As filed with the Securities and Exchange Commission on January 5, 1998
Registration No. 333-
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
First Savings Bank of Washington Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 6035 91-1632900
- ------------------------------- ---------------------------- -----------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
-----------------------------
10 S. First Avenue
Walla Walla, Washington 99362
(509) 527-3636
(Address, including ZIP code, and telephone number, including area code, of
Registrant's principal executive office)
-----------------------------------
John F. Breyer, Jr., Esq.
Aaron M. Kaslow, Esq.
Breyer & Aguggia
1300 I Street, N.W., Suite 470 East
Washington, D.C. 20005
(202) 737-7900
(Name and address, including ZIP code, and telephone number, including area
code, of agent for service)
-----------------------------
with copies to:
Jeffrey C. Gerrish, Esq.
Gerrish & McCreary, P.C.
700 Colonial Road, Suite 200
Memphis, Tennessee 38117
-----------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------
Title of Proposed Proposed Amount
Each Class Amount Maximum Maximum Aggregate of
of Securities to be Offering Price Offering Registration
Being Registered Registered(1) Per Unit(2) Price(2) Fee(2)
- ------------------------------------------------------------------------------
Common Stock, $.01 846,623 $9.72 $8,229,812 $2,494
par value
- ------------------------------------------------------------------------------
(1) Represents the estimated maximum number of shares of common stock,
par value $.01 per share, issuable by First Savings Bank of Washington
Bancorp, Inc. ("FWWB") upon consummation of the acquisition of Towne
Bancorp, Inc. ("Towne") by FWWB. Pursuant to Rule 416, this
Registration Statement also covers an indeterminate number of shares
of common stock as may become issuable as a result of stock splits,
stock dividends or similar transactions.
(2) Pursuant to Rule 457(f)(2), the registration fee for the FWWB common
stock is based on the book value of the Towne common stock, $10.00 par
value per share, on September 30, 1997 ($8,229,812) and computed based
on the estimated maximum number of such shares (314,146), including
shares issuable upon the exercise of employee and director stock
options, that may be exchanged for the securities being registered.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PAGE
<PAGE>
________________, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Towne Bancorp, Inc. ("Towne"), to be held at the main office of Towne Bank at
17530 132nd Avenue, N.E., Woodinville, Washington, on _____________, 1998 at
_____ __.m., local time.
The Notice of Special Meeting of Shareholders and Prospectus/Proxy
Statement that appear on the following pages describe the formal business to be
transacted at the meeting. At the meeting, you will be asked to consider and
vote upon a proposal to approve the Agreement and Plan of Merger (the "Merger
Agreement") dated as of November 24, 1997 by and among First Savings Bank of
Washington Bancorp, Inc. ("FWWB"), Towne and Towne Bank. The Merger Agreement
provides that Towne will be merged with FWWB and that, thereafter, Towne Bank
will operate as a wholly-owned subsidiary of FWWB.
Upon consummation of the merger, each share of Towne common stock will be
converted into the right to receive either $91.62 in cash, 3.85 shares of FWWB
common stock, or a combination of both cash and FWWB common stock. You will
have the opportunity to indicate on an election form whether you wish to
receive cash or stock for each share of Towne common stock that you own,
subject to the proration procedures described in the attached Prospectus/Proxy
Statement. The allocation of cash and shares of FWWB common stock that you
receive will depend on the stated preferences of the Towne shareholders on the
election forms and the proration procedures to be applied. The last reported
sale price of FWWB common stock on the Nasdaq National Market on ___________,
1998 was $______ per share. You are urged to review carefully the enclosed
Prospectus/Proxy Statement, which contains a more complete description of the
terms of the merger and the election and proration procedures. You should note
that the federal income tax consequences of the merger to you will depend on
whether you receive cash, stock or a combination of cash and stock in exchange
for your shares of Towne common stock.
The Board of Directors of Towne has unanimously approved the Merger
Agreement and recommends that you vote FOR the approval of the Merger
Agreement. Approval of the Merger Agreement requires the affirmative vote of
75% of the outstanding shares of Towne common stock.
It is very important that your shares be represented at the meeting,
regardless of whether you plan to attend in person. A failure to vote, either
by not returning the enclosed proxy or by checking the "Abstain" box thereon,
will have the same effect as a vote against approval of the Merger Agreement.
To assure that your shares are represented in voting on this very important
matter, please sign, date and return the enclosed proxy card in the enclosed
postage-prepaid envelope whether or not you plan to attend the meeting. If you
are a shareholder of record and do attend, you may, if you wish, revoke your
proxy and vote your shares in person at the meeting.
On behalf of the Board of Directors, I urge you to vote FOR approval of
the Merger Agreement.
Sincerely,
S. Rick Meikle
President
PAGE
<PAGE>
TOWNE BANCORP, INC.
17530 132nd Avenue, N.E.
Woodinville, Washington 98072
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Towne
Bancorp, Inc. ("Towne") will be held at the main office of Towne Bank at 17530
132nd Avenue, N.E., Woodinville, Washington, on ____day, _______ __, 1998, at
____ _.m., for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger dated as of November 24, 1997 (the "Merger
Agreement") by and among First Savings Bank of Washington Bancorp,
Inc. ("FWWB"), Towne, and Towne Bank pursuant to
which Towne would merge into FWWB and each outstanding share of
Towne common stock would be converted into the right to receive
either $91.62 in cash, 3.85 shares of FWWB common stock or a
combination of cash and stock, all on and subject to the terms and
conditions contained therein.
2. To consider and act upon such other matters as may properly come
before the meeting or any adjournments thereof.
Only those shareholders of record at the close of business on _________,
1998 shall be entitled to notice of, and to vote at, the meeting or any
adjournments thereof. The affirmative vote of the holders of 75% of the
outstanding shares of Towne common stock is required for approval of the Merger
Agreement.
Towne shareholders have the right to dissent from the merger and obtain
payment of the fair value of their shares of Towne common stock under the
applicable provisions of Washington law. In order to perfect dissenters'
rights, Towne shareholders must send a notice to Towne before the Special
Meeting on _______________ and must not vote in favor of the Merger by proxy or
otherwise. A copy of the applicable Washington statutory provisions regarding
dissenters' rights is set forth in Appendix B to the accompanying
Prospectus/Proxy Statement and a summary of such provisions is set forth under
"THE MERGER -- Dissenters' Rights" beginning on page ___. Further information
regarding voting rights and the business to be transacted at the meeting is
given in the accompanying Prospectus/Proxy Statement.
The Board of Directors of Towne unanimously recommends that shareholders
vote "FOR" approval of the Merger Agreement.
By Order of the Board of Directors
Woodinville, Washington Don Fitzpatrick, Jr.
_________ __, 1998 Secretary
Your vote is important regardless of the number of shares you own. Whether or
not you expect to attend the meeting, please sign, date and promptly return the
accompanying proxy card using the enclosed postage-prepaid envelope. If you
are a record shareholder and for any reason you should desire to revoke your
proxy, you may do so at any time before it is voted at the meeting.
PAGE
<PAGE>
TOWNE BANCORP, INC.
PROXY STATEMENT
-------------------
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC.
PROSPECTUS
Up to 846,623 shares of Common Stock
This Prospectus/Proxy Statement is being furnished by Towne Bancorp, Inc.
("Towne") to the holders of Towne common stock, par value $10.00 per share
("Towne Common Stock"), in connection with the solicitation of proxies by the
Board of Directors of Towne (the "Towne Board") for use at a special meeting of
Towne shareholders to be held on _______ __, 1998, and at any adjournments or
postponements thereof (the "Special Meeting"). This Prospectus/Proxy Statement
is first being mailed to shareholders on or about _________ __, 1998.
At the Special Meeting, shareholders of Towne will consider and vote upon
a proposal to approve the Agreement and Plan of Merger dated as of November 24,
1997 (the "Merger Agreement"), by and among First Savings Bank of Washington
Bancorp, Inc. ("FWWB"), Towne and Towne Bank of Woodinville ("Towne Bank")
pursuant to which, among other things, Towne would be merged with and into FWWB
(the "Merger") and shareholders of Towne will receive either cash, shares of
FWWB common stock, par value $.01 per share ("FWWB Common Stock"), or a
combination of cash and shares of FWWB Common Stock in exchange for their
shares of Towne Common Stock.
Upon consummation of the Merger, each outstanding share of Towne Common
Stock will be converted into the right to receive either $91.62 in cash, 3.85
shares of FWWB common stock, or a combination of both cash and FWWB common
stock. Towne shareholders will have the opportunity to indicate on a form of
election whether they wish to receive cash or stock for each share of Towne
Common Stock that they own. Elections will be subject to proration in the
event that Towne shareholders elect to exchange more than 70% or less than 51%
of the shares of Towne Common Stock for shares of FWWB Common Stock. The last
reported sale price of FWWB Common Stock on the Nasdaq National Market on
________ __, 1998 was $_____ per share. For a more detailed description of the
terms of the Merger, see "THE MERGER."
FWWB has filed a registration statement on Form S-4 (the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), with respect to up to 846,623 shares of FWWB Common Stock to be issued
pursuant to the Merger Agreement. This Prospectus/Proxy Statement also
constitutes the prospectus of FWWB filed as part of the Registration Statement.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS,
OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
This Prospectus/Proxy Statement does not cover any resale of the
securities to be received by shareholders of Towne upon consummation of the
proposed transaction, and no person is authorized to make any use of this
Prospectus/Proxy Statement in connection with any such resale.
The date of this Prospectus/Proxy Statement is _________ __, 1998.
PAGE
<PAGE>
TABLE OF CONTENTS
Page Page
---- ----
Available Information. . . . . . . . Special Meetings of Shareholders
Incorporation of Certain and Action Without a Meeting . .
Documents By Reference. . . . . . . Advance Notice Requirements for
Summary. . . . . . . . . . . . . . . Nominations of Directors and
Selected Historical Financial Data . Presentation of New Business
Comparative Per Share Data . . . . . at Meetings of Shareholders. . .
Comparative Market Price Data. . . . Approval of Mergers, Consolidations,
The Special Meeting. . . . . . . . . Sale of Substantially All Assets
Place, Time and Date . . . . . . . and Dissolution. . . . . . . . .
Purpose. . . . . . . . . . . . . . Dissenters' Appraisal Rights. . .
Record Date; Shares Entitled to Vote Limitation on Acquisitions of
Vote Required. . . . . . . . . . . Common Stock . . . . . . . . . .
Proxies. . . . . . . . . . . . . . Indemnification of Officers and
The Merger . . . . . . . . . . . . . Directors and Limitation of
General. . . . . . . . . . . . . . Liability. . . . . . . . . . . .
Merger Consideration . . . . . . . Amendment of Certificate of
Stock or Cash Election . . . . . . Incorporation and Bylaws . . . .
Effective Date of the Merger . . . Certain Information Concerning
Exchange of Towne Stock Certificates . FWWB . . . . . . . . . . . . . .
Background and Reasons for the Merger. Legal Opinions. . . . . . . . . .
Opinion of Financial Advisor . . . Experts . . . . . . . . . . . . .
Interests of Certain Persons Other Matters . . . . . . . . . .
in the Merger . . . . . . . . . .
Certain Federal Income Tax Appendix A - Agreement and Plan of
Consequences. . . . . . . . . . . Merger
Conduct of Business Pending Appendix B - Chapter 13 of the
the Merger. . . . . . . . . . . . Washington Business
Conditions to Consummation of Corporation Act
the Merger. . . . . . . . . . . . Appendix C - Fairness Opinion of
Regulatory Requirements. . . . . . Southard Financial
No Solicitation. . . . . . . . . . Appendix D - Financial Information
Dissenters' Rights . . . . . . . . for Towne Bancorp, Inc.
Amendment; Waiver; Termination . .
Termination Fee. . . . . . . . . .
Resale of FWWB Common Stock. . . .
Accounting Treatment . . . . . . .
Expenses . . . . . . . . . . . . .
Business of the Parties to the Merger. .
FWWB . . . . . . . . . . . . . . .
Towne. . . . . . . . . . . . . . .
Voting Securities of Towne and Principal. . .
Holders Thereof . . . . . . . . . .
Description of FWWB Capital Stock. .
Common Stock . . . . . . . . . . .
Preferred Stock. . . . . . . . . .
Comparison of Shareholders' Rights .
Payment of Dividends . . . . . . .
Size of Board of Directors . . . .
Classified Board of Directors. . .
Cumulative Voting. . . . . . . . .
Removal of Directors . . . . . . .
Vacancies on the Board of Directors. .
-ii-
PAGE
<PAGE>
No person is authorized to give any information or to make any
representation not contained in this Prospectus/Proxy Statement, and, if given
or made, such information or representation should not be relied upon as having
been authorized. This Prospectus/Proxy Statement does not constitute an offer
to sell or a solicitation of an offer to purchase a security, or a solicitation
of a proxy, in any jurisdiction in which, or to any person to whom, it would be
unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus/Proxy Statement nor any
distribution of the securities made under this Prospectus/Proxy Statement
shall, under any circumstances, create any implication that there has been no
change in the affairs of FWWB or Towne or in the information set forth herein
since the date of this Prospectus/Proxy Statement.
AVAILABLE INFORMATION
FWWB is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621. Copies of such material also can be obtained at
prescribed rates from the Commission's Public Reference Section at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, materials
filed by FWWB are available for inspection at the offices of The Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006. Reports, proxy statements
and other information filed by FWWB are also available on the Internet at the
Commission's World Wide Web site at http://www.sec.gov.
This Prospectus/Proxy Statement constitutes part of a Registration
Statement on Form S-4 (File No. 333-_____) filed by FWWB with the Commission
under the Securities Act. This Prospectus/Proxy Statement omits certain of the
information contained in the Registration Statement in accordance with the
rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and related exhibits for further information with
respect to FWWB and FWWB Common Stock. Statements contained herein concerning
the provisions of any document are not necessarily complete and, in each
instance, where a copy of such document has been filed as an exhibit to the
Registration Statement or otherwise has been filed with the Commission,
reference is made to the copy so filed. Each such statement is qualified in
its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by FWWB with the Commission pursuant to the
Exchange Act are incorporated in this Prospectus/Proxy Statement by reference:
1. FWWB's Annual Report on Form 10-K for the year ended March 31,
1997; and
2. FWWB's Quarterly Reports on Form 10-Q for the quarters ended June
30, 1997, and September 30, 1997.
3. FWWB's Current Report on Form 8-K dated December 4, 1997.
All documents filed by FWWB pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date hereof and prior to the Special
Meeting shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for
-iii-
PAGE
<PAGE>
purposes hereof to the extent that a statement contained herein or in any
other subsequently filed document that also is, or is deemed to be,
incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part hereof.
As described above, this Prospectus/Proxy Statement incorporates by
reference documents that are not presented herein or delivered herewith. These
documents (other than exhibits to such documents that are specifically
incorporated by reference into the text of such documents) are available,
without charge, to each person, including any beneficial owner, to whom a copy
of this Prospectus/Proxy Statement is delivered, upon written or oral request
to D. Allan Roth, Corporate Secretary, First Savings Bank of Washington
Bancorp, Inc., 10 S. First Avenue, Walla Walla, Washington 99362 (telephone
number: (509) 527-3636). In order to ensure timely delivery of the documents,
any request should be made by _____________, 1998.
-------------------------
All information contained in this Prospectus/Proxy Statement with respect
to FWWB has been supplied by FWWB, and Towne is relying upon the accuracy of
that information. All information contained in this Prospectus/Proxy Statement
with respect to Towne has been supplied by Towne, and FWWB is relying upon the
accuracy of that information.
-iv-
PAGE
<PAGE>
SUMMARY
The following summary of certain information relating to the Merger is
not intended to be complete and is qualified by reference to, and should be
read in conjunction with, the more detailed information appearing elsewhere in
this Prospectus/Proxy Statement, including the Appendices hereto, and the
documents incorporated herein by reference.
The Parties to the Merger
FWWB. FWWB is a bank holding company registered with the Board of
Governors of the Federal Reserve System ("Federal Reserve"). The business of
FWWB consists primarily of holding 100% of the capital stock of First Savings
Bank of Washington ("First Savings") and Inland Empire Bank. At September 30,
1997, FWWB had total assets of $1.1 billion, total deposits of $568.5 million
and stockholders' equity of $150.3 million. The principal executive offices of
FWWB are located at 10 S. First Avenue, Walla Walla, Washington 99362 and its
telephone number is (509) 527-3636.
First Savings is a Washington-chartered savings bank. First Savings
conducts business from its main office in Walla Walla, Washington and its
fifteen branch offices and three loan production offices located in southeast,
central, north central and western Washington. First Savings is a community
oriented savings bank which has traditionally offered a wide variety of deposit
products to its retail customers while concentrating its lending activities on
real estate loans. Inland Empire Bank is an Oregon-chartered commercial bank.
Inland Empire Bank conducts business from its main office in Hermiston, Oregon
and its five branch offices and two loan production offices located in
northeast Oregon. Inland Empire Bank is a community oriented commercial bank
which historically has offered a wide variety of deposits and loan products to
its consumer and commercial customers. Lending activities have included
origination of consumer, commercial, agribusiness and real estate loans.
See "SELECTED HISTORICAL FINANCIAL DATA" and "BUSINESS OF THE PARTIES TO
THE MERGER -- FWWB." Additional information concerning FWWB is included in the
documents incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Towne. Towne is a bank holding company registered with the Federal
Reserve. The business of Towne consists primarily of holding 100% of the
capital stock of Towne Bank. Towne Bank is a Washington-chartered commercial
bank regulated by the Washington Department of Financial Institutions
("Department of Financial Institutions") and the FDIC. At September 30, 1997,
Towne had total consolidated assets of $128.1 million, total consolidated
deposits of $116.5 million, and total consolidated stockholders' equity of $8.2
million. Towne Bank operates out of its main office in Woodinville and its
three branch offices in Bellevue, Redmond and Renton,Washington. The principal
executive offices of Towne are located at 17530 132nd Avenue, N.E.,
Woodinville, Washington 98072 and its telephone number is (425)496-2265.
Towne Bank is primarily engaged in providing a full range of banking
services to individual and corporate customers in the area surrounding its
offices. Towne Bank originates commercial, real estate and consumer loans. At
September 30, 1997, commercial loans accounted for 55.5% of total loans.
See "SELECTED HISTORICAL FINANCIAL DATA," "BUSINESS OF THE PARTIES TO THE
MERGER -- Towne" and Appendix D.
Special Meeting
Place, Time and Date; Purpose. The Special Meeting will be held
on_______, _______ __, 1998 at ____ _.m., local time, at the main office of
Towne Bank at 17530 132nd Avenue, N.E., Woodinville, Washington, for the
-v-
PAGE
<PAGE>
purpose of considering and voting upon a proposal to approve the Merger
Agreement attached hereto as Appendix A. See "THE SPECIAL MEETING -- Place,
Time and Date" and"--Purpose."
Record Date; Shares Entitled to Vote. The Towne Board has fixed the
close of business on ______ __, 1998 as the record date (the "Record Date") for
determining shareholders entitled to notice of and to vote at the Special
Meeting. Only those holders of shares of Towne Common Stock of record on the
Record Date will be entitled to notice of and to vote at the Special Meeting.
Each share of Towne Common Stock will be entitled to one vote. Shareholders of
record who execute proxies retain the right to revoke them at any time prior to
being voted at the Special Meeting. At the Record Date, there were 285,066
shares of Towne Common Stock outstanding and entitled to be voted at the
Special Meeting. See "THE SPECIAL MEETING -- Record Date; Shares Entitled to
Vote."
Vote Required. Approval of the Merger Agreement requires the affirmative
vote of the holders of 75% of the outstanding shares of Towne Common Stock. At
the Record Date, the directors and executive officers of Towne and their
affiliates beneficially owned 70,475 shares of Towne Common Stock, which
represents 24.7% of the shares entitled to be voted at the Special Meeting.
Simultaneous with the execution of the Merger Agreement, all of the directors
of Towne entered into an agreement with FWWB pursuant to which each director
agreed to vote his or her shares for the approval of the Merger Agreement. See
"THE SPECIAL MEETING -- Vote Required."
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, will have the same effect as a vote against
approval of the Merger Agreement.
The Merger
The Merger Agreement provides for the merger of Towne with and into FWWB.
As a result of the Merger, Towne will cease to exist and Towne Bank will become
a wholly-owned subsidiary of FWWB.
Upon consummation of the Merger, each outstanding share of Towne Common
Stock will be converted into the right to receive either $91.62 in cash, 3.85
shares of FWWB Common Stock, or a combination of both cash and FWWB Common
Stock. Towne shareholders will have the opportunity to indicate on a form of
election whether they wish to receive cash or stock for each share of Towne
Common Stock that they own. Elections will be subject to proration in the
event that Towne shareholders elect to exchange more than 70% or less than 51%
of the shares of Towne Common Stock for shares of FWWB Common Stock. Each
holder of Towne Common Stock who would otherwise be entitled to a fractional
share of FWWB Common Stock will receive cash in lieu thereof determined by
multiplying such fraction by $23.80. Upon completion of the Merger,
shareholders of Towne will no longer own any stock in Towne.
Towne shareholders should note that the FWWB Common Stock they may
receive will continue to be subject to changes in market value and may,
therefore, have a market value as of the date they receive certificates for
their shares (or such shares are otherwise made available to them) that is less
than, or greater than,the value of such stock as of the consummation of the
Merger. See "THE MERGER."
Stock or Cash Election
Each Towne shareholder is being given the opportunity to indicate whether
such holder prefers to receive FWWB Common Stock or cash in exchange for his or
her shares of Towne Common Stock. All such preference elections, however, will
be subject to the requirement that no more than 70% and no fewer than 51% of
the outstanding shares of Towne Common Stock may be exchanged for FWWB Common
Stock. Each Towne shareholder as of the Record Date has been sent appropriate
forms and other transmittal materials for the purpose of permitting such holder
to elect to receive FWWB Common Stock or cash in exchange for such holder's
shares of Towne Common Stock or to indicate that such holder makes no election.
In the event the preference elections
-vi-
PAGE
<PAGE>
made by Towne shareholders do not result in the required proportions of
stock and cash being payable, the Merger Agreement provides for an allocation
method to reach the required result. The election procedures, which are set
forth in detail in the Merger Agreement, are intended to permit each Towne
shareholder to choose whether to receive FWWB Common Stock or cash for his or
her Towne shares while at the same time permitting the Merger to constitute a
tax free reorganization under applicable federal income tax law to the
respective corporate entities involved and to those Towne shareholders who
receive FWWB Common Stock for their Towne shares. To make an effective
election, a Towne shareholder will be required to return a properly completed
election form ("Election Form") to American Securities Transfer & Trust, Inc.,
acting in its capacity as Exchange Agent for the Merger (the "Exchange Agent"),
by the"Election Deadline" (as defined below). An Election Form will be
considered properly completed only if it is accompanied by certificates
representing all shares of Towne Common Stock covered thereby. The "Election
Deadline" will be 5:00 p.m., Mountain Time, on _______________. For a more
complete discussion of the election and proration procedures, see "The Merger
- -- Stock or Cash Election."
Recommendation of the Towne Board
The Towne Board has unanimously approved the Merger Agreement as
advisable and in the best interests of Towne and the Towne shareholders and
recommends that the shareholders of Towne vote FOR approval of the Merger
Agreement.
For a discussion of the circumstances surrounding the Merger and the
factors considered by the Towne Board in making its recommendation, see "THE
MERGER -- Background and Reasons for the Merger." Approval of the Merger
Agreement by Towne shareholders is required by law and is a condition to
consummation of the Merger. See "THE MERGER -- Conditions to Consummation of
the Merger." For a description of certain economic interests directors and
officers of Towne may be deemed to have in the Merger, see "THE MERGER --
Interests of Certain Persons in the Merger."
Opinion of Financial Advisor
Southard Financial, Towne's financial advisor, has delivered a written
opinion to the Towne Board, dated the date of this Prospectus/Proxy
Statement,to the effect that the Merger consideration is fair to Towne
shareholders from a financial point of view. A copy of Southard Financial's
opinion, dated November 21, 1997, setting forth the assumptions made, matters
considered,procedures followed and limits of its review, is attached hereto as
Appendix C and should be read by shareholders in its entirety. See "THE MERGER
- --Opinion of Financial Advisor."
Interests of Certain Persons in the Merger
Certain members of Towne's management and the Towne Board may be deemed
to have interests in the Merger in addition to their interests as shareholders
of Towne generally. Following consummation of the Merger, S. Rick Meikle, the
Chief Executive Officer and President of Towne, will enter into an employment
agreement with FWWB and Towne Bank. In addition, FWWB has agreed to appoint
Mr. Meikle to the Board of Directors of FWWB. FWWB has also agreed to assume
existing options to purchase shares of Towne Common Stock and to continue all
rights to indemnification now existing in Towne's Articles of Incorporation and
Bylaws in favor of the directors and officers of Towne. See "THE MERGER --
Interests of Certain Persons in the Merger."
Effective Date of the Merger
Subject to the conditions to the obligations of the parties to complete
the Merger as set forth in the Merger Agreement, the "Effective Date" of the
Merger will occur as soon as practicable after such conditions have been
satisfied or waived. The "Effective Time" of the Merger is the time on the
Effective Date at which the Merger becomes effective. Either FWWB or Towne may
terminate the Merger Agreement if the Effective Date does not occur on or
before September 30, 1998.
-vii-
PAGE
<PAGE>
Conditions to Consummation of the Merger
Consummation of the Merger is subject to, among other things: (i)
approval of the Merger Agreement by the holders of not less than 75% of the
outstanding shares of Towne Common Stock; (ii) receipt of all applicable
regulatory approvals; (iii) receipt by FWWB and Towne of the opinion of Breyer&
Aguggia, dated as of the Effective Date, as to certain federal income tax
consequences of the Merger; (iv) S. Rick Meikle having entered into an
employment agreement with FWWB and Towne Bank; (v) the absence of any material
adverse change in the financial condition or results of operations of FWWB or
Towne;and(vi) the number of shares for which dissenters' rights are exercised
not exceeding 5% of the outstanding shares of Towne Common Stock. See "THE
MERGER-- Conditions to Consummation of the Merger."
Accounting Treatment
It is anticipated that the Merger will be accounted for as a purchase by
FWWB under generally accepted accounting principles. See "THE MERGER
- --Conditions to Consummation of the Merger" and "-- Accounting Treatment."
Regulatory Requirements
The Merger is subject to the receipt of certain prior approvals from the
Federal Reserve and the Department of Financial Institutions. An application
for approval of the Merger was filed with the Federal Reserve and the Board of
Financial Institutions on ____ __, 1998. There can be no assurance that such
approvals will be obtained. See "THE MERGER -- Regulatory Requirements."
Certain Federal Income Tax Consequences
Consummation of the Merger is conditioned, among other things, on receipt
by FWWB and Towne of an opinion of Breyer & Aguggia, special counsel for
FWWB,to the effect that the Merger will be treated as a reorganization
described in Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"). In accordance with this opinion, (i) holders of Towne Common
Stock who receive solely FWWB Common Stock in exchange for their shares will
recognize no gain or loss on such exchange, (ii) holders of Towne Common Stock
who receive solely cash in exchange for their shares will recognize gain or
loss on such exchange, and(iii) holders of Towne Common Stock who receive a
combination of FWWB Common Stock and cash in exchange for their shares will
recognize gain, but will not recognize any loss, on such exchange. The federal
income tax consequences to each Towne shareholder (including whether or not the
transaction is taxable to such shareholder) will depend on whether the
shareholder receives stock, cash,or a combination thereof and certain other
facts which are described in further detail in "THE MERGER -- Certain Federal
Income Tax Consequences." The actual federal income tax consequences to each
Towne shareholder of making a "Cash Election", a "Stock Election" or a
"Non-Election" will not be ascertainable at the time the election is made
because shareholders of Towne will not know at such time if, or to what extent,
the proration procedures will apply.
Because certain tax consequences of the Merger may vary depending on the
particular circumstances of each shareholder, each Towne shareholder is urged
to consult his or her own tax advisor as to the specific tax consequences to
such holder of the Merger, including the specific application and effect of
state,local, foreign and other tax laws to such shareholder.
Dissenters' Rights
Towne shareholders have the right to dissent from the Merger and obtain
payment of the fair value of their shares of Towne Common Stock under the
provisions of Chapter 13 of the Washington Business Corporation Act ("WBCA"). A
shareholder's failure to follow exactly the procedures specified in Chapter 13
of the WBCA will result in the loss of such shareholder's dissenters' rights.
Accordingly, Towne shareholders wishing to dissent
-viii-
PAGE
<PAGE>
from the Merger are urged to read carefully "THE MERGER -- Dissenters'
Rights" and the copy of Chapter 13 of the WBCA set forth in Appendix B to this
Prospectus/Proxy Statement, and to consult with their own legal advisors. If
Towne shareholders perfect dissenters' rights with respect to more than 5% of
the outstanding shares of Towne Common Stock, FWWB may elect not to consummate
the Merger. See "THE MERGER --Conditions to Consummation of the Merger."
Comparison of Shareholders' Rights
The rights of Towne shareholders are currently determined by reference to
the WBCA and Towne's Articles of Incorporation and Bylaws. Shareholders of
Towne who receive shares of FWWB Common Stock in exchange for their shares of
Towne Common Stock will have their rights as shareholders of FWWB determined by
reference to the Delaware General Corporation Law (the "DGCL") and FWWB's
Certificate of Incorporation and Bylaws. For a discussion of certain material
differences in the rights of shareholders of FWWB and Towne and an explanation
of certain possible antitakeover effects of certain provisions in FWWB's
Certificate of Incorporation and Bylaws, see "COMPARISON OF SHAREHOLDERS'
RIGHTS."
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical consolidated financial
data for FWWB and Towne. This information should be read in conjunction with
the historical financial statements of FWWB and Towne, including the respective
notes thereto, appearing elsewhere in this Prospectus/Proxy Statement and in
the other documents incorporated by reference herein. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" and Appendix D.
The FWWB historical consolidated financial data as of and for the six
months ended September 30, 1997 and 1996 have been prepared on the same basis
as the historical information derived from audited financial statements, and in
the opinion of management, contain all adjustments, consisting only of normal
recurring accruals, necessary for the fair presentation of results of
operations for such periods. The Towne historical consolidated financial data
as of and for the nine months ended September 30, 1997 and 1996 have been
prepared on the same basis as the historical information derived from audited
financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring accruals, necessary for the
fair presentation of results of operations for such periods.
-ix-
PAGE
<PAGE>
<TABLE>
First Savings Bank of Washington Bancorp, Inc.
Selected Consolidated and Other Financial Data
At or For the At or For the
Six Months Ended Years Ended
September 30, March 31,
---------------- ------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Interest income $ 41,373 $ 30,433 $ 67,292 $ 41,409 $ 33,652 $ 31,342 $ 31,422
Interest expense 22,475 16,573 36,372 23,287 18,230 15,707 16,630
---------- --------- ---------- --------- --------- --------- ---------
Net interest income 18,898 13,860 30,920 18,122 15,422 15,635 14,792
Provision for loan losses 755 920 1,423 524 391 440 1,335
---------- --------- ---------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 18,143 12,940 29,497 17,598 15,031 15,195 13,457
Gains (losses) from sale of
loans and securities 505 66 701 387 (121) 3,390 3,353
Other operating income 1,623 983 2,455 1,281 1,219 2,045 834
Other operating expense 10,107 9,745 19,416 10,383 10,022 8,610 8,390
---------- --------- ---------- --------- --------- --------- ---------
Income before provision
for income taxes and
cumulative effect of
change in accounting 10,164 4,244 13,237 8,883 6,107 12,020 9,254
Provision for income taxes 3,622 1,048 3,923 2,631 1,335 2,635 2,836
---------- --------- ---------- --------- --------- --------- ---------
Income before cumulative
effect of change in
accounting 6,542 3,196 9,314 6,252 4,772 9,385 6,418
Cumulative effect of change
in accounting -- -- -- -- 396 -- --
---------- --------- ---------- --------- --------- --------- ---------
Net income $ 6,542 $ 3,196 $ 9,314 $ 6,252 $ 5,168 $ 9,385 $ 6,418
========== ========= ========== ========= ========= ========= =========
Historical Per Share Data (1):
Net income $ 0.68 $ 0.33 $ 0.95 $ 0.62 N/A N/A N/A
Stockholder's equity 15.83 14.87 15.25 15.30
Cash dividends 0.14 0.10 0.22 0.10
Dividend payout ratio 20.59% 30.30% 23.16% 16.13%
Selected Ratios:
Return on average equity 8.63% 4.30% 6.30% 6.62% 10.85% 23.73% 20.04%
Return on average assets 1.24 0.78 1.04 1.11 1.12 2.32 1.76
Net interest margin 3.72 3.50 3.59 3.33 3.47 4.02 4.21
Average equity as a
percentage of average
assets 14.32 18.24 16.58 16.75 10.34 9.77 8.77
Non-performing assets as
a percentage of total assets 0.24 0.17 0.31 0.17 0.19 0.34 1.12
Financial Condition Data:
Total assets $1,098,615 $ 946,986 $1,007,633 $ 743,176 $ 491,368 $ 425,936 $ 379,124
Loans receivable, net 732,479 571,925 645,881 415,295 299,403 246,264 235,960
Cash, interest-bearing
deposits and securities 314,506 328,569 312,991 302,772 175,505 165,065 130,595
Deposits 568,483 525,600 544,967 374,064 360,352 352,547 327,100
Borrowings 360,859 254,072 293,700 199,071 70,338 17,655 6,515
Equity 150,295 149,649 148,636 154,142 50,251 44,931 35,546
__________
(1) First Savings Bank converted from mutual to stock ownership on October 31, 1995. Per share data for
fiscal 1996 represent pro forma calculations.
