<PAGE> 1
As filed with the Securities and Exchange Commission on April ____, 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)
Washington 6022 91-1223535
- ------------------------------- ---------------------------- -------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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.
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:
Michael J. Clementz
President and Chief Executive Officer
Liberty Bay Financial Corporation
19950 - 7th Avenue NE
P.O. Box 1779
Poulsbo, WA 98370-0329
------------------------------------
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: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum
Securities Being Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered(1) Unit(2) Price(2) Registration Fee(2)
=============================================================================================================
<S> <C> <C> <C> <C>
Common Stock,
No par value 2,423,904 $102.57 $23,678,079 $6,251.01
===============================================================================================================
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, no value
per share, issuable by Frontier Financial Corporation ("Frontier") upon
consummation of the acquisition of Liberty Bay Financial Corporation
("Liberty") 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 Liberty common stock, $10.00 par
value per share, on April 30, 2000 ($102.57 per share) and computed based on
the estimated maximum number of such shares (230,848), 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.
<PAGE> 2
___________________, 2000
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Liberty Bay Financial Corporation ("Liberty"), to be held at
___________________, Poulsbo, Washington, on _________________, 2000 at
___:00____.m., local time.
The Notice of Special Meeting of Shareholders and Prospectus/Proxy
Statement that appear on the following pages describe the formal business to be
transacted at the meeting. At the meeting, you will be asked to consider and
vote upon a proposal to approve the Agreement and Plan of Mergers dated as of
March 15, 2000 (the "Merger Agreement") by and among Frontier Financial
Corporation ("Frontier"), Frontier Bank, Liberty and North Sound Bank. The
Merger Agreement provides that Liberty will be merged with Frontier and that,
thereafter, North Sound Bank will be merged with Frontier Bank, with Frontier
and Frontier Bank as the surviving entities.
Upon consummation of the merger, each share of Liberty common stock will
be converted into the right to receive ________ shares of Frontier common stock.
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.
The Board of Directors of Liberty has unanimously approved the Merger
Agreement and recommends that you vote FOR the approval of the Merger Agreement.
Approval of the Merger Agreement requires the affirmative vote of two-thirds of
the outstanding shares of Liberty common stock.
It is very important that your shares be represented at the meeting,
regardless of whether you plan to attend in person. A failure to vote, either by
not returning the enclosed proxy or by checking the "Abstain" box thereon, will
have the same effect as a vote against approval of the Merger Agreement. To
assure that your shares are represented in voting on this very important matter,
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD in the enclosed
postage-prepaid envelope whether or not you plan to attend the meeting. If you
are a shareholder of record and do attend, you may, if you wish, revoke your
proxy and vote your shares in person at the meeting.
On behalf of the Board of Directors, I urge you to vote FOR approval of
the Merger Agreement.
Sincerely,
Michael J. Clementz, President/CEO
<PAGE> 3
LIBERTY BAY FINANCIAL CORPORATION
19950 - 7TH AVENUE NE
POULSBO, WA 98370-0329
(206) 842-9144
---------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Liberty
Bay Financial Corporation ("Liberty") will be held at _________________,
Poulsbo, 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 March 15, 2000 (the
"Merger Agreement") by and among Liberty Bay Financial Corporation ("Liberty"),
North Sound 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 Liberty would merge into Frontier and each
outstanding share of Liberty common stock would be converted into the right to
receive _______ shares 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 Liberty common stock is required for approval of the
Merger Agreement.
Liberty shareholders have the right to dissent from the merger and
obtain payment of the fair value of their shares of Liberty common stock under
the applicable provisions of Washington law. In order to perfect dissenters'
rights, Liberty shareholders must send a notice to Liberty 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 ___. 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 Liberty unanimously recommends that
shareholders vote "FOR" approval of the Merger Agreement.
Sincerely,
Michael J. Clementz, President/CEO
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 card 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> 4
LIBERTY BAY FINANCIAL CORPORATION
PROXY STATEMENT
FRONTIER FINANCIAL CORPORATION PROSPECTUS
UP TO __________ SHARES OF COMMON STOCK
This Prospectus/Proxy Statement is being furnished by Liberty Bay
Financial Corporation ("Liberty") to the holders of Liberty common stock, par
value $1.00 per share ("Liberty Common Stock"), in connection with the
solicitation of proxies by the Board of Directors of Liberty (the "Liberty
Board") for use at a special meeting of Liberty shareholders to be held on
_________, 2000, and at any adjournments or postponements thereof (the "Special
Meeting"). This Prospectus/Proxy Statement is first being mailed to shareholders
on or about ___________________, 2000.
At the Special Meeting, shareholders of Liberty will consider and vote
upon a proposal to approve the Agreement and Plan of Mergers dated as of March
15, 2000 (the "Merger Agreement"), by and among Liberty Bay Financial
Corporation ("Liberty"), North Sound Bank, Frontier Financial Corporation
("Frontier") and Frontier Bank pursuant to which Liberty would be merged with
and into Frontier (the "Merger"). Upon consummation of the Merger, shareholders
of Liberty will receive shares of Frontier common stock, no par value per share
("Frontier Common Stock"), in exchange for their shares of Liberty Common Stock.
FOR A MORE DETAILED DESCRIPTION OF THE TERMS OF THE MERGER, SEE "THE MERGER."
The last reported sale price of Frontier Common Stock on the Nasdaq
National Market (symbol: "FTBK") on ____________, 2000 was $_______ per share.
Frontier has filed a registration statement on Form S-4 (the
"Registration Statement") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), with respect to up to __________ shares of Frontier
Common Stock to be issued pursuant to the Merger Agreement. This
Prospectus/Proxy Statement also constitutes the prospectus of Frontier filed as
part of the Registration Statement.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
THE SECURITIES OFFERED HEREBY 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 OR
INSTRUMENTALITY.
This Prospectus/Proxy Statement does not cover any resale of the
securities to be received by shareholders of Liberty 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> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
TABLE OF CONTENTS...........................................................................i
WHERE YOU CAN FIND MORE INFORMATION.........................................................1
SUMMARY.....................................................................................3
The Companies............................................................................3
The Special Meeting......................................................................4
The Merger; Exchange Ratio...............................................................4
Recommendation of the Liberty Board......................................................4
Opinion of Financial Advisor.............................................................4
Interests of Certain Persons in the Merger...............................................5
Effective Date of the Merger.............................................................5
Exchange Of Liberty Certificates.........................................................5
Conditions to Consummation of the Merger.................................................5
Accounting Treatment.....................................................................5
Regulatory Requirements..................................................................6
Certain Federal Income Tax Consequences..................................................6
Dissenters' Rights.......................................................................6
Comparison of Shareholders' Rights.......................................................6
SELECTED HISTORICAL FINANCIAL DATA..........................................................6
COMPARATIVE MARKET PRICE DATA..............................................................11
THE SPECIAL MEETING........................................................................14
Place, Time and Date....................................................................14
Purpose.................................................................................14
Record Date; Shares Entitled to Vote....................................................14
Vote Required...........................................................................14
Proxies.................................................................................14
THE MERGER.................................................................................15
General.................................................................................15
Merger Consideration....................................................................15
Effective Date of the Merger............................................................16
Exchange of Liberty Certificates........................................................16
Background and Reasons for the Merger...................................................17
Opinion of Financial Advisor............................................................18
Interests of Certain Persons in the Merger..............................................20
Certain Federal Income Tax Consequences.................................................21
Conduct of Business Pending the Merger..................................................22
Conditions to Consummation of the Merger................................................23
Regulatory Requirements.................................................................24
Dissenters' Rights......................................................................24
Amendment; Waiver; Termination..........................................................26
Termination Fee.........................................................................26
Resale of Frontier Common Stock.........................................................27
Accounting Treatment....................................................................27
Expenses................................................................................27
BUSINESS OF THE PARTIES TO THE MERGER......................................................27
Frontier................................................................................27
Liberty.................................................................................29
SUPERVISION AND REGULATION.................................................................31
</TABLE>
-i-
<PAGE> 6
<TABLE>
<S> <C>
The Holding Companies...................................................................31
The Banks...............................................................................33
Liquidity Requirements..................................................................36
VOTING SECURITIES OF LIBERTY AND PRINCIPAL HOLDERS THEREOF.................................39
DESCRIPTION OF FRONTIER CAPITAL STOCK......................................................39
COMPARISON OF SHAREHOLDERS' RIGHTS.........................................................40
LEGAL OPINIONS.............................................................................43
EXPERTS....................................................................................43
OTHER MATTERS..............................................................................43
GLOSSARY OF KEY TERMS......................................................................44
</TABLE>
Appendix A - Agreement and Plan of Mergers
Appendix B - Chapter 13 of the Washington Business Corporations Act
Appendix C - Fairness Opinion of Leslie Childress, Inc.
-ii-
<PAGE> 7
You should rely only on the information contained or incorporated by
reference in this Prospectus/Proxy Statement to vote your shares at the Special
Meeting. Frontier and Liberty have not authorized anyone to provide you with
information that is different from what is contained in this Prospectus/Proxy
Statement. This Prospectus/Proxy Statement is dated _______________, 2000. You
should not assume that the information contained in the Prospectus/Proxy
Statement is accurate as of any date other than that date, and neither the
mailing of this Prospectus/Proxy Statement to shareholders nor the issuance of
Frontier's securities in the Merger shall create any implication to the
contrary.
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. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC. 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 (File No.
333-_____) to register with the SEC the shares of Frontier to be issued to
Liberty stockholders in the Merger. This Prospectus/Proxy Statement is part of
the Registration Statement and constitutes a prospectus of Frontier and a proxy
statement for Liberty 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 10Q for the quarter ended March
31, 2000; and
3. Frontier's Current Report on Form 8-K dated March 16, 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.
-1-
<PAGE> 8
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 SECURITY HOLDERS 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, SECURITY HOLDERS MUST REQUEST
THIS INFORMATION NO LATER THAN FIVE BUSINESS DAYS BEFORE THE DATE THEY MUST MAKE
THEIR INVESTMENT DECISION. THE DATE BY WHICH SECURITY HOLDERS MUST REQUEST THIS
INFORMATION IS ___________, 2000.
Frontier has supplied all information contained or incorporated by
reference in this Prospectus/Proxy Statement relating to Frontier and Frontier
Bank. Liberty has supplied all information contained or incorporated by
reference in this Prospectus/Proxy Statement relating to Liberty and North Sound
Bank.
-2-
<PAGE> 9
SUMMARY
The following summary explains the significant aspects of the Merger.
Capitalized terms have the meanings stated in the Glossary of this
Prospectus/Proxy Statement and as otherwise stated in this Prospectus/Proxy
Statement. For additional information about the Merger, please refer to the more
detailed information appearing elsewhere in this Prospectus/Proxy Statement,
including the Appendices and the documents incorporated by reference.
Shareholders of Liberty will be asked to vote on a proposed merger of
Liberty with and into Frontier, followed by the merger of North Sound Bank with
and into Frontier Bank. The Board of Directors of Liberty has unanimously
adopted and approved the Merger Agreement.
THE COMPANIES
Frontier. Frontier is a bank holding company registered with the Board
of Governors of the Federal Reserve System ("Federal Reserve"). The business of
Frontier consists primarily of holding 100% of the capital stock of Frontier
Bank. At March 31, 2000, Frontier had total assets of $1,382.9 million, total
deposits of $1,060.3 million and stockholders' equity of $151.0 million. The
principal executive offices of Frontier are located at 332 SW Everett Mall Way,
Everett, Washington 98204 and its telephone number is (425) 514-0700.
Frontier Bank is a Washington-chartered commercial bank regulated by the
Washington Department of Financial Institutions ("DFI") and the Federal Deposit
Insurance Corporation ("FDIC"). Frontier Bank conducts its business from its
main office in Everett, Washington and its 26 branch offices located in
Snohomish, King, Pierce, Whatcom, and Skagit Counties. Frontier Bank is
primarily engaged in providing a full range of banking services to individual
and corporate customers in the area surrounding its offices. Frontier Bank also
offers trust and discount brokerage services and operates an Insurance and
Investment Center that markets annuities, life insurance products and mutual
funds.
See "SELECTED HISTORICAL FINANCIAL DATA" and "BUSINESS OF THE PARTIES TO
THE MERGER -- Frontier." Additional information concerning Frontier is included
in the documents incorporated herein by reference. See "WHERE YOU CAN FIND MORE
INFORMATION."
Liberty. Liberty is a bank holding company registered with the Federal
Reserve. The business of Liberty consists primarily of holding 100% of the
capital stock of North Sound Bank. At March 31, 2000, Liberty had total assets
of $180.9 million, total deposits of $157.3 million, and total stockholders'
equity of $21.1 million. The principal executive offices of Liberty are located
at 19950 - 7th Avenue NE, Poulsbo, Washington, and its telephone number is (206)
842-9144.
North Sound Bank is a Washington-chartered commercial bank regulated by
the DFI and FDIC. North Sound Bank operates out of its main office in Poulsbo,
Washington, and its seven branch offices located in Kitsap, Jefferson and
Clallam Counties. North Sound Bank is primarily engaged in providing a full
range of banking services to individual and corporate customers in the
communities it serves. North Sound Bank also offers brokerage and insurance
services through its brokerage subsidiary, North Sound Financial Services, Inc.
See "SELECTED HISTORICAL FINANCIAL DATA," "BUSINESS OF THE PARTIES TO
THE MERGER -LIBERTY".
-3-
<PAGE> 10
THE SPECIAL MEETING
Place, Time and Date; Purpose. The Special Meeting will be held on
____________, ____________, 2000 at ________ __.m., local time, at
________________________, Poulsbo, Washington, for the purpose of considering
and voting upon a proposal to approve the Merger Agreement attached hereto as
Appendix A. See "THE SPECIAL MEETING -- Place, Time and Date" and "-- Purpose."
Record Date; Shares Entitled to Vote. The Liberty Board has fixed the
close of business on ____________, 2000 as the record date (the "Record Date")
for determining shareholders entitled to notice of and to vote at the Special
Meeting. Only those holders of shares of Liberty Common Stock of record on the
Record Date will be entitled to notice of and to vote at the Special Meeting.
Each share of Liberty Common Stock will be entitled to one vote. Shareholders of
record who execute proxies retain the right to revoke them at any time prior to
being voted at the Special Meeting. At the Record Date, there were __________
shares of Liberty Common Stock outstanding and entitled to be voted at the
Special Meeting. See "THE SPECIAL MEETING -- Record Date; Shares Entitled to
Vote."
Vote Required. Approval of the Merger Agreement requires the affirmative
vote of the holders of two-thirds of the outstanding shares of Liberty Common
Stock. At the Record Date, the directors and executive officers of Liberty and
their affiliates beneficially owned 65,362 shares of Liberty Common Stock, which
represents 29.30% of the shares entitled to be voted at the Special Meeting.
Simultaneous with the execution of the Merger Agreement, all of the executive
officers and directors of Liberty entered into an agreement with Frontier
pursuant to which each individual agreed to vote his or her shares for the
approval of the Merger Agreement. See "THE SPECIAL MEETING -- Vote Required."
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT.
THE MERGER; EXCHANGE RATIO
Upon consummation of the Merger, the shareholders of Liberty will
receive 10.5 shares of Frontier Common Stock for each share of Liberty Common
Stock owned.
RECOMMENDATION OF THE LIBERTY BOARD
THE LIBERTY BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS
ADVISABLE AND IN THE BEST INTERESTS OF LIBERTY AND LIBERTY'S SHAREHOLDERS AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
For a discussion of the circumstances surrounding the Merger and the
factors considered by the Liberty Board in making its recommendation, see "THE
MERGER -- Background and Reasons for the Merger." Approval of the Merger by
two-thirds of the Liberty shareholders entitled to vote is required by law. See
"THE MERGER -- Conditions to Consummation of the Merger." For a description of
certain economic interests directors and officers of Liberty may be deemed to
have in the Merger, see "THE MERGER -- Interests of Certain Persons in the
Merger."
OPINION OF FINANCIAL ADVISOR
Leslie Childress, Inc. ("LCI"), Liberty's financial advisor, has
delivered a written opinion to the Liberty Board, dated May 10, 2000 and updated
as of the date of this Prospectus/Proxy Statement, to the effect that the Merger
consideration is fair to Liberty shareholders from a financial point of view. A
copy
-4-
<PAGE> 11
of LCI's opinion, dated the date of this Prospectus/Proxy Statement, setting
forth the assumptions made, matters considered, procedures followed and limits
of its review, is attached hereto as Appendix C and should be read by
shareholders in its entirety. See "THE MERGER -- Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Liberty's management and the Liberty Board may be
deemed to have interests in the Merger in addition to their interests as
shareholders of Liberty generally. The Chairman and CEO of Liberty and the
President and Senior Credit Officer of Liberty have entered into employment
agreements with Frontier and/or Frontier Bank to take effect upon the Effective
Date of the Merger. Frontier has also agreed to assume existing options held by
employees of Liberty and its subsidiaries to purchase shares of Liberty Common
Stock. See "THE MERGER - Interests of Certain Persons in the Merger."
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. Either Frontier or Liberty may terminate the Merger
Agreement if the closing of the Merger does not occur on or before December 31,
2000.
EXCHANGE OF LIBERTY CERTIFICATES
After the Merger is consummated, Liberty shareholders will surrender
their certificates representing shares of Liberty Common Stock and will receive
certificates representing shares of Frontier Common Stock. LIBERTY SHAREHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES REPRESENTING SHARES OF LIBERTY COMMON
STOCK UNTIL AFTER THOSE LIBERTY SHAREHOLDERS RECEIVE TRANSMITTAL DOCUMENTS.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to, among other things: (i)
approval of the Merger Agreement by the holders of not less than two-thirds of
the outstanding shares of Liberty Common Stock; (ii) receipt of all applicable
regulatory approvals; (iii) receipt by Frontier and Liberty 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; (iv) the President and CEO of Liberty and
the President and Senior Credit Officer of North Sound Bank having entered into
employment agreements with Frontier and/or Frontier Bank; (v) the absence of any
material adverse change in the financial condition or results of operations of
Liberty; (vi) the number of shares for which dissenters' rights are exercised
not exceeding 10% of the outstanding shares of Liberty Common Stock; and (vii)
Liberty's Capital shall not be less than $21.5 million. See "THE MERGER --
Conditions to Consummation of the Merger."
ACCOUNTING TREATMENT
Frontier anticipates that it will account for the Merger as a pooling of
interests under generally accepted accounting principles. See "THE MERGER
- -Accounting Treatment".
-5-
<PAGE> 12
REGULATORY REQUIREMENTS
The Merger is subject to the receipt of certain prior approvals from the
Federal Reserve, the FDIC, and DFI. Frontier has filed applications for such
approvals. Frontier cannot guarantee that such approvals will be obtained. See
"THE MERGER -- Regulatory Requirements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned, among other things, on
receipt by Frontier and Liberty of an opinion of Keller Rohrback L.L.P., special
counsel for Frontier, to the effect that the Merger will be treated as a
reorganization described in Section 368(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). In accordance with this opinion, holders of Liberty
Common Stock who receive solely Frontier Common Stock in exchange for their
shares will recognize no gain or loss on such exchange. See "THE MERGER --
Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, EACH LIBERTY SHAREHOLDER IS URGED
TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO
SUCH HOLDER OF THE MERGER, INCLUDING THE SPECIFIC APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS TO SUCH SHAREHOLDER.
DISSENTERS' RIGHTS
Liberty shareholders have the right to dissent from the Merger and
obtain payment of the fair value of their shares of Liberty Common Stock under
the provisions of Chapter 13 of the Washington Business Corporation Act
("WBCA"). YOUR FAILURE TO FOLLOW EXACTLY THE PROCEDURES SPECIFIED IN CHAPTER 13
OF THE WBCA WILL RESULT IN THE LOSS OF YOUR DISSENTERS' RIGHTS. Accordingly,
Liberty shareholders wishing to dissent from the Merger are urged to read
carefully "THE MERGER -- Dissenters' Rights" and the copy of Chapter 13 of the
WBCA set forth in Appendix B to this Prospectus/Proxy Statement, and to consult
with their own legal advisors. If Liberty shareholders perfect dissenters'
rights with respect to more than 5% of the outstanding shares of Liberty Common
Stock, Frontier may elect not to consummate the Merger. See "THE MERGER --
Conditions to Consummation of the Merger."
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Liberty shareholders are currently determined by the WBCA
and Liberty's Articles of Incorporation and Bylaws. On the Effective Date,
shareholders of Liberty will become shareholders of Frontier, and their rights
as shareholders of Frontier will be determined by the WBCA and Frontier's
Articles of Incorporation and Bylaws. For a discussion of certain material
differences in the rights of shareholders of Frontier and Liberty and an
explanation of certain possible anti-takeover effects of certain provisions in
Frontier's Articles of Incorporation and Bylaws, see "COMPARISON OF
SHAREHOLDERS' RIGHTS."
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".
-6-
<PAGE> 13
The Frontier historical consolidated unaudited financial data as of and
for the three months ended March 31, 2000 and 1999 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.
