrangements by which any of its Subsidiaries is or may be
bound to sell or otherwise issue any shares of such Subsidiary's capital stock,
and there are no contracts, commitments, understandings or arrangements relating
to the rights of Interbancorp or its Subsidiaries, as applicable, to vote or to
dispose of such shares. All of the shares of capital stock of each of its
Subsidiaries held by Interbancorp or one of its Subsidiaries are fully paid and
non-assessable and are owned by Interbancorp 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 in good standing under the laws
of the jurisdiction in which it is incorporated or organized, and is duly
qualified to do business and in good standing 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 4.1(D), Interbancorp does not own beneficially, directly
or indirectly,
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any shares of any equity securities or similar interests of any corporation,
bank, partnership, joint venture, business trust, association or other
organization. In the case of representations by Interbancorp, the deposits of
its Subsidiaries that are banks are insured by the Bank Insurance Fund of the
FDIC.
(E) CORPORATE POWER. Each of Interbancorp and its Subsidiaries has
the corporate power and authority to carry on its business as it is now being
conducted and to own all its material properties and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of
approval by its shareholders referred to in Section 6.1, this Plan has been
authorized by all necessary corporate action of Interbancorp and each of its
Subsidiaries that is a Party, and each such agreement is a valid and binding
agreement of Interbancorp and such Subsidiaries, enforceable against
Interbancorp and such Subsidiaries in accordance with its terms, subject to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(G) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 6.1, the required regulatory approvals referred to in
Section 6.1, and the required filings under federal and state securities laws,
and except as Previously Disclosed in Schedule 4.1(G), the execution, delivery
and performance of this Plan and the consummation by Interbancorp and each of
its Subsidiaries that is a Party to the transactions contemplated by this Plan
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 Interbancorp or of any of
its Subsidiaries or to which Interbancorp 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 it, (2) constitute a breach or violation of, or a default under, the
articles of incorporation, charter or bylaws of it 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 it.
(H) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule
4.1(H), (1) as to Interbancorp, its consolidated balance sheet as of December
31, 1999 and the related statements of income, changes in shareholders' equity
and cash flows for the fiscal year ended December 31, 1999 (collectively, the
"Holding Company Financial Reports"), and (2) as to each of Interbancorp's
Subsidiaries that is a bank, its call report for the fiscal year ended December
31, 1999, and all other financial reports filed or to be filed subsequent to
December 31, 1999, in the form filed with the FDIC and the Department (in each
case, the "Bank Financial Reports" and together with the Holding Company
Financial Reports, the "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 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 Bank
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
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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,
subject to normal and recurring year-end audit adjustments in the case of
unaudited statements.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. Except as Previously
Disclosed on Schedule 4.1(I), neither Interbancorp nor any of its Subsidiaries
has any 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 its Holding Company Financial Reports prior to the
date of this Plan, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1999. Except as Previously Disclosed on Schedule 4.1(I), since
December 31, 1999, neither Interbancorp nor any of its Subsidiaries has 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 any Subsidiary) that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it.
(J) NO EVENTS. Except as Previously Disclosed on Schedule 4.1(J),
since December 31, 1999, no event has occurred that, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on it.
(K) PROPERTIES. Except as reserved against in its Holding Company
Financial Reports, and as noted in title insurance policies held by Interbancorp
or Inter Bank, Interbancorp and each of its Subsidiaries have good and
marketable title, free and clear of all liens, encumbrances, charges, defaults,
or equities of any character, to all of the properties and assets, tangible and
intangible, reflected in its Holding Company Financial Reports as being owned by
Interbancorp or its Subsidiaries as of the dates thereof other than those that,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect on it, except those sold or otherwise disposed of in the ordinary
course of business. All buildings and all material fixtures, equipment, and
other property and assets that are held under leases or subleases by
Interbancorp or any of its Subsidiaries 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.
(L) LITIGATION; REGULATORY ACTION. Except as Previously Disclosed
in Schedule 4.l(L), 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 Interbancorp or any of
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 the best of its knowledge, no such litigation, proceeding or
controversy has been threatened; and except as Previously Disclosed in Schedule
4.1(L), neither Interbancorp nor any of its Subsidiaries or any of its or their
material properties or their officers, directors or controlling persons is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, any Regulatory Authority, and neither Interbancorp nor any of its
Subsidiaries has been advised by any of such Regulatory Authorities that such
authority is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum or understanding, commitment letter or similar submission.
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(M) COMPLIANCE WITH LAWS. Except as Previously Disclosed in
Schedule 4.1(M), each of Interbancorp 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 its best 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 Interbancorp
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
Interbancorp 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 Interbancorp or its Subsidiaries, or (c) requiring any
of Interbancorp 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);
(3) Is not required to give prior notice to any federal banking or
thrift agency of the proposed addition of an individual to its board of
directors or the employment of an individual as a senior executive; and
(4) 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.
(N) MATERIAL CONTRACTS. Except as Previously Disclosed in Schedule
4.1(N) (and with a true and correct copy of the document or other item in
question attached to such schedule), none of Interbancorp or its Subsidiaries,
nor any of their respective assets, businesses or operations, is a party to, or
is bound or affected by, or receives benefits under, any material contract or
agreement or amendment thereto (excluding extensions of credit made in the
ordinary course of business). Neither Interbancorp nor any of its Subsidiaries
is in default under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party, by which its
respective assets, business or operations may be bound or affected or under
which it or any of its respective assets, business or operations receives
benefits, which default, individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect on Interbancorp or its Subsidiaries, and there
has not occurred any event that, with the lapse of time or the giving of notice
or both, would constitute such a default. Except as Previously Disclosed in
Schedule 4.1(N), neither Interbancorp nor any of its Subsidiaries is subject to
or bound by any contract containing covenants that limit the ability of
Interbancorp or any of its Subsidiaries to compete in any line of business or
with any Person or that involve any restriction of geographical area in which,
or method by which, Interbancorp or any of its Subsidiaries may carry on its
business (other than as may be required by law or any applicable Regulatory
Authority).
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(O) REPORTS. Since January 1, 1997, each of Interbancorp 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 Department, (2) the FDIC, (3) the Federal Reserve Board, and (4) any other
Regulatory Authorities having jurisdiction with respect to Interbancorp and its
Subsidiaries. As of their respective dates (and without giving effect to any
amendments or modifications filed after the date of this Plan with respect to
reports and documents filed before the date of this Plan), 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.
(P) BROKERS AND FINDERS. Except as set forth in the agreement with
Columbia Financial Advisors, Inc. dated April 3, 2000, which has not been
amended since such date, neither Interbancorp, Inter Bank, any Interbancorp
Subsidiary nor any of their respective officers, directors or employees has
employed any broker or finder, or agreed to pay any fees to any director or
former director or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees, and no broker or finder, or
director or former director of Interbancorp and Inter Bank, has acted directly
or indirectly for Interbancorp, Inter Bank or any Interbancorp Subsidiary, in
connection with this Merger Agreement or the transactions contemplated hereby.
(Q) EMPLOYEE BENEFIT PLANS.
(1) Schedule 4.1(Q)(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 Interbancorp or any of its Subsidiaries
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
Interbancorp and its Subsidiaries, including any trust instruments and/or
insurance contracts, if any, forming a part thereof, and all amendments
thereto, have been supplied to the other Parties.
(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 Interbancorp and its Subsidiaries (the "ERISA Plans"), to the
extent subject to ERISA, are in substantial compliance with ERISA. Except
as Previously Disclosed in Schedule 4.1(Q)(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 Section
401(a) of the Internal Revenue Code of 1986 (as amended, 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
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ERISA Plans. Neither Interbancorp nor any of its Subsidiaries has engaged
in a transaction with respect to any ERISA Plan that could subject
Interbancorp or any of its Subsidiaries 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 Interbancorp or any of its
Subsidiaries 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
Interbancorp under Section 4001(a)(15) of ERISA or Section 414 of the Code
(an "ERISA Affiliate"). Neither Interbancorp nor any of its Subsidiaries
presently contributes to a Multiemployer Plan, nor have they 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. Neither Interbancorp nor any of its
Subsidiaries has provided, or is 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) Neither Interbancorp nor any of its Subsidiaries has any
obligations for retiree health and life benefits under any plan, except as
set forth in Schedule 4.1(Q)(6). There are no restrictions on the rights
of Interbancorp or any of its Subsidiaries to amend or terminate any such
plan without incurring any liability thereunder.