-x-
</TABLE>
PAGE
<PAGE>
<TABLE>
Towne Bancorp, Inc. (1)
Selected Consolidated and Other Financial Data
At or For
the Nine At or For the
Months Ended Years Ended
September 30, December 31,
------------- -------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Interest income $ 7,943 $ 5,212 $ 7,330 $ 4,729 $ 2,911 $ 1,603 $1,147
Interest expense 2,941 2,039 2,810 1,876 894 514 392
------ ------- ------- ------- ------- ------- ------
Net interest income 5,002 3,173 4,520 2,853 2,017 1,088 755
Provision for loan losses 485 323 635 325 147 172 113
------ ------- ------- ------- ------- ------- ------
Net interest income after
provision for loan losses 4,517 2,850 3,885 2,528 1,870 916 642
Other income 545 488 618 502 436 338 173
Non-interest expense 3,155 2,224 3,135 2,286 1,755 989 763
Income tax expense 660 375 465 251 185 18 --
------ ------- ------- ------- ------- ------- ------
Net income $ 1,247 $ 738 $ 903 $ 493 $ 366 $ 247 $ 51
======== ======= ======= ======= ======= ======= ======
Historical Per Share Data:
Net income $ 4.24 $ 2.44 $ 2.95 $ 2.02 $ 1.72 $ 1.16 $ 0.42
Stockholders' equity 29.32 25.25 25.81 25.35 21.91 19.82 18.12
Dividends -- -- -- -- -- -- --
Dividend payout ratio -- -- -- -- -- -- --
Selected Ratios:
Return on average equity 21.27% 16.89% 14.42% 13.78% 11.88% 8.91% 1.97%
Return on average assets 1.67 1.49 1.30 1.11 1.17 1.24 0.38
Financial Condition Data:
Assets $128,104 $77,235 $86,268 $53,599 $36,212 $25,548 $17,290
Loans receivable, net 99,600 62,191 68,039 40,929 26,189 19,143 11,513
Investment securities 6,518 8,081 5,771 7,127 5,547 2,968 3,700
Deposits 116,522 68,834 77,893 49,208 31,484 22,528 14,575
Stockholders' equity 8,230 7,421 7,668 3,974 3,217 2,893 2,638
- ---------
(1) Towne became the bank holding company for Towne Bank on January 1, 1997. All financial data prior to
January 1, 1997 are of Towne Bank.
-xi-
</TABLE>
PAGE
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth selected comparative per share data for
FWWB on both an historical and a pro forma combined basis and for Towne on both
an historical and a pro forma equivalent basis giving effect to the Merger
using the purchase method of accounting. These tables should be read in
conjunction with the historical financial statements of FWWB and Towne,
including the respective notes thereto, appearing elsewhere in this
Prospectus/Proxy Statement, and the other documents incorporated by reference
herein. The pro forma information has been prepared based on the exchange
ratio of 3.85 shares of FWWB Common Stock for each share of Towne Common Stock
and illustrates the exchange of 70% and 51% of the shares of Towne Common Stock
for shares of FWWB Common Stock. The following information is not necessarily
indicative of the results of operations or combined financial position that
would have resulted had the Merger been consummated at the beginning of the
periods indicated, nor is it necessarily indicative of the results of
operations of future periods or future combined financial position.
At or For the At or For the
Six Months Ended Year Ended
September 30, 1997 March 31, 1997
------------------ -----------------
Book value per share(1):
FWWB historical $15.83 $15.25
Towne historical 29.32 26.54
With 70% stock exchange:
Pro forma combined 16.34 15.64
Towne pro forma equivalent 62.91 60.21
With 51% stock exchange:
Pro forma combined 16.26 15.64
Towne pro forma equivalent 62.60 60.21
Cash dividends declared per share(2):
FWWB historical $0.14 $0.22
Towne historical -- --
Pro forma combined 0.14 0.22
Towne pro forma equivalent 0.54 0.85
Primary earnings per share(3):
FWWB historical 0.68 0.95
Towne historical 3.59 3.62
With 70% stock exchange:
Pro forma combined 0.68 0.90
Towne pro forma equivalent 2.62 3.47
With 51% stock exchange:
Pro forma combined 0.68 0.90
Towne pro forma equivalent 2.62 3.47
- -------------
(1) The pro forma combined book value per share of FWWB Common
Stock is based upon the historical total common stockholders'
equity for FWWB and the additional stockholder's equity
resulting from the Merger divided by total pro forma common
shares of the combined entities. The pro forma equivalent
book value per share of Towne Common Stock represents the pro
forma combined book value of FWWB Common Stock multiplied by
the 3.85 exchange ratio.
(2) Pro forma combined dividends assumes no changes in FWWB's
cash dividends per share. The pro forma equivalent cash
dividends declared per share of Towne Common Stock represent
the pro forma combined cash dividends declared per share of
FWWB Common Stock multiplied by the 3.85 exchange ratio.
(3) The pro forma combined earnings per share of FWWB Common
Stock (based on primary earnings per share and weighted average shares
outstanding) is based upon the combined pro forma net income for FWWB
and Towne divided by the weighted average primary pro forma common
shares of the combined entities and assumes that the shares issued by
FWWB are treasury shares and/or shares repurchased in the open market.
The pro forma equivalent earnings per share of Towne
-xii-
PAGE
<PAGE>
Common Stock represents the pro forma combined net income per share
multiplied by the 3.85 exchange ratio. Fully diluted earnings per
share are not significantly different from primary earnings per share.
COMPARATIVE MARKET PRICE DATA
FWWB Common Stock is quoted on the Nasdaq National Market under the
symbol FWWB. There is no established trading market for Towne Common Stock.
The table below sets forth, for the calendar quarters indicated, the high and
low sales prices of FWWB Common Stock as reported on the Nasdaq National Market
and the dividends per share declared on FWWB Common Stock in each such quarter.
Towne has not paid any dividends. The market for shares of Towne Common Stock
is highly illiquid and the shares are neither traded on an established exchange
nor listed on the Nasdaq Stock Market. Management of Towne is aware of only a
few trades in Towne Common Stock in the nine months ended September 30, 1997.
Such trades were at prices ranging from $30.50 per share to $50.00 per share,
with the most recent trade at $50.00 per share. Management of Towne has not
ascertained that these transactions are the result of arm's length negotiations
between the parties, thus these prices may not be indicative of the market
value of Towne Common Stock. On May 27, 1997, Towne concluded a stock
repurchase program which resulted in the acquisition of 19,335 shares of Towne
Common Stock by Towne for $40.00 per share.
FWWB
Common Stock
---------------------------------------
High Low Dividends
---- --- ---------
Year Ended March 31, 1996:
Third Quarter 13-1/4 12-7/16 0.05
Fourth Quarter 13-1/2 12-3/8 0.05
Year Ended March 31, 1997:
First Quarter 15-5/8 13-3/8 0.05
Second Quarter 17-1/4 14-1/2 0.05
Third Quarter 19 16-9/16 0.05
Fourth Quarter 22-1/8 18 0.07
Year Ended March 31, 1998:
First Quarter 22-1/4 18-3/4 0.07
Second Quarter 24-7/8 21-5/8 0.07
Third Quarter
Fourth Quarter (through
________ __, 1998)
As of ________ __, 1998, the _________ outstanding shares of FWWB Common
Stock were held by approximately _____ holders of record and the 285,066
outstanding shares of Towne Common Stock were held by 291 holders of record.
-xiii-
PAGE
<PAGE>
The following table sets forth the closing price per share for
FWWB Common Stock, as reported on the Nasdaq National Market, and the
equivalent pro forma per share price for Towne Common Stock on November 24,
1997, the last full trading day prior to the public announcement of the
execution of the Merger Agreement, and on ________ __, 1998, which is the most
recent date for which it was practicable to obtain market price data prior to
the printing of this Prospectus/Proxy Statement. Holders of Towne Common Stock
are urged to obtain current market quotations for shares of FWWB Common Stock.
November 24, 1997 , 1998
----------------- ------------
Closing price per share:
FWWB $25.00
Equivalent pro forma per share
of Towne Common Stock 96.25(1) (1)
- ----------------
(1) Computed by multiplying the closing price per share of FWWB Common Stock
by the 3.85 exchange ratio.
-xiv-
PAGE
<PAGE>
THE SPECIAL MEETING
Place, Time and Date
The Special Meeting will be held on ____day, _______ __, 1998 at ____
_.m., local time, at the main office of Towne Bank at 17530 132nd Avenue, N.E.,
Woodinville, Washington. This Prospectus/Proxy Statement is being sent to
holders of Towne Common Stock and is accompanied by a form of proxy that is
being solicited by the Towne Board for use at the Special Meeting and any
adjournments or postponements thereof.
Purpose
The purpose of the Special Meeting is (i) to consider and vote upon a
proposal to approve the Merger Agreement described herein and (ii) to act upon
such other matters, if any, as may properly come before the Special Meeting.
Record Date; Shares Entitled to Vote
The Towne Board has fixed the close of business on ______ __, 1998 as
the Record Date for determining shareholders entitled to notice of and to vote
at the Special Meeting. Only those holders of Towne Common Stock of record on
the Record Date will be entitled to notice of and to vote at the Special
Meeting. Each share of Towne Common Stock will be entitled to one vote. At
the Record Date, there were 285,066 shares of Towne Common Stock outstanding
and entitled to be voted at the Special Meeting.
Vote Required
A majority of the shares entitled to vote, represented in person or by
proxy, will constitute a quorum of Towne shareholders at the Special Meeting.
Valid proxies that are marked "Abstain," including proxies submitted by brokers
that are the record owners of shares (so-called "broker non-votes"), will be
considered present for purposes of determining whether a quorum exists.
Pursuant to Towne's Articles of Incorporation, approval of the Merger Agreement
requires the affirmative vote of the holders of 75% of the outstanding shares
of Towne Common Stock. Abstentions and broker non-votes will have the same
effect as votes cast against approval of the Merger Agreement.
As of the Record Date, the directors and executive officers of Towne and
their affiliates beneficially owned an aggregate of 70,475 shares of Towne
Common Stock, which represents 24.7% of the shares entitled to be voted at the
Special Meeting. All of the directors of Towne have entered into agreements
with FWWB pursuant to which each director agreed to vote his or her shares for
approval of the Merger Agreement.
Proxies
Holders of Towne Common Stock may vote either in person or by properly
executed proxy. Shares of Towne Common Stock represented by a properly
executed proxy received prior to or at the Special Meeting will, unless such
proxy is revoked, be voted in accordance with the instructions indicated on
such proxy. If no instructions are indicated on a properly executed proxy, the
shares covered thereby will be voted FOR the proposal to approve the Merger
Agreement. Failure to return the proxy card or to vote in person at the Towne
Special Meeting will have the effect of a vote cast against the Merger
Agreement. If any other matters are properly presented at the Special Meeting
for consideration, including, among other things, a motion to adjourn the
Special Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
proxy and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment; provided, however, that no proxy which is
voted against the proposal to approve the Merger Agreement will be voted in
favor of any such adjournment or postponement. As of the date hereof, the
Towne Board knows of no such other matters.
-1-
PAGE
<PAGE>
Any proxy given pursuant to this solicitation or otherwise may
be revoked by the record holder of the shares at any time before it
is voted by delivering to the Secretary of Towne, on or before the
taking of the vote at the Special Meeting, a written notice of
revocation bearing a later date than the proxy or a later dated
proxy relating to the same shares of Towne Common Stock, or by
attending the Special Meeting and voting in person. Attendance at
the Special Meeting will not in itself constitute revocation of a
proxy.
The proxy for the Special Meeting is being solicited on behalf
of the Towne Board. The expense of soliciting proxies for the
Special Meeting will be borne by Towne. All other costs and
expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party
incurring such expenses. Proxies will be solicited principally by
mail, but may also be solicited by the directors, officers and
other employees of Towne in person or by telephone, facsimile or
other means of communication. Such directors, officers and
employees will receive no compensation therefor in addition to
their regular compensation, but may be reimbursed for out-of-pocket
expenses in connection with such solicitation. Brokers and others
who hold Towne Common Stock on behalf of another will be asked to
forward proxy material and related documents to the beneficial
owners of such stock, and Towne will reimburse them for their
expenses in doing so.
THE MERGER
The descriptions in this Prospectus/Proxy Statement of the
terms and conditions of the Merger and related transactions are
qualified in their entirety by reference to the Merger Agreement,
a copy of which is attached as Appendix A to this Prospectus/Proxy
Statement and is incorporated herein by reference.
General
The Merger Agreement provides for the merger of Towne with and
into FWWB. The separate existence of Towne will cease upon
completion of the Merger. After the Merger, Towne Bank will
operate as a wholly-owned subsidiary of FWWB. While FWWB and Towne
believe that they will receive the requisite regulatory approvals
for the Merger, there can be no assurance that such approvals will
be received or, if received, as to the timing of such approvals or
as to the ability to obtain such approvals on satisfactory terms.
See "-- Conditions to Consummation of the Merger" and
"-- Regulatory Requirements."
Merger Consideration
Upon consummation of the Merger, each outstanding share of
Towne Common Stock will be converted into the right to receive
either $91.62 in cash, 3.85 shares of FWWB Common Stock, or a
combination of both cash and FWWB Common Stock. Towne shareholders
will have the opportunity to indicate on a form of election whether
they wish to receive cash or stock for each share of Towne Common
Stock that they own. Elections will be subject to proration in the
event that Towne shareholders elect to exchange more than 70% or
fewer than 51% of the shares of Towne Common Stock for shares of
FWWB Common Stock. Each holder of Towne Common Stock who would
otherwise be entitled to a fractional share of FWWB Common Stock
will receive cash in lieu thereof determined by multiplying such
fraction by $23.80.
On ______________, 1998, the most recent date for which it was
practicable to obtain information prior to the printing of this
Prospectus/Proxy Statement, the closing price per share of FWWB
Common Stock, as reported on the Nasdaq National Market, was
$_______. Towne shareholders should note, however, that the market
price of the FWWB Common Stock they receive will continue to be
subject to market fluctuations, as well as the future results of
operations and financial condition of FWWB, among other factors,
and therefore may be worth less than, or more than, such amount as
of the date they receive their FWWB Common Stock certificates.
The 3.85 exchange ratio is subject to proportional adjustment
as a result of a stock split, stock dividend, reverse stock split
or similar transaction by FWWB.
-2-
PAGE
<PAGE>
Stock or Cash Election
Each Towne shareholder of record as of the Record Date has
received with this Prospectus/Proxy Statement an Election Form and
other appropriate transmittal materials for the purpose of
permitting such holder to elect to receive either all cash, all
stock, or a combination of cash and stock in exchange for such
shareholder's shares of Towne Common Stock. The Election Form also
permits Towne shareholders to make no election regarding the form
of consideration they will receive. The allocation of cash and
shares of FWWB Common Stock that a shareholder of Towne will
receive will depend on the stated preferences of the Towne
shareholders on the Election Forms and the proration procedures to
be applied.
To make an effective election, a Towne shareholder will be
required to return a properly completed Election Form sufficiently
in advance of the Election Deadline so that it is actually received
by the Exchange Agent at or prior to the Election Deadline. An
Election Form will be considered properly completed only if it is
accompanied by certificates representing all shares of Towne Common
Stock covered thereby. The Election Deadline is 5:00 p.m.,
Mountain Time, on _________________, 1998.
Any Election Form will be permitted to be revoked or changed
by written notice from the person submitting the Election Form to
the Exchange Agent, but to be effective such notice must actually
be received by the Exchange Agent at or prior to the Election
Deadline. In such circumstances, the stock certificate(s) covered
by a revoked Election Form will be returned to the person who
submitted the Election Form to the Exchange Agent upon written
request to that effect from such holder. The Exchange Agent will
have discretion to determine whether any election, modification or
revocation is timely received and whether any such election,
modification or revocation has been properly made, and such
determination will be final.
Shareholders of Towne who make an effective "Cash Election"
will receive (subject to the proration procedures described below),
for each share of Towne Common Stock for which such election is
made, $91.62 in cash. Shareholders of Towne who make an effective
"Stock Election" will receive (subject to the proration procedures
described below), for each share of Towne Common Stock for which
such election is made, 3.85 shares of FWWB Common Stock.
Shareholders of Towne who make an effective "Partial Cash and Stock
Election" will receive (subject to the proration procedures
described below) $91.62 in cash for the percentage of shares
indicated on the Election Form for which such election is made and
3.85 shares of FWWB Common Stock for the remaining percentage.
Shareholders of Towne who make an effective "Non-Election" will
receive for each share of Towne Common Stock for which such
election is made either $91.62 in cash, 3.85 shares of FWWB Common
Stock or a combination of cash and stock, subject to the proration
procedures described below. If a holder of Towne Common Stock does
not return a properly completed Election Form, or properly revokes
an effective, properly completed Election Form without timely
submitting a revised, properly completed Election Form, such
shareholder will be deemed to have made a Non-Election. Pursuant
to the terms of the Merger Agreement, no more than 70% and no fewer
than 51% of the outstanding shares of Towne Common Stock may be
exchanged for FWWB Common Stock. Accordingly, if the elections
made by Towne shareholders would result in fewer than 51% or more
than 70% of the shares of Towne Common Stock being exchanged for
shares of FWWB Common Stock, the elections of some Towne
shareholders would be subject to proration so that the necessary
number of shares of FWWB Common Stock can be issued.
If the number of Cash Election shares (including shares to be
exchanged for cash through Partial Cash and Stock Elections)
exceeds 49% of the outstanding shares of Towne Common Stock, all
Stock Election shares and all Non-Election shares will be converted
into the right to receive 3.85 shares of FWWB Common Stock and all
Cash Election shares will be converted into the right to receive
(i) an amount in cash equal to the product of $91.62 and a fraction
("Cash Fraction"), the numerator of which shall be 49% of the
outstanding shares of Towne Common Stock and the denominator of
which shall be the total number of Cash Election shares, and (ii)
a number of shares of FWWB Common Stock equal to the product of
3.85 and a fraction equal to one minus the Cash Fraction.
-3-
PAGE
<PAGE>
If the number of Stock Election shares (including shares to be
exchanged for stock through Partial Cash and Stock Elections)
exceeds 70% of the outstanding shares of Towne Common Stock, all
Cash Election shares and all Non-Election shares will be converted
into the right to receive $91.62 in cash and all Stock Election
shares will be converted into the right to receive (i) a number of
shares of FWWB Common Stock equal to the product of 3.85 and a
fraction ("Stock Fraction"), the numerator of which shall be 70% of
the outstanding shares of Towne Common Stock and the denominator of
which shall be the total number of Stock Election shares, and (ii)
an amount in cash equal to the product of $91.62 and a fraction
equal to one minus the Stock Fraction.
If the number of Cash Election shares is less than 49% of the
outstanding shares of Towne Common Stock and the number of Stock
Election shares is less than 70% of the outstanding shares of Towne
Common Stock, then all Cash Election shares will be converted into
the right to receive $91.62 in cash and all Stock Election shares
will be converted into the right to receive 3.85 shares of FWWB
Common Stock. If the number of Cash Election shares plus the
number of Non-Election shares is equal to or less than 49% of the
outstanding shares of Towne Common Stock, then all Non-Election
shares will be converted into the right to receive $91.62 in cash.
If the number of Cash Election shares plus the number of Non-
Election shares exceeds 49% of the outstanding shares of Towne
Common Stock, then all Non-Election shares will be converted into
the right to receive (i) an amount in cash equal to the product of
$91.62 and a fraction ("Non-Election Fraction") the numerator of
which shall be the excess of 49% of the outstanding shares of Towne
Common Stock over the number of Cash Election shares and the
denominator of which shall be the excess of the outstanding shares
of Towne Common Stock over the sum of the total of Cash Election
shares and Stock Election shares and (ii) a number of shares of
FWWB Common Stock equal to the product of 3.85 and a fraction equal
to one minus the Non-Election Fraction.
The Exchange Agent will be instructed by FWWB to make the
determinations and allocations of the Merger consideration
described above, and to transmit the appropriate types and amounts
of the Merger consideration as so determined to all Towne
shareholders who have returned properly completed Election Forms
prior to the Election Deadline, as soon as practicable after the
Effective Time of the Merger.
In the event the Merger Agreement is terminated prior to
completion of the Merger, the Exchange Agent will promptly return
all stock certificates submitted with Election Forms. In such
event, shares of Towne Common Stock held in brokerage accounts are
expected to be available for sale or transfer promptly following
termination of the Merger Agreement; however, stock certificates
held directly by Towne shareholders will be returned by registered
mail (with attendant delay). The Exchange Agent and FWWB will use
their commercially reasonable efforts to cooperate with Towne and
Towne shareholders to facilitate return of stock certificates in
the event of such termination, but return other than by registered
mail will only be made at the expense, written direction and risk
of Towne shareholders.
As soon as practicable after the Effective Time of the Merger,
the Exchange Agent will mail to holders of Towne Common Stock of
record immediately prior to the Effective Time of the Merger who
have not previously submitted a properly completed Election Form a
letter of transmittal and instructions for surrendering their stock
certificates. Upon delivery of stock certificates to the Exchange
Agent accompanied by a properly executed letter of transmittal, the
Exchange Agent will process such certificates and mail to the
former Towne shareholder the shares of FWWB Common Stock to be
issued and/or cash to be paid for the shares of Towne Common Stock
represented by the certificates and the certificates so surrendered
will be canceled. Stock certificates submitted after the Effective
Time of the Merger will be treated as Non-Election shares. No
interest will be paid or accrued on the cash amount to which the
shareholder may become entitled at the Effective Date.
All shares of FWWB Common Stock issued to the holders of Towne
Common Stock pursuant to the Merger will be deemed issued as of the
Effective Date. FWWB dividends having a record date after the
Effective Date will include dividends on all shares of FWWB Common
Stock issued in the Merger, but no dividend or other distribution
payable to the holders of record of FWWB Common Stock at or as of
any time after the Effective Date will be distributed to the holder
of any Towne Common Stock certificates until such holder physically
surrenders all such certificates as described above. Promptly after such
surrender, all undelivered dividends and other distributions and,
-4-
PAGE
<PAGE>
where applicable, a check for any fractional share interest, will be
delivered to such holder, in each case without interest. After the
Effective Date, the stock transfer books of Towne will be closed, and
there will be no transfers on the transfer books of Towne of the shares
of Towne Common Stock that were outstanding immediately prior to the
Effective Date.
Effective Date of the Merger
Subject to the conditions to the obligations of the parties to
complete the Merger as set forth in the Merger Agreement, the
Effective Date of the Merger will occur as soon as practicable
after such conditions have been satisfied or waived. Subject to
the foregoing, it is currently anticipated that the Merger will be
consummated in the second calendar quarter of 1998. Either FWWB or
Towne may terminate the Merger Agreement if the Effective Date does
not occur on or before September 30, 1998.
Background and Reasons for the Merger
In late July 1997, FWWB's President and Chief Executive
Officer, Gary Sirmon and Towne's President and Chief Executive
Officer, Rick Meikle, were introduced for the first time. During
the course of their conversations that day, Mr. Sirmon and Mr.
Meikle discussed the possibility of an acquisition of Towne by
FWWB. In early August 1997, following the initial conversations
between Mr. Sirmon and Mr. Meikle, Towne received a letter from
FWWB in which FWWB expressed its desire to acquire Towne. Upon the
receipt of that letter, the Towne Board engaged counsel to assist
it in determining a course of action for responding to FWWB's
acquisition overture. The Towne Board determined to commence
negotiations with FWWB and a special acquisition committee of the
Board was appointed which included Mr. Meikle along with directors
Pete Botting, Don Fitzpatrick, Jr. and Brent Orrico. Towne's special
counsel was instructed to assist the acquisition committee.
In early September, 1997, the acquisition committee met with
senior management officials of FWWB in Walla Walla. Following that
meeting, Towne received a letter from FWWB reaffirming its desire
to acquire Towne and setting forth pricing parameters for
consummating the acquisition. At that point, Towne and FWWB
exchanged information about each other and further negotiations
ensued which resulted in the negotiation and presentation of the
proposed Merger Agreement which was reviewed and adopted by the
Board at a special meeting on November 24, 1997.
Prior to approving the Merger Agreement, the Towne Board did
not solicit offers from other companies or determine whether other
companies would be interested in acquiring Towne. The Towne Board
considered soliciting other offers, but elected against such action
because it believed (i) that FWWB's proposal was very strong, fair
to shareholders and in the best interests of Towne and (ii) that
FWWB was likely to withdraw its proposal if Towne initiated a
bidding contest. Accordingly, rather than risk losing what it
viewed as an advantageous transaction, the Towne Board determined
to pursue negotiations with FWWB on an exclusive basis.
In reaching its decision to approve the Merger and Merger
Agreement, the Towne Board consulted with its counsel as well as
with Towne's management and considered a number of factors
including, without limitation, the following, which constitute all
of the material factors considered by the Towne Board:
a. Towne Board's familiarity with and review of FWWB's
business, operations, earnings and financial condition
and future capital requirements;
b. Towne Board's belief that the terms of the Merger
Agreement are attractive in that the Merger Agreement
allows those Towne shareholders who elect to receive FWWB
Common Stock to become shareholders in FWWB, a company
whose stock is listed on the Nasdaq National Market;
c. FWWB's wide range of banking products and services and
its dividend payment history;
-5-
PAGE
<PAGE>
d. Towne Board's belief, based upon analysis of the
anticipated financial effects of the Merger, that upon
consummation of the Merger, FWWB and its financial
institution subsidiaries would be well capitalized
institutions, the financial positions of which will be
well in excess of all applicable regulatory capital
requirements.
e. The current and prospective economic and regulatory
environment and competitive restraints facing the banking
industry and financial institutions in Towne's market
area;
f. Towne Board's belief that, in light of the reasons
discussed above, FWWB is the most attractive choice as a
long-term affiliation partner of Towne; and
g. The expectation that the Merger will generally be a tax-
free transaction to Towne and those of its shareholders
to the extent they receive FWWB Common Stock in exchange
for their shares of Towne Common Stock.
The Towne Board did not sign any specific or relative weight
to any of the factors discussed above in their considerations.
For the reasons set forth above, the Towne Board has
unanimously approved the Merger Agreement as advisable and in the
best interests of Towne and its shareholders and recommends that
the shareholders of Towne vote FOR the approval of the Merger
Agreement.
Opinion of Financial Advisor
Towne retained Southard Financial, a Memphis, Tennessee
financial valuation consulting firm, to render its opinion as to
the fairness, from a financial point of view to the holders of
Towne Common Stock of the consideration to be paid in the Merger.
In connection with this engagement, Southard Financial evaluated
the financial terms of the Merger, but was not asked to, and did
not, recommend the specific ratio of exchange between FWWB and
Towne's respective common stocks or the cash price for Towne Common
Stock and did not assist in the Merger negotiations. The
consideration was determined by FWWB and Towne after arm's length
negotiations. Towne did not place any limitations on the scope of
Southard Financial's investigation or review.
Southard Financial provided the Towne Board with a fairness
opinion letter and supporting documentation. The full text of the
opinion letter of Southard Financial, dated November 21, 1997,
which sets forth certain assumptions made, matters considered and
limitations on the review performed is attached as Appendix C and
is incorporated herein by reference. The summary of the opinion of
Southard Financial set forth in this Prospectus/Proxy Statement is
qualified in its entirety by reference to the opinion.
In arriving at its opinion, Southard Financial conducted
interviews with officers of FWWB and Towne and reviewed the
documents indicated in the fairness letter. Southard Financial did
not independently verify the accuracy and/or the completeness of
the financial and other information reviewed in rendering its
opinion. Southard Financial did not, and was not requested to,
solicit third party indications of interest in acquiring any or all
of the assets of Towne.
In connection with rendering its opinion, Southard Financial
performed a variety of financial analyses which are summarized
below. Southard Financial believes that its analyses must be
considered as a whole and that considering only selected factors
could create an incomplete view of the analyses and the process
underlying the opinion. In its analyses, Southard Financial made
numerous assumptions, many of which are beyond the control of Towne
and FWWB. Any estimates contained in the analyses prepared by
Southard Financial are not necessarily indicative of future results
or values, which may vary significantly from such estimates.
Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their
securities may actually be sold. None of the analyses performed by
Southard Financial was assigned a greater significance than any
other.
-6-
PAGE
<PAGE>
Under the Merger Agreement, no more than 70% and no fewer than
51% of the outstanding shares of Towne Common Stock may be
exchanged for FWWB Common Stock. The ultimate mix of cash and FWWB
Common Stock to be exchanged in the Merger is not currently known
nor can it be reasonably foreseen. Therefore, the summary of
Southard Financial's analysis set forth below is based on the total
consideration to be paid in the Merger, regardless of the mix of
cash and FWWB Common Stock.
Dividend Yield Analysis. In evaluating the impact of the
proposed Merger on the shareholders of Towne, Southard Financial
reviewed the dividend paying histories of Towne and FWWB. Since
its formation, Towne Bank has paid no dividends, and since its
formation, Towne has paid no dividends. In the year
ended December 31, 1996, FWWB paid a dividend of $.20 per share. Had
the Merger been consummated prior to January 1, 1996, each former
share of Towne Common Stock would have received dividends of $.77
in 1996 (FWWB's dividends of $.20 per share times 3.85 equivalent
shares). No dividend is expected to be paid by Towne to its
shareholders prior to consummation of the Merger. FWWB's expected
1997 dividend is $.28 per share. Had the Merger been consummated
prior to January 1, 1997, each former share of Towne Common Stock
would be expected to receive dividends of $1.08 in 1997 (FWWB
expected dividends of $.28 per share times 3.85 equivalent shares).
The favorable dividend comparison is a major factor in favor of the
Merger.
Earnings Yield Analysis. Towne earned $2.95 per share in
1996 and FWWB earned $1.11 (adjusted for non-recurring charges in
the fiscal year ended March 31, 1997). Had the Merger been
consummated prior to January 1, 1996, each former Towne share would
have earned $4.27 in 1996 (FWWB's earnings of $1.11 per share times
3.85 equivalent shares) or 44.8% more than Towne's earnings.
Towne is expected to earn $5.40 per share in 1997, while the
consensus analysts earnings projection for FWWB is $1.39 per share
in the fiscal year ending March 31, 1998. Had the Merger been
consummated prior to January 1, 1997, each former share of Towne
Common Stock would have been expected to earn $5.35 (FWWB expected
earnings of $1.39 per share times 3.85 equivalent shares), or .9%
less than Towne's earnings.
Book Value Analysis. In evaluating the impact of the proposed
Merger on the shareholders of Towne, Southard Financial determined
that shareholders of Towne who receive FWWB Common Stock would have
seen an increase in the book value of their investment had the
Merger been consummated as of December 31, 1997. Estimated book
value of Towne Common Stock at December 31, 1997 is $29.00 per
share (fully diluted). Estimated book value of FWWB is $16.10 per
share at December 31, 1997. If the Merger were consummated as of
December 31, 1997, each former share of Towne Common Stock would be
expected to receive book value of $61.99 (FWWB estimated book value
of $16.10 per share times 3.85 equivalent shares), or 214% of
Towne's estimated book value per share at December 31, 1997.
Analysis of Market Transactions. Based upon the Merger terms
and the recent market price of FWWB Common Stock, Towne
shareholders will receive 316% of estimated December 31, 1997 book
value (fully diluted), 17.0 times estimated 1997 earnings, and
20.6% of assets. Based upon the review conducted by Southard
Financial and given the financial characteristics of Towne, the
pricing for Towne in the Merger is within the range of multiples
seen in recent bank acquisitions.
Fundamental Analysis. Southard Financial reviewed the
financial characteristics of Towne and FWWB with respect to
profitability, capital ratios, liquidity, asset quality and other
factors. Southard Financial compared Towne and FWWB to a universe
of publicly traded banks and bank holding companies and to peer
groups prepared by the Federal Financial Institutions Examination
Council. Southard Financial found that the post-merger combined
entity will have capital ratios and profitability ratios near those
of the public peer group.
Liquidity. Unlike Towne Common Stock, FWWB Common Stock is
traded on the Nasdaq Stock Market. Further, except in the case of
officers, directors and certain large shareholders of Towne, shares
of FWWB Common Stock received by Towne shareholders will be freely
tradeable with no restrictions. Thus, any Towne shareholder
electing to receive FWWB Common Stock will have a marketable
security that can easily be sold.
-7-
PAGE
<PAGE>
Southard Financial is a financial valuation consulting firm,
specializing in the valuation of closely-held companies and
financial institutions. Since its founding in 1987, Southard
Financial has provided approximately 2,000 valuation opinions for
clients in 43 states. Further, Southard Financial provides
valuation services for approximately 120 financial institutions
annually. For rendering its opinion, Southard Financial received
a fee of $15,000, plus reasonable out-of-pocket expenses. Southard
Financial has never been engaged previously by Towne or FWWB, and
neither Southard Financial nor its principals own an interest in
the securities of Towne or FWWB.