-7-
<PAGE> 14
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR THE YEARS
MONTHS ENDED MARCH 31, ENDED DECEMBER 31,
-------------------------- -----------------------------------------------------------------
(Dollars in thousands, except for per share data)
-----------------------------------------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income .............. $ 28,923 $ 24,307 $ 103,689 $ 93,562 $ 83,324 $ 73,971 $ 68,443
Interest expense ............. 12,457 9,673 40,737 37,890 34,369 32,062 31,091
----------- ----------- ----------- ----------- --------- --------- ---------
Net interest income ....... 16,466 14,634 62,952 55,672 48,955 41,909 37,352
Provision for loan losses .... (200) (300) (2,050) (1,800) (2,095) (2,133) (1,621)
----------- ----------- ----------- ----------- --------- --------- ---------
Net interest income
after provision for
loan losses ............... 16,266 14,334 60,902 53,872 46,860 39,776 35,731
Noninterest income ........... 1,233 1,244 5,884 5,328 4,365 4,162 3,928
Noninterest expense .......... 6,365 6,302 28,321 26,702 23,545 20,255 19,442
----------- ----------- ----------- ----------- --------- --------- ---------
Income before provision
for income taxes ........... 11,134 9,276 38,465 32,498 27,680 23,683 20,217
Provision for income taxes ... (3,796) (3,282) (12,805) (10,849) (9,086) (7,671) (6,380)
----------- ----------- ----------- ----------- --------- --------- ---------
Net Income ................. $ 7,338 $ 5,994 $ 25,660 $ 21,649 $ 18,594 $ 16,012 $ 13,837
=========== =========== =========== =========== ========= ========= =========
HISTORICAL PER SHARE
DATA:
Earnings per share
Basic ..................... $ 0.42 $ 0.34 $ 1.46 $ 1.25 $ 1.08 $ 0.94 $ 0.81
Diluted ................... $ 0.42 $ 0.34 $ 1.46 $ 1.23 $ 1.07 $ 0.92 $ 0.80
Cash dividends per
common share ............... $ 0.09 $ 0.25
Shareholder's equity ......... 151,018 147,369 147,369 129,249 107,384 88,351 72,214
SELECTED RATIOS:
Return on average equity ..... 19.01% 18.29% 18.43% 18.27% 18.84% 20.15% 21.34%
Return on average assets ..... 2.21% 2.07% 2.15% 2.06% 2.03% 1.96% 1.84%
Net yield on interest
earning assets ............. 5.28% 5.41% 5.65% 5.69% 5.73% 5.49% 5.51%
Average equity as a
percentage of average
assets ..................... 11.61% 11.30% 11.65% 11.30% 10.78% 9.71% 8.63%
Non-performing assets
as a percentage of
total assets................ 0.23% 0.43% 0.18% 0.20% 0.59% 0.48% 0.67%
FINANCIAL CONDITION
DATA:
Total assets ................. 1,382,945 1,180,348 1,245,616 1,147,873 973,052 874,946 796,730
Loans receivable, net ........ 1,121,229 922,765 1,033,563 880,044 721,122 643,644 539,517
Cash and due from banks,
federal funds sold and
investments................. 223,832 223,981 176,372 235,546 221,588 203,234 226,161
Deposits ..................... 1,060,275 942,291 966,780 926,642 810,348 732,389 694,278
Borrowings ................... $ 158,989 $ 96,123 $ 123,741 $ 82,072 $ 47,379 $ 48,070 $ 23,990
</TABLE>
-8-
<PAGE> 15
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
CONDENSED CONSOLIDATED STATEMENT OF INCOME-QUARTERLY
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 QUARTER ENDED
(UNAUDITED)
-------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ -------- --------
<S> <C> <C> <C> <C>
Interest Income ............................. $ 24,874 $ 23,809 $ 22,766 $ 22,113
Interest Expense ............................ 9,920 9,672 9,207 9,091
-------- -------- -------- --------
Net Interest Income ..................... 14,954 14,137 13,559 13,022
Provision for loan losses ................... (875) (425) (175) (325)
-------- -------- -------- --------
Net interest income after provision for
loan losses ................................. 14,079 13,712 13,384 12,697
Noninterest income .......................... 1,604 1,209 1,365 1,150
Noninterest expense ......................... 7,611 6,278 6,833 5,980
-------- -------- -------- --------
Income before income taxes .................. 8,072 8,643 7,916 7,867
Income tax .................................. (2,375) (3,109) (2,579) (2,786)
-------- -------- -------- --------
Net Income .................................. $ 5,697 $ 5,534 $ 5,337 $ 5,081
======== ======== ======== ========
Basic earnings per common share ............. $ 0.33 $ 0.32 $ 0.31 $ 0.29
Diluted earnings per common share ........... $ 0.32 $ 0.31 $ 0.30 $ 0.29
Average basic common shares outstanding
(in thousands) ............................. 17,356 17,350 17,344 17,335
Average diluted common shares outstanding
(in thousands) ............................. 17,571 17,598 17,576 17,550
</TABLE>
<TABLE>
<CAPTION>
1999 QUARTER ENDED
(UNAUDITED)
------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ -------- --------
<S> <C> <C> <C> <C>
Interest Income ............................. $ 27,632 $ 26,568 $ 25,182 $ 24,307
Interest Expense ............................ 10,946 10,304 9,814 9,673
-------- -------- -------- --------
Net Interest Income ..................... 16,686 16,264 15,368 14,634
Provision for loan losses ................... (450) (1,100) (200) (300)
-------- -------- -------- --------
Net interest income after provision for
loan losses................................ 16,236 15,164 15,168 14,334
Noninterest income .......................... 1,267 2,023 1,350 1,244
Noninterest expense ......................... 8,128 7,013 6,878 6,302
-------- -------- -------- --------
Income before income taxes .................. 9,375 10,174 9,640 9,276
Income tax .................................. (2,860) (3,397) (3,266) (3,282)
-------- -------- -------- --------
Net income .................................. $ 6,515 $ 6,777 $ 6,374 $ 5,994
======== ======== ======== ========
Basic earnings per common share ............. $ 0.37 $ 0.39 $ 0.36 $ 0.34
Diluted earnings per common share ........... $ 0.37 $ 0.38 $ 0.36 $ 0.34
Average basic common shares outstanding
(in thousands) ............................. 17,528 17,525 17,520 17,512
Average diluted common shares outstanding
(in thousands) ............................. 17,606 17,609 17,619 17,622
</TABLE>
-9-
<PAGE> 16
FRONTIER FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
CONDENSED CONSOLIDATED STATEMENT OF INCOME-QUARTERLY
($ IN THOUSANDS, EXCEPT PER SHARE DATA - CONTINUED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, 2000
--------------
<S> <C>
Interest Income ............................. $ 28,923
Interest Expense ............................ 12,457
--------
Net Interest Income ......................... 16,466
Provision for loan losses ................... (200)
--------
Net interest income after provision for
loan losses ................................. 16,266
Noninterest income .......................... 1,233
Noninterest Expense ......................... 6,365
--------
Income before income taxes .................. 11,134
Income tax .................................. (3,796)
--------
Net income .................................. $ 7,338
========
Basic earnings per common share ............. 0.42
Diluted earnings per common share ........... 0.42
Average basic common shares outstanding
(in thousands) .............................. 17,520
Average diluted common shares
outstanding (in thousands) .................. 17,589
</TABLE>
-10-
<PAGE> 17
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.................. $42.50 $34.00
Second Quarter(1).............. $61.00 $35.00(2)
Third Quarter.................. $31.25 $23.13
Fourth Quarter................. $24.75 $21.38
1999
First Quarter.................. $25.00 $19.81
Second Quarter................. $24.94 $21.75
Third Quarter.................. $25.25 $20.00
Fourth Quarter................. $26.00 $20.00
2000
First Quarter.................. $22.00 $18.00
</TABLE>
(1) Frontier began listing its shares of Common Stock on Nasdaq on April 16,
1998.
(2) Excludes one transaction which Frontier was aware that was traded at $30.00
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 25cents per share. In 2000, Frontier
commenced paying quarterly dividends. The first quarterly dividend in the amount
of 9cents per share was paid on February 11, 2000. The second quarterly dividend
in the amount of 10cents per share will be paid on May 15, 2000. Frontier
anticipates paying a quarterly dividend for the foreseeable future.
As of March 31, 2000, the 17,458,225 outstanding shares of Frontier
Common Stock were held by approximately 3,318 holders of record.
Liberty. There is no established trading market for Liberty Common
Stock. No broker makes a market in Liberty 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. Liberty 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
-11-
<PAGE> 18
Liberty Common Stock. The following data includes trades between
individual investors, as reported to Liberty by North Sound Bank, which acts as
transfer agent.
-12-
<PAGE> 19
<TABLE>
<CAPTION>
LIBERTY COMMON STOCK
---------------------------------------
NUMBER OF SHARES
REPORTED AS TRADED HIGH LOW
------------------ ---- ---
<S> <C> <C> <C>
1998
First Quarter....................... 2,342 167 165
Second Quarter...................... 1,685 174 167
Third Quarter....................... 826 187 183
Fourth Quarter...................... 225 201 195
1999
First Quarter....................... 690 208 197
Second Quarter...................... 733 211 208
Third Quarter....................... 551 213 212
Fourth Quarter...................... 1,902 213 213
2000
First Quarter....................... 1,546 213 180
</TABLE>
As of March 31, 2000, the 210,298 outstanding shares of Liberty Common
Stock were held by approximately 401 holders of record. Dividends paid on
Liberty Common Stock in 2000, 1999 and 1998, respectively, were $1.27 per share,
$3.75 per share and $1.50 per share.
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 Liberty Common Stock on March 15, 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 was practicable to obtain market price data prior to the printing of
this Prospectus/Proxy Statement. HOLDERS OF LIBERTY COMMON STOCK ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR SHARES OF FRONTIER COMMON STOCK.
<TABLE>
<CAPTION>
MARCH 15, 2000 MAY __, 2000
-------------- ------------
<S> <C> <C>
Closing price share:
Frontier ....................................... 18
Liberty(1) ..................................... 180 180
Equivalent pro forma per share of Liberty
Common Stock(2) ................................ 189
</TABLE>
(1) There is no publicly available quotations of Liberty Common Stock, and the
market price per share as of the respective dates represent prices known to
Liberty's management to have been paid for the Liberty Common Stock in the
last transaction prior to such data.
(2) Computed by multiplying the Frontier Closing Price by the Exchange Ratio of
10.5 shares of Frontier Common Stock for each share of Liberty Common Stock.
-13-
<PAGE> 20
THE SPECIAL MEETING
PLACE, TIME AND DATE
The Special Meeting will be held on ____________, ____________, 2000 at
__:00 _.m., local time, at _________________, Poulsbo, Washington. This
Prospectus/Proxy Statement is being sent to holders of Liberty Common Stock and
is accompanied by a form of proxy that is being solicited by the Liberty 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 Liberty 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 Liberty Common Stock of
record on the Record Date will be entitled to notice of and to vote at the
Special Meeting. Each share of Liberty Common Stock will be entitled to one
vote. At the Record Date, there were _________ shares of Liberty 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 Liberty 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 Liberty 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 Liberty
and their affiliates beneficially owned an aggregate of 65,362 shares of Liberty
Common Stock, which represents 29.30% of the shares entitled to be voted at the
Special Meeting. All of the directors and executive officers of Liberty 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 Liberty Common Stock may vote either in person or by properly
executed proxy. Shares of Liberty 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 card 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
-14-
<PAGE> 21
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
Liberty Board 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 Liberty, 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 Liberty 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
Liberty Board. The expense of soliciting proxies for the Special Meeting will be
borne by Liberty. 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
Liberty 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
Liberty Common Stock on behalf of another will be asked to forward proxy
material and related documents to the beneficial owners of such stock, and
Liberty 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 Liberty with and into
Frontier followed by the merger of North Sound Bank with and into Frontier Bank.
The separate existence of Liberty and North Sound Bank will cease upon
completion of the mergers. After consummation of the transaction, the branches
of North Sound Bank will operate and be known as branches of Frontier Bank.
While Frontier and Liberty 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 Liberty, other than
Dissenting Shares, will receive for each share of Liberty common stock the right
to receive 10.5 shares of Frontier stock for each share of Liberty owned.
Liberty 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 market reporting system for the trading days
-15-
<PAGE> 22
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 ________________, 2000. Either Frontier or
Liberty may, subject to certain conditions, terminate the Merger Agreement if
the Effective Date does not occur on or before December 31, 2000.
EXCHANGE OF LIBERTY CERTIFICATES
As promptly as practicable after the Effective Date, Frontier will send
to each holder of record of Liberty Common Stock transmittal materials for use
in exchanging all of such holder's certificates representing Liberty 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.
Because the Effective Date of the Merger is not expected to occur for
several weeks after the Special Meeting, depending on the receipt of regulatory
approvals, Liberty shareholders will not be able to obtain their certificates
representing shares of Frontier Common Stock for several weeks after the Special
Meeting.
DO NOT SEND IN YOUR LIBERTY CERTIFICATES UNTIL YOU RECEIVE THE LETTER OF
TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender of all of the certificates for Liberty Common Stock
registered in the name of a holder of such certificates (or indemnity
satisfactory to Frontier and the exchange agent selected by 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 Liberty
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 Liberty 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 Liberty will be closed, and there will be no transfers
on the transfer books of Liberty of the shares of Liberty Common Stock that were
outstanding immediately prior to the Effective Date.
-16-
<PAGE> 23
BACKGROUND AND REASONS FOR THE MERGER
In reaching its determination to approve and adopt the Merger Agreement,
the Liberty Board consulted with Liberty's Management and its financial and
legal advisors, and considered a number of factors, including, without
limitation, the following:
- The Liberty Board's thorough review of Liberty's business,
operations, financial condition and earnings on an historical and a
prospective basis;
- The Liberty Board's knowledge and review, based in part on
presentations by its financial advisors and Liberty'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 Liberty Shareholders as shareholders of
the combined company, and Frontier's substantial market
capitalization;
- The terms of the Merger Agreement, including a provision for a
fixed Exchange Ratio of 10.5 shares of Frontier Common Stock for
each share of Liberty Common Stock, enabling Liberty shareholders
to benefit from any increase in the trading price of Frontier
Common Stock prior to the Merger;
- The current and prospective economic and competitive environment
facing the financial services industry generally, and Liberty 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;
- The general impact that the Merger could be expected to have on the
constituencies served by Liberty, including its customers,
employees and communities. In this regard, Liberty noted that the
combined company could be expected to offer a more extensive range
of financial products and services to Liberty'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 Liberty employees;
- The Merger is anticipated to increase current shareholders' cash
dividends on a per-share basis;
- The expectation that the Merger will be tax-free for federal income
tax purposes to Liberty and Liberty shareholders;
- The common business philosophy and compatibility of the management
and staff of Liberty and Frontier;
- The fact that Mr. Clementz will continue as Chief Executive Officer
of North Sound Bank until it is consolidated with a subsidiary of
Frontier and will thereafter serve as a member of the Executive
Management Team and Board of Directors of Frontier.
- The fact that Mr. Robinson will continue to serve as President and
Chief Credit Officer of North Sound Bank until North Sound Bank is
merged into a subsidiary of Frontier and will serve as a Senior
Vice President of North Sound Bank's successor; and
-17-
<PAGE> 24
- On March 15, 2000, the Liberty Board carefully considered the
nature, value, and prospects for future appreciation and liquidity
of the shares of Frontier Common Stock to be received by Liberty
shareholders in the proposed merger.
The foregoing discussion of the information and factors considered by
the Liberty Board is not intended to be exhaustive but includes some of the
material factors considered by the Liberty Board. In reaching its determination
to approve and recommend the Merger Agreement, the Liberty 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 LIBERTY BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS OF LIBERTY
AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF LIBERTY VOTE FOR
THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
Leslie Childress, Inc. and its affiliate, Childress Investment Research,
Inc., hereinafter referred to as "LCI", has delivered a written opinion to the
Liberty Board to the effect that, as of the date of this Prospectus/Proxy
Statement, the consideration to be received by LBFC 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 10.5 shares based upon the price
calculation described below of Frontier Common Stock for each share of Liberty
has been determined by Liberty and Frontier through negotiations. The LCI
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
stockholder as to how said shareholder should vote at the Special Meeting. As of
March 15, 2000, the price of Frontier's Common Stock was $18.00 per share based
upon the closing stock prices as reported in The Wall Street Journal for the
period of March 15, 2000, and the total purchase price is approximately $189.00
per share for all of the outstanding shares of Liberty.
Liberty retained LCI as its financial advisor for fairness opinion
purposes pursuant to an engagement letter dated March 1, 2000, in connection
with the Merger. LCI and CIR is a regionally recognized investment firm that is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions. The Liberty Board selected LCI to provide its
fairness opinion based on LCI and CIR's experience in providing fairness
opinions in mergers and acquisitions and in securities valuation generally.
On May 10, 2000, LCI issued its Opinion to the Liberty Board that, in
its opinion the terms of the Merger as Provided in the Merger Agreement are
fair, from a financial view point to Liberty and its shareholders. THE FULL TEXT
OF THE OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND
LIMITS ON ITS REVIEW, IS ATTACHED HERETO AS APPENDIX C. THE SUMMARY OF THE LCI
OPINION IN THIS PROSPECTUS/PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. SHAREHOLDERS ARE URGED TO READ THE
ENTIRE LCI OPINION.
In rendering its opinion to LBFC, LCI reviewed, among other things,
historical financial data of LBFC, certain internal financial data and
assumptions of LBFC prepared for financial planning and budgeting purposes
furnished by the management of LBFC and, to the extent publicly available, the
financial terms of certain change of control transactions involving Northwest
community banks. LCI discussed with LBFC management the financial condition,
current operating results, and business outlook for LBFC. LCI also reviewed
certain publicly available information concerning Frontier and certain financial
and securities data of Frontier and companies deemed similar to Frontier. LCI
discussed with Frontier's management the financial condition, current operating
results, and business outlook for Frontier
-18-
<PAGE> 25
and Frontier's plans relating to Liberty. In rendering its opinion, LCI 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 Liberty or
Frontier nor was it furnished any such appraisals. Liberty did not impose any
limitations on the scope of the LCI investigation in arriving at its opinion.
LCI 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(s) of projected growth, earnings and dividends and a
range of discount rates from 11% to 14%.
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 may still result 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 Liberty's assets and
liabilities, customer relations, market presence, image and reputation, staff
expertise and depth, little weight is given by LCI 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, adjusted 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 to the investment
value approach discussed below.
LCI and its affiliate, CIR, maintains a comprehensive data base
concerning prices paid for banking institutions in the Northwest, particularly
Western Washington and Western Oregon banking institutions, for the period 1986
through March 2000. This data base 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 Liberty, LCI 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 Washington and Oregon banking organizations with total assets greater
than $100 million and less than $1 billion that sold for 100% common stock from
January 1986 to March 2000.
Comparable Sales Multiples. LCI calculated Adjusted Book Values for
Liberty's March 31, 2000, stockholders equity and the December 31, 1999,
stockholders' equity adjusted for the price to stockholders equity ratios for a
sample of Northwest banking institutions with assets above $100 million and
below $1 billion which sold between January 1, 1996, through March 2000. The
calculation revealed a multiple of 230% of the December 1999 stockholders'
equity. For the March 31, 2000, stockholders' equity, the calculation was 229%.
On a price to earnings basis for the 12 months to December 31, 1999, the
calculation revealed a multiple of 15.17.
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Transaction Value as a Percentage of Total Assets. LCI 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 differing levels of stockholders equity and earnings. In this instance, a
transaction value of $189.00 per Liberty share results in a transaction value as
a percentage of total assets of 22.38%. The median prices as a percentage of
total assets for a sample of Northwest banking institutions with assets of below
$100 million which sold between August 31, 1996, through March 31, 2000, and a
sample of Northwest banking institutions with total assets above $100 million
and below $1 billion which sold between August 31, 1996, and March 31, 2000, are
13.53% and 29.81%, respectively.
Investment Value is sometimes referred to as the income or earnings
value. One investment value method frequently 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 Liberty's estimates of
future growth and an appropriate capitalization or discount rate. LCI's
calculations were based on an analysis of the banking industry, earnings
estimates of 2000-2002, historical levels of growth and earnings, and the
competitive situation in Liberty's market area. Using discount rates of 11% and
14%, 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 $155.78 to
$196.65 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
LCI's opinion that the proposed transaction is fair, from a financial point of
view to the Liberty shareholders.
Pursuant to the terms of the Engagement Letter, Liberty has agreed to
pay LCI a fee for its services in connection with this fairness opinion. In
addition, Liberty has agreed to reimburse LCI for its reasonable out-of-pocket
expenses and to indemnify LCI against certain liabilities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The directors and executive officers of Liberty, together with their
affiliates, beneficially owned a total of 65,362 shares of Liberty Common Stock
(representing 29.30% of all outstanding shares of Liberty Common Stock) as of
the Record Date. The directors and executive officers will receive the same
consideration in the Merger for their shares as the other shareholders of
Liberty. Certain members of Liberty's management and the Liberty Board have
certain interests in the Merger as described below that are in addition to their
interests as shareholders of Liberty generally. The Liberty Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby.
EMPLOYMENT AGREEMENTS. Frontier and/or Frontier Bank have entered into
employment agreements with Michael J. Clementz, the President and Chief
Executive Officer of Liberty, and the Chairman and Chief Executive Officer of
North Sound Bank, and Robert W. Robinson, the President and Chief Credit Officer
of North Sound Bank, to take effect upon consummation of the Merger. Mr.
Clementz will serve as Executive Vice President of Frontier Financial
Corporation and Frontier Bank and will serve as a member of the Frontier
Executive Management Team. Mr. Clementz's employment agreement has a three-year
term and provides for an annual salary of $150,000. In addition, Mr.
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Clementz will receive a "Stay Bonus" of $40,000 each year for the term of the
agreement (three payments - $120,000 in total). Mr. Robinson will serve as
Senior Vice President of Frontier Bank. His employment agreement has a
three-year term and provides for an annual salary of $101,500. Additionally, Mr.
Robinson will receive a "Stay Bonus" of $20,300 each year of the three-year
agreement (three payments - $60,900 in total). Mr. Robinson's employment
agreement also includes a severance payment of an amount up to two times his
past year's income if Mr. Robinson is terminated in connection with a change of
control of Frontier.
Both Mr. Clementz and Mr. Robinson had Change of Control Agreements with
Liberty which will be terminated upon consummation of the Merger.
CHANGE OF CONTROL AGREEMENTS. Mark D. Freeman and Ronald L Tweiten had
Change of Control Agreements with Liberty. These agreements included severance
benefits and non-competition provisions. Under the terms of these agreements as
amended, Mr. Freeman will receive a lump-sum payment of $302,837 and Mr. Tweiten
will receive a lump-sum payment of $225,336. Both Mr. Freeman and Mr. Tweiten
agree not to compete with Frontier after termination of their employment for a
two-year period within Kitsap, Jefferson or Clallam Counties.
STOCK OPTIONS. At the Effective Date of the Merger, Frontier will assume
each outstanding option to purchase shares of Liberty Common Stock held by an
employee of Liberty or any of its subsidiaries so that each such option is
converted into an option to purchase shares of Frontier Common Stock, except
that each option will be exercisable for that number of shares of Frontier
Common Stock equal to the number of shares of Liberty Common Stock for which
such option was exercisable multiplied by the Exchange Ratio, and the exercise
price of such Liberty option will be equal to the exercise price of such option
divided by the Exchange Ratio. As of the date of this Prospectus/Proxy
Statement, the employees of Liberty held options to acquire an aggregate of
14,050 shares of Liberty Common Stock. At the exchange ratio of 10.5 shares of
Frontier Common Stock for each share of Liberty Bay Common Stock, these options
will be converted to options to purchase 147,525 shares of Frontier Common
Stock.
The directors of Liberty currently have options outstanding to purchase
6,500 shares of Liberty Common Stock. Under the terms of the Merger Agreement,
each Director Option that is outstanding and unexercised shall be exercised
prior to the Effective Date, and any Director Option that is not exercised prior
to the Effective Date shall be terminated.
APPOINTMENT OF DIRECTOR TO THE FRONTIER BOARD. Frontier has agreed to
appoint Michael J. Clementz, a member of the Liberty Board and a member of the
Board of Directors of North Sound Bank, to serve on the Frontier and Frontier
Bank Boards of Directors following the Effective Date. Mr. Clementz is and has
been the President and Chief Executive Officer of Liberty for more than five
years. Directors of Frontier currently receive an annual retainer of $22,500,
and the directors of Frontier Bank receive $2,200 per director meeting attended.
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 Liberty
shareholders. This discussion is based on currently existing provisions of 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.