(7) Except as Previously Disclosed in Schedule 4.l(Q)(7),
neither the execution and delivery of this Plan nor the consummation of
the transactions contemplated by this Plan will (a) result in any payment
(including severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or any employee of Interbancorp or
any of its Subsidiaries under any Compensation and Benefit Plan or
otherwise from Interbancorp or any of its Subsidiaries, (b) increase any
benefits otherwise payable under any Compensation and Benefit Plan, or (c)
result in any acceleration of the time of payment or vesting of any such
benefit.
(R) NO KNOWLEDGE. Interbancorp and its Subsidiaries know of no
reason why the regulatory approvals referred to in Section 6.1 should not be
obtained.
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(S) LABOR AGREEMENTS. Neither Interbancorp nor any of its Subsidiaries
is a party to or is bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization, nor
is Interbancorp or any of its Subsidiaries the subject of a proceeding asserting
that it or any such Subsidiary has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel it or such
Subsidiary to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike or other labor dispute involving it or any
of its Subsidiaries pending or, to the best of its knowledge, threatened, nor is
it aware of any activity involving its or any of the Subsidiaries' employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
(T) ASSET CLASSIFICATION. Interbancorp and its Subsidiaries have
Previously Disclosed in Schedule 4.1(T) a list, accurate and complete in all
material respects, of the aggregate amounts of loans, extensions of credit or
other assets of Interbancorp and its Subsidiaries that have been classified by
it as of July 31, 2000 (the "Asset Classification"); and no amounts of loans,
extensions of credit or other assets that have been classified as of July 31,
2000 by any regulatory examiner as "Other Loans Specially Mentioned,"
`Substandard," "Doubtful" "Loss," or words of similar import are excluded from
the amounts disclosed in the Asset Classification, other than amounts of loans,
extensions of credit or other assets that were charged off by Interbancorp or
any Subsidiary prior to July 31, 2000.
(U) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan losses shown on the consolidated balance sheets in the December 31, 1999
Holding Company Financial Reports of Interbancorp was, and the allowance for
possible loan losses to be shown on subsequent Holding Company Financial Reports
of Interbancorp was adequate in the opinion of the Board of Directors of
Interbancorp 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.
(V) INSURANCE. Each of Interbancorp and its Subsidiaries 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 thereunder with respect to all matters that are
known to Interbancorp, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect on
Interbancorp or its Subsidiaries. Set forth in Schedule 4.l(V) is a list of all
insurance policies maintained by or for the benefit of Interbancorp or its
Subsidiaries or their respective directors, officers, employees or agents.
(W) AFFILIATES. Except as Previously Disclosed in Schedule 4.1(W),
to the best of Interbancorp's knowledge, there is no person who, as of the date
of this Plan, may be deemed to be an "affiliate" of Interbancorp as that term is
used in Rule 145 under the Securities Act.
(X) STATE TAKEOVER LAWS, ARTICLES OF INCORPORATION. Interbancorp
and its Subsidiaries have taken all necessary action to exempt this Plan and the
transactions contemplated by this Plan from (1) any applicable state takeover
laws, including, but not limited to, RCW Ch. 23B.19, as amended, and (2) any
takeover-related provisions of Interbancorp's and its Subsidiaries' articles of
incorporation.
(Y) NO FURTHER ACTION. Interbancorp and its Subsidiaries have
taken all action so that the entering into of this Plan and the consummation of
the transactions contemplated by
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this Plan, or any other action or combination of actions, or any other
transactions, contemplated by this Plan do not and will not (1) require a vote
of shareholders (other than as set forth in Section 6.1), or (2) result in the
grant of any rights to any Person under the articles of incorporation, charter
or bylaws of Interbancorp or any of its Subsidiaries or under any agreement to
which Interbancorp or any such Subsidiaries is a party, or (iii) restrict or
impair in any way the ability of the other Parties to exercise the rights
granted under this Plan.
(Z) ENVIRONMENTAL MATTERS.
(1) To Interbancorp's knowledge, it and each of its Subsidiaries,
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 Interbancorp or its
Subsidiaries.
(2) There is no proceeding pending or, to Interbancorp's
knowledge, threatened before any court, governmental agency or board or
other forum in which Interbancorp or any of its Subsidiaries 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 Interbancorp or any of its Subsidiaries 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 Interbancorp or its Subsidiaries or have been Previously
Disclosed in Schedule 4.1(Z)(2).
(3) There is no proceeding pending or, to Interbancorp's
knowledge, threatened before any court, governmental agency or board or
other forum in which any Loan/Fiduciary Property (or Interbancorp or any
of its Subsidiaries 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 Interbancorp or have been Previously
Disclosed in Schedule 4.1(Z)(3).
(4) To Interbancorp's knowledge, there is no reasonable basis
for any proceeding of a type described in subparagraph (2) or (3) of this
paragraph (Z), except as has been Previously Disclosed in Schedule
4.1(Z)(4).
(5) To Interbancorp's knowledge, during the period of (a)
ownership or operation by Interbancorp or any of its Subsidiaries of any
of their respective current properties, (b) participation in the
management of any Participation Facility by Interbancorp or any of its
Subsidiaries, or (c) holding of a security or other interest in a
Loan/Fiduciary Property by Interbancorp or any of its Subsidiaries, there
have been no releases of Hazardous Material in, on,
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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 Interbancorp or its Subsidiaries or have been Previously
Disclosed in Schedule 4.1(Z)(5).
(6) To Interbancorp's knowledge, prior to the period of (a)
ownership or operation by Interbancorp or any of its Subsidiaries of any
of their respective current properties, (b) participation in the
management of any Participation Facility by Interbancorp or any of its
Subsidiaries, or (c) holding of a security or other interest in a
Loan/Fiduciary Property by Interbancorp or any of its Subsidiaries, 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 Interbancorp or its
Subsidiaries or have been Previously Disclosed in Schedule 4.1(Z)(6).
(AA) TAX REPORTS. Except as Previously Disclosed in Schedule 4.1(AA),
(1) all reports and returns with respect to Taxes that are required to be filed
by or with respect to Interbancorp or its Subsidiaries, including consolidated
federal income tax returns of Interbancorp and its Subsidiaries (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
Interbancorp or its Subsidiaries, 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 Interbancorp or its Subsidiaries, except as reserved against
in the Holding Company Financial Reports of Interbancorp, 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 Interbancorp or its Subsidiaries.
(BB) ACCURACY OF INFORMATION. The statements with respect to
Interbancorp and its Subsidiaries contained in this Plan, the Schedules and any
other written documents executed and delivered by or on behalf of Interbancorp
or any other Party pursuant to the terms of or relating to this Plan 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.
(CC) DERIVATIVES CONTRACTS. None of Interbancorp or its Subsidiaries
is a party to or has 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
4.1(CC). Schedule 4.1(CC) includes a list of any assets of Interbancorp or its
Subsidiaries that are pledged as security for each such Derivatives Contract.
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(DD) ACCOUNTING CONTROLS. Each of Interbancorp and its Subsidiaries
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 Interbancorp and its
Subsidiaries 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.
(EE) COMMITMENTS AND CONTRACTS. Neither Interbancorp nor any of its
Subsidiaries is a party or subject to any of the following (whether written or
oral, express or implied):
(1) except as Previously Disclosed in Schedule 4.1(EE)(1), any
employment contract or understanding (including any understandings or
obligations with respect to severance or termination pay liabilities or
fringe benefits) with any present or former officer, director or employee
(other than those which are terminable at will by Interbancorp or any such
Subsidiary without any obligation on the part of Interbancorp or any such
Subsidiary to make any payment in connection with such termination);
(2) except as Previously Disclosed in Schedule 4.1(EE)(2), any
real or personal property lease with annual rental payments aggregating
$10,000 or more; or
(3) except as Previously Disclosed in Schedule 4.1(EE)(3), any
material contract with any affiliate.
4.2 FRONTIER AND FRONTIER BANK REPRESENTATIONS AND WARRANTIES. Frontier
and Frontier Bank each hereby represent and warrant to Interbancorp and Inter
Bank as follows:
(A) RECITALS. The facts set forth in the Recitals of this Plan
with respect to Frontier and Frontier Bank are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Each of Frontier and
Frontier Bank is duly qualified to do business and is in good standing in the
States of the United States and foreign jurisdictions where the failure to be
duly qualified, individually or in the aggregate, 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.
(C) SHARES. 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 4.2(C), there are
no shares of capital stock or other equity securities of it or its Subsidiaries
outstanding and no outstanding Rights with respect thereto.
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(D) CORPORATE POWER. Each of Frontier and Frontier Bank has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its material properties and assets.
(E) CORPORATE AUTHORITY. This Plan has been authorized by all
necessary corporate action of Frontier and such agreement is a valid and binding
agreement of Frontier, enforceable against Frontier in accordance with its
terms, subject to bankruptcy, insolvency and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles. As
of the date of this Plan, no approval by Frontier's shareholders of the Plan is
required.
