SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8 - K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 28, 1998
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STERLING FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Washington 0-20800 91-1572822
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
Incorporation) Number)
111 North Wall Street, Spokane, Washington 99201
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (509) 458-3711
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N/A
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. OTHER EVENTS
On April 23, 1998, Sterling Financial Corporation ("Sterling") entered
into a definitive merger agreement ("Agreement") with Big Sky Bancorp,
Inc. ("Big Sky"), pursuant to which Big Sky will be merged into
Sterling and Big Sky's wholly-owned subsidiary, First Federal Savings
and Loan Association of Montana, will be merged into Sterling's
wholly-owned subsidiary, Sterling Savings Association. The Agreement
provides that each share of Big Sky's common stock will be exchanged
for 1.384 shares of Sterling common stock or up to 497,545 shares of
common stock, depending on the exercise of Big Sky options. The
merger is intended to constitute a tax-free reorganization and to be
accounted for as a pooling-of-interests.
Pursuant to the Agreement, Big Sky has agreed to pay Sterling a
termination fee of $500,000 in the event the Agreement is terminated
under certain conditions, including the failure of Big Sky's
shareholders to approve the Agreement or if the Agreement is
terminated as a result of a breach by Big Sky. In connection with the
Agreement, Sterling and certain of Big Sky's shareholders have entered
into a Stockholders Agreement (the "Stockholders Agreement") pursuant
to which such Stockholders have agreed to vote a minimum of 68,000
shares, in the aggregate, of Big Sky common stock in favor of the
merger. The Stockholders Agreement was entered into as a condition to
Sterling's entering into the Agreement.
Consummation of the merger is subject to several conditions, including
receipt of requisite regulatory approval and approval by Big Sky's
shareholders. For information regarding the terms of the proposed
transaction, reference is made to the Agreement and the press release
dated April 23, 1998, which are attached hereto as Exhibits 2 and 99,
respectively, and incorporated herein by reference.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
c. Exhibits:
2. Agreement and Plan of Merger dated as of April 23, 1998, by
and among Sterling Financial Corporation and Big Sky Bancorp,
Inc.
99. Press Release dated April 23, 1998.
<PAGE>
STERLING FINANCIAL CORPORATION
FORM 8 - K
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its' behalf
by the undersigned thereunto duly authorized.
STERLING FINANCIAL CORPORATION
(Registrant)
May 1, 1998 /s/ Daniel G. Byrne
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Date Daniel G. Byrne
Sr. Vice President, Finance and
Assistant Secretary
<PAGE>
EXHIBIT 99
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FOR release April 23, 1998--2:00 p.m. (PST)
Contact: Heidi B. Stanley, EVP
(509) 358-6160
STERLING FINANCIAL CORPORATION TO ACQUIRE
BIG SKY BANCORP, INC.
SPOKANE, WASHINGTON -- APRIL 23, 1998 -- Sterling Financial
Corporation (NASDAQ:STSA) today announced the signing of a definitive
agreement to acquire Big Sky Bancorp, Inc., and its subsidiary, First
Federal Savings and Loan Association of Montana. Under the terms of
the agreement, Sterling will issue, subject to exercise of Big Sky
options, up to 497,545 shares of common stock in exchange for all of
the issued and outstanding Big Sky stock. The merger will be
structured as a tax-free reorganization and accounted for as a pooling
of interests.
First Federal conducts operations from two offices in the city of
Missoula, Montana, the largest city in western Montana, and from its
headquarters in Hamilton, Montana. At December 31, 1997, First
Federal had approximately $62.8 million in total assets with deposits
of nearly $47.8 million.
Sterling's Chairman and CEO, Harold B. Gilkey, has very strong ties to
Montana. He was born and raised in Livingston, Montana; attended the
University of Montana in Missoula; and is the immediate past chairman
of the University of Montana Foundation. He said, "First Federal is a
well-established and respected institution. I believe Sterling can
continue their rich legacy of customer service and community support.
"This merger fits well within our broad strategy of being a leading
community bank in the Northwest. First Federal is positioned in the
highest growth area of Montana, which we currently serve through our
residential lending subsidiary Action Mortgage Co. and our commercial
banking subsidiary INTERVEST-Mortgage Investment Co," Gilkey stated.
-more-
<PAGE>
Sterling Financial Corporation
Page 2
April 23, 1998
Michael E. McKee, President and CEO of Big Sky and First Federal,
said, "As management and the Board of First Federal looked forward,
considering the size of our company, we recognized that we had limited
resources with which to better serve our customers as well as expand
within our markets. This merger presents an opportunity to increase
market share, particularly with the addition of Sterling's array of
financial products and services, including small business services."
Mr. McKee, a long-time acquaintance of Mr. Gilkey, added, "Sterling's
community banking expertise and the "Hometown Helpful" manner in which
they do business is very complementary to the manner in which First
Federal operates."
The agreement, which was unanimously approved by both Boards of
Directors, will merge Big Sky Bancorp, Inc., into Sterling Financial
Corp. and First Federal Savings and Loan Association into Sterling
Savings. The agreement provides for each shareholder of Big Sky to
receive 1.384 Sterling Common Shares for each of his or her Big Sky
Common Shares held, and cash in lieu of the issuance of fractional
shares.
To illustrate the value of this transaction at a given point in time,
using Sterling's closing stock price on Wednesday, April 22, of
$25.625 per share, the transaction would have a value of $35.46 per
share to Big Sky shareholders, and an approximate transaction value of
$12.7 million. This purchase price is approximately 1.61 times Big
Sky's book value. Further, as part of the agreement, Big Sky has
agreed to pay a $500,000 cash break-up fee to Sterling if the
agreement is terminated under certain circumstances.
"We anticipate that the merger will have a neutral impact on earnings
this year and a marginally accretive impact during 1999," Gilkey
stated. All First Federal employees will be offered positions with
Sterling; and Sterling's regional structure will likely be revised to
take into account the Montana branches.
-more-
<PAGE>
Sterling Financial Corporation
Page 3
April 23, 1998
The merger is subject to certain conditions, including receipt of
regulatory approval and Big Sky shareholder approval. Pending these
approvals, Sterling anticipates that the transaction will be completed
in mid fall.
Sterling Financial Corporation of Spokane, Washington, is a
savings and loan holding company which owns Sterling Savings
Association. Sterling Savings Association is a Washington State-
chartered, federally insured stock savings association which
opened in April 1983. Sterling Savings Association, based in
Spokane, Washington, has branches throughout Washington State
and in the Portland, Oregon, area. Through Sterling's wholly
owned subsidiaries Action Mortgage Company and INTERVEST Mortgage
Investment Company, it operates loan production offices in
Washington, Oregon, and Idaho. Sterling's subsidiary Harbor
Financial Services provides non-bank investments, including
mutual funds, variable annuities, and tax-deferred annuities
through regional representatives throughout Sterling Savings'
branch network.
- 30 -
<PAGE>
EXHIBIT 2
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AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
STERLING FINANCIAL CORPORATION
AND
BIG SKY BANCORP, INC.
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
STERLING FINANCIAL CORPORATION AND BIG SKY BANCORP, INC.
TABLE OF CONTENTS
ARTICLE I THE MERGER
1.1 The Merger
1.2 Effective Time
1.3 Effects of the Merger
1.4 Conversion of Big Sky Common Stock
1.5 Sterling Common Stock
1.6 Options
1.7 Articles of Incorporation
1.8 Bylaws
1.9 Directors and Officers
1.10 Tax Consequences
1.11 Accounting Treatment
ARTICLE II EXCHANGE OF SHARES
2.1 Sterling to Make Shares Available
2.2 Exchange of Shares; Conversion of Options
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BIG SKY
3.1 Corporate Organization
3.2 Capitalization
3.3 Authority; No Violation
3.4 Consents and Approvals
3.5 Loan Portfolio; Reports
3.6 Financial Statements; Exchange Act
Filings; Books and Records
3.7 Broker's Fees
3.8 Absence of Certain Changes or Events
3.9 Legal Proceedings
3.10 Taxes and Tax Returns
3.11 Employee Plans
3.12 Certain Contracts
3.13 Agreements with Regulatory Agencies
3.14 State Takeover Laws; Certificate of Incorporation
3.15 Environmental Matters
3.16 Reserves for Losses
3.17 Properties and Assets
3.18 Insurance
3.19 Compliance with Applicable Laws
3.20 Loans3.21Fairness Opinion
3.22 Tax and Accounting Treatment of Merger
3.23 Undisclosed Liabilities
3.24 Big Sky Information
<PAGE>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF STERLING
4.1 Corporate Organization
4.2 Capitalization
4.3 Authority; No Violation
4.4 Consent and Approvals
4.5 Reports
4.6 Financial Statements; Exchange Act
Filings; Books and Records
4.7 Absence of Certain Changes or Events
4.8 Compliance with Applicable Law
4.9 Employee Plans
4.10 Agreements with Regulatory Agencies
4.11 Tax and Accounting Treatment of Merger
4.12 Legal Proceedings
4.13 Reserves for Losses
4.14 Broker's Fees
4.15 Taxes
4.16 Sterling Information
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of Big Sky
5.2 Covenants of Sterling
5.3 Merger Covenants
5.4 Employment and Other Agreements
ARTICLE VI ADDITIONAL AGREEMENTS
6.1 Regulatory Matters
6.2 Access to Information
6.3 Stockholder Meetings
6.4 Legal Conditions to Merger
6.5 Stock Exchange Listing
6.6 Employees
6.7 Indemnification
6.8 Subsequent Interim and Annual Financial
Statements
6.9 Additional Agreements
6.10 Advice of Changes
6.11 Current Information
6.12 Execution and Authorization of Institution Merger
Agreement
6.13 Change in Structure
6.14 Transaction Expenses of Big Sky
6.15 Affiliate Agreements
ARTICLE VII CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the
Merger
7.2 Conditions to Obligations of Sterling
7.3 Conditions to Obligations of Big Sky
<PAGE>
ARTICLE VIII TERMINATION AND AMENDMENT
8.1 Termination
8.2 Effect of Termination
8.3 Amendment
8.4 Extension; Waiver
ARTICLE IX GENERAL PROVISIONS
9.1 Closing
9.2 Nonsurvival of Representations, Warranties and
Agreements
9.3 Expenses
9.4 Notices
9.5 Interpretation
9.6 Counterparts
9.7 Entire Agreement
9.8 Governing Law
9.9 Enforcement of Agreement
9.10 Severability
9.11 Publicity
9.12 Assignment; Limitation of Benefits
EXHIBITS
A Form of Articles of Combination and Institution
Merger Agreement
B Big Sky Disclosure Schedule
C(1) Form of Certificate of Merger
C(2) Articles of Merger
D Form of Agreement of Big Sky Affiliates
E Stockholders Agreement
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of April 23, 1998 (this
"Agreement"), is entered into by and between Sterling Financial
Corporation, a Washington corporation ("Sterling") and Big Sky
Bancorp, Inc., a Delaware corporation ("Big Sky").
WHEREAS, the Boards of Directors of Sterling and Big Sky have
determined that it is in the best interests of their respective
companies and stockholders to consummate the business combination
transaction provided for herein in which Big Sky will, subject to the
terms and conditions set forth herein, merge with and into Sterling,
with Sterling being the surviving corporation in such merger (the
"Merger");
WHEREAS, prior to the consummation of the Merger, Sterling and Big Sky
will respectively cause Sterling Savings Association, a Washington
State chartered savings and loan association and wholly-owned
subsidiary of Sterling, and First Federal Savings and Loan Association
of Montana ("First Federal"), a federally chartered savings and loan
association and wholly-owned subsidiary of Big Sky, to enter into a
merger agreement, in the form attached hereto as Exhibit A (the
"Institution Merger Agreement"), providing for the merger (the
"Institution Merger") of First Federal with and into Sterling Savings
Association, with Sterling Savings Association being the "Surviving
Institution" of the Institution Merger, and it is intended that the
Institution Merger be consummated immediately after consummation of
the Merger;
WHEREAS, the Merger is intended to be treated as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and as a "pooling of interests" under
generally accepted accounting principles; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to
prescribe certain conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and
intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER.
Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in Section 1.2 hereof), Big Sky shall merge
with and into Sterling, with Sterling being the surviving corporation
(hereinafter sometimes called the "Surviving Corporation") in the
Merger. Upon consummation of the Merger, the corporate existence of
Big Sky shall cease and the Surviving Corporation shall continue to
exist as a Washington corporation.
<PAGE>
1.2 EFFECTIVE TIME.
The Merger shall become effective on the Closing Date (as defined in
Section 9.1 hereof), as set forth in the certificate of merger (the
"Certificate of Merger") in the form attached as Exhibit C(1) hereto
which shall be filed with the Secretary of State of the State of
Delaware on the Closing Date and the articles of merger (the "Articles
of Merger") in the form attached as Exhibit C(2) hereto which shall
be filed with the Secretary of State of the State of Washington on the
Closing Date. The term "Effective Time" shall be the date and time
when the Merger becomes effective on the Closing Date, as set forth in
the Certificate of Merger.
1.3 EFFECTS OF THE MERGER.
At and after the Effective Time, the Merger shall have the effects set
forth in Sections 259 and 261 of the Delaware General Corporation Law
(the "DGCL") and Section 23B.11.060 of the Washington Business
Corporation Act (the "WBCA").
1.4 CONVERSION OF BIG SKY COMMON STOCK.
(a) At the Effective Time, subject to Sections 1.4(b), 1.4(c) and
1.4(d) hereof, each share of the common stock, par value $.01
per share, of Big Sky (the "Big Sky Common Stock") issued and
outstanding prior to the Effective Time shall, by virtue of this
Agreement and without any action on the part of the holder
thereof, be converted into and exchangeable for 1.384 shares
(the "Exchange Ratio") of the common stock, par value $1.00 per
share, of Sterling (the "Sterling Common Stock"). Subject to
the last sentence of Section 1.4(b) hereof but notwithstanding
any other provision of this Agreement, no more than 497,545
shares of Sterling Common Stock (the "Maximum Share Amount")
shall be issued or become issuable in connection with the Merger
and the other transactions contemplated by this Agreement
(including shares issued or issuable in respect of shares of any
capital stock of Big Sky, including Big Sky Common Stock, First
Federal stock or any option or other right to acquire any such
capital stock).
(b) All of the shares of Big Sky Common Stock converted into
Sterling Common Stock pursuant to this Article I shall no longer
be outstanding and shall automatically be canceled and shall
cease to exist, and each certificate (each a "Certificate")
previously representing any such shares of Big Sky Common Stock
shall thereafter represent the right to receive (i) the number
of whole shares of Sterling Common Stock and (ii) cash in lieu
of fractional shares into which the shares of Big Sky Common
Stock represented by such Certificate have been converted
pursuant to this Agreement. Certificates previously representing
shares of Big Sky Common Stock shall be exchanged for
<PAGE>
certificates representing whole shares of Sterling Common Stock
and cash in lieu of fractional shares issued in consideration
therefor upon the surrender of such Certificates in accordance
with Section 2.2 hereof, without any interest thereon. If after
the date hereof and prior to the Effective Time Sterling should
split or combine its common stock, or pay a dividend or other
distribution in such common stock, then the Exchange Ratio and
the Maximum Share Amount shall be appropriately adjusted to
reflect such split, combination, dividend or distribution.