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Consummation of the Merger is conditioned upon the receipt by Frontier
and Liberty 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 Liberty shareholders as a result of receiving
shares of Frontier Common Stock in exchange for their shares of Liberty Common
Stock. The opinion will not bind the Internal Revenue Service (the "IRS") or
preclude the IRS from adopting a contrary position. Frontier and Liberty 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, Liberty will resolicit the approval of its shareholders. Neither
Frontier nor Liberty 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 LIBERTY 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 Liberty 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 Common Stock, as discussed below) to the basis of
the Liberty Common Stock surrendered in exchange therefor. The holding period of
the Frontier Common Stock received will include the holding period of shares of
Liberty 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. A holder who holds Liberty Common
Stock as a capital asset and who receives in the Merger, in exchange for such
stock, solely Frontier Common Stock and 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 LIBERTY 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 LIBERTY 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
Liberty 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 Liberty and North Sound 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 Liberty Common Stock;
provided, however, that:
(a) Liberty may declare and pay a cash dividend of up to $0.67 per share
to shareholders of record on March 31, 2000;
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(b) Liberty may pay a cash dividend of up to $0.70 per share for the
second quarter of 2000; provided, however, that commencing with the second
quarter of 2000 Liberty shall use the same date as Frontier for determining
shareholders of record entitled to receive Liberty's cash dividend (the
"Dividend Record Date");
(c) If the transaction contemplated by this Plan has not been
consummated on or before the Frontier Dividend Record Date for the third quarter
of 2000, Liberty may declare and pay a per-share cash dividend for the third
quarter equal to the amount each share of Eligible Liberty Common Stock would
have received if the Effective Date had been such Dividend Record Date;
(d) If the transaction contemplated by this Plan has not been
consummated on or before the Frontier Dividend Record Date for the fourth
quarter of 2000, Liberty may declare and pay a per-share cash dividend for the
fourth quarter equal to the amount each share of Eligible Liberty Common Stock
would have received if the Effective Date had been such Dividend Record Date;
(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
$10,000 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
North Sound Bank shall not, without the prior consent of Frontier's Chief
Executive Officer or Chief Credit Administrator make any new loan in excess of
$1,000,000; (xiv) incur transaction expenses in excess of $125,000; (xv) enter
into any transactions other than in the ordinary course of business. Moreover,
Liberty 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 Liberty 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 Liberty Common Stock; (ii) receipt 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 Liberty of the opinion
of Keller Rohrback, LLP, dated as of the Effective Date, as to certain federal
income tax consequences of the Merger; (v) Frontier and Liberty receiving a
letter from Moss Adams, L.L.P., dated the Effective Date, to the effect that the
Mergers will qualify for pooling of interests accounting treatment; (vi) the
shares of Frontier Common Stock to be issued pursuant to the Merger Agreement
being approved for listing on the National Market; and (vii) 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 Liberty 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 Liberty; (iii)
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Michael J. Clementz and Robert W. Robinson 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 Liberty;
(v) the number of Dissenting Shares not exceeding 5% of the outstanding shares
of Liberty Common Stock; and (vi) Liberty's Capital shall not be less than $21.5
million (not including capital contributions upon exercise of outstanding
Liberty Options) on the Effective Date.
The obligations of Liberty 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; and (iii) the receipt of an opinion from LCI prior to the
mailing of this proxy statement to the effect that the financial terms of the
merger are fair to Liberty shareholders.
Frontier and Liberty may waive certain of the conditions to their
respective obligations to consummate the Merger, other than conditions required
by law.
REGULATORY REQUIREMENTS
The merger of Frontier and Liberty is subject to prior approval by the
Federal Reserve and DFI. An application for approval of the merger of Frontier
and Liberty was filed with the Federal Reserve on April 18, 2000 and DFI on
April 18, 2000. The merger of Frontier Bank and North Sound Bank is subject to
the receipt of certain prior approvals from the FDIC and DFI. An application for
such merger was filed with the FDIC and DFI on April 18, 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 Liberty 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 December 31, 2000, the Merger Agreement may be
terminated, subject to certain conditions, by Frontier or Liberty. 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 Liberty's
shareholders, there can be no assurance that the Merger will be consummated by
December 31, 2000. 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), Liberty's shareholders have the right to dissent from the
Merger and to receive payment in cash for the "fair value" of their Liberty
Common Stock.
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If Liberty shareholders perfect dissenters' rights with respect to more
than 5% of the outstanding shares of Liberty Common Stock, Frontier may elect
not to consummate the Merger. Liberty shareholders electing to exercise
dissenters' rights must comply with the provisions of Chapter 13 in order to
perfect their rights. Liberty 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 Liberty 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 Liberty before the vote is taken by Liberty 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 Liberty at the following address within the requisite time period:
Liberty Bay Financial Corporation
19950 Seventh Avenue NE
Poulsbo, WA 98370-0329
Attn: Michael J. Clementz, President/CEO
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 Liberty 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 Liberty 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 LIBERTY PRIOR TO THE VOTE BEING
TAKEN BY LIBERTY 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.
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
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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
Liberty 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 Liberty 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 Liberty shareholders are entitled to receive, or adversely affects the
intended tax-free treatment to Liberty 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
Liberty. After approval of the Merger Agreement by the shareholders of Liberty,
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
Liberty shareholders in exchange for their Liberty Common Stock or that would
adversely affect the intended tax-free treatment to Liberty 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 Liberty
shareholders, as follows: (i) by the mutual consent of Frontier and Liberty, 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 December 31, 2000; (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 Liberty
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 Liberty shareholders is not obtained.
In the event of the valid termination of the Merger Agreement by either
Frontier or Liberty, 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.
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
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circumstances. Liberty has agreed to pay to Frontier a termination fee of
$350,000 in the event that: (i) the Merger Agreement is terminated because
Liberty and North Sound Bank do not use their best efforts to consummate the
Merger in accordance with the terms of the Merger Agreement; or (ii) Liberty
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
Liberty 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
Liberty 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 Liberty or Frontier as that
term is defined in the rules under the Securities Act. Frontier Common Stock
received by those shareholders of Liberty who are deemed to be "affiliates" of
Liberty 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 Liberty generally
include individuals or entities that control, are controlled by or are under
common control with, Liberty, and may include the executive officers and
directors of Liberty and certain of their affiliates as well as certain
principal shareholders of Liberty. In the Merger Agreement, Liberty has agreed
to use its best efforts to cause each person who may be deemed to be an
affiliate of Liberty 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 Liberty.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by Frontier
and Liberty of a letter from Moss Adams, LLP, to the effect that the Merger will
qualify for "pooling of interests" accounting treatment if consummated in
accordance with the terms of the Merger Agreement. Under the pooling of
interests method of accounting, the historical basis of assets and liabilities
of Frontier and Liberty will be combined at the Effective Date and carried
forward at their previously recorded amounts, and the stockholders' equity
accounts of Frontier and Liberty will be combined on Frontier's consolidated
balance sheet. Income and other financial statements of Frontier issued after
consummation of the Merger will be restated retroactively to reflect the
consolidated operations of Frontier and Liberty as if the Merger had taken place
prior to the periods covered by such financial statements. There is no
recognition of goodwill from the Merger under the pooling of interests account
method.
EXPENSES
The Merger Agreement provides that Frontier and Liberty each will pay
their own expenses in connection with the Merger Agreement and the transactions
contemplated thereby. Liberty may not incur expenses in connection with the
transaction that exceed $125,000.
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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 26 branch
offices located in 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 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 26 locations include four offices in Everett, one office
each in Arlington, Bellingham, Bothell, Buckley, Burlington, Edmonds, Lake City
(North Seattle), Lake Stevens, Lynnwood, Marysville, Meridian Place (Puyallup),
Mill Creek, Monroe, Mount Vernon, Orting, Redmond, Smokey Point, Snohomish,
Stanwood, Sumner and Woodinville. The Bank opened a branch office in Kent,
Washington on May 1, 2000.
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 March 31, 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."
FRONTIER YEAR 2000 ISSUES
Many currently installed computer systems, software programs, and
embedded data chips are programmed using a 2-digit date field and are therefore
unable to distinguish dates beyond the 20th century. A failure to identify and
correct any mission-critical internal or third party year 2000 processing
problem could have a material adverse operational or financial consequence to
Frontier. Frontier established a Year 2000 Committee in February 1997 with
representatives from all significant functional areas which report to the
Frontier Board of Directors. Thus far, Frontier has had no significant problems
related to year 2000 issues associated with the computer systems, software,
other property and equipment used by Frontier. However, Frontier cannot
guarantee that the year 2000 problem will not adversely affect its business,
operating results or financial condition at some point in the future. All of
Frontier's mission-critical systems were successfully tested for year 2000
compliance, and Frontier has not experienced any significant year 2000 problems
with its own mission-critical systems or any mission-critical third parties.
Although Frontier has not experienced any significant year 2000 problems to
date, Frontier plans to continue to monitor the situation closely.
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LIBERTY
Liberty was incorporated on June 3, 1985 as a bank holding company in
Poulsbo, Washington. Liberty owns North Sound Bank, incorporated in 1979 as a
Washington state-chartered commercial bank and Liberty Bay Premise Corporation,
incorporated in 1994 as a bank real-estate investment company. In addition,
North Sound Bank owns North Sound Financial Services, Inc., incorporated in 1994
as a financial service company.
North Sound Bank conducts its banking business through 8 branches
located in Kitsap, Jefferson and Clallam counties of Washington State. North
Sound 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. Through North Sound Financial Services, Inc.,
full-service securities brokerage products and services are offered through its
dealer-broker relationship with Raymond James Financial Services, Inc. North
Sound Bank's main office and administrative office are in Poulsbo, Washington.
As of March 31, 2000, North Sound Bank had a total of $139,577,000 in
loans outstanding, an allowance for loan losses of $1,448,000, total deposits of
$157,313,000, and total stockholders' equity of $18,584,000.
COMPETITION
The primary service area of North Sound Bank is the tri-county area
consisting of Kitsap, Jefferson and Clallam counties. Major cities within these
counties are Poulsbo, Bainbridge Island, Port Townsend, Sequim, Port Angeles and
the unincorporated area called Silverdale. North Sound Bank faces strong
competition, both in attracting deposits and originating loans, from numerous
national, regional and community banks, savings and loan associations, mutual
savings banks, credit unions and other financial institutions. These and many
other competitors are larger and more substantially capitalized than North Sound
Bank. They have established positions in these counties and have greater
resources than North Sound 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. North Sound 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
North Sound Bank operates out of 8 offices. Following are descriptions
of North Sound Bank's facilities at each location:
Main and Administrative Office is located at 19950 - 7th Ave NE,
Poulsbo, Washington. This 31,000 square feet building consists of a full
basement and two floors. North Sound Bank owns the building leasing out 2,900
square feet to an unrelated mortgage company and 8,300 square feet to the US
Navy. Bank operations, loan servicing and information services departments
occupies the basement and executive/administrative offices occupies the 2nd
floor. This full-service facility has three drive-up lanes and one ATM lane.
North Sound Bank leases the land adjacent to this building for additional
parking under a related-party lease agreement expiring in February 2006.
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Downtown Poulsbo Office is located at 19168 Jensen Way, Poulsbo,
Washington. This 1,200 square feet space serves as a limited service branch
offering only non-lending services. These premises are leased from an unrelated
third party under a lease which expires in October 2001.
Silverdale Office is located at 10705 Silverdale Way NE., Silverdale,
Washington. This 14,500 square feet building consists of a full basement and two
floors. Liberty owns the building leasing out 1,000 square feet to a unrelated
security brokerage firm on the first floor. North Sound Banks' mortgage
department occupies the basement and North Sound Financial Services, Inc.
occupies 3,700 square feet of the 2nd floor. This full-service facility has two
drive-up lanes and one ATM lane. The lease with Liberty expires in February
2007.
Bainbridge Island Office is located at 901 Hildebrand Lane NE,
Bainbridge Island, Washington. This full- service facility has two drive-up
lanes and one ATM lane. North Sound Bank leases 3,800 square on the first floor
of this two story building from an unrelated third party under a lease which
expires July 2012.
Port Townsend Office is located at 2200 Sims Way, Port Townsend,
Washington. This 9,100 square feet building consists of two floors. This
full-service facility has two drive-up lanes and one ATM lane. Liberty owns the
building leasing out 1,400 square feet of the first floor to a doctor. The lease
with Liberty expires July 2014.
Sequim Office is located at 901 W Washington Street, Sequim, Washington.
This full-service facility has two drive-up lanes and one ATM lane. This 4,000
square feet building is leased from the Liberty subsidiary, Liberty Bay Premise
Corporation. The lease with Liberty Bay Premise Corporation expires in July
2006.
Port Angeles Office is located at 1212 E First St., Port Angeles,
Washington. This full-service facility has two drive-up lanes and one ATM lane.
This 5,200 square feet building is leased from an unrelated third party under a
lease which expires January 2009.
Port Hadlock Office is located at 69 Oak Bay Road, Port Hadlock,
Washington. This limited-service facility has one drive-up lane and one ATM
lane. These premises are leased from an unrelated third party under a lease
which expires in December 2001.
EMPLOYEES
As of March 31, 2000, North Sound Bank had 67 full time and 35 part time
employees. North Sound Financial Services, Inc. employed 6 full time and 1 part
time persons. Liberty Bay Premise Corporation and Liberty do not directly employ
anyone. North Sound Bank and North Sound Financial Services, Inc. provides a
variety of benefits to its employees and believes employee relations are good.
LEGAL PROCEEDINGS
Liberty's management believes that there is no threatened or pending
legal proceedings against Liberty, North Sound Bank, Liberty Bay Premise
Corporation, or North Sound Financial Services, Inc. which, if determined
adversely, would have a material adverse effect on the business or financial
position of Liberty, North Sound Bank or their subsidiaries.
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LIBERTY YEAR 2000 ISSUES
Many currently installed computer systems, software programs, and
embedded data chips are programmed using a 2-digit date field and are therefore
unable to distinguish dates beyond the 20th century. A failure to identify and
correct any mission-critical internal or third party year 2000 processing
problem could have a material adverse operational or financial consequence to
Liberty. Thus far, Liberty has had no significant problems related to year 2000
issues associated with the computer systems, software, other property and
equipment used by Liberty. However, Liberty cannot guarantee that the year 2000
problem will not adversely affect its business, operating results or financial
condition at some point in the future. All of Liberty's mission-critical systems
were successfully tested for year 2000 compliance, and Liberty has not
experienced any significant year 2000 problems with its own mission-critical
systems or any mission-critical third parties. Although Liberty has not
experienced any significant year 2000 problems to date, Liberty plans to
continue to monitor the situation closely.
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 Liberty are bank holding companies by virtue of their
respective ownership of Frontier Bank and North Sound Bank, and are registered
as such with the Federal Reserve. As bank holding companies, Frontier and
Liberty 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 Liberty 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
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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.
Control of Nonbanks. With certain exceptions, the BHCA also prohibits
bank holding company 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 Liberty and North Sound
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 subsidiaries 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 type 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 officers, directors, principal stockholders, and their related
interests; and (3) prohibits management personnel from serving as a director or
in other management
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positions of another financial institution whose assets exceed a specified
amount or which has an office within a specified geographic area.
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 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, Liberty 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, Liberty 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 a
lower-cost service to customers. However, the impact of the amendments on
Frontier, Liberty and their subsidiaries is unclear at this time.
STATE LAW RESTRICTIONS
As corporations chartered under the laws of the State of Washington,
Frontier and Liberty 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
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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 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 North Sound Bank are state-chartered commercial banks
subject to extensive regulation and supervision by the Washington Department of
Financial Institutions Division of Banks ("DFI"). Frontier Bank and North Sound
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 stockholders 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.
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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 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 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
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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 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, Liberty, 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 Liberty by North Sound Bank
are the material source of Liberty's cash flow. Various federal and state
statutory provisions limit the amount of dividends Frontier's and Liberty's
banking subsidiaries are permitted to pay to Frontier and Liberty, 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 qualify, 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 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 DFI.
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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 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 Liberty'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.
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<PAGE> 44
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
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 Liberty 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.
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<PAGE> 45
VOTING SECURITIES OF LIBERTY AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of the Record Date, information as to
the shares of Liberty Common Stock beneficially owned by each person who, to the
knowledge of Liberty, is the owner of more than 5% of the outstanding shares of
Liberty Common Stock, by each director of Liberty, by the Chief Executive
Officer of Liberty, and by all executive officers and directors of Liberty as a
group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF SHARES
NAME OWNED(1)(2) OUTSTANDING
- ---------------------------- ----------- -----------
<S> <C> <C>
Harry C. James 6,735 3.18%
Michael J. Clementz(3) 27,406 12.97%
Walter W. Hogue 3,122 1.48%
Dorothy L. Bradley 5,250 2.48%
Fred D. Hill(4) 4,516 2.13%
Mark D. Freeman(5) 8,091 3.81%
J. Timothy Ryan 3,392 1.60%
Reinhold F. Bergstrom 1,750 *
Robert W. Robinson 2,500 1.17%
Directors and Executive
Officers, as a group(10) (6) 65,362 29.30%
</TABLE>
- ---------------
*Less than 1%
(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 Liberty
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 or ownership, over which
shares the persons named in the table possess voting and/or investment
power. The table does not include shares held by Liberty's profit sharing
plan, of which Mr. Clementz, Mr. Freeman and another executive officer are
participants, because Key Bank is trustee of such plan and has sole voting
and dispositive power over the shares held by such plan.
(2) The number of shares shown includes shares that the above persons have the
right to acquire through the exercise of stock options granted pursuant to
Liberty's incentive and director stock option plans: Mr. James: 1,250; Mr.
Clementz: 1,000; Mr. Hogue: 750; Ms. Bradley: 1,250; Mr. Hill: 750; Mr.
Freeman: 2,000; Mr. Ryan: 1,250; Mr. Robinson: 1,950; other executive
officer: 900.
(3) Includes 226 shares held by Mr. Clementz's spouse as separate property and
Mr. Clementz disclaims beneficial ownership of such shares. Includes 3,500
shares held in the name of Leo B. Clementz, Jr. and Shirlee A. Clementz,
JTWROS, parents of Mr. Clementz to which he has power of attorney, and to
which shares he disclaims beneficial ownership of. Includes 1,600 shares
held by a corporation of which Mr. Clementz is an officer and director.
Includes 21,080 shares held by a limited liability company of which Mr.
Clementz is the Manager.
(4) Includes 400 shares held by Mr. Hill's spouse as separate property, and Mr.
Hill disclaims beneficial owernship of such shares.
(5) Includes 110 shares held in Mr. Freeman's individual retirement account.
(6) Includes 300 shares held in trust for the benefit of an executive officer
that are not reflected elsewhere in the chart.
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 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
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<PAGE> 46
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.
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. Liberty is incorporated under
the laws of the State of Washington and, accordingly, the rights of Liberty's
shareholders are governed by Liberty's Articles of Incorporation, Bylaws and the
WBCA.
Upon consummation of the Merger, shareholders of Liberty 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
Liberty shareholder under Liberty'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
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<PAGE> 47
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 five 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 fourteen. 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.
Liberty. Liberty's Bylaws provide that its Board of Directors shall
consist of not less than five nor more than 11 directors, each of whom hold
office until the next annual meeting. 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.
Liberty. A director of Liberty may be removed, with or without cause, by
the shareholders at a special meeting called for that purpose.
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.
Liberty. Liberty's Bylaws provide that any vacancy on the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors.
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.
Liberty. The Bylaws of Liberty provide that special meetings of
shareholders may be called by the Chairman, a majority of the directors, or
shareholders holding 10% of the shares entitled to vote at the meeting.
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<PAGE> 48
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.
Liberty. Liberty's Restated Articles of Incorporation provide that
Liberty's directors and officers shall be indemnified and held harmless by
Liberty to the fullest extent permitted by the WBCA, provided that no
indemnification may be provided with respect to proceedings initiated by such
officer or director unless such proceeding was authorized by Liberty's Board of
Directors. The Liberty Board of Directors may approve indemnification of any
other person which Liberty has the power to indemnify. Under certain
circumstances, Liberty's mandatory indemnification provisions apply to certain
employees or agents of Liberty, provided that such indemnification is authorized
by the WBCA.
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.
Liberty. Liberty's Amended and Restated Articles of Incorporation may be
amended by a majority vote of the outstanding shares of Liberty Common Stock.
Liberty's Bylaws may be amended, altered or repealed by a majority vote of the
Liberty Board or by the affirmative vote of a majority of shareholders.
POTENTIAL ANTI-TAKEOVER PROVISONS
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
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<PAGE> 49
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 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.
Liberty. Although Liberty is subject to the same restrictions as
Frontier that are set forth in the WBCA, Liberty's Amended and Restated Articles
of Incorporation and Bylaws do not include anti-takeover provisions.
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 Liberty Board is not aware of any business to come before the
Liberty Special Meeting other than those matters described above in this
Prospectus/Proxy Statement. However, if any other matters should properly come
before the Liberty 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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<PAGE> 50
GLOSSARY OF KEY TERMS
<TABLE>
<S> <C>
CEO.......................................... Chief Executive Officer.
LCI.......................................... Leslie Childress, Inc., and its affiliate,
Childress Investment Research, Inc.
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.
Dividend Record Date......................... The date a shareholder must be a shareholder
of record of a company to be entitled to
receive the dividend.
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 Liberty, other than
the Dissenting Shareholders, will receive for
each share of Liberty 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 March 15, 2000, between Frontier, Liberty,
Frontier Bank, and North Sound Bank.
Merger....................................... The merger of Liberty with and into Frontier
and the subsequent merger of North Sound 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
Liberty and North Sound Bank's
shareholders, together with
any amendments and
supplements.
RCW.......................................... Revised Code of Washington.
</TABLE>
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<PAGE> 51
<TABLE>
<S> <C>
Record Date.................................. ____________, 2000.
SEC.......................................... The Securities and Exchange Commission.
Securities Act............................... The Securities Act of 1933, as amended.
Special Meeting.............................. The special meetings of shareholders of
Liberty 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.
Liberty...................................... Liberty Bay Financial Corporation, a
Washington Bank Holding Company.
Liberty Board................................ Board of Directors of Liberty.
Liberty Common Stock......................... Liberty's common stock, par value of $1.00
per share.
WBCA......................................... The Washington Business Corporations Act.