(F) NO DEFAULTS. Subject to receipt of the required regulatory
approvals referred to in Section 6.1, and the required filings under federal and
state securities laws, and except as Previously Disclosed in Schedule 4.2(F),
the execution, delivery and performance of its obligation under this Plan and
the Employment Agreements and the consummation by Frontier and each of its
Subsidiaries of the transactions contemplated by this Plan 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, charter 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.
(G) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule
4.2(G), in the case of Frontier, its Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, and all other documents filed or to be filed
subsequent to December 31, 1999 under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act, in the form filed with the SEC (in each such case, 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, except as may
be noted therein, subject to normal and recurring year-end audit adjustments in
the case of unaudited statements.
(H) NO EVENTS. Except as Previously Disclosed on Schedule 4.2(H),
since December 31, 1999, no event has occurred which is reasonably likely to
have a Material Adverse Effect on it.
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(I) LITIGATION; REGULATORY ACTION. Except as Previously Disclosed
in Schedule 4.2(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 the best of its knowledge, no such litigation, proceeding or
controversy has been threatened; and except as Previously Disclosed in Schedule
4.2(I), neither Frontier nor any of its Subsidiaries or any of its or their
material properties or their officers, directors or controlling persons is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, any Regulatory Authority, and neither Frontier nor any of its
Subsidiaries has been advised by any of such Regulatory Authorities that such
authority is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum or understanding, commitment letter or similar submission.
(J) REPORTS. Since January 1, 1997, 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 date of this Plan with respect to
reports and documents filed before the date of this Plan), 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.
(K) ACCURACY OF INFORMATION. The statements with respect to Frontier
and its Subsidiaries contained in this Plan, the Schedules and any other written
documents executed and delivered by or on behalf of Frontier or any other Party
pursuant to the terms of this Plan 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.
(L) DERIVATIVES CONTRACTS. None of Frontier or its Subsidiaries is a
party to or has 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 4.2(L) includes
a list of any assets of Frontier or its Subsidiaries that are pledged as
security for each such Derivatives Contract.
(M) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Frontier nor any of
its Subsidiaries has any 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 the Frontier Financial Reports
prior to the date of this Plan, and (2) for commitments and obligations made, or
liabilities incurred, in the ordinary course of business consistent with past
practice since December 31, 1999. Since December 31, 1999, neither Frontier nor
any of its Subsidiaries has incurred or paid any obligation or liability
(including any obligation or liability incurred in connection with any
acquisitions
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in which any form of direct financial assistance of the federal government or
any agency thereof has been provided to any Subsidiary) that, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on it.
(N) NO KNOWLEDGE. Frontier and its Subsidiaries know of no reason
why the regulatory approvals referred to in Section 6.1 should not be obtained.
ARTICLE V. COVENANTS
Each of Interbancorp and Inter Bank hereby covenants to Frontier and
Frontier Bank, and each of Frontier and Frontier Bank hereby covenants to
Interbancorp and Inter Bank, that:
5.1 BEST EFFORTS. Subject to the terms and conditions of this Plan and, in
the case of Interbancorp and Inter Bank, to the exercise by their respective
Boards of Directors of such Boards' fiduciary duties, each party shall use its
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 Corporate Merger by
the Termination Date, and to otherwise enable consummation of the transactions
contemplated by this Plan, 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).
5.2 THE PROXY. In the case of Interbancorp: it shall promptly assist
Frontier in the preparation of a proxy statement (the "Proxy Statement") to be
mailed to the holders of Interbancorp Common Stock in connection with the
transactions contemplated by this Plan and to be filed by Frontier in a
registration statement (the "Registration Statement") with the SEC as provided
in Section 5.8, which shall conform to all applicable legal requirements, and it
shall call a special meeting (the "Meeting") of the holders of Interbancorp
Common Stock to be held as soon as practicable for purposes of voting upon the
transactions contemplated by this Plan and Interbancorp shall use its best
efforts to solicit and obtain votes of the holders of Interbancorp Common Stock
in favor of the transactions contemplated by this Plan and, subject to the
exercise of its fiduciary duties, the Board of Directors of Interbancorp shall
recommend approval of such transactions by such holders.
5.3 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 Interbancorp relating to
Interbancorp or its Subsidiaries 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.
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5.4 REGISTRATION STATEMENT EFFECTIVENESS. Frontier will advise
Interbancorp, promptly after Frontier receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order or the suspension of the
qualification of the Frontier Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
5.5 PRESS RELEASES. Interbancorp and Inter Bank will not, without the
prior approval of Frontier, and Frontier and Frontier Bank will not, without the
prior approval of Interbancorp, issue any press release or written statement for
general circulation relating to the transactions contemplated by this Plan,
except as otherwise required by law.
5.6 ACCESS; INFORMATION.
(A) Upon reasonable notice, Interbancorp and Inter Bank shall afford
Frontier and its officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period up
to the Effective Date, to all of the properties, books, contracts, commitments
and records of Interbancorp and its Subsidiaries and, during such period,
Interbancorp and Inter Bank shall furnish promptly (and cause its accountants
and other agents to furnish promptly) to Frontier (1) a copy of each material
report, schedule and other document filed by Interbancorp and its Subsidiaries
with any Regulatory Authority, and (2) all other information concerning the
business, properties and personnel of Interbancorp and its Subsidiaries as
Frontier may reasonably request, provided that no investigation pursuant to this
Section 5.6 shall affect or be deemed to modify or waive any representation or
warranty made by Interbancorp or Inter Bank in this Plan or the conditions to
the obligations of Interbancorp and Inter Bank to consummate the transactions
contemplated by this Plan; and
(B) Frontier will not use any information obtained pursuant to this
Section 5.6 for any purpose unrelated to the consummation of the transactions
contemplated by this Plan and, if this Plan is terminated, will hold all
confidential information and documents obtained pursuant to this paragraph in
confidence (as provided in Section 8.6) unless and until such time as such
information or documents become publicly available other than by reason of any
action or failure to act by Frontier or as it is advised by counsel that any
such information or document is required by law or applicable stock exchange
rule to be disclosed, and in the event of the termination of this Plan, Frontier
will, upon request by Interbancorp, deliver to Interbancorp all documents so
obtained by Frontier or destroy such documents and, in the case of destruction,
will certify such fact to Interbancorp.
5.7 STANDSTILL. Without the prior written consent of Frontier,
Interbancorp shall not, and it shall cause its Subsidiaries not to, solicit,
initiate or encourage inquiries or proposals with respect to, or, except as
required by the fiduciary duties of the Board of Directors of Interbancorp (as
advised in writing by its outside counsel), furnish any nonpublic information
relating to or participate in any negotiations or discussions concerning, any
acquisition or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, Interbancorp or any of its Subsidiaries or any
merger or other business combination with Interbancorp or any of its
Subsidiaries other than as contemplated by this Plan; it shall instruct its and
its Subsidiaries' officers, directors, agents, advisors and affiliates to
refrain from doing any of the foregoing; and it shall notify Frontier
immediately if any such inquiries or
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proposals are received by, or any such negotiations or discussions are sought to
be initiated with, Interbancorp or any of its Subsidiaries.
5.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. Frontier shall, as promptly as practicable following the date of
this Plan, prepare and file the Registration Statement with the SEC with respect
to the shares of Frontier Common Stock to be issued to the holders of
Interbancorp Common Stock pursuant to this Plan, and Frontier shall use its best
efforts to cause the Registration Statement to be declared effective as soon as
practicable after the filing thereof. Frontier shall, as promptly as practicable
following the date of this Plan, prepare and file all necessary notices or
applications with Regulatory Authorities having jurisdiction with respect to the
transactions contemplated by this Plan.
5.9 BLUE-SKY FILINGS. Frontier shall use its best efforts to obtain, prior
to the effective date of the Registration Statement, any necessary state
securities laws or "blue sky" permits and approvals, provided that Frontier
shall not be required by virtue thereof to submit to general jurisdiction in any
state.
5.10 AFFILIATE AGREEMENTS. Interbancorp will use its best efforts to
induce each person who may be deemed to be an "affiliate" of Interbancorp 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 such affiliate's shares of Interbancorp Common Stock, and, in the case of
"affiliates" of Interbancorp, the shares of Frontier Common Stock to be received
by such person in exchange for such person's shares of Interbancorp Common
Stock. Frontier agrees to use its best efforts to maintain the availability of
Rule 145 for use by such "affiliates".