(c) At the Effective Time, all shares of Big Sky Common Stock that
are owned by Big Sky as treasury stock and all shares of Big Sky
Common Stock that are owned directly or indirectly by Sterling
or Big Sky or any Subsidiary of Big Sky or Sterling shall be
canceled and shall cease to exist and no stock of Sterling or
other consideration shall be delivered in exchange therefor.
For purposes of this Agreement, "Subsidiary" shall have the
meaning given that term in Regulation S-X promulgated by the
Securities and Exchange Commission (the "SEC").
(d) Certificates for fractions of shares of Sterling Common Stock
will not be issued. In lieu of a fraction of a share of
Sterling Common Stock, each holder of Big Sky Common Stock
otherwise entitled to a fraction of a share of Sterling Common
Stock shall be entitled to receive an amount of cash equal to
(i) the fraction of a share of the Sterling Common Stock to
which such holder would otherwise be entitled, multiplied by
(ii) the market value of the Sterling Common Stock, which shall
be deemed to be the average of the daily closing prices per
share for Sterling Common Stock for the twenty consecutive
trading days on which shares of Sterling Common Stock are
actually traded (as reported on the Nasdaq Stock Market National
Market) ending on the third trading day preceding the Closing
Date. Following consummation of the Merger, no holder of Big
Sky Common Stock shall be entitled to dividends or any other
rights in respect of any such fraction.
1.5 STERLING COMMON STOCK.
Each share of Sterling Common Stock issued and outstanding immediately
prior to the Effective Time shall be unchanged and shall remain issued
and outstanding as common stock of the Surviving Corporation.
1.6 OPTIONS.
At the Effective Time, each option granted by Big Sky to purchase
shares of Big Sky Common Stock which is outstanding and unexercised
immediately prior thereto shall be converted automatically into an
option to purchase shares of Sterling Common Stock in an amount and at
an exercise price determined as provided below (and otherwise subject
<PAGE>
to the terms of the Big Sky 1992 Stock Option and Incentive Plan (the
"Big Sky Stock Option Plan"), under which such option was granted:
(a) The number of shares of Sterling Common Stock to be subject to
the option immediately after the Effective Time shall be equal
to the product of the number of shares of Big Sky Common Stock
subject to the option immediately before the Effective Time,
multiplied by the Exchange Ratio, provided that any fractional
shares of Sterling Common Stock resulting from such
multiplication shall be rounded down to the nearest share; and
(b) The exercise price per share of Sterling Common Stock under the
option immediately after the Effective Time shall be equal to
the exercise price per share of Big Sky Common Stock under the
option immediately before the Effective Time divided by the
Exchange Ratio, provided that such exercise price shall be
rounded to the nearest cent. The adjustment provided herein
shall be and is intended to be effected in a manner which is
consistent with Section 424(a) of the Code. The duration and
other terms of the option immediately after the Effective Time
shall be the same as the corresponding terms in effect
immediately before the Effective Time, except that all
references to Big Sky or First Federal in the Big Sky Stock
Option Plan (and the corresponding references in the option
agreement documenting such option) shall be deemed to be
references to Sterling.
1.7 ARTICLES OF INCORPORATION.
At the Effective Time, the Articles of Incorporation of Sterling, as
in effect at the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation.
1.8 BYLAWS.
At the Effective Time, the Bylaws of Sterling, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation.
1.9 DIRECTORS AND OFFICERS.
At the Effective Time, the directors and officers of Sterling
immediately prior to the Effective Time shall continue to be directors
and officers of the Surviving Corporation.
1.10 TAX CONSEQUENCES.
It is intended that the Merger, either alone or in conjunction with
the Institution Merger, shall constitute a reorganization within the
meaning of Section 368(a) of the Code, and that this Agreement shall
constitute a "plan of reorganization" for the purposes of the Code.
<PAGE>
1.11 ACCOUNTING TREATMENT.
It is intended that the Merger shall be accounted for as a "pooling of
interests" under generally accepted accounting principles ("GAAP").
ARTICLE II
EXCHANGE OF SHARES
2.1 STERLING TO MAKE SHARES AVAILABLE.
At or prior to the Effective Time, Sterling shall deposit, or shall
cause to be deposited, with Sterling's transfer agent, ChaseMellon
Shareholder Services, L.L.C., or such other bank, trust company or
transfer agent as Sterling may select (the "Exchange Agent"), for the
benefit of the holders of Certificates, for exchange in accordance
with this Article II, certificates representing the shares of Sterling
Common Stock and the cash in lieu of fractional shares (such cash and
certificates for shares of Sterling Common Stock, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section
1.4 and paid pursuant to Section 2.2(a) hereof in exchange for
outstanding shares of Big Sky Common Stock.
2.2 EXCHANGE OF SHARES; CONVERSION OF OPTIONS.
(a) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a Certificate or
Certificates a form letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the Certificates in exchange for
certificates representing the shares of Sterling Common Stock
and the cash in lieu of fractional shares into which the shares
of Big Sky Common Stock represented by such Certificate or
Certificates shall have been converted pursuant to this
Agreement. Big Sky shall have the right to review both the
letter of transmittal and the instructions prior to such
documents being finalized. Upon surrender of a Certificate for
exchange and cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor
(x) a certificate representing that number of whole shares of
Sterling Common Stock to which such holder of Big Sky Common
Stock shall have become entitled pursuant to the provisions
hereof and (y) a check representing the amount of cash in lieu
of fractional shares, if any, which such holder has the right to
receive in respect of the Certificate surrendered pursuant to
the provisions of this Article II, and the Certificate so
surrendered shall forthwith be canceled. No interest will be
paid or accrued on the cash in lieu of fractional shares and
unpaid dividends and distributions, if any, payable to holders
of Certificates.
<PAGE>
(b) No dividends or other distributions declared after the Effective
Time with respect to Sterling Common Stock and payable to the
holders of record thereof shall be paid to the holder of any
unsurrendered Certificate until the holder thereof shall
surrender such Certificate in accordance with this Article II.
After the surrender of a Certificate in accordance with this
Article II, the record holder thereof shall be entitled to
receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with
respect to shares of Sterling Common Stock represented by such
Certificate. No holder of an unsurrendered Certificate shall be
entitled, until the surrender of such Certificate, to vote the
shares of Sterling Common Stock into which the holder's Big Sky
Common Stock shall have been converted.
(c) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of any unexercised Options a
form letter of transmittal and instructions for use in effecting
the issuance of certificates representing the shares of Sterling
Common Stock into which such Options shall have been converted
pursuant to this Agreement. Big Sky shall have the right to
review both the letter of transmittal and the instructions prior
to such documents being finalized. Upon receipt by the Exchange
Agent of such letter of transmittal, duly executed, the holder
of such unexercised Option shall be entitled to receive in
exchange therefor (x) a certificate representing that number of
whole shares of Sterling Common Stock to which such holder of
the unexercised Option shall have become entitled pursuant to
the provisions of Section 1.6 and (y) a check representing the
amount of cash in lieu of fractional shares, if any, which such
holder has the right to receive pursuant to the provisions
hereof. No interest will be paid or accrued on the cash in lieu
of fractional shares and unpaid dividends and distributions, if
any, payable to holders of unexercised Options.
(d) No dividends or other distributions declared after the Effective
Time with respect to Sterling Common Stock and payable to the
holders of record thereof shall be paid to the holder of an
unexercised Option until the holder thereof shall submit the
letter of transmittal as provided above, at which time the
holder shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore
had become payable with respect to shares of Sterling Common
Stock into which the said Options were converted. No holder of
an unexercised Option shall be entitled, until submission of the
letter of transmittal, to vote the shares of Sterling Common
Stock into which the said Options shall have been converted.
(e) If any certificate representing shares of Sterling Common Stock
is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered,
it shall be a condition of the issuance thereof that the
<PAGE>
Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and
otherwise in proper form for transfer, and that the person
requesting such exchange shall pay to the Exchange Agent in
advance any transfer or other taxes required by reason of the
issuance of a certificate representing shares of Sterling Common
Stock in any name other than that of the registered holder of
the Certificate surrendered, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(f) After the Effective Time, there shall be no transfers on the
stock transfer books of Big Sky of the shares of Big Sky Common
Stock which were issued and outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates
representing such shares are presented for transfer to the
Exchange Agent, they shall be canceled and exchanged for
certificates representing shares of Sterling Common Stock as
provided in this Article II.
(g) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Big Sky for six months after the Effective Time
shall be returned to Sterling. Any stockholders of Big Sky who
have not theretofore complied with this Article II shall
thereafter look only to Sterling for payment of their shares of
Sterling Common Stock, cash in lieu of fractional shares and
unpaid dividends and distributions on Sterling Common Stock
deliverable in respect of each share of Big Sky Common Stock
such stockholder holds as determined pursuant to this Agreement,
in each case, without any interest thereon. Notwithstanding the
foregoing, none of Sterling, Big Sky, the Exchange Agent or any
other person shall be liable to any former holder of shares of
Big Sky Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property,
escheat or similar laws.
(h) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed
and, if required by Sterling, the posting by such person of a
bond in such amount as Sterling may reasonably direct as
indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the
shares of Sterling Common Stock and cash in lieu of fractional
shares deliverable in respect thereof pursuant to this
Agreement.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BIG SKY
Big Sky, on behalf of itself and First Federal, hereby makes the
following representations and warranties to Sterling as set forth in
this Article III, each of which is being relied upon by Sterling as a
material inducement to it to enter into and perform this Agreement.
3.1 CORPORATE ORGANIZATION.
(a) Big Sky is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Big Sky
has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now
being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of any
material business conducted by it or the character or location
of any material properties or assets owned or leased by it makes
such licensing or qualification necessary. Big Sky is duly
registered as a savings and loan holding company with the Office
of Thrift Supervision (the "OTS") under the Home Owners' Loan
Act of 1933 (the "HOLA"). First Federal is the only Subsidiary
of Big Sky. Section 3.1(a) of the disclosure schedule which is
attached hereto as Exhibit B (the "Big Sky Disclosure Schedule")
sets forth true, correct and complete copies of the Certificate
of Incorporation and Bylaws of Big Sky as in effect as of the
date of this Agreement.
(b) First Federal is a federally chartered savings association duly
organized, validly existing and in good standing under the laws
of the United States. The deposit accounts of First Federal are
insured by the Federal Deposit Insurance Corporation (the
"FDIC") through the Savings Association Insurance Fund (the
"SAIF") to the fullest extent permitted by law, and all premiums
and assessments required in connection therewith have been paid
by First Federal. First Federal has no Subsidiaries. First
Federal has the corporate or other power and authority to own or
lease all of its properties and assets and to carry on its
business as it is now being conducted and is duly licensed or
qualified to do business in each jurisdiction in which the
nature of any material business conducted by it or the character
or the location of any material properties or assets owned or
leased by it makes such licensing or qualification necessary.
Section 3.1(b) of the Big Sky Disclosure Schedule sets forth
true, correct and complete copies of the Charter and Bylaws of
First Federal as in effect as of the date of this Agreement.
<PAGE>
3.2 CAPITALIZATION.
(a) The authorized capital stock of Big Sky consists of 1,500,000
shares of Big Sky Common Stock, par value $.01 per share and,
500,000 shares of serial preferred stock, par value $.01 per
share. As of the date hereof, there are (x) 323,721 shares of
Big Sky Common Stock issued and outstanding (including 15,000
shares issued pursuant to the Big Sky MRD Plan), and no shares
of Big Sky Common Stock held in Big Sky's treasury, and (y) no
shares of Big Sky Common Stock reserved for issuance upon
exercise of outstanding stock options or otherwise, except for
(i) 39,100 shares of Big Sky Common Stock reserved for issuance
pursuant to the Big Sky Stock Option Plan (of which options for
35,777 shares are currently outstanding). No shares of the said
serial preferred stock are issued and outstanding. All of the
issued and outstanding shares of Big Sky Common Stock have been
duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. Except for the
Big Sky Stock Option Plan and the Big Sky MRD Plan, Big Sky does
not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of
Big Sky Common Stock or any other equity security of Big Sky or
any securities representing the right to purchase or otherwise
receive any shares of Big Sky Common Stock or any other equity
security of Big Sky. The names of the optionees, the date of
each option to purchase Big Sky Common Stock granted, the number
of shares subject to each such option and the price at which
each such option may be exercised under the Big Sky Stock Option
Plan are set forth in Section 3.2(a) of the Big Sky Disclosure
Schedule and no such option expires more than 10 years from the
date of the grant thereof. Since December 31, 1997 Big Sky has
not issued any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital
stock, other than pursuant to the exercise of director or
employee stock options granted prior to December 31, 1997, under
the Big Sky Stock Option Plan and pursuant to the Big Sky MRD
Plan.
(b) Big Sky owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of First Federal, free and
clear of all liens, charges, encumbrances and security interests
whatsoever, and all of such shares are duly authorized and
validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the
ownership thereof. First Federal does not have and is not bound
by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the
purchase or issuance of any shares of its capital stock or any
other equity security of First Federal or any securities
representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of First
Federal.
<PAGE>
3.3 AUTHORITY; NO VIOLATION.
(a) Big Sky has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and validly approved by the Board of
Directors of Big Sky. The Board of Directors of Big Sky has
directed that this Agreement and the transactions contemplated
hereby be submitted to Big Sky's stockholders for approval at a
meeting of such stockholders and, except for the adoption of
this Agreement by the requisite vote of Big Sky's stockholders
pursuant to the Big Sky Certificate of Incorporation and the
DGCL, no other corporate proceedings on the part of Big Sky
(except for matters related to setting the date, time, place and
record date for the said meeting) are necessary to approve this
Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered
by Big Sky and (assuming due authorization, execution and
delivery by Sterling of this Agreement) this Agreement
constitutes a valid and binding obligation of Big Sky,
enforceable against Big Sky in accordance with its terms, except
as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by
bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(b) First Federal has full corporate or other power and authority to
execute and deliver the Institution Merger Agreement and to
consummate the transactions contemplated thereby. The execution
and delivery of the Institution Merger Agreement and the
consummation of the transactions contemplated thereby will be
duly and validly approved by the Board of Directors of First
Federal, and by Big Sky as the sole stockholder of First Federal
prior to the Effective Time. All corporate proceedings on the
part of First Federal necessary to consummate the transactions
contemplated thereby will have been taken prior to the Effective
Time. The Institution Merger Agreement, upon execution and
delivery by First Federal, will be duly and validly executed and
delivered by First Federal and will (assuming due authorization,
execution and delivery by Sterling Savings Association)
constitute a valid and binding obligation of First Federal,
enforceable against First Federal in accordance with its terms,
except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity
and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
<PAGE>
(c) Neither the execution and delivery of this Agreement by Big Sky
or the Institution Merger Agreement by First Federal, nor the
consummation by Big Sky or First Federal, as the case may be, of
the transactions contemplated hereby or thereby, nor compliance
by Big Sky or First Federal with any of the terms or provisions
hereof or thereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Big Sky or the Charter
or Bylaws of First Federal, or (ii) assuming that the consents
and approvals referred to in Section 3.4 hereof are duly
obtained, (x) violate any Laws applicable to Big Sky or First
Federal, or any of their respective properties or assets, or (y)
violate, conflict with, result in a breach of any provision of
or the loss of any benefit under, constitute a material default
(or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a
right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any
of the respective properties or assets of Big Sky or First
Federal under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Big Sky or
First Federal is a party, or by which they or any of their
respective properties or assets may be bound or affected.