</TABLE>
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<PAGE> 52
APPENDIX A
----------------------------------------------
AGREEMENT AND PLAN OF MERGERS
BETWEEN
FRONTIER FINANCIAL CORPORATION
AND
FRONTIER BANK
AND
LIBERTY BAY FINANCIAL CORPORATION
AND
NORTH SOUND BANK
----------------------------------------------
Dated as of March 15, 2000
<PAGE> 53
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.................................................................................... A-1
DEFINITIONS................................................................................. A-2
I. MERGERS............................................................................. A-7
1.1 THE CORPORATE MERGER......................................................... A-7
1.2 THE BANK MERGER.............................................................. A-8
1.3 DISSENTING SHARES............................................................ A-8
1.4 EFFECTIVE DATE............................................................... A-8
II. CONSIDERATION....................................................................... A-9
2.1 EXCHANGE CONSIDERATION....................................................... A-9
2.2 FRACTIONAL SHARES............................................................ A-9
2.3 SHAREHOLDER RIGHTS; STOCK TRANSFERS.......................................... A-9
2.4 EXCHANGE PROCEDURES.......................................................... A-9
2.5 EXCHANGE RATIO/FRONTIER AVERAGE DAILY CLOSING PRICE ADJUSTMENTS.............. A-10
2.6 EXCEPTION SHARES............................................................. A-10
2.7 RESERVATION OF RIGHT TO REVISE TRANSACTION................................... A-10
2.8 OPTIONS...................................................................... A-10
III. ACTIONS PENDING CONSUMMATION........................................................ A-11
3.1 CAPITAL STOCK................................................................ A-11
3.2 DIVIDENDS, ETC............................................................... A-11
3.3 INDEBTEDNESS; LIABILITIES; ETC............................................... A-12
3.4 LINE OF BUSINESS; OPERATING PROCEDURES; ETC.................................. A-12
3.5 LIENS AND ENCUMBRANCES....................................................... A-12
3.6 COMPENSATION; EMPLOYMENT AGREEMENTS; ETC..................................... A-12
3.7 BENEFIT PLANS................................................................ A-12
3.8 CONTINUANCE OF BUSINESS...................................................... A-12
3.9 AMENDMENTS................................................................... A-13
3.10 CLAIMS....................................................................... A-12
3.11 CONTRACTS.................................................................... A-12
3.12 LOANS........................................................................ A-13
3.13 TRANSACTION EXPENSES......................................................... A-13
IV. REPRESENTATIONS AND WARRANTIES...................................................... A-13
4.1 LIBERTY AND NORTH SOUND BANK REPRESENTATIONS AND WARRANTIES.................. A-13
4.2 FRONTIER AND FRONTIER BANK REPRESENTATIONS AND WARRANTIES.................... A-22
V. COVENANTS........................................................................... A-25
5.1 BEST EFFORTS................................................................. A-25
5.2 THE PROXY.................................................................... A-25
5.3 REGISTRATION STATEMENT COMPLIANCE WITH SECURITIES LAWS....................... A-25
5.4 REGISTRATION STATEMENT EFFECTIVENESS......................................... A-26
5.5 PRESS RELEASES............................................................... A-26
</TABLE>
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<PAGE> 54
<TABLE>
<S> <C>
5.6 ACCESS; INFORMATION.......................................................... A-26
5.7 STANDSTILL................................................................... A-27
5.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION.................................................................. A-27
5.9 BLUE-SKY FILINGS............................................................. A-27
5.10 APPOINTMENT OF DIRECTOR...................................................... A-27
5.11 AFFILIATE AGREEMENTS......................................................... A-27
5.12 CERTAIN POLICIES OF LIBERTY AND NORTH SOUND BANK............................. A-27
5.13 STATE TAKEOVER LAW........................................................... A-28
5.14 NO RIGHTS TRIGGERED.......................................................... A-28
5.15 SHARES LISTED................................................................ A-28
5.16 REGULATORY APPLICATIONS...................................................... A-28
5.17 REGULATORY DIVESTITURES...................................................... A-28
5.18 CURRENT INFORMATION.......................................................... A-28
5.19 INSURANCE.................................................................... A-29
5.20 POST-MERGER ACTIONS.......................................................... A-29
VI. CONDITIONS TO CONSUMMATION OF THE MERGERS........................................... A-29
6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS....................................... A-29
6.2 CONDITIONS TO OBLIGATIONS OF FRONTIER........................................ A-30
6.3 CONDITIONS TO OBLIGATIONS OF LIBERTY AND NORTH SOUND BANK.................... A-31
VII. TERMINATION......................................................................... A-32
7.1 EVENTS OF TERMINATION........................................................ A-32
7.2 CONSEQUENCES OF TERMINATION.................................................. A-33
7.3 TERMINATION FEE.............................................................. A-33
VIII. OTHER MATTERS....................................................................... A-33
8.1 SURVIVAL..................................................................... A-33
8.2 WAIVER; AMENDMENT............................................................ A-34
8.3 COUNTERPARTS................................................................. A-34
8.4 GOVERNING LAW................................................................ A-34
8.5 EXPENSES..................................................................... A-34
8.6 CONFIDENTIALITY.............................................................. A-34
8.7 NOTICES...................................................................... A-34
8.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES........................... A-35
8.9 BENEFIT PLANS................................................................ A-35
8.10 HEADINGS..................................................................... A-35
</TABLE>
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<PAGE> 55
AGREEMENT AND PLAN OF MERGERS
AGREEMENT AND PLAN OF MERGERS, dated as of the 15th day of March, 2000
(this "Plan"), is between LIBERTY BAY FINANCIAL CORPORATION ("Liberty"), NORTH
SOUND BANK, FRONTIER FINANCIAL CORPORATION ("Frontier") and FRONTIER BANK.
RECITALS
(A) LIBERTY. Liberty 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 Poulsbo, Washington. Liberty is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended. As of
the date of this Plan, Liberty has 450,000 authorized shares of common stock,
$10.00 par value ("Liberty Common Stock"), of which 210,298 shares of Liberty
Common Stock are issued and outstanding, no other class of capital stock being
authorized. As of February 29, 2000, Liberty had capital of $21,260,820, divided
into common stock of $2,103,660, surplus of $6,915,979, and retained earnings of
$12,241,181. As of the date of this Plan, Liberty has 35,000 shares of Liberty
Common Stock reserved for issuance under an Employee Stock Option Plan
("Employee Options") pursuant to which options covering 14,050 shares of Liberty
Common Stock are outstanding. As of the date of this Plan, Liberty has 15,000
shares of Liberty Common Stock reserved for issuance under a Director Stock
Option Plan ("Director Options") pursuant to which options covering 6,500 shares
of Liberty Common Stock are outstanding.
(B) NORTH SOUND BANK. North Sound 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, North Sound Bank has 49,177 authorized
shares of common stock, $30.00 par value per share ("North Sound Bank Common
Stock") (no other class of capital stock being authorized), of which 24,706
shares of North Sound Bank Common Stock are issued and outstanding. All of the
issued and outstanding shares of North Sound Bank Common Stock are owned by
Liberty, the sole shareholder of North Sound 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
February 29, 2000, Frontier had capital of $149,693,690, divided into common
stock of $91,330,779, comprehensive income of <$58,065>, and retained earnings
of $58,420,956. 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 17,458,193 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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(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 North Sound Bank and Liberty 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 Liberty
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 Liberty or
North Sound Bank authorized and reserved for issuance; neither Liberty nor North
Sound Bank has any Rights (as defined below) issued or outstanding; and neither
Liberty nor North Sound 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 Liberty
Common Stock.
(G) APPROVALS. At meetings of the respective Boards of Directors of
Liberty, North Sound 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 1.3.
"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.
"Code" has the meaning assigned to such term in Section 4.1(Q)(2).
"Company" has the meaning assigned to such term in the first paragraph
to this Plan.
"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 four decimals) of the daily high and low trading prices per share of
Frontier Common Stock on the NASDAQ Stock Market reporting system, as reported
in The Wall Street Journal.
"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 Liberty Common Stock held by
those shareholders of Liberty who have timely and properly exercised their
dissenters' rights in accordance with the Appraisal Laws.
"Dividend Record Date" has the meaning assigned to such term in Section
3.2(A).
"Effective Date" has the meaning assigned to such term in Section 1.4.
"Eligible Liberty Common Stock" means shares of Liberty Common Stock
other than Exception Shares and Dissenting Shares.
"Employee Option" has the meaning assigned to such term in Section 2.8.
"Employment Agreement" 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
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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).
"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 Liberty'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 Agent" has the meaning assigned to such term in Section 2.4.
"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" has the meaning assigned to such term in the first paragraph
of this Plan.
"Frontier Average Closing Price" means the price equal to the average
(rounded to four decimals) of each Daily Sales Price of Frontier Common Stock
for the trading days beginning on the twentieth day immediately preceding the
Effective Date through and including the tenth 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 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% 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% 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.
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"GAAP" means generally accepted accounting principles consistently
applied.
"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).
"Liberty Common Stock" has the meaning assigned to such term in
paragraph (A) of the Recitals.
"Loan/Fiduciary Property" means any property owned or controlled by
Liberty or any of its Subsidiaries or in which Liberty or any of its
Subsidiaries holds a security or other interest, and, where required by the
context, includes any such property where Liberty 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 Liberty with and into Frontier, and North
Sound 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.
"North Sound Bank" has the meaning assigned to such term in the first
paragraph of this Plan.
"North Sound Bank Common Stock" has the meaning assigned to such term in
paragraph (B) of the Recitals.
"Participation Facility" means any facility in which Liberty or any of
its Subsidiaries participates in the management and, where required by the
context, includes the owner or operator of such facility.
"Party" means a party to this Plan.
"Pension Plan" has the meaning assigned to such term in Section
4.1(Q)(2).
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"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.
"Third Party" means a person within the meaning of Sections 3(a)(9) and
13(d)(3) of the Exchange Act, excluding: (1) Liberty or any Subsidiary of
Liberty, and (2) Frontier or any Subsidiary of Frontier.
(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
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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. Liberty 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 Liberty shall
cease and Frontier shall continue as the Continuing Corporation.
(B) CERTIFICATE OF INCORPORATION AND BYLAWS. The certificate of
incorporation and bylaws of Frontier, in effect immediately prior to the
Effective Date, shall become the certificate of incorporation and bylaws of the
Continuing Corporation. 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; provided,
however, that Michael J. Clementz shall be appointed to the Board of Directors
of the Continuing Corporation pursuant to Section 5.10.
(C) EFFECTS OF THE CORPORATE MERGER. The separate existence of
Liberty shall cease, and Liberty 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 public or a private
nature, and shall be subject to all of the liabilities, restrictions,
disabilities and duties of both Frontier and Liberty.
(D) TRANSFER OF ASSETS. All rights, assets, licenses, permits,
franchises and interests of Frontier and Liberty 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.
(E) 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 Liberty, 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 Liberty.
1.2 THE BANK MERGER. As soon as practicable following the Effective
Date:
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(A) THE CONTINUING BANK. North Sound Bank shall be merged into
Frontier Bank. Upon consummation of the Bank Merger, the separate existence of
North Sound Bank shall cease and Frontier Bank shall survive as the Continuing
Bank.
(B) 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.
(C) LIABILITIES. The Continuing Bank shall thenceforth be
responsible and liable for all the liabilities, obligations and penalties of
each of the institutions so merged, in accordance with applicable law.
(D) ARTICLES, BYLAWS, DIRECTORS, OFFICERS. The Articles 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; provided,
however, Michael J. Clementz shall be appointed to the Board of Directors of the
Continuing Bank pursuant to Section 5.10.
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 Liberty 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 December
31, 2000 (the "Termination Date"), Liberty or Frontier may terminate this Plan
in accordance with ARTICLE VII. . On the Effective Date, Frontier and Liberty
shall execute and deliver to the Secretary of State of the State of Washington
articles of merger in accordance with applicable law.
ARTICLE II. CONSIDERATION
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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 LIBERTY COMMON STOCK. Each share of Eligible
Liberty 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 10.5
shares 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 Liberty 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.
2.3 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, holders
of Liberty Common Stock shall cease to be, and shall have no rights as,
shareholders of Liberty, 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 Liberty or the Continuing Corporation of the shares of
Liberty 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
Liberty of record immediately prior to the Effective Date transmittal materials
for use in exchanging such shareholder's certificates for Liberty 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 Liberty 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's exchange agent (the "Exchange Agent") of the certificates
representing all of such shares of Liberty Common Stock (or indemnity
satisfactory to Frontier and the Exchange Agent, in their 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 Liberty 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 5.11.
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.
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2.6 EXCEPTION SHARES. Each of the Exception Shares of Liberty 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 Liberty and
North Sound Bank; provided, however, that (A) no such change shall alter or
change the amount or kind of consideration to be issued to holders of Liberty
Common Stock as provided for in this Plan, (B) no such change shall adversely
affect the tax treatment to Liberty 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 7.1(C). If Frontier
elects to change the method of acquisition pursuant to this section, and as a
result the Corporate Merger will not be accounted for on a pooling-of-interests
basis, Frontier must first waive its pooling condition in Section 6.1(H). If
Frontier elects to change the method of acquisition and Frontier has waived its
pooling condition, Liberty and North Sound 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.
2.8 OPTIONS. Each Director Option that is outstanding and unexercised
shall be exercised prior to the Effective Date, and any Director Option that is
not exercised prior to the Effective Date shall be terminated. 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 option granted by Liberty to purchase
shares of Liberty Common Stock ("Employee Option") that is then outstanding and
unexercised shall be 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 Employee 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 Liberty Common
Stock subject to such Employee 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 Employee Option by the Exchange Ratio, and rounding up or down to the nearest
cent. The number of shares of Liberty Common Stock that are issuable upon
exercise of Employee Options as of the date of this Plan are Previously
Disclosed in Schedule 2.8. Following the Effective Date, Frontier shall use its
best efforts to 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, Liberty and North
Sound 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 Liberty nor North
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Sound 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 Employee
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 Liberty,
North Sound 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 Liberty 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,
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; provided, however, that:
(A) Liberty may declare and pay a cash dividend of up to $0.67 per
share to shareholders of record on March 31, 2000.
(B) Liberty may pay a cash dividend of up to $0.70 per share for
the second quarter of 2000; provided, however, that commencing with the second
quarter of 2000 Liberty shall use the same date as Frontier for determining
shareholders of record entitled to receive Liberty's cash dividend (the
"Dividend Record Date").
(C) If the transaction contemplated by this Plan has not been
consummated on or before the Frontier Dividend Record Date for the third quarter
of 2000, Liberty may declare and pay a per-share cash dividend for the third
quarter equal to the amount each share of Eligible Liberty Common Stock would
have received if the Effective Date had been such Dividend Record Date.
(D) If the transaction contemplated by this Plan has not been
consummated on or before the Frontier Dividend Record Date for the fourth
quarter of 2000, Liberty may declare and pay a per-share cash dividend for the
fourth quarter equal to the amount each share of Eligible Liberty Common Stock
would have received if the Effective Date had been such Dividend Record Date.
The foregoing notwithstanding, Liberty shall not pay any cash dividend
which would result in the failure of Liberty to comply with Section 6.2(F) of
this Agreement or otherwise violate applicable state or federal laws, or, in the
opinion of Moss Adams, LLP, disqualify the transaction for pooling-of-interests
accounting treatment.
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
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effort to comply with Section 5.12, 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 $10,000 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 Employee
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 Liberty 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
Liberty and its Subsidiaries taken as a whole (except foreclosures or
acquisitions by North Sound 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 Liberty 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.
3.12 LOANS. Extend credit or account for loans and leases other than in
accordance with existing lending policies and accounting practices, except that
North Sound Bank shall not, without the prior consent of Frontier's Chief
Executive Officer or Chief Credit Administrator make any new loan in excess of
$1,000,000.
3.13 TRANSACTION EXPENSES. Incur expenses in connection with the
transactions contemplated by this Plan that exceed $125,000 in the aggregate.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES
4.1 LIBERTY AND NORTH SOUND BANK REPRESENTATIONS AND WARRANTIES. Liberty
and North Sound 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 Liberty and its Subsidiaries are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Each of Liberty 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 Liberty 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. North
Sound 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 Liberty 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 Liberty or its Subsidiaries outstanding and no
outstanding Rights with respect thereto.
(D) LIBERTY SUBSIDIARIES. Liberty 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 Liberty 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 Liberty 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 Liberty or one of its Subsidiaries are fully paid and
non-assessable and are owned by Liberty 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), it does not own beneficially, directly or
indirectly, any shares of any equity securities or similar interests of any
corporation, bank, partnership, joint venture, business trust, association or
other organization. In the case of representations by Liberty, the deposits of
its Subsidiaries that are banks are insured by the Bank Insurance Fund of the
FDIC.
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(E) CORPORATE POWER. Each of Liberty 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 Liberty and each of its
Subsidiaries that is a Party, and each such agreement is a valid and binding
agreement of Liberty and such Subsidiaries, enforceable against Liberty 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 Liberty 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 Liberty or of any of its
Subsidiaries or to which Liberty 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 Liberty, 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 Liberty'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 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.
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(I) ABSENCE OF UNDISCLOSED LIABILITIES. Except as Previously
Disclosed on Schedule 4.1(I), neither Liberty 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 Liberty 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, Liberty 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 Liberty 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 Liberty 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 Liberty 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 Liberty 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 Liberty 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.
(M) COMPLIANCE WITH LAWS. Except as Previously Disclosed in
Schedule 4.1(M), each of Liberty and its Subsidiaries:
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(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 Liberty 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 Liberty 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 Liberty or its Subsidiaries, or (c)
requiring any of Liberty 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), none of Liberty 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 Liberty 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 Liberty 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 Liberty nor any of its
Subsidiaries is subject to or bound by any contract containing covenants that
limit the ability of Liberty 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, Liberty or any of its Subsidiaries may carry
on its business (other than as may be required by law or any applicable
Regulatory Authority).
(O) REPORTS. Since January 1, 1996, each of Liberty 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
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other Regulatory Authorities having jurisdiction with respect to Liberty 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) NO BROKERS. All negotiations relative to this Plan and the
transactions contemplated by this Plan have been carried on by it directly with
Frontier, and no action has been taken by it that would give rise to any valid
claim against any Party for a brokerage commission, finder's fee or other like
payment.
(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 Liberty 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 Liberty 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 Liberty 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 ERISA Plans. Neither
Liberty nor any of its Subsidiaries has engaged in a transaction with
respect to any ERISA Plan that could subject Liberty 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 Liberty or any of its
Subsidiaries with respect to any ongoing, frozen
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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 Liberty under Section 4001(a)(15) of ERISA or Section 414
of the Code (an "ERISA Affiliate"). Neither Liberty 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 Liberty 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 Liberty 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 Liberty 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
Liberty or any of its Subsidiaries under any Compensation and Benefit
Plan or otherwise from Liberty 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. Liberty and its Subsidiaries know of no reason
why the regulatory approvals referred to in Section 6.1 should not be obtained.
(S) LABOR AGREEMENTS. Neither Liberty 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 Liberty 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
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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. Liberty 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 Liberty and its Subsidiaries that have been classified by it as
of February 29, 2000 (the "Asset Classification"); and no amounts of loans,
extensions of credit or other assets that have been classified as of February
29, 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 Liberty or any
Subsidiary prior to February 29, 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 Liberty was, and the allowance for possible
loan losses to be shown on subsequent Holding Company Financial Reports of
Liberty was and will be, adequate in the opinion of the Board of Directors of
Liberty 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 Liberty 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 Liberty, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect on
Liberty or its Subsidiaries. Set forth in Schedule 4.l(V) is a list of all
insurance policies maintained by or for the benefit of Liberty 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 Liberty's knowledge, there is no person who, as of the date of
this Plan, may be deemed to be an "affiliate" of Liberty as that term is used in
Rule 145 under the Securities Act.
(X) STATE TAKEOVER LAWS, ARTICLES OF INCORPORATION. Liberty 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 Liberty's and its Subsidiaries' articles of
incorporation.
(Y) NO FURTHER ACTION. Liberty and its Subsidiaries have taken all
action so that the entering into of this Plan and the consummation of the
transactions contemplated by 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 Liberty or any of its Subsidiaries or under
any agreement to which Liberty 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.
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(1) To Liberty'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 Liberty or its
Subsidiaries.
(2) There is no proceeding pending or, to Liberty's
knowledge, threatened before any court, governmental agency or board or
other forum in which Liberty 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 Liberty 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 Liberty or its Subsidiaries or have been Previously
Disclosed in Schedule 4.1(Z)(2).
(3) There is no proceeding pending or, to Liberty's
knowledge, threatened before any court, governmental agency or board or
other forum in which any Loan/Fiduciary Property (or Liberty 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 Liberty or have been
Previously Disclosed in Schedule 4.1(Z)(3).
(4) To Liberty'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 Liberty's knowledge, during the period of (a)
ownership or operation by Liberty or any of its Subsidiaries of any of
their respective current properties, (b) participation in the management
of any Participation Facility by Liberty or any of its Subsidiaries, or
(c) holding of a security or other interest in a Loan/Fiduciary Property
by Liberty or any of its Subsidiaries, there have been no releases of
Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan/Fiduciary Property, except for such
releases that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Liberty or its
Subsidiaries or have been Previously Disclosed in Schedule 4.1(Z)(5).
(6) To Liberty's knowledge, prior to the period of (a)
ownership or operation by Liberty or any of its Subsidiaries of any of
their respective current properties, (b) participation in the management
of any Participation Facility by Liberty or any of its Subsidiaries, or
(c) holding of a security or other interest in a Loan/Fiduciary Property
by Liberty 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
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reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Liberty 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 Liberty or its Subsidiaries, including
consolidated federal income tax returns of Liberty 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 Liberty 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 Liberty or its Subsidiaries, except as reserved against in the
Holding Company Financial Reports of Liberty, 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 Liberty or its Subsidiaries.
(BB) ACCURACY OF INFORMATION. The statements with respect to
Liberty and its Subsidiaries contained in this Plan, the Schedules and any other
written documents executed and delivered by or on behalf of Liberty 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 Liberty 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 Liberty or its Subsidiaries
that are pledged as security for each such Derivatives Contract.
(DD) ACCOUNTING CONTROLS. Each of Liberty 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 Liberty 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 Liberty nor any of its
Subsidiaries is a party or subject to any of the following (whether written or
oral, express or implied):
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(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 Liberty or
any such Subsidiary without any obligation on the part of Liberty 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 Liberty and North Sound
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.
(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
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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, 1998, and all other documents filed or to be filed
subsequent to December 31, 1998 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.
(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.
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(J) REPORTS. Since January 1, 1996, 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, 1997. Since December 31, 1997, 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 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.
ARTICLE V. COVENANTS
Each of Liberty and North Sound Bank hereby covenants to Frontier and
Frontier Bank, and each of Frontier and Frontier Bank hereby covenants to
Liberty and North Sound Bank, that:
5.1 BEST EFFORTS. Subject to the terms and conditions of this Plan and,
in the case of Liberty and North Sound 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
September 30, 2000, and to otherwise enable consummation of the transactions
contemplated by this Plan, and shall cooperate fully with the
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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 Liberty: it shall promptly assist Frontier
in the preparation of a proxy statement (the "Proxy Statement") to be mailed to
the holders of Liberty 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 Liberty Common Stock to be
held as soon as practicable for purposes of voting upon the transactions
contemplated by this Plan and Liberty shall use its best efforts to solicit and
obtain votes of the holders of Liberty 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 Liberty 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 Liberty relating to
Liberty 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.
5.4 REGISTRATION STATEMENT EFFECTIVENESS. Frontier will advise Liberty,
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. Liberty and North Sound Bank will not, without the
prior approval of Frontier, and Frontier and Frontier Bank will not, without the
prior approval of Liberty, 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, Liberty and North Sound 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 Liberty and its Subsidiaries and, during such period,
Liberty and North Sound Bank shall furnish promptly (and cause its accountants
and other agents to furnish promptly) to
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Frontier (1) a copy of each material report, schedule and other document filed
by Liberty and its Subsidiaries with any Regulatory Authority, (2) such
representations and certifications as are necessary for purposes of the pooling
letter described in Section 6.2(H), and (3) all other information concerning the
business, properties and personnel of Liberty 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 Liberty or North Sound Bank in this Plan or the conditions to the
obligations of Liberty and North Sound 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 Liberty, deliver to Liberty all documents so obtained by
Frontier or destroy such documents and, in the case of destruction, will certify
such fact to Liberty.