5.11 CERTAIN POLICIES OF INTERBANCORP AND INTER BANK. Interbancorp and
Inter Bank, each shall, at Frontier's request, modify and change its loan,
litigation and other reserve and real estate valuation policies and practices
(including loan classifications and levels of reserves), and generally conform
its operating, lending and compliance policies and procedures, immediately prior
to the Effective Date so as to be consistent on a mutually satisfactory basis
with those of Frontier and GAAP; provided, however, that prior to any such
modification or change, Frontier shall certify that the conditions to the
obligation of Frontier under Section 6.1 and 6.2 to consummate the transactions
contemplated by this Plan, other than the condition set forth in Section 6.1(G),
have been satisfied or waived. Interbancorp's and Inter Bank's representations,
warranties, covenants and conditions contained in this Plan shall not be deemed
to be untrue, breached or unsatisfied in any respect for any purpose as a
consequence of any modifications or changes undertaken pursuant to this Section
5.11. Interbancorp's Capital, for the purpose of paying a dividend pursuant to
Section 3.2 and for the purpose of calculating Interbancorp's minimum Capital
under Section 6.2(N), shall not be affected as a consequence of any
modifications or changes undertaken at the direction of Frontier pursuant to
this Section 5.11.
5.12 STATE TAKEOVER LAW. Interbancorp shall not take any action that would
cause the transactions contemplated by this Plan to be subject to any applicable
state takeover statute, and Interbancorp shall take all necessary steps to
exempt (or ensure the continued exemption of) the transactions contemplated by
this Plan from, or, if necessary, challenge the validity or applicability of,
any applicable state takeover law.
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5.13 NO RIGHTS TRIGGERED. Except for those consents of Third Parties
Previously Disclosed on Schedule 4.1(G), Interbancorp shall take all necessary
steps to ensure that the entering into of this Plan and the consummation of the
transactions contemplated by this Plan (including the Mergers) and any other
action or combination of actions, or any other transactions contemplated by this
Plan, do not and will not (A) result in the grant of any rights to any Person
under the articles of incorporation or bylaws of Interbancorp or under any
agreement to which Interbancorp or any of its Subsidiaries is a party, or (B)
restrict or impair in any way the ability of Frontier or Frontier Bank to
exercise the rights granted under this Plan.
5.14 SHARES LISTED. Frontier shall use its best efforts to cause to be
listed, prior to the Effective Date, on the NASDAQ National Market upon official
notice of issuance the shares of Frontier Common Stock to be issued to the
holders of Interbancorp Common Stock.
5.15 REGULATORY APPLICATIONS. Frontier and Frontier Bank, each shall (A)
promptly prepare and submit applications to the appropriate Regulatory
Authorities for approval of the Mergers, and (B) promptly make all other
appropriate filings to secure all other approvals, consents and rulings that are
necessary for the consummation of the Mergers by Frontier.
5.16 REGULATORY DIVESTITURES. In the case of Interbancorp: No later than
the Effective Date, Interbancorp shall cease engaging in such activities as
Frontier shall advise Interbancorp in writing are not permitted to be engaged in
by Frontier under applicable law following the Effective Date and, to the extent
required by any Regulatory Authority as a condition of approval of the
transactions contemplated by this Plan, Interbancorp shall divest any Subsidiary
engaged in activities or holding assets that are impermissible for Frontier or
Frontier Bank, on terms and conditions agreed to by Frontier; provided, however,
that prior to taking such action, Frontier shall certify that the conditions to
the obligations of Frontier under Sections 6.1 and 6.2 to consummate the
transactions contemplated by this Plan, other than the condition set forth in
Section 6.2(O), have been satisfied or waived.
5.17 CURRENT INFORMATION.
(A) During the period from the date of this Plan to the Effective
Date, each of Interbancorp and Frontier shall, and shall cause its
representatives to, confer on a regular and frequent basis with representatives
of the other.
(B) Each of Interbancorp 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 Plan 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 Plan.
5.18 INSURANCE. Frontier will cause the persons serving as officers and
directors of Interbancorp and Inter Bank 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
Interbancorp with respect to acts or omissions of officers and directors, in
their capacity as
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such, occurring on or prior to the Effective Date, with policy limits of
$2,000,000. The provisions of this Section 5.18 are intended to be for the
benefit of, and shall be enforceable by, each of the present and former officers
and directors of Interbancorp and Inter Bank and each such person's respective
heirs and representatives. In the event the Company issuing the policies
maintained by Interbancorp should fail, Frontier will obtain comparable
insurance from the company which insures Frontier's directors and officers, or a
company of similar financial strength.
5.19 POST-MERGER ACTIONS. Following the Corporate Merger, neither Frontier
nor any of its affiliates shall take any action that will adversely affect the
federal income tax treatment of the Corporate Merger to the shareholders of
Interbancorp, including failing to continue at least one historic business line
of Interbancorp or to use at least a significant portion of Interbancorp's
historic assets in a business, in each case within the meaning of Treas. Reg.
Section 1.368-1(d).
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE MERGERS
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligation of each party
to effect the transactions contemplated hereby shall be subject to the
fulfillment, at or prior to the Effective Date, of the following conditions:
(A) SHAREHOLDER VOTE. The shareholders of Interbancorp shall have
approved of the transactions contemplated hereby by the requisite vote.
(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 Plan.
(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 Plan 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 Plan.
(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 Interbancorp shall have received an
opinion from Keller Rohrback L.L.P. in the form of Exhibit E(3) to the effect
that (1) the Corporate Merger constitutes a reorganization under Section 368 of
the Code, and (2) no gain or loss will be recognized by shareholders of
Interbancorp who receive shares of Frontier Common Stock in exchange for their
shares
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of Interbancorp Common Stock, except that gain or loss may be recognized
as to cash received in lieu of fractional share interests, and, in rendering
their opinion, Keller Rohrback L.L.P. may require and rely upon representations
contained in certificates of officers of Frontier, Interbancorp and others.
(G) NASDAQ LISTING. The shares of Frontier Common Stock to be issued
pursuant to this Plan shall have been approved for listing on the NASDAQ
National Market subject only to official notice of issuance.
6.2 CONDITIONS TO OBLIGATIONS OF FRONTIER. Unless waived in writing by
Frontier and Frontier Bank, the obligation of Frontier and Frontier Bank to
consummate the transactions contemplated by this Plan is subject to the
satisfaction at or prior to the Effective Date of the following conditions:
(A) PERFORMANCE. Each of the material acts and undertakings of
Interbancorp and Inter Bank to be performed at or before the Effective Date
shall have been duly performed.
(B) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Interbancorp and Inter Bank contained in this Plan shall be true and correct,
in all material respects, 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.
(C) OFFICER'S CERTIFICATE. In addition to the documents described
elsewhere in this Plan, Frontier and Frontier Bank shall have received the
following documents and instruments:
(i) A certificate signed by the secretary or assistant secretary
of Interbancorp and Inter Bank certifying that: (A) Interbancorp's
and Inter Bank's boards of directors and shareholders have duly
adopted resolutions (copies of which shall be attached to such
certificate) approving the substantive terms of this Plan and
authorizing the consummation of the transactions contemplated by
this Plan and certifying that such resolutions have not been
amended and remain in full force and effect; (B) each person
executing this Plan on behalf of Interbancorp and Inter Bank is an
officer of Interbancorp, and Inter Bank, as the case may be,
holding the office or offices specified therein, with full power
and authority to execute this Plan and any and all other documents
in connection with the Plan, and the signature of each person on
such documents is his or her genuine signature; and (C) the
Articles of Incorporation and Bylaws of Interbancorp and Inter Bank
(copies of which shall be attached to such certificate) remain in
full force and effect; and
(ii) A certificate signed by the president, chief financial
officer, and chief lending officer of Interbancorp and Inter Bank
dated the Effective Date stating that the conditions set forth in
Sections 6.2(A); 6.2(B) and 6.2(E) of this Plan have been satisfied
as of the Effective Date.
(D) LEGAL OPINION. Frontier shall have received a legal opinion,
dated the Effective Date, from Gerrish & McCreary, P.C., substantially in the
form of Exhibit E(2).
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(E) NO MATERIAL ADVERSE CHANGE. During the period from December 31,
1999 to the Effective Date, no material adverse change in the business,
property, assets (including loan portfolios), liabilities (whether absolute,
contingent or otherwise), prospects, operations, liquidity, income or condition
(financial or otherwise) of Interbancorp and/or Inter Bank shall have occurred.
(F) DESTRUCTION OF PROPERTY. Between the date of this Plan and the
Effective Date, there shall have been no damage to or destruction of real
property, improvements or personal property of Interbancorp and Inter Bank which
materially reduces the market value of such property, and no zoning or other
order, limitation or restriction imposed against the same that might have a
material adverse impact upon the operations, business or prospects of
Interbancorp and Inter Bank taken as a whole; provided, however, that the
availability of insurance coverage shall be taken into account in determining
whether there has been such a material adverse impact or material reduction in
market value.