For the purposes of this Agreement, "Laws" shall mean any and
all statutes, laws, ordinances, rules, regulations and other
rules of law enacted, promulgated or issued by any Governmental
Entity (as defined below).
3.4 CONSENTS AND APPROVALS.
(a) Except for (i) the filing of applications and notices, as
applicable, as to the Merger and the Institution Merger with the
OTS under the HOLA and the Bank Merger Act and approval of such
applications and notices, (ii) the filing with the SEC of a
registration statement on Form S-4 to register the shares of
Sterling Common Stock to be issued in connection with the Merger
(including the shares of Sterling Common Stock that may be
issued in connection with Options as provided in Section 1.6
hereof), which will include the proxy statement/prospectus (the
"Proxy Statement/Prospectus") to be used in soliciting the
requisite approval of Big Sky stockholders at a meeting of such
stockholders (the "Big Sky Meeting") to be held in connection
with this Agreement and the transactions contemplated hereby,
(iii) the approval of this Agreement by the requisite vote of
the stockholders of Big Sky pursuant to the Big Sky Certificate
of Incorporation and the DGCL, (iv) the filing of the
Certificate of Merger with the Secretary of State of Delaware
pursuant to the DGCL and (v) the filings required in connection
with the Institution Merger Agreement and the Institution
Merger, no consents or approvals of or filings or registrations
<PAGE>
with any court, administrative agency or commission or other
governmental authority or instrumentality (each a "Governmental
Entity"), or with any third party are necessary in connection
with (1) the execution and delivery by Big Sky of this
Agreement; (2) the consummation by Big Sky of the Merger and the
other transactions contemplated hereby; (3) the execution and
delivery by First Federal of the Institution Merger Agreement;
and (4) the performance by First Federal of the Institution
Merger Agreement and the transactions contemplated thereby,
except, in each case, for such consents, approvals or filings,
the failure of which to obtain will not have a material adverse
effect on the ability to consummate the transactions
contemplated hereby.
(b) As of the date of this Agreement, Big Sky has no knowledge of
any reason why approval or effectiveness of any of the
applications, notices or filings referred to in Section 3.4(a)
cannot be obtained or granted on a timely basis.
3.5 LOAN PORTFOLIO; REPORTS.
(a)Except as disclosed in Section 3.5(a) of the Big Sky
Disclosure Schedule, neither Big Sky nor First Federal is a
party to any written or oral loan agreement, note or borrowing
arrangement (including, without limitation, leases, credit
enhancements, commitments, guarantees and interest-bearing
assets) (collectively, "Loans"), with any director, officer,
employee or five percent or greater stockholder of Big Sky or
First Federal, or any Affiliated Person of the foregoing.
For the purposes of this Agreement, "Affiliated Person" shall
mean director, executive officer or 5% or greater stockholder,
spouse or other person living in the same household of such
director, officer or stockholder, or any company, partnership or
trust in which any of the foregoing persons is an officer, 10%
or greater stockholder, general partner or 10% or greater trust
beneficiary.
(b) Since January 1, 1995 Big Sky and First Federal have timely
filed all reports, registrations and statements, together with
any amendments required to be made with respect thereto, that
they have been required to file with (i) the OTS, (ii) the FDIC,
(iii) the SEC and (iv) any self-regulatory organization ("SRO")
(collectively "Regulatory Agencies"). As of its respective
date, each such report, registration, statement and amendment
complied in all material respects with all rules and regulations
promulgated by the applicable Regulatory Agency and did not
contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Except for normal examinations conducted by a Regulatory Agency
<PAGE>
in the regular course of the business of Big Sky and First
Federal, no Governmental Entity is conducting, or has conducted,
any proceeding or investigation into the business or operations
of Big Sky or First Federal since March 31, 1995.
3.6 FINANCIAL STATEMENTS; EXCHANGE ACT FILINGS; BOOKS AND RECORDS.
Big Sky has previously delivered to Sterling true, correct and
complete copies of (i) the audited consolidated balance sheets of Big
Sky and First Federal as of March 31 for the fiscal years 1996 and
1997 and the related audited consolidated statements of income,
stockholders' equity and cash flows for the fiscal years 1995 through
1997, inclusive, as reported in Big Sky's Annual Report on Form 10-KSB
for the fiscal year ended March 31, 1997 filed with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in
each case accompanied by the audit report of Deloitte & Touche, LLP,
independent public accountants with respect to Big Sky and (ii) the
unaudited consolidated balance sheets of Big Sky and First Federal as
of December 31, 1997 and 1996 and the related unaudited consolidated
statements of income, stockholders' equity and cash flows for the
interim periods ended December 31, 1997 and 1996, as reported on Big
Sky's Quarterly Report on Form 10-QSB for the period ended
December 31, 1997 filed with the SEC under the Exchange Act. Big Sky
will deliver as soon as is reasonably practicable, a draft of the
consolidated balance sheet of Big Sky and First Federal as of
March 31, 1998 and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal year ended
March 31, 1998, in the form Big Sky expects to file under the
Exchange Act in connection with its Form 10-KSB for the fiscal year
ended March 31, 1998. The financial statements referred to in this
Section 3.6 (including the related notes, where applicable but
excluding the draft statements referred to herein) fairly present, and
the financial statements referred to in Section 6.8 hereof will fairly
present (subject, in the case of the unaudited and draft statements,
to recurring audit adjustments normal in nature and amount), the
results of the consolidated operations and consolidated financial
condition of Big Sky and First Federal for the respective fiscal
periods or as of the respective dates therein set forth; each of such
statements (including the related notes, where applicable) comply, and
the financial statements referred to in Section 6.8 hereof will
comply, with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto and each of such
statements (including the related notes, where applicable) has been,
and the financial statements referred to in Section 6.8 hereof will be
prepared in accordance with GAAP consistently applied during the
periods involved, except in each case as indicated in such statements
or in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-QSB or, in the case of draft statements, subject
to revisions that in the aggregate will not be material. Big Sky's
Annual Report on Form 10-KSB for the fiscal year ended March 31, 1997
and all reports subsequently filed under the Exchange Act (the "Big
Sky Exchange Act Reports") comply in all material respects with the
<PAGE>
appropriate requirements for such reports under the Exchange Act, and
Big Sky has previously delivered or made available to Sterling true,
correct and complete copies of such reports. The books and records of
Big Sky and First Federal have been, and are being, maintained in all
material respects in accordance with GAAP and any other applicable
legal and accounting requirements.
3.7 BROKER'S FEES.
Neither Big Sky nor First Federal nor any of their respective officers
or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement
or the Institution Merger Agreement, except that Big Sky has engaged,
and will pay a fee to Feldman Financial Advisors, Inc. ("Feldman
Financial") in accordance with the terms of a letter agreement between
Feldman and Big Sky, dated October 17, 1997, a true, complete and
correct copy of which is set forth in Section 3.7 of the Big Sky
Disclosure Schedule.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as disclosed in any Big Sky Exchange Act Report filed
with the SEC prior to the date of this Agreement, since
March 31, 1997 (i) neither Big Sky nor First Federal has
incurred any material liability, except as contemplated by this
Agreement or in the ordinary course of their business, (ii)
neither Big Sky nor First Federal has discharged or satisfied
any material lien or paid any material obligation or liability
(absolute or contingent), other than in the ordinary course of
business; (iii) neither Big Sky nor First Federal has sold,
assigned, transferred, leased, exchanged or otherwise disposed
of any of its material properties or assets other than in the
ordinary course of business; (iv) neither Big Sky nor First
Federal has suffered any material damage, destruction, or loss,
whether as a result of fire, explosion, earthquake, accident,
casualty, labor trouble, requisition or taking of property by
any Regulatory Authority, flood, windstorm, embargo, riot, act
of God or other casualty or event, whether or not covered by
insurance; (v) neither Big Sky nor First Federal has cancelled
or compromised any debt, except for debts charged off or
compromised in accordance with the past practice of Big Sky or
First Federal, as the case may be, and (vi) no event has
occurred which has had or is reasonably certain to have,
individually or in the aggregate, a material adverse effect on
Big Sky.
(b) Since March 31, 1997, Big Sky and First Federal have carried on
their respective businesses in the ordinary and usual course
consistent with their past practices.
<PAGE>
3.9 LEGAL PROCEEDINGS.
(a) Neither Big Sky nor First Federal is a party to any, and there
are no pending or threatened, legal, administrative, arbitration
or other proceedings, claims, actions or governmental or
regulatory investigations of any nature against Big Sky or First
Federal in which there is a reasonable probability of any
material recovery against or other material adverse effect upon
Big Sky or First Federal or which challenge the validity or
propriety of the transactions contemplated by this Agreement or
the Institution Merger Agreement as to which there is a
reasonable probability of success.
(b) There is no injunction, order, judgment or decree imposed upon
Big Sky, First Federal or the assets of Big Sky or First
Federal.
3.10 TAXES AND TAX RETURNS.
(a) Each of Big Sky and First Federal has duly filed all material
Federal, state, local and foreign Tax Returns required to be
filed by it on or prior to the date hereof (all such returns
being accurate and complete in all material respects) and has
duly paid or made provisions for the payment of all material
Taxes which have been incurred or are due or claimed to be due
from it by Federal, state, local and foreign taxing authorities
on or prior to the date hereof. All liability with respect to
the income tax returns of Big Sky and First Federal has been
satisfied for all years to and including fiscal year 1997. The
Internal Revenue Service ("IRS") has not notified Big Sky of, or
otherwise asserted, that there are any material deficiencies
with respect to the income tax returns of Big Sky. There are no
material disputes pending, or claims asserted for, Taxes or
assessments upon Big Sky or First Federal, nor has Big Sky or
First Federal been requested to give any waivers extending the
statutory period of limitation applicable to any Federal, state
or local income tax return for any period.
For the purposes of this Agreement, "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments
imposed by any United States federal, state, local or foreign
taxing authority, including, but not limited to income, excise,
property, sales, transfer, franchise, payroll, withholding,
social security or other taxes, including any interest,
penalties or additions attributable thereto.
For purposes of this Agreement, "Tax Return" shall mean any
return, report, information return or other document (including
any related or supporting information) with respect to Taxes.
<PAGE>
3.11 EMPLOYEE PLANS.
(a) Section 3.11(a) of the Big Sky Disclosure Schedule sets forth a
true and complete list of each employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), arrangement or
agreement that is maintained or contributed to as of the date of
this Agreement, or that has within the last six years been
maintained or contributed to, by Big Sky or First Federal or any
other entity which together with Big Sky would be deemed a
"single employer" within the meaning of Section 4001 of ERISA or
Code Sections 414(b), (c), (m) or (o) (an "ERISA Affiliate") or
under which Big Sky or First Federal or any ERISA Affiliate has
any liability (collectively, the "Plans").
(b) Section 3.11(b) of the Big Sky Disclosure Schedule sets forth
true, correct and complete copies of each of the Plans and all
related documents, including but not limited to (i) the
actuarial report for such Plan (if applicable) for the last
year, (ii) the most recent determination letter from the
Internal Revenue Service (if applicable) for such Plan, (iii)
the current summary plan description and any summaries of
material modification, (iv) all annual reports (Form 5500
series) for each Plan filed for the preceding plan year, (v) all
agreements with fiduciaries and service providers relating to
the Plan, and (vi) all substantive correspondence relating to
any such Plan addressed to or received from the Internal Revenue
Service, the Department of Labor, the Pension Benefit Guaranty
Corporation or any other governmental agency.
(c) Except as set forth at Section 3.11(c) of the Big Sky Disclosure
Schedule, (i) each of the Plans has been operated and
administered in all material respects in compliance with
applicable Laws, including but not limited to ERISA and the
Code, (ii) each of the Plans intended to be "qualified" within
the meaning of Section 401(a) of the Code is so qualified, (iii)
with respect to each Plan which is subject to Title IV of ERISA,
the present value of accrued benefits under such Plan, based
upon the actuarial assumptions used for funding purposes in the
most recent actuarial report prepared by such Plan's actuary
with respect to such Plan, did not, as of its latest valuation
date, exceed the then current value of the assets of such Plan
allocable to such accrued benefits, and there has not been a
material adverse change in the financial condition of such
Plans, (iv) no Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured),
with respect to current or former employees of Big Sky or First
Federal beyond their retirement or other termination of service,
other than (w) coverage mandated by applicable Law, (x) death
benefits or retirement benefits under a Plan that is an
"employee pension plan," as that term is defined in Section 3(2)
of ERISA, (y) deferred compensation benefits under a Plan that
<PAGE>
are accrued as liabilities on the books of Big Sky or First
Federal, or (z) benefits the full cost of which is borne by the
current or former employee (or the employee's beneficiary), (v)
Big Sky and First Federal have reserved the right to amend,
terminate and modify any Plan providing post-retirement death or
medical benefits, (vi) no material liability under Title IV of
ERISA has been incurred by Big Sky, First Federal or any ERISA
Affiliate that has not been satisfied in full, and no condition
exists that presents a material risk to Big Sky or First Federal
of incurring a material liability thereunder, (vii) none of Big
Sky, First Federal or any ERISA Affiliate has incurred, and Big
Sky does not expect that any such entity will incur, any
withdrawal liability with respect to a "multiemployer pension
plan" (as such term is defined in Section 3(37) of ERISA) under
Title IV of ERISA, or any material liability in connection with
the termination or reorganization of a multiemployer pension
plan, (viii) all contributions or other amounts payable by Big
Sky or First Federal as of the Effective Time with respect to
each Plan and all other liabilities of each such entity with
respect to each Plan in respect of current or prior plan years
have been paid or accrued in accordance with generally accepted
accounting practices and Section 412 of the Code, (ix) neither
Big Sky nor First Federal has engaged in a transaction in
connection with which Big Sky or First Federal is subject to
either a material civil penalty assessed pursuant to Section 409
or 502(i) of ERISA or a material tax imposed pursuant to Section
4975 or 4976 of the Code, (x) to the knowledge of Big Sky, there
are no pending, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of
the Plans or any trusts related thereto, (xi) no Plan, program,
agreement or other arrangement, either individually or
collectively, provides for any payment by Big Sky or First
Federal that would not be deductible under Code Sections
162(a)(1), 162(m) or 404 or that would constitute a "parachute
payment" within the meaning of Code Section 280G, nor is there
outstanding under any such Plan, program, agreement or
arrangement, any limited stock appreciation right or any similar
right or instrument that could reasonably be expected to prevent
the Merger from being accounted for as a pooling-of-interests,
(xii) no "accumulated funding deficiency," as defined in Section
302(a)(2) of ERISA or Section 412 of the Code, whether or not
waived, and no "unfunded current liability," as determined under
Section 412(l) of the Code, exists with respect to any Plan, and
(xiii) no Plan has experienced a "reportable event" (as such
term is defined in Section 4043(c) of ERISA) that is not subject
to an administrative or statutory waiver from the reporting
requirement.