5.7 STANDSTILL. Without the prior written consent of Frontier, Liberty
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 Liberty (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, Liberty or any of its Subsidiaries or any merger or other
business combination with Liberty 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
proposals are received by, or any such negotiations or discussions are sought to
be initiated with, Liberty 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 Liberty
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 APPOINTMENT OF DIRECTOR. Immediately after the Effective Date,
Frontier shall cause (i) the appointment of Michael J. Clementz to the Board of
Directors of Frontier, Frontier
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Bank and FFP, Inc., and (ii) the appointment of Michael J. Clementz to the
Frontier Executive Management Team.
5.11 AFFILIATE AGREEMENTS. Liberty will use its best efforts to induce
each person who may be deemed to be an "affiliate" of Liberty 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 Liberty Common Stock, and, in the case of "affiliates" of
Liberty, the shares of Frontier Common Stock to be received by such person in
exchange for such person's shares of Liberty Common Stock. Frontier agrees to
use its best efforts to maintain the availability of Rule 145 for use by such
"affiliates".
5.12 CERTAIN POLICIES OF LIBERTY AND NORTH SOUND BANK. Liberty and North
Sound 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. Liberty's and North Sound 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.
5.13 STATE TAKEOVER LAW. Liberty shall not take any action that would
cause the transactions contemplated by this Plan to be subject to any applicable
state takeover statute, and Liberty 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.
5.14 NO RIGHTS TRIGGERED. Except for those consents of Third Parties
Previously Disclosed on Schedule 4.1(G), Liberty 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 Liberty or under any agreement
to which Liberty 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.
5.15 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 Liberty Common Stock.
5.16 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.
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5.17 REGULATORY DIVESTITURES. In the case of Liberty: No later than the
Effective Date, Liberty shall cease engaging in such activities as Frontier
shall advise Liberty 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, Liberty 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(G), have been satisfied or waived.
5.18 CURRENT INFORMATION.
(A) During the period from the date of this Plan to the Effective
Date, each of Liberty and Frontier shall, and shall cause its representatives
to, confer on a regular and frequent basis with representatives of the other.
(B) Each of Liberty 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.
5.19 INSURANCE. Frontier will cause the persons serving as officers and
directors of Liberty and North Sound 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
Liberty with respect to acts or omissions of officers and directors, in their
capacity as such, occurring on or prior to the Effective Date, with policy
limits of $2-million. The provisions of this Section 5.19 are intended to be for
the benefit of, and shall be enforceable by, each of the present and former
officers and directors of Liberty and North Sound Bank and each such person's
respective heirs and representatives.
5.20 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 Liberty, including failing to continue at least one historic
business line of Liberty or to use at least a significant portion of Liberty'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 respective obligations
of each Party to consummate the transactions contemplated by this Plan are
subject to the written waiver by such Party or the fulfillment on or prior to
the Effective Date of each of the following conditions:
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(A) SHAREHOLDER VOTE. This Plan shall have been duly approved by
the requisite vote of Liberty's shareholders under applicable law and the
articles of incorporation and bylaws of Liberty.
(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 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.
(D) 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.
(E) BLUE-SKY PERMITS. Frontier shall have received all state
securities laws and "blue sky" permits necessary to consummate the Mergers.
(F) TAX OPINION. Frontier and Liberty shall have received an
opinion from Keller Rohrback L.L.P. 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 Liberty who receive shares of
Frontier Common Stock in exchange for their shares of Liberty 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, Liberty 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.
(H) POOLING LETTER. Frontier shall have received a letter from Moss
Adams, LLP, dated as of the date of this Agreement and as of the Effective Date,
in form and substance acceptable to Frontier, to the effect that the Mergers
will qualify for pooling of interests accounting treatment.
6.2 CONDITIONS TO OBLIGATIONS OF FRONTIER. The obligations of Frontier
and Frontier Bank to consummate the transactions contemplated by this Plan also
are subject to the written waiver by Frontier or the fulfillment on or prior to
the Effective Date of each of the following conditions:
(A) LEGAL OPINION. Frontier shall have received a legal opinion,
dated the Effective Date, from Keller Rohrback L.L.P. in the form of Exhibit E.
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(B) OFFICERS' CERTIFICATE. (1) Each of the representations and
warranties contained in this Plan of Liberty and North Sound Bank shall be true
and correct in all material respects as of the date of this Plan and upon the
Effective Date with the same effect as though all such representations and
warranties had been made on 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 and except as otherwise
provided in Section 5.11, and (2) each and all of the agreements and covenants
of Liberty and North Sound Bank to be performed and complied with pursuant to
this Plan on or prior to the Effective Date shall have been duly performed and
complied with in all material respects, and Frontier shall have received a
certificate signed by the chief executive officers, chief financial officers,
and chief lending officers of Liberty and North Sound Bank dated the Effective
Date, to such effect.
(C) RECEIPT OF AFFILIATE AGREEMENTS. Frontier shall have received
from each affiliate of Liberty the agreement referred to in Section 5.11.
(D) ADVERSE CHANGE. During the period from December 31, 1999 to the
Effective Date, there shall not have been any material adverse change in the
financial position or results of operations of Liberty or North Sound Bank, nor
shall Liberty or North Sound Bank have sustained any loss or damage to its
properties, whether or not insured, nor shall there have been any other event,
occurrence or circumstance which would have a Material Adverse Effect upon its
ability to conduct its business; and Frontier shall have received a certificate
dated the Effective Date signed by the Chief Executive Officers of Liberty and
North Sound Bank to such effect.
(E) DISSENTERS' RIGHTS. The number of shares of Liberty 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 10% of the outstanding shares of
Liberty Common Stock.
(F) CAPITAL. Liberty's Capital shall not be less than the
$21.5-million (not including capital contributions upon exercise of outstanding
Employee Options) on the Effective Date.
(G) ALLOWANCE FOR LOAN AND LEASE LOSSES. North Sound Bank's
allowance for possible loan and lease losses shall not be less than 1.00% of
North Sound Bank's total outstanding loans and leases and will be adequate to
absorb North Sound Bank's anticipated loan and lease losses.
(H) EMPLOYMENT CONTRACT. The Employment Agreement attached as
Exhibit C shall have been duly executed and delivered by all parties to such
Employment Agreement.
6.3 CONDITIONS TO OBLIGATIONS OF LIBERTY AND NORTH SOUND BANK. The
obligations of Liberty and North Sound Bank to consummate the transactions
contemplated by this Plan also are subject to the written waiver by Liberty and
North Sound Bank or the fulfillment on or prior to the Effective Date of each of
the following conditions:
(A) LEGAL OPINION. Liberty shall have received a legal opinion,
dated the Effective Date, from Keller Rohrback, L.L.P. in the form of Exhibit E.
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(B) OFFICER'S CERTIFICATE. (1) Each of the representations and
warranties of Frontier and Frontier Bank contained in this Plan shall be true
and correct in all material respects as of the date of this Plan and upon the
Effective Date with the same effect as though all such representations and
warranties had been made on 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, and (2) each and all of
the agreements and covenants of Frontier and Frontier Bank to be performed and
complied with pursuant to this Plan on or prior to the Effective Date shall have
been duly performed and complied with in all material respects, and Liberty
shall have received a certificate signed by an executive officer of Frontier and
Frontier Bank dated the Effective Date, to such effect.
(C) ADVERSE CHANGE. During the period from December 31, 1999 to the
Effective Date, there shall not have been any material adverse change in the
financial position or results of operations of Frontier and Frontier Bank nor
shall Frontier or Frontier Bank have sustained any loss or damage to its
properties, whether or not insured, that materially affects its ability to
conduct its business; and Liberty shall have received a certificate dated the
Effective Date signed by the Chief Executive Officers of Frontier and Frontier
Bank to such effect.
(D) FAIRNESS OPINION. Liberty shall have received, immediately
prior to the mailing of the Proxy Statement to Liberty's shareholders, an
opinion of a reputable financial advisor selected by Liberty and approved by
Frontier, to the effect that the financial terms of the Merger are fair from a
financial point of view to Liberty's shareholders.
ARTICLE VII. TERMINATION
7.1 EVENTS OF TERMINATION. This Plan may be terminated prior to the
Effective Date, either before or after receipt of required shareholder
approvals:
(A) MUTUAL CONSENT. By the mutual consent of Frontier and Liberty,
if the Board of Directors of each so determines by vote of a majority of the
members of its entire board.
(B) BREACH. By Frontier or Liberty, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event of (A) a material breach by the other Party of any representation or
warranty 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 (B) a breach by the other party of any of the material covenants or
agreements contained, 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.
(C) DELAY. By Frontier or Liberty in the event the Corporate Merger
is not consummated by December 31, 2000, 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 7.1(C), if such delay results from (a) amendments to
the Registration Statement or a re-solicitation 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 7.1(C) if
it is in material breach of any of the provisions of the Merger Agreement.
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(D) NO SHAREHOLDER APPROVAL. By Frontier or Liberty, if its Board
of Directors so determines by a vote of a majority of the members of its entire
Board, in the event that the shareholder approval contemplated by Section 6.1 is
not obtained at the Meeting, including any adjournment or adjournments of the
meeting.
7.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to Section 7.3, in the event of
the termination or abandonment of this Plan pursuant to the provisions of
Section 7.1, 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.
(B) ENFORCEMENT PROCEEDINGS. In any action or proceeding in
connection with the enforcement of this Plan, the prevailing party will be
entitled to reasonable attorneys' fees and expenses.
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 Liberty 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.
(A) To compensate Frontier for such costs and to induce it to
forego initiating discussions regarding other transactions, if (i) this Plan
terminates because Liberty 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 7.1 is not satisfied and such
non-satisfaction has not been the result of the failure of Liberty to use its
best efforts to consummate this Plan in accordance with the terms of this Plan);
(ii) Liberty terminates this Plan for any reason other than the grounds for
termination set out in Section 7.1(A), 7.1(B), or 7.1(C); then Liberty 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). 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 Liberty complying with their fiduciary duties.
(B) To compensate Liberty for such costs and to induce it to forego
initiating discussions regarding other transactions, if (i) this Plan terminates
because 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 7.1 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 to the terms of this Plan); or (ii) Frontier
terminates this Plan for any reason other than the grounds for termination set
out in Section 7.1(A), 7.1(B), 7.1(C) or 7.1(C), then Frontier shall be
obligated to pay Liberty 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).
ARTICLE VIII. OTHER MATTERS
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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 7.3, 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
Liberty, the consideration to be received by the shareholders of Liberty for
each share of Liberty 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.
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 Liberty 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
If to Liberty or North Sound Bank, to:
LIBERTY BAY FINANCIAL CORPORATION
19950 - 7th Avenue N.E.
Poulsbo, WA 98370-8786
Attn: Michael J. Clementz, President
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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, 5.19, 5.20 and
8.9. 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 BENEFIT PLANS. Upon consummation of the Mergers, all employees of
Liberty and its Subsidiaries shall be deemed to be at-will employees of Frontier
and its subsidiaries, except for Michael J. Clementz and Rob Robinson, each of
whom is a party to an Employment Agreement. From and after the Effective Date,
employees of Liberty 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, 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 Liberty or Liberty's Subsidiaries, as the case may be, as if such service
were with Frontier or its Subsidiaries. Employees of Liberty 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 Liberty into the 401(k)
plan maintained by Frontier Bank.
8.10 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.
FRONTIER FINANCIAL CORPORATION
By: //S//
------------------------------------
Robert J. Dickson
President and Chief Executive Officer
FRONTIER BANK
By: //S//
------------------------------------
Robert J. Dickson
President and Chief Executive Officer
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LIBERTY BAY FINANCIAL CORPORATION
By: //S//
------------------------------------
Michael J. Clementz
President and Chief Executive Officer
NORTH SOUND BANK
By: //S//
------------------------------------
Michael J. Clementz
Chairman and Chief Executive Officer
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EXHIBITS
<TABLE>
<S> <C>
Exhibit A Voting Agreement
Exhibit B Director's Agreement
Exhibit C Employment Agreements
Exhibit D Affiliate Agreement
Exhibit E Legal Opinion of Keller Rohrback L.L.P.
Exhibit F List of Offices and Mailing Address of Officers and Directors
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
Company Disclosures
- -------------------
<S> <C>
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
Schedule 4.1(Q)(1) List of Employee Benefit Plans
Schedule 4.1(Q)(2) Employee Benefit Plans Not Qualified Under ERISA
</TABLE>
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<TABLE>
<S> <C>
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>
<CAPTION>
Frontier Disclosures
- --------------------
<S> <C>
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>
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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
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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;
(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.
RCW 23B.13.200 NOTICE OF DISSENTERS' RIGHTS.
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(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.
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
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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.
(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.
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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 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.
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(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.
B-7
<PAGE> 99
APPENDIX C
FAIRNESS OPINION OF LESLIE CHILDRESS, INC.
May 10, 2000
Board of Directors
Liberty Bay Financial Corporation
19950 Seventh Avenue NE
Poulsbo, Washington 98370-0329
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Liberty Bay Financial Corporation ("LBFC"
or "the Company") and its wholly owned subsidiary, North Sound Bank ("NSB") of
the consideration to be received by such shareholders pursuant to the terms of
the Merger Agreement and Plan of Merger (the Merger), dated March 15, 2000, (the
"Agreement") between LBFC and Frontier Financial Corporation ("FTBK").
In connection with the proposed merger transaction (the "Merger")
whereby Liberty Bay Financial Corporation will merge into Frontier Financial
Corporation and North Sound Bank will merge into Frontier Bank, each issued and
outstanding share and option of LBFC common stock (along with its associated
rights) at the effective time of the Merger (other than (i) shares of holders
which may exercise appraisal rights pursuant to applicable law and (ii) shares
held directly by or indirectly by the Bank, its parent company or any subsidiary
thereof other than shares held in a fiduciary capacity or in satisfaction of a
debt previously contracted) shall be exchanged for 10.5 shares of FTBK common
shares, except for fractional shares which will receive a proportional amount of
cash at the date of closing (the Merger "Consideration"). As of March 15, 2000,
the estimated value of FTBK common stock is $189.00 per share of LBFC common
stock.
Leslie Childress, Inc. ("LCI") and its affiliate, Childress Investment
Research, Inc. ("CIR") as a part of its investment banking and consulting
services, is periodically engaged in the valuation of banks and other financial
institutions and advises the directors, officers and shareholders of both public
and private banks, thrift institutions and other financial intermediaries 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
LBFC shareholders of the shares from FTBK pursuant to the Merger, LCI has
advised Texas, Washington and Oregon community banks regarding the fairness of
capital transactions.
We have in the past provided financial services to the Company and have
received the customary fee for the rendering of such services. LBFC has agreed
to pay a fee to LCI for this fairness opinion.
In connection with rendering this opinion, we have, among other things:
(I) reviewed the Agreement;
(II) reviewed LBFC's financial information for the twelve months ended
December 31, 1999, and the three months ended March 31, 2000;
C-1
<PAGE> 100
(III) reviewed certain internal financial analyses and certain other forecasts
for LBFC prepared by and reviewed with the management of LBFC;
(IV) conducted interviews with senior management of LBFC regarding the past
and current business operations, results thereof, financial condition
and future prospects of LBFC;
(V) discussed with Frontier Financial Corporation's management the business
and prospects of Frontier;
(VI) reviewed the current market environment generally and the banking
environment in particular;
(VII) reviewed the prices paid in certain historical and recent mergers and
acquisitions in the banking industry on a regional basis;
(VIII) reviewed FTBK's audited financial information for the years ended
December 31, 1998 and 1999, and three months ended March 31, 2000,
including the Forms 10-K and 10-Q filed with the U.S. Securities and
Exchange Commission, as well as proxy materials for those years;
(IX) reviewed the price ranges and dividend history for FTBK common stock;
and
(X) 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 specific assets or
liabilities of LBFC or FTBK, nor been furnished with any such appraisals, nor
have we examined any individual loan files. 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 LBFC. This opinion is necessarily based upon
circumstances and conditions as they exist and can be evaluated as of the date
of this letter. We have not been authorized to solicit and did not solicit any
entities for purposes of a business combination with LBFC.
We have been retained by the Board of Directors of the Company and our
opinion as expressed herein is limited to the fairness, from a financial point
of view, to the common stockholders of the Company of the exchange ratio in the
Merger and does not address the Company's underlying business decision to
proceed with the Merger. This opinion is based upon the information available to
us and the facts and circumstances as they exist and which are subject to
evaluation on the date hereof. This letter does not constitute a recommendation
to the Board of Directors or to any common stockholder of the Company with
respect to any approval of the Merger. We do not express 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(s) as to how said stockholder(s) 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 LBFC pursuant to the Agreement is fair, from a financial point
of view, to the shareholders of LBFC.
C-2
<PAGE> 101
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,
LESLIE CHILDRESS, INC. and
CHILDRESS INVESTMENT RESEARCH, INC.
By /S/
---------------------------------
Leslie W. Childress
Principal
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<PAGE> 102
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
-------------- -----------------------
<S> <C>
2 Agreement and Plan of Merger dated March 15, 2000, by
and between Frontier Financial Corporation, Frontier
Bank, Liberty Bay Financial Corporation and North
Sound 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) By-Laws are incorporated herein by reference to
Exhibit 3(b) to Registration on Form S-14,
File No. 2-82420.
5 Opinion of Keller Rohrback LLP regarding legality of
securities.
8 Form of opinion of Keller Rohrback LLP regarding
federal income tax consequences.
10.1 Employment Agreement Between Frontier Financial
Corporation, Frontier Bank and Michael J. Clementz,
dated March 15, 2000.
10.2 Employment Agreement Between Frontier Financial
Corporation, Frontier Bank and Robert W. Robinson,
dated May 11, 2000.
10.3 Change of Control Agreement dated August 14, 1999,
between Liberty Bay Financial Corporation and North
Sound Bank and Mark Freeman.
10.4 Amendment to Change of Control Agreement dated March
15, 2000, between Liberty Bay Financial Corporation
and North Sound Bank and Mark Freeman.
</TABLE>
II-1
<PAGE> 103
<TABLE>
<S> <C>
10.5 Change of Control Agreement dated August 14, 1999,
between Liberty Bay Financial Corporation and North
Sound Bank and Ronald L. Tweiten.
10.6 Amendment to Change of Control Agreement dated March
15, 2000, between Liberty Bay Financial Corporation
and North Sound Bank and Ronald L. Tweiten.
10.7 Director's Agreement of Liberty Bay Financial
Corporation Directors.
10.8 Voting Agreement of Liberty Bay Financial Corporation
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 May 9,
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 LLP (contained in its
opinion filed as Exhibit 5).
23.2 Consent of Keller Rohrback LLP as to its tax opinion.
23.3 Consent of Moss Adams, LLP, Frontier Financial
Corporation's independent auditors.
23.4 Consent of Leslie Childress, 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 Liberty
Bay Financial Corporation.
99.2 Rule 438 Consent of Michael J. Clementz.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
(c) REPORTS, OPINIONS OR APPRAISALS
Opinion of Leslie Childress, 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.
II-2
<PAGE> 104
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
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 May 17, 2000.
FRONTIER FINANCIAL CORPORATION
By /S/
---------------------------------------
Robert J. Dickson
President and Chief Executive Officer
(Principal Executive Officer)
II-3
<PAGE> 105
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.
<TABLE>
<S> <C> <C>
April 20. 2000
/s/ Director
-----------------------------------
Robert J. Dickson
April 20. 2000
/s/ Director
-----------------------------------
George E. Barber
/s/ Director April 20. 2000
-----------------------------------
Lucy DeYoung
/s/ Director April 20. 2000
-----------------------------------
David A. Dujardin
/s/ Director April 20. 2000
-----------------------------------
Edward D. Hansen
/s/ Director April 20. 2000
-----------------------------------
William H. Lucas
Director
/s/ April 20. 2000
-----------------------------------
James H. Mulligan
Director
/s/ April 20. 2000
-----------------------------------
J. Don Regan
Director
/s/ April 20. 2000
-----------------------------------
Roger L. Rice, D.D.S.
</TABLE>
II-4
<PAGE> 106
(Power of Attorney continued)
<TABLE>
<S> <C> <C>
/s/ Director April 20. 2000
-----------------------------------
William J. Robinson
/s/ Director April 20. 2000
-----------------------------------
Edward C. Rubatino
Director
/s/ April 20. 2000
-----------------------------------
Darrell J. Storkson
Director
/s/ April 20. 2000
-----------------------------------
Michael J. Corliss
</TABLE>
II-5
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
-------------- -----------------------
<S> <C>
2 Agreement and Plan of Merger dated March 15, 2000, by
and between Frontier Financial Corporation, Frontier
Bank, Liberty Bay Financial Corporation and North
Sound 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) By-Laws are incorporated herein by reference to
Exhibit 3(b) to Registration on Form S-14,
File No. 2-82420.
5 Opinion of Keller Rohrback LLP regarding legality of
securities.
8 Form of opinion of Keller Rohrback LLP regarding
federal income tax consequences.
10.1 Employment Agreement Between Frontier Financial
Corporation, Frontier Bank and Michael J. Clementz,
dated March 15, 2000.
10.2 Employment Agreement Between Frontier Financial
Corporation, Frontier Bank and Robert W. Robinson,
dated May 11, 2000.
10.3 Change of Control Agreement dated August 14, 1999,
between Liberty Bay Financial Corporation and North
Sound Bank and Mark Freeman.
10.4 Amendment to Change of Control Agreement dated March
15, 2000, between Liberty Bay Financial Corporation
and North Sound Bank and Mark Freeman.
10.5 Change of Control Agreement dated August 14, 1999,
between Liberty Bay Financial Corporation and North
Sound Bank and Ronald L. Tweiten.
10.6 Amendment to Change of Control Agreement dated March
15, 2000, between Liberty Bay Financial Corporation
and North Sound Bank and Ronald L. Tweiten.
10.7 Director's Agreement of Liberty Bay Financial
Corporation Directors.
10.8 Voting Agreement of Liberty Bay Financial Corporation
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 May 9,
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 LLP (contained in its
opinion filed as Exhibit 5).
23.2 Consent of Keller Rohrback LLP as to its tax opinion.
23.3 Consent of Moss Adams, LLP, Frontier Financial
Corporation's independent auditors.
23.4 Consent of Leslie Childress, 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 Liberty
Bay Financial Corporation.
99.2 Rule 438 Consent of Michael J. Clementz.
</TABLE>
II-6
<PAGE> 1
LAW OFFICES OF
KELLER ROHRBACK L.L.P.
- --------------------------------------------------------------------------------
A PROFESSIONAL LIMITED LIABILITY PARTNERSHIP
EXHIBIT 5
May 17, 2000
To the Board of Directors
Frontier Financial Corporation
332 S.W. Everett Mall Way
Everett, Washington 98204
Re: Frontier Financial Corporation Registration Statement of Form S-4
Ladies and Gentlemen:
We are acting as counsel for Frontier Financial Corporation, a
Washington bank holding company ("Frontier"), in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of up to
2,423,904 shares of common stock of Frontier, no par value per share (the
"Shares"), to be issued in accordance with the Agreement and Plan of Mergers
dated March 15, 2000, between Frontier, Frontier Bank, Liberty Bay Financial
Corporation., and North Sound Bank (the "Merger Agreement"). A registration
statement on Form S-4 (the "Registration Statement") is being filed under the
Act with respect to the offering of the Shares pursuant to the Merger Agreement.