Interests of Certain Persons in the Merger
The directors and executive officers of Towne, together with
their affiliates, beneficially owned a total of 70,475 shares of
Towne Common Stock (representing 24.7% of all outstanding shares of
Towne Common Stock) as of the Record Date. The directors and
executive officers will receive the same consideration in the
Merger for their shares as the other shareholders of Towne.
Certain members of Towne's management and the Towne Board have
certain interests in the Merger as described below that are in
addition to their interests as shareholders of Towne generally.
The Towne Board was aware of these interests and considered them,
among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
Following the Merger, Rick Meikle, the President of Towne,
will enter into an employment agreement with FWWB and Towne Bank.
Pursuant to Mr. Meikle's employment agreement he will serve as
President of Towne Bank for a period of three years commencing on
the Effective Date. Mr. Meikle's initial base salary under the
agreement will be $_______. Pursuant to the agreement, on the
Effective Date, Mr. Meikle will be granted options to acquire
______ shares of FWWB Common Stock under FWWB's 1996 Stock Option
Plan. Mr. Miekle's employment agreement may be extended for an
additional 12 months upon the expiration of the original term of
the agreement and upon each anniversary of the expiration of the
agreement thereafter. In addition, FWWB has agreed to appoint Mr.
Meikle to the Board of Directors of FWWB. FWWB intends to enter
into similar employment agreements with other executive officers of
Towne Bank, but is under no obligation to do so.
At the Effective Time of the Merger, FWWB will assume each
outstanding option to purchase shares of Towne Common Stock in such
manner that it is converted into an option to purchase shares of
FWWB Common Stock, except that each option will be exercisable for
that number of shares of FWWB Common Stock equal to the number of
shares of Towne Common Stock for which such option was exercisable
multiplied by 3.85, and the exercise price of such Towne option
will be equal to the exercise price of such option divided by 3.85.
FWWB has agreed that all rights to indemnification existing in
favor of the directors and officers of Towne as provided in Towne's
Articles of Incorporation and Bylaws shall survive the Merger.
FWWB has also agreed to use its best efforts to continue the
directors and officers liability insurance maintained by Towne for
a period of two years, subject to certain limitations.
Certain Federal Income Tax Consequences
The following is a discussion of the material federal income
tax consequences of the Merger that are generally applicable to
Towne shareholders. This discussion is based on currently existing
provisions of the Code, existing regulations thereunder (including
final, temporary or proposed) and current administrative rulings
and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax
consequences described herein. The following discussion is
intended only as a general summary of the material federal income tax
consequences of the Merger and does not purport to be a complete
analysis or listing of all potential tax effects relevant to a
decision on whether to vote in favor of approval of the Merger
Agreement.
Consummation of the Merger is conditioned upon the receipt by
FWWB and Towne of an opinion of Breyer & Aguggia, special counsel
to FWWB, to the effect that if the Merger is consummated in
accordance with the terms set forth in the Merger Agreement (i) the
Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and (ii) no gain or loss will be
recognized by Towne shareholders to the extent they receive shares
of FWWB Common Stock in exchange for their shares of Towne Common
Stock. FWWB and Towne may
-8-
PAGE
<PAGE>
waive receipt of such tax opinion as a condition to consummating the Merger;
provided, however, that if the anticipated material federal income tax
consequences of the Merger are significantly different than those described
herein, Towne will resolicit the approval of its shareholders.
Receipt of FWWB Common Stock in Exchange for Towne Common Stock. No
gain or loss will be recognized by a holder who receives solely shares of FWWB
Common Stock (except for cash received in lieu of fractional shares, as
discussed below) in exchange for all of his or her shares of Towne Common
Stock. The tax basis of the shares of FWWB Common Stock received by a holder
in such exchange will be equal (except for the basis attributable to any
fractional shares of FWWB Common Stock, as discussed below) to the basis of the
Towne Common Stock surrendered in exchange therefor. The holding period of the
FWWB Common Stock received will include the holding period of shares of Towne
Common Stock surrendered in exchange therefor, provided that such shares were
held as capital assets of the holder at the Effective Time of the Merger.
Receipt of Cash in Exchange for Towne Common Stock. A holder who
receives solely cash in exchange for all of his or her shares of Towne Common
Stock (and is not treated as constructively owning FWWB Common Stock after the
Merger under the circumstances referred to below under "-- Certain Federal
Income Tax Consequences -- Possible Dividend Treatment") will recognize gain or
loss for federal income tax purposes equal to the difference between the cash
received and such holder's tax basis in the Towne Common Stock surrendered in
exchange therefor. Such gain or loss will be a capital gain or loss, provided
that such shares were held as capital assets of the holder at the Effective
Time of the Merger. Such gain or loss will be long-term capital gain or loss
if the holder's holding period is more than eighteen months at the Effective
Time of the Merger or mid-term capital gain if held for more than one year, but
less than eighteen months at the Effective Time. The Code contains limitations
on the extent to which a holder may deduct capital losses from ordinary income.
Receipt of FWWB Common Stock and Cash in Exchange for Towne Common
Stock. A holder who receives a combination of FWWB Common Stock and cash in
exchange for his or her Towne Common Stock will not be permitted to recognize
any loss for federal income tax purposes. Such a holder will recognize gain,
if any, equal to the lesser of (i) the amount of cash received or (ii) the
amount of gain "realized" in the transaction. The amount of gain a holder
"realizes" will equal the amount by which (a) the cash plus the fair market
value at the Effective Time of the Merger of the FWWB Common Stock received
exceeds (b) the holders' basis in the Towne Common Stock to be surrendered in
the exchange therefor. Any recognized gain could be taxed as a capital gain or
a dividend, as described below. The tax basis of the shares of FWWB Common
Stock received by such holder will be the same as the basis of the shares of
Towne Common Stock surrendered in exchange therefor, adjusted as provided in
Section 358(a) of the Code for the cash received in exchange for such shares of
Towne Common Stock. The holding period for shares of FWWB Common Stock
received by such holder will include such holder's holding period for the Towne
Common Stock surrendered in exchange therefor, provided that such shares were
held as capital assets of the holder at the Effective Time of the Merger.
A holder's federal income tax consequences will also depend on whether
his or her shares of Towne Common Stock were purchased at different times at
different prices. If they were, the holder could realize gain with respect to
some of the shares of Towne Common Stock and loss with respect to other shares.
Such holder would have to recognize such gain to the extent such holder
receives cash with respect to those shares in which the holder's adjusted tax
basis is less than the amount of cash plus the fair market value at the
Effective Time of the Merger of the FWWB Common Stock received, but could not
recognize loss with respect to those shares in which the holder's adjusted tax
basis is greater than the amount of cash plus the fair market value at the
Effective Time of the Merger of the FWWB Common Stock received. Any disallowed
loss would be included in the adjusted basis of the FWWB Common Stock. Such a
holder is urged to consult his or her own tax advisor respecting the tax
consequences of the Merger on that holder.
Possible Dividend Treatment. In certain circumstances, a holder who
receives solely cash or a combination of cash and FWWB Common Stock in the
Merger may receive ordinary income, rather than capital gain, treatment on all
or a portion of the gain recognized by that holder if the receipt of cash "has
the effect of the distribution of a dividend." The determination of whether a
cash payment has such effect is based on a comparison of the holder's
-9-
PAGE
<PAGE>
proportionate interest in FWWB after the Merger with the proportionate interest
the holder would have had if the holder had received solely FWWB Common Stock
in the Merger. For purposes of this comparison, the holder may be deemed to
constructively own shares of FWWB Common Stock held by certain members of the
holder's family or certain entities in which the holder has an ownership or
beneficial interest and certain stock options may be aggregated with the
holder's shares of FWWB Common Stock. The amount of the cash payment that may
be treated as a dividend is limited to the holder's ratable share of the
accumulated earnings and profits of Towne at the Effective Time of the Merger.
Any gain that is not treated as a dividend will be taxed as a capital gain,
provided that the holder's shares were held as capital assets at the Effective
Time of the Merger. Because the determination of whether a cash payment will
be treated as having the effect of a dividend depends primarily upon the facts
and circumstances of each holder, holders are urged to consult their own tax
advisors regarding the tax treatment of any cash received in the Merger.
Cash in Lieu of Fractional Shares. A holder who holds Towne Common
Stock as a capital asset and who receives in the Merger, in exchange for such
stock, solely FWWB Common Stock and cash in lieu of a fractional share interest
in FWWB Common Stock will be treated as having received such cash in full
payment for such fractional share of stock and as capital gain or loss,
notwithstanding the dividend rules discussed above.
The foregoing is a general summary of all of the material federal income
tax consequences of the Merger to Towne shareholders, without regard to the
particular facts and circumstances of each shareholder's tax situation and
status. Because certain tax consequences of the Merger may vary depending upon
the particular circumstances of each shareholder, each Towne shareholder should
consult his or her own tax advisor regarding such shareholder's specific tax
situation and status, including the specific application and effect of state,
local and foreign laws to such shareholder and the possible effect of changes
in federal and other tax laws.
Conduct of Business Pending the Merger
Towne has agreed in the Merger Agreement not to take certain actions
relating to its operations without the prior approval of FWWB pending
consummation of the Merger. The Merger Agreement provides that, except with
the written consent of FWWB, each of Towne and Towne Bank, respectively, may
not, among other things, (i) amend its articles of incorporation or bylaws;
(ii) impose any lien on any share of stock held by it; (iii) repurchase any of
its capital stock, split or otherwise subdivide its capital stock, recapitalize
in any way or declare a cash or stock dividend on Towne Common Stock; (iv)
acquire direct or indirect control over any entity except in the ordinary
course of business or in connection with internal reorganizations and
acquisitions in Towne's or Towne Bank's fiduciary capacity; (v) issue or sell
any Towne Common Stock or sell or otherwise dispose of a substantial part of
Towne's or Towne Bank's assets or earnings power; (vi) dispose of, discontinue
or acquire any material assets or businesses other than in the ordinary course
of business; (vii) incur any additional debt except in the ordinary course of
business; (viii) increase compensation, pay bonuses or enter into severance
arrangements; (ix) amend any existing employment contract with any person or
enter into any new employment contract unless Towne or its subsidiaries may
terminate the same at will without liability; (x) adopt any new benefit plan or
make any material change to an existing benefit plan; (xi) enter into any new
material service contract, purchase or sale agreement or lease agreement; (xii)
make any capital expenditures exceeding $15,000 individually or $35,000 in the
aggregate; (xiii) extend credit (or commit to extend credit) to any officer,
director or holder of 2% or more of Towne Common Stock if such extension of
credit would exceed 2% of the capital of Towne or Towne Bank, or amend the
terms of any such credit; (xiv) settle any claim for money damages in excess of
$25,000; or (xv) change its method of accounting except as required by
generally accepted, or regulatory, accounting principles. Moreover, Towne is
required, among other things, to operate its businesses in the usual, regular
and ordinary course and to use its best efforts to preserve its business
relationships and to retain key employees.
-10-
PAGE
<PAGE>
Conditions to Consummation of the Merger
The obligations of Towne and FWWB to consummate the Merger are
subject to, among other things, the satisfaction of the following
conditions: (i) approval of the Merger Agreement by the holders of
not less than two-thirds of the outstanding shares of Towne Common
Stock; (ii) receipt of all applicable regulatory approvals and the
expiration of all required waiting periods; (iii) no proceeding is
pending or threatened before any court or governmental agency which
presents a substantial risk of restraint or prohibition of the
Merger; and (iv) receipt by FWWB and Towne of the opinion of Breyer
& Aguggia, dated as of the Effective Date, as to certain federal
income tax consequences of the Merger.
The obligations of FWWB are subject to the satisfaction of
certain additional conditions, including: (i) the delivery by Towne
of opinions of its legal counsel and certificates executed by
certain of its executive officers as to compliance with the Merger
Agreement; (ii) the accuracy of the representations and warranties,
and compliance with the agreements and covenants of Towne; (iii)
Rick Meikle having entered into an employment agreement with Towne
Bank and FWWB; (iv) the absence of any material adverse change in
the financial position or results of operations of Towne; (v) the
number of Dissenting Shares not exceeding 5% of the outstanding
shares of Towne Common Stock; and (vi) Towne Bank having terminated
its employee stock purchase plan.
The obligations of Towne are also subject to the satisfaction
of certain additional conditions, including: (i) the delivery by
FWWB of opinions of its legal counsel and certificates executed by
certain of its executive officers as to compliance with the Merger
Agreement; (ii) the accuracy of the representations and warranties,
and compliance with the agreements and covenants of FWWB; and (iii)
the absence of any material adverse change in the financial
position or results of operations of FWWB.
FWWB and Towne may waive certain of the conditions to their
respective obligations to consummate the Merger, other than
conditions required by law.
Regulatory Requirements
The Merger is subject to prior approval by the Federal Reserve
and the Department of Financial Institutions. An application for
approval of the Merger was filed with the Federal Reserve and the
Department of Financial Institutions on _________, 1998.
The approval of any application merely implies satisfaction of
regulatory criteria for approval, which do not include review of
the Merger from the standpoint of the adequacy of the consideration
to be received by, or fairness to, shareholders. Regulatory
approvals do not constitute an endorsement or recommendation of the
proposed Merger.
FWWB and Towne are not aware of any governmental approvals or
compliance with banking laws and regulations that are required for
consummation of the Merger other than as described above. Should
any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There
can be no assurance that any such approval or action, if needed,
could be obtained and, if such approvals or actions are obtained,
there can be no assurance as to the timing thereof. The Merger
cannot proceed in the absence of all requisite regulatory
approvals. See "-- Effective Date of the Merger," "-- Conditions
to Consummation of the Merger," and "-- Amendment; Waiver;
Termination."
The Merger Agreement provides that if the Merger has not been
consummated by September 30, 1998, the Merger Agreement may be
terminated by FWWB or Towne. Since there is the possibility that
regulatory approval may not be obtained for a substantial period of
time after approval of the Merger Agreement by Towne's
shareholders, there can be no assurance that the Merger will be
consummated by September 30, 1998. In addition, should regulatory approval
require any material change, a resolicitation of shareholders may be required
if regulatory approval is obtained after shareholder approval of the Merger
Agreement.
-11-
PAGE
<PAGE>
No Solicitation
Towne has agreed in the Merger Agreement that it will not
solicit, initiate or encourage inquiries or proposals with respect
to any acquisition or purchase of all or a substantial portion of
the assets of, or a substantial equity interest in, Towne or any
merger or other business combination with Towne.
Dissenters' Rights
In accordance with Chapter 13 of the WBCA (Chapter 23B.13 of
the Revised Code of Washington), Towne's shareholders have the
right to dissent from the Merger and to receive payment in cash for
the "fair value" of their Towne Common Stock.
If Towne shareholders perfect dissenters' rights with respect
to more than 5% of the outstanding shares of Towne Common Stock,
FWWB may elect not to consummate the Merger. Towne shareholders
electing to exercise dissenters' rights must comply with the
provisions of Chapter 13 in order to perfect their rights. Towne
and FWWB will require strict compliance with the statutory
procedures. The following is intended as a brief summary of the
material provisions of the Washington statutory procedures required
to be followed by a Towne shareholder in order to dissent from the
Merger and perfect the shareholder's dissenters' rights. This
summary, however, is not a complete statement of all applicable
requirements and is qualified in its entirety by reference to
Chapter 13 of the WBCA, the full text of which is set forth in
Appendix B hereto.
A shareholder who wishes to assert dissenters' rights must (a)
deliver to Towne before the vote is taken by Towne shareholders written notice
of the shareholder's intent to demand payment for the shareholder's shares if
the Merger is effected, and (b) not vote such shares in favor of the Merger. A
shareholder wishing to deliver such notice should hand deliver or mail such
notice to Towne at the following address:
Towne Bancorp, Inc.
17530 132nd Avenue, N.E.
Woodinville, Washington 98072
Attn: Don Fitzpatrick, Jr., Corporate Secretary
A shareholder who wishes to exercise dissenters' rights
generally must dissent with respect to all the shares the
shareholder owns or over which the shareholder has power to direct
the vote. However, if a record shareholder is a nominee for
several beneficial shareholders some of whom wish to dissent and
some of whom do not, then the record holder may dissent with
respect to all the shares beneficially owned by any one person by
notifying Towne in writing of the name and address of each person
on whose behalf the record shareholder asserts dissenters' rights.
A beneficial shareholder may assert dissenters' rights directly by
submitting to Towne the record shareholder's written consent and by
dissenting with respect to all the shares of which such shareholder
is the beneficial shareholder or over which such shareholder has
power to direct the vote.
A shareholder who does not deliver to Towne prior to the
vote being taken by Towne shareholders a written notice of the shareholder's
intent to demand payment for the "fair value" of the shares will lose the
right to exercise dissenters' rights. In addition, any shareholder electing to
exercise dissenters' rights must either vote against the Merger or abstain from
voting.
If the Merger is effected, FWWB as the surviving corporation shall,
within ten days after the Effective Date of the Merger, deliver a written
notice to all shareholders who properly perfected their dissenters' rights.
Such notice will, among other things, (a) state where the payment demand must
be sent and where and when certificates for certificated shares must be
deposited; (b) inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received; (c)
supply a form for demanding payment; and (d) set a date by which FWWB must
receive the payment demand, which date will be between 30 and 60 days after
notice is delivered.
-12-
PAGE
<PAGE>
A shareholder wishing to exercise dissenters' rights must at
that time file the payment demand and deliver share certificates as
required in the notice. Failure to do so will cause such person to
lose his or her dissenters' rights.
Within 30 days after the Merger occurs or receipt of the
payment demand, whichever is later, FWWB shall pay each dissenter
with properly perfected dissenters' rights FWWB's estimate of the
"fair value" of the shareholder's interest, plus accrued interest
from the Effective Date of the Merger. With respect to a dissenter
who did not beneficially own Towne shares prior to the public
announcement of the Merger, FWWB is required to make the payment
only after the dissenter has agreed to accept the payment in full
satisfaction of the dissenter's demands. "Fair value" means the
value of the shares immediately before the Effective Date of the
Merger, excluding any appreciation or depreciation in anticipation of the
Merger. The rate of interest is generally required to be the rate at which
FWWB can borrow money from other banks. It is the current
intention of FWWB to estimate the fair value of Towne Common Stock
to be $50.00 per share, which represents the price paid for Towne
Common Stock in the last transaction for which a price is known to
Towne management prior to the date on which the Merger Agreement
was signed.
A dissenter who is dissatisfied with FWWB's estimate of the fair
value or believes that interest due is incorrectly calculated may notify FWWB
of the dissenter's estimate of the fair value and amount of interest due. If
FWWB does not accept the dissenter's estimate and the parties do not otherwise
settle on a fair value then FWWB must within 60 days petition a court to
determine the fair value.
In view of the complexity of Chapter 13 of the WBCA,
shareholders of Towne who may wish to dissent from the Merger and
pursue appraisal rights should consult their legal advisors.
Amendment; Waiver; Termination
FWWB may elect to modify the structure of the Merger;
provided, however, that FWWB shall not have the right to make any
revision to the structure of the Merger which changes the amount or
kind of the consideration which the Towne shareholders are entitled
to receive. Prior to the Effective Date of the Merger, any
condition of the Merger Agreement may (to the extent allowed by
law) be waived in writing by the party benefitted by the provision
or may be amended or modified by an agreement in writing approved
by the Boards of Directors of FWWB and Towne. After approval of
the Merger Agreement by the shareholders of Towne, the Merger
Agreement may not, without further approval of such shareholders,
be amended in any manner that would decrease the consideration to
be received by Towne shareholders in exchange for their Towne
Common Stock.
The Merger Agreement may be terminated at any time prior to
the Effective Date of the Merger, either before or after approval
by the Towne shareholders, as follows: (i) by the mutual consent
of the parties; (ii) by FWWB if Towne fails to conduct its business
pursuant to the covenants made in the Merger Agreement and such
failure cannot be or has not been cured with 15 days after written
notice of such failure; (iii) by either party if the Merger is not
consummated by September 30, 1998; (iv) by either party upon denial
of any required regulatory approval; (v) by FWWB if its conditions
to consummate the Merger are not satisfied as of the closing date
or by Towne if its conditions to consummate the Merger are not
satisfied as of the closing date; (vi) by FWWB upon the occurrence
of any event that may restrict FWWB's voting power or other rights
normally enjoyed by holders of Towne Common Stock; (vii) by either
party if the other party has committed a material breach that has
not been cured within 30 days after the giving of written notice of
such breach; (viii) by FWWB if Towne enters any agreement with a
view toward being acquired or effecting a business combination with
any other person; or (xv) by FWWB if Towne enters into any
supervisory agreement, cease and desist order, memorandum of
understanding or similar arrangement with any bank regulatory
agency.
In the event of the valid termination of the Merger Agreement
by either FWWB or Towne, the obligations of the parties to the
Merger Agreement shall terminate, and there will be no liability on
the part of either party or their officers or directors except for
liability for breach of the Merger Agreement or for any
misstatement or misrepresentation made prior to such termination.
-13-
PAGE
<PAGE>
Termination Fee
As a condition and inducement to FWWB's entering into the
Merger Agreement and in consideration thereof, Towne has agreed to
pay to FWWB a termination fee under certain circumstances. A fee
of $250,000 may be demanded by FWWB in the event that (i) the
Merger Agreement is terminated because Towne and Towne Bank do not
use their best efforts to consummate the Merger in accordance with
the terms of the Merger Agreement; (ii) Towne terminates the Merger
Agreement for any reason other than the grounds for termination set
forth in the Merger Agreement; or (iii) the Towne shareholders do
not approve the Merger Agreement. FWWB has agreed to pay to Towne
a termination fee of $250,000 in the event that (i) the Merger
Agreement is terminated because FWWB does not use its best efforts
to consummate the Merger in accordance with the terms of the Merger
Agreement or (ii) FWWB terminates the Merger Agreement for any
reason other than the grounds for termination set forth in the
Merger Agreement.
In addition, Towne has agreed to pay to FWWB a termination fee
of $1,350,000 under certain circumstances. Such fee may be
demanded by FWWB in the event that the Merger is not completed by
May 24, 1999 and any of the following occurs: (i) a third party
acquires beneficial ownership of 25% or more of the then
outstanding Towne Common Stock; (ii) Towne, without the written
consent of FWWB, enters into or recommends to Towne shareholders an
agreement with a third party providing for certain actions (each an
"Acquisition Transaction"), including a merger or similar
transaction involving Towne, the purchase, acquisition or lease of
substantially all of the assets of Towne or the purchase or other
acquisition of securities representing 10% or more of the voting
power of Towne; or (iii) a bona fide proposal to engage in an
Acquisition Transaction is made to Towne by a third party, and
after such proposal is made either Towne willfully breaches the
Merger Agreement and such breach entitles FWWB to terminate the
Merger Agreement, Towne shareholders fail to approve the Merger
Agreement at the Special Meeting, the Special Meeting is cancelled
without the fault of FWWB, or the Towne Board withdraws or modifies
in a manner adverse to FWWB its recommendation to shareholders to
approve the Merger Agreement.
Towne will not be required to pay the termination fee if,
prior to the occurrence of any of the events described above, Towne
validly terminates the Merger Agreement (i) with the mutual consent
of FWWB, or (ii) because of a material breach by FWWB that cannot
be or has not been cured within 30 days after written notice of
such breach (but only if at such time as Towne exercises its right
to terminate the Merger Agreement FWWB is not entitled to terminate
the Merger Agreement either because of a material breach by Towne,
because the Merger has not been consummated by September 30, 1998
or because a required regulatory approval has been denied). The
termination fee is intended to increase the likelihood that the
Merger will be consummated according to the terms set forth in the
Merger Agreement and may be expected to discourage competing offers
to acquire Towne from potential third party acquirors because the
termination fee could increase the cost of such acquisition. To
the best of Towne's knowledge, no event that would permit FWWB to
demand payment of the termination fee has occurred as of the date
of this Prospectus/Proxy Statement.
Resale of FWWB Common Stock
The shares of FWWB Common Stock to be issued to shareholders
of Towne upon consummation of the Merger have been registered under
the Securities Act. Such shares may be traded freely and without
restriction by those shareholders not deemed to be "affiliates" of
Towne or FWWB as that term is defined in the rules under the
Securities Act. FWWB Common Stock received by those shareholders
of Towne who are deemed to be "affiliates" of Towne on the date of
the Special Meeting may be resold without registration only to the
extent provided for by Rule 145, or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of
Towne generally include individuals or entities that control, are
controlled by or are under common control with, Towne, and may include the
executive officers and directors of Towne and certain of their affiliates as
well as certain principal shareholders of Towne. In the Merger Agreement,
Towne has agreed to use its best efforts to cause each person who may be deemed
to be an affiliate of Towne to enter into an agreement with FWWB providing that
such affiliate will not sell, transfer, or otherwise dispose of the shares of
FWWB Common Stock to be received by such person in the Merger except in
compliance with the applicable provisions of the Securities Act and the rules
and
-14-
PAGE
<PAGE>
regulations promulgated thereunder. This Prospectus/Proxy Statement does not
cover any resales of FWWB Common Stock received by affiliates of Towne.
Accounting Treatment
The Merger, if completed as proposed, will be treated as a
purchase in accordance with generally accepted accounting
principles. Accordingly, the assets and liabilities of Towne will
be recorded on the books of FWWB at their respective fair values at
the time of consummation of the Merger.
Expenses
The Merger Agreement provides that FWWB and Towne each will
pay their own expenses in connection with the Merger Agreement and
the transactions contemplated thereby.
BUSINESS OF THE PARTIES TO THE MERGER
FWWB
FWWB is primarily engaged in the business of planning,
directing, and coordinating the business activities of its wholly
owned subsidiaries, First Savings and Inland Empire Bank. During
fiscal 1996 FWWB completed its sale of stock in connection with
converting from a mutual holding company to the stock holding
company form of organization. First Savings is a
Washington-chartered savings bank the deposits of which are insured
by the FDIC under the Savings Association Insurance Fund. First
Savings conducts business from its main office in Walla Walla,
Washington and its fifteen branch offices and three loan production
offices located in southeast, central, north central and western
Washington. Inland Empire Bank is an Oregon-chartered commercial
bank whose deposits are insured by the FDIC under the Bank
Insurance Fund. Inland Empire Bank conducts business from its main
office in Hermiston, Oregon and its five branch offices and two
loan production offices located in northeast Oregon.
First Savings is a community oriented savings bank which has
traditionally offered a wide variety of deposit products to its
retail customers while concentrating its lending activities on real
estate loans. Lending activities have been focused primarily on
the origination of loans secured by one- to four-family residential
dwellings, including emphasis on loans for construction of
residential dwellings. To a lesser extent, lending activities also
have included the origination of multi-family, commercial real
estate and consumer loans. First Savings' primary business has
been that of a traditional thrift institution, originating loans
for portfolio in its primary market area. First Savings has also
been an active participant in the secondary market, originating
residential loans for sale and on occasion acquiring loans for
portfolio. More recently, First Savings has begun making
non-mortgage commercial and agribusiness loans to small businesses
and farmers. In addition First Savings has maintained a
significant portion of its assets in marketable securities. The
securities portfolio has been weighted toward mortgage-backed
securities secured by one- to four-family residential properties.
This portfolio also has included a significant amount of tax exempt
municipal securities, primarily issued by entities located in the
State of Washington. In addition to interest income on loans and
investment securities, First Savings receives other income from
deposit service charges, loan servicing fees and from the sale of
loans and investments. First Savings has sought to increase its
other income by retaining loan servicing rights on some of the
loans that it has sold and to a lesser extent by purchasing
mortgage servicing rights. First Savings also has a wholly-owned
subsidiary, Northwest Financial Corporation, which serves as the
trustee under First Savings' mortgage loan documents, is engaged in
real estate sales, and receives commissions from the sale of
annuities.
Inland Empire Bank is a community oriented commercial bank which
historically has offered a wide variety of deposits and loan products to its
consumer and commercial customers. Lending activities have included
origination of consumer, commercial, agribusiness and real estate loans.
Inland Empire Bank also has engaged in mortgage banking activity with respect
to residential lending within its local markets, originating loans for sale
generally on a servicing released basis. Additionally, Inland Empire Bank has
maintained a significant portion of
-15-
PAGE
<PAGE>
its assets in marketable securities, particularly U.S. Treasury and government
agency securities as well as tax exempt municipal securities issued primarily
by entities located in the State of Oregon. Inland Empire Bank operates a
division, Inland Financial Services, which offers insurance and brokerage
services to its customers.
Financial and other information relating to FWWB is set forth in FWWB's
Annual Report on Form 10-K for the year ended March 31, 1997, and Quarterly
Reports on Form 10-Q for the quarters ended June 30, 1997 and September 30,
1997, copies of which may be obtained from FWWB as indicated under "AVAILABLE
INFORMATION" on page (iii) hereof.
Towne
Towne, a Washington corporation, was organized in 1996 for the purpose
of becoming the holding company for Towne Bank. Towne became the holding
company for Towne Bank effective on January 1, 1997. Towne engages in no
significant activity other than holding the stock of Towne Bank.
Towne Bank was incorporated in 1991 as a state chartered bank under the
laws of Washington. While the Bank's business emphasis is in providing full
service banking services to business and commercial customers, the Bank
provides a full array of financial products and services to commercial and
consumer customers. Towne Bank grants commercial, installment and real estate
loans to customers principally located in the King County/Seattle and southern
Snohomish County area. As of September 30, 1997, on a consolidated basis,
Towne had a total of $100.8 million of loans outstanding, an allowance for loan
losses of $1.2 million, total deposits of $116.5 million and total
stockholders' equity of $8.2 million.
Financial and other information relating to Towne is set forth in
Appendix D.
VOTING SECURITIES OF TOWNE AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of the Record Date, information as to
the shares of Towne Common Stock beneficially owned by each person who, to the
knowledge of Towne, is the owner of more than 5% of the outstanding shares of
Towne Common Stock, by each director of Towne, by the Chief Executive Officer
of Towne, and by all executive officers and directors of Towne as a group.
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- ---- ---------------------- -----------------
Beneficial Owners of More Than 5%
Phyllis R. Orrico Children's 17,931 6.29%
Irrevocable Trust and the
Phyllis R. Orrico Grandchildren
Irrevocable Trust, FAO
Corporation, Trustee
419 Occidental Ave., So. #609
Seattle, WA 98104
(table continued on following page)
-16-
PAGE
<PAGE>
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- ---- ---------------------- -----------------
Directors
Pete Botting 11,703 3.73%
Don Fitzpatrick, Jr. 11,963 3.81
Margaret Langlie 3,634 1.16
S. Rick Meikle 7,545 2.40
Brent Orrico 22,925 8.04
Richard Rising 5,254 1.67
John Stoutenberg 9,386 2.99
Z. Ted Szatrowski 12,470 3.97
All directors and executive
officers as a group (10 persons) 91,191 29.02
___________
(1) In accordance with Rule 13d-3 under the Exchange Act, a person
is deemed to be the beneficial owner, for purposes of this table,
of any share of Towne Common Stock if he or she has voting and/or
investment power with respect to such security. The table includes
shares owned by spouses, other immediate family members in trust,
shares held in retirement accounts or funds for the benefit of the
named individuals, and other forms or ownership, over which shares
the persons named in the table possess voting and/or investment
power. The amounts shown also include the following amounts of
Towne Common Stock which the indicated individuals have the right
to acquire within 60 days of the Towne Record Date through the
exercise of stock options granted pursuant to Towne's stock option
plans: Mr. Botting, 1,390; Mr. Fitzpatrick, 470; Ms. Langlie,
1,500; Mr. Meikle, 6,375; Mr. Rising, 1,720; Mr. Stoutenburg,
1,785; Mr. Szatrowski, 2,260; and all executive officers and
directors as a group, 20,716.
DESCRIPTION OF FWWB CAPITAL STOCK
FWWB is authorized to issue 25,000,000 shares of Common Stock
and 500,000 shares of preferred stock, par value $0.01 per share.
FWWB Common Stock is listed for trading on the Nasdaq National
Market under the symbol "FWWB." Each share of FWWB Common Stock
has the same relative rights and is identical in all respects with
every other share of FWWB Common Stock. The following summary does
not purport to be a complete description of the applicable
provisions of the FWWB Certificate of Incorporation and Bylaws or
of applicable statutory or other law, and is qualified in its
entirety by reference thereto. See "AVAILABLE INFORMATION."
Common Stock
Voting Rights. The holders of FWWB Common Stock possess
exclusive voting rights in FWWB. Each holder of FWWB Common Stock
is entitled to one vote for each share held of record on all
matters submitted to a vote of holders of FWWB Common Stock.
Holders of shares of FWWB Common Stock are not entitled to cumulate
votes for the election of directors.
Dividends. The holders of FWWB Common Stock are entitled to
such dividends as the FWWB Board may declare from time to time out
of funds legally available therefor. Dividends from FWWB depend
upon the receipt by FWWB of dividends from its subsidiaries because
FWWB has no source of income other than dividends from its
subsidiaries.