(G) INSPECTIONS PERMITTED. Between the date of this Plan and the
Effective Date, Interbancorp and Inter Bank shall have afforded Frontier and
Frontier Bank and their authorized agents and representatives reasonable access
during normal business hours to the properties, operations, books, records,
contracts, documents, loan files and other information of or relating to
Interbancorp and Inter Bank. Interbancorp and Inter Bank shall have caused all
Interbancorp and Inter Bank personnel to provide reasonable assistance to
Frontier and Frontier Bank in its investigations of all matters related to
Interbancorp and Inter Bank.
(H) OTHER BUSINESS COMBINATIONS, ETC. Other than as contemplated
hereunder, subsequent to the date of this Plan, neither Interbancorp nor Inter
Bank shall have entered into any agreement, letter of intent, understanding or
other arrangement pursuant to which Interbancorp and Inter Bank would merge,
consolidate with, effect a business combination with, or sell any substantial
part of Interbancorp's or Inter Bank's assets; acquire a significant part of the
share of 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 Interbancorp and Inter Bank or
the benefits of acquiring Interbancorp Common Stock.
(I) MAINTENANCE OF CERTAIN COVENANTS. At the Effective Date: (i)
neither Interbancorp nor Inter Bank shall have issued or repurchased from the
date hereof any additional equity or debt securities, or any rights to purchase
or repurchase such securities (therefore, there shall be not more than the
number of shares of Interbancorp Common Stock and Interbancorp Options set forth
in the Recitals of this Plan validly issued and outstanding at the Effective
Date); and (ii) from December 31, 1999, there shall have been no extraordinary
sale of assets by Interbancorp or Inter Bank.
(J) RECEIPT OF AFFILIATE AGREEMENTS. Frontier shall have received from
each affiliate of Interbancorp the agreement referred to in Section 5.10.
(K) DISSENTERS' RIGHTS. The number of shares of Interbancorp 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 or because of the payment of cash in lieu of fractional shares of Frontier
Common Stock shall not exceed in the aggregate 20 percent of the outstanding
shares of Interbancorp Common Stock.
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(L) VOTING AGREEMENT. Frontier shall have received from each director
and each shareholder of Interbancorp who as of the date hereof controls more
than five percent of the issued and outstanding shares of Interbancorp Common
Stock the Voting Agreement in substantially the same form set forth as Exhibit
A.
(M) DIRECTOR'S AGREEMENT. Frontier shall have received from each
director of Interbancorp the Director's Agreement in substantially the same form
set forth as Exhibit B.
(N) MINIMUM CAPITAL. As of the Effective Date, Interbancorp's Capital
(less capital contributions received upon the exercise of Interbancorp Options
after August 1, 2000) shall not be less than $5.3-million; provided that if the
Effective Date is prior to December 31, 2000, Interbancorp's Capital shall not
be less than an amount equal to $5.3-million less [(the number of calendar days
between the Effective Date and December 31, 2000) multiplied by the average
daily earnings from June 30, 2000 through the end of the month preceding the
Effective Date. For example, if the Effective Date is December 21, 2000, and
Inter Bank's net income after taxes from June 30, 2000 through November 30, 2000
is $500,000, the average daily earnings would be $3,289.47 ($500,000 / 152 days
= $3,289.47). The minimum capital would be $5,300,000 less $32,894.70 ($3,289.47
x 10 days) or $5,267,105.30.
(O) MINIMUM ALLOWANCE FOR LOAN AND LEASE LOSSES. As of the Effective
Date, Inter Bank's allowance for possible loan and lease losses shall not be
less than 1.10 percent of Inter Bank's total outstanding loans and leases and
will be adequate to absorb Inter Bank's anticipated loan and lease losses.
6.3 CONDITIONS TO OBLIGATIONS OF INTERBANCORP AND INTER BANK. Unless
waived in writing by Interbancorp and Inter Bank, the obligation of Interbancorp
and Inter Bank to consummate the transactions contemplated by this Plan is
subject to the satisfaction at or prior to the Effective Date of the following
conditions:
(A) PERFORMANCE. Each of the material acts and undertakings of
Frontier and Frontier Bank to be performed at or before the Effective Date shall
have been duly performed.
(B) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Frontier and Frontier Bank contained in this Plan shall be true and correct,
in all material respects, 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.
(C) OFFICER'S CERTIFICATE. In addition to the documents described
elsewhere in this Plan, Interbancorp and Inter Bank shall have received 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 6.3(A); 6.3(B) and 6.3(E) of this Plan have
been satisfied as of the Effective Date.
(D) LEGAL OPINION. Interbancorp shall have received a legal opinion,
dated the Effective Date, from Keller Rohrback, L.L.P. in substantially the form
of Exhibit E(1).
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(E) NO MATERIAL ADVERSE CHANGE. During the period from December 31,
1999 to the Effective Date, no material adverse change in 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 Frontier Bank shall have occurred.
(F) AVERAGE CLOSING PRICE AT LEAST $14.50. The Frontier Average
Closing Price, subject to adjustment as provided in Section 2.5 hereof, shall be
equal to or greater than $14.50.
(G) EMPLOYMENT AGREEMENTS. The Employment Agreements of Russell T.
Anderson, Tana D. Weisenbach and Ronald O. Brown, substantially in the form of
Exhibit C, shall have been duly executed and delivered by Frontier.
(H) FAIRNESS OPINION. Interbancorp shall have received, immediately
prior to the mailing of the Proxy Statement to Interbancorp's shareholders, an
opinion of Columbia Financial Advisors, Inc., to the effect that the financial
terms of the Merger are fair from a financial point of view to Interbancorp's
shareholders, and such opinion shall not have been withdrawn prior to the
Effective Date.
6.4 CONSEQUENCES OF FAILING TO CLOSE. In the event that the Corporate
Merger is not consummated, a termination fee may be payable pursuant to ARTICLE
VII.
ARTICLE VII. TERMINATION
7.1 CONSEQUENCES OF TERMINATION. In the event of the termination or
abandonment of this Plan pursuant to the provisions of this ARTICLE VII. this
Plan shall become void and have no force or effect, without any liability on the
part of the Parties or any of their respective directors or officers or
shareholders with respect to this Plan, provided that a termination fee shall be
imposed if the Plan is terminated pursuant to Section 7.3 of this Plan.
7.2 TERMINATION WITHOUT FEE. This Plan may be terminated prior to the
Effective Date, either before or after receipt of required shareholder
approvals, without any termination fee (except as provided in 7.2(C)) under the
following conditions:
(A) MUTUAL CONSENT. By the mutual consent of Frontier and
Interbancorp, 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 Interbancorp in the event the Corporate
Merger is not consummated by April 15, 2001, unless the failure of the
consummation of the transactions to occur shall be due to the failure of the
Party seeking to terminate this Merger Agreement to perform its obligations
hereunder in a timely manner; provided, however, that Frontier may not terminate
the Merger Agreement pursuant to this Section 7.2(C), if such delay results from
(a) amendments to the Registration Statement or a resolicitation of proxies as a
consequence of a Frontier Transaction, or any other acquisition or sale
transaction, or any offering of securities, in which Frontier is involved, or
(b) a change in the method of acquisition pursuant to Section 2.7, and provided,
further, that a party may not terminate the Merger Agreement pursuant to this
Section 7.2(B) if it is in material breach of any of the provisions of the
Merger Agreement.
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(C) NO FAIRNESS OPINION. By Interbancorp in the event the fairness
opinion described in Section 6.3(H) is not provided; provided, however, if the
transaction is terminated in reliance upon this Section 7.2(C) and Interbancorp
and/or Inter Bank enter into an agreement to be acquired by another party (or to
substantially transfer all the assets of Interbancorp and/or Inter Bank to such
other party) within twelve (12) months of the termination of this transaction,
Interbancorp shall pay a termination fee to Frontier of Five Hundred Thousand
and No/100 Dollars ($500,000.00), payment to be made on demand and in no event
more than three (3) days after demand.
(D) NO REGULATORY APPROVALS. By Frontier or Interbancorp, in the event
that any of the required regulatory approvals set forth in Section 6.1(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 Plan 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.
(E) AVERAGE CLOSING PRICE BELOW $14.50. By Interbancorp, within five
days after the end of the trading period used to determine the Frontier Average
Closing Price, if the Frontier Average Closing Price, subject to adjustment as
provided in Section 2.5 hereof, is less than $14.50.