<PAGE>
3.12 CERTAIN CONTRACTS.
(a) Except as set forth at Section 3.12 of the Big Sky Disclosure
Schedule, neither Big Sky nor First Federal is a party to or
bound by any contract, arrangement or commitment (i) with
respect to the employment of any directors, officers, employees
or consultants, (ii) which, upon the consummation of the
transactions contemplated by this Agreement or the Institution
Merger Agreement will (either alone or upon the occurrence of
any additional acts or events) result in any payment (whether of
severance pay or otherwise) becoming due from Sterling, Big Sky,
First Federal, Sterling Savings Association or any of their
respective Subsidiaries to any director, officer or employee
thereof, (iii) which materially restricts the conduct of any
line of business by Big Sky or First Federal, (iv) with or to a
labor union or guild (including any collective bargaining
agreement), (v) (including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock
purchase plan) any of the benefits of which will be increased,
or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this
Agreement or the Institution Merger Agreement, or the value of
any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement or the
Institution Merger Agreement, (vi) that is material and is not
made in the ordinary course of business or pursuant to which Big
Sky or First Federal is or may become obligated to invest in or
contribute capital to any entity, (vii) not fully disclosed in
the financial statements contemplated by Section 3.6 that
relates to borrowings of money (or guarantees thereof by Big
Sky, or First Federal), other than in the ordinary course of
business, or (viii) is a lease or similar arrangement with
annual rental payments of $10,000 or more. Section 3.12(a) of
the Big Sky Disclosure Schedule sets forth true, correct and
complete copies of all employment, consulting and deferred
compensation agreements to which Big Sky or First Federal is a
party. No action taken or notice given as provided in Section
1.6 hereof will violate the terms of the Big Sky Option Plan,
constitute a violation of any Laws or give rise to liability to
any Option holder. Section 3.12(a) of the Big Sky Disclosure
Schedule sets forth a list of all material contracts (as defined
in Item 601(b)(10) of Regulation S-K) of Big Sky. Each
contract, arrangement or commitment of the type described in
this Section 3.12(a), whether or not set forth in Section
3.12(a) of the Big Sky Disclosure Schedule, is referred to
herein as a "Big Sky Contract," and neither Big Sky nor First
Federal has received notice of, nor do any executive officers of
such entities know of, any violation or imminent violation of
any Big Sky Contract by any other party thereto.
<PAGE>
(b) (i) Each Big Sky Contract is a valid and binding commitment of
Big Sky and is in full force and effect, (ii) each of Big Sky
and First Federal has in all material respects performed all
obligations required to be performed by it to date under each
Big Sky Contract, and (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, would
constitute, a material default on the part of Big Sky or First
Federal under any such Big Sky Contract.
3.13 AGREEMENTS WITH REGULATORY AGENCIES.
Neither Big Sky nor First Federal is subject to any cease-and-desist
or other order issued by, or is a party to any written agreement,
consent agreement or memorandum of understanding with, or is a party
to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or has been a recipient of any
extraordinary supervisory letter from, or has adopted any board
resolutions at the request of (each, whether or not set forth on
Section 3.13 of the Big Sky Disclosure Schedule, a "Regulatory
Agreement"), any Governmental Entity that restricts the conduct of its
business or that in any manner relates to its capital adequacy, its
credit policies, its management or its business, nor has Big Sky or
First Federal been advised by any Governmental Entity that it is
considering issuing or requesting any Regulatory Agreement.
3.14 STATE TAKEOVER LAWS; CERTIFICATE OF INCORPORATION.
The Board of Directors of Big Sky has approved the offer of Sterling
to enter into this Agreement and the Institution Merger Agreement, and
has approved Big Sky's entering into this Agreement, the Institution
Merger Agreement, and the transactions contemplated thereby, such that
under the DGCL and Big Sky's Certificate of Incorporation the only
vote of Big Sky stockholders necessary to consummate the transactions
contemplated hereby is the approval of the holders of at least a
majority of the outstanding Big Sky Common Stock entitled to vote
thereon at the Big Sky Meeting or any adjournment or postponement
thereof.
3.15 ENVIRONMENTAL MATTERS.
(a) Each of Big Sky and First Federal is in compliance in all
material respects with all applicable Laws relating to pollution
or protection of the environment (including without limitation,
laws and regulations relating to emissions, discharges, releases
and threatened releases of Hazardous Material (as hereinafter
defined)), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials;
<PAGE>
(b) There is no suit, claim, action, proceeding, investigation or
notice pending or, to the knowledge of Big Sky's and First
Federal's executive officers, threatened (or to the knowledge of
Big Sky's and First Federal's executive officers past or present
actions or events that could reasonably be expected to form the
basis of any such suit, claim, action, proceeding, investigation
or notice), in which Big Sky or First Federal has been or, with
respect to threatened suits, claims, actions, proceedings,
investigations or notices may be, named as a defendant (x) for
alleged material noncompliance (including by any predecessor),
with any environmental law, rule or regulation or (y) relating
to any material release or threatened release into the
environment of any Hazardous Material, whether or not occurring
at or on a site owned, leased or operated (directly or
indirectly in a fiduciary capacity) by Big Sky or First Federal;
(c) To the knowledge of Big Sky's and First Federal's executive
officers, there has not been any release of Hazardous Materials
in, on, under or affecting any such property;
(d) To the knowledge of Big Sky's and First Federal's executive
officers, neither Big Sky nor First Federal has made or
participated in any loan to any person who is subject to any
suit, claim, action, proceeding, investigation or notice,
pending or threatened, with respect to (i) any alleged material
noncompliance as to any property securing such loan with any
environmental law, rule or regulation, or (ii) the release or
the threatened release into the environment of any Hazardous
Material at any property securing such loan.
(e) For purposes of this section 3.15, the term "Hazardous Material"
means any hazardous waste, petroleum product, polychlorinated
biphenyl, chemical, pollutant, contaminant, pesticide,
radioactive substance, lead paint or other toxic material, or
other material or substance (in each such case, other than small
quantities of such substances in retail containers) regulated
under any applicable environmental or public health statute,
law, ordinance, rule or regulation.
3.16 RESERVES FOR LOSSES.
All reserves or other allowances for possible losses reflected in Big
Sky's most recent financial statements referred to in Section 3.6
complied with all Laws and are reported in accordance with GAAP.
Neither Big Sky nor First Federal has been notified by the OTS, the
FDIC, any other regulatory authority or by Big Sky's independent
auditor, in writing or otherwise, that such reserves are inadequate or
that the practices and policies of Big Sky or First Federal in
establishing such reserves and in accounting for delinquent and
classified assets generally fail to comply with applicable accounting
or regulatory requirements, or that the OTS, the FDIC, any other
regulatory authority or Big Sky's independent auditor believes such
<PAGE>
reserves to be inadequate or inconsistent with the historical loss
experience of Big Sky or First Federal. Section 3.16 of the Big Sky
Disclosure Schedule sets forth a complete list of all extensions of
credit and other real estate owned ("OREO") that have been classified
by any regulatory examiner as other loans specially mentioned, special
mention, substandard, doubtful, loss, classified or criticized, credit
risk assets, concerned loans or words of similar import. All OREO, if
any, held by Big Sky or First Federal is being carried net of reserves
at fair value.
3.17 PROPERTIES AND ASSETS.
Section 3.17 of the Big Sky Disclosure Schedule lists as of the date
of this Agreement (i) all real property owned by Big Sky and First
Federal; (ii) each real property lease, sublease or installment
purchase arrangement to which Big Sky or First Federal is a party;
(iii) a description of each contract for the purchase, sale, or
development of real estate to which Big Sky or First Federal is a
party; and (iv) all items of Big Sky's or First Federal's tangible
personal property and equipment with a book value of $10,000 or more
or having any annual lease payment of $5,000 or more. Except for (a)
items reflected in Big Sky's consolidated financial statements as of
March 31, 1997 referred to in Section 3.6 hereof, (b) exceptions to
title that do not interfere materially with Big Sky's or First
Federal's use and enjoyment of owned or leased real property (other
than OREO), (c) liens for current real estate taxes not yet
delinquent, or being contested in good faith, properly reserved
against, (d) properties and assets sold or transferred in the ordinary
course of business consistent with past practices since March 31,
1997, and (e) items listed in Section 3.17 of the Big Sky Disclosure
Schedule, Big Sky and First Federal have good and, as to owned real
property, marketable and insurable title to all their properties and
assets, reflected in the consolidated financial statements of Big Sky
as of March 31, 1997, free and clear of all material liens, claims,
charges and other encumbrances. Big Sky and First Federal, as
lessees, have the right under valid and subsisting leases to occupy,
use and possess all property leased by them. All properties and
assets used by Big Sky and First Federal are in good operating
condition and repair (subject to ordinary wear and tear) suitable for
the purposes for which they are currently utilized and, to the
knowledge of Big Sky, comply in all material respects with all Laws
relating thereto now in effect. Big Sky and First Federal enjoy
peaceful and undisturbed possession under all leases for the use of
all property under which they are the lessees, and all leases to which
Big Sky or First Federal is a party are valid and binding obligations
of Big Sky or First Federal in accordance with the terms thereof.
Neither Big Sky nor First Federal is in material default with respect
to any such lease, and there has occurred no default by Big Sky or
First Federal or event which with the lapse of time or the giving of
notice, or both, would constitute a material default by Big Sky or
First Federal under any such lease. To the knowledge of Big Sky,
there are no Laws, conditions of record, or other impediments which
interfere with the intended use by Big Sky or First Federal of any of
the property owned, leased, or occupied by them.
<PAGE>
3.18 INSURANCE.
Section 3.18 of the Big Sky Disclosure Schedule contains a true,
correct and complete list of all insurance policies and bonds
maintained by Big Sky and First Federal, including the name of the
insurer, the policy number, the type of policy and any applicable
deductibles. The existing insurance carried by Big Sky and First
Federal is sufficient for compliance by Big Sky and First Federal with
all requirements of Law and agreements to which Big Sky or First
Federal is subject or is party. True, correct and complete copies of
all such policies and bonds set forth in Section 3.18 of the Big Sky
Disclosure Schedule, as in effect on the date hereof, have been
delivered or made available to Sterling.
3.19 COMPLIANCE WITH APPLICABLE LAWS.
Each of Big Sky and First Federal has complied in all material
respects with all Laws applicable to it or to the operation of its
business. Neither Big Sky nor First Federal has received any notice
of any material alleged or threatened claim, violation or liability
under any such Laws that has not heretofore been cured and for which
there is no remaining liability.
3.20 LOANS.
As of the date hereof:
(a) All loans owned by Big Sky or First Federal, or in which Big Sky
or First Federal has an interest, comply in all material
respects with all Laws, including, but not limited to,
applicable usury statutes, underwriting and recordkeeping
requirements and the Truth in Lending Act, the Equal Credit
Opportunity Act and the Real Estate Settlement Procedures Act,
and other applicable consumer protection statutes and the
regulations thereunder.
(b) All loans owned by Big Sky or First Federal, or in which Big Sky
or First Federal has an interest, have been made or acquired by
Big Sky in all material respects in accordance with board of
director-approved loan policies. Each of Big Sky and First
Federal holds mortgages contained in its loan portfolio for its
own benefit to the extent of its interest shown therein; such
mortgages evidence liens having the priority indicated by their
terms, subject, as of the date of recordation or filing of
applicable security instruments, only to such exceptions as are
discussed in attorneys' opinions regarding title or in title
insurance policies in the mortgage files relating to the loans
secured by real property or are not material as to the
collectability of such loans; and all loans owned by Big Sky and
First Federal are with full recourse to the borrowers, and each
of Big Sky and First Federal has taken no action which would
result in a waiver or negation of any rights or remedies
<PAGE>
available against the borrower or guarantor, if any, on any
loan, other than in the ordinary course of business. All
applicable remedies against all borrowers and guarantors are
enforceable except as may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights and
except as may be limited by the exercise of judicial discretion
in applying principles of equity. Except as set forth at
Section 3.20(b) of the Big Sky Disclosure Schedule, all loans
purchased or originated by Big Sky or First Federal and
subsequently sold by Big Sky or First Federal have been sold
without recourse to Big Sky or First Federal and without any
liability under any yield maintenance or similar obligation.
True, correct and complete copies of loan delinquency reports
prepared by Big Sky and First Federal, which reports include all
loans delinquent or otherwise in default, are set forth in
Section 3.20(b) of the Big Sky Disclosure Schedule. True,
correct and complete copies of the currently effective lending
policies of Big Sky and First Federal have been furnished or
made available to Sterling.
(c) Except as set forth in Section 3.20(c) of the Big Sky Disclosure
Schedule, each outstanding loan participation sold by Big Sky or
First Federal was sold with the risk of non-payment of all or
any portion of that underlying loan to be shared by each
participant (including Big Sky or First Federal) proportionately
to the share of such loan represented by such participation
without any recourse of such other lender or participant to Big
Sky or First Federal for payment or repurchase of the amount of
such loan represented by the participation or liability under
any yield maintenance or similar obligation. Each of Big Sky
and First Federal has properly fulfilled in all material
respects its contractual responsibilities and duties in any loan
in which it acts as the lead lender or servicer and has complied
in all material respects with its duties as required under
applicable regulatory requirements.
(d) Each of Big Sky and First Federal has properly perfected or
caused to be properly perfected all security interests, liens,
or other interests in any collateral securing any loans made by
it.
3.21 FAIRNESS OPINION.
Big Sky has received an opinion from Feldman Financial dated as of the
date hereof to the effect that, in its opinion, the Exchange Ratio
pursuant to this Agreement is fair to the holders of Big Sky Common
Stock from a financial point of view.
<PAGE>
3.22 TAX AND ACCOUNTING TREATMENT OF MERGER.
As of the date of this Agreement, Big Sky is not aware of any fact or
state of affairs relating to Big Sky that could cause the Merger not
to be treated as a "reorganization" under Section 368(a) of the Code
or to qualify for "pooling-of-interests" accounting treatment.