Liquidation. In the event of liquidation, dissolution or
winding up of FWWB, the holders of shares of FWWB Common Stock are
entitled to share ratably in all assets remaining after payment of
all debts and other liabilities of FWWB.
-17-
PAGE
<PAGE>
Other Characteristics. Holders of FWWB Common Stock do not
have any preemptive, conversion or other subscription rights with
respect to any additional shares of FWWB Common Stock which may be
issued. Therefore, the Board of Directors of FWWB may authorize
the issuance and sale of shares of common stock of FWWB without
first offering them to existing shareholders of FWWB. FWWB Common
Stock is not subject to any redemption or sinking fund provisions.
The outstanding shares of FWWB Common Stock are, and the shares to
be issued in the Merger will be, fully paid and non-assessable.
Preferred Stock
FWWB's Certificate of Incorporation authorizes the Board of
Directors of FWWB to issue from time to time one or more series of
preferred stock with such designations and preferences, relative,
participating, optional and other special rights and
qualifications, limitations and restrictions thereon, as permitted
by law and as fixed from time to time by resolution of the Board of
Directors. Because of its broad discretion with respect to the
creation and issuance of any series of preferred stock without
shareholder approval, the Board of Directors could adversely affect
the voting power of the holders of common stock, and by issuing
shares of preferred stock with certain voting, conversion and/or
redemption rights, could discourage any attempt to obtain control
of FWWB in any transaction not approved by the Board of Directors
of FWWB.
COMPARISON OF SHAREHOLDERS' RIGHTS
FWWB is incorporated under the laws of the State of Delaware
and, accordingly, the rights of FWWB's shareholders are governed by
FWWB's Certificate of Incorporation, Bylaws and the DGCL. Towne is
incorporated under the laws of the State of Washington and,
accordingly, the rights of Towne' shareholders are governed by
Towne' Articles of Incorporation, Bylaws, the WBCA.
Upon consummation of the Merger, shareholders of Towne who
receive shares of FWWB Common Stock in exchange for their shares of
Towne Common Stock will have their rights as shareholders of FWWB
governed by FWWB's Certificate of Incorporation, Bylaws and the
DGCL. The following is a summary of material differences between
the rights of a FWWB shareholder under FWWB's Certificate of
Incorporation and Bylaws and under the DGCL, on the one hand, and
the rights of a Towne shareholder under Towne's Articles of
Incorporation and Bylaws and the WBCA, on the other hand. This
discussion is not intended to be a complete statement of the
differences affecting the rights of shareholders and is qualified
in its entirety by reference to the governing law and the
certificate or articles of incorporation and bylaws of each
corporation.
Payment of Dividends
FWWB. Under Delaware law, dividends may be paid either out
of surplus (defined as the excess of the net assets of the
corporation over the stated capital of the corporation) or, if
there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
Towne. Under Washington law, dividends may be paid only if,
after giving effect to the dividend, Towne will be able to pay its
debts as they become due in the ordinary course of business and
Towne's total assets will not be less than the sum of its total
liabilities plus the amount that would be needed, if Towne were to
be dissolved at the time of the dividend, to satisfy the
preferential rights of persons whose right to payment is superior
to those receiving the dividend.
Size of Board of Directors
FWWB. FWWB's Certificate of Incorporation provides that its
Board of Directors shall consist of not less than five nor more
than 25 members. The Bylaws of FWWB provide that the Board of
Directors may change the authorized number of directors within the
stated range. Changes in the size of the range may be made by an
amendment to FWWB's Certificate of Incorporation, which must be
approved by at least 80% of the outstanding
-18-
PAGE
<PAGE>
shares entitled to vote. The effect of such provisions may be to make it
difficult for a person or entity immediately to acquire control of FWWB
through an increase in the number of FWWB's directors and election
of such person's or entity's nominees to fill the newly created
vacancies.
Towne. Towne's Articles of Incorporation provide that its
Board of Directors shall consist of not less than five nor more
than 15 members. Changes in the size of the range may be made by
amendment to Towne's Articles of Incorporation. The current number
of directors is set at eight.
Classified Board of Directors
FWWB. FWWB's Certificate of Incorporation provides for a
Board of Directors divided into three classes, with members of each
class of directors being elected for a term of three years. A
classified board is one in which a certain number, but not all, of
the directors are elected on a rotating basis each year. This
method of electing directors makes a change in the composition of
the Board of Directors, and a potential change in control of a
corporation, a lengthier and more difficult process. Since the
terms of only one-third of the incumbent directors expire each
year, it requires at least two annual elections for the
shareholders to change a majority of the directors. In the absence
of the provisions of the Certificate of Incorporation classifying
the Board, all of the directors would be elected each year.
Towne. Towne's Articles of Incorporation provide for a Board
of Directors divided into three classes, with members of each class
of directors being elected for a term of three years.
Cumulative Voting
FWWB. FWWB's Certificate of Incorporation eliminates
cumulative voting. Cumulative voting entitles each shareholder to
cast a number of votes in the election of directors equal to the
number of such shareholder's shares of common stock multiplied by
the number of directors to be elected and to distribute such votes
among one or more of the nominees to be elected. The absence of
cumulative voting rights limits the ability of minority
shareholders to obtain representation on the FWWB Board.
Towne. Towne's Articles of Incorporation eliminate cumulative
voting.
Removal of Directors
FWWB. FWWB's Certificate of Incorporation provides that at
a meeting of shareholders called expressly for that purpose, any
director or the entire Board of Directors may be removed only for
cause and only by a vote of the holders of at least 80% of the
shares then entitled to vote at such meeting. The requirement that
directors may be removed only for cause and only upon an 80% vote
makes it difficult for a person or entity immediately to acquire
control of the FWWB Board through the removal of existing directors
and the election of such person's or entity's nominees to fill the
newly created vacancies.
Towne. Towne's Articles of Incorporation provide that
directors may be removed from office only for cause. Under the WBCA,
shareholders may remove a director only at a special meeting called for that
purpose.
Vacancies on the Board of Directors
FWWB. The Certificate of Incorporation of FWWB provides that
any vacancy on the Board of Directors may be filled by the
affirmative vote of two-thirds of the remaining directors, and any
director so appointed is to hold office for a term expiring at the
annual meeting of shareholders at which the term of the class to
which the director has been chosen expires.
Towne. Towne's Articles of Incorporation provide that any
vacancy on the Board of Directors may be filled by the affirmative
vote of two-thirds of the remaining directors.
-19-
PAGE
<PAGE>
Special Meetings of Shareholders and Action Without a Meeting
FWWB. The Certificate of Incorporation of FWWB provides that
special meetings of shareholders may be called only by the board of
directors. This restriction on the calling of special
shareholders' meetings may deter hostile takeovers of FWWB by
making it more difficult for a person or entity to obtain immediate
control of FWWB between one annual meeting and the next. Pursuant
to FWWB's Certificate of Incorporation, the power of shareholders
to take action by written consent is denied.
Towne. The Bylaws of Towne provide that special meetings of
shareholders may be called by the President, a resolution of the
Board of Directors or shareholders holding a majority of the voting
stock of Towne. Pursuant to the WBCA, any action that may be taken
by shareholders may be taken without a meeting if a consent in
writing is signed by all of the holders of outstanding stock
entitled to vote thereon.
Advance Notice Requirements for Nominations of Directors and
Presentation of New Business at Meetings of Shareholders
FWWB. The Certificate of Incorporation of FWWB generally
provides that any shareholder desiring to make a nomination for the
election of directors or a proposal for new business at a meeting
of shareholders must submit written notice to FWWB at least 30 days
and not more than 60 days in advance of the meeting, together with
certain information relating to the nomination or new business.
Failure to comply with these advance notice requirements will
preclude such nominations or new business from being considered at
the meeting. Management believes that it is in the best interests
of FWWB and its shareholders to provide sufficient time to enable
management to disclose to shareholders information about a
dissident slate of nominations for directors. This advance notice
requirement may also give management time to solicit its own
proxies in an attempt to defeat any dissident slate of nominations,
should management determine that doing so is in the best interest
of shareholders generally. Similarly, adequate advance notice of
shareholder proposals will give management time to study such
proposals and to determine whether to recommend to the shareholders
that such proposals be adopted. In certain instances, such
provisions could make it more difficult to oppose management's
nominees or proposals, even if shareholders believe such nominees
or proposals are in their best interests.
Towne. Towne's Articles of Incorporation and Bylaws do not
establish advance notice requirements for nominations of directors
and presentation of new business at meetings of shareholders. The WBCA
requires that a notice of a special meeting of shareholders describe the
purpose of the meeting.
Approval of Mergers, Consolidations, Sale of Substantially All
Assets and Dissolution
FWWB. FWWB's Certificate of Incorporation requires the
approval of the holders of (i) at least 80% of FWWB's outstanding
shares of voting stock, and (ii) at least a majority of FWWB's
outstanding shares of voting stock, not including shares held by a
"Related Person," to approve certain "Business Combinations,"
except in cases where the proposed transaction has been approved in
advance by a majority of those members of the FWWB Board who were
directors prior to the time when the Related Person became a
Related Person. In the event the requisite approval of the Board
were given, the normal vote requirement of applicable Delaware law
would apply, or, for certain transactions, no shareholder vote
would be necessary. The term "Related Person" is defined to
include any individual, corporation, partnership or other entity
which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of FWWB. These
provisions apply to any "Business Combination" which is defined to
include among other things: (i) any merger or consolidation of FWWB
with or into any Related Person; (ii) any sale, lease, exchange,
transfer, or other disposition of all or a substantial part of the
assets of FWWB or any of its subsidiaries to any Related Person
(the term "substantial part" is defined to include more than 25% of
FWWB's total assets); (iii) any sale, lease, exchange, transfer or
other disposition of all or any substantial part of the assets of
a Related Person to FWWB or any subsidiary of FWWB; (iv) the
issuance of any securities of FWWB or a subsidiary of FWWB to a
Related Person; (v) the acquisition by FWWB of any securities of a
Related Person; (vi) any reclassification of FWWB Common Stock; and
(vii) any agreement, contract or other arrangement providing for
any of the transactions described above. The increased shareholder
vote required to approve a Business
-20-
PAGE
<PAGE>
Combination may have the effect of foreclosing mergers and other business
combinations which a majority of shareholders deem desirable and place the
power to prevent such a merger or combination in the hands of a minority of
shareholders.
Under Delaware law, absent this provision, business
combinations, including mergers, consolidations and sales of
substantially all of the assets of a corporation must, subject to
certain exceptions, be approved by the vote of the holders of a
majority of the outstanding shares of common stock of the
corporation and any other affected class of stock. One exception
under Delaware law to the majority approval requirement applies to
shareholders owning 15% or more of the common stock of a
corporation for a period of less than three years. Such 15%
shareholder, in order to obtain approval of a business combination,
must obtain the approval of two-thirds of the outstanding stock,
excluding the stock owned by such 15% shareholder, or satisfy other
requirements under Delaware law relating to board of director
approval of his or her acquisition of the shares of the
corporation.
FWWB's Articles of Incorporation require FWWB's Board of
Directors to consider certain factors in addition to the amount of
consideration to be paid when evaluating certain business
combinations or a tender or exchange offer. These additional
factors include: (i) the social and economic effects of the
transaction; (ii) the business and financial condition and earnings
prospects of the acquiring person or entity; and (iii) the
competence, experience, and integrity of the acquiring person or
entity and its management.
Towne. Towne's Articles of Incorporation require the approval
of two-thirds of the total shares entitled to be voted in an
election of directors for the approval of certain "Business
Combinations" unless the Business Combination is approved by a vote
of at least two-thirds of the Towne Board or the fair market value
of the property, securities or other consideration to be received,
per share, in the Business Combination is not less than the highest
price per share paid by the other party to the Business Combination
in acquiring any of its holding of Towne Common Stock and a proxy
statement meeting the requirements of the Exchange Act has been
mailed to the shareholders of Towne for the purpose of soliciting
shareholder approval of the Business Combination. The term
"Business Combination" is defined to include (i) any merger or
consolidation of Towne; (ii) any sale, lease, exchange, transfer or
other disposition of all or any substantial part (the term
"substantial part" is defined to mean more than 10% of Towne's
total assets) of the assets of Towne or of a subsidiary; (iii) any
merger or consolidation with or into another corporation; (iv) the
issuance of any securities to Towne or any of its subsidiaries to
any person or entity, except pursuant to stock benefit plans or
warrant agreements approved by the Towne Board; or (v) any
agreement, contract or other arrangement providing for any of the
transactions described above.
Pursuant to the WBCA, a plan of merger or share exchange must be
recommended for approval by the board of directors and approved by each voting
group entitled to vote separately on the plan by two-thirds of all the votes
entitled to be cast on the plan by that voting group. Action by the
shareholders of the surviving corporation on a plan of merger is not required
if certain conditions are met.
Towne's Articles of Incorporation require the Towne Board to
consider all relevant factors in addition to the amount of
consideration to be paid when evaluating certain business
combinations or a tender or exchange offer, including the social
and economic effects of the transaction on the community,
employees, customers and other constituents of Towne and its
subsidiaries.
Limitation on Acquisitions of Common Stock
FWWB. FWWB's Certificate of Incorporation provides that for
a period of five years from the effective date of its conversion to
the stock holding company form of organization (which occurred on
October 31, 1995), no person may acquire directly or indirectly
the beneficial ownership of more than 10% of any class of
equity security of FWWB, unless such offer or acquisition shall
have been approved in advance by a two-thirds vote of FWWB's
Continuing Directors (as defined in the Certificate of
Incorporation). This provision does not apply to any employee
stock benefit plan of FWWB. In addition, during such five-year
period, no shares beneficially owned in violation of the foregoing
percentage limitation, as determined by FWWB's Board of Directors,
shall be entitled to vote in connection with any matter submitted
to stockholders for a vote. Additionally, FWWB's Certificate of
Incorporation
-21-
PAGE
<PAGE>
provides for further restrictions on voting rights of shares owned in
excess of 10% of any class of equity security of FWWB beyond five years after
the Conversion. Specifically, the Certificate of Incorporation provides that
if, at any time after five years from the stock holding company conversion,
any person acquires the beneficial ownership of more than 10% of any class of
equity security of FWWB, then, with respect to each vote in excess
of 10%, the record holders of voting stock of FWWB beneficially
owned by such person shall be entitled to cast only one-hundredth
of one vote with respect to each vote in excess of 10% of the
voting power of the outstanding shares of voting stock of FWWB
which such record holders would otherwise be entitled to cast
without giving effect to the provision, and the aggregate voting
power of such record holders shall be allocated proportionately
among such record holders. An exception from the restriction is
provided if the acquisition of more than 10% of the securities
received the prior approval by a two-thirds vote of FWWB's
"Continuing Directors." Under FWWB's Certificate of Incorporation,
the restriction on voting shares beneficially owned in violation of
the foregoing limitations is imposed automatically. In order to
prevent the imposition of such restrictions, the Board of Directors
must take affirmative action approving in advance a particular
offer to acquire or acquisition. Unless the Board took such
affirmative action, the provision would operate to restrict the
voting by beneficial owners of more than 10% of FWWB Common Stock
in a proxy contest.
Towne. Towne's Articles of Incorporation do not contain any
limitation on the acquisition of Towne Common Stock.
Dissenters' Appraisal Rights
FWWB. Under the DGCL, appraisal rights are available for the
shares of any class or series of stock of a corporation that is a
party to a merger or consolidation, other than a merger of a parent
corporation and a 90% or more owned subsidiary. However,
shareholders generally will not have appraisal rights if the
corporation's stock is listed on a national securities exchange or
the Nasdaq National Market or is held of record by more than 2,000
holders, or if shareholder approval is not required by the DGCL for
the corporate action. Shareholders of FWWB do not have appraisal
rights in connection with the Merger.
Towne. Under the WBCA, shareholders of Towne generally have
dissenter's appraisal rights in connection with (i) a plan of
merger to which Towne is a party; (ii) a plan of share exchange to
which Towne is a party as the corporation whose shares will be
acquired; (iii) certain sales or exchanges of all, or substantially
all, of Towne's property other than in the regular course of
business; and (iv) amendments to Towne's Articles of Incorporation
effecting a reverse stock split. However, shareholders
generally will not have such dissenters' rights if shareholder
approval is not required for the corporate action. Shareholders of
Towne have dissenters' rights in connection with the Merger. See
"THE MERGER -- Dissenters' Rights."
Indemnification of Officers and Directors and Limitation of
Liability
FWWB. Pursuant to FWWB's Certificate of Incorporation, FWWB
will indemnify the officers, directors and employees of FWWB for
expenses, settlements, judgments and fines in suits which are not
shareholders' derivative suits if the person is successful on the
merits or if he or she acted in good faith, in a manner reasonably
believed to be in, or not opposed to, the best interests of the
corporation, and in the case of a criminal suit if he or she had no
reasonable cause to believe his or her conduct was unlawful. In
the case of a shareholders' derivative suit FWWB will indemnify any
of the aforementioned persons for expenses if such person is
successful on the merits or otherwise or if he or she acted in good
faith and in a manner reasonably believed to be in, or not opposed
to, the best interests of FWWB, but no such indemnification may be
given if the person is judged liable for negligence or misconduct
in the performance of his or her duty to FWWB, unless the court
determines the person is fairly and reasonably entitled to
indemnification. In addition, FWWB's Certificate of Incorporation
provides that the directors of FWWB shall not be personally liable
for monetary damages to FWWB for certain breaches of their
fiduciary duty as directors, except for liabilities that involve a
breach of the director's duty of loyalty to FWWB or its
shareholders, actions not in good faith, intentional misconduct or
a knowing violation of law by the director, the authorization of
illegal distributions or receipt of an improper personal benefit
from their actions as directors. This provision might,
-22-
PAGE
<PAGE>
in certain instances, discourage or deter shareholders or management from
bringing a lawsuit against directors for a breach of their duties
even though such an action, if successful, might have benefitted
FWWB.
Towne. Towne's Articles of Incorporation provide that Towne
shall indemnify any person made a party to any proceeding by reason
of the fact that such person was or is a director, officer,
trustee, employee or agent of Towne, or any subsidiary,
partnership, joint venture, trust, employee benefit plan or other
enterprise on behalf of Towne against judgements, penalties, fines,
settlement and reasonable expense actually incurred by such person
in connection with such proceeding. Indemnification will be
available only if such person conducted himself or herself in good
faith and, in the case of conduct in his or her official capacity
with Towne, he or she reasonably believed his or her conduct to be
in the best interests of Towne, or, in all other cases, he or she
reasonably believed his or her conduct to be at least not opposed
to the best interests of Towne; and in the case of any criminal proceeding, he
or she has no reasonable cause to believe that his or her conduct was unlawful.
No indemnification will be made in respect to any proceeding in which such
person is adjudged to be liable to Towne, or in connection with any other
proceeding charging personal benefit to a director in which the director was
adjudged liable on the basis that personal benefit was improperly received by a
director.
Amendment of Certificate of Incorporation and Bylaws
FWWB. FWWB's Certificate of Incorporation may be amended by
the vote of the holders of a majority of the outstanding shares of
FWWB Common Stock, except that the provisions of the Certificate of
Incorporation governing (i) meetings of shareholders and cumulative
voting, (ii) notice requirements for nominations and proposals,
(iii) the number, filling of vacancies and staggered terms of
directors, (iv) removal of directors, (v) acquisition of FWWB
Common Stock; (vi) approval of certain business combinations, (vii)
evaluation of business combinations, (viii) indemnification of
officers and directors, (ix) elimination of directors' liability,
(x) amendments to bylaws, and (xi) the manner of amending the
Certificate of Incorporation may not be repealed, altered, amended
or rescinded except by the vote of the holders of at least 80% of
the outstanding shares of FWWB. This requirement exceeds the
majority vote of the outstanding stock that would otherwise be
required by Delaware law for the repeal or amendment of any
provision of the Certificate of Incorporation. The Bylaws of FWWB
may be amended by a majority vote of the Board of Directors or by
the holders of at least 80% of the outstanding shares of FWWB.
This provision is intended to prevent the holders of less than 80%
of the outstanding stock of FWWB from circumventing any of the
foregoing provisions by amending the Certificate of Incorporation
to delete or modify one of such provisions. This provision would
enable the holders of more than 20% of FWWB's voting stock to
prevent amendments to FWWB's Certificate of Incorporation or Bylaws
even if they were favored by the holders of a majority of the
voting stock.
Towne. Towne's Articles of Incorporation may be amended by
a two-thirds vote of the outstanding shares of Towne Common Stock,
except for any amendment to Article XII of the Articles dealing
with Business Combinations. Any amendment to Article XII requires
a seventy-five percent vote of the shareholders. Towne's Bylaws
may be amended, altered or repealed by the Towne Board or by the
affirmative vote of a majority of shareholders.
CERTAIN INFORMATION CONCERNING FWWB
Information regarding the names, ages, positions and business
backgrounds of the executive officers and directors of FWWB, as
well as additional information, including executive compensation,
security ownership of certain beneficial owners and management and
certain relationships and related transactions, is set forth in or
incorporated by reference in FWWB's Annual Report on Form 10-K for
the year ended March 31, 1997. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." Shareholders desiring copies of such
documents may contact FWWB as indicated under "AVAILABLE
INFORMATION."
-23-
PAGE
<PAGE>
LEGAL OPINIONS
The validity of the FWWB Common Stock to be issued in the
Merger is being passed upon for FWWB by Breyer & Aguggia,
Washington, D.C. Breyer & Aguggia will deliver an opinion
concerning certain federal income tax consequences of the Merger.
EXPERTS
The consolidated financial statements incorporated in this
Prospectus/Proxy Statement by reference from FWWB's Annual Report
on Form 10-K for the year ended March 31, 1997 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Towne as of December 31, 1996 and
1995 and for each of the three years in the period ended December
31, 1996, have been included in this Prospectus/Proxy Statement, in
reliance upon the report of Moss Adams LLP, independent certified
public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
OTHER MATTERS
The Towne Board is not aware of any business to come before
the Towne Special Meeting other than those matters described above
in this Prospectus/Proxy Statement. However, if any other matters
should properly come before the Towne Special Meeting, it is
intended that proxies in the accompanying form will be voted in
respect thereof in accordance with the judgment of the person or
persons voting the proxies.
-24-
PAGE
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is made and
entered into this 24th day of November, 1997, by and between FIRST SAVINGS BANK
OF WASHINGTON BANCORP, INC. ("Acquiror"), a corporation chartered and existing
under the laws of the State of Delaware, TOWNE BANCORP, INC., a corporation
chartered and existing under the laws of the State of Washington ("Towne") and
TOWNE BANK OF WOODINVILLE (the "Bank"), a commercial bank chartered and
existing under the laws of the State of Washington.
RECITALS
A. Acquiror, Towne and the Bank, on the terms and conditions hereinafter
set forth, desire to effect an acquisition transaction pursuant to which
Acquiror will acquire all of the shares of Towne Common Stock (as hereinafter
defined) outstanding at the Effective Time (as hereinafter defined) at a
purchase price per share equal to the amount set forth in Section 2.3(a)
hereof.
B. To effect the acquisition, Towne shall be merged with and into
Acquiror (the "Merger") pursuant to the Plan of Merger substantially in the
form attached hereto as Exhibit A. Acquiror will be the surviving corporate
entity in the Merger (the "Surviving Corporation").
C. The parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
D. Concurrently with the execution and delivery of this Merger
Agreement, and as an inducement to Acquiror's willingness to enter into this
Merger Agreement, each member of the Board of Directors of Towne has entered
into an agreement with Acquiror pursuant to which, among other things, they
have agreed to vote in favor of approval of the transactions contemplated by
this Merger Agreement at the Shareholders Meeting (as hereinafter defined).
E. The respective Boards of Directors of Acquiror, Towne and the Bank
have duly approved this Merger Agreement and have duly authorized its execution
and delivery.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants and agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Parties agree as follows:
AGREEMENT
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Merger Agreement, the following
-----------
terms have the definitions indicated:
"Affiliate" of a party means any person, partnership, corporation,
association or other legal entity directly or indirectly controlling,
controlled by or under common control, with that party.
A-1
PAGE
<PAGE>
"Acquiror" shall mean First Savings Bank of Washington Bancorp,
Inc., a Delaware-chartered bank holding company having its principal place of
business in Walla Walla, Washington.
"Acquiror Common Stock" shall mean the common stock, par value
$0.01 per share, of Acquiror.
"Acquiror Due Diligence Review" shall have the meaning assigned to
such term in Section 8.1(j) of this Merger Agreement.
"Acquiror Due Diligence Review Period" shall have meaning assigned
to such term in Section 8.1(j) of this Merger Agreement.
"Acquiror Fee" shall have the meaning assigned to such term in
Section 8.4 of this Merger Agreement.
"Acquiror Option" shall mean an option to acquire shares of
Acquiror Common Stock.
"Acquisition Proposal" shall have the meaning assigned to such term
in Section 6.4 of this Merger Agreement.
"Applicable Environmental Laws" shall have the meaning assigned to
such term in Section 4.16(a) of this Merger Agreement.
"Balance Sheet Date" shall have the meaning assigned to such term
in Section 4.9 of this Merger Agreement.
"Bank" shall mean Towne Bank of Woodinville, a commercial bank
chartered and existing under the laws of the State of Washington.
"Bank Common Stock" shall have the meaning assigned to such term in
Section 4.21 of this Merger Agreement.
"Bank Financial Statements" shall have the meaning assigned to such
term in Section 4.8 of this Merger Agreement.
"BHCA" shall mean the Bank Holding Company Act.
"CERCLA" shall have the meaning set forth in Section 4.16(a) of
this Merger Agreement.
"Certificate" shall have the meaning assigned to such term in
Section 2.10 of this Merger Agreement.
"Closing" shall have the meaning assigned to such term in Section
2.11 of this Merger Agreement.
"Closing Date" shall have the meaning assigned to such term in
Section 2.11 of this Merger
Agreement.
"DGCL" shall mean the Delaware General Corporation Law.
"Deposits" shall mean all deposits (including, but not limited to,
certificates of deposit, savings accounts, NOW accounts and checking accounts)
of the Bank.
A-2
PAGE
<PAGE>
"Derivatives Contract" shall have the meaning assigned to such term
in Section 4.34 of this
Merger Agreement.
"Dissenting Shares" shall have the meaning assigned to such term in
Section 2.5 of this Merger
Agreement.
"Effective Date of the Merger" shall mean that date on which the
Effective Time shall have
occurred.
"Effective Time" shall have the meaning assigned in Section 2.2 of
this Merger Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Agent" shall mean the independent agent selected by
Acquiror to effect the exchange of
certificates representing Towne Common Stock for the consideration described
in Section 2.3.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"FRB" shall mean the Board of Governors of the Federal Reserve
System.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Government Approvals" shall have the meaning assigned to such term
in Section 3.4 of this
Merger Agreement.
"Hazardous Substances" shall have the meaning set forth in Section
4.16(a) of this Merger
Agreement.
"Internal Revenue Code" shall mean the Internal Revenue Code of
1986, as amended.
"Loan Property" shall have the meaning assigned to such term in
Section 4.16(a) of this Merger
Agreement.
"Merger" shall, as described in Section 2.1 of this Merger
Agreement, mean the merger of Towne
with and into Acquiror, which shall survive the Merger as the Surviving
Corporation.
"Merger Agreement" means this Agreement and Plan of Merger together
with the Plan of Merger
(Exhibit A) and all Exhibits and Schedules annexed to, and incorporated by
specific reference as a part of, this Merger
Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"Officer" shall have the meaning set forth in Section 4.9(k) of this
Merger Agreement.
"Parties" shall mean Towne, the Bank and Acquiror collectively;
Towne or the Bank on the one
hand, or Acquiror on the other hand, may sometimes be referred to as a
"Party."
"Pension Plan" shall mean any employee pension benefit plan as such
term is defined in Section
3(2) of ERISA which is maintained by the referenced Party.
A-3
PAGE
<PAGE>
"Person" shall mean any natural person, fiduciary,
corporation,partnership, joint venture, association, business trust or any
other entity of any kind.
"Plan of Merger" shall mean the Plan of Merger substantially in the
form of Exhibit A hereto to be executed by authorized representatives of Towne
and Acquiror and filed with the Secretary of State of the State of Washington
along with the Articles of Merger in accordance with Washington law and with
the Secretary of State of the State of Delaware along with a Certificate of
Merger in accordance with Delaware law and providing for the Merger of Towne
with and into Acquiror as contemplated by Section 2.1 of this Merger Agreement.
"Property" shall have the meaning assigned to such term in Section
4.16(a) of this Merger Agreement.
"Proxy Statement/Prospectus" shall mean the proxy statement to be
used by Towne to solicit proxies with a view to securing the approval of the
Towne Shareholders of this Merger Agreement and the Plan of Merger, which shall
also serve as the prospectus for the shares of Acquiror Common Stock to be
issued to the Towne Shareholders.
"Realty" means the real property of the Bank owned or leased by the
Bank or any Subsidiary of the Bank.
"Records" means all available records, minutes of meetings of the
Board of Directors, committees and shareholders of Towne and the Bank, original
instruments and other documentation, pertaining to Towne and the Bank, Towne's
and the Bank's assets (including plans and specifications relating to the
Realty), and liabilities, the Towne Common Stock, the Deposits and the loans,
and all other business and financial records which are necessary or customary
for use in the conduct of Towne's and the Bank's business by Acquiror and the
Bank on and after the Effective Time as it was conducted prior to the Closing
Date.
"Registration Statement" shall have the meaning assigned to such
term in Section 5.2 of this Merger Agreement.
"Regulatory Authorities" shall mean, collectively, the Department of
Justice, the FRB, the FDIC, the SEC, the Washington Department, or any other
state or federal governmental or quasi-governmental entity which has, or may
hereafter have, jurisdiction over any of the transactions described in this
Merger Agreement.
"Release" shall have the meaning assigned to such term in Section
4.16(b)(i) of this Merger Agreement.
"SEC" shall mean the Securities and Exchange Commission, or any
successor thereto.
"Securities Laws" shall mean the Securities Act of 1933, as amended
("1933 Act"), the Securities Exchange Act of 1934, as amended, ("1934 Act"),
the Investment Company Act of 1940, as amended, the Investment Advisers Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules
and regulations of the SEC promulgated thereunder, as well as any similar state
securities laws and any similar rules and regulations promulgated by the
applicable federal bank Regulatory Authorities.
"Shareholders Meeting" shall mean the special meeting of Towne
Shareholders to be held pursuant to Section 6.1 of this Merger Agreement,
including any adjournment or adjournments thereof.
"Subsidiaries" shall mean all of those corporations, or other
entities of which the entity in question owns or controls 5% or more of the
outstanding voting equity securities either directly or through an unbroken
chain
A-4
PAGE
<PAGE>
of entities as to each of which 5% or more of the outstanding equity securities
is owned directly or indirectly by its parent.
"Surviving Corporation" shall mean Acquiror as the corporation
resulting from the consummation of the Merger as set forth in Section 2.1 of
this Merger Agreement.
"Towne" shall mean Towne Bancorp, Inc., a Washington-chartered bank
holding company having its principal place of business in Woodinville,
Washington.
"Towne Common Stock" has the meaning assigned to such terms in
Section 2.3(a) of this Merger Agreement.
"Towne Option" shall mean an option granted by Towne to purchase
shares of Towne Common Stock.
"Towne Shareholders" shall mean the holders of the Towne Common
Stock.
"WBCA" shall mean the Washington Business Corporation Act.
"Washington Department" shall mean the Department of Financial
Institutions of the State of Washington.
ARTICLE 2
THE MERGER AND RELATED MATTERS
2.1 Merger. Subject to the terms and conditions of this Merger
------
Agreement, and pursuant to the provisions of the WBCA, the DGCL, the BHCA and
the rules and regulations promulgated thereunder, at the Effective Time (as
hereinafter defined):
(a) Surviving Corporation. Towne shall be merged with and
---------------------
into Acquiror pursuant to the terms and conditions set forth herein and
pursuant to the Plan of Merger attached hereto as Exhibit A. Upon consummation
of the Merger, the separate existence of Towne shall cease and Acquiror shall
continue as the Surviving Corporation.
(b) Certificate of Incorporation and Bylaws. The certificate
---------------------------------------
of incorporation and bylaws of Acquiror, in effect immediately prior to the
Effective Time, shall become the certificate of incorporation and bylaws of the
Surviving Corporation.
(c) Effects of the Merger. The separate existence of Towne
---------------------
shall cease, and Towne shall be merged with and into Acquiror which, as the
Surviving Corporation, shall thereupon and thereafter possess all of the
assets, rights, privileges, appointments, powers, licenses, permits and
franchises of the two merged corporations, whether of a public or a private
nature, and shall be subject to all of the liabilities, restrictions,
disabilities and duties of both Acquiror and Towne.
(d) Transfer of Assets. All rights, assets, licenses,
------------------
permits, franchises and interests of Acquiror and Towne in and to every type of
property, whether real, personal, or mixed, whether tangible or intangible,
shall be deemed to be vested in Acquiror as the Surviving Corporation by virtue
of the Merger becoming effective and without any deed or other instrument or
act of transfer whatsoever.