7.3 TERMINATION FEE. The parties hereby acknowledge that, in negotiating
and executing this Plan and in taking the steps necessary or appropriate to
effect the transaction contemplated hereby, Frontier and Interbancorp have each
incurred and will incur direct and indirect monetary and other costs (including
without limitation attorneys' fees and costs of their respective employee and
management time) and will forego discussions with respect to other potential
transactions. Notwithstanding any provision of this Plan to the contrary, only
one termination fee may be paid under this Plan. A termination fee may be
payable under this Section 7.3 or Section 7.2(C).
(A) FEE PAYABLE TO FRONTIER. To compensate Frontier for such costs and
to induce it to forego initiating discussions regarding other transactions,
Interbancorp shall be obligated to pay Frontier on demand (and in no event more
than three days after such demand) in immediately available funds Three Hundred
Fifty Thousand and No/100 Dollars ($350,000.00) if this Plan is terminated
because of any of the following: (i) Interbancorp does not use its best efforts
to consummate the transactions contemplated by this Plan in accordance with the
terms of this Plan (unless a condition set forth in Section 6.3 is not satisfied
and such non-satisfaction has not been the result of the failure of Frontier to
use its best efforts to consummate this Plan in accordance with the terms of
this Plan); (ii) Interbancorp materially breaches any representation, warranty,
covenant or agreement contained herein, which breach cannot be or has not been
cured within 30 days after the giving of written notice to the breaching Party
of such breach; or (iii) this Plan is terminated by either party because of the
failure to fulfill any of the conditions set forth in: Section 6.1(A); Section
6.2(A); Section 6.2(B); Section 6.2(C); Section 6.2(D); Section 6.2(E), Section
6.2(F); Section 6.2(G); Section 6.2(H); Section 6.2(I); Section 6.2(J); Section
6.2(K); Section 6.2(L); Section 6.2(M); Section 6.2(N); or Section 6.2(O); or
(iv) Interbancorp terminates this Plan for any reason other than: (a) any of the
grounds for termination set forth in Section 7.2; (b) any of the conditions set
forth in Section 6.3 are not fulfilled; or (c) any of the grounds set forth in
Section 7.3(B)(i) or Section 7.3(B)(ii). It is further understood and agreed
that the fee payable under this Section shall be due and owing even though the
event or condition which caused
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the fee to be payable was the result (in part or in whole) of the directors of
Interbancorp complying with their fiduciary duties.
(B) FEE PAYABLE TO INTERBANCORP. To compensate Interbancorp for such
costs and to induce it to forego initiating discussions regarding other
transactions, Frontier shall be obligated to pay Interbancorp on demand (and in
no event more than three days after such demand) in immediately available funds
Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00) if this Plan is
terminated because of any of the following: (i) Frontier does not use its best
efforts to consummate the transactions contemplated by this Plan in accordance
with the terms of this Plan (unless a condition set forth in Section 6.2 is not
satisfied and such non-satisfaction has not been the result of the failure of
Frontier to use its best efforts to consummate this Plan in accordance with the
terms of this Plan); (ii) Frontier materially breaches any representation,
warranty, covenant or agreement contained herein, which breach cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching Party of such breach; or (iii) Frontier terminates this Plan for any
reason other than: (a) any of the grounds for termination set forth in Section
7.2; (b) any of the conditions set forth in Sections 6.1 or 6.2 are not
fulfilled; or (c) any of the grounds set forth in Section 7.3(A)(i), Section
7.3(A)(ii), or Section 7.3(A)(iii). It is further understood and agreed that the
fee payable under this Section shall be due and owing even though the event or
condition which caused the fee to be payable was the result (in part or in
whole) of the directors of Frontier complying with their fiduciary duties.
ARTICLE VIII. OTHER MATTERS
8.1 SURVIVAL. Only those agreements and covenants in this Plan 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 Mergers and shall not survive the
Effective Date. If the Mergers are abandoned and this Plan is terminated, the
provisions of ARTICLE VII. shall apply and the agreements of the Parties in
Sections 7.2(C), 7.3, 8.5 and 8.6 shall survive such abandonment and
termination.
8.2 WAIVER; AMENDMENT. Prior to the Effective Date, any provision of this
Plan may be (A) waived in writing by the Party benefited by the provision, or
(B) amended or modified at any time (including the structure of the transactions
contemplated by this Plan) by an agreement in writing among the Parties approved
by their respective Boards of Directors and executed in the same manner as this
Plan, except that, after the vote by the shareholders of Interbancorp, the
consideration to be received by the shareholders of Interbancorp for each share
of Interbancorp Common Stock shall not thereby be altered. Nothing contained in
this Section 8.2 is intended to modify Frontier's rights pursuant to Section
2.7.
8.3 COUNTERPARTS. This Plan may be executed in one or more facsimile
counterparts, each of which shall be deemed to constitute an original. This Plan
shall become effective when one counterpart has been signed by each Party.
8.4 GOVERNING LAW. This Plan shall be governed by, and interpreted in
accordance with, the laws of the State of Washington, except as federal law may
be applicable.
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8.5 EXPENSES. Each Party will bear all expenses incurred by it in
connection with this Plan and the transactions contemplated by this Plan, except
printing expenses which shall be shared equally between Interbancorp and
Frontier.
8.6 CONFIDENTIALITY. Except as otherwise provided in Section 5.6(B), each
of the Parties and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection herewith
which has not been publicly disclosed.
8.7 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
332 SW Everett Mall Way
Everett, WA 98204
Attn: Robert J. Dickson, President
With a copy to:....... Keller Rohrback L.L.P.
1201 Third Avenue, Suite 3200
Seattle, WA 98101-3052
Attn: Glen P. Garrison
If to Interbancorp or Inter Bank, to: INTERBANCORP, INC.
P.O. Box 700
Duvall, WA 98019
Attn: Russell T. Anderson
With a copy to:....... Gerrish & McCreary, P.C.
700 Colonial Road, Suite 200
Memphis, TN 38117
Attn: Phillip K. Smith
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Plan
represents the entire understanding of the Parties with reference to
transactions contemplated by this Plan and supersedes any and all other oral or
written agreements previously made, except for Sections 5.10, 5.18, 5.19 and
8.10. Nothing in this Plan, expressed or implied, is intended to confer upon any
Person, other than the Parties or their respective successors, any rights,
remedies, obligations or liabilities under or by reason of this Plan.
8.9 ENFORCEMENT PROCEEDINGS. In any action or proceeding in connection
with the enforcement of this Plan, the prevailing party will be entitled to
reimbursement of its reasonable attorneys' fees and expenses from the
non-prevailing party.
8.10 BENEFIT PLANS. Upon consummation of the Mergers, all employees of
Interbancorp and its Subsidiaries, except those with whom Frontier enters into
written employment agreements, shall be deemed to be at-will employees of
Frontier and its Subsidiaries. From and after the Effective Date,
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employees of Interbancorp and its Subsidiaries 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. With the
exception of stock option plans, where participation will be based upon years of
service at Frontier (one year wait from the Effective Date for officers/five
year wait from the Effective Date for non-officer personnel), for the purpose of
determining eligibility to participate in such plans and the vesting of benefits
under such plans (but not for the accrual of benefits), Frontier shall give
effect to years of service with Interbancorp or Interbancorp's Subsidiaries, as
the case may be, as if such service were with Frontier or its Subsidiaries.
Employees of Interbancorp and its Subsidiaries will be entitled to carry over
unused vacation days and sick leave accrued as of the Effective Date. Frontier
shall use its best efforts to facilitate the rollover of the 401(k) plan
maintained by Interbancorp and Inter Bank.
8.11 HEADINGS. The headings contained in this Plan are for reference
purposes only and are not part of this Plan.
IN WITNESS WHEREOF, the Parties have caused this instrument to be executed
in counterparts by their duly authorized officers, all as of the day and year
first above written.
<TABLE>
<S> <C>
FRONTIER FINANCIAL CORPORATION FRONTIER BANK
By: /s/ ROBERT J. DICKSON By: /s/ ROBERT J. DICKSON
---------------------------------------- -------------------------------------
Robert J. Dickson Robert J. Dickson
President and Chief Executive Officer President and Chief Executive Officer
INTERBANCORP, INC. INTER BANK
By: /s/ RUSSELL T. ANDERSON By: /s/ RUSSELL T. ANDERSON
---------------------------------------- -------------------------------------
Russell T. Anderson Russell T. Anderson
President President
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
Exhibit A Voting Agreement
Exhibit B Director's Agreement
Exhibit C (1) Employment Agreement of Russell T. Anderson
(2) Employment Agreement of Tana D. Weisenbach
(3) Employment Agreement of Ronald O. Brown
Exhibit D Affiliate Agreement
Exhibit E (1) Legal Opinion of Keller Rohrback L.L.P.