3.23 UNDISCLOSED LIABILITIES.
Except (i) for those liabilities that are fully reflected or reserved
against on the consolidated balance sheet of Big Sky included in the
Big Sky Form 10-QSB for the quarter ended December 31, 1997 or (ii)
for liabilities incurred in the ordinary course of business consistent
with past practice since December 31, 1997, neither Big Sky nor First
Federal has incurred any liability of any nature whatsoever (whether
absolute, accrued or contingent or otherwise and whether due or to
become due) that, either alone or when combined with all similar
liabilities, has had, or would be reasonably expected to have, a
material adverse effect on Big Sky or First Federal.
3.24 BIG SKY INFORMATION.
The information relating to Big Sky and First Federal to be provided
by Big Sky to be contained in the Proxy Statement/Prospectus and the
Registration Statement will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they are
made, not misleading and will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF STERLING
Sterling, on behalf of itself and Sterling Savings Association, hereby
makes the following representations and warranties to Big Sky as set
forth in this Article IV, each of which is being relied upon by Big
Sky as a material inducement to enter into and perform this Agreement.
4.1 CORPORATE ORGANIZATION.
(a) Sterling is a corporation duly organized, validly existing and
in good standing under the laws of the State of Washington.
Sterling has the corporate power and authority to own or lease
all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing
or qualification necessary. Sterling is duly registered as a
savings and loan holding company with the OTS under HOLA. The
<PAGE>
Restated Certificate of Incorporation and Bylaws of Sterling, copies
of which have previously been made available to Big Sky, are true,
correct and complete copies of such documents as in effect as of the
date of this Agreement.
(b) Sterling Savings Association is a Washington State chartered
savings and loan association duly organized, validly existing
and in good standing under the laws of the State of Washington.
The deposit accounts of Sterling are insured by the FDIC through
the SAIF to the fullest extent permitted by law, and all
premiums and assessments required in connection therewith have
been paid by Sterling. Sterling Savings Association has the
corporate power and authority to own or lease all of its
properties and assets and to carry on business as is now being
conducted, and is duly licensed or qualified to do business in
each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets
owned or leased by it makes such licensing or qualification
necessary. The Charter and Bylaws of Sterling Savings
Association, copies of which have previously been made available
to Big Sky, are true, correct and complete copies of such
documents as in effect as of the date of this Agreement.
4.2 CAPITALIZATION.
(a) The authorized capital stock of Sterling as of the date hereof
consists of 20,000,000 shares of Sterling Common Stock, of which
7,569,791 shares were outstanding at December 31, 1997 and
10,000,000 shares of preferred stock, par value $1.00 per share
("Sterling Preferred Stock"), no shares of which were
outstanding at December 31, 1997. At such date, there were
options outstanding to purchase 480,790 shares of Sterling
Common Stock. All of the issued and outstanding shares of
Sterling Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except as set forth
above, Sterling does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character calling for the purchase or
issuance of any shares of Sterling Common Stock or Sterling
Preferred Stock or any other equity securities of Sterling or
any securities representing the right to purchase or otherwise
receive any shares of Sterling Common Stock or Sterling
Preferred Stock.
(b) The authorized capital stock of Sterling Savings Association
consists of 9,000,000 shares of common stock, par value $1.00
per share, 4,758,743 of which are issued and outstanding, and
1,000,000 shares of preferred stock, par value $1.00 per share,
of which 661 shares are issued or outstanding. The outstanding
shares of common stock of Sterling Savings Association are owned
<PAGE>
by Sterling free and clear of all liens, charges, encumbrances
and security interests whatsoever, and all of such shares are
duly authorized and validly issued and fully paid, nonassessable
and free of preemptive rights, with no personal liability
attaching to ownership thereof. Notwithstanding the previous
sentence, all of the issued and outstanding shares of the common
and preferred stock of Sterling Savings are pledged to Key Bank
as security for its loans to Sterling.
4.3 AUTHORITY; NO VIOLATION.
(a) Sterling has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and validly approved by the Board of
Directors of Sterling. No other corporate proceedings on the
part of Sterling are necessary to consummate the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Sterling and (assuming due
authorization, execution and delivery by Big Sky) this Agreement
constitutes a valid and binding obligation of Sterling,
enforceable against Sterling in accordance with its terms,
except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity
and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) Sterling Savings Association has full corporate power and
authority to execute and deliver the Institution Merger
Agreement and to consummate the transactions contemplated
thereby. The execution and delivery of the Institution Merger
Agreement and the consummation of the transactions contemplated
thereby will be duly and validly approved by the Board of
Directors of Sterling Savings Association, and by Sterling as
the sole stockholder of Sterling Savings Association prior to
the Effective Time. All corporate proceedings on the part of
Sterling Savings Association necessary to consummate the
transactions contemplated thereby will have been taken prior to
the Effective Time. The Institution Merger Agreement, upon
execution and delivery by Sterling Savings Association, will be
duly and validly executed and delivered by Sterling Savings
Association and will (assuming due authorization, execution and
delivery by First Federal) constitute a valid and binding
obligation of Sterling Savings Association, enforceable against
Sterling Savings Association in accordance with its terms,
except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity
and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
<PAGE>
(c) Neither the execution and delivery of this Agreement by Sterling
or the Institution Merger Agreement by Sterling Savings
Association, nor the consummation by Sterling or Sterling
Savings Association, as the case may be, of the transactions
contemplated hereby or thereby, nor compliance by Sterling or
Sterling Savings Association, as the case may be, with any of
the terms or provisions hereof or thereof, will (i) violate any
provision of the Restated Certificate of Incorporation or Bylaws
of Sterling or the Charter or Bylaws of Sterling Savings
Association, or (ii) assuming that the consents and approvals
referred to in Section 4.4 are duly obtained, (x) violate any
Laws applicable to Sterling or Sterling Savings Association or
any of their respective properties or assets, or (y) violate,
conflict with, result in a material breach of any provision of
or the loss of any benefit under, constitute a default (or an
event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a
right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any
of the respective properties or assets of Sterling or Sterling
Savings Association under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or
obligation to which Sterling or Sterling Savings Association is
a party, or by which they or any of their respective properties
or assets may be bound or affected.
4.4 CONSENTS AND APPROVALS.
(a) Except for (i) the filing of applications and notices, as
applicable, as to the Merger and the Institution Merger with the
OTS under HOLA and the Bank Merger Act and approval of such
applications and notices, (ii) the filing with the SEC of a
registration statement on Form S-4 to register the shares of
Sterling Common Stock to be issued in connection with the Merger
which will include the Proxy Statement/Prospectus, (iii) the
approval of this Agreement by the requisite vote of the
stockholders of Big Sky pursuant to the Big Sky Certificate of
Incorporation and the DGCL, (iv) the filing of the Articles of
Merger with the Secretary of State of Washington pursuant to the
WBCA, (v) the filings in connection with the Institution Merger
Agreement and the transactions contemplated thereby and (vi)
such filings and approvals as are required to be made or
obtained under the securities or "Blue Sky" laws of various
states or with Nasdaq (or such other exchange as may be
applicable) in connection with the issuance of the shares of
Sterling Common Stock pursuant to this Agreement, no consents or
approvals of or filings or registrations with any Governmental
Entity are necessary in connection with (1) the execution and
delivery by Sterling of this Agreement; (2) the performance by
Sterling of this Agreement and the transactions contemplated
<PAGE>
hereby; (3) the execution and delivery by Sterling Savings
Association of the Institution Merger Agreement; and (4) the
consummation by Sterling Savings Association of the transactions
contemplated by the Institution Merger Agreement except, in each
case, for such consents, approvals or filings the failure of
which to obtain will not have a material adverse effect on the
ability to consummate the transactions contemplated hereby.
(b) As of the date of this Agreement, Sterling has no knowledge of
any reason why approval or effectiveness of any of the
applications, notices or filings referred to in Section 4.4(a)
cannot be obtained or granted on a timely basis.
4.5 REPORTS
Since January 1, 1995 Sterling and Sterling Savings Association have
timely filed all reports, registrations and statements, together with
any amendments required to be made with respect thereto, that they
have been required to file with any Regulatory Agencies. As of its
respective date, each such report, registration, statement and
amendment complied in all material respects with all rules and
regulations promulgated by the applicable Regulatory Agency and did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. Except for normal examinations
conducted by a Regulatory Agency in the regular course of the business
of Sterling and its Subsidiaries, no Governmental Entity is
conducting, or has conducted, any proceeding or investigation into the
business or operations of Sterling since December 31, 1993.
4.6 FINANCIAL STATEMENTS; EXCHANGE ACT FILINGS; BOOKS AND
RECORDS.
Sterling has previously delivered to Big Sky true, correct and
complete copies of (i) the audited consolidated balance sheets of
Sterling and its Subsidiaries as of December 31, 1996 and 1997 and
June 30, 1996 and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the year ended
December 31, 1997, the six months ended December 31, 1996 and the
years ended June 30, 1996 and 1995, inclusive, as reported in
Sterling's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 filed with the SEC under the Exchange Act, in each
case accompanied by the audit report of Coopers & Lybrand, LLP,
independent public accountants with respect to Sterling; and (ii) the
unaudited consolidated balance sheets of Sterling and its Subsidiaries
as of September 30, 1997 and December 31, 1996 and the related
unaudited consolidated statements of income, changes in shareholders'
equity and cash flows for the interim periods ended September 30, 1997
and 1996, as reported on Sterling's Quarterly Report on Form 10-Q for
the period ended September 30, 1997 filed with the SEC under the
Exchange Act. The financial statements referred to in this Section
4.5 (including the related notes, where applicable) fairly present,
<PAGE>
and the financial statements referred to in Section 6.8 hereof will
fairly present (subject, in the case of the unaudited statements, to
recurring audit adjustments normal in nature and amount), the results
of the consolidated operations and consolidated financial condition of
Sterling and its Subsidiaries for the respective fiscal periods or as
of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) comply, and the
financial statements referred to in Section 6.8 hereof will comply,
with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been,
and the financial statements referred to in Section 6.8 hereof will
be, prepared in accordance with GAAP consistently applied during the
periods involved, except as indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q. Sterling's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997
and all subsequently filed reports under the Exchange Act comply in
all material respects with the appropriate requirements for such
reports under the Exchange Act, and Sterling has previously delivered
or made available to Big Sky true, correct and complete copies of such
reports. The books and records of Sterling and Sterling Savings
Association have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as disclosed in Sterling's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 and all reports
subsequently filed by Sterling under the Exchange Act, true,
correct and complete copies of which have previously been
delivered or made available to Big Sky, since December 31, 1997,
no event has occurred which has had, or is reasonably certain to
have, individually or in the aggregate, a material adverse
effect on Sterling.
(b) Since June 30, 1997, Sterling and its Subsidiaries have carried
on their respective businesses in the ordinary and usual course
consistent with their past practices.
4.8 COMPLIANCE WITH APPLICABLE LAW.
Sterling and each Sterling Subsidiary has complied in all material
respects with all Laws applicable to it or to the operation of its
business. Neither Sterling nor any Sterling Subsidiary has received
any notice of any material alleged or threatened claim, violation of
or liability under any such Laws that has not heretofore been cured
and for which there is no remaining liability.
<PAGE>
4.9 EMPLOYEE PLANS.
Sterling has heretofore made available for inspection, or delivered
(if requested) to Big Sky true, correct and complete copies of each
employee benefit plan arrangement or agreement that is maintained as
of the date of this Agreement (the "Sterling Plans") by Sterling or
any of its Subsidiaries. No "accumulated funding deficiency" as
defined in Section 302(a)(2) of ERISA or Section 412 of the Code,
whether or not waived, and no "unfunded current liability" as
determined under Section 412(l) of the Code exists with respect to any
Sterling Plan. The Sterling Plans are in compliance in all material
respects with the applicable requirements of ERISA and the Code.
4.10 AGREEMENTS WITH REGULATORY AGENCIES.
Neither Sterling nor any of its affiliates is subject to any
cease-and-desist or other order issued by, or is a party to any
written agreement, consent agreement or memorandum of understanding
with, or is a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or has been a
recipient of any extraordinary supervisory letter from, or has adopted
any board resolutions at the request of (each a "Regulatory
Agreement"), any Governmental Entity that restricts the conduct of its
business or that in any manner relates to its capital adequacy, its
credit policies, its management or its business, nor has Sterling or
Sterling Savings Association been advised by any Governmental Entity
that it is considering issuing or requesting any Regulatory Agreement.
4.11 TAX AND ACCOUNTING TREATMENT OF MERGER.
As of the date of this Agreement, Sterling is not aware of any fact or
state of affairs relating to Sterling that could cause the Merger not
to be treated as a "reorganization" under Section 368(a) of the Code
or to qualify for "pooling-of-interests" accounting treatment.
4.12 LEGAL PROCEEDINGS.
(a) Neither Sterling nor any of its Subsidiaries is a party to any,
and there are no pending or threatened, legal, administrative,
arbitration or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against
Sterling or any of its Subsidiaries in which there is a
reasonable probability of any material recovery against or other
material adverse effect upon Sterling or any of its Subsidiaries
or which challenge the validity or propriety of the transactions
contemplated by this Agreement or the Institution Merger
Agreement as to which there is a reasonable probability of
success.
(b) There is no injunction, order, judgment or decree imposed upon
Sterling, any of its Subsidiaries or the assets of Sterling or
any of its Subsidiaries.
<PAGE>
4.13 RESERVES FOR LOSSES.
All reserves or other allowances for possible losses reflected in
Sterling's most recent financial statements referred to in Section 4.5
complied with all Laws and are reported in accordance with GAAP.
Neither Sterling nor Sterling Savings Association has been notified by
the OTS, the FDIC, any other regulator authority or by Sterling's
independent auditor, in writing or otherwise, that the reserves or
other allowances for possible loan losses reflected in Sterling's most
recent financial statements referred to in Section 4.5 are inadequate
or that the practices and policies of Sterling or Sterling Savings
Association in establishing such reserves and in accounting for
delinquent and classified assets generally fail to comply with
applicable accounting or regulatory requirements or that the OTS, the
FDIC, any other regulatory authority or Sterling's independent auditor
believes such reserves to be inadequate or inconsistent with the
historical loss experience of Sterling or Sterling Savings
Association. Sterling has previously furnished Big Sky with a
complete list of all extensions of credit or OREO that have been
classified by any bank examiner (regulatory or internal) as other
loans specially mentioned, special mention, substandard, doubtful,
loss, classified or criticized, credit risk assets, concerned loans or
words of similar import. All OREO held by Sterling or Sterling
Savings Association is being carried net of reserves at fair value.
4.14 BROKER'S FEES.
Neither Sterling nor any Sterling Subsidiary nor any of their
respective officers or directors has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's
fees in connection with any of the transactions contemplated by this
Agreement or the Institution Merger Agreement.