A-5
PAGE
<PAGE>
(e) Assumption of Liabilities. The Surviving Corporation
-------------------------
shall become and be liable for all debts, liabilities, obligations and
contracts of Acquiror as well as those of Towne, whether the same shall be
matured or unmatured; whether accrued, absolute, contingent or otherwise; and
whether or not reflected or reserved against in the balance sheets, other
financial statements, books of account or records of Acquiror or Towne.
2.2 Effective Time. As soon as practicable after each of the
--------------
conditions set forth in Article 7 hereof have been satisfied or waived, the
Parties will file, or cause to be filed, with the Secretary of State of the
State of Washington and the Secretary of State of the State of Delaware such
articles of merger and certificate of merger as they may deem necessary or
appropriate for the Merger which articles of merger shall be in the form
required by and executed in accordance with the applicable provisions of the
WBCA and the DGCL. The Merger shall become effective at such time as may be
specified in such articles of merger and certificate of merger (the "Effective
Time").
2.3 Conversion of Towne Common Stock. At the Effective Time:
--------------------------------
(a) Each share of common stock of Towne, $10.00 par value per
share ("Towne Common Stock"), issued and outstanding immediately prior thereto
(except for Dissenting Shares, as defined herein) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive from Acquiror either (1) $91.62 in cash, without
interest ("Per Share Cash Amount"), (2) 3.85 shares of Acquiror Common Stock
("the Exchange Ratio"), or (3) a combination of shares of Acquiror Common Stock
and cash, all as determined in accordance with Section 2.9.
Notwithstanding any other provision of this Merger Agreement,
any shares of Towne Common Stock issued and outstanding immediately prior to
the Effective Time which are then owned beneficially or of record by Acquiror,
Towne or by any direct or indirect Subsidiary of any of them or are held in the
treasury of Towne shall, by virtue of the Merger, be canceled without payment
of any consideration therefor and without any conversion thereof.
(b) The holders of certificates representing shares of Towne
Common Stock shall cease to have any rights as stockholders of Towne, except
such rights, if any, as they may have pursuant to the WBCA. Except as provided
above, until certificates representing shares of Towne Common Stock are
surrendered for exchange, each such certificate shall, after the Effective
Time, represent for all purposes only the right to receive the amount of
consideration into which their shares of Towne Common Stock shall have been
converted by the Merger as provided above.
(c) The stock transfer books of Towne shall be closed and no
transfer of shares of Towne Common Stock shall be made thereafter.
2.4 Acquiror Common Stock. At the Effective Time, the shares of
--------------------- Acquiror Common Stock issued and outstanding
immediately prior to the Effective Time shall, on and after the Effective Time,
remain issued and outstanding as shares of Acquiror Common Stock.
2.5 Dissenting Shares. Any shares of Towne Common Stock held by a
-----------------
holder who dissents from the Merger in accordance with the WBCA and becomes
entitled to obtain payment for the fair value of such shares of Towne Common
Stock pursuant to the applicable provisions of the WBCA shall be herein called
"Dissenting Shares." Notwithstanding any other provision of this Merger
Agreement, any Dissenting Shares shall not, after the Effective Time, be
entitled to vote for any purpose or receive any dividends or other
distributions and shall be entitled only to such rights as are afforded in
respect of Dissenting Shares pursuant to the WBCA.
2.6 Fractional Shares. Notwithstanding any other provision hereof,
-----------------
no fractional shares of Acquiror Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued
A-6
PAGE
<PAGE>
in the Merger; instead, Acquiror shall pay to each holder of Towne
Common Stock who would otherwise be entitled to a fractional share an amount
in cash determined by multiplying such fraction by $23.80.
2.7 Anti-Dilution Provisions. In the event Acquiror changes the
------------------------
number of shares of Acquiror Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend or recapitalization
with respect to the outstanding Acquiror Common Stock and the record date
therefor shall be prior to the Effective Date, the number of shares of Acquiror
Common Stock into which each share of Towne Common Stock may be converted shall
be proportionately adjusted.
2.8 Options. At the Effective Time, by virtue of the Merger, and
-------
without any action on the part of any holder of an option, each Towne Option
that is then outstanding and unexercised shall be converted into and become an
Acquiror Option on the same terms and conditions as are in effect with respect
to the Towne Option immediately prior to the Effective Time, except that (i)
each such Towne Option assumed may be exercised solely for shares of Acquiror
Common Stock, (ii) the number of shares of Acquiror Common Stock subject to
such Towne Option shall be equal to the number of shares of Towne Common Stock
subject to such Towne Option immediately prior to the Effective Time multiplied
by the Exchange Ratio, the product being rounded, if necessary, up or down to
the nearest whole share, and (iii) the per share exercise price under each such
Acquiror Option shall be adjusted by dividing the per share exercise price of
the Towne Option by the Exchange Ratio, and rounding up to the nearest cent.
It is intended that the foregoing assumption shall be effected in a manner
which is consistent with the requirements of Section 424 of the Internal
Revenue Code, as to any Towne Stock Option that is an incentive stock option.
The number of shares of Towne Common Stock which are issuable upon exercise of
Towne Options as of the date hereof is set forth on Schedule 2.8.
------------
2.9 Elections and Proration.
-----------------------
(a) The number of shares of Towne Common Stock to be converted
into the right to receive cash in the Merger shall not be more than 49%
("Maximum Cash Election Number") nor less than 30% of the number of shares of
Towne Common Stock outstanding immediately prior to the Effective Time, and the
number of shares of Towne Common Stock to be converted into the right to
receive Acquiror Common Stock in the Merger shall not be more than 70%
("Maximum Stock Election Number") nor less than 51% of the number of shares of
Towne Common Stock outstanding immediately prior to the Effective Time.
Notwithstanding any other provision of this Merger Agreement, if the number of
Dissenting Shares and/or the application of the provisions of this Section
would result in the aggregate amount of cash to be paid to Towne Shareholders
pursuant to this Merger Agreement exceeding 49% of the aggregate value of the
total consideration to be paid to Towne Shareholders, then the number of shares
of Towne Common Stock to be converted into the right to receive cash in the
Merger shall be adjusted so that the aggregate amount of cash to be paid to
Towne Shareholders equals 49% of the aggregate value of the total consideration
to be paid to Towne Shareholders.
(b) Subject to the allocation and election procedure set forth
in this Section 2.9, each record holder of Towne Common Stock immediately prior
to the Effective Time will be entitled (1) to elect to receive cash for all of
such shares ("Cash Election"), (2) to elect to receive Acquiror Common Stock
for all of such shares ("Stock Election"), (3) to elect to receive Acquiror
Common Stock for a stated percentage of such shares ("Partial Stock Election")
and to receive cash for a stated percentage of such shares ("Partial Cash
Election") or (4) to indicate that such record holder has no preference as to
the receipt of cash or Acquiror Common Stock for such shares ("Non-Election").
All such elections shall be made on a form designated for that purpose ("Form
of Election"). Holders of record of shares of Towne Common Stock who hold such
shares a nominees, trustees or in any other representative capacities
("Representative") may submit multiple Forms of Election, provided that such
Representative certifies that each such Form of Election covers the shares of
Towne Common Stock held by each Representative for a particular beneficial
owner.
A-7
PAGE
<PAGE>
(c) If the sum of the number of shares covered by Cash
Elections and Partial Cash Elections ("Cash Election Shares") exceeds the
Maximum Cash Election Number, all shares of Towne Common Stock covered by Stock
Elections and Partial Stock Elections ("Stock Election Shares") and all shares
of Towne Common Stock covered by Non-Elections ("Non-Election Shares") shall be
converted into the right to receive Acquiror Common Stock and the Cash Election
Shares shall be converted into the right to receive Acquiror Common Stock and
cash in the following manner:
Each Cash Election Share shall be converted into the right to receive
(i) an amount in cash (rounded to the nearest cent), without
interest, equal to the product of (x) the Per Share Cash Amount and
(y) a fraction ("Cash Fraction"), the numerator of which shall be the
Maximum Cash Election Number and the denominator of which shall be
the total number of Cash Election Shares, and (ii) a number of shares
of Acquiror Common Stock equal to the product (rounded to the nearest
one-thousandth) of (x) the Exchange Ratio and (y) a fraction equal to
one minus the Cash Fraction.
(d) If the aggregate number of Stock Election Shares exceeds
the Maximum Stock Election Number, all Cash Election Shares and all
Non-Election Shares shall be converted into the right to receive
cash, and all Stock Election Shares shall be converted into the right to
receive Acquiror Common Stock and cash in the following manner:
Each Stock Election Share shall be converted into the right to
receive (i) a number of shares of Acquiror Common Stock equal to the
product (rounded to the nearest one-thousandth) of (x) the
Exchange Ratio and (y) a fraction ("Stock Fraction"), the numerator
of which shall be the Maximum Stock Election and the denominator of
which shall be the total number of Stock Election Shares, and
(ii) an amount in cash (rounded to the nearest cent), without
interest, equal to the product of (x) the Per Share Cash Amount and
(y) a fraction equal to one minus the Stock Fraction.
(e) In the event that neither Section 2.9(c) nor Section 2.9(d)
above is applicable, all Cash Election Shares shall be converted into the right
to receive cash, all Stock Election Shares shall be converted into the right to
receive Acquiror Common Stock, and the Non-Election Shares, if any, shall be
converted into the right to receive either cash or cash and Acquiror Common
Stock in the following manner:
(1) If the sum of the number of Cash Election Shares plus
the number of Non-Election Shares is equal to or less than the Maximum Cash
Election Number, then all Non-Election Shares shall be deemed to be Cash
Election Shares and each Non-Election Share shall be converted into the right
to receive an amount in cash, without interest, equal to the Per Share Cash
Amount, or
(2) If the number of the Cash Election Shares plus the
Non-Election Shares exceeds the Maximum Cash Election Number, then each
Non-Election Share shall be converted into the right to receive (i) an amount
in cash (rounded to the nearest cent), without interest, equal to the product
of (x) the Per Share Cash Amount and (y) a fraction ("Non-Election Fraction")
the numerator of which shall be the excess of the (a) Maximum Cash Election
Number over (b) the number of Cash Election Shares and the denominator of which
shall be the excess of (A) the number of shares of Towne Common Stock
outstanding immediately prior to the Effective Time over (B) the sum of the
total number of Cash Election Shares and the total number of Stock Election
Shares and (ii) a number of shares of Acquiror Common Stock equal to the
product (rounded to the nearest one-thousandth) of (x) the Exchange Ratio and
(y) a fraction equal to one minus the Non-Election Fraction.
(f) Elections shall be made by holders of Towne Common Stock by
mailing to the Exchange Agent, the Form of Election delivered to the
shareholders of Towne with the Prospectus/Proxy Statement for the Merger. To
be effective, a Form of Election must be properly completed, signed and
submitted by the
A-8
PAGE
<PAGE>
shareholder (or by an appropriate trust company in the United States or a
member of a registered national securities exchange or the NASD) together with
the certificate or certificates representing the shares of Towne Common Stock
for which an election is made to the Exchange Agent not later than seven days
following the date of the Shareholders Meeting ("Election Deadline"). Acquiror
shall have the discretion, which it may delegate in whole or in part to the
Exchange Agent, to determine whether Forms of Election have been properly
completed, signed and submitted for a vote and to disregard immaterial defects
in Forms of Election. The decision of Acquiror, or the Exchange Agent, as to
such matters shall be conclusive and binding. Neither Acquiror nor the
Exchange Agent will be under any obligation to notify any person of any defect
in a Form of Election submitted to the Exchange Agent. The Exchange Agent also
shall make all computations contemplated by this Section 2.9 and all such
computations shall be conclusive and binding on the holders of Towne Common
Stock.
(g) For the purposes hereof, a holder of Towne Common Stock who
does not submit a Form of Election which is received by the Exchange Agent
prior to the Election Deadline shall be deemed to have made a Non-Election. If
Acquiror or the Exchange Agent shall determine that any purported Cash
Election, Partial Cash Election, Stock Election or Partial Stock Election was
not properly made, such purported election shall be deemed to be of no force
and effect and the shareholder making such purported Cash Election, Partial
Cash Election, Stock Election or Partial Stock Election shall for purposes
hereof be deemed to have made a Non-Election.
(h) Acquiror and Towne shall mail the Form of Election with the
Prospectus/Proxy Statement to all holders of Towne Common Stock on the Record
Date for the Towne shareholders meeting and shall make the Form of Election
available to all persons who become holders of Town Common Stock subsequent to
such day and no later than the close of business on the business day prior to
the Election Deadline. All elections may be revoked until the Election
Deadline.
2.10 Exchange of Towne Common Stock
------------------------------
(a) As soon as practicable after the Effective Time, each
holder of record of certificates formerly representing shares of Towne Common
Stock (the "Certificates") who has not previously submitted properly completed
an Election Form accompanied by all Certificates representing the shares of
Towne Common Stock held of record by such person shall be instructed to tender
such Certificates to the Exchange Agent pursuant to a letter of transmittal
that Acquiror shall deliver or cause to be delivered to such holder. Such
letter of transmittal shall specify that risk of loss and title to Certificates
shall pass only upon acceptance of such Certificates by the Exchange Agent.
(b) After the Effective Time, each holder of a Certificate that
surrenders such Certificate to the Exchange Agent will, upon acceptance thereof
by the Exchange Agent, be entitled to the consideration payable in respect of
the shares represented thereby. At or before the Effective Time, Acquiror shall
deposit, or cause to be deposited, with the Exchange Agent, for the benefit of
the holders of Towne Common Stock, an amount of cash equal to the product of
the number of Cash Election Shares and the Per Share Cash Amount.
(c) The Exchange Agent shall accept Certificates upon
compliance with such reasonable terms and conditions as Acquiror or the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with customary exchange practices. Certificates shall be appropriately
endorsed or accompanied by such instruments of transfer as Acquiror or the
Exchange Agent may reasonably require in accordance with customary and prudent
exchange procedures.
(d) Each outstanding Certificate, other than those representing
Dissenting Shares, shall until duly surrendered to Acquiror or the Exchange
Agent be deemed to evidence the right to receive the consideration specified
herein.
A-9
PAGE
<PAGE>
(e) After the Effective Time, holders of Certificates shall
cease to have rights with respect to Towne Common Stock previously represented
by such Certificates, and their sole rights (other than the holders of
Certificates representing Dissenting Shares) shall be to exchange such
Certificates for the consideration specified herein. After the Effective Time,
there shall be no further transfer on the records of Towne of Certificates, and
if such Certificates are presented to Towne for transfer, they shall be
canceled against delivery of such consideration. Acquiror shall not be
obligated to deliver the consideration to any holder of Towne Common Stock
until such holder surrenders the Certificates as provided herein. Any portion
of the aggregate consideration or the proceeds of any investments thereof that
remains unclaimed by the shareholders of Towne for twelve (12) months after the
Effective Time shall be repaid by the Exchange Agent to Acquiror. Any
shareholders of Towne who have not theretofore complied with this Section 2.9
shall thereafter look only to Acquiror for payment of their consideration
deliverable in respect of each share of Towne Common Stock such stockholder
holds as determined pursuant to this Merger Agreement without any interest
thereon. If outstanding Certificates are not surrendered or the payment for
them not claimed prior to the date on which such payments would otherwise
escheat to or become the property of any governmental unit or agency, the
unclaimed items shall, to the extent permitted by abandoned property and any
other applicable law, become the property of Acquiror (and to the extent not in
its possession shall be paid over to it), free and clear of all claims or
interest of any person previously entitled to such claims. Neither the
Exchange Agent nor any party to this Merger Agreement nor any affiliate thereof
shall be liable to any holder of Towne Common Stock represented by any
Certificate for any consideration paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. Acquiror and the
Exchange Agent shall be entitled to rely upon the stock transfer books of Towne
to establish the identity of those persons entitled to receive the
consideration, which books shall be conclusive with respect thereto. In the
event of a dispute with respect to ownership of stock represented by any
Certificate, Acquiror and the Exchange Agent shall be entitled to deposit any
consideration in respect thereof in escrow with an independent third party and
thereafter be relieved with respect to any claims thereto.
2.11 Closing. Subject to the provisions of Article 7 hereof, the
-------
closing of the transactions contemplated by this Merger Agreement (the
"Closing") shall take place as soon as practicable after satisfaction or waiver
of all of the conditions to Closing, and shall be on such date, time and
location as is mutually agreed to by Acquiror and Towne. At the Closing the
Parties shall use their respective best efforts to deliver the certificates,
letters and opinions which constitute conditions to effecting the Merger and
each Party will provide the other Parties with such proof or indication of
satisfaction of the conditions to the obligations of such other Parties to
consummate the Merger as such other Parties may reasonably require. If all
conditions to the obligations of each of the Parties shall have been satisfied
or lawfully waived by the Party entitled to the benefits thereof, the Parties
shall, at the Closing, duly execute the Plan of Merger for filing with the
Secretary of State of the State of Washington and the Secretary of State of the
State of Delaware and promptly thereafter shall take all steps necessary or
desirable to consummate the Merger in accordance with all applicable laws,
rules and regulations and the Plan of Merger which is attached hereto as
Exhibit A and incorporated by reference as part of this Merger Agreement. The
Parties shall thereupon take such other and further actions as may be required
by law or this Merger Agreement to consummate the transactions contemplated
herein. The date on which the Closing actually occurs is herein referred to as
the "Closing Date."
2.12 Reservation of Right to Revise Transaction. Acquiror shall
------------------------------------------
have the unilateral right to revise the method of effecting the Merger in order
to achieve tax benefits or for any other reason which Acquiror may deem
advisable; provided, however, that Acquiror shall not have the right, without
the prior written approval of the Board of Directors of Towne and, if required,
the approval of the Towne Shareholders, to make any revision to the structure
of the Merger which changes the amount or kind of the consideration which the
Towne Shareholders are entitled to receive (determined in the manner provided
in Section 2.3 of this Merger Agreement). Acquiror may exercise this right of
revision by giving written notice thereof to Towne in the manner provided in
Section 9.1 of this Merger Agreement.
A-10
PAGE
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to Towne and the Bank as follows:
3.1 Organization and Corporate Authority. Acquiror is a corporation
------------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Acquiror (i) has the requisite corporate power and
authority to own, operate and lease its material properties and carry on its
businesses as they are currently being conducted; (ii) is in good standing and
is duly qualified to do business in each jurisdiction where the character of
its properties owned or held under lease or the nature of its business makes
such qualification necessary and where the failure to so qualify would
individually or in the aggregate have a material adverse affect on the
condition (financial or otherwise), affairs, business, assets or prospects of
Acquiror and; (iii) has in effect all federal, state, local and foreign
governmental authorizations, permits and licenses necessary for it to own or
lease its properties and assets and to carry on its businesses as they are
currently being conducted. The Certificate of Incorporation and Bylaws of
Acquiror, as amended to date, are in full force and effect as of the date of
this Merger Agreement.
3.2 Authorization, Execution and Delivery; Merger Agreement Not in
--------------------------------------------------------------
Breach.
- ------
(a) Acquiror has all requisite corporate power and authority to
execute and deliver this Merger Agreement and to consummate the transactions
contemplated hereby. This Merger Agreement, and all other agreements and
instruments contemplated to be executed in connection herewith by Acquiror,
have been (or upon execution will have been) duly executed and delivered by
Acquiror, have been (or upon execution will have been) effectively authorized
by all necessary action, corporate or otherwise, and no other corporate
proceedings on the part of Acquiror are (or will be) necessary to authorize
such execution and delivery, and, subject to receipt of any required Government
Approvals, constitute (or upon execution will constitute) legal, valid and
enforceable obligations of Acquiror, subject, as to enforceability, to
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally, and to the
application of equitable principles and judicial discretion.
(b) The execution and delivery of this Merger Agreement, the
consummation of the transactions contemplated hereby and the fulfillment of the
terms hereof will not result in a breach of any of the terms or provisions of,
or constitute a default under (or an event which, with the passage of time or
the giving of notice or both, would constitute a default under), or conflict
with, or permit the acceleration of any obligation under, (i) any material
mortgage, lease, covenant, agreement, indenture or other instrument to which
Acquiror is a party or by which it or its property or any of its assets are
bound, (ii) the Certificate of Incorporation or Bylaws of Acquiror, (iii) any
material judgment, decree, order or award of any court, governmental body or
arbitrator by which Acquiror is bound, or (iv) any material permit, concession,
grant, franchise, license, law, statute, ordinance, rule or regulation
applicable to Acquiror or its properties; or result in the creation of any
lien, claim, security interest, encumbrance, charge, restriction or right of
any third party of any kind whatsoever upon the property or assets of Acquiror,
except that the Government Approvals shall be required in order for Acquiror to
consummate the Merger.
3.3 No Legal Bar. Acquiror is not a party to, subject to or bound
------------
by any agreement, judgment, order, writ, prohibition, injunction or decree of
any court or other governmental body of competent jurisdiction which would
prevent the execution of this Merger Agreement by Acquiror, its delivery to
Towne and the Bank or (upon receipt of Governmental Approvals) the consummation
of the transactions contemplated hereby, and no action or proceeding is pending
or threatened against Acquiror in which the validity of this Merger Agreement,
any of the transactions contemplated hereby or any action which has been taken
by any of the Parties in connection herewith or in connection with any of the
transactions contemplated hereby is at issue.
A-11
PAGE
<PAGE>
3.4 Government Approvals. No consent, approval, order or
--------------------
authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by
Acquiror in connection with the execution and delivery of this Merger Agreement
or the consummation of the transactions contemplated hereby by Acquiror, except
for the prior approval of the FRB, the FDIC, the Washington Department and such
other agencies as may have jurisdiction (collectively, the "Government
Approvals"). Acquiror is not aware of any facts, circumstances or reasons why
such Government Approvals should not be forthcoming or which would prevent or
hinder such approvals from being obtained.
3.5 Acquiror Financial Statements. The consolidated balance sheets
-----------------------------
of Acquiror as of March 31, 1997 and 1996, and the related consolidated
statements of income and changes in stockholders' equity and cash flows of
Acquiror for the years ended March 31, 1997, 1996 and 1995 included in
Acquiror's Annual Report on Form 10-K for the fiscal year ended March 31, 1997
as filed with the SEC and the comparative interim financial statements for any
subsequent quarter ending after March 31, 1997 and prior to the date hereof
included in Acquiror's Quarterly Reports on Form 10-Q as filed with the SEC
(collectively, the "Acquiror Financial Statements") (i) were prepared from the
books and records of Acquiror, which are complete and accurate in all material
respects and have been maintained in accordance with good business practices;
(ii) were prepared in accordance with GAAP; (iii) accurately present Acquiror's
consolidated financial condition and the consolidated results of its
operations, changes in stockholders' equity and cash flows as stated including
any amendments thereto at the relevant dates thereof and for the periods
covered thereby (subject, in the case of financial statements for interim
periods, to normal recurring adjustments); (iv) do contain or reflect all
necessary adjustments and accruals for an accurate presentation of Acquiror's
consolidated financial condition and the consolidated results of Acquiror's
operations and cash flows for the periods covered by the Acquiror Financial
Statements; (v) do contain and reflect adequate provisions for loan losses, for
real estate owned reserves and for all reasonably anticipatable liabilities for
all taxes, federal, state, local or foreign, with respect to the periods then
ended; and (vi) do contain and reflect adequate provisions for all reasonably
anticipated liabilities for Post Retirement Benefits Other Than Pensions
("OPEB") pursuant to FASB 106 and 112.
3.6 Absence of Certain Changes. Since March 31, 1997 there has not
--------------------------
been any material adverse change in the financial condition or results of
operations of Acquiror and its subsidiaries taken as a whole.
3.7 Tax Matters. As of the date of this Merger Agreement, there is
-----------
no audit, examination, deficiency, or refund litigation or matter in
controversy with respect to any taxes that might result in a determination
materially adverse to Acquiror or any Acquiror Subsidiary except as fully
reserved for in the Acquiror Financial Statements.
3.8 Litigation. There is no action, suit or proceeding pending,
----------
or to the best knowledge of Acquiror, threatened against Acquiror or any
Acquiror Subsidiary before any court or arbitrator or any governmental body,
agency or official which, in the aggregate, will have, or is reasonably
expected to have, a material adverse effect on the business, financial
condition or results of operations of Acquiror and its subsidiaries taken as
whole.
3.9 Capitalization of Acquiror. The authorized capital stock of
--------------------------
Acquiror consists of 25,000,000 shares of Acquiror Common Stock and 500,000
shares of preferred stock having a par value of $.01 per share. As of the
close of business on September 30, 1997, 10,246,513 shares of Acquiror Common
Stock were issued and outstanding, 664,112 shares of Acquiror Common Stock were
held by Acquiror as treasury stock and no shares of the preferred stock were
issued and outstanding.
3.10 Disclosure. The information concerning, and the
----------
representations or warranties made by Acquiror as set forth in this Merger
Agreement, or in any document, statement, certificate or other writing
furnished or to be furnished by Acquiror to Towne and the Bank pursuant hereto,
do not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated herein or therein which is
necessary to make the statements and facts contained herein or therein, in
light of the circumstances under which they were
A-12
PAGE
<PAGE>
or are made, not false or misleading. Copies of all documents heretofore or
hereafter delivered or made available to Towne and the Bank by Acquiror
pursuant hereto were complete and accurate copies of such documents.
3.11 Absence of Regulatory Actions. Neither Acquiror nor any
-----------------------------
Acquiror Subsidiary is a party to any cease and desist order, written agreement
or memorandum of understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any
board resolutions at the request of, federal or state governmental authorities
charged with the supervision or regulation of depository institutions or
depository institution holding companies or engaged in the insurance of bank
and/or savings and loan deposits nor has it been advised by any such
governmental authority that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar
undertaking. 3.12 Reports. Since April 1, 1994, Acquiror and each
Acquiror
-------
Subsidiary has filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (i)
the SEC; (ii) the FDIC; (iii) the FRB; and (iv) any other applicable federal or
state securities or banking authorities. As of their respective dates, each of
such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all of the
requirements of their respective forms and all of the statutes, rules, and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed. All such reports were true and complete in all material respects
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 to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.13 Year 2000 Issues. Expenses associated with resolving Year 2000
----------------
technology issues are not expected to have a material adverse effect on the
financial condition or results of operations of Acquiror, nor are Year 2000
technology issues expected to have a material adverse effect on the operations
of Acquiror.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TOWNE AND THE BANK
Each of Towne and the Bank hereby represents and warrants to Acquiror as
follows:
4.1 Organization and Qualification of Towne and Subsidiaries.
--------------------------------------------------------
Towne is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Washington. Towne is registered as a bank
holding company with the FRB and engages only in activities permitted by the
BHCA and the rules and regulations promulgated by the FRB thereunder. Towne
(a) has all requisite corporate power and authority to own, operate and lease
its properties and to carry on its business as it is currently being conducted
and (b) is in good standing and is duly qualified to do business in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its business makes such qualification necessary and where the
failure to so qualify would individually or in the aggregate have a material
adverse effect on the condition (financial or otherwise), affairs, business,
assets or prospects of Towne, the Bank and all Towne Subsidiaries, taken as a
whole. Each Towne Subsidiary is duly organized, validly existing and in good
standing under the laws of the state or jurisdiction of its organization and
(a) has all requisite corporate power and authority to own, operate and lease
its properties and to carry on its business as it is currently being conducted
and (b) is in good standing and is duly qualified to do business in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its business makes such qualification necessary and where the
failure to so qualify would individually or in the aggregate have a material
adverse effect on the condition (financial or other), affairs, business, assets
or prospects of Towne, the Bank and the Towne Subsidiaries taken as a whole.
The activities of the Towne Subsidiaries are permitted for subsidiaries of bank
holding companies pursuant to the BHCA.
A-13
PAGE
<PAGE>
4.2 Organization and Qualification of the Bank. The Bank is a
------------------------------------------
Washington-chartered bank, duly organized, validly existing and in good
standing under the laws of the State of Washington and engages only in
activities (and holds properties only of the types) permitted by Washington law
and the rules and regulations promulgated by the Washington Department
thereunder or the FDIC for insured depository institutions. The Bank (a) has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is currently being conducted
(including all requisite authority to operate branches in the State of
Washington) and (b) is in good standing and is duly qualified to do business in
each jurisdiction where the character of its properties owned or held under
lease or the nature of its business makes such qualification necessary and
where the failure to so qualify would individually or in the aggregate have a
material adverse effect on the condition (financial or otherwise), affairs,
business, assets or prospects of the Bank and all Towne Subsidiaries, taken as
a whole. The Bank's deposit accounts are insured by the Bank Insurance Fund as
administered by the FDIC to the fullest extent permitted under applicable law.
4.3 Authorization, Execution and Delivery; Merger Agreement Not in
--------------------------------------------------------------
Breach.
- ------
(a) Towne and the Bank have all requisite corporate power and
authority to execute and deliver this Merger Agreement and the Plan of Merger
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Merger Agreement and the Plan of Merger and the
consummation of the proposed transaction have been duly authorized by the
Boards of Directors of Towne and the Bank and, except for the approval of the
Towne Shareholders, no other corporate proceedings on the part of Towne and the
Bank are necessary to authorize the execution and delivery of this Merger
Agreement and the Plan of Merger and the consummation of the transactions
contemplated hereby and thereby. This Merger Agreement and all other
agreements and instruments herein contemplated to be executed and delivered by
Towne and the Bank have been (or upon execution and delivery will have been)
duly executed and delivered by Towne and the Bank and (subject to any requisite
shareholder approval and Government Approvals hereof) constitute (or upon
execution and delivery will constitute) legal, valid and enforceable
obligations of Towne and the Bank, subject, as to enforceability, to applicable
bankruptcy, insolvency, receivership, conservatorship, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and to the application of equitable principles and judicial
discretion.
(b) The execution and delivery of this Merger Agreement, the
consummation of the transactions contemplated hereby, and the fulfillment of
the terms hereof and thereof will not result in a violation or breach of any of
the terms or provisions of, or constitute a default under (or an event which,
with the passage of time or the giving of notice, or both, would constitute a
default under), or conflict with, or permit the acceleration of, any obligation
under (i) any mortgage, lease, covenant, agreement, indenture or other
instrument to which Towne, the Bank or any Towne Subsidiary is a party or by
which Towne, the Bank or any Towne Subsidiary is bound, (ii) the Articles of
Incorporation or Bylaws of Towne and the Bank, (iii) any judgment, decree,
order, regulatory letter of understanding or award of any court, governmental
body, authority or arbitrator or, (iv) (subject to the receipt of the
Government Approvals) any permit, concession, grant, franchise, license, law,
statute, ordinance, rule or regulation applicable to Towne, the Bank or any
Towne Subsidiary or the properties of any of them; or result in the creation of
any lien, claim, security interest, encumbrance, charge, restriction or right
of any third party of any kind whatsoever upon the properties or assets of
Towne, the Bank or any Towne Subsidiary.
4.4 No Legal Bar. Neither Towne nor the Bank is a party to, or
------------
subject to, or bound by, any agreement or judgment, order, letter of
understanding, writ, prohibition, injunction or decree of any court or other
governmental authority or body, or any law which would prevent the execution of
this Merger Agreement or the Plan of Merger by Towne or the Bank, the delivery
thereof to Acquiror, or (upon receipt of Government Approvals) the consummation
of the transactions contemplated hereby and thereby, and no action or
proceeding is pending against Towne or the Bank in which the validity of this
Merger Agreement, the transactions contemplated hereby or any action which has
been taken by any of the Parties in connection herewith or in connection with
the transactions contemplated hereby is at issue.
A-14
PAGE
<PAGE>
4.5 Government and Other Approvals. Except for the Government
------------------------------
Approvals described in Section 3.4, no consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by
Towne or the Bank in connection with the execution and delivery of this Merger
Agreement or the consummation of the transactions contemplated by this Merger
Agreement nor is any consent or approval required from any landlord, licensor
or other non-governmental party which has granted rights to Towne or the Bank
in order to avoid forfeiture or impairment of such rights. Neither Towne nor
the Bank is aware of any facts, circumstances or reasons why such Government
Approvals should not be forthcoming or which would prevent or hinder such
approvals from being obtained.
4.6 Compliance With Law. Towne, the Bank and all Towne
-------------------
Subsidiaries hold all licenses, franchises, permits and authorizations
necessary for them to own or lease their respective properties and assets and
for the lawful conduct of their respective businesses, as they are presently
conducted, and Towne and the Bank have complied in all material respects with
all applicable statutes, laws, ordinances, rules and regulations of all
federal, state and local governmental bodies, agencies and subdivisions having,
asserting or claiming jurisdiction over Towne and the Bank's properties or over
any other part of Towne's and the Bank's assets, liabilities or operations.
The benefits of all of such licenses, franchises, permits and authorizations
are in full force and effect and, to the best knowledge of Towne and the Bank,
may continue to be enjoyed by Towne and the Bank subsequent to the Closing of
the transactions contemplated herein without any consent or approval. Neither
Towne, the Bank nor any Towne Subsidiary has received notice of any proceeding
for the suspension or revocation of any such license, franchise, permit, or
authorization and no such proceeding is pending or has been threatened by any
governmental authority.
4.7 Charter Documents. Included in Schedule 4.7 hereto are true
-----------------
and correct copies of the Articles of Incorporation and Bylaws of Towne and the
Bank. The Articles of Incorporation and Bylaws of Towne and the Bank, as
amended to date, are in full force and effect.