In connection with the offering of the Shares, we have again examined:
(i) the Merger Agreement; (ii) the Registration Statement; and (iii) such other
documents as we have deemed necessary to form the opinion expressed below. As to
various questions of fact material to such opinion, where relevant facts were
not independently established, we have relied upon statements of officers of
Frontier, or representations and warranties of Frontier contained in the Merger
Agreement.
Based and relying solely upon the foregoing, it is our opinion that the
Shares, upon issuance pursuant to the Merger Agreement after the Registration
Statement has become effective under the Act, will be validly issued under the
laws of the State of Washington and will be fully paid and not assessable.
Consent is hereby given to the filing of this opinion as an exhibit to
the Registration Statement and to the legal reference to this firm under the
caption "Certain Legal Matters" as having passed upon the validity of the
Shares. In giving this consent, we do not admit that we are experts within the
meaning of the Act.
Very truly yours,
/S/
KELLER ROHRBACK L.L.P.
<PAGE> 1
LAW OFFICES OF
KELLER ROHRBACK L.L.P.
- --------------------------------------------------------------------------------
A PROFESSIONAL LIMITED LIABILITY PARTNERSHIP
EXHIBIT 8
__________________, 2000
Frontier Financial Corporation Liberty Bay Financial Corporation
332 SW Everett Mall Way 19950 7th Avenue N.E.
Everett, Washington 98204 Poulsbo, Washington 98370
Re: HOLDING COMPANY MERGER/TAX CONSEQUENCES
Ladies and Gentlemen:
This letter responds to your request for our opinion as to certain of
the federal income tax consequences of the proposed merger (the "Merger") of
Liberty Bay Financial Corporation ("Liberty") into Frontier Financial
Corporation ("Frontier").
We have acted as legal counsel to Frontier in connection with the
Merger. For the purpose of rendering this opinion, we have examined and relied
upon originals, certified copies, or copies otherwise identified to our
satisfaction as being true copies of the originals of the following documents,
including all exhibits and schedules attached to them:
(a) The Agreement and Plan of Mergers, dated as of March 15, 2000,
between Frontier, Frontier Bank, Liberty and North Sound Bank
(the "Merger Agreement").
(b) Form S-4 Registration Statement of Frontier declared effective
by the Securities and Exchange Commission on May ____, 2000.
(c) The Proxy Statement of Liberty (included as part of the
Registration Statement); and
(d) Such other documents, instruments, records and information
pertaining to the Merger as we have deemed necessary for
rendering our opinion.
We have assumed, without independent investigation or review, the
accuracy and completeness of the facts and representations and warranties
contained in those documents or otherwise made known to us, and that the Merger
will be effected in accordance with the terms of the Merger Agreement.
In connection with the Merger and pursuant to the Merger Agreement, each
share of Liberty voting common stock will be exchanged for that number of shares
of Frontier voting common stock based on the exchange rate established in the
Merger Agreement. Cash will be paid in exchange for fractional shares as
described in the Merger Agreement. Liberty shareholders who perfect their
dissenter's rights under state law will be paid the cash value for their Liberty
shares by Frontier. Upon the consummation of the Merger, Frontier will continue
the historic business of Liberty.
Based upon our review of the facts described above and our analysis of
the law, and subject to the qualifications and limitations set forth herein, and
the completion of the transactions described in the matter contemplated, it is
our opinion that:
<PAGE> 2
______________, 2000 KELLER ROHRBACK L.L.P.
Page 2
1. The merger of Liberty into Frontier solely for Frontier voting common
stock, as described above, will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"). Liberty and Frontier will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by Liberty shareholders upon the
receipt of Frontier voting common stock solely in exchange for their
shares of Liberty stock, pursuant to Section 354(a)(1) of the Code.
3. The basis of the shares of Frontier voting common stock received by
Liberty shareholders will be the same as the basis of the Liberty stock
surrendered in exchange therefor, pursuant to Section 358(a)(1) of the
Code.
4. The holding period of the shares of Frontier voting common stock
received by Liberty shareholders will include the holding period during
which the Liberty stock surrendered in exchange therefor was held,
provided that the shares of Liberty stock were held as a capital asset
in the hands of the exchanging shareholders on the date of the exchange,
pursuant to Section 1223(1) of the Code.
5. Where cash is received by any dissenting shareholder of Liberty in
exchange for the surrender of all of such shareholder's Liberty stock,
the cash will be treated as received by the shareholder as a
distribution in redemption of his or her Liberty stock, subject to the
provisions and limitations of Section 302 of the Code.
6. A Liberty shareholder who receives cash in lieu of a fractional share of
Frontier voting common stock and who holds such fractional share as a
capital asset will recognize gain or loss equal to the difference
between the cash received and the shareholder's basis in that fractional
share.
7. No gain or loss will be recognized by Liberty upon the transfer of its
assets to Frontier, pursuant to Sections 361 and 357(a) of the Code.
8. The basis of the assets of Liberty acquired by Frontier will be the same
as the basis of Liberty in the assets immediately before the Merger,
pursuant to Section 362(b) of the Code.
9. The holding period of the assets acquired by Frontier will include the
period such assets were held by Liberty, pursuant to Section 1223(2) of
the Code.
10. No gain or loss will be recognized by Frontier upon the receipt by
Frontier of the assets of Liberty, as described above.
We have assumed, with your consent, that the Merger will be completed in
the manner set forth in the Merger Agreement and Registration Statement without
waiver or breach of any material provision thereof, and all of the
representations, warranties, statements and assumptions upon which we relied are
true and accurate at all relevant times. In the event any one of the statements,
representations, warranties
<PAGE> 3
______________, 2000 KELLER ROHRBACK L.L.P.
Page 3
or assumptions upon which we have relied to issue this opinion is incorrect, our
opinion might be adversely affected and may not be relied upon.
Our opinion represents only our best legal judgment as to the probable
federal income tax consequences of the transaction described, based upon
existing law. Our opinion is not intended to be a conclusive statement as to all
of the tax consequences of the transaction and is expressly limited to the
matters addressed. Further, our opinion is not binding upon the Internal Revenue
Service (the "IRS") or any court and has no official status of any kind, and no
private ruling regarding the matters discussed has been or will be requested
from the IRS. The IRS has ruled in a number of private rulings that transactions
substantially identical to the Merger result in tax consequences consistent with
those described in this opinion. Although such rulings do not constitute
authority on which we can rely in expressing our opinion, such rulings generally
do reflect the position of the IRS. Each shareholder, however, is urged to
consult with his or her own tax advisor with respect to their individual tax
situation. Our opinion is intended solely for the benefit of Frontier, the
shareholders of Frontier and the shareholders of Liberty, and may not be relied
upon for any other purpose or by any other person or entity or made available to
any other person or entity without our prior written consent.
Very truly yours,
KELLER ROHRBACK, LLP
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
MICHAEL J. CLEMENTZ
This EMPLOYMENT AGREEMENT ("Agreement") signed March 15, 2000, between
FRONTIER FINANCIAL CORPORATION ("Frontier"), FRONTIER BANK and MICHAEL J.
CLEMENTZ ("Executive") takes effect on the Effective Date of the Merger of
Liberty Bay Financial Corporation ("Liberty") into Frontier and North Sound Bank
into Frontier Bank ("Effective Date").
RECITALS
A. Frontier and Frontier Bank have entered into a Plan and Agreement of
Mergers ("Plan") with Liberty and North Sound Bank, pursuant to which Liberty
will merge into Frontier and North Sound Bank will merge into Frontier Bank
("Mergers").
B. Executive is presently the President and Chief Executive Officer
("CEO") of Liberty and the Chairman and CEO of North Sound Bank. Frontier and
Frontier Bank wish to retain Executive's services following the Mergers, and
Executive wishes to accept employment with Frontier and Frontier Bank following
the Mergers.
C. The purpose of this Agreement is to set forth the terms agreed to by
the parties to achieve the goals set forth in paragraph B, above.
AGREEMENT
The parties agree as follows:
1. EMPLOYMENT. Frontier and Frontier Bank agree to employ Executive, and
Executive agrees to accept employment, with Frontier. During the Term of his
employment under this Agreement, Executive will have the title of Executive Vice
President of Frontier Financial Corporation and Frontier Bank (hereafter
referred to jointly as "Frontier" unless Frontier Bank is specifically
mentioned). In addition, during the Term of this Agreement, Executive will be a
member of the Frontier Executive Management Team.
2. EFFECTIVE DATE AND TERM.
(a) Effective Date. This Agreement is effective as of the
Effective Date.
(b) Term. The term of this Agreement ("Term") is three years,
beginning on the Effective Date.
(c) Abandonment of the Mergers. If the Plan terminates before
Closing, this Agreement will not become effective and will be void.
3. DUTIES. Executive will faithfully and diligently perform the duties
assigned to Executive from time to time by the Board of Directors of Frontier
and Frontier Bank (hereinafter
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referred to jointly as the "Board") and by the President and CEO of Frontier.
These duties will include, without limitation, the following:
(a) Executive will oversee the integration of the branches of
North Sound Bank into Frontier Bank and will be responsible for the
development and preservation of banking relationships and other business
development efforts (including appropriate civic and community duties)
in the Peninsula Region.
(b) Executive will assist Frontier with the development and
implementation of acquisition strategies and in the analysis of the
viability of new product offerings and opportunities to engage in new
activities "closely related to banking."
(c) Executive will serve as a member of the Board of Directors
of Frontier Financial Corporation, Frontier Bank and FFP, Inc.,
receiving all the benefits and compensation received by other directors.
4. SALARY. Initially, Executive will receive a base salary from Frontier
Bank of $150,000 per year, to be paid in accordance with Frontier Bank's regular
payroll schedule ("Base Salary").
5. INCENTIVE COMPENSATION. The Board will determine the amount of bonus
to be paid by Frontier to Executive for each year during the Term. In making
this determination, the Board will consider factors such as Executive's
performance of his duties and the safety, soundness and profitability of
Frontier.
6. STAY BONUS. In addition to any incentive compensation granted
Executive under paragraph 5 hereof, on each anniversary of the Effective Date of
this Agreement during the Term, Executive shall receive a "Stay Bonus" of
$40,000 (three payments--$120,000 in total).
7. INCOME DEFERRAL AND BENEFITS. Subject to eligibility requirements and
in accordance with and subject to any policies adopted by the Board with respect
to any benefit plans or programs, Executive will be entitled to receive benefits
(including stock options) similar to those offered to other executive officers
of Frontier and its Subsidiaries with positions and duties comparable to those
of Executive.
8. BUSINESS EXPENSES. Frontier will reimburse Executive for ordinary and
necessary expenses (including, without limitation, travel, entertainment, club
dues and similar expenses) incurred in performing and promoting Frontier's
business. The level of reimbursement will be comparable to the reimbursement
Executive currently receives at North Sound Bank. Executive will present from
time to time itemized accounts of these expenses, subject to any rules and
regulations of the Internal Revenue Service.
9. TERMINATION.
(a) Termination By Frontier for Cause. If, before the end of the
Term, Frontier terminates Executive's employment for Cause or Executive
terminates his employment without Good Reason (defined below), Frontier
will pay Executive the
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salary earned and expenses reimbursable under this Agreement incurred
through the date of Executive's termination. Executive will have no
right to receive compensation or other benefits, including Stay Bonus,
for any period after termination under this Section 9(a).
(b) Other Termination By Frontier. If, before the end of the
Term, Frontier terminates Executive's employment without Cause or
Executive terminates his employment for Good Reason (defined below),
Frontier will pay Executive for the remainder of the Term the Base
Salary and Stay Bonus Executive would have been entitled to under this
Agreement if his employment had not terminated.
(c) Death or Disability. This Agreement terminates (1) if
Executive dies or (2) if Executive is unable to perform his duties and
obligations under this Agreement for a period of 90 days as a result of
a physical or mental disability arising at any time during the Term of
this Agreement, unless with reasonable accommodation Executive could
continue to perform his duties under this Agreement and making these
accommodations would not pose undue hardship to Frontier. If termination
occurs under this Section 9(c), Executive or his estate will be entitled
to receive only the compensation and benefits earned and expenses
reimbursable through the date this Agreement terminated, together with
the balance of any Stay Bonus otherwise payable under this Agreement.
(d) Health Benefits. Upon termination of Executive's employment
with Frontier (whether prior to or after expiration of the Term of this
Agreement), Frontier will make a single cash payment (the "Insurance
Payment") to Executive in an amount sufficient to cover the
present-value costs (after income tax calculated at the then highest
individual rate) of (1) Executive's coverage under Frontier's COBRA
Plan, and (2) such other individual or group health insurance plan(s)
providing in the aggregate the same level of health benefits to
Executive as those enjoyed by comparably situated Frontier employees.
The Insurance Payment, which is based on projected rates in effect at
the expiration of Executive's employment, is intended to cover Executive
until the time of his 65th birthday. This section 9(d) will survive
termination of this Agreement.
(e) Return of Bank Property. If and when Executive ceases, for
any reason, to be employed by Frontier, Executive must return to
Frontier all keys, pass cards, identification cards and any other
property of Frontier. At the same time, Executive also must return to
Frontier all originals and copies (whether in hard copy, electronic or
other form) of any documents, drawings, notes, memoranda, designs,
devices, diskettes, tapes, manuals and specifications which constitute
proprietary information or material of Frontier. The obligations in this
paragraph include the return of documents and other materials which may
be in Executive's desk at work, in Executive's car or place of
residence, or in any other location under Executive's control.
10. DEFINITION OF "CAUSE". "Cause" means any one or more of the
following:
(a) Willful misfeasance or gross negligence in the performance
of Executive's duties.
(b) Conviction of a crime in connection with his duties.
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(c) Conduct demonstrably and significantly harmful to Frontier,
as reasonably determined by the Board on the advice of legal counsel.
11. DEFINITION OF "GOOD REASON". "Good Reason" means only any one or
more of the following:
(a) Reduction, without Executive's consent, of Executive's
salary or elimination of any compensation or benefit plan benefiting
Executive, unless the reduction or elimination is generally applicable
to substantially all similarly situated Frontier employees formerly
benefited.
(b) The assignment to Executive without his consent of any
authority or duties materially inconsistent with Executive's position as
of the Effective Date of this Agreement.
(c) A relocation or transfer of Executive's principal place of
employment that would require Executive to commute on a regular basis
more than thirty (30) miles each way from his current business office at
North Sound Bank on the Effective Date of this Agreement, unless
Executive consents to the relocation or transfer.
(d) The written consent of Frontier to such resignation.
12. CONFIDENTIALITY. Executive will not, after signing this Agreement,
including during and after its Term, use for his own purposes or disclose to any
other person or entity any confidential information concerning Frontier or their
business operations or customers, unless (1) Frontier consents to the use or
disclosure of their respective confidential information, (2) the use or
disclosure is consistent with Executive's duties under this Agreement, or (3)
disclosure is required by law or court order.
13. NONCOMPETITION.
(a) Participation in a Competing Business. During the period
Executive is employed by Frontier and for twenty-four (24) months after
Executive's employment with Frontier terminates, Executive will not
become involved with a Competing Business or serve, directly or
indirectly, a Competing Business in any manner, including, without
limitation, as a shareholder, member, partner, director, officer,
manager, investor, organizer, "founder," employee, consultant, or agent;
provided, however, that Executive may acquire and passively own an
interest not exceeding 2% of the total equity interest in any Competing
Business.
(b) No Solicitation. During the period Executive is employed
with Frontier and for twenty-four (24) months after Executive's
employment with Frontier terminates, Executive will not directly or
indirectly solicit or attempt to solicit (1) any employees of Frontier,
or any of Frontier's Subsidiaries, to leave their employment or (2) any
customers of Frontier, or any of Frontier's Subsidiaries, to remove
their business from Frontier or to participate in any manner in a
Competing Business. Solicitation prohibited under this Section includes
solicitation by any means, including, without limitation,
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meetings, letters or other mailings, electronic communications of any
kind, and internet communications.
(c) Employment Outside the Restricted Area. Nothing in this
Agreement prevents Executive from accepting employment after the end of
the Term outside the Restricted Area (defined below) from a Competing
Business, as long as Executive will not (a) act as an employee or other
representative or agent of the Competing Business within the Restricted
Area or (b) have any responsibilities for the Competing Business'
operations within the Restricted Area.
(d) Competing Business. "Competing Business" means any financial
institution ("financial institution" means a state or national bank, a
state or federal savings and loan association, a mutual savings bank, or
a state or federal credit union), trust company or mortgage company
(including without limitation, any start-up or other financial
institution, trust company or mortgage company) that competes with, or
will compete with, Frontier in Kitsap, Jefferson or Clallam Counties in
the State of Washington (the "Restricted Area").
14. ENFORCEMENT.
(a) Frontier and Executive stipulate that, in light of all of
the facts and circumstances of the relationship between Executive and
Frontier, the agreements referred to in Sections 12 and 13 (including
without limitation their scope, duration and geographic extent) are fair
and reasonably necessary for the protection of Frontier's confidential
information, goodwill and other protectable interests. If a court of
competent jurisdiction should decline to enforce any of those covenants
and agreements, Executive and Frontier request the court to reform these
provisions to restrict Executive's use of confidential information and
Executive's ability to compete with Frontier to the maximum extent, in
time, scope of activities and geography, the court finds enforceable.
(b) Executive acknowledges that Frontier will suffer immediate
and irreparable harm that will not be compensable by damages alone, if
Executive repudiates or breaches any of the provisions of Sections 12 or
13 or threatens or attempts to do so. For this reason, under these
circumstances, Frontier, in addition to and without limitation of any
other rights, remedies or damages available to it at law or in equity,
will be entitled to obtain temporary, preliminary and permanent
injunctions in order to prevent or restrain the breach, and Frontier
will not be required to post a bond as a condition for the granting of
this relief.
15. ADEQUATE CONSIDERATION. Executive specifically acknowledges the
receipt of adequate consideration for the covenants contained in Sections 12 and
13 and that Frontier is entitled to require him to comply with these Sections.
These Sections will survive termination of this Agreement. Executive represents
that if his employment is terminated, whether voluntarily or involuntarily,
Executive has experience and capabilities sufficient to enable Executive to
obtain employment in areas which do not violate this Agreement and that the
Bank's enforcement of a remedy by way of injunction will not prevent Executive
from earning a livelihood.
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16. ARBITRATION.
(a) Arbitration. At either party's request, the parties must
submit any dispute, controversy or claim arising out of or in connection
with, or relating to, this Agreement or any breach or alleged breach of
this Agreement, to arbitration under the American Arbitration
Association's rules then in effect (or under any other form of
arbitration mutually acceptable to the parties). A single arbitrator
agreed on by the parties will conduct the arbitration. If the parties
cannot agree on a single arbitrator, each party must select one
arbitrator and those two arbitrators will select a third arbitrator.
This third arbitrator will hear the dispute. The arbitrator's decision
is final (except as otherwise specifically provided by law) and binds
the parties, and either party may request any court having jurisdiction
to enter a judgment and to enforce the arbitrator's decision. The
arbitrator will provide the parties with a written decision naming the
substantially prevailing party in the action. This prevailing party is
entitled to reimbursement from the other party for its costs and
expenses, including reasonable attorneys' fees.
(b) Governing Law. All proceedings will be held at a place
designated by the arbitrator in King County, Washington. The arbitrator,
in rendering a decision as to any state law claims, will apply
Washington law.
(c) Exception to Arbitration. Notwithstanding the above, if
Executive violates Section 12 or 13, Frontier will have the right to
initiate the court proceedings described in Section 14(b), in lieu of an
arbitration proceeding under this Section 16. Frontier may initiate
these proceedings wherever appropriate within Washington State; but
Executive will consent to venue and jurisdiction in King County,
Washington.
17. MISCELLANEOUS PROVISIONS.
(a) Defined Terms. Capitalized terms used as defined terms, but
not defined in this Agreement, will have the meanings assigned to those
terms in the Plan.
(b) Automobile. Executive shall retain the automobile he is
presently using, which is owned by North Sound Bank, for the Term of
this Agreement. Upon termination of Executive's employment, Executive
shall be permitted to purchase the vehicle (or comparable replacement
vehicle) at Frontier's depreciated cost.
(c) Entire Agreement. This Agreement constitutes the entire
understanding between the parties concerning its subject matter and
supersedes all prior agreements. Accordingly, Executive specifically
waives the terms of and all of his rights under all employment,
change-in-control and salary continuation agreements, whether written or
oral, he has previously entered into with Liberty or North Sound Bank.
(d) Binding Effect. This Agreement will bind and inure to the
benefit of Frontier's and Executive's heirs, legal representatives,
successors and assigns.
(e) Litigation Expenses. If either party successfully seeks to
enforce any provision of this Agreement or to collect any amount claimed
to be due under it, this party will be entitled to reimbursement from
the other party for any and all of its out-of-
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pocket expenses and costs including, without limitation, reasonable
attorneys' fees and costs incurred in connection with the enforcement or
collection.
(f) Waiver. Any waiver by a party of its rights under this
Agreement must be written and signed by the party waiving its rights. A
party's waiver of the other party's breach of any provision of this
Agreement will not operate as a waiver of any other breach by the
breaching party.
(g) Assignment. The services to be rendered by Executive under
this Agreement are unique and personal. Accordingly, Executive may not
assign any of his rights or duties under this Agreement.
(h) Amendment. This Agreement may be modified only through a
written instrument signed by both parties and consented to by Frontier.
(i) Severability. The provisions of this Agreement are
severable. The invalidity of any provision will not affect the validity
of other provisions of this Agreement.
(j) Governing Law. This Agreement will be governed by and
construed in accordance with Washington law, except to the extent that
certain matters may be governed by federal law.
(k) Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
taken together will constitute one and the same document.
FRONTIER FINANCIAL CORPORATION
By: /s/
-------------------------------------
Robert J. Dickson, President and CEO
FRONTIER BANK
By: /s/
-------------------------------------
Robert J. Dickson, President and CEO
By: /s/
-------------------------------------
MICHAEL J. CLEMENTZ
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
ROBERT W. ROBINSON
This EMPLOYMENT AGREEMENT ("Agreement") signed May 11, 2000, between
FRONTIER BANK (the "Bank") and ROBERT W. ROBINSON ("Executive") takes effect on
the Effective Date of the Merger of Liberty Bay Financial Corporation
("Liberty") into Frontier Financial Corporation and North Sound Bank into
Frontier Bank ("Effective Date").
RECITALS
A. Frontier Financial Corporation and the Bank have entered into a Plan
and Agreement of Mergers ("Plan") with Liberty and North Sound Bank, pursuant to
which Liberty will merge into Frontier Financial Corporation and North Sound
Bank will merge into the Bank ("Mergers").
B. Executive is presently the President and Chief Credit Officer of
North Sound Bank. The Bank wishes to retain Executive's services following the
Mergers, and Executive wishes to accept employment with the Bank following the
Mergers.