(2) Legal Opinion of Gerrish & McCreary
(3) Tax Opinion of Keller Rohrback L.L.P.
Exhibit F List of Offices and Mailing Address of Officers and Directors of
the Banks
SCHEDULES
---------
Company Disclosures
-------------------
Schedule 2.8 Outstanding Options
Schedule 3.4 Changes to Line of Business, Operating Procedures, etc.
Schedule 3.6 New or Changes to Compensation, Employment Agreements, etc.
Schedule 3.7 New or Modifications to Benefit Plans
Schedule 3.11 New or Changes to Material Contracts
Schedule 4.1(C) Shares Outstanding
Schedule 4.1(D) Subsidiaries
Schedule 4.1(G) No Defaults - Agreements Requiring Third Party Consent
Schedule 4.1(H) Financial Reports
Schedule 4.1(I) Undisclosed Liabilities
Schedule 4.1(J) No Events Causing Material Adverse Effect
Schedule 4.1(L) Litigation, Regulatory Action
Schedule 4.1(M) Compliance with Laws
Schedule 4.1(N) Material Contracts
</TABLE>
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<TABLE>
<S> <C>
Schedule 4.1(Q)(1) List of Employee Benefit Plans
Schedule 4.1(Q)(2) Employee Benefit Plans Not Qualified Under ERISA
Schedule 4.1(Q)(6) Obligations for Retiree Health and Life Benefits
Schedule 4.1(Q)(7) Agreements Resulting in Payments to Employees Under Any Compensation
and Benefit Plan with Respect to Proposed Transaction
Schedule 4.1(T) Asset Classification
Schedule 4.1(V) Insurance
Schedule 4.1(W) Affiliates
Schedule 4.1(Z)(2) Pending Proceedings with Respect to Environmental Matters
Schedule 4.1(Z)(3) Pending Proceedings with Respect to Environmental Matters Involving
Loan/Fiduciary Property
Schedule 4.1(Z)(4) Pending Proceedings with Respect to Environmental Matters Listed in
Sections 4.1(Z)(2) or (3)
Schedule 4.1(Z)(5) Actions During Ownership Which could Have Material Adverse Effect with
Respect to Environmental Matters
Schedule 4.1(Z)(6) Actions Prior to Ownership Which could Have Material Adverse Effect
with Respect to Environmental Matters
Schedule 4.1(AA) Tax Reports Matters
Schedule 4.1(CC) Derivative Contracts, including a list of any assets pledged as
security for such Derivative Contracts
Schedule 4.1(EE)(1) Employment Contracts Requiring Payment In Connection with Termination
Schedule 4.1(EE)(2) Leases with Aggregate Annual Rent Exceeding $10,000
Schedule 4.1(EE)(3) Material Contracts with Affiliates
</TABLE>
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<TABLE>
<S> <C>
Frontier Disclosures
--------------------
Schedule 4.2(C) Shares
Schedule 4.2(F) No Defaults
Schedule 4.2(G) Financial Reports
Schedule 4.2(H) No Events Causing Material Adverse Effect
Schedule 4.2(I) Litigation, Regulatory Action
Schedule 4.2(L) Derivative Contracts, including a list of any assets pledged as
security for such Derivative Contracts
</TABLE>
-iii-
<PAGE> 96
APPENDIX B
CHAPTER 13 OF THE WASHINGTON BUSINESS CORPORATIONS ACT
CHAPTER 13 OF THE WASHINGTON BUSINESS CORPORATION ACT
RCW 23B.13.010 DEFINITIONS. As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
RCW 23B.13.020 RIGHT TO DISSENT.
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
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(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
RCW 23B.13.030 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which the
dissenter dissents and the dissenter's other shares were registered in the names
of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
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RCW 23B.13.200 NOTICE OF DISSENTERS' RIGHTS.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020
is taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.
RCW 23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
RCW 23B.13.220 DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the
effective date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
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<PAGE> 99
RCW 23B.13.230 DUTY TO DEMAND PAYMENT.
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
RCW 23B.13.240 SHARE RESTRICTIONS.
(1) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is effected or the restriction is released under RCW
23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
RCW 23B.13.250 PAYMENT.
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
RCW 23B.13.260 FAILURE TO TAKE ACTION.
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
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(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
RCW 23B.13.270 AFTER-ACQUIRED SHARES.
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
RCW 23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
RCW 23B.13.300 COURT ACTION.
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation
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is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
RCW 23B.13.310 COURT COSTS AND COUNSEL FEES.
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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APPENDIX C
September 21, 2000
Board of Directors
Interbancorp, Inc.
P.O. Box 700
Duvall, WA 98019
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Interbancorp, Inc. ("IB") of the
consideration to be received by such shareholders pursuant to the terms of the
Merger Agreement and Plan of Merger, dated September 21, 2000, (the "Agreement")
between IB and Frontier Financial Corporation, Inc. ("FTBK").
In connection with the proposed merger transaction (the "Merger")
whereby IB will merge into FTBK, each issued and outstanding share of IB common
stock (along with its associated rights) at the effective time of the Merger
[other than (i) shares of holders of which are exercising appraisal rights
pursuant to applicable law and (ii) shares held directly by or indirectly by the
Bank other than shares held in a fiduciary capacity or in satisfaction of a debt
previously contracted] shall be exchanged in a 100% stock transaction (the
Merger "Consideration"). Each share of IB common stock and preferred stock will
receive 0.75 shares of FTBK common stock. With the September 11, 2000 closing
price for FTBK of $18.75, the estimated value is $14.06 per share.
Columbia Financial Advisors, Inc. ("CFAI") as a part of its investment
banking services, is periodically engaged in the valuation of banks and advises
the directors, officers and shareholders of both public and private banks and
thrift institutions with respect to the fairness, from a financial point of
view, of the consideration to be received in transactions such as that proposed
by the Agreement. With particular regard to our qualifications for rendering an
opinion as to the fairness, from a financial point of view, of the Consideration
to be received by holders of the shares from FTBK pursuant to the Merger, CFAI
has advised Washington, Oregon, Idaho and Montana community banks regarding
fairness of capital transactions. IB has agreed to pay CFAI a fee for this
opinion letter.
<PAGE> 103
Board of Directors
Interbancorp, Inc.
September 21, 2000
In connection with rendering this opinion, we have, among other things:
(i) reviewed the Agreement; (ii) reviewed IB's financial information for the six
months ended June 30, 2000, the twelve months ended December 31, 1999 and for
the twelve months ended December 31, 1998; (iii) reviewed certain internal
financial analyses and certain other forecasts for IB prepared by and reviewed
with the management of IB; (iv) conducted interviews with senior management of
IB regarding the past and current business operations, results thereof,
financial condition and future prospects of IB; (v) reviewed the current market
environment generally and the banking environment in particular; (vi) reviewed
the prices paid in certain recent mergers and acquisitions in the banking
industry on a regional basis; (vii) reviewed FTBK's audited financial
information for the fiscal year ended December 31, 1999 and for the six months
ended June 30, 2000, including the Forms 10-KSB and 10-QSB filed with the U.S.
Securities and Exchange Commission; (ix) reviewed the price ranges and dividend
history for FTBK common stock; (x) and reviewed such other information, studies
and analyses and performed such other investigations and took into account such
other matters as we deemed appropriate.
In conducting our review and arriving at our opinion, we have relied on
the accuracy and completeness of all information supplied or otherwise made
available to us, and we have not independently verified such information nor
have we undertaken an independent appraisal of the assets or liabilities of the
IB or FTBK. With respect to the financial forecasts referred to above, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgment of the senior management of IB. This
opinion is necessarily based upon circumstances and conditions as they exist and
can be evaluated as of the date of this letter.
We are not expressing any opinion herein as to the prices at which
shares of FTBK Common Stock have traded or may trade at any future date.
This opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the merger.
In reliance upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration to be received by the
shareholders of IB pursuant to the Agreement is fair, from a financial point of
view, to the shareholders of IB.
<PAGE> 104
Board of Directors
Interbancorp, Inc.
September 21, 2000
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our opinion
as an exhibit to the proxy statement or prospectus related to the merger
transaction.
Very truly yours,
COLUMBIA FINANCIAL ADVISORS, INC.