4.8 Financial Statements.
--------------------
(a) Attached as Schedule 4.8(a) hereto are true copies of the
---------------
consolidated balance sheets of the Bank as of December 31, 1996 and 1995, and
the related consolidated statements of income and changes in stockholders'
equity and cash flows of the Bank for the years ended December 31, 1996, 1995
and 1994 ("Bank Financial Statements"). Such financial statements (i) were
prepared from the books and records of the Bank, which are complete and
accurate in all material respects and have been maintained in accordance with
good business practices; (ii) were prepared in accordance with GAAP; (iii)
accurately present the Bank's consolidated financial condition and the
consolidated results of its operations, changes in stockholders' equity and
cash flows as stated including any amendments thereto at the relevant dates
thereof and for the periods covered thereby; (iv) do contain or reflect all
necessary adjustments and accruals for an accurate presentation of the Bank's
consolidated financial condition and the consolidated results of the Bank's
operations and cash flows for the periods covered by the Bank Financial
Statements; (v) do contain and reflect adequate provisions for loan losses, for
real estate owned reserves and for all reasonably anticipatable liabilities for
all taxes, federal, state, local or foreign, with respect to the periods then
ended; and (vi) do contain and reflect adequate provisions for all reasonably
anticipated liabilities for OPEB pursuant to FASB 106 and 112.
(b) Towne has delivered to Acquiror (or will deliver, when
available, with respect to periods ended after the date of this Merger
Agreement) true, correct and complete copies of (i) all Call Reports, including
any amendments thereto, filed with any Regulatory Authorities by the Bank and
(ii) all reports, including any amendments thereto filed with any Regulatory
Authorities by Towne, each for any quarter ending after December 31, 1996.
Such reports (i) were (or will be) prepared from the books and records of Towne
or the Bank, which are complete and accurate in all material respects and have
been maintained in accordance with good business practices; (ii) were (or will
be) prepared in accordance with regulatory accounting principles consistently
applied; (iii) accurately present (or, when prepared, will present) Towne's and
the Bank's consolidated financial condition and the consolidated results of its
operations and changes in stockholders' equity at the relevant dates thereof
and for the
A-15
PAGE
<PAGE>
periods covered thereby; (iv) do contain or reflect (or, when prepared, will
contain and reflect) all necessary adjustments and accruals for an accurate
presentation of Towne's or the Bank's consolidated financial condition and the
consolidated results of Towne's or the Bank's operations for the periods
covered thereby; (v) do contain and reflect (or, when prepared, will contain
and reflect) adequate provisions for loan losses, for real estate owned
reserves and for all reasonably anticipatable liabilities for all taxes,
federal, state, local or foreign, with respect to the periods then ended; and
(vi) do contain and reflect adequate provisions for all reasonably anticipated
liabilities for OPEB pursuant to FASB 106 and 112.
4.9 Absence of Certain Changes. Except as disclosed in Schedule
--------------------------
4.9 or as provided for or contemplated in this Merger Agreement, since December
31, 1996 (the "Balance Sheet Date") there has not been:
(a) any material transaction by Towne or the Bank not in the
ordinary course of business and in conformity with past practice;
(b) any material adverse change in the business, property,
assets (including loan portfolios), liabilities (whether absolute, accrued,
contingent or otherwise), prospects, operations, liquidity, income, condition
(financial or otherwise) or net worth of Towne or the Bank;
(c) any damage, destruction or loss, whether or not covered by
insurance, which has had or may have a material adverse effect on any of the
properties, business or prospects of Towne and the Bank or their future use and
operation by Towne and the Bank;
(d) any acquisition or disposition by Towne or the Bank of any
property or asset of Towne or the Bank, whether real or personal, having a fair
market value, singularly or in the aggregate, in an amount greater than Twenty
Thousand Dollars ($20,000), except in the ordinary course of business and in
conformity with past practice;
(e) any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind on any of the respective properties or assets of Towne
or the Bank, except to secure extensions of credit in the ordinary course of
business and in conformity with past practice;
(f) any amendment, modification or termination of any contract
or agreement, relating to Towne or the Bank, to which Towne or the Bank is a
party which would have a material adverse effect upon the financial condition
or operations of Towne and the Bank;
(g) any increase in, or commitment to increase, the
compensation payable or to become payable to any officer, director, employee or
agent of Towne or the Bank, or any bonus payment or similar arrangement made to
or with any of such officers, directors, employees or agents, other than
routine increases made in the ordinary course of business not exceeding the
greater of five percent (5%) per annum or $5,000 for any of them individually;
(h) any incurring of, assumption of, or taking of, by Towne or
the Bank, any property subject to, any liability, except for liabilities
incurred or assumed or property taken subsequent to the Balance Sheet Date in
the ordinary course of business and in conformity with past practice;
(i) any material alteration in the manner of keeping the books,
accounts or Records of the Bank, or in the accounting policies or practices
therein reflected;
(j) any release or discharge of any obligation or liability of
any person or entity related to or arising out of any loan made by the Bank of
any nature whatsoever, except in the ordinary course of business and in
conformity with past practice; or
A-16
PAGE
<PAGE>
(k) any loan by the Bank to any Officer, director or 2%
shareholder of the Bank or any Affiliate of the Bank; or to any member of the
immediate family of such Officer, director or 2% shareholder of the Bank or any
Affiliate of the Bank; or to any Person in which such Officer, director or 2%
shareholder directly or indirectly owns beneficially or of record ten percent
(10%) or more of any class of equity securities in the case of a corporation,
or of any equity interest, in the case of a partnership or other non-corporate
entity; or to any trust or estate in which such Officer, director or 2%
shareholder has a ten percent (10%) or more beneficial interest; or as to which
such Officer, director or 2% shareholder serves as a trustee or in a similar
capacity. As used herein, "Officer" shall refer to a person who holds the
title of chairman, president, executive vice president, senior vice president,
controller, chief financial officer, secretary, cashier or treasurer.
4.10 Deposits. Except as set forth in Schedule 4.10, none of the
--------
Bank Deposits is a "brokered" Deposit or subject to any encumbrance, legal
restraint or other legal process and no portion of the Deposits represents a
Deposit by any Affiliate of the Bank.
4.11 Properties. Except as described in Schedule 4.11 hereto or
---------- -------------
adequately reserved against in the Bank Financial Statements, Towne, the Bank
and each Towne Subsidiary have good and marketable title free and clear of all
material liens, encumbrances, charges, defaults, or equities of whatever
character to all of its properties and assets, tangible or intangible, other
than as reflected in the Bank Financial Statements. All buildings, and all
fixtures, equipment, and other property and assets that are material to the
business of Towne, the Bank and the Towne Subsidiaries, taken as a whole, held
under leases or subleases by Towne, the Bank or any Towne Subsidiary, are held
under valid instruments enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting the enforcement of
creditors' rights generally, and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceedings may be pending).
4.12 Towne Subsidiaries. Schedule 4.12 hereto lists all of the
------------------ -------------
active and inactive Towne Subsidiaries as of the date of this Merger Agreement
and describes generally the business activities conducted, or permitted to be
conducted, by each Towne Subsidiary. No equity securities of any of the Towne
Subsidiaries are or may become required to be issued (other than to the Bank)
by reason of any options, warrants, scrip, rights to subscribe to, calls, or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of any Towne
Subsidiary, and there are no contracts, commitments, understandings, or
arrangements by which any Towne Subsidiary is bound to issue (other than to the
Bank) any additional shares of its capital stock or options, warrants, or
rights to purchase or acquire any additional shares of its capital stock. All
of the shares of capital stock of each Towne Subsidiary held by the Bank or by
any Towne Subsidiary are fully paid and nonassessable and are owned by the Bank
or such Towne Subsidiary free and clear of any claim, lien, or encumbrance of
any nature whatsoever, whether perfected or not. Except as set forth on
Schedule 4.12, neither the Bank nor any Towne Subsidiary holds any interest in
a partnership or joint venture of any kind.
4.13 Condition of Fixed Assets and Equipment. Except as disclosed
---------------------------------------
in Schedule 4.13 hereto, all of Towne's, the Bank's and the Towne Subsidiaries'
-------------
buildings, structures and equipment in regular use are in good and serviceable
condition, normal wear and tear excepted. None of the buildings, structures
and equipment of Towne, the Bank or any Towne Subsidiary violates or fails to
comply in any material respect with any applicable health, fire, environmental,
safety, zoning or building laws or ordinances or any restrictive covenant
pertaining thereto.
4.14 Tax Matters. Except as described in Schedule 4.14 hereto:
----------- -------------
(a) All federal, state, local, and foreign tax returns and
information returns required to be filed by or on behalf of Towne, the Bank and
each Towne Subsidiary have been timely filed or requests for extensions have
been timely filed, granted, and have not expired for periods ended on or before
the date of this Merger Agreement, and all returns filed are, and the
information contained therein is, complete and accurate. All
A-17
PAGE
<PAGE>
tax obligations reflected in such returns have been paid or adequately provided
for. As of the date of this Merger Agreement, there is no audit examination,
deficiency, or refund litigation or matter in controversy with respect to any
taxes that might result in a determination materially adverse to Towne, the
Bank or any Towne Subsidiary except as fully reserved for in the Bank Financial
Statements. All taxes, interest, additions, and penalties due with respect to
completed and settled examinations or concluded tax litigation have been paid.
(b) Neither Towne, the Bank nor any Towne Subsidiary has
executed an extension or waiver of any statute of limitations on the assessment
or collection of any tax due that is currently in effect.
(c) Adequate provision for any federal, state, local, or
foreign taxes due or to become due for Towne, the Bank and all Towne
Subsidiaries for all periods through and including December 31, 1996, has been
made and is reflected on the December 31, 1996 financial statements included in
the Bank Financial Statements and has been and will continue to be made with
respect to periods ending after December 31, 1996 and subsequent periods.
(d) Deferred taxes of Towne, the Bank and each Towne
Subsidiary have been and will be provided for in accordance with GAAP.
(e) To the best knowledge of Towne and the Bank, neither the
Internal Revenue Service nor any foreign, state, local or other taxing
authority is now asserting or threatening to assert against Towne, the Bank or
any Towne Subsidiary any deficiency or claim for additional taxes, or interest
thereon or penalties in connection therewith. All income, payroll,
withholding, property, excise, sales, use, franchise and transfer taxes, and
all other taxes, charges, fees, levies or other assessments, imposed upon Towne
or the Bank by the United States or by any state, municipality, subdivision or
instrumentality of the United States or by any other taxing authority,
including all interest, penalties or additions attributable thereto, which are
due and payable by Towne, the Bank or any Towne Subsidiary, either have been
paid in full, or have been properly accrued and reflected in the Bank Financial
Statements.
4.15 Litigation. Except as set forth in Schedule 4.15 hereto,
---------- -------------
there is no action, suit or proceeding pending, or to the best knowledge of
Towne and the Bank, threatened against Towne, the Bank or any Towne Subsidiary
before any court or arbitrator or any governmental body, agency or official,
including, but not limited to, any action suit or proceeding that (i) has been
brought by or on behalf of any person employed or formerly employed by Towne,
the Bank or any Towne Subsidiary or (ii) purports or seeks to enjoin or
restrain the transactions contemplated by this Merger Agreement. Except as set
forth on Schedule 4.15 there are no actions, suits, or proceedings pending or,
-------------
to the best knowledge of Towne and the Bank, threatened against any officers or
directors of Towne, the Bank or any Towne Subsidiary by any stockholder of
Towne, the Bank or any Towne Subsidiary (or by any former stockholder of Towne,
the Bank or any Towne Subsidiary) relating to or arising out of such person's
status as a stockholder.
4.16 Hazardous Materials.
-------------------
(a) To the best knowledge of Towne and the Bank, Towne, the
Bank and all the Towne Subsidiaries have obtained all permits, licenses and
other authorizations which are required to be obtained by them with respect to
the Property (as defined herein) under all Applicable Environmental Laws (as
defined herein). All Property controlled, directly or indirectly, by Towne,
the Bank or any Towne Subsidiary is in compliance with the terms and conditions
of all of such permits, licenses and authorizations, and, to the best of
knowledge of Towne and the Bank, is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any Applicable Environmental
Laws or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except as described in detail in Schedule 4.16 hereto. For purposes hereof,
-------------
the following terms shall have the following meanings:
A-18
PAGE
<PAGE>
"Applicable Environmental Laws" shall mean all federal,
state, local and municipal environmental laws, rules or regulations to the
extent applicable to the Property, including, but not limited to, (a) the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq. ("CERCLA"); (b) the Resource Conservation and Recovery
-- ---
Act, 42 U.S.C. Section 6901 et seq. "RCRA"; (c) the Federal Water Pollution
-- ---
Control Act, 33 U.S.C. Section 1251 et seq.; (d) the Clean Air Act, 42 U.S.C.
-- ---
Section 7401 et seq.; (e) the Hazardous Materials Transportation Act, 49 U.S.C.
-- ---
Section 1471 et seq.; (f) the Toxic Substances Control Act, 15 U.S.C. Section
-- ---
2601 et seq.; (g) the Emergency Planning and Community Right-to-Know Act, 42
-- ---
U.S.C. Section 11001 et seq.; (h) the National Environmental Policy Act, 42
-- ---
U.S.C. Section 4321 et seq.; (i) the Rivers and Harbors Act of 1899, 33 U.S.C.
-- ---
Section 401 et seq.; (j) the Occupational Safety and Health Act, 29 U.S.C.
-- ---
Section 651 et seq.; (k) the Safe Drinking Water Act, 42 U.S.C. Section 300(f)
-- ---
et seq.; (l) the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; and
- -- --- -- ---
(m) any rule, regulation, order, injunction, judgment, declaration or decree
implementing or interpreting any of the foregoing Acts, as amended.
"Hazardous Substances" shall mean any substance, material,
waste, or pollutant that is now (or prior to the Closing) listed, defined,
characterized or regulated as hazardous, toxic or dangerous under or pursuant
to any statute, law, ordinance, rule or regulation of any federal, state,
regional, county or local governmental authority having jurisdiction over the
Property of Towne, the Bank or any Towne Subsidiary or its use or operation,
including, without limitation, (a) any substance, material, element, compound,
mixture, solution, waste, chemical or pollutant listed, defined, characterized
or regulated as hazardous, toxic or dangerous under any Applicable
Environmental Laws, (b) petroleum, petroleum derivatives or by-products, and
other hydrocarbons, (c) polychlorinated biphenyls (PCBs), asbestos and urea
formaldehyde, and (d) radioactive substances, materials or waste.
"Loan Property" means any property in which Towne, the Bank
or a Towne Subsidiary holds a security interest.
"Property" means any real property owned, controlled,
leased or held by Towne, the Bank or a Towne Subsidiary, in whole or in part,
solely or in a joint venture or other business arrangement, either for
operational or investment purposes, and whether assigned, purchased, or
obtained through foreclosure (or similar action) or in satisfaction of debts
previously contracted.
(b) In addition, except as set forth in Schedule 4.16(b)
hereto:
(i) No notice, notification, demand, request for
information, citation, summons or order has been received by Towne or the
Bank, no complaint has been filed and served on the Bank, no penalty has
been assessed and to the best knowledge of Towne and the Bank no
investigation or review is pending by any governmental or other entity
with respect to any alleged failure by Towne, the Bank or any Towne
Subsidiary to have any permit, license or authorization required in
connection with the conduct of the business of Towne, the Bank or any
Towne Subsidiary or with respect to any generation, treatment, storage,
recycling, transportation, release or disposal, or any release as defined
in 42 U.S.C. Section 9601(22) ("Release"), of any Hazardous Substances at
any Property or any Loan Property;
(ii) To the best of knowledge of Towne and the Bank, no
Property or Loan Property has received or held any Hazardous Substances
in such amount and in such manner as to constitute a violation of the
Applicable Environmental Laws, and no Hazardous Substances have been
Released or disposed of on, in or under any of the Property during or
prior to Towne's, the Bank's or any Towne Subsidiary's occupancy thereof,
or during or prior to the occupancy thereof by any assignee or sublessee
of the Bank or any Towne Subsidiary, except in compliance with all
Applicable Environmental Laws;
(iii) To the best knowledge of Towne and the Bank,
there are no Hazardous Substances being stored at any Property or Loan
Property or located in, on or upon, any Property or Loan Property
(including the subsurface thereof) or installed or affixed to structures
or equipment on any Property
A-19
PAGE
<PAGE>
or Loan Property; and, to the best knowledge
of Towne and the Bank, there are no underground storage tanks for
Hazardous Substances, active or abandoned, at any Property; and
(iv) To the best knowledge of Towne and the Bank, no
Hazardous Substances have been Released in a reportable quantity, where
such a quantity has been established by statute, ordinance, rule,
regulation or order, at, on or under any Property.
(c) Neither Towne, the Bank nor any Affiliate of Towne has
knowingly transported or arranged for the transportation of any Hazardous
Substances to any location which is listed on the National Priorities List
under CERCLA, listed for possible inclusion on the National Priorities List by
the Environmental Protection Agency in the CERCLA Information System
("CERCLIS") or on any similar state list or which is the subject of federal,
state or local enforcement actions or other investigations which may lead to
claims against the owner of the Property for cleanup costs, remedial work,
damages to natural resources or for personal injury claims, including, but not
limited to, claims under CERCLA.
(d) No Hazardous Substances have been knowingly generated,
recycled, treated, stored, disposed of or Released by, Towne, the Bank or any
Affiliate of Towne in violation of Applicable Environmental Laws.
(e) No oral or written notification of a Release of Hazardous
Substances has been given or filed by or on behalf of Towne, the Bank or any
Affiliate of Towne relating to any Property and no Property is listed or
proposed for listing on the National Priority List promulgated pursuant to
CERCLA, on CERCLIS or on any similar state list of sites requiring
investigation or clean-up.
(f) To the best knowledge of Towne and the Bank, there are no
liens arising under or pursuant to any Applicable Environmental Laws on any
Property, and no government actions have been taken or, to the best knowledge
of Towne and the Bank, threatened, or are in process which could subject any
Property to such liens and none of the Property would be required to place any
notice or restriction relating to the presence of Hazardous Substances at any
Property in any deed to such Property.
(g) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or which are in the
possession of Towne, the Bank or any Affiliate of Towne and the Bank in
relation to any Property, which have not been made available to Acquiror.
(h) Neither Towne nor the Bank is aware of any facts which
might suggest that Towne, the Bank or any Towne Subsidiary has engaged in any
management practice with respect to any of its past or existing borrowers which
could reasonably be expected to subject Towne, the Bank or any Towne Subsidiary
or any Property or Loan Property to any liability under any Applicable
Environmental Laws.
4.17 Insurance. Towne, the Bank and all of Towne's and the Bank's
---------
material assets, businesses, real property and other material properties are
insured against fire, casualty, theft, liability, loss, interruption, title and
such other events against which it is customary in the banking industry to
insure, all such insurance policies being in amounts that are adequate and
consistent with past practice and experience. Set forth on Schedule 4.17 is a
-------------
list of all insurance policies (excluding policies maintained on one- to
four-family residential properties acquired through foreclosure) maintained by
or for the benefit of Towne, the Bank or any of the Towne Subsidiaries or their
respective directors, officers, employees or agents. All such insurance
policies are in full force and effect. Each of Towne, the Bank and the Towne
Subsidiaries has taken or will take all requisite action (including without
limitation the making of claims and the giving of notices) pursuant to its
directors' and officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters (other than matters
arising in connection with this Merger Agreement and the transactions
contemplated hereby) occurring prior to the Effective Time that are known to
Towne or the Bank. Neither Towne, the Bank nor any of the Towne Subsidiaries
has had an insurance policy canceled or been denied insurance coverage for
which any of such
A-20
PAGE
<PAGE>
companies has applied. The fidelity bonds in effect as to which the Bank is a
named insured are believed by Towne and the Bank to be sufficient.
4.18 Labor and Employment Matters. Except as reflected in Schedule
---------------------------- --------
4.18 hereto, there is no (i) collective bargaining agreement or other labor
- ----
agreement to which Towne, the Bank or any Towne Subsidiary is a party or by
which any of them is bound; (ii) employment, profit sharing, deferred
compensation, bonus, stock option, purchase, retainer, consulting, retirement,
welfare or incentive plan or contract to which Towne, the Bank or any Towne
Subsidiary is a party or by which it is bound; or (iii) plan or agreement under
which "fringe benefits" (including, but not limited to, vacation plans or
programs, sick leave plans or programs and related benefits) are afforded any
of the employees of Towne, the Bank or any Towne Subsidiary. Neither Towne nor
the Bank has received any notice that any party to any such agreement, plan or
contract is in default with respect to any material term or condition thereof,
nor has any event occurred which, through the passage of time or the giving of
notice, or both, would constitute a default thereunder or would cause the
acceleration of any obligation of any party thereto. Neither Towne, the Bank
nor any Towne Subsidiary has received notice from any governmental agency of
any alleged violation of applicable laws that remains unresolved respecting
employment and employment practices, terms and conditions of employment and
wages and hours. Towne, the Bank and each Towne Subsidiary have complied in
all material respects with all applicable laws, rules and regulations relating
to the employment of labor, including those related to its employment
practices, employee disabilities, wages, hours, collective bargaining and the
payment and withholding of taxes and other sums as required by the appropriate
governmental authorities, and Towne, the Bank and each Towne Subsidiary have
withheld and paid to the appropriate governmental authorities or are holding
for payment not yet due to such authorities, all amounts required to be
withheld from the employees of Towne, the Bank and each Towne Subsidiary and
are not liable for any arrears of wages, taxes, penalties or other sums for
failure to comply with any of the foregoing. Except as set forth in Schedule
--------
4.18, there is no: unfair labor practice complaint against Towne, the Bank or
- ----
any Towne Subsidiary pending before the National Labor Relations Board or any
state or local agency; pending labor strike or, to the best of knowledge of
Towne and the Bank, other labor trouble affecting Towne, the Bank or any Towne
Subsidiary; labor grievance pending against Towne, the Bank or any Towne
Subsidiary; to the best knowledge of Towne and the Bank, pending representation
question respecting the employees of Towne, the Bank or any Towne Subsidiary;
pending arbitration proceedings arising out of or under any collective
bargaining agreement to which Towne, the Bank or any Towne Subsidiary is a
party, or to the best knowledge of Towne and the Bank, any basis for which a
claim may be made under any collective bargaining agreement to which Towne, the
Bank or any Towne Subsidiary is a party.
4.19 Records and Documents. The Records of Towne and the Bank are
---------------------
and will be sufficient to enable the Bank to continue conducting its business
as a commercial bank under similar standards as Towne and the Bank has
heretofore conducted such business.
4.20 Capitalization of Towne. The authorized capital stock of Towne
-----------------------
consists of 600,000 shares of Towne Common Stock. As of the date of this
Merger Agreement, 282,191 shares of the Towne Common Stock were issued and
outstanding, no shares of the Towne Common Stock were held by Towne as treasury
stock and no shares of the preferred stock were issued and outstanding. All of
the outstanding Towne Common Stock is validly issued, fully-paid and
nonassessable and has not been issued in violation of any preemptive rights of
any Towne Shareholder. Except as described on Schedule 4.20 hereto, as of the
-------------
date hereof, there are no outstanding securities or other obligations which are
convertible into Towne Common Stock or into any other equity or debt security
of Towne, and there are no outstanding options, warrants, rights, scrip, rights
to subscribe to, calls or other commitments of any nature which would entitle
the holder, upon exercise thereof, to be issued Towne Common Stock or any other
equity or debt security of Towne. Accordingly, immediately prior to the
Effective Time, there will be not more than 314,025 shares of Towne Common
Stock issued and outstanding.
4.21 Capitalization of the Bank. The authorized capital stock of
--------------------------
the Bank consists of 600,000 shares of common stock having a par value of
$10.00 per share (the "Bank Common Stock"). As of the date of this Merger
Agreement, 297,125 shares of Bank Common Stock were issued and outstanding and
no shares of Bank Common Stock were held by the Bank as treasury stock. All of
the outstanding Bank Common Stock is held
A-21
PAGE
<PAGE>
beneficially and of record by Towne, free and clear of any lien, claim,
security interest, encumbrance, charge, restriction or right of any third party
of any kind whatsoever. All of the outstanding Bank Common Stock is validly
issued, fully-paid and nonassessable and has not been issued in violation of
any preemptive rights of any shareholder of the Bank. There are no outstanding
securities or other obligations which are convertible into Bank Common Stock or
into any other equity or debt security of the Bank, and there are no
outstanding options, warrants, rights, scrip, rights to subscribe to, calls or
other commitments of any nature which would entitle the holder, upon exercise
thereof, to be issued Bank Common Stock or any other equity or debt security of
the Bank.
4.22 Sole Agreement. With the exception of this Merger Agreement,
--------------
neither Towne, the Bank nor any Towne Subsidiary has been a party to: any
letter of intent or agreement to merge, to consolidate, to sell or purchase
assets (other than in the normal course of its business) or to any other
agreement which contemplates the involvement of Towne, the Bank or any Towne
Subsidiary of either (or any of their assets) in any business combination of
any kind; or any agreement obligating Towne or the Bank to issue or sell or
authorize the sale or transfer of Bank Common Stock. Except as described in
Schedule 4.22 hereto, there are no (nor will there be at the Effective Time
- -------------
any) shares of capital stock or other equity securities of the Bank
outstanding, except for shares of the Bank Common Stock presently issued and
outstanding, and there are no (nor will there be at the Effective Time any)
contracts, commitments, understandings, or arrangements by which Towne or the
Bank is or may be bound to issue additional shares of their capital stock or
options, warrants, or rights to purchase or acquire any additional shares of
their capital stock. There are no (nor will there be at the Effective Time
any) contracts, commitments, understandings, or arrangements by which Towne or
any Towne Subsidiary is or may be bound to transfer or issue to any third party
any shares of the capital stock of any Towne Subsidiary, and there are no (nor
will there be at the Effective Time any) contracts, agreements, understandings
or commitments relating to the right of Towne or the Bank to vote or to dispose
of any such shares.
4.23 Disclosure. The information concerning, and representations
----------
and warranties made by, Towne and the Bank set forth in this Merger Agreement,
or in the Schedules of Towne and the Bank hereto, or in any document,
statement, certificate or other writing furnished or to be furnished by Towne
and the Bank to Acquiror pursuant hereto, does not and will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated herein or therein necessary to make the statements and facts
contained herein or therein, in light of the circumstances in which they were
or are made, not false or misleading. Copies of all documents heretofore or
hereafter delivered or made available to Acquiror by Towne and the Bank
pursuant hereto were or will be complete and accurate copies of such documents.
4.24 Absence of Undisclosed Liabilities. Except as described in
----------------------------------
Schedule 4.24 hereto, neither Towne, the Bank nor any Towne Subsidiary has any
- -------------
obligation or liability (contingent or otherwise) that is material to the
financial condition or operations of Towne, the Bank or any Towne Subsidiary,
or that, when combined with all similar obligations or liabilities, would be
material to the financial condition or operations of Towne, the Bank or any
Towne Subsidiary (i) except as disclosed in the Bank Financial Statements
delivered to Acquiror prior to the date of this Merger Agreement or (ii) except
obligations or liabilities incurred in the ordinary course of its business
consistent with past practices or (iii) except as contemplated under this
Merger Agreement. Since December 31, 1996, neither Towne, the Bank nor any
Towne Subsidiary has incurred or paid any obligation or liability which would
be material to the financial condition or operations of Towne, the Bank or such
Towne Subsidiary, except for obligations paid by the Bank under the terms of
this Merger Agreement (all such obligations or payments are fully described by
the Bank in Schedule 4.24 hereto) or in connection with transactions made by it
-------------
in the ordinary course of its business consistent with past practices, laws and
regulations applicable to the Bank or any Towne Subsidiary.
4.25 Allowance for Loan Losses. The allowance for loan losses shown
-------------------------
on the Bank Financial Statements is (with respect to periods ended on or before
December 31, 1996) or will be (with respect to periods ending subsequent to
December 31, 1996) adequate in all respects to provide for anticipated losses
inherent in loans outstanding or for commitments to extend credit or similar
off-balance sheet items (including accrued interest receivable) as of the dates
thereof and is in compliance with the requirements of GAAP. Except as
disclosed in Schedule 4.25 hereto, as of the date thereof, the Bank does not
-------------
have any loan which has been criticized or classified
A-22
PAGE
<PAGE>
by bank examiners representing any Regulatory Authority or by its independent
auditors as "Special Mention," "Substandard," "Doubtful" or "Loss" or as a
"Potential Problem Loan."
The allowance for possible losses on other real estate owned ("OREO")
shown on the Bank Financial Statements is (with respect to periods ended on or
before December 31, 1996) or will be (with respect to periods ending subsequent
to December 31, 1996) adequate in all respects to provide for anticipated
losses inherent in OREO or held by the Bank or any Towne Subsidiary and the net
book value of OREO on the Balance Sheet of the Bank Financial Statements is the
fair value of the OREO in accordance with Statement of Position 92-3.
4.26 Compliance with Laws. Except as disclosed in Schedule 4.26,
-------------------- -------------
Towne, the Bank and each Towne Subsidiary:
(a) Is in compliance with all laws, rules, regulations,
reporting and licensing requirements, and orders applicable to its business or
employees conducting its business (including, but not limited to, those
relating to consumer disclosure and currency transaction reporting) the breach
or violation of which would or could reasonably be expected to have a material
adverse effect on the financial condition or operations of Towne, the Bank or
any Towne Subsidiary, or which would or could reasonably be expected to subject
Towne, the Bank or any Towne Subsidiary or any of its directors or officers to
civil money penalties;
(b) Has received no notification or communication from any
agency or department of federal, state, or local government or any of the
Regulatory Authorities, or the staff thereof (i) asserting that Towne, the Bank
or any Towne Subsidiary is or may not be in compliance with any of the
statutes, rules, regulations, or ordinances which such governmental authority
or Regulatory Authority enforces, which, as a result of such noncompliance,
would result in a material adverse impact on Towne, the Bank or any Towne
Subsidiary, (ii) threatening to revoke any license, franchise, permit, or
governmental authorization which is material to the financial condition or
operations of Towne, the Bank or any Towne Subsidiary, or (iii) requiring
Towne, the Bank or any Towne Subsidiary to enter into a cease and desist order,
consent, agreement, or memorandum of understanding; and
(c) Is in material compliance with the applicable provisions of
the Community Reinvestment Act ("CRA") and the regulations promulgated
thereunder, and the Bank currently has a CRA rating of satisfactory or better.
To the best knowledge of Towne and the Bank, there is no fact or circumstance
or set of facts or circumstances which would cause the Bank to fail to comply
with such provisions or cause the CRA rating of the Bank to fall below
satisfactory.
4.27 Absence of Regulatory Actions. Neither Towne, the Bank nor any
-----------------------------
of the Towne Subsidiaries is a party to any cease and desist order, written
agreement or memorandum of understanding with, or a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by,
or is a recipient of any extraordinary supervisory letter from, or has adopted
any board resolutions at the request of, federal or state governmental
authorities charged with the supervision or regulation of depository
institutions or depository institution holding companies or engaged in the
insurance of bank and/or savings and loan deposits nor has it been advised by
any such governmental authority that it is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such
order, directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar
undertaking.
4.28 Employee Benefit Plans.
----------------------
(a) Towne and the Bank have previously provided to Acquiror
true and complete copies of each "employee pension benefit plan," as defined in
Section 3(2) of ERISA which, to the best of knowledge of Towne and the Bank, is
subject to any provision of ERISA and covers any employee, whether active or
retired, of Towne, the Bank or any Towne Subsidiary or any other entity which
is a member of a controlled group or is under common control with Towne, the
Bank or any Towne Subsidiary in the manner defined and further described in
Section 414(b), (c), or (m) of the Internal Revenue Code. Such plans are
hereinafter referred to collectively as
A-23
PAGE
<PAGE>
the "Employee Pension Benefit Plans", and each such Employee Pension Benefit
Plan is listed in Schedule 4.28(a) hereto. Towne and the Bank have also
provided to Acquiror true and complete copies of all trust agreements,
collective bargaining agreements, and insurance contracts related to such
Employee Pension Benefit Plans.
To the best knowledge of Towne and the Bank, each Employee
Pension Benefit Plan which is intended to be qualified under Section 401(a) of
the Internal Revenue Code is so qualified and each trust forming a part thereof
is exempt from tax pursuant to Section 501(a) of the Internal Revenue Code.
Copies of the latest determination letters concerning the qualified status of
each Employee Pension Benefit Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code have been provided to Acquiror.
Requests for determination letters relating to amendments required to cause
such Employee Pension Benefit Plans to be in compliance with the Tax Equity and
Fiscal Responsibility Act of 1982, the Deficit Reduction Act of 1984 and the
Retirement Equity Act of 1984 were timely filed and have been received by
Towne, the Bank and the Towne Subsidiaries. Requests for determination letters
relating to any subsequent amendments to such plans which are currently pending
have been provided to Acquiror. All such requests were timely and properly
filed and appropriate notice of any such filing was timely and properly
provided to affected plan participants and beneficiaries.