4.15 TAXES.
Each of Sterling and its Subsidiaries has duly filed all material
Federal, state, local and foreign Tax Returns required to be filed by
it on or prior to the date hereof (all such returns being accurate and
complete in all material respects) and has duly paid or made
provisions for the payment of all material Taxes which have been
incurred or are due or claimed to be due from it by Federal, state,
local and foreign taxing authorities on or prior to the date hereof.
All liability with respect to the income tax returns of Sterling and
its Subsidiaries has been satisfied for all years to and including
June 30, 1997. The IRS has not notified Sterling of, or otherwise
asserted, that there are any material deficiencies with respect to the
income tax returns of Sterling. There are no material disputes
pending, or claims asserted for, Taxes or assessments upon Sterling or
any of its Subsidiaries, nor has Sterling or any of its Subsidiaries
been requested to give any waivers extending the statutory period of
limitation applicable to any Federal, state or local income tax return
for any period.
<PAGE>
4.16 STERLING INFORMATION.
The information relating to Sterling and its Subsidiaries to be
provided by Sterling to be contained in the Proxy Statement/Prospectus
and the Registration Statement will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances in which they
are made, not misleading. The Proxy Statement/Prospectus (except for
such portions thereof that relate only to Big Sky or First Federal)
will comply in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. The
Registration Statement will comply in all material respects with the
provisions of the Securities Act and the rules and regulations
thereunder.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 COVENANTS OF BIG SKY.
During the period from the date of this Agreement and continuing until
the Effective Time, except as expressly contemplated or permitted by
this Agreement or the Institution Merger Agreement, or with the prior
written consent of Sterling, Big Sky and First Federal shall carry on
their respective businesses in the ordinary course consistent with
past practices and consistent with prudent banking practices. Big Sky
will use its reasonable best efforts to (x) preserve its business
organization and that of First Federal intact, (y) keep available to
itself and Sterling the present services of the employees of Big Sky
and First Federal and (z) preserve for itself and Sterling the
goodwill of the customers of Big Sky and First Federal and others with
whom business relationships exist. Without limiting the generality of
the foregoing, and except as set forth in the Big Sky Disclosure
Schedule or as otherwise contemplated by this Agreement or consented
to by Sterling in writing, Big Sky shall not, and shall not permit
First Federal to:
(a) declare or pay any dividends, on or make other distributions in
respect of, any of its capital stock;
(b) (i) split, combine or reclassify any shares of its capital stock
or issue, authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of its capital stock except upon the exercise or
fulfillment of rights or options issued and outstanding as of
the date hereof pursuant to the Big Sky Stock Option Plan in
accordance with their present terms, or (ii) repurchase, redeem
or otherwise acquire any shares of the capital stock of Big Sky
or First Federal, or any securities convertible into or
exercisable for any shares of the capital stock of Big Sky or
First Federal;
<PAGE>
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any
securities convertible into or exercisable for, or any rights,
warrants or options to acquire, any such shares, or enter into
any agreement with respect to any of the foregoing, other than
the issuance of Big Sky Common Stock pursuant to stock options
or similar rights to acquire Big Sky Common Stock granted
pursuant to the Big Sky Stock Option Plan and outstanding prior
to the date of this Agreement, in each case in accordance with
their present terms;
(d) amend its Certificate of Incorporation, Bylaws or other similar
governing documents;
(e) authorize or permit any of its officers, directors, employees or
agents to, directly or indirectly, solicit, initiate or
encourage any inquiries relating to, or the making of any
proposal from, hold discussions or negotiations with or provide
any information to, any person, entity or group (other than
Sterling) concerning any Acquisition Transaction (as defined
below); provided, however, that Big Sky may, and may authorize
and permit its officers, directors, employees or agents to,
provide or cause to be provided information and may participate
in such discussions or negotiations if the Board of Directors of
Big Sky has determined in good faith that the failure to provide
such information or participate in such negotiations or
discussions could cause the members of such Board of Directors
to breach their fiduciary duties under applicable Laws and the
Board of Directors has received the written advice of outside
counsel to that effect. Big Sky shall promptly communicate
orally (within one day) and in writing (as promptly as
practicable) to Sterling the material terms of any proposal,
whether written or oral, which it may receive in respect of any
such Acquisition Transaction and whether it is having
discussions or negotiations with a third party about an
Acquisition Transaction or providing information in connection
with, or which may lead to, an Acquisition Transaction with a
third party. Big Sky will promptly cease and cause to be
terminated any existing activities, discussions or negotiations
previously conducted with any parties other than Sterling with
respect to any of the foregoing. As used in this Agreement,
"Acquisition Transaction" shall mean any offer, proposal or
expression of interest relating to (i) any tender or exchange
offer involving Big Sky or First Federal, (ii) merger,
consolidation or other business combination involving Big Sky or
First Federal, or (iii) the acquisition in any manner of a
substantial equity interest in, or a substantial portion of the
assets, out of the ordinary course of business, of, Big Sky or
First Federal other than the transactions contemplated or
permitted by this Agreement and the Institution Merger
Agreement;
<PAGE>
(f) make capital expenditures aggregating in excess of $10,000.
(g) enter into any new line of business;
(h) acquire or agree to acquire, by merging or consolidating with,
or by purchasing an equity interest in or the assets of, or by
any other manner, any business or any corporation, partnership,
association or other business organization or division thereof
or otherwise acquire any assets, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructurings, or in the ordinary course of
business consistent with past practices;
(i) take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth
in this Agreement being or becoming untrue or in any of the
conditions to the Merger set forth in Article VII not being
satisfied, or in a violation of any provision of this Agreement
or the Institution Merger Agreement, except, in every case, as
may be required by applicable Law;
(j) change its methods of accounting in effect at December 31, 1997
except as required by changes in GAAP or regulatory accounting
principles as concurred to by Big Sky's independent auditors;
(k) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or
terminate any Plan or any agreement, arrangement, plan or policy
between Big Sky or First Federal and one or more of its current
or former directors, officers or employees, (ii) other than
normal annual increases in pay, consistent with past practice,
for employees not subject to an employment, change of control or
severance agreement, increase in any manner the compensation of
any employee or director or pay any benefit not required by any
Plan or agreement as in effect as of the date hereof (including,
without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or
performance units or shares), (iii) enter into, modify or renew
any contract, agreement, commitment or arrangement providing for
the payment to any director, officer or employee of compensation
or benefits, other than normal annual increases in pay,
consistent with past practice, for employees not subject to an
employment, change of control or severance agreement, (iv) hire
any new employee at an annual compensation in excess of $25,000,
(v) pay expenses of any employees or directors for attending
conventions or similar meetings which conventions or meetings
are held after the date hereof, (vi) promote to a rank of vice
president or more senior any employee, or (vii) pay any
retention or other bonuses to any employees;
<PAGE>
(l) incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for
the obligations of any other individual, corporation or other
entity other than in the ordinary course of business consistent
with past practice;
(m) sell, purchase, enter into a lease, relocate, open or close any
banking or other office, or file an application pertaining to
such action with any Governmental Entity;
(n) make any equity investment or commitment to make such an
investment in real estate or in any real estate development
project, other than in connection with foreclosure, settlements
in lieu of foreclosure, or troubled loan or debt restructuring,
in the ordinary course of business consistent with past
practices;
(o) make any new loans to, modify the terms of any existing loan to,
or engage in any other transactions (other than routine banking
transactions) with, any Affiliated Person of Big Sky or First
Federal;
(p) make any investment, or incur deposit liabilities, other than in
the ordinary course of business consistent with past practices,
or make any equity investments;
(q) purchase any loans or sell, purchase or lease any real property,
except for the sale of real estate that is the subject of a
casualty loss or condemnation or the sale of OREO on a basis
consistent with past practices;
(r) originate (i) any loans except in accordance with existing First
Federal lending policies, (ii) unsecured consumer loans in
excess of $25,000, (iii) commercial real estate first mortgage
or other commercial loans in excess of $150,000 as to any loan
or $750,000 in the aggregate as to related loans, or loans to
related persons, or (iv) land acquisition loans to borrowers who
intend to construct a residence on such land in excess of the
lesser of 75% of the appraised value of such land or $100,000,
except in each case for (A) loans for which written commitments
have been issued by First Federal as of the date hereof, (B)
renewals of loans existing as of the date of this Agreement or
loans permitted pursuant to this Section 5.1(r) and (C)
increases in the principal amount of loans existing as of the
date of this Agreement, subject to a limit of 30% of the
principal amount of such loans as of the date of this Agreement
or $100,000, whichever is less;
(s) make any investments in excess of $1,000,000, in the aggregate,
in any equity or derivative securities or engage in any forward
commitment, futures transaction, financial options transaction,
hedging or arbitrage transaction or covered asset trading
activities or make any investments in any investment security
with a maturity of greater than five years;
<PAGE>
(t) sell or purchase any mortgage loan servicing rights;
(u) agree or commit to do any of the actions set forth in clauses
(a) - (t) of this Section 5.1. The consent of Sterling to any
action by Big Sky or First Federal that is not permitted by any
of the preceding paragraphs shall be evidenced only by a writing
signed by the President or any Executive or Senior Vice
President of Sterling; or
(v) take or omit to take any other action that would materially
adversely affect or materially delay the ability of Big Sky to
obtain the Requisite Regulatory Approvals or otherwise
materially adversely affect Big Sky's and First Federal's
ability to consummate the transactions contemplated by this
Agreement.
5.2 COVENANTS OF STERLING.
During the period from the date of this Agreement and continuing until
the Effective Time, except as expressly contemplated or permitted by
this Agreement or with Big Sky's prior written consent, Sterling shall
not, and shall not permit Sterling Savings Association to:
(a) take any action that will result in any of Sterling's
representations and warranties set forth in this Agreement being
or becoming untrue or any of the conditions to the Merger set
forth in Article VII not being satisfied or in a violation of
any provision of this Agreement or the Institution Merger
Agreement, except, in every case, as may be required by
applicable Law; or
(b) take or omit to take any other action that would materially
adversely affect or materially delay the ability of Sterling to
obtain the Requisite Regulatory Approvals or otherwise
materially adversely affect Sterling's and Sterling Savings
Association's ability to consummate the transactions
contemplated by this Agreement.
5.3 MERGER COVENANTS.
Notwithstanding that Big Sky believes that it has established all
reserves and taken all provisions for possible loan losses required by
GAAP and applicable Laws, Big Sky recognizes that Sterling may have
adopted different loan, accrual and reserve policies (including loan
classifications and levels of reserves for possible loan losses). In
that regard, and in general, from and after the date of this Agreement
to the Effective Time, Big Sky and Sterling shall consult and
cooperate with each other in order to formulate the plan of
integration for the Merger, including, among other things, with
respect to conforming immediately prior to the Effective Time, based
upon such consultation, Big Sky's loan, accrual and reserve policies
to those policies of Sterling to the extent consistent with GAAP;
<PAGE>
provided, that any change in Big Sky's policies in connection with
such matters need not be effected until Sterling irrevocably agrees in
writing that (i) all conditions to Sterling's obligation to consummate
the Merger have been satisfied, (ii) that Sterling will waive any and
all rights that it may have to terminate this Agreement and (iii)
Sterling will complete the Merger.
5.4 EMPLOYMENT AND OTHER AGREEMENTS.
Following the Merger, Sterling agrees that it shall honor the existing
written contracts with officers of Big Sky and First Federal that are
listed at Section 3.12 of the Big Sky Disclosure Schedule; provided,
however, that in making the foregoing agreement, Sterling will honor
such contracts only to the extent that the payments of benefits to be
provided under such contracts, when taken together with any other
payments to be received by such persons, would not constitute a
"parachute payment" within the meaning of Code Section 280G(b)(2).
Sterling further agrees that, prior to the Effective Time, the
employment agreements listed at Section 3.12 of the Big Sky Disclosure
Schedule, shall be amended to provide the (A) in the event, the
payments and benefits to be provided to an officer shall, in the
aggregate, constitute a parachute payment within the meaning of
Section 280G(b)(2) of the Code, the payments and benefits to be
provided to the officer under the employment agreement shall, at the
officer's written election, (i) be payable or provided to the officer
over a period sufficient to reduce the present value of such payments
or benefits (determined in accordance with Treasury regulations under
Section 280G of the Code) to an amount which is 2.99 times the
Officer's "base amount" under Section 280G(b)(3) of the Code or (ii)
be reduced to the extent necessary to avoid treatment as a parachute
payment with the allocation of the reduction among such payments and
benefits and the period over which such payments and benefits are to
be provided to be determined by the officer and (B) that any cash
payment due an officer under an employment agreement shall be reduced
by the amount of any payments to be received by the officer for
consulting services provided to Sterling following the Effective Time.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 REGULATORY MATTERS.
(a) Upon the execution and delivery of this Agreement, Sterling and
Big Sky (as to information to be included therein pertaining to
Big Sky) shall promptly cause to be prepared and filed with the
SEC a registration statement of Sterling on Form S-4, including
the Proxy Statement/Prospectus (the "Registration Statement")
for the purpose of registering the Sterling Common Stock to be
issued in the Merger and for soliciting the adoption and
approval of this Agreement and the Merger by the stockholders of
Big Sky. Sterling and Big Sky shall use their reasonable best
<PAGE>
efforts to have the Registration Statement declared effective by
the SEC as soon as possible after the filing thereof. The
parties shall cooperate in responding to and considering any
questions or comments from the SEC staff regarding the
information contained in the Registration Statement. If at any
time after the Registration Statement is filed with the SEC, and
prior to the Closing Date, any event relating to Big Sky is
discovered by Big Sky which should be set forth in an amendment
of, or a supplement to, the Registration Statement, including
the Proxy Statement/Prospectus, Big Sky shall promptly inform
Sterling, and shall furnish Sterling with all necessary
information relating to such event, whereupon Sterling shall
promptly cause an appropriate amendment to the Registration
Statement to be filed with the SEC. Upon the effectiveness of
such amendment, each of Big Sky and Sterling (if prior to the
meeting of the stockholders of Big Sky pursuant to Section 6.3
hereof) will take all necessary action as promptly as
practicable to permit an appropriate amendment or supplement to
be transmitted to its stockholders entitled to vote at such
meeting. Sterling shall also use reasonable efforts to obtain
all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by
this Agreement and the Institution Merger Agreement and Big Sky
shall furnish all information concerning Big Sky and the holders
of Big Sky Common Stock as may be reasonably requested in
connection with any such action.
(b) The parties hereto shall cooperate with each other and use their
best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions
and filings, and to obtain as promptly as practicable all
permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or
advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Merger and the
Institution Merger). Big Sky and Sterling shall have the right
to review in advance, and to the extent practicable each will
consult the other on, in each case subject to applicable Laws
relating to the exchange of information, all the information
relating to Big Sky or Sterling, as the case may be, which
appears in any filing made with, or written materials submitted
to, any third party or any Governmental Entity in connection
with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto shall
act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect
to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities
necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the
other apprised of the status of matters relating to consummation
of the transactions contemplated herein.