By: /s/ ROBERT J. ROGOWSKI
--------------------------------
Robert J. Rogowski
Principal
<PAGE> 105
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 28B.08.600 RCW contain specific provisions
relating to indemnification of directors and officers of Washington
corporations. In general, the statute provides that (i) a corporation must
indemnify a director or officer who is wholly successful in his defense of a
proceeding to which he is a party because of his status as such, unless limited
by the articles of incorporation, and (ii) a corporation may indemnify a
director or officer if he is not wholly successful in such defense, if it is
determined as provided in the statute that the director meets a certain standard
of conduct, provided when a director is liable to the corporation, the
corporation may not indemnify him. The statute also permits a director or
officer of a corporation who is a party to a proceeding to apply to the courts
for indemnification or advance of expenses, unless the articles of incorporation
provide otherwise, and the court may order indemnification or advance of
expenses under certain circumstances set forth in the statute. The statute
further provides that a corporation may in its articles of incorporation or
bylaws or by resolution provide indemnification in addition to that provided by
the statute, subject to certain conditions set forth in the statute.
Pursuant to Frontier's Bylaws, Frontier will indemnify the directors and
officers of Frontier for expenses, judgments, fines and amounts paid in
settlement incurred by such person in connection with any action, suit or
proceeding by reason of the fact that such person is or was a director or
officer of Frontier. No such indemnification may be given in the acts or
omissions of the person are adjudged to be in violation of law, if such person
is liable to the corporation for an unlawful distribution, or if such person
personally received a benefit to which he or she is not entitled. The Board of
Directors of Frontier may approve indemnification of any other person which
Frontier has the power to indemnify under the WBCA.
Frontier's Restated Articles of Incorporation provide that the directors
of Frontier shall not be personally liable for monetary damages to Frontier for
certain breaches of their fiduciary duty as directors, except for liabilities
that involve intentional misconduct or a knowing violation of law by the
director, the authorization or illegal distributions or receipt of an improper
personal benefit from their actions as directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
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<S> <C>
2 Agreement and Plan of Merger dated October 23, 2000, by and between Frontier Financial
Corporation, Frontier Bank, Interbancorp, Inc. and Inter Bank (incorporated by reference
in Appendix A to the Prospectus Proxy Statement in this Registration Statement).
3(a) Restated Articles of Incorporation are incorporated herein by reference to Appendix A to
the registrant's definitive Proxy Statement on Schedule 14A filed on March 20, 1998 in
connection with its 1998 Annual Meeting.
3(b) Bylaws are incorporated herein by reference to Exhibit 3(b) to Registration on Form S-14,
File No. 2-82420.
5 Opinion of Keller Rohrback L.L.P. regarding legality of securities.
8 Form of opinion of Keller Rohrback L.L.P. regarding federal income tax
consequences.
10.1 Employment Agreement Between Frontier Financial Corporation, Frontier Bank and
Russell T. Anderson dated October 23, 2000.
10.2 Employment Agreement Between Frontier Financial Corporation, Frontier Bank and
Tana D. Weisenbach dated October 23, 2000.
10.3 Employment Agreement Between Frontier Financial Corporation, Frontier Bank and
Ronald O. Brown dated October 23, 2000.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
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<S> <C>
10.4 Director's Agreement of Interbancorp, Inc. Directors.
10.5 Voting Agreement of Interbancorp, Inc. Directors.
11 Statements re Computation of Per Share Earnings are incorporated by reference to
Exhibit 11 to the registrant's quarterly report on 10-Q filed on November 14,
2000, and by reference to Exhibit 11 to the registrant's annual report on 10-K
filed on March 27, 2000.
21 Subsidiaries of Frontier Financial Corporation
23.1 Consent of Keller Rohrback L.L.P. (contained in its opinion filed as Exhibit 5).
23.2 Consent of Keller Rohrback L.L.P. as to its tax opinion.
23.3 Consent of Moss Adams, LLP, Frontier Financial Corporation's independent
auditors.
23.4 Consent of Columbia Financial Advisors, Inc.
24 Power of Attorney (contained in the signature page of the Registration
Statement).
99.1 Form of proxy to be mailed to shareholders of Interbancorp, Inc..
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
(c) REPORTS, OPINIONS OR APPRAISALS
Opinion of Columbia Financial Advisors, Inc. (incorporated by
reference in Appendix C to the Prospectus/Proxy Statement).
ITEM 22. UNDERTAKINGS
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
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<PAGE> 107
of the registrant pursuant to the provisions referred to in Item 20 of this
registration statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of, and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized in the City of Everett, State
of Washington on November 16, 2000.
FRONTIER FINANCIAL CORPORATION
By: /s/ ROBERT J. DICKSON
------------------------------------------
Robert J. Dickson
President and Chief Executive Officer
(Principal Executive Officer)
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<PAGE> 108
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
FRONTIER FINANCIAL CORPORATION does hereby constitute and appoint ROBERT J.
DICKSON and JAMES F. FELICETTY, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign a Registration Statement on Form S-4 of Frontier
Financial Corporation, and any and all amendments thereto, including
post-effective amendments, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or the substitutes for such
attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
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<S> <C> <C>
/s/ GEORGE E. BARBER Director November 15, 2000
--------------------------------------
George E. Barber
/s/ MICHAEL J. CLEMENTZ Director November 15, 2000
--------------------------------------
Michael J. Clementz
/s/ MICHAEL J. CORLISS Director November 15, 2000
--------------------------------------
Michael J. Corliss
/s/ LUCY DEYOUNG Director November 15, 2000
--------------------------------------
Lucy DeYoung
/s/ ROBERT J. DICKSON Director November 15, 2000
--------------------------------------
Robert J. Dickson
/s/ DAVID A. DUJARDIN Director November 15, 2000
--------------------------------------
David A. Dujardin
/s/ EDWARD D. HANSEN Director November 15, 2000
--------------------------------------
Edward D. Hansen
/s/ WILLIAM H. LUCAS Director November 15, 2000
--------------------------------------
William H. Lucas
/s/ JAMES H. MULLIGAN Director November 15, 2000
--------------------------------------
James H. Mulligan
</TABLE>
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<TABLE>
<S> <C> <C>
(Power of Attorney continued)
/s/ J. DONALD REGAN Director November 15, 2000
--------------------------------------
J. Donald Regan
/s/ ROGER L. RICE, D.D.S. Director November 15, 2000
--------------------------------------
Roger L. Rice, D.D.S.
/s/ WILLIAM J. ROBINSON Director November 15, 2000
--------------------------------------
William J. Robinson
/s/ EDWARD C. RUBATINO Director November 15, 2000
--------------------------------------
Edward C. Rubatino
/s/ DARRELL J. STORKSON Director November 15, 2000
--------------------------------------
Darrell J. Storkson
/s/ JAMES F. FELICETTY Secretary/Treasurer November 15, 2000
--------------------------------------
James F. Felicetty (Principal Financial
and Accounting
Officer)
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
<S> <C>
2 Agreement and Plan of Merger dated October 23, 2000, by and between
Frontier Financial Corporation, Frontier Bank, Interbancorp, Inc. and
Inter Bank (incorporated by reference in Appendix A to the Prospectus
Proxy Statement in this Registration Statement).
3(a) Restated Articles of Incorporation are incorporated
herein by reference to Appendix A to the registrant's
definitive Proxy Statement on Schedule 14A filed on
March 20, 1998 in connection with its 1998 Annual
Meeting.
3(b) Bylaws are incorporated herein by reference to Exhibit 3(b) to
Registration on Form S-14, File No. 2-82420.
5 Opinion of Keller Rohrback L.L.P. regarding legality of securities.
8 Form of opinion of Keller Rohrback L.L.P. regarding federal income tax
consequences.
10.1 Employment Agreement Between Frontier Financial Corporation, Frontier
Bank and Russell T. Anderson dated October 23, 2000.
10.2 Employment Agreement Between Frontier Financial Corporation, Frontier
Bank and Tana D. Weisenbach dated October 23, 2000.
10.3 Employment Agreement Between Frontier Financial Corporation, Frontier
Bank and Ronald O. Brown dated October 23, 2000.
10.4 Director's Agreement of Interbancorp, Inc. Directors.
10.5 Voting Agreement of Interbancorp, Inc. Directors.
11 Statements re Computation of Per Share Earnings are incorporated by
reference to Exhibit 11 to the registrant's quarterly report on 10-Q
filed on November 14, 2000, and by reference to Exhibit 11 to the
registrant's annual report on 10-K filed on March 27, 2000.
21 Subsidiaries of Frontier Financial Corporation
23.1 Consent of Keller Rohrback L.L.P. (contained in its opinion filed as
Exhibit 5).
23.2 Consent of Keller Rohrback L.L.P. as to its tax opinion.
23.3 Consent of Moss Adams, LLP, Frontier Financial Corporation's independent
auditors.
23.4 Consent of Columbia Financial Advisors, Inc.
24 Power of Attorney (contained in the signature page of the Registration
Statement).
99.1 Form of proxy to be mailed to shareholders of Interbancorp, Inc..
</TABLE>
II-6