Each of the Employee Pension Benefit Plans has been operated in
substantial conformity with the written provisions of the applicable plan
documents which have been delivered to Acquiror and in compliance with the
requirements prescribed by all statutes, orders, rules, and regulations
including, but not limited to, ERISA and the Internal Revenue Code, which are
applicable to such Employee Pension Benefit Plans. To the extent that the
operation of an Employee Pension Benefit Plan has deviated from the written
provisions of the plan, such operational deviations have been disclosed in
Schedule 4.26(a) hereto. All such deviations have been made in conformity with
- ----------------
applicable laws, including ERISA and the Internal Revenue Code.
With respect to Employee Pension Benefit Plans which are subject
to the annual report requirement of ERISA Section 103 or to the annual return
requirement of Internal Revenue Code Section 6047, all required annual reports
and annual returns, or such other documents as may have been required as
alternative means of compliance with the annual report requirement, have been
timely filed. Copies of all such annual returns/reports, including all
attachments and Schedules, for the three (3) plan years immediately preceding
the current date have been delivered to Acquiror. With respect to Employee
Pension Benefit Plans which complied with the annual return requirement by
satisfaction of an alternate compliance method, any documents required to be
filed with the Department of Labor in satisfaction of such requirements have
been provided to Acquiror.
With respect to all Employee Pension Benefit Plans which are
subject to the summary plan description requirement of ERISA Section 102, all
such summary plan descriptions as were or will be required to be filed with the
Department of Labor and distributed to participants and beneficiaries have been
filed and timely distributed. Copies of all such summary plan descriptions
have been delivered to Acquiror. No Employee Pension Benefit Plan constitutes
a "multi-employer plan" as defined in Section 4001(a)(3) of ERISA.
No Employee Pension Benefit Plan subject to Part III of Subtitle
B of ERISA or Section 412 of the Internal Revenue Code, or both, has incurred
an "accumulated funding deficiency" within the meaning of Internal Revenue Code
Section 412, whether or not waived. All required contributions to all Employee
Pension Benefit Plans have been timely made. Any penalties or taxes which have
been incurred by Towne, the Bank or any Towne Subsidiary or by any Employee
Pension Benefit Plan with respect to the timing or amount of payment of any
contribution to an Employee Pension Benefit Plan have been timely paid. The
limitations of Internal Revenue Code Section 415 have not been exceeded with
respect to any Employee Pension Benefit Plan or combination of such plans to
which such limitations apply.
No "reportable event" (as described in Section 4043(b) of ERISA)
has occurred with respect to any Employee Pension Benefit Plan. No Employee
Pension Benefit Plan or any trust created thereunder, nor any "disqualified
person" with respect to the plan (as defined in Section 4975 of the Internal
Revenue Code), has engaged in a "prohibited transaction", as such term is
defined in Section 4975 of the Internal Revenue Code,
A-24
PAGE
<PAGE>
which could subject such Employee Pension Benefit Plan, any such trust or any
such disqualified person (other than a person for whom neither Towne, the Bank
nor any Towne Subsidiary is directly or indirectly responsible) to liability
under Title I of ERISA or to the imposition of any tax under Section 4975 of
the Internal Revenue Code.
No condition exists with regard to any Employee Pension Benefit
Plan which constitutes grounds for the termination of such plan pursuant to
Section 4042 of ERISA.
No Employee Pension Benefit Plan is subject to Title IV of
ERISA.
No tax has been, will be, or is reasonably anticipated to be
imposed under Internal Revenue Code Section 4978, 4978A, 4978B, or 4979A due to
the operation of an Employee Pension Benefit Plan sponsored by Towne, the Bank
or any Towne Subsidiary which is an employee stock ownership plan ("ESOP").
Except as disclosed in Schedule 4.28(a) hereto, all Employee
----------------
Pension Benefit Plans were in effect for substantially all of calendar year
1996. There has been no material amendment of any such plans (other than
amendments required to comply with applicable law) or material increase in the
cost of maintaining such plans or providing benefits thereunder on or after the
last day of the plan year which ended in calendar year 1996 for each such
Employee Pension Benefit Plan.
Towne and the Bank have provided to Acquiror copies of the
annual actuarial valuation or allocation report for each Employee Pension
Benefit Plan for the three (3) plan years for such plan immediately preceding
the current date. With regard to Employee Pension Benefit Plans which are not
intended to be qualified under Section 401(a) of the Internal Revenue Code,
copies of financial statements or reports containing information regarding the
expense of maintaining any such Employee Pension Benefit Plan for the three (3)
plan years preceding the current date have been delivered to Acquiror.
Towne and the Bank have provided to Acquiror copies of all
filings regarding the Employee Pension Benefit Plans which have been made with
the Regulatory Authorities for the three (3) plan years preceding the current
date.
(b) Towne and the Bank have furnished to Acquiror true and complete
copies of each "Employee Welfare Benefit Plan" as defined in Section 3(1) of
ERISA, which, to the best knowledge of Towne and the Bank, is subject to any
provision of ERISA and covers any employee, whether active or retired, of
Towne, the Bank or any Towne Subsidiary or members of a controlled group or
entities under common control with Towne, the Bank or the Towne Subsidiaries in
the manner defined and further described in Section 414(b), (c), or (m) of the
Internal Revenue Code. Such plans are hereinafter referred to collectively as
the "Employee Welfare Benefit Plans", and each such Employee Welfare Benefit
Plan is listed in Schedule 4.28(b) hereto.
----------------
Towne and the Bank have also provided to Acquiror true and
complete copies of documents establishing all funding instruments for such
Employee Welfare Benefit Plans, including but not limited to, trust agreements,
cafeteria plans (pursuant to Internal Revenue Code Section 125), and voluntary
employee beneficiary associations (pursuant to Internal Revenue Code Section
501(c)(9)). Each of the Employee Welfare Benefit Plans has been operated in
substantial conformity with the written provisions of the plan documents which
have been delivered to Acquiror and in compliance with the requirements
prescribed by all statutes, orders, rules, and regulations including, but not
limited to, ERISA and the Internal Revenue Code, which are applicable to such
Employee Welfare Benefit Plans. Any deviation in the operation of such plans
from the requirements of the plan documents or of applicable laws have been
listed in Schedule 4.28(b) hereto. Towne and the Bank have provided any
----------------
notification required by law to any participant covered under any Employee
Welfare Benefit Plan which has failed to comply with the requirements of any
Internal Revenue Code section which results in the imposition of a tax on
benefits provided to such participants under such plan.
A-25
PAGE
<PAGE>
With respect to all Employee Welfare Benefit Plans which are
subject to the annual report requirement of ERISA Section 103 or to the annual
return requirement of Internal Revenue Code Section 6039D, all annual reports
and annual returns as were required to be filed pursuant to such sections have
been timely filed. Copies of all such annual returns/reports, including all
attachments and Schedules, for the three (3) plan years immediately preceding
the current date for all plans subject to such requirements have been delivered
to Acquiror. With respect to all Employee Welfare Benefit Plans which are
subject to the summary plan description requirement of ERISA Section 102, all
such summary plan descriptions as were required to be filed with the Department
of Labor and distributed to participants and beneficiaries have been timely
filed and distributed. Copies of all such summary plan descriptions have been
delivered to Acquiror.
Except as disclosed in Schedule 4.28(b) hereto, all Employee
----------------
Welfare Benefit Plans which are in effect were in effect for substantially all
of calendar year 1996. Except as disclosed in Schedule 4.28(b) hereto, there
----------------
has been with respect to such Employee Welfare Benefit Plans no material
amendment thereof or material increase in the cost thereof or benefits payable
thereunder on or after January 1, 1997.
No Employee Welfare Benefit Plan or any trust created
thereunder, nor any "party in interest" with respect to the plan (as defined in
Section 3(14) of ERISA), has engaged in a "prohibited transaction," as such
term is defined in Section 406 of ERISA, which could subject such Employee
Welfare Benefit Plan, any such trust, or any party in interest (other than a
person for whom neither Towne, the Bank nor any Towne Subsidiary is directly or
indirectly responsible) to the imposition of a penalty for such prohibited
transaction under Section 502(i) of ERISA. The Department of Labor has not
assessed any such penalty or served notice to Towne, the Bank or any Towne
Subsidiary that such a penalty may be imposed upon any Employee Welfare Benefit
Plan.
Neither Towne, the Bank nor any Towne Subsidiary has failed to
make any contribution to, or pay any amount due and owing by Towne, the Bank or
a Towne Subsidiary under the terms of, an Employee Welfare Benefit Plan.
Except as disclosed in Schedule 4.28(b) hereto, no claims have been incurred
----------------
with respect to any Employee Welfare Benefit Plan which may, to the best
knowledge of Towne and the Bank, constitute a liability for Towne, the Bank or
any Towne Subsidiary after the application of any insurance, trust or other
funds which are applicable to the payment of such claims.
Except as disclosed in Schedule 4.28(b) hereto, to the best
----------------
knowledge of Towne and the Bank, no condition exists that could subject any
Employee Welfare Benefit Plan or any person (other than a person for whom
neither Towne, the Bank nor any Towne Subsidiary is directly or indirectly
responsible) to liabilities, damages, losses, taxes, or sanctions that arise
under Section 4980B of the Internal Revenue Code or Sections 601 through 608 of
ERISA for failure to comply with the continuation health care coverage
requirements of ERISA Sections 601 through 608 and Internal Revenue Code
Section 4980B with respect to any current or former employee of Towne, the Bank
or any Towne Subsidiary, or the beneficiaries of such employee.
(c) Towne and the Bank have furnished to Acquiror true and complete
copies and/or descriptions of each plan or arrangement maintained or otherwise
contributed to by Towne, the Bank or any Towne Subsidiary which is not an
Employee Pension Benefit Plan and is not an Employee Welfare Benefit Plan and
which (exclusive of base salary and base wages) provides for any form of
current or deferred compensation, bonus, stock option, profit sharing,
retirement, group health or insurance, welfare benefits, fringe benefits, or
similar plan or arrangement for the benefit of any employee or class of
employees, whether active or retired, or independent contractors of Towne, the
Bank or any Towne Subsidiary. Such plans and arrangements shall collectively
be referred to herein as "Benefit Arrangements" and all such Benefit
Arrangements of Towne, the Bank and the Towne Subsidiaries are listed on
Schedule 4.28(c) hereto. Except as disclosed in Schedule 4.28(c) hereto, there
- ---------------- ----------------
are no other benefit arrangements of Towne and the Bank and all Benefit
Arrangements which are in effect were in effect for substantially all of
calendar year 1996. Except as disclosed in Schedule 4.28(c) hereto, there has
----------------
been with respect to Benefit Arrangements no material amendment thereof or
material increase in the cost thereof or benefits payable thereunder on or
after January 1, 1997. There has been no material increase in the base salary
and wage levels of Towne, the Bank or any Towne Subsidiary and, except in the
ordinary course of business, no change in the terms
A-26<PAGE>
or conditions of employment (including severance benefits) compared, in each
case, to those prevailing for substantially all of calendar year 1996. Except
as disclosed in Schedule
--------
4.28(c) hereto, there has been no material increase in the compensation of, or
- -------
benefits payable to, any senior executive employee of Towne, the Bank or any
Towne Subsidiary on or after January 1, 1997, nor has any employment,
severance, or similar contract been entered into with any such employee, nor
has any amendment to any such contract been made on or after January 1, 1997.
With respect to all Benefit Arrangements which are subject to
the annual return requirement of Internal Revenue Code Section 6039D, all
annual returns as were required to be filed have been timely filed. Copies of
all such annual returns for the three (3) plan years immediately preceding the
current date have been delivered to Acquiror.
(d) Listed in Schedule 4.28(d) hereto are all Employee Pension
----------------
Benefit Plans, Employee Welfare Benefit Plans, and Benefit Arrangements which
provide compensation or benefits which become effective upon a change in
control of Towne, the Bank or any Towne Subsidiary, including, but not limited
to, additional compensation or benefits, or acceleration in the amount or
timing of payment of compensation or benefits which had become effective prior
to the date of such acceleration. Except as disclosed in Schedule 4.28(d)
----------------
hereto, there is no Employee Pension Benefit Plan, Employee Welfare Benefit
Plan, or Benefit Arrangement covering any employee of Towne, the Bank or any
Towne Subsidiary which individually or collectively could give rise to the
payment of any amount which would constitute an "excess parachute payment", as
such term is defined in Section 280G of the Internal Revenue Code and
Regulations proposed pursuant to that section.
(e) Except as described in Schedule 4.28(e) hereto, each Employee
----------------
Pension Benefit Plan, Employee Welfare Benefit Plan, or Benefit Arrangement and
each personal services contract, fringe benefit, consulting contract or similar
arrangement with or for the benefit of any officer, director, employee, or
other person may be terminated by Towne or the Bank within a period of no more
than thirty (30) days following the effective time of the merger, without
payment of any amount as a penalty, bonus, premium, severance pay, or other
compensation for such termination. No limitation on the right to terminate any
such plan has been communicated by Towne, the Bank or any Towne Subsidiary to
employees, former employees, or retirees who are or may be participants in or
beneficiaries of such plans or arrangements. No Employee Pension Benefit Plan
which is qualified under Section 401(a) of the Internal Revenue Code is a
qualified defined benefit pension plan.
(f) Except as disclosed in Schedule 4.28(f) hereto, neither Towne,
----------------
the Bank nor any Towne Subsidiary has received notice from any governmental
agency of any alleged violation of applicable laws or of any prospective audit
or other investigation for the purpose of reviewing compliance with applicable
laws with respect to any Employee Pension Benefit Plan, Employee Welfare
Benefit Plan or Benefit Arrangement.
Except as disclosed in Schedule 4.28(f) hereto, no suits,
----------------
actions, or claims have been filed in any court of law or with any governmental
agency regarding the operation of any Employee Pension Benefit Plan, Employee
Welfare Benefit Plan, or Benefit Arrangement and no such additional suits,
actions, or claims are, to the best knowledge of Towne and the Bank,
anticipated to be filed.
4.29 Material Contracts. (a) Except as set forth on Schedule
------------------ --------
4.29 (and with a true and correct copy of the document or other item in
- ----
question attached to such Schedule), neither Towne, the Bank nor any Towne
Subsidiary is a party or subject to any of the following (whether written or
oral, express or implied):
(i) any agreement, arrangement or commitment (A) not made
in the ordinary course of business or (B) pursuant to which Towne, the
Bank or any Towne Subsidiary is or may become obligated to invest in or
contribute capital to any Towne Subsidiary or any other entity;
(ii) any agreement, indenture or other instrument not
disclosed in the Bank Financial Statements relating to the borrowing of
money by Towne, the Bank or any Towne Subsidiary or the guarantee by
Towne, the Bank or any Towne Subsidiary of any such obligation (other
than trade
A-27
PAGE
<PAGE>
payables or instruments related to transactions entered into
in the ordinary course of business by any Towne Subsidiary, such as
deposits, Fed Funds borrowings and repurchase agreements);
(iii) any contract, agreement or understanding with
any labor union or collective bargaining organization;
(iv) any contract containing covenants which limit the
ability of Towne, the Bank or any Towne Subsidiary to compete in any line
of business or with any person or containing any restriction of the
geographical area in which, or method by which, Towne, the Bank or any
Towne Subsidiary may carry on its business (other than as may be required
by law or any applicable Regulatory Authority);
(v) any contract or agreement which is a "material
contract" within the meaning of Item 601(b)(10) of Regulation S-K
promulgated by the SEC;
(vi) any lease with annual rental payments aggregating
$25,000 or more;
(vii) consulting agreement (other than data
processing, software programming and licensing contracts entered into in
the ordinary course of business) involving the payment of more than
$25,000 per annum;
(viii) any agreement with any executive officer or
other key employee of Towne, the Bank or any Towne Subsidiary the
benefits of which are contingent, or the terms of which are
materially altered or any payments or rights are accelerated, upon the
occurrence of a transaction involving Towne, the Bank or any of the Towne
Subsidiaries of the nature contemplated by this Merger Agreement;
(ix) any agreement with respect of any executive officer
of Towne, the Bank or any Towne Subsidiary providing any term of
Employment or compensation guarantee extending for a period longer than
one year and for the payment of in excess of $50,000 per annum;
(x) any agreement with any director or executive officer
of Towne, the Bank or any Towne Subsidiary providing for indemnification
of such person; or
(xi) agreement or plan, 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 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 Merger Agreement.
(b) Except as disclosed on Schedule 4.29, no officer or
-------------
director of Towne, the Bank or any "associate" (as such term is defined in Rule
12b-2 under the Securities Exchange Act) of any such officer or director, has
any material interest in any material contract or property (real or personal),
tangible or intangible, used in or pertaining to the business of Towne, the
Bank or any of the Towne Subsidiaries.
4.30 Material Contract Defaults. Neither Towne, the Bank nor any
--------------------------
Towne Subsidiary is in default in any respect under any contract, agreement,
commitment, arrangement, lease, insurance policy, or other instrument to which
it is a party or by which its respective assets, business, or operations may be
bound or affected or under which it or its respective assets, business, or
operations receives benefits, and which default is reasonably expected to have
either individually or in the aggregate a material adverse effect on the
condition (financial or other) of Towne, the Bank or any Towne Subsidiary, and
there has not occurred any event that, with the lapse of time or the giving of
notice or both, would constitute such a default.
A-28
PAGE
<PAGE>
4.31 Reports. Since January 1, 1994, Towne and the Bank have filed
-------
all reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with (i) the FDIC; (ii) the
FRB; and (iii) any other applicable federal or state securities or banking
authorities. As of their respective dates, each of such reports and documents,
including the financial statements, exhibits, and schedules thereto, complied
in all material respects with all of the requirements of their respective forms
and all of the statutes, rules, and regulations enforced or promulgated by the
Regulatory Authority with which they were filed. All such reports were true
and complete in all material respects 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 to make the statements therein, in light of the
circumstances under which they were made, not misleading. Towne and the Bank
have previously provided to Acquiror true and correct copies of all such
reports and any amendments thereto filed by Towne or the Bank after January 1,
1994.
4.32 Statements True and Correct. None of the information prepared
---------------------------
by, or on behalf of, Towne, the Bank or any Towne Subsidiary regarding Towne,
the Bank or any Towne Subsidiary included in the Proxy Statement/Prospectus
mailed to Towne's shareholders in connection with the Shareholders Meeting, and
any other documents filed with the FRB, the FDIC or any other Regulatory
Authority in connection with the transaction contemplated herein (if
applicable), will be, at the respective times such documents are filed, and,
with respect to the Proxy Statement/Prospectus, when first mailed to the
shareholders of Towne, false or misleading with respect to any material fact,
or will omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or, in the case of the Proxy Statement/Prospectus or any amendment
thereof or supplement thereto, at the time of the Shareholders Meeting, false
or misleading with respect to any material fact, or omit to state any material
fact necessary to make any statements therein, in light of the circumstances
under which they were made, not misleading.
4.33 Brokers and Finders. Neither Towne, the Bank nor any Towne
-------------------
Subsidiary nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees, and no broker or
finder has acted directly or indirectly for Towne, the Bank or any Towne
Subsidiary, in connection with this Merger Agreement or the transactions
contemplated hereby.
4.34 Derivatives Contracts; Structured Notes; Etc. Neither Towne,
--------------------------------------------
the Bank nor any Towne Subsidiary is a party to or has agreed to enter into an
exchange traded or over-the-counter equity, interest rate, foreign exchange or
other swap, forward, future, option, cap, floor or collar or any other contract
that is not included on the balance sheet and is a derivative contract
(including various combinations thereof) (each a "Derivatives Contract") or
owns securities that (1) are referred to generically as "structured notes,"
"high risk mortgage derivatives," "capped floating rate notes" or "capped
floating rate mortgage derivatives" or (2) are likely to have changes in value
as a result of interest or exchange rate changes that significantly exceed
normal changes in value attributable to interest or exchange rate changes,
except for those Derivatives Contracts and other instruments legally purchased
or entered into in the ordinary course of business, consistent with safe and
sound banking practices and regulatory guidance, and listed (as of the date
hereof) on Schedule 4.34.
-------------
4.35 Year 2000 Issues. Expenses associated with resolving Year 2000
----------------
technology issues are not expected to have a material adverse effect on the
financial condition or results of operations of Towne or the Bank, nor are Year
2000 technology issues expected to have a material adverse effect on the
operations of Towne or the Bank.
ARTICLE 5
COVENANTS OF ACQUIROR
5.1 Regulatory Approvals. Within a reasonable time after execution
--------------------
of this Merger Agreement, Acquiror shall file any and all applications with the
appropriate government Regulatory Authorities in order to obtain
A-29
PAGE
<PAGE>
the Government Approvals and shall take such other actions as may be reasonably
required to consummate the transactions contemplated in this Merger Agreement
and the Plan of Merger with reasonable promptness. Acquiror shall pay all fees
and expenses arising in connection with such applications for regulatory
approval. Acquiror agrees to provide the appropriate Regulatory Authorities
with the information required by such authorities in connection with Acquiror's
applications for regulatory approval and Acquiror agrees to use its best
efforts to obtain such regulatory approvals, and any other approvals and
consents as may be required for the Closing, as promptly as practicable;
provided, however, that nothing in
-------- -------
this Section 5.1 shall be construed to obligate Acquiror to take any action to
meet any condition required to obtain prior regulatory approval if any such
condition materially differs from conditions customarily imposed by such
Regulatory Authorities in orders approving acquisitions of the type
contemplated by this Merger Agreement, constitutes a significant impediment
upon Acquiror's ability to carry on its business or acquisition programs (as
may be determined in the sole discretion of Acquiror) or requires Acquiror to
increase the Bank's capital ratios to amounts in excess of the FDIC's minimum
capital ratio guidelines which may be in effect from time to time.
5.2 Preparation of Registration Statement. Acquiror, in
-------------------------------------
cooperation with Towne, shall prepare and file with the SEC a Registration
Statement on Form S-4 with respect to the shares of Acquiror Common Stock to be
issued in the Merger ("Registration Statement"). Such Registration Statement
shall contain a Proxy Statement/Prospectus which shall serve as the proxy
statement of Towne for the Shareholders Meeting and as the prospectus of
Acquiror for the shares of Acquiror Common Stock to be issued in the Merger.
Acquiror shall use its best efforts to cause the Registration Statement to
become effective.
5.3 Registration Statement Effectiveness. Acquiror will advise
------------------------------------
Towne, promptly after Acquiror receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, of the issuance of any stop order or the suspension of the
qualification of the Acquiror Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
5.4 Employees. Upon consummation of the Merger, all employees of
---------
Towne, the Bank and the Towne Subsidiaries shall be deemed to be at-will
employees except for those employees who are parties to a written employment
agreement. After the Effective Date of the Merger, Acquiror will maintain the
existing retirement, welfare benefit and similar plans of Towne and the Bank
for the benefit of eligible employees of the Bank; provided, however, that
Acquiror may, in its sole discretion, combine such plans with similar plans of
Acquiror or its subsidiaries or otherwise substitute such plans for plans
providing substantially similar benefits. In the event that Towne's existing
plans are combined with similar plans of Acquiror or its subsidiaries, then (i)
for the purpose of determining eligibility to participate in Acquiror's plans
and the vesting of benefits under Acquiror's plans (but not for the accrual of
benefits under such plans), Acquiror shall give effect to years of service with
the Bank, as if such service were with Acquiror or its subsidiaries and (ii)
there shall be no exclusion from coverage under Acquiror's health insurance
plan as a result of pre-existing conditions to the extent such conditions were
covered under any health insurance plan maintained by Towne or the Bank prior
to the Effective Date of the Merger.
5.5 Reasonable Efforts to Close. Subject to the terms and
---------------------------
conditions of this Merger Agreement, Acquiror agrees to use all its best
efforts and to take, or to cause to be taken, all actions, and to do, or to
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective, with reasonable
promptness after the date of this Merger Agreement, the transactions
contemplated by this Merger Agreement, including, without limitation, using
reasonable efforts to lift or rescind any injunction or restraining or other
order adversely affecting the ability of the Parties to consummate the
transaction contemplated by this Merger Agreement; provided, however, that such
-------- -------
efforts do not impose unreasonable expense or obligations on Acquiror.
Acquiror shall use, and shall cause each of its Subsidiaries to use, its best
efforts to obtain consents of all third parties and Regulatory Authorities
necessary or desirable for the consummation of each of the transactions
contemplated by this Merger Agreement.
A-30
PAGE
<PAGE>
5.6 Addition to Board of Directors. As promptly as practicable
------------------------------
following the Effective Time, Acquiror shall take such action as may be
necessary to cause the size of Acquiror's Board of Directors to be increased by
one person and to cause the appointment of Rick Meikle to the Board of
Directors of Acquiror.
5.7 Indemnification and Insurance.
-----------------------------
(a) Acquiror agrees that all rights to indemnification or
exculpation now existing in favor of the directors and officers of Towne and
the Bank as provided in their respective articles, bylaws, indemnification
agreements or other written agreements in effect as of the date hereof with
respect to matters occurring prior to the Closing Date shall survive the Merger
and shall continue in full force and effect. If Acquiror or any of its
successors or assigns (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) shall transfer all or
substantially all of its properties and assets to any individual, corporation
or other entity, then, in each such case, Acquiror shall use its best efforts
to cause the successor and assigns of Acquiror to assume the obligations set
forth in this Section 5.7.
(b) Acquiror shall use its best efforts to cause the persons
serving as officers and directors of Towne and the Bank immediately prior to
the Closing Date to be covered for a period of two years after the Closing Date
by the current policies of directors and officers liability insurance
maintained by Towne with respect to acts or omissions occurring prior to the
Closing Date which were committed to such officers and directors in their
capacity as such (provided that Acquiror may substitute therefor policies of at
least the same coverage and amounts containing the terms and conditions which
are no less advantageous to such officers and directors); provided, however,
that Acquiror shall not be obligated to make annual premium payments for such
insurance to the extent such premiums exceed 150% of the premiums paid as of
the date hereof by Towne for such insurance. The provision of this Section 5.7
are intended to be for the benefit of, and shall be enforceable by, each of the
present and former officers and directors of Towne and the Bank and each such
person's respective heirs and representatives.
5.8 Access. Upon notice of at least 48 hours, Acquiror shall
------
afford Towne and its representatives access, during normal business hours
throughout the period up to the Effective Date, to all of the properties, books
and records, provided that no investigation pursuant to this Section 5.8 shall
affect or be deemed to modify or waive any representation or warranty made by
Acquiror in this Merger Agreement or the conditions to the obligations of
Acquiror to consummate the transactions contemplated by this Merger Agreement.
ARTICLE 6
COVENANTS OF TOWNE AND THE BANK
6.1 Shareholders Meeting. Towne shall call a special meeting of the
--------------------
holders of Towne Common Stock to be held as soon as practicable for purposes of
voting upon the transactions contemplated hereby and Towne shall use its best
efforts to solicit and obtain the votes of the holders of Towne Common Stock in
favor of the transactions contemplated hereby and, subject to the exercise of
its fiduciary duties, the Board of Directors of Towne shall recommend approval
of such transactions by such holders. In connection with the Shareholders
Meeting, the Acquiror and Towne shall cooperate in the preparation of the Proxy
Statement/Prospectus and, with the approval of each of the Acquiror and Towne,
which approvals will not be unreasonably withheld, the Proxy
Statement/Prospectus will be mailed to the shareholders of Towne.
A-31
PAGE
<PAGE>
6.2 Conduct of Business -- Affirmative Covenants. Unless the prior
--------------------------------------------
written consent of Acquiror shall have been obtained, and, except as otherwise
contemplated herein:
(a) Towne and the Bank shall, and shall cause each Towne
Subsidiary to:
(i) Operate its business only in the usual, regular, and
ordinary course;
(ii) Preserve intact its business organizations and assets
and to maintain its rights and franchises;
(iii) Take no action, unless otherwise required by
law, rules or regulation, that would (A) materially adversely affect the
ability of any of them or Acquiror to obtain any necessary approvals
of Regulatory Authorities required to consummate the transactions
contemplated by this Merger Agreement, or (B) adversely affect the
ability of such Party to perform its covenants and agreements under this
Merger Agreement;
(iv) Except as they may terminate in accordance with their
terms, keep in full force and effect, and not default in any of their
obligations under, all material contracts;
(v) Keep in full force and effect insurance coverage with
responsible insurance carriers which is reasonably adequate in coverage
and amount for companies the size of the Towne, Bank or such Towne
Subsidiary and for the businesses and properties owned by each and in
which each is engaged, to the extent that such insurance is reasonably
available;
(vi) Use its best efforts to retain the Bank's present
customer base and to facilitate the retention of such customers after the
Effective Time;
(vii) Maintain, renew, keep in full force and effect,
and preserve its business organization and material rights and
franchises, permits and licenses, and to use its best efforts to maintain
positive relations with its present employees so that such employees will
continue to perform effectively and will be available to Towne and the
Bank or Acquiror and Acquiror's Subsidiaries at and after the Effective
Time, and to use its best efforts to maintain its existing, or
substantially equivalent, credit arrangements with banks and other
financial institutions and to assure the continuance of the Bank's
customer relationships; and
(b) Towne and the Bank agree to use their best efforts to
assist Acquiror in obtaining the Government Approvals necessary to complete the
transactions contemplated hereby, and Towne and the Bank shall provide to
Acquiror or to the appropriate governmental authorities all information
reasonably required to be submitted in connection with obtaining such
approvals;
(c) Towne and the Bank, at their own cost and expense, shall
use their best efforts to secure all consents and releases, if any, of third
parties necessary or desirable for the consummation of the transactions
contemplated by this Merger Agreement and shall comply with all applicable
laws, regulations and rulings in connection with this Merger Agreement and the
consummation of the transactions contemplated hereby;
(d) At all times to and including, and as of, the Closing,
Towne and the Bank shall inform Acquiror in writing of any and all facts
necessary to amend or supplement the representations and warranties made herein
and the Schedules attached hereto as necessary so that the representations and
warranties and information provided in the schedules remain true and correct in
all respects; provided, however, that any such updates to Schedules shall be
-------- -------
required prior to the Closing only with respect to matters which represent
material changes to the Schedules and the information contained therein; and
provided further, that before such amendment, supplement or update may be
- -------- -------
deemed to be a part of this Merger Agreement, Acquiror shall have agreed in
writing to each
A-32
PAGE
<PAGE>
amendment, supplement or update to the Schedules made subsequent to the date of
this Merger Agreement as an amendment to this Merger Agreement;
(e) At all times to and including, and as of, the Closing,
Towne and the Bank shall give such further assistance to Acquiror and shall
execute, acknowledge and deliver all such documents and instruments as Acquiror
may reasonably request and take such further action as may be reasonably
necessary or appropriate effectively to consummate the transactions
contemplated by this Merger Agreement;
(f) Towne and the Bank have taken or will take all steps
necessary to exempt the transactions contemplated by this Merger Agreement from
any applicable state takeover or similar law or takeover or similar provision
in the charter documents or bylaws of Towne and the Bank, including without
limitation any provisions of the Articles of Incorporation of Towne restricting
the ownership or acquisition of Towne's capital stock or imposing any "fair
price" or supermajority director or stockholder vote requirements;
(g) Subject to the terms and conditions of this Merger
Agreement, Towne and the Bank agree to use all reasonable efforts and to take,
or to cause to be taken, all actions, and to do, or to cause to be done, all
things necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective, with reasonable promptness after the date of
this Merger Agreement, the transactions contemplated by this Merger Agreement,
including, without limitation, using reasonable efforts to lift or rescind any
injunction or restraining or other order adversely affecting the ability of the
Parties to consummate the transaction contemplated by this Merger Agreement;
provided, however, that such efforts do not impose unreasonable expense or
- -------- -------
obligations on Towne and the Bank.
(h) At the request of Acquiror, Towne and the Bank shall hire
an outside consultant reasonably acceptable to Acquiror to undertake to
determine as soon as reasonably practicable but in any event prior to Closing
whether or not there are any underground storage tanks, asbestos,
ureaformaldehyde, polychlorinated biphenyls, solid wastes or hazard substances,
as defined in the Model Toxic Control Act, CERCLA or any other applicable
Environmental Laws, present at or on any of the "other real estate owned" of
Towne, the Bank or any Towne Subsidiary (excluding any one- to four-family
residential property with appraised value less than $150,000) or at or on any
of the branch or office facilities owned by Towne, the Bank or any Towne
Subsidiary. Such investigation shall be conducted in a manner reasonably
satisfactory to Acquiror, and the results of such investigation shall be set
forth in a written report delivered to Acquiror prior to Closing. The scope
and detail of such report shall be reasonably satisfactory to Acquiror. It is
understood that the investigation shall be a "Phase I." In the event the
transaction contemplated by this Merger Agreement is not consummated and the
failure to consummate is not due to an adverse environmental assessment or
other actions on the part of Towne, Acquiror will reimburse Towne for the cost
of any environmental assessment requested by Acquiror pursuant to this section.