<PAGE>
(c) Big Sky shall, upon request, furnish Sterling with all
information concerning Big Sky and its directors, officers and
stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Registration
Statement or any other statement, filing, notice or application
made by or on behalf of Sterling to any Governmental Entity in
connection with the Merger or the other transactions
contemplated by this Agreement.
(d) Sterling and Big Sky shall promptly advise each other upon
receiving any communication from any Governmental Entity whose
consent or approval is required for consummation of the
transactions contemplated by this Agreement which causes such
party to believe that there is a reasonable likelihood that any
Requisite Regulatory Approval (as defined in Section 7.1(c)
hereof) will not be obtained or that the receipt of any such
approval will be materially delayed.
6.2 ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable Laws relating
to the exchange of information, Big Sky shall accord to the
officers, employees, accountants, counsel and other
representatives of Sterling, access, during normal business
hours during the period prior to the Effective Time, to all its
and First Federal's properties, books, contracts, commitments
and records and, during such period, Big Sky shall make
available to Sterling (i) a copy of each report, schedule,
registration statement and other document filed or received by
it (including First Federal) during such period pursuant to the
requirements of federal securities laws or federal or state
banking laws and (ii) all other information concerning its
(including First Federal) business, properties and personnel as
Sterling may reasonably request. Sterling shall receive notice
of all meetings of the Big Sky and First Federal's Board of
Directors and any committees thereof, and of any management
committees (in all cases, at least as timely as all Big Sky and
First Federal, as the case may be, representatives to such
meetings are required to be provided notice). Sterling will
hold all such information in confidence to the extent required
by, and in accordance with, the provisions of the
confidentiality agreement which Sterling entered into with Big
Sky dated February 2, 1998 (the "Confidentiality Agreement").
(b) Upon reasonable notice and subject to applicable Laws relating
to the exchange of information, Sterling shall afford to the
officers, employees, accountants, counsel and other
representatives of Big Sky, access, during normal business hours
during the period prior to the Effective Time, to such
information regarding Sterling as shall be reasonably necessary
for Big Sky to fulfill its obligations pursuant to this
Agreement or which may be reasonably necessary for Big Sky to
<PAGE>
confirm that the representations and warranties of Sterling
contained herein are true and correct and that the covenants of
Sterling contained herein have been performed in all material
respects. Big Sky will hold all such information in confidence
to the extent required by, and in accordance with, the
provisions of the Confidentiality Agreement.
(c) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties
of the other set forth herein.
(d) Big Sky shall provide Sterling with true, correct and complete
copies of all financial and other information relating to the
business or operations of Big Sky or First Federal that is
provided to directors of Big Sky and First Federal in connection
with meetings of their Boards of Directors or committees
thereof.
6.3 STOCKHOLDER MEETINGS.
Big Sky shall take all steps necessary to duly call, give notice of,
convene and hold a meeting of its stockholders within 40 days after
the Registration Statement becomes effective for the purpose of voting
upon the approval of this Agreement and the Merger. Management and
the Board of Directors of Big Sky shall recommend to Big Sky's
stockholders approval of this Agreement, including the Merger, and the
transactions contemplated hereby, together with any matters incident
thereto; and in each case shall oppose any third party proposal or
other action that is inconsistent with this Agreement or the
consummation of the transactions contemplated hereby (subject in each
case to compliance in good faith with its fiduciary duties as advised
by counsel). Big Sky and Sterling shall coordinate and cooperate with
respect to the foregoing matters.
6.4 LEGAL CONDITIONS TO MERGER.
Each of Sterling and Big Sky shall use their reasonable best efforts
(a) to take, or cause to be taken, all actions reasonably necessary,
proper or advisable to comply promptly with all legal requirements
which may be imposed on such party with respect to the Merger and,
subject to the conditions set forth in Article VII hereof, to
consummate the transactions contemplated by this Agreement and (b) to
obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party which is required to be
obtained by Big Sky or Sterling in connection with the Merger and the
other transactions contemplated by this Agreement.
<PAGE>
6.5 STOCK EXCHANGE LISTING.
Sterling shall use its reasonable best efforts to cause the shares of
Sterling Common Stock to be issued in the Merger and pursuant to
options referred to herein to be approved for quotation on the Nasdaq
Stock Market National Market (or such other exchange on which the
Sterling Common Stock has become listed, or approved for listing)
prior to or at the Effective Time.
6.6 EMPLOYEES.
(a) To the extent permissible under the applicable provisions of the
Code and ERISA, for purposes of crediting periods of service for
eligibility to participate and vesting, but not for benefit
accrual purposes, under employee pension benefit plans (within
the meaning of ERISA Section 3(2)) maintained by Sterling or
Sterling Savings Association, as applicable, individuals who are
employees of Big Sky or First Federal at the Effective Time will
be credited with periods of service with Big Sky or First
Federal before the Effective Time (including service with any
predecessor employer for which service credit was given under
similar employee benefit plans of Big Sky or First Federal) as
if such service had been with Sterling or Sterling Savings
Association, as applicable. Similar credit shall also be given
by Sterling or Sterling Savings Association in calculating other
retirement plan, vacation and similar benefits for such
employees of Big Sky or First Federal after the Merger.
Sterling will or will cause Sterling Savings Association to (i)
give credit to employees of Big Sky and First Federal, with
respect to the satisfaction of the limitations as to
pre-existing condition exclusions and waiting periods for
participation and coverage which are applicable under the
welfare benefit plans of Sterling or Sterling Savings
Association, equal to the credit that any such employee had
received as of the Effective Time towards the satisfaction of
any such limitations and waiting periods under the comparable
welfare benefit plans of Big Sky and First Federal and (ii)
provide each employee of Big Sky and First Federal with credit
for any co-payment and deductibles paid prior to the Effective
Time in satisfying any deductible or out-of-pocket requirements.
(c) Sterling will cause Sterling Savings Association to offer a
position of at-will employment to each of First Federal's
non-management branch office personnel in good standing as of
the Effective Time. Sterling will use its reasonable best
efforts in connection with reviewing applicants for employment
positions to give Big Sky and First Federal employees who are
not offered positions at the Effective Time the same
consideration as is afforded Sterling or Sterling Savings
Association employees for such positions in accordance with
existing formal or informal policies.
<PAGE>
6.7 INDEMNIFICATION.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or
administrative, in which any person who is now, or has been at
any time prior to the date of this Agreement, or who becomes
prior to the Effective Time, a director or officer or employee
of Big Sky or First Federal (the "Indemnified Parties") is, or
is threatened to be, made a party based in whole or in part on,
or arising in whole or in part out of, or pertaining to (i) the
fact that he is or was a director, officer or employee of Big
Sky or First Federal or any of their respective predecessors or
(ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after
the Effective Time, the parties hereto agree to cooperate and
use their best efforts to defend against and respond thereto.
It is understood and agreed that, after the Effective Time,
Sterling shall indemnify and hold harmless, as and to the
fullest extent permitted by applicable law, each such
Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any
claim, suit, proceeding or investigation to each Indemnified
Party to the fullest extent permitted by law upon receipt of any
undertaking required by applicable law), judgments, fines and
amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or
investigation, and in the event of any such threatened or actual
claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the
Indemnified Parties may retain counsel reasonably satisfactory
to Sterling; provided, however, that (1) Sterling shall have the
right to assume the defense thereof and upon such assumption
Sterling shall not be liable to any Indemnified Party for any
legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection
with the defense thereof, except that if Sterling elects not to
assume such defense or counsel for the Indemnified Parties
reasonably advises the Indemnified Parties that there are issues
which raise conflicts of interest between Sterling and the
Indemnified Parties, the Indemnified Parties may retain counsel
reasonably satisfactory to Sterling, and Sterling shall pay the
reasonable fees and expenses of such counsel for the Indemnified
Parties, (2) Sterling shall be obligated pursuant to this
paragraph to pay for only one firm of counsel for each
Indemnified Party, and (3) Sterling shall not be liable for any
settlement effected without its prior written consent (which
consent shall not be unreasonably withheld or delayed). Any
Indemnified Party wishing to claim indemnification under this
Section 6.7, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify Sterling thereof;
provided, however, that the failure to so notify shall not
<PAGE>
affect the obligations of Sterling under this Section 6.7 except
to the extent such failure to notify materially prejudices
Sterling. Sterling's obligations under this Section 6.7
continue in full force and effect for a period of six years from
the Effective Time; provided, however, that all rights to
indemnification in respect of any claim asserted or made within
such period shall continue until the final disposition of such
claim.
(b) Sterling shall use commercially reasonable efforts to cause the
persons serving as officers and directors of Big Sky immediately
prior to the Effective Time to be covered by a directors' and
officers' liability insurance policy ("Tail Insurance") of
substantially the same coverage and amounts containing terms and
conditions which are generally not less advantageous than Big
Sky's current policy with respect to acts or omissions occurring
prior to the Effective Time which were committed by such
officers and directors in their capacity as such for a period
not less than one year.
(c) In the event Sterling or any of its successors or assigns (i)
consolidates with or merges into any other person or entity and
shall not be the continuing or surviving corporation or entity
of such consolidation or merger, or (ii) transfers or conveys
all or substantially all of its properties and assets to any
person or entity, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors
and assigns of Sterling assume the obligations set forth in this
section.
(d) The provisions of this Section 6.7 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party
and his or her heirs and representatives.
6.8 SUBSEQUENT INTERIM AND ANNUAL FINANCIAL STATEMENTS.
As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal quarter (and 90 days in the case of the
fourth fiscal quarter), Sterling will deliver to Big Sky and Big Sky
will deliver to Sterling their respective Quarterly and Annual
Reports, as filed with the SEC under the Exchange Act. Each party
shall deliver to the other any Current Reports on Form 8-K promptly
after filing such reports with the SEC.
6.9 ADDITIONAL AGREEMENTS.
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, or
to vest the Surviving Corporation or the Surviving Institution with
full title to all properties, assets, rights, approvals, immunities
and franchises of any of the parties to the Merger, or the constituent
parties to the Institution Merger, as the case may be, the proper
officers and directors of each party to this Agreement and Sterling's
Subsidiaries and First Federal shall take all such necessary action as
may be reasonably requested by Sterling.
<PAGE>
6.10 ADVICE OF CHANGES.
Sterling and Big Sky shall promptly advise the other party of any
change or event that, individually or in the aggregate, has had or
would be reasonably certain to have a material adverse effect on it or
to cause or constitute a material breach of any of its
representations, warranties or covenants contained herein. From time
to time prior to the Effective Time, each party will promptly
supplement or amend its disclosure schedule delivered in connection
with the execution of this Agreement to reflect any matter which, if
existing, occurring or known at the date of this Agreement, would have
been required to be set forth or described in such disclosure schedule
or which is necessary to correct any information in such disclosure
schedule which has been rendered inaccurate thereby. No supplement or
amendment to such disclosure schedule shall have any effect for the
purpose of determining satisfaction of the conditions set forth in
Sections 7.2(a) or 7.3(a) hereof, as the case may be, or the
compliance by Big Sky or Sterling, as the case may be, with the
respective covenants set forth in Sections 5.1 and 5.2 hereof.
6.11 CURRENT INFORMATION.
During the period from the date of this Agreement to the Effective
Time, Big Sky will cause one or more of its designated representatives
to confer on a regular and frequent basis (not less than monthly) with
representatives of Sterling and to report the general status of the
ongoing operations of Big Sky. Big Sky will promptly notify Sterling
of any material change in the normal course of business or in the
operation of the properties of Big Sky and of any governmental
complaints, investigations or hearings (or communications indicating
that the same may be contemplated), or the institution or the threat
of litigation involving Big Sky, and will keep Sterling fully informed
of such events.
6.12 EXECUTION AND AUTHORIZATION OF INSTITUTION MERGER AGREEMENT.
Prior to the Effective Time, (a) Sterling and Big Sky shall each
approve the Institution Merger Agreement as the sole stockholder of
Sterling Savings Association and First Federal, respectively, and (b)
First Federal shall execute and deliver the Institution Merger
Agreement.
6.13 CHANGE IN STRUCTURE.
Sterling may elect to modify the structure of the transactions
contemplated by this Agreement as noted herein so long as (i) there
are no adverse tax consequences to the Big Sky stockholders as a
result of such modification, (ii) the consideration to be paid to the
Big Sky stockholders under this Agreement is not thereby changed or
reduced in amount, and (iii) such modification will not delay or
jeopardize receipt of any required regulatory approvals. In the event
that the structure of the Merger is modified pursuant to this Section
<PAGE>
6.13, the parties agree to modify this Agreement and the various
exhibits hereto to reflect such revised structure. In such event,
Sterling shall prepare appropriate amendments to this Agreement and
the exhibits hereto for execution by the parties hereto. Big Sky
agrees to cooperate fully with Sterling to effect such amendments.
6.14 TRANSACTION EXPENSES OF BIG SKY.
As promptly as practicable after the execution of this Agreement, Big
Sky will provide to Sterling an estimate of the expenses Big Sky
expects to incur in connection with the Merger, and shall keep
Sterling reasonably informed of material changes in such estimate.
6.15 AFFILIATE AGREEMENTS.
(a) Not later than the 15th day prior to the mailing of the Proxy
Statement/Prospectus, Big Sky shall deliver to Sterling a
schedule of each person that, to the best of its knowledge, is
or is reasonably likely to be, as of the date of the Big Sky
stockholder meeting called pursuant to Section 6.3, deemed to be
an "affiliate of it (each, an "Big Sky Affiliate") as that term
is used in Rule 145 under the Securities Act or SEC Accounting
Series Releases 130 and 135.
(b) Big Sky shall use its reasonable best efforts to cause each
person who may be deemed to be a Big Sky Affiliate to execute
and deliver to Sterling on or before the date of mailing of the
Proxy Statement/Prospectus, an agreement in the form attached
hereto as Exhibit D.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) STOCKHOLDER APPROVALS.
This Agreement and the Merger shall have been approved and
adopted by the requisite vote of the Big Sky stockholders.
(b) STOCK EXCHANGE LISTING.
The shares of Sterling Common Stock which shall be issued in the
Merger (including the Sterling Common Stock that may be issued
upon exercise of the options referred to in Section 1.6 hereof)
upon consummation of the Merger shall have been authorized for
quotation on the Nasdaq Stock Market National Market (or such
other exchange on which the Sterling Common Stock may become
listed).
<PAGE>
(c) OTHER APPROVALS.
All regulatory approvals required to consummate the transactions
contemplated hereby shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in
respect thereof shall have expired (all such approvals and the
expiration of all such waiting periods being referred to herein
as the "Requisite Regulatory Approvals").
(d) REGISTRATION STATEMENT.