C. The purpose of this Agreement is to set forth the terms agreed to by
the parties to achieve the goals set forth in paragraph B, above.
AGREEMENT
The parties agree as follows:
1. EMPLOYMENT. The Bank agrees to employ Executive, and Executive agrees
to accept employment with the Bank. During the Term of his employment under this
Agreement, Executive will have the title of "Senior Vice President of Frontier
Bank."
2. EFFECTIVE DATE AND TERM.
(a) Effective Date. This Agreement is effective as of the
Effective Date.
(b) Term. The term of this Agreement ("Term") is three years,
beginning on the Effective Date, unless earlier terminated pursuant to
paragraph 9.
(c) Abandonment of the Mergers. If the Plan terminates before
the closing of the Mergers, this Agreement will not become effective and
will be void.
3. DUTIES. Executive will faithfully and diligently perform the duties
assigned to Executive from time to time by the Bank's Chairman, Chief Executive
Officer and/or the Bank's Executive Vice Presidents. Executive will use his best
efforts to perform his duties and will devote full time and attention to these
duties during working hours. These duties will include, without limitation, the
following:
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(a) Bank Performance. Executive will be responsible for all
aspects of the performance of the former North Sound Bank offices
("Peninsula Region"), including, without limitation, directing that
daily operational and managerial matters are performed in a manner
consistent with the Bank's policies. These duties will also include
performing all other tasks in connection with the Bank's management and
affairs that are normal and customary to Executive's position.
(b) Commercial Banking. Executive will be responsible for the
lending functions of the Peninsula Region. These duties will include,
without limitation, assuring that Loan Department operations and
management functions are performed in a manner consistent with the
Bank's policies.
(c) Development and Preservation of Business. Executive will be
responsible for the development and preservation of banking
relationships and other business development efforts (including
appropriate civic and community activities) in the Peninsula Region.
(d) Report to Executive Vice President and Branch Administrator.
Executive will report directly to the Bank's Executive Vice President
and Branch Administrator. The Bank's board of directors may, from time
to time, modify Executive's title or add to, delete from, or modify
Executive's performance responsibilities to accommodate management
succession, as well as any other management objectives of the Bank.
Executive will assume any additional positions, duties, and
responsibilities as may reasonably be requested of him with or without
additional compensation, as appropriate and consistent with Sections
3(a), 3(b) and 3(c) of this Agreement.
4. SALARY. Initially, Executive will receive a base salary from the Bank
of $101,500 per year, to be paid in accordance with the Bank's regular payroll
schedule ("Base Salary").
5. INCENTIVE COMPENSATION. The Bank will determine the amount of bonus,
if any, to be paid by the Bank to Executive for each year during the Term. In
making this determination, the Bank will consider factors such as Executive's
performance of his duties and the safety, soundness and profitability of the
Bank.
6. STAY BONUS. In addition to any incentive compensation granted
Executive under paragraph 5 hereof, on each anniversary of the Effective Date of
this Agreement during the Term, Executive shall receive a "Stay Bonus" of
$20,300 (three payments--$60,900 in total).
7. INCOME DEFERRAL AND BENEFITS. Subject to eligibility requirements and
in accordance with and subject to any policies adopted by the Bank with respect
to any benefit plans or programs, Executive will be entitled to receive benefits
(including stock options) similar to those offered to other executive officers
of the Bank with positions and duties comparable to those of Executive.
8. BUSINESS EXPENSES. The Bank will reimburse Executive for ordinary and
necessary expenses (including, without limitation, travel, entertainment, and
similar expenses)
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incurred in performing and promoting the Bank's business. Executive will present
from time to time itemized accounts of these expenses, subject to any limits of
Bank policy or the rules and regulations of the Internal Revenue Service.
9. TERMINATION.
(a) Termination By Frontier for Cause. If, before the end of the
Term, the Bank terminates Executive's employment for Cause or Executive
terminates his employment without Good Reason (defined below), the Bank
will pay Executive the salary earned and expenses reimbursable under
this Agreement incurred through the date of Executive's termination.
Executive will have no right to receive compensation or other benefits,
including Stay Bonus, for any period after termination under this
Section 9(a).
(b) Other Termination By the Bank. If, before the end of the
Term, the Bank terminates Executive's employment without Cause or
Executive terminates his employment for Good Reason (defined below), the
Bank will pay Executive for the remainder of the Term the Base Salary
and Stay Bonus Executive would have been entitled to under this
Agreement if his employment had not terminated, except if Sections 9(d)
and 9(e), below, apply.
(c) Death or Disability. This Agreement terminates (1) if
Executive dies or (2) if Executive is unable to perform his duties and
obligations under this Agreement for a period of 90 days as a result of
a physical or mental disability arising at any time during the Term of
this Agreement, unless with reasonable accommodation Executive could
continue to perform his duties under this Agreement and making these
accommodations would not pose undue hardship to the Bank. If termination
occurs under this Section 9(c), Executive or his estate will be entitled
to receive only the compensation and benefits earned and expenses
reimbursable through the date this Agreement terminated, together with
the balance of any Stay Bonus otherwise payable under this Agreement.
(d) Executive Termination Window. During the 25th month of the
Term, Executive may terminate this Agreement by delivering written
notice to the Bank. If Executive does so, regardless of whether
Executive had Good Reason to terminate the Agreement, the Bank will pay
Executive a single cash payment in an amount equal to Executive's W-2
income before salary deferrals over the twelve (12) months preceding the
date of termination, including Stay Bonus ("Total Annual Compensation").
In addition, Executive will continue to be covered by all of the Bank's
medical, health (including disability) and dental plans for twelve (12)
months following such date of termination.
(e) Termination Related to a Change in Control.
(1) Termination by the Bank. If, during the Term of this
Agreement, the Bank, or its successor in interest by merger, or
its transferee in the event of a purchase and assumption
transaction, (for reasons other than Executive's death,
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disability, or Cause): (1) terminates Executive's employment
within one year following a Change in Control (as defined
below); or (2) terminates Executive's employment before a Change
in Control and a Change in Control occurs within nine months
after the termination, the Bank (or its successor) will pay
Executive a single cash payment equal to the greater of the
balance remaining due for the Term of the Agreement or two times
Executive's Total Annual Compensation. In addition, Executive
will continue to be covered by all of the Bank's medical, health
(including disability) and dental plans for twelve (12) months
following such termination.
(2) Termination by Executive. If, during the Term of
this Agreement, Executive terminates Executive's employment,
with or without Good Reason, within one year following a Change
in Control, the Bank (or its successor) will pay Executive an
amount equal to the greater of the balance remaining due for the
Term of the Agreement or two times Executive's Total Annual
Compensation. In addition, Executive will continue to be covered
by all of the Bank's medical, health (including disability) and
dental plans for twelve (12) months following such termination.
(3) Limitations on Payments Related to Change in
Control. The following apply notwithstanding any other provision
of this Agreement:
(a) the Total Annual Compensation described in
Section 00 will be less than the amount that would cause
it to be a "parachute payment" within the meaning of
Section 280G(b)(2)(A) of the Internal Revenue Code; and
(b) Executive's right to receive his Total
Annual Compensation payment described in Section 00
terminates: (i) immediately, if before the Change in
Control transaction closes, Executive terminates his
employment without Good Reason or the Bank terminates
Executive's employment for Cause; or (ii) one year after
a Change in Control occurs.
(4) Definition of "Change in Control". "Change in
Control" means a change "in the ownership or effective control"
or "in the ownership of a substantial portion of the assets" of
Frontier Financial Corporation, within the meaning of Section
280G of the Internal Revenue Code. The Mergers do not constitute
a Change in Control.
(5) Adoption of Change in Control Plan by the Bank. In
the event Frontier Financial Corporation or the Bank adopts a
Change in Control Plan in which employees at Executive's level
would be entitled to participate, Executive shall, for the
duration of the Term of this Agreement, have the option of
electing to retain this Change in Control provision or electing
to participate in the Bank's Change in Control Plan. If the Bank
adopts a Change in Control Plan in which
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Executive is entitled to participate, Executive, if still
employed by the Bank, shall immediately be included in such plan
upon the expiration of the Term of this Agreement, and the
Change in Control provision in this Agreement shall terminate.
(f) Return of Bank Property. If and when Executive ceases, for
any reason, to be employed by the Bank, Executive must return to the
Bank all keys, pass cards, identification cards and any other property
of the Bank. At the same time, Executive also must return to the Bank
all originals and copies (whether in hard copy, electronic or other
form) of any documents, drawings, notes, memoranda, designs, devices,
diskettes, tapes, manuals and specifications which constitute
proprietary information or material of the Bank. The obligations in this
paragraph include the return of documents and other materials which may
be in Executive's desk at work, in Executive's car or place of
residence, or in any other location under Executive's control.
10. DEFINITION OF "CAUSE." "Cause" means any one or more of the
following:
(a) Willful misfeasance or gross negligence in the performance
of Executive's duties.
(b) Conviction of a crime in connection with his duties.
(c) Conduct demonstrably and significantly harmful to Frontier,
as reasonably determined by the Board on the advice of legal counsel.
11. DEFINITION OF "GOOD REASON." "Good Reason" means only any one or
more of the following:
(a) Reduction, without Executive's consent, of Executive's
salary or elimination of any compensation or benefit plan benefiting
Executive, unless the reduction or elimination is generally applicable
to substantially all similarly situated Frontier employees formerly
benefited.
(b) The assignment to Executive without his consent of any
authority or duties materially inconsistent with Executive's position as
of the Effective Date of this Agreement.
(c) A relocation or transfer of Executive's principal place of
employment that would require Executive to commute on a regular basis
more than thirty (30) miles each way from his current business office at
North Sound Bank on the Effective Date of this Agreement, unless
Executive consents to the relocation or transfer.
(d) The written consent of the Bank to such resignation.
12. CONFIDENTIALITY. Executive will not, after signing this Agreement,
including during and after its Term, use for his own purposes or
disclose to any other person or entity any confidential information
concerning the Bank or its business operations or customers, unless (1)
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the Bank consents to the use or disclosure of their respective confidential
information, (2) the use or disclosure is consistent with Executive's duties
under this Agreement, or (3) disclosure is required by law or court order.
13. NONCOMPETITION.
(a) Participation in a Competing Business. During the period
Executive is employed by the Bank and for twenty-four (24) months after
Executive's employment with the Bank terminates, Executive will not
become involved with a Competing Business or serve, directly or
indirectly, a Competing Business in any manner, including, without
limitation, as a shareholder, member, partner, director, officer,
manager, investor, organizer, "founder," employee, consultant, or agent;
provided, however, that Executive may acquire and passively own an
interest not exceeding 2% of the total equity interest in any Competing
Business.
(b) No Solicitation. During the period Executive is employed
with the Bank and for twenty-four (24) months after Executive's
employment with the Bank terminates, Executive will not directly or
indirectly solicit or attempt to solicit (1) any employees of the Bank,
or any of the Bank's Subsidiaries, to leave their employment or (2) any
customers of the Bank, or any of the Bank's Subsidiaries, to remove
their business from the Bank or to participate in any manner in a
Competing Business. Solicitation prohibited under this Section includes
solicitation by any means, including, without limitation, meetings,
letters or other mailings, electronic communications of any kind, and
internet communications.
(c) Employment Outside the Restricted Area. Nothing in this
Agreement prevents Executive from accepting employment after the end of
the Term outside the Restricted Area (defined below) from a Competing
Business, as long as Executive will not (a) act as an employee or other
representative or agent of the Competing Business within the Restricted
Area or (b) have any responsibilities for the Competing Business'
operations within the Restricted Area.
(d) Competing Business. "Competing Business" means any financial
institution ("financial institution" means a state or national bank, a
state or federal savings and loan association, a mutual savings bank, or
a state or federal credit union), trust company or mortgage company
(including without limitation, any start-up or other financial
institution, trust company or mortgage company) that competes with, or
will compete with, the Bank in Kitsap, Jefferson or Clallam Counties in
the State of Washington (the "Restricted Area").
14. ENFORCEMENT.
(a) The Bank and Executive stipulate that, in light of all of
the facts and circumstances of the relationship between Executive and
the Bank, the agreements referred to in Sections 12 and 13 (including
without limitation their scope, duration and geographic extent) are fair
and reasonably necessary for the protection of the Bank's
-6-
<PAGE> 7
confidential information, goodwill and other protectable interests. If a
court of competent jurisdiction should decline to enforce any of those
covenants and agreements, Executive and the Bank request the court to
reform these provisions to restrict Executive's use of confidential
information and Executive's ability to compete with the Bank to the
maximum extent, in time, scope of activities and geography, the court
finds enforceable.
(b) Executive acknowledges that the Bank will suffer immediate
and irreparable harm that will not be compensable by damages alone, if
Executive repudiates or breaches any of the provisions of Sections 12 or
13 or threatens or attempts to do so. For this reason, under these
circumstances, the Bank, in addition to and without limitation of any
other rights, remedies or damages available to it at law or in equity,
will be entitled to obtain temporary, preliminary and permanent
injunctions in order to prevent or restrain the breach, and the Bank
will not be required to post a bond as a condition for the granting of
this relief.
15. ADEQUATE CONSIDERATION. Executive specifically acknowledges the
receipt of adequate consideration for the covenants contained in Sections 12 and
13 and that the Bank is entitled to require him to comply with these Sections.
These Sections will survive termination of this Agreement. Executive represents
that if his employment is terminated, whether voluntarily or involuntarily,
Executive has experience and capabilities sufficient to enable Executive to
obtain employment in areas which do not violate this Agreement and that the
Bank's enforcement of a remedy by way of injunction will not prevent Executive
from earning a livelihood.
16. ARBITRATION.
(a) Arbitration. At either party's request, the parties must
submit any dispute, controversy or claim arising out of or in connection
with, or relating to, this Agreement or any breach or alleged breach of
this Agreement, to arbitration under the American Arbitration
Association's rules then in effect (or under any other form of
arbitration mutually acceptable to the parties). A single arbitrator
agreed on by the parties will conduct the arbitration. If the parties
cannot agree on a single arbitrator, each party must select one
arbitrator and those two arbitrators will select a third arbitrator.
This third arbitrator will hear the dispute. The arbitrator's decision
is final (except as otherwise specifically provided by law) and binds
the parties, and either party may request any court having jurisdiction
to enter a judgment and to enforce the arbitrator's decision. The
arbitrator will provide the parties with a written decision naming the
substantially prevailing party in the action. This prevailing party is
entitled to reimbursement from the other party for its costs and
expenses, including reasonable attorneys' fees.
(b) Governing Law. All proceedings will be held at a place
designated by the arbitrator in King County, Washington. The arbitrator,
in rendering a decision as to any state law claims, will apply
Washington law.
(c) Exception to Arbitration. Notwithstanding the above, if
Executive violates Section 12 or 13, the Bank will have the right to
initiate the court proceedings
-7-
<PAGE> 8
described in Section 14(b), in lieu of an arbitration proceeding under
this Section 16. The Bank may initiate these proceedings wherever
appropriate within Washington State; but Executive will consent to venue
and jurisdiction in King County, Washington.
17. MISCELLANEOUS PROVISIONS.
(a) Defined Terms. Capitalized terms used as defined terms, but
not defined in this Agreement, will have the meanings assigned to those
terms in the Plan.
(b) Automobile. Executive shall retain the automobile he is
presently using, which is owned by North Sound Bank, for the Term of
this Agreement. Upon termination of Executive's employment, assuming the
Bank is continuing to provide Executive a vehicle at such time,
Executive shall be permitted to purchase the vehicle (or comparable
replacement vehicle) at the Bank's depreciated cost.
(c) Entire Agreement. This Agreement constitutes the entire
understanding between the parties concerning its subject matter and
supersedes all prior agreements. Accordingly, Executive specifically
waives the terms of and all of his rights under all employment,
change-in-control and salary continuation agreements, whether written or
oral, he has previously entered into with Liberty Bay Financial
Corporation or North Sound Bank.
(d) Binding Effect. This Agreement will bind and inure to the
benefit of the Bank's and Executive's heirs, legal representatives,
successors and assigns.
(e) Litigation Expenses. If either party successfully seeks to
enforce any provision of this Agreement or to collect any amount claimed
to be due under it, this party will be entitled to reimbursement from
the other party for any and all of its out-of-pocket expenses and costs
including, without limitation, reasonable attorneys' fees and costs
incurred in connection with the enforcement or collection.
(f) Waiver. Any waiver by a party of its rights under this
Agreement must be written and signed by the party waiving its rights. A
party's waiver of the other party's breach of any provision of this
Agreement will not operate as a waiver of any other breach by the
breaching party.
(g) Assignment. The services to be rendered by Executive under
this Agreement are unique and personal. Accordingly, Executive may not
assign any of his rights or duties under this Agreement.
(h) Amendment. This Agreement may be modified only through a
written instrument signed by both parties and consented to by the Bank.
(i) Severability. The provisions of this Agreement are
severable. The invalidity of any provision will not affect the validity
of other provisions of this Agreement.
-8-
<PAGE> 9
(j) Governing Law. This Agreement will be governed by and
construed in accordance with Washington law, except to the extent that
certain matters may be governed by federal law.
(k) Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
taken together will constitute one and the same document.
FRONTIER BANK
By: /s/
-------------------------------------
Robert J. Dickson, President and CEO
/s/
-----------------------------------------
ROBERT W. ROBINSON
-9-
<PAGE> 1
EXHIBIT 10.3
CHANGE OF CONTROL AGREEMENT
This Agreement dated August 14, 1999, by and between LIBERTY BAY
FINANCIAL CORPORATION AND NORTH SOUND BANK (hereinafter refereed to jointly as
the "Bank"), and MARK D. FREEMAN (the "Executive"):
WHEREAS, the Executive has rendered valuable services to the Bank and
the Bank desires to be assured that the Executive will continue
rendering such services to the Bank,
WHEREAS, the Bank wishes to assure itself of continuity of management in
the event of any actual or threatened Change of Control of the Bank, and
WHEREAS, the Executive is willing to continue to serve the Bank but
desires assurance that he will be protected in the event of any Change
of Control;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein, the parties agree as follows:
1. Severance Benefits. The Bank agrees that if there is a Change of
Control of the Bank, and the Executive leaves the employment of the Bank,
whether voluntarily or involuntarily (other than discharge for cause, as defined
below), within twelve (12) months after such Change of Control:
a. The Executive shall receive monthly, commencing on the first
day of the first calendar month following discontinuance of his
employment due to a Change of Control, a cash payment in an amount equal
to his total compensation (W-2 income before salary deferrals plus
Liberty Bay Financial Corporation/North Sound Bank director's fees) over
the twelve (12) months preceding the month in which the Change of
Control occurs, divided by 12, which cash payment shall be paid for
twenty four (24) consecutive months.
b. The Executive shall continue to be covered by all of the
Bank's medical, health (including disability), and dental plans for
twenty-four (24) months following discontinuance of his employment due
to a Change of Control.
2. Termination Before Change of Control. If the Executive's employment
is involuntarily terminated (other than discharge for cause, as defined below)
before a Change of Control but after negotiations which result in a Change of
Control have commenced, the Executive shall be entitled to the Severance
Benefits described in Paragraph 1, said benefits to be paid after the Change of
Control actually occurs.
3. Consideration.
a. The amounts paid to the Executive hereunder shall be
considered severance pay in consideration of the past services he has
rendered to the Bank and in consideration of his continued service from
the date hereof to his entitlement to those payments.
b. The Executive shall have no duty to mitigate his damages by
seeking other employment. Should the Executive actually receive other
payments from any such other
Change of Control Agreement -
North Sound Bank/Mark D. Freeman - Page 1
<PAGE> 2
employment, the payments called for hereunder shall not be reduced or
offset by any such future earnings.
4. Change of Control. As used herein, a "Change of Control" will be
deemed to have occurred when there is a change in ownership of the Bank's common
stock, whereby any person, entity, or group of associated persons and/or
entities acting in concert increases its beneficial ownership (whether direct or
indirect) to fifty-one percent (51%) of the Bank's common stock or the common
stock of the bank holding company, Liberty Bay Financial Corporation. The
ownership of the holding company will be considered "essentially the same" if no
more than ten percent (10%) of the shares of the bank holding company following
the bank holding company formation are held by shareholders who were not
shareholders of the Bank.
5. Discharge for Cause. For purposes of this Agreement, the termination
of the Executive's employment shall be deemed to have been made for cause only
upon the following circumstances:
a. The termination is as a result of acts of dishonesty on the
part of the Executive constituting a felony and resulting or intended to
result directly or indirectly in gain or personal enrichment of the
Executive at the expense of the Bank; or
b. The Executive has, willfully and in bad faith, refused or
neglected to carry out the reasonable duties which may have been
assigned to him and such refusal shall continue after written notice to
the Executive and a period of ten (10) days in which time the Executive
shall have the opportunity to cure such failure.
6. Termination of the Agreement. This Agreement shall terminate if prior
to the Change of Control of the Bank as defined here, the Executive shall
voluntarily resign, retire, become permanently and totally disabled, voluntarily
take another position requiring a substantial portion of his time, or die.
7. Effect on Other Benefits. The arrangements called for by this
Agreement are not intended to have any effect on the Executive's participation
in any other benefits available to executive personnel or to preclude other
compensation or additional benefits as may be authorized by the Board of
Directors from time-to-time.
8. Automobile. Upon termination of the Executive's employment following
a Change of Control, the Executive shall be permitted to purchase the Bank's
automobile that he is then using, at the Bank's depreciated cost.
9. Golden Parachute (FDIC). The Bank shall not be obligated to make, and
the Executive shall not be entitled to, any payment under this Agreement if such
payment would constitute a "golden parachute" payment prohibited by 12 U.S.C.
1828(k) or 12 CFR ss.359.0 et seq. The Bank shall have no liability to the
Executive under or in relation to this Agreement should any payment be deemed a
prohibited "golden parachute" payment.
10. Binding Effect. This Agreement shall be binding and shall inure to
the benefit of the respective successors, assigns, legal representatives and
heirs to the parties hereto.
11. Miscellaneous. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions shall continue to be fully effective. No provision of this Agreement
may be modified, waived, or discharged unless such waiver, modification, or
Change of Control Agreement -
North Sound Bank/Mark D. Freeman - Page 2
<PAGE> 3
discharge is agreed to in writing by the Executive and the Board of Directors of
the Bank. This is the entire agreement between the parties. This Agreement shall
be governed under the laws of the State of Washington.
12. Jurisdiction/Venue/Mandatory Arbitration. Any legal action brought
to resolve disputes arising out of this Change of Control Agreement, or any
amendments thereto, shall be commenced in Kitsap County Superior Court in the
State of Washington and shall be resolved in accordance with the Superior Court
Mandatory Arbitration Rules and the Kitsap County Local Rules for Mandatory
Arbitration, if any, with the parties agreeing to waive the jurisdictional
limits. The decision of the arbitrator shall be binding on the parties, and the
parties waive the right of de novo appeal from such decision.
It is agreed that the arbitrator shall award to the prevailing or
substantially prevailing party all fees incurred by such party with regard to
such arbitration, including reasonable legal, accounting, and expert witness
fees. If the arbitrator determines that there is no prevailing or substantially
prevailing party, the reasonable legal, accounting, and expert witnesses fees
shall be the responsibility of each party.
IN WITNESS WHEREOF, the parties have signed this Agreement this 14th day
of August 1999.
Liberty Bay Financial Corporation
and North Sound Bank
By: /s/
-------------------------------------
Michael J. Clementz
President/CEO
/s/
-----------------------------------------
Mark D. Freeman
Change of Control Agreement -
North Sound Bank/Mark D. Freeman - Page 3
<PAGE> 1
EXHIBIT 10.4
AMENDMENT TO CHANGE OF CONTROL AGREEMENT
This Amendment to Change of Control Agreement is made this 15th day of
March 2000, by and between LIBERTY BAY FINANCIAL CORPORATION and NORTH SOUND
BANK (hereinafter referred to jointly as the "Bank") and MARK D. FREEMAN, who
agree as follows:
1. Paragraph 1, "Severance Benefits," is deleted in its entirety and
replaced with the following:
1. Severance Benefits. The Bank agrees that if there is a Change
of Control of the Bank, and the Executive leaves the employment of the
Bank, whether voluntarily or involuntarily (other than discharge for
cause, as defined below), within twelve (12) months after such Change of
Control, the Executive shall receive a lump sum payment of $302,837
payable within fifteen (15) days of termination of employment by the
Bank.
2. The following new paragraph is added to the Change of Control
Agreement:
13. Noncompetition.
(a) Participation in a Competing Business. While employed by the
Bank and for twenty-four (24) months after Executive's employment with
the Bank ends, Executive will not become involved with a Competing
Business or serve, directly or indirectly, a Competing Business in any
manner, including, without limitation, as a shareholder, member,
partner, director, officer, manager, investor, organizer, "founder,"
employee, consultant, or agent; provided, however, that Executive may
acquire and passively own an interest not exceeding 2% of the total
equity interest in any Competing Business.
(b) No Solicitation. While employed by the Bank and for
twenty-four (24) months after Executive's employment with the Bank ends,
Executive will not directly or indirectly solicit or attempt to solicit:
(1) any employees of the Bank to leave their employment, or (2) any
customers of the Bank to remove their business from the Bank or to
participate in any manner in a Competing Business. Solicitation
prohibited under this Section includes solicitation by any means,
including, without limitation, meetings, letters or other mailings,
electronic communications of any kind, and internet communications.
(c) Employment Outside the Restricted Area. Nothing in this
Agreement prevents Executive, after Executive's employment with the Bank
ends, to commence employment outside the Restricted Area (defined below)
from a Competing Business, as long as Executive will not: (a) act as an
employee or other representative or agent of the Competing Business
within the Restricted Area, or (b) have any responsibilities for the
Competing Business' operations within the Restricted Area.
-1-
<PAGE> 2
(d) Competing Business. "Competing Business" means any financial
institution ("financial institution" means a state or national bank, a
state or federal savings and loan association, a mutual savings bank, or
a state or federal credit union), trust company or mortgage company
(including without limitation, any start-up or other financial
institution, trust company or mortgage company) that competes with, or
will compete with, the Bank in Kitsap, Jefferson or Clallam Counties in
the State of Washington (the "Restricted Area").
3. Except as set forth in this Amendment, all other provisions of the
Change of Control Agreement shall remain unchanged and in full force and effect.
LIBERTY BAY FINANCIAL CORPORATION
By: /s/
--------------------------------------
Michael J. Clementz, President and CEO
/s/
-----------------------------------------
MARK D. FREEMAN
<PAGE> 1
EXHIBIT 10.5
CHANGE OF CONTROL AGREEMENT
This Agreement dated August 14, 1999, by and between LIBERTY BAY
FINANCIAL CORPORATION AND NORTH SOUND BANK (hereinafter refereed to jointly as
the "Bank"), and RONALD L. TWEITEN (the "Executive"):
WHEREAS, the Executive has rendered valuable services to the Bank and
the Bank desires to be assured that the Executive will continue
rendering such services to the Bank,
WHEREAS, the Bank wishes to assure itself of continuity of management in
the event of any actual or threatened Change of Control of the Bank, and
WHEREAS, the Executive is willing to continue to serve the Bank but
desires assurance that he will be protected in the event of any Change
of Control;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein, the parties agree as follows:
1. Severance Benefits. The Bank agrees that if there is a Change of
Control of the Bank, and the Executive leaves the employment of the Bank,
whether voluntarily or involuntarily (other than discharge for cause, as defined
below), within twelve (12) months after such Change of Control:
a. The Executive shall receive monthly, commencing on the first
day of the first calendar month following discontinuance of his
employment due to a Change of Control, a cash payment in an amount equal
to his total compensation (W-2 income before salary deferrals) over the
twelve (12) months preceding the month in which the Change of Control
occurs, divided by 12, which cash payment shall be paid for twenty four
(24) consecutive months.
b. The Executive shall continue to be covered by all of the
Bank's medical, health (including disability), and dental plans for
twenty-four (24) months following discontinuance of his employment due
to a Change of Control.
2. Termination Before Change of Control. If the Executive's employment
is involuntarily terminated (other than discharge for cause, as defined below)
before a Change of Control but after negotiations which result in a Change of
Control have commenced, the Executive shall be entitled to the Severance
Benefits described in Paragraph 1, said benefits to be paid after the Change of
Control actually occurs.
3. Consideration.
a. The amounts paid to the Executive hereunder shall be
considered severance pay in consideration of the past services he has
rendered to the Bank and in consideration of his continued service from
the date hereof to his entitlement to those payments.
b. The Executive shall have no duty to mitigate his damages by
seeking other employment. Should the Executive actually receive other
payments from any such other
Change of Control Agreement -
North Sound Bank/Ronald L. Tweiten - Page 1
<PAGE> 2
EXHIBIT 10.5
employment, the payments called for hereunder shall not be reduced or
offset by any such future earnings.
4. Change of Control. As used herein, a "Change of Control" will be
deemed to have occurred when there is a change in ownership of the Bank's common
stock, whereby any person, entity, or group of associated persons and/or
entities acting in concert increases its beneficial ownership (whether direct or
indirect) to fifty-one percent (51%) of the Bank's common stock or the common
stock of the bank holding company, Liberty Bay Financial Corporation. The
ownership of the holding company will be considered "essentially the same" if no
more than ten percent (10%) of the shares of the bank holding company following
the bank holding company formation are held by shareholders who were not
shareholders of the Bank.
5. Discharge for Cause. For purposes of this Agreement, the termination
of the Executive's employment shall be deemed to have been made for cause only
upon the following circumstances:
a. The termination is as a result of acts of dishonesty on the
part of the Executive constituting a felony and resulting or intended to
result directly or indirectly in gain or personal enrichment of the
Executive at the expense of the Bank; or
b. The Executive has, willfully and in bad faith, refused or
neglected to carry out the reasonable duties which may have been
assigned to him and such refusal shall continue after written notice to
the Executive and a period of ten (10) days in which time the Executive
shall have the opportunity to cure such failure.
6. Termination of the Agreement. This Agreement shall terminate if prior
to the Change of Control of the Bank as defined here, the Executive shall
voluntarily resign, retire, become permanently and totally disabled, voluntarily
take another position requiring a substantial portion of his time, or die.
7. Effect on Other Benefits. The arrangements called for by this
Agreement are not intended to have any effect on the Executive's participation
in any other benefits available to executive personnel or to preclude other
compensation or additional benefits as may be authorized by the Board of
Directors from time-to-time.
8. Automobile. Upon termination of Executive's employment following a
Change of Control, Executive shall be permitted to purchase the Bank's vehicle
he is then using at the Bank's depreciated cost.
9. Golden Parachute (FDIC). The Bank shall not be obligated to make, and
the Executive shall not be entitled to, any payment under this Agreement if such
payment would constitute a "golden parachute" payment prohibited by 12 U.S.C.
1828(k) or 12 CFR ss.359.0 et seq. The Bank shall have no liability to the
Executive under or in relation to this Agreement should any payment be deemed a
prohibited "golden parachute" payment.
10. Binding Effect. This Agreement shall be binding and shall inure to
the benefit of the respective successors, assigns, legal representatives and
heirs to the parties hereto.
Change of Control Agreement -
North Sound Bank/Ronald L. Tweiten - Page 2
<PAGE> 3
11. Miscellaneous. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions shall continue to be fully effective. No provision of this Agreement
may be modified, waived, or discharged unless such waiver, modification, or
discharge is agreed to in writing by the Executive and the Board of Directors of
the Bank. This is the entire agreement between the parties. This Agreement shall
be governed under the laws of the State of Washington.
12. Jurisdiction/Venue/Mandatory Arbitration. Any legal action brought
to resolve disputes arising out of this Change of Control Agreement, or any
amendments thereto, shall be commenced in Kitsap County Superior Court in the
State of Washington and shall be resolved in accordance with the Superior Court
Mandatory Arbitration Rules and the Kitsap County Local Rules for Mandatory
Arbitration, if any, with the parties agreeing to waive the jurisdictional
limits. The decision of the arbitrator shall be binding on the parties, and the
parties waive the right of de novo appeal from such decision.
It is agreed that the arbitrator shall award to the prevailing or
substantially prevailing party all fees incurred by such party with regard to
such arbitration, including reasonable legal, accounting, and expert witness
fees. If the arbitrator determines that there is no prevailing or substantially
prevailing party, the reasonable legal, accounting, and expert witnesses fees
shall be the responsibility of each party.
IN WITNESS WHEREOF, the parties have signed this Agreement this 14th day
of August 1999.
Liberty Bay Financial Corporation
and North Sound Bank
By: /S/
-------------------------------------
Michael J. Clementz
President/CEO
/S/
-----------------------------------------
Ronald L. Tweiten
Change of Control Agreement -
North Sound Bank/Ronald L. Tweiten - Page 3
<PAGE> 1
AMENDMENT TO CHANGE OF CONTROL AGREEMENT
This Amendment to Change of Control Agreement is made this 15th day of
March 2000, by and between LIBERTY BAY FINANCIAL CORPORATION and NORTH SOUND
BANK (hereinafter referred to jointly as the "Bank") and RONALD L. TWEITEN, who
agree as follows:
1. Paragraph 1, "Severance Benefits," is deleted in its entirety and
replaced with the following:
1. Severance Benefits. The Bank agrees that if there is a Change
of Control of the Bank, and the Executive leaves the employment of the
Bank, whether voluntarily or involuntarily (other than discharge for
cause, as defined below), within twelve (12) months after such Change of
Control, the Executive shall receive a lump sum payment of $225,336
payable within fifteen (15) days of termination of employment by the
Bank.
2. The following new paragraph is added to the Change of Control
Agreement:
13. Noncompetition.
(a) Participation in a Competing Business. While employed by the
Bank and for twenty-four (24) months after Executive's employment with
the Bank ends, Executive will not become involved with a Competing
Business or serve, directly or indirectly, a Competing Business in any
manner, including, without limitation, as a shareholder, member,
partner, director, officer, manager, investor, organizer, "founder,"
employee, consultant, or agent; provided, however, that Executive may
acquire and passively own an interest not exceeding 2% of the total
equity interest in any Competing Business.
(b) No Solicitation. While employed by the Bank and for
twenty-four (24) months after Executive's employment with the Bank ends,
Executive will not directly or indirectly solicit or attempt to solicit:
(1) any employees of the Bank to leave their employment, or (2) any
customers of the Bank to remove their business from the Bank or to
participate in any manner in a Competing Business. Solicitation
prohibited under this Section includes solicitation by any means,
including, without limitation, meetings, letters or other mailings,
electronic communications of any kind, and internet communications.
(c) Employment Outside the Restricted Area. Nothing in this
Agreement prevents Executive, after Executive's employment with the Bank
ends, to commence employment outside the Restricted Area (defined below)
from a Competing Business, as long as Executive will not: (a) act as an
employee or other representative or agent of the Competing Business
within the Restricted
<PAGE> 2
Area, or (b) have any responsibilities for the Competing Business'
operations within the Restricted Area.
(d) Competing Business. "Competing Business" means any financial
institution ("financial institution" means a state or national bank, a
state or federal savings and loan association, a mutual savings bank, or
a state or federal credit union), trust company or mortgage company
(including without limitation, any start-up or other financial
institution, trust company or mortgage company) that competes with, or
will compete with, the Bank in Kitsap, Jefferson or Clallam Counties in
the State of Washington (the "Restricted Area").
3. Except as set forth in this Amendment, all other provisions of the
Change of Control Agreement shall remain unchanged and in full force and effect.
LIBERTY BAY FINANCIAL CORPORATION
By: /s/
--------------------------------------
Michael J. Clementz, President and CEO
/s/
-----------------------------------------
RONALD L. TWEITEN
<PAGE> 1
EXHIBIT 10.7
DIRECTOR'S AGREEMENT
This Agreement is made and entered into as of the 15th day of March,
2000, between FRONTIER FINANCIAL CORPORATION, a Washington corporation
("Frontier") and the undersigned (the "Director"), a director of Liberty Bay
Financial Corporation ("Liberty") or North Sound Bank (the "Bank") (Liberty and
the Bank, collectively, being the "Company"), and shall become effective only
upon the closing of the Merger (defined below).
RECITALS
1. Pursuant to the terms of the Agreement and Plan of Mergers (the
"Plan") among Frontier and Liberty, Liberty will be merged into Frontier, and
North Sound Bank will be merged into Frontier Bank (the "Merger").
2. The obligation of Frontier to consummate the transactions
contemplated by the Plan is conditioned upon its receipt of non-competition
agreements from directors of the Company.
3. Director is a shareholder of Liberty as well as a director of Liberty
and/or Bank.
AGREEMENT
In consideration of the performance of Frontier under the Plan, Director
agrees that for a period of two (2) years after he or she ceases to be a
director of the Bank or its successor, he or she will not, directly or
indirectly, become involved in or serve, directly or indirectly, in any manner,
including, without limitation, as a principal shareholder, member, partner,
director, officer, manager, organizer, "founder," employee, consultant, or agent
of, any financial institution that competes or will compete with Frontier or any
of its subsidiaries or their affiliates within the State of Washington.
Director also agrees that during this two (2) year period, Director will
not directly or indirectly solicit or attempt to solicit on his or her own
behalf or for the benefit of any financial institution (i) any employees of the
Company, Frontier, or any of their subsidiaries or affiliates, to leave their
employment for employment with another financial institution or (ii) any
customers of the Company, Frontier, or any of their subsidiaries or affiliates
to remove their business from the Company, Frontier, or any of their
subsidiaries or affiliates. Solicitation prohibited under this section includes
solicitation by any means, including, without limitation, meetings, telephone
calls, letters or other mailings, electronic communication of any kind, and
Internet communications.
For purposes of this Agreement, the term "principal shareholder" means
any person who owns, directly or indirectly, five percent (5%) or more of the
outstanding shares of any voting class of equity security of a company.
Director recognizes and agrees that any breach of this Agreement by him
or her will entitle Frontier and any of its successors or assigns to injunctive
relief and/or specific performance, as well as any other legal or equitable
remedies to which such entities may otherwise be entitled. The substantially
prevailing party in any such dispute will be entitled to recover from the other
party its costs and expenses, including specifically, reasonable attorneys'
fees.
1
<PAGE> 2
This Agreement shall be effective upon the closing of the Merger. If the
Plan is terminated before such closing, this Agreement will not become effective
and will be void.
The provisions of this Agreement are severable, and the invalidity of
any provision will not affect the validity of other provisions. If a court of
competent jurisdiction deems that the duration, geographic scope, or other
restriction imposed by this Agreement is unenforceable, such court may reform
the restriction as is necessary to make such restriction enforceable.
Executed as of the 14th day of March , 2000.
FRONTIER FINANCIAL CORPORATION DIRECTOR
/S/ /S/
- ---------------------------------- ----------------------------------
Robert J. Dickson , President and CEO
2
<PAGE> 1
EXHIBIT 10.8
LIBERTY BAY FINANCIAL CORPORATION
AFFILIATE UNDERTAKINGS AND AGREEMENTS
A. The undersigned understands that he or she may be deemed to be an
"affiliate" of Liberty Bay Financial Corporation ("Company") with respect to the
matters set forth below, and further understands that:
1. Pursuant to the Agreement and Plan of Mergers (the "Plan"),
between Frontier Financial Corporation ("Frontier") and the Company, execution
of this document is a condition to the merger transaction ("Merger")
contemplated by the Plan.
2. Pursuant to the Securities and Exchange Commission ("SEC") Rule
145 ("Rule 145") under the Securities Act of 1933, as amended ("Act"), the
transferability of the Frontier Common Stock received by affiliates in
connection with the Merger will be restricted.
B. The undersigned hereby agrees and undertakes not to transfer, sell or
otherwise dispose of any shares of Frontier Common Stock received in connection
with the Merger, except (a) pursuant to an effective Registration Statement
under the Act covering such Frontier Common Stock, or (b) as permitted by the
provisions of Rule 145 under the Act, or (c) if the undersigned furnishes to
Frontier an opinion of counsel, satisfactory to counsel for Frontier, to the
effect that registration under the Act is not required for the proposed sale,
transfer or other disposition, or (d) if the undersigned furnishes to Frontier a
copy of a "no-action" or interpretive letter from the staff of the SEC to the
effect that the proposed sale, transfer or other disposition of such Frontier
Common Stock may be effected without registration under the Act. The
restrictions set forth in this paragraph B shall terminate two years after the
effective date of the Merger unless after such effective date, the undersigned
is an affiliate of Frontier.
C. The undersigned understands that Frontier will furnish to the
undersigned upon his or her written request a written statement that Frontier
has complied with the reporting requirements specified in paragraph (c)(1) of
Rule 144 under the Act, and that Frontier will so comply as long as the
undersigned holds the Frontier Common Stock received in connection with the
Merger.
D. The undersigned further understands and agrees that Frontier will
issue stop-transfer instructions to its transfer agent respecting shares of
Frontier Common Stock issued to the undersigned in connection with the Merger,
and that the restrictive legend set forth below will be placed on certificates
delivered to the undersigned evidencing such shares of Frontier Common Stock:
"The shares evidenced by this certificate were received by an
"affiliate" of a corporation in a transaction (the acquisition of
Liberty Bay Financial Corporation that closed on _________, 2000)
pursuant to Rule 145 of the Securities and Exchange Commission under the
Securities Act of 1933, as amended. The
1
<PAGE> 2
transferability, sale or other disposition of these shares is thus
restricted. Reference is made to a letter agreement and undertaking
signed by such affiliate, a copy of which is on file in the principal
office of Frontier Bancorp, Inc., for a description of the restrictions
on the transfer of shares represented hereby."
E. The term "Frontier Common Stock" as used in this letter shall mean
and include not only the common stock of Frontier as presently constituted, but
also any other stock which may be issued in exchange for, in lieu of, or in
addition to, all or any party of such common stock.
F. This Agreement may be signed in one or more facsimile counterparts,
each of which will be deemed an original, but all of which taken together will
constitute one and the same document.
IN WITNESS WHEREOF, I have signed my name on this 14th day of March,
2000.
/S/
-----------------------------------------
Accepted and Agreed To:
FRONTIER FINANCIAL CORPORATION
By: /S/
-------------------------------------
Its President & CEO
------------------------------------
2
<PAGE> 1
EXHIBIT 21
Frontier Financial Corporation
List of Subsidiaries as of March 15, 2000
(Ownership is 100% Unless Otherwise Indicated)
Name Place of
Incorporation
Frontier Bank Washington State
FFP, Inc. Washington State
<PAGE> 1
LAW OFFICES OF
KELLER ROHRBACK L.L.P.
- --------------------------------------------------------------------------------
A PROFESSIONAL LIMITED LIABILITY PARTNERSHIP
EXHIBIT 23.2
May 17, 2000
Gentlemen:
We hereby consent to the filing of the form of our federal tax opinion
as an exhibit to the Registration Statement and to the reference to us in the
Prospectus/Proxy Statement included therein under the headings "THE
REORGANIZATION -- Certain Federal Income Tax Consequences" and "LEGAL OPINIONS."
Respectfully,
/S/
KELLER ROHRBACK, L.L.P.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants and auditors, we consent to the reference to
our firm under the caption "Experts" and to the incorporation by reference in
this registration statement on Form S-4 of our report dated January 18, 2000
included in the Frontier Financial Corporation's Annual Report on Form 10-K for
the year ended December 31, 1999.
MOSS ADAMS LLP
Everett, Washington By: /S/
May 17, 2000 -------------------------------------
<PAGE> 1
EXHIBIT 23.4
Board of Directors
Liberty Bay Financial Corporation
May 10, 2000
I 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,
CHILDRESS INVESTMENT RESEARCH, INC.
By: /S/
-------------------------------------
Leslie Childress
<PAGE> 1
EXHIBIT 99.1
REVOCABLE PROXY
LIBERTY BAY FINANCIAL CORPORATION
REVOCABLE PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _______________, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints ________________________________________
(with full power to act alone and to designate substitutes) as attorney and
proxy of the undersigned with authority to vote and act with respect to all
shares of stock of Liberty Bay Financial Corporation ("LBFC"), which the
undersigned would be entitled to vote at the Special Meeting of Shareholders to
be held on ___________________, 2000 at __:00 _.m., local time, at
__________________Poulsbo, Washington, and any adjournments or postponements
thereof, with all the powers the undersigned would possess if personally
present, upon matters noted below and upon such other matters as may properly
come before the meeting.
(When properly executed, this Proxy will be voted in accordance with
your instructions. If you give no instructions, this Proxy will be voted FOR
Proposal 1).
The shares represented by this Proxy shall be voted as follows:
1. A proposal to approve the Agreement and Plan of Merger, dated as of
March 15, 2000 (the "Merger Agreement"), between LBFC and Frontier
Financial Corporation ("FFC"), under the terms of which: (i) LBFC will
merge into FFC, and (ii) each outstanding share of common stock of LBFC
will be converted into shares of FFC common stock in accordance with the
terms of the Merger Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxy is authorized to vote upon such other
business as may properly come before the Special Meeting of
Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSAL.
Should the undersigned be present and elect to vote at the Special
Meeting or at any adjournment thereof and after notification to the Secretary of
LBFC at the Special Meeting of the shareholder's decision to terminate this
proxy, then the power of said attorney and proxy shall be deemed terminated and
of no further force and effect.
The undersigned acknowledges receipt from LBFC prior to the execution of
this proxy of notice of the Meeting, the Prospectus/Proxy Statement dated
_________________, 2000.
DATED: ___________________, 2000.
________________________________ ________________________________
Print Name of Shareholder Print Name of Shareholder
________________________________ ________________________________
Signature Signature
Please sign exactly as name appears above. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGEMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOW OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
(PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.)
<PAGE> 1
EXHIBIT 99.2
RULE 438 CONSENT
In accordance with Rule 438 under the Securities Act of 1933, as
amended, the undersigned hereby consents to being named as a prospective
director of Frontier Financial Corporation ("Frontier") and Frontier Bank in the
Registration Statement on Form S-4 to be filed by Frontier with the Securities
and Exchange Commission.
/S/
-----------------------------------------
Michael J. Clementz
4-19-00
-----------------------------------------
Date Signed