The Registration Statement shall have become effective under the
Securities Act, 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.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY.
No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition
(an "Injunction") preventing the consummation of the Merger or
any of the other transactions contemplated by this Agreement or
the Certificate of Merger shall be in effect. No statute, rule,
regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any Governmental Entity
which prohibits, restricts or makes illegal consummation of the
Merger. No proceeding initiated by any Governmental Entity
seeking an Injunction shall be pending.
(f) FEDERAL TAX OPINION.
Sterling shall have received an opinion from Witherspoon,
Kelley, Davenport & Toole, P.S. to Sterling, and Big Sky shall
have received an opinion from Breyer & Aguggia, counsel to Big
Sky, in form and substance reasonably satisfactory to Sterling
and Big Sky, respectively, dated the date of the Effective Time,
in each case, substantially to the effect that on the basis of
facts, representations, and assumptions set forth in such
opinion which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and each of Sterling and Big Sky will
be a party to the reorganization with the meaning of Section
368(b) of the Code and that, accordingly, for federal income tax
purposes, (i) no gain or loss will be recognized by Sterling or
Big Sky as a result of the Merger, (ii) no gain or loss will be
recognized by the stockholders of Big Sky who exchange all of
their Big Sky Common Stock solely for Sterling Common Stock
pursuant to the Merger (except with respect to cash received in
lieu of a fractional share interest in Sterling Common Stock),
and (iii) the aggregate tax basis of the Sterling Common Stock
<PAGE>
received by stockholders who exchange all of their Big Sky
Common Stock solely for Sterling Common Stock pursuant to the
Merger will be the same as the aggregate tax basis of the Big
Sky Common Stock surrendered in exchange therefor (reduced by
any amount allocable to a fractional share interest for which
cash is received). In rendering such opinion, such counsel
shall require and, to the extent such counsel deems necessary or
appropriate, may rely upon representations and covenants,
including those contained in certificates of officers of Big
Sky, Sterling, their respective affiliates and others.
7.2 CONDITIONS TO OBLIGATIONS OF STERLING.
The obligation of Sterling to effect the Merger is also subject to the
satisfaction or waiver by Sterling at or prior to the Effective Time
of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Big Sky set forth in this
Agreement shall be true and correct as of the date of this
Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date
as though made on and as of the Closing Date; provided, however,
that for purposes of this paragraph, such representations and
warranties shall be deemed to be true and correct, unless the
failure or failures of such representations and warranties to be
so true and correct, individually or in the aggregate, would
have a material adverse effect on Big Sky. Sterling shall have
received a certificate signed on behalf of Big Sky by each of
the President and Chief Executive Officer and the Chief
Financial Officer of Big Sky to the foregoing effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS OF BIG SKY
Big Sky shall have performed in all material respects all
covenants and agreements required to be performed by it under
this Agreement at or prior to the Closing Date. Sterling shall
have received a certificate signed on behalf of Big Sky by each
of the President and Chief Executive Officer and the Chief
Financial Officer of Big Sky to such effect.
(c) POOLING OF INTERESTS.
Sterling shall have received as of the Effective Time, written
opinions of Coopers & Lybrand LLP and Deloitte and Touche LLP to
the effect that the Merger may be accounted for as a
pooling-of-interests.
<PAGE>
(d) STOCKHOLDERS AGREEMENT
On or before April 30, 1998, the agreement in the form which is
attached hereto as Exhibit E (the "Stockholders Agreement") shall
have been entered into by all of the stockholders whose names
appear on the Stockholders Agreement and a minimum of 68,000
shares of Big Sky Common Stock shall therefore have become
subject to the terms and provisions of the Stockholders Agreement.
7.3 CONDITIONS TO OBLIGATIONS OF BIG SKY.
The obligation of Big Sky to effect the Merger is also subject to the
satisfaction or waiver by Big Sky at or prior to the Effective Time of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES.
The representations and warranties of Sterling set forth in this
Agreement shall be true and correct as of the date of this
Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date
as though made on and as of the Closing Date; provided, however,
that for purposes of this paragraph, such representations and
warranties shall be deemed to be true and correct, unless the
failure or failures of such representations and warranties to be
so true and correct, individually or in the aggregate, would
have a material adverse effect on Sterling. Big Sky shall have
received a certificate signed on behalf of Sterling by each of
the President and Chief Executive Officer and the Chief
Financial Officer of Sterling to the foregoing effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS OF STERLING.
Sterling shall have performed in all material respects all
covenants and agreements required to be performed by it under
this Agreement at or prior to the Closing Date. Big Sky shall
have received a certificate signed on behalf of Sterling by each
of the President and Chief Operating Officer and the Chief
Financial Officer of Sterling to such effect.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 TERMINATION.
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of this Agreement by the
stockholders of Big Sky:
(a) by mutual consent of Sterling and Big Sky in a written
instrument, if the Board of Directors of each so determines by a
vote of a majority of the members of its entire Board;
<PAGE>
(b) by either Sterling or Big Sky upon written notice to the other
party 15 days after the date on which any request or application
for a Requisite Regulatory Approval shall have been denied or
withdrawn at the request or recommendation of the Governmental
Entity which must grant such Requisite Regulatory Approval,
unless within the 15-day period following such denial or
withdrawal the parties agree to file, and have filed with the
applicable Governmental Entity, a petition for rehearing or an
amended application, provided, however, that no party shall have
the right to terminate this Agreement, if such denial or request
or recommendation for withdrawal shall be due to the failure of
the party seeking to terminate this Agreement to perform or
observe the covenants and agreements of such party set forth
herein;
(c) by either Sterling or Big Sky if the Merger shall not have been
consummated on or before December 31, 1998, unless the failure
of the Closing to occur by such date shall be due to the failure
of the party seeking to terminate this Agreement to perform or
observe the covenants and agreements of such party set forth
herein;
(d) by either Sterling or Big Sky (provided that Big Sky is not in
breach of its obligations under Section 6.3 hereof) if the
approval of the stockholders of Big Sky required for the
consummation of the Merger as contemplated by this Agreement
shall not have been obtained by reason of the failure to obtain
the required vote at the duly held meeting of stockholders or at
any adjournment or postponement thereof;
(e) by either Sterling or Big Sky (provided that the terminating
party is not then in breach of any representation, warranty,
covenant or other agreement contained herein that, individually
or in the aggregate, would give the other party the right to
terminate this Agreement) if there shall have been a breach of
any of the representations or warranties set forth in this
Agreement on the part of the other party, if such breach,
individually or in the aggregate, has had or would be reasonably
certain to have a material adverse effect on the breaching party
and such breach shall not have been cured within 15 days
following receipt by the breaching party of written notice of
such breach from the other party hereto or such breach, by its
nature, cannot be cured prior to the Closing;
(f) by either Sterling or Big Sky (provided that the terminating
party is not then in breach of any representation, warranty,
covenant or other agreement contained herein that, individually
or in the aggregate, would give the other party the right to
terminate this Agreement) if there shall have been a material
breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party and such breach shall
not have been cured within 15 days following receipt by the
breaching party of written notice of such breach from the other
party hereto or such breach, by its nature, cannot be cured
prior to the Closing; and
<PAGE>
(g) by either Sterling or Big Sky, if the Board of Directors of the
other party shall have withdrawn, modified or changed in a
manner adverse to the terminating party its approval or
recommendation of this Agreement and the transactions
contemplated thereby.
8.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either Sterling
or Big Sky as provided in Section 8.1 hereof, this Agreement shall
forthwith become void and have no effect except (i) the last
sentences of Sections 6.2(a) and 6.2(b) and Sections 8.2, 9.2
and 9.3 hereof shall survive any termination of this Agreement,
and (ii) notwithstanding anything to the contrary contained in
this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful or intentional
breach of any provision of this Agreement.
(b) If Sterling has terminated this Agreement pursuant to Sections
8.1(d), 8.1(e), 8.1(f) or 8.1(g) hereof, Big Sky shall pay to
Sterling a fee (the "Big Sky Termination Fee") of $500,000.
The Big Sky Termination Fee shall be payable by Big Sky to
Sterling within two business days following written notice of
a demand therefore and shall be made by wire transfer of
immediately available funds to an account designated by Sterling
in the said notice.
(c) If Big Sky has terminated this Agreement pursuant to Sections
8.1(e), 8.1(f) or 8.1(g) hereof, or if Sterling has terminated
this Agreement because (i) the opinion of Coopers & Lybrand LLP
referred to in Section 7.2(c) hereof has not been provided and
(ii) the opinion has not been provided because of a condition
relating to, or action taken by, Sterling, Sterling shall pay to
Big Sky a fee (the "Sterling Termination Fee") of $300,000. The
Sterling Termination Fee shall be payable by Sterling to Big Sky
within two business days following written notice of a demand
therefor and shall be made by wire transfer of immediately
available funds to an account designated by Big Sky in the said
notice.
(d) Sterling and Big Sky agree that the agreements contained in this
Section 8.2 are intended to increase the likelihood that the
transactions contemplated by this Agreement will occur in
accordance herewith, are an integral part of the transactions
contemplated by this Agreement and that without such agreements
they would not have entered into this Agreement. If either party
fails to pay the amounts due under paragraphs (b) or (c) of this
Section 8.2 within the time periods specified therein, such
party shall pay the costs and expenses (including legal fees and
expenses) incurred by the other party in connection with any
action, including the filing of any lawsuit, taken to
<PAGE>
collect payment of such amounts, together with interest on the
amount of such amounts at the publicly announced prime rate of
Bank of America from the date such amounts were required to be
paid.
8.3 AMENDMENT.
Subject to compliance with applicable law, this Agreement may be
amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval
of the matters presented in connection with the Merger by the
stockholders of Big Sky; provided, however, that after any approval of
the transactions contemplated by this Agreement by Big Sky's
stockholders, there may not be, without further approval of such
stockholders, any amendment of this Agreement which reduces the amount
or changes the form of the consideration to be delivered to Big Sky
stockholders hereunder other than as contemplated by this Agreement.
This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
8.4 EXTENSION; WAIVER.
At any time prior to the Effective Time, the parties hereto, by action
taken or authorized by their respective Boards of Directors, may, to
the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b)
waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed
on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 CLOSING.
Subject to the terms and conditions of this Agreement, the closing of
the Merger (the "Closing") will take place at 10:00 a.m. at the
offices of Witherspoon, Kelley, Davenport & Toole, P.S. on September
30, 1998 or such other date, place and time as the parties may agree
(the "Closing Date").
9.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
None of the representations, warranties, covenants and agreements in
this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time, except for those covenants
and agreements contained herein or therein which by their terms apply
in whole or in part after the Effective Time.
<PAGE>
9.3 EXPENSES.
(a) All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid
by the party incurring such expense.
(b) Any payment required by this Section 9.3 shall be payable by Big
Sky to Sterling within two business days following written notice
of a demand therefore. Any such payment shall be made by wire
transfer of immediately available funds to an account designated
by Sterling in the said notice. If Big Sky fails to pay
Sterling the amounts due under this Section 9.3 within the time
periods specified herein, Big sky shall pay the costs and
expenses (including legal fees and expenses) incurred by
Sterling in connection with any action, including the filing of
any lawsuit, taken to collect payment of such amounts, together
with interest on the amount of any such unpaid amounts at the
publicly announced prime rate of the Bank of America from the
date such amounts were required to be paid.
9.4 NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, mailed by registered or
certified mail (return receipt requested) or delivered by an express
courier (with confirmation) to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
(a) if to Sterling, to:
Sterling Financial Corporation
111 North Wall Street
Spokane, Washington 99201
Attn.: Daniel G. Byrne
Senior Vice President-Finance
WITH A COPY TO:
Witherspoon, Kelley, Davenport & Toole, P.S.
422 West Riverside Avenue, Suite 1100
Spokane, Washington 99201
Attn.: Donald J. Lukes, Esq.
and
(b) if to Big Sky, to:
Big Sky Bancorp, Inc.
711 South First
Hamilton, Montana 59840
Attn.: Michael E. McKee
President and Chief Executive Officer
<PAGE>
WITH A COPY TO:
Breyer & Aguggia
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
Attn: Paul M. Aguggia, Esq.
9.5 INTERPRETATION.
When a reference is made in this Agreement to Sections, Exhibits or
Schedules, such reference shall be to a Section of or an Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". No provision
of this Agreement shall be construed to require Sterling, Big Sky or
any of their respective Subsidiaries or affiliates to take any action
that would violate any applicable law, rule or regulation.
9.6 COUNTERPARTS.
This Agreement may be executed in counterparts, all of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each of the parties and delivered to
the other parties, it being understood that all parties need not sign
the same counterpart.
9.7 ENTIRE AGREEMENT.
This Agreement (including the disclosure schedules, documents and the
instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter hereof,
other than the Confidentiality Agreement, the Institution Merger
Agreement and the Certificate of Merger.
9.8 GOVERNING LAW.
This Agreement shall be governed and construed in accordance with the
laws of the State of Washington, without regard to any applicable
conflicts of law rules.
9.9 ENFORCEMENT OF AGREEMENT.
The parties hereto agree that irreparable damage would occur in the
event that the provisions of this Agreement were not performed in
accordance with its specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions thereof in any court of the
United States or any state having jurisdiction, this being in addition
to any other remedy to which they are entitled at law or in equity.
<PAGE>
9.10 SEVERABILITY.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability
without rendering invalid or unenforceable the remaining terms and
provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in
any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be
only so broad as is enforceable.
9.11 PUBLICITY.
Except as otherwise required by law or the rules of the Nasdaq Stock
Market National Market (or such other exchange on which the Sterling
Common Stock may become listed), so long as this Agreement is in
effect, neither Sterling nor Big Sky shall, or shall permit any of
Sterling's Subsidiaries or First Federal to, issue or cause the
publication of any press release or other public announcement with
respect to, or otherwise make any public statement concerning, the
transactions contemplated by this Agreement or the Institution Merger
Agreement without the consent of the other party, which consent shall
not be unreasonably withheld.
9.12 ASSIGNMENT; LIMITATION OF BENEFITS.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of
the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except as
otherwise specifically provided in Section 6.7 hereof, this Agreement
(including the documents and instruments referred to herein) is not
intended to confer upon any person other than the parties hereto any
rights or remedies hereunder, and the covenants, undertakings and
agreements set out herein shall be solely for the benefit of, and
shall be enforceable only by, the parties hereto and their permitted
assigns.
<PAGE>
IN WITNESS WHEREOF, Sterling and Big Sky have caused this Agreement to
be executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
STERLING FINANCIAL CORPORATION
By /s/ HAROLD B. GILKEY
-------------------------------
HAROLD B. GILKEY
Chairman and Chief Executive
Officer
BIG SKY BANCORP, INC.
By /s/ MICHAEL E. McKEE
-------------------------------
MICHAEL E. McKEE
President and Chief Executive
Officer
<PAGE>