6.3 Conduct of Business -- Negative Covenants. From the date of
-----------------------------------------
this Merger Agreement until the earlier of the Effective Time or the
termination of this Merger Agreement, Towne and the Bank covenant and agree
they will neither do, nor agree or commit to do, nor permit any Towne
Subsidiary to do or commit or agree to do, any of the following without the
prior written consent of the chief executive officer, president, or chief
financial officer of Acquiror:
(a) Except as expressly contemplated by this Merger Agreement
or the Plan of Merger, amend its Articles of Incorporation or Bylaws; or
(b) Impose, or suffer the imposition, on any share of capital
stock held by it or by any of its Subsidiaries of any lien, charge, or
encumbrance, or permit any such lien, charge, or encumbrance to exist; or
(c) (i) Repurchase, redeem, or otherwise acquire or exchange,
directly or indirectly, any shares of its capital stock or other equity
securities or any securities or instruments convertible into any shares
A-33
PAGE
<PAGE>
of its capital stock, or any rights or options to acquire any shares of its
capital stock or other equity securities except as expressly permitted by this
Merger Agreement or the Plan of Merger; or (ii) split or otherwise subdivide
its capital stock; or (iii) recapitalize in any way; or (iv) declare a stock
dividend on the Towne Common Stock; or (v) pay or declare a cash dividend or
make or declare any other type of distribution on the Towne Common Stock; or
(d) Except as expressly permitted by this Merger Agreement,
acquire direct or indirect control over any corporation, association, firm,
organization or other entity, other than in connection with (i) mergers,
acquisitions, or other transactions approved in writing by Acquiror, (ii)
internal reorganizations or consolidations involving existing Subsidiaries,
(iii) foreclosures in the ordinary course of business and not knowingly
exposing it to liability by reason of Hazardous Substances, (iv) acquisitions
of control in its fiduciary capacity, or (v) the creation of new subsidiaries
organized to conduct or continue activities otherwise permitted by this Merger
Agreement; or
(e) Except as expressly permitted by this Merger Agreement or
the Plan of Merger, to (i) issue, sell, agree to sell, or otherwise dispose of
or otherwise permit to become outstanding any additional shares of Towne Common
Stock (other than the issuance of shares upon the exercise of outstanding stock
options and pursuant to the Towne Bank Employee Stock Purchase Plan) or any
other capital stock of Towne, the Bank or of any Towne Subsidiary, or any stock
appreciation rights, or any option, warrant, conversion, call, scrip, or other
right to acquire any such stock, or any security convertible into any such
stock, unless any such shares of such stock are directly sold or otherwise
directly transferred to Towne, the Bank or any Towne Subsidiary, or (ii) sell,
agree to sell, or otherwise dispose of any substantial part of the assets or
earning power of Towne, the Bank or of any Towne Subsidiary; or (iii) sell,
agree to sell, or otherwise dispose of any asset of Towne, the Bank or any
Towne Subsidiary other than in the ordinary course of business for reasonable
and adequate consideration; or (iv) buy, agree to buy or otherwise acquire a
substantial part of the assets or earning power of any other Person or entity;
or
(f) Incur, or permit any Towne Subsidiary to incur, any
additional debt obligation or other obligation for borrowed money except in the
ordinary course of the business of Towne, the Bank or such Towne Subsidiary
consistent with past practices; or
(g) Except as described in Schedule 4.9, grant any increase in
compensation or benefits to any of its employees or officers; pay any bonus;
enter into any severance agreements with any of its officers or employees;
grant any increase in fees or other increases in compensation or other benefits
to any director of Towne, the Bank or of any Towne Subsidiary; or effect any
change in retirement benefits for any class of its employees or officers,
unless such change is required by applicable law; or
(h) Amend any existing employment contract between it and any
person (unless such amendment is required by law); enter into or amend any
indemnification agreement with any person; or enter into any new employment
contract with any person that Towne or the Bank (or its successors) does not
have the unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after the Effective
Time; or
(i) Adopt any new employee benefit plan or terminate or make
any material change in or to any existing employee benefit plan other than any
change that is required by law or that, in the opinion of counsel, is necessary
or advisable to maintain the tax-qualified status of any such plan (except for
a termination resulting from Acquiror's decision not to continue any such
plan); or
(j) Enter into any new service contracts, purchase or sale
agreements or lease agreements that are material to Towne, the Bank or any
Towne Subsidiary; or
(k) Make any capital expenditure except for ordinary purchases,
repairs, renewals or replacements in an amount less than $15,000 per individual
expenditure and $35,000 in the aggregate; or
A-34
PAGE
<PAGE>
(l) Other than in the ordinary course of business consistent
with past practice, sell, transfer, mortgage, encumber or otherwise dispose of
any of its properties, leases or assets to any person, or cancel, release or
assign any indebtedness of any person, except pursuant to contracts or
agreements in force at the date of this Merger Agreement; or
(m) Other than as contemplated by this Merger Agreement, enter
into, renew or terminate any material contract or agreement or make any change
in any of its material leases or contracts; or
(n) Settle any claim, action or proceeding involving any
liability of Towne, the Bank or any Towne Subsidiaries for money damages in
excess of $25,000 or agree in connection with any such settlement to material
restrictions upon the operations of Towne, the Bank or any Towne Subsidiaries;
or
(o) Change its method of accounting in effect at December 31,
1996, except as required by changes in GAAP as concurred in by Towne's
independent auditors or as required by regulatory accounting principles or
regulatory requirements; or
(p) Enter into any new activities or lines of business, or
cease to conduct any material activities or lines of business that it conducts
on the date hereof, or conduct any material business activity not consistent
with past practice; or
(q) Except in the ordinary course of business, make,
renegotiate, renew, increase, extend or purchase any loan, lease (credit
equivalent), advance, credit enhancement or other extension of credit, or make
any commitment in respect of any of the foregoing; or
(r) Enter into, renew or purchase any Derivatives Contracts; or
(s) Purchase any investment securities other than in the
ordinary course of business consistent with past practices; or
(t) Enter into any transactions other than in the ordinary
course of business; or
(u) Grant or commit to grant any new extension of credit to any
officer, director or holder of 2% or more of the outstanding the Towne Common
Stock, or to any corporation, partnership, trust or other entity controlled by
any such person, if such extension of credit, together with all other credits
then outstanding to the same borrower and all affiliated persons of such
borrower, would exceed two percent (2%) of the capital of the Bank or amend the
terms of any such credit outstanding on the date hereof; or
(v) Agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or take or omit
to take any other act which would make any of the representations and
warranties in Article 4 of this Merger Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering into
such transaction, or taking or omitting such other act.
6.4 Conduct of Business -- Certain Actions.
--------------------------------------
(a) Towne and the Bank shall not, and shall use their best
efforts to ensure that their directors, officers, employees, and advisors do
not, directly or indirectly, institute, solicit, or knowingly encourage
(including by way of furnishing any information not legally required to be
furnished) any inquiry, discussion, or proposal, or participate in any
discussions or negotiations with, or, except for actions reasonably considered
by the Boards of Directors of Towne and the Bank based upon the written advice
of outside legal counsel to be required in order to fulfill its fiduciary
obligations, provide any confidential or non-public information to or negotiate
with, any corporation, partnership, person or other entity or group (other than
to Acquiror or any Acquiror Subsidiary) concerning any "Acquisition Proposal"
(as defined below). Towne and the Bank shall notify Acquiror immediately
A-35
PAGE
<PAGE>
if any Acquisition Proposal has been or should hereafter be received by Towne
or the Bank, such notice to contain, at a minimum, the identity of such
persons, and, subject to disclosure being consistent with the fiduciary
obligations of Towne's and the Bank's Boards of Directors, a copy of any
written inquiry, the terms of any proposal or inquiry, any information
requested or discussions sought to be initiated, and the status of any reports,
negotiations or expressions of interest. For purposes of this Section,
"Acquisition Proposal" means any tender offer, agreement, understanding or
other proposal of any nature pursuant to which any corporation, partnership,
person or other entity or group, other than Acquiror or any Acquiror
Subsidiary, would directly or indirectly (i) acquire or participate in a
merger, share exchange, consolidation or any other business combination
involving Towne or the Bank; (ii) acquire the right to vote ten percent (10%)
or more of the outstanding Towne Common Stock; (iii) acquire a significant
portion of the assets or earning power of the Bank; or (iv) acquire in excess
of ten percent (10%) of the outstanding Towne Common Stock.
(b) Towne and the Bank shall immediately terminate all
negotiations or discussions concerning any Acquisition Proposal with parties
other than Acquiror and enforce the terms of all confidentiality agreements
with such other parties.
6.5 Accruals and Reserves. At the request of Acquiror, Towne and
---------------------
the Bank shall establish such additional accruals and reserves as may be
necessary to conform Towne's and the Bank's accounting and credit loss reserve
practices and methods to those of Acquiror; provided, however, that Towne and
the Bank shall not be required to take such action until all of the conditions
to the Closing shall have been satisfied or waived and all Government Approvals
shall have been received.
6.6 Access; Information. Upon reasonable notice, Towne and the
-------------------
Bank shall afford Acquiror and its officers, employees, counsel, accountants
and other authorized representatives, access, during normal business hours
throughout the period up to the Effective Date, to all of the properties,
books, contracts, commitments and records of Towne, the Bank and the Towne
Subsidiaries and, during such period, Towne and the Bank shall furnish promptly
to Acquiror (i) a copy of each material report, schedule and other document
filed by Towne, the Bank and the Towne Subsidiaries with any Regulatory
Authority and (ii) all other information concerning the business, properties
and personnel of Towne, the Bank and the Towne Subsidiaries as Acquiror may
reasonably request, provided that no investigation pursuant to this Section 6.6
shall affect or be deemed to modify or waive any representation or warranty
made by Towne and the Bank in this Merger Agreement or the conditions to the
obligations of Towne and the Bank to consummate the transactions contemplated
by this Merger Agreement.
6.7 Affiliate Agreements. Towne will cause each person who is an
--------------------
affiliate of Towne for purposes of Rule 145 under the 1933 Act to execute and
deliver to the Company on or before the mailing of the Proxy
Statement/Prospectus for the Shareholders Meeting an agreement in the form
attached hereto as Exhibit B restricting the disposition of the shares of
Acquiror Common Stock to be received by such person in exchange for such
person's shares of Towne Common Stock. Schedule 6.7 hereto lists the
affiliates of Towne as of the date hereof.
6.8 Addition to Board of Directors. As soon as practicable
------------------------------
following the Effective Time, the Bank shall take such action as may be
necessary to cause the size of the Board of Directors of the Bank to be
increased by one or more persons and to cause the appointment of Gary Sirmon to
the Board of Directors of the Bank.
6.9 Employee Stock Purchase Plan. The Bank shall suspend the
----------------------------
operation of the Towne Bank Employee Stock Purchase Plan as of January 1, 1998
so that no additional shares may be purchased pursuant to such plan after such
date.
A-36
PAGE
<PAGE>
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to the Obligations of Towne and the Bank. Unless
---------------------------------------------------
waived in writing by Towne and the Bank, the obligations of Towne and the Bank
to consummate the transaction contemplated by this Merger Agreement are subject
to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) Performance. Each of the material acts and undertakings
-----------
of Acquiror to be performed at or prior to the Closing Date pursuant to this
Merger Agreement shall have been duly performed;
(b) Representations and Warranties. The representations and
------------------------------
warranties of Acquiror contained in Article 3 of this Merger Agreement shall be
true and correct, in all material respects, on and as of the Effective Time
with the same effect as though made on and as of the Effective Time;
(c) Documents. In addition to the other deliveries of
---------
Acquiror described elsewhere in this Merger Agreement, Towne and the Bank shall
have received the following documents and instruments:
(i) a certificate signed by the Secretary or an assistant
secretary of Acquiror dated as of the Closing Date certifying that:
(A) Acquiror's Board of Directors has duly adopted
resolutions (copies of which shall be attached to such certificate)
approving the substantive terms of this Merger Agreement (including the
Plan of Merger) and authorizing the consummation of the transactions
contemplated by this Merger Agreement and certifying that such
resolutions have not been amended or modified and remain in full force
and effect;
(B) each person executing this Merger Agreement on
behalf of Acquiror is an officer of Acquiror holding the office or
offices specified therein, with full power and authority to execute this
Merger Agreement and any and all other documents in connection with the
Merger, and that the signature of each person set forth on such
certificate is his or her genuine signature; and
(C) the charter documents of Acquiror attached to
such certificate remain in full force and effect.
(ii) a certificate signed by a duly authorized officer of
Acquiror stating that the conditions set forth in Section 7.1(a), Section
7.1(b) and Section 7.1(e) of this Merger Agreement have been fulfilled;
(d) Opinion of Acquiror's Counsel. Towne and the Bank shall
-----------------------------
have been furnished with an opinion of counsel to Acquiror, dated as of the
Closing Date, addressed to and in form and substance satisfactory to Towne and
the Bank, to the effect that:
(i) Acquiror is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is qualified to do business as a foreign corporation in the State of
Washington.
(ii) The execution and delivery of the Merger Agreement
by Acquiror, and the consummation by Acquiror of the transactions
provided for therein, have been duly authorized by all requisite
corporate action on the part of Acquiror.
A-37
PAGE
<PAGE>
(iii) The Merger Agreement has been duly executed and
delivered by Acquiror and is a valid and binding obligation of Acquiror
enforceable in accordance with its terms, except as the enforceability
thereof may be limited by (1) bankruptcy, insolvency, moratorium,
reorganization, receivership, conservatorship or similar laws relating to
or affecting the enforcement of creditors' rights generally and (2)
general principles of equity, whether applied by a court of law or
equity.
(iv) Except for the filing of articles of merger with the
Secretary of State for the State of Washington and a certificate of
merger with the Secretary of State for the State of Delaware, no consent
or approval under any statutory law or regulation applicable to Acquiror,
other than such consents and approvals as have been obtained, is required
for Acquiror to consummate the transactions provided for in the Merger
Agreement.
(v) The Registration Statement has become effective
under the 1933 Act, and, to the best of our knowledge, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated by the SEC or any state securities or other
regulatory authority.
(vi) The shares of Acquiror Common Stock to be issued in
exchange for shares of Towne Common Stock in connection with the
consummation of the transactions contemplated in the Merger Agreement
have been duly authorized and, when issued in accordance with the terms
of the Agreement will be validly issued, fully paid and non-assessable,
and conform as to legal matters in all material respects to the
description of such shares contained in the Registration Statement.
(vii) The execution, delivery and performance of the
Merger Agreement by Acquiror did not, and the consummation of the
transactions contemplated thereby by Acquiror does not and will not (i)
violate any statutory law or regulation applicable to Acquiror or any
judgment, decree or order that specifically names Acquiror, which
violation is reasonably likely, individually or in the aggregate, to have
a material adverse effect on the financial condition and results of
operations of Acquiror and its subsidiaries, taken as a whole; (ii)
violate the Certificate of Incorporation or Bylaws of Acquiror; or (iii)
require any consent or approval under any such law or regulation or under
any such judgment, decree or order other than such consents and approvals
as have been obtained.
(viii) To the best of such counsel's knowledge, there
is no litigation or proceeding against Acquiror or any Acquiror
Subsidiary pending before any court or governmental agency which,
individually or in the aggregate, is reasonably likely to have a
material adverse effect on the financial condition or results of
operations of Acquiror and its subsidiaries, taken as a whole.
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of Acquiror or appropriate government
officials; (ii) in the case of matters of law governed by the laws of the
states in which they are not licensed, reasonably rely upon the opinions of
legal counsel duly licensed in such states and may be limited, in any event, to
Federal Law and the laws of the States of Washington and Delaware; and (iii)
incorporate, be guided by, and be interpreted in accordance with, the Legal
Opinion Accord of the ABA Section of Business Law (1991); and
(e) No Material Adverse Change. No material adverse change in
--------------------------
the financial condition or results of operations of Acquiror and its
subsidiaries, taken as a whole, shall have occurred since the date of this
Merger Agreement. In the event of such a material adverse change with respect
to Acquiror, Towne may elect either (i) to close the contemplated transactions
in accordance with the terms of this Merger Agreement or (ii) to terminate this
Merger Agreement without penalty.
A-38
PAGE
<PAGE>
7.2 Conditions to the Obligations of Acquiror. Unless waived in
-----------------------------------------
writing by Acquiror, the obligation of Acquiror to consummate the transactions
contemplated by this Merger Agreement is subject to the satisfaction at or
prior to the Closing Date of the following conditions:
(a) Performance. Each of the material acts and undertakings of
-----------
Towne and the Bank to be performed at or before the Closing Date pursuant to
this Merger Agreement shall have been duly performed;
(b) Representations and Warranties. The representations and
------------------------------
warranties of Towne and the Bank contained in Article 4 of this Merger
Agreement shall be true and correct, in all material respects, on and as of the
Closing Date with the same effect as though made on and as of the Closing Date;
(c) Documents. In addition to the documents described
---------
elsewhere in this Merger Agreement, Acquiror shall have received the following
documents and instruments:
(i) a certificate signed by the Secretary or an assistant
secretary of Towne and the Bank dated as of the Closing Date certifying
that:
(A) Towne's and the Bank's Boards of Directors and
shareholders have duly adopted resolutions (copies of which shall be
attached to such certificate) approving the substantive terms of this
Merger Agreement (including the Plan of Merger) and authorizing the
consummation of the transactions contemplated by this Merger Agreement
and certifying that such resolutions have not been amended or modified
and remain in full force and effect;
(B) each person executing this Merger Agreement on
behalf of Towne and the Bank, is an officer of Towne or the Bank, as the
case may be, holding the office or offices specified therein, with full
power and authority to execute this Merger Agreement and any and all
other documents in connection with the Merger, and that the signature of
each person set forth on such certificate is his or her genuine
signature; and
(C) the charter documents of Towne and the Bank
attached to such certificate remain in full force and effect; and
(ii) a certificate signed by the President, Chief
Executive Officer or an Executive Vice President of Towne and the Bank
stating that the conditions set forth in Section 7.2(a), Section 7.2(b) and
Section 7.2(f) this Merger Agreement have been satisfied.
(d) Destruction of Property. Between the date of this Merger
-----------------------
Agreement and the Closing Date, there shall have been no damage to or
destruction of real property, improvements or personal property of Towne and
the Bank which materially reduces the market value of such property, and no
zoning or other order, limitation or restriction imposed against the same that
might have a material adverse impact upon the operations, business or prospects
of Towne, the Bank and the Towne Subsidiaries taken as a whole; provided,
however, that the availability of insurance coverage shall be taken into
account in determining whether there has been such a material adverse impact or
material reduction in market value. In the event of such damage, destruction,
order, limitation or restriction, Acquiror may elect either (i) to close the
contemplated transactions in accordance with the terms of this Merger Agreement
or (ii) to terminate this Merger Agreement without penalty;
(e) Inspections Permitted. Between the date of this Merger
---------------------
Agreement and the Closing Date, Towne and the Bank shall have afforded Acquiror
and its authorized agents and representatives reasonable access during normal
business hours to the properties, operations, books, records, contracts,
documents, loan files and other information of or relating to Towne and the
Bank. Towne and the Bank shall have caused
A-39
PAGE
<PAGE>
all Towne and Bank personnel to provide reasonable assistance to Acquiror in
its investigation of matters relating to Towne and the Bank;
(f) No Material Adverse Change. No material adverse change in
--------------------------
the business, property, assets (including loan portfolios), liabilities
(whether absolute, contingent or otherwise), prospects, operations, liquidity,
income, or condition (financial or otherwise) of Towne and the Bank shall have
occurred since the date of this Merger Agreement. In the event of such a
material adverse change with respect to Towne and the Bank, Acquiror may elect
either (i) to close the contemplated transactions in accordance with the terms
of this Merger Agreement or (ii) to terminate this Merger Agreement without
penalty;
(g) Opinion of Towne's and the Bank's Counsel. Acquiror shall
-----------------------------------------
have been furnished with an opinion of legal counsel to Towne and the Bank,
dated the Closing Date, addressed to and in form and substance satisfactory to
Acquiror, to the effect that:
(i) Towne is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington.
(ii) The Bank is a bank duly organized, validly existing
and in good standing under the laws of the State of Washington.
(iii) Each of the Towne Subsidiaries is a corporation
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation or organization.
(iv) The Bank is an "insured depository institution" as
defined in the Federal Deposit Insurance Act and applicable regulations
thereunder.
(v) The execution and delivery of the Merger Agreement
by Towne and the Bank, and the consummation by Towne and the Bank of the
transactions provided for therein, have been duly authorized by all
requisite corporate action on the part of Towne and the Bank.
(vi) The Merger Agreement has been duly executed and
delivered by Towne and the Bank and is a valid and binding obligation of
Towne and the Bank enforceable in accordance with its terms, except as the
enforceability thereof may be limited by (1) bankruptcy, insolvency,
moratorium, reorganization, receivership, conservatorship or similar laws
relating to or affecting the enforcement of creditors' rights generally or
the rights of creditors of depository institutions whose accounts are
insured by the FDIC and (2) general principles of equity, whether applied
by a court of law or equity.
(vii) The execution, delivery and performance of the
Merger Agreement by Towne and the Bank did not, and the consummation of the
transactions contemplated thereby by Towne and the Bank does not and will
not (i) violate any statutory law or regulation applicable to Towne, the
Bank or any of the Towne Subsidiaries or any judgment, decree or order that
specifically names Towne or the Bank, which violation is reasonably likely,
individually or in the aggregate, to have a material adverse effect on the
financial condition and results of operations of Towne, the Bank and the
Towne Subsidiaries, taken as a whole; (ii) constitute a breach of or default
under any agreement or other arrangement that is listed on Schedule 4.27 to
-------------
the Merger Agreement, which breach or default is reasonably likely,
individually or in the aggregate, to have a material adverse effect on the
financial condition or results of operations of Towne, the Bank and the
Towne Subsidiaries, taken as a whole; (iii) violate the Articles of
Incorporation, Charter or Bylaws of Towne, the Bank or any of the Towne
Subsidiaries; or (iv) require any consent or approval under any such law or
regulation or under any such judgment, decree or order, or the consent or
approval of any other party to any such agreement or other arrangement,
other than such consents and approvals as have been obtained.
A-40
PAGE
<PAGE>
(viii) To the best of such counsel's knowledge: (i)
there is no litigation or proceeding against Towne, the Bank or any Towne
Subsidiary pending before any court or governmental agency which,
individually or in the aggregate, is reasonably likely to have a material
adverse effect on the financial condition or results of operations of Towne,
the Bank and the Towne Subsidiaries, taken as a whole, or which alleges
claims under any fair lending law or other law relating to discrimination,
including, without limitation, the Equal Credit Opportunity Act, the Fair
Housing Act, the Towne Reinvestment Act and the Home Mortgage Disclosure
Act, and no such litigation or proceeding has been threatened; (ii) neither
Towne, the Bank nor any Towne Subsidiary or any of its or their properties,
officers, directors, or controlling persons is a party to or is subject to
any order, decree, agreement, memorandum of understanding or similar
arrangement with, or a commitment letter or similar submission to, any
Regulatory Authority; and (iii) neither Towne, the Bank nor any Towne
Subsidiary has been advised by any such Regulatory Authority that such
authority is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, commitment letter or similar submission.
(ix) The Merger has been duly approved by the Towne
Shareholders.
Such opinion may (i) expressly rely as to matters of fact upon certificates
furnished by appropriate officers of Towne and the Bank or appropriate
government officials; (ii) in the case of matters of law governed by the laws
of the states in which they are not licensed, reasonably rely upon the opinions
of legal counsel duly licensed in such states and may be limited, in any event,
to Federal Law and the law of the State of Washington and (iii) incorporate, be
guided by, and be interpreted in accordance with, the Legal Opinion Accord of
the ABA Section of Business Law (1991);
(h) Other Business Combinations, Etc. Other than as
--------------------------------
contemplated hereunder, subsequent to the date of this Merger Agreement,
neither Towne nor the Bank shall have entered into any agreement, letter of
intent, understanding or other arrangement pursuant to which Towne or the Bank
would merge; consolidate with; effect a business combination with; sell any
substantial part of Towne's or the Bank's assets; acquire a significant part of
the shares or assets of any other Person or entity (financial or otherwise);
adopt any "poison pill" or other type of anti-takeover arrangement, any
shareholder rights provision, any "golden parachute" or similar program which
would have the effect of materially decreasing the value of Towne and the Bank
or the benefits of acquiring the Towne Common Stock;
(i) Maintenance of Certain Covenants, Etc. At the time of
-------------------------------------
Closing (i) neither Towne nor the Bank shall have issued or repurchased from
the date hereof any additional equity or debt securities, or any rights to
purchase or repurchase such securities (therefore, there shall be not more than
314,025 shares of Towne Common Stock validly issued and outstanding at the
Effective Time); and (ii) from December 31, 1996, there shall have been no
extraordinary sale of assets.
(j) Dissenting Shares. Towne Shareholders holding or
-----------------
controlling no more than five percent (5%) of the shares of the Towne Common
Stock issued and outstanding immediately prior to the Effective Time shall have
perfected and maintained in perfected status their dissenters' rights in
accordance with the WBCA;
(k) Accruals and Reserves. Towne and the Bank shall have
---------------------
established the accruals and reserves described in Section 6.5; and
(l) Employment Agreements. The Employment Agreements between
---------------------
Acquiror, the Bank and S. Rick Meikle and other senior executive officers of
the Bank designated by Acquiror substantially in the form attached as Exhibit C
---------
shall have been duly executed and delivered by all parties to such agreements;
(m) Receipt of Affiliate Agreements. Acquiror shall have
-------------------------------
received from each affiliate of Towne the agreements referred to in Section
6.7; and
A-41
PAGE
<PAGE>
(n) Employee Stock Purchase Plan. The Bank shall have
----------------------------
terminated the Towne Bank Employee Stock Purchase Plan as of the Effective Time
of the Merger.
7.3 Conditions to Obligations of All Parties. The obligation of
----------------------------------------
each party to effect the transactions contemplated hereby shall be subject to
the fulfillment, at or prior to the Closing, of the following conditions:
(a) No Pending or Threatened Claims. That no claim, action,
-------------------------------
suit, investigation or other proceeding shall be pending or threatened before
any court or governmental agency which presents a substantial risk of the
restraint or prohibition of the transactions contemplated by this Merger
Agreement or the obtaining of material damages or other relief in connection
therewith; and
(b) Government Approvals and Acquiescence Obtained. The
----------------------------------------------
Parties hereto shall have received all applicable Government Approvals for the
consummation of the transactions contemplated herein and all waiting periods
incidental to such approvals or notices given shall have expired.
(c) Effective Registration Statement. The Registration
--------------------------------
Statement shall have become effective and no stop order or other order
suspending the Registration Statement shall have been issued and no proceedings
for that purpose shall have been initiated or threatened by the SEC or any
other Regulatory Authority.
(d) Tax Opinion. Acquiror and Towne shall have received an
-----------
opinion from Breyer & Aguggia to the effect that (i) the Merger constitutes a
reorganization under Section 368 of the Code, and (ii) no gain or loss will be
recognized by Towne Shareholders to the extent they receive shares of the
Acquiror Common Stock in exchange for their shares of Towne Common Stock, and,
in rendering their opinion, Breyer & Aguggia may require and rely upon
representations contained in certificates of officers of the Company, Towne and
others.
(e) Shareholder Vote. The Towne Shareholders shall have
----------------
approved of the transactions contemplated hereby by the requisite vote.
ARTICLE 8
TERMINATION
8.1 Termination. This Merger Agreement and the Plan of Merger may
-----------
be terminated at any time prior to the Closing, as follows:
(a) By mutual consent in writing of the Parties;
(b) By Acquiror, should Towne, the Bank or any Towne Subsidiary
fail to conduct its business pursuant to the covenants made in Article 6 if
such failure cannot be or has not been cured with fifteen (15) days after the
giving of written notice to Towne by Acquiror of such failure;
(c) By Acquiror or Towne in the event the Closing shall not
have occurred by September 30, 1998, unless the failure of the Closing to occur
shall be due to the failure of the Party seeking to terminate this Merger
Agreement to perform its obligations hereunder in a timely manner. If Acquiror
shall have filed any and all applications to obtain the requisite Government
Approvals within sixty (60) days of the date hereof, and if the Closing shall
not have occurred solely because of a delay caused by a government regulatory
agency or authority in its review of the application before it, then Towne and
the Bank shall, upon Acquiror's written request, extend the Closing Date until
such time as all Government Approvals have been obtained and any stipulated
waiting periods have expired.
A-42
PAGE
<PAGE>
(d) By either Acquiror or Towne, upon written notice to the
other Party, upon denial of any Governmental Approval necessary for the
consummation of the Merger (or should such approval be conditioned upon a
substantial deviation from the transactions contemplated); provided, however,
that either Acquiror or Towne may, upon written notice to the other, extend the
term of this Merger Agreement for only one sixty (60) day period to prosecute
diligently and overturn such denial, provided that such denial has been
appealed within ten (10) business days of the receipt thereof;
(e) By Acquiror in the event the conditions set forth in
Section 7.2 or Section 7.3 are not satisfied in all material respects as of the
Closing Date, or by Towne if the conditions set forth in Section 7.1 or Section
7.3 are not satisfied in all material respects as of the Closing Date, and such
failure has not been waived prior to the Closing;
(f) By Acquiror upon the occurrence of any event or
circumstance which may have the effect of limiting or restricting Acquiror's
voting power or other rights normally enjoyed by the registered holders of the
Towne Common Stock which are the subject of this transaction;
(g) By Acquiror or Towne in the event that there shall have
been a material breach of any obligation of the other Party hereunder and such
breach shall not have been remedied within thirty (30) days after receipt by
the breaching Party of written notice from the other Party specifying the
nature of such breach and requesting that it be remedied;
(h) By Acquiror should Towne, the Bank or any Towne Subsidiary
enter into any letter of intent or agreement with a view to being acquired by
or effecting a business combination with any other Person; or any agreement to
merge, to consolidate, to combine or to sell a material portion of its assets
or to be acquired in any other manner by any other Person or to acquire a
material amount of assets or a material equity position in any other Person,
whether financial or otherwise; or
(i) By Acquiror should Towne, the Bank or any Towne Subsidiary
enter into any formal agreement, letter of understanding, supervisory
agreement, cease and desist order, consent agreement, memorandum or other
similar arrangement with any bank regulatory agency.
(j) By Acquiror in the event that (i) any situation, event,
circumstance or other matter shall come to the attention of Acquiror during the
course of the Acquiror Due Diligence Review which Acquiror shall, in a good
faith exercise of its reasonable discretion, believe (A) to be inconsistent in
any material respect with any of the representations and warranties of Towne
and the Bank, (B) to be of such significance as to have a material adverse
effect on the financial condition, prospects, results of operations or business
of Towne and the Bank, or (C) is a material deviation from the Bank Financial
Statements, and (ii) Acquiror notifies Towne and the Bank of such matters
within five (5) business days after the end of the Acquiror Due Diligence
Review Period and such matters are not capable of being cured or have not been
cured within thirty (30) days after written notice thereof to Towne and the
Bank. For purposes of this Section, (i) "Acquiror Due Diligence Review" shall
mean a review by Acquiror of Towne's and the Bank's operations, business
affairs, prospects and financial condition, including without limitation, those
matters which are the subject of the representations and warranties of Towne
and the Bank and (ii) "Acquiror Due Diligence Review Period" shall mean a
fifteen (15) day period beginning on the date of this Merger Agreement.
Notwithstanding anything in this Section contained or implied to the contrary,
the Acquiror Due Diligence Review shall not limit, restrict or preclude
Acquiror, at any time or from time to time, from conducting such reviews or
from exercising any rights available to it hereunder as a result of the
existence or occurrence prior to the Acquiror Due Diligence Review Period of
any event or condition which was not detected in the Acquiror Due Diligence
Review by Acquiror and which constitutes a breach of any representation or
warranty of Towne and the Bank under this Merger Agreement.
A-43
PAGE
<PAGE>
If a Party should elect to terminate this Merger Agreement pursuant to
subsections (b), (c), (d), (e), (f), (g), (h), (i) or (j) of this Section 8.1,
it shall give notice to the other Party, in writing, of its election in the
manner prescribed in Section 9.1 ("Notices") of this Merger Agreement.
8.2 Effect of Termination. In the event that this Merger Agreement
---------------------
should be terminated pursuant to Section 8.1 hereof, all further obligations of
the Parties under this Merger Agreement shall terminate without further
liability of any Party to another; provided, however, that a termination under
-------- -------
Section 8.1 hereof shall not relieve any Party of any liability for a breach of
this Merger Agreement or for any misstatement or misrepresentation made
hereunder prior to such termination, or be deemed to constitute a waiver of any
available remedy for any such breach, misstatement or misrepresentation.
8.3 Termination Fee. The parties hereby acknowledge that, in
---------------
negotiating and executing this Merger Agreement and in taking the steps
necessary or appropriate to effect the transaction contemplated hereby, the
Parties have incurred and will incur direct and indirect monetary and other
costs (including without limitation attorneys' fees and costs of employee and
management time) and will forego discussions with respect to other potential
acquisitions.
(a) To compensate Acquiror for such costs and to induce it to
forego initiating discussions regarding other acquisitions, if (i) this Merger
Agreement terminates because Towne and the Bank do not use their best efforts
to consummate the transactions contemplated by this Merger Agreement in
accordance with the terms of this Merger Agreement (unless a condition set
forth in Section 7.1 is not satisfied and such non-satisfaction has not been
the result of the failure of Towne and the Bank to use their best efforts to
consummate this Merger Agreement in accordance to the terms of this Merger
Agreement); (ii) Towne terminates this Merger Agreement for any reason other
than the grounds for termination set out in Sections 8.1(a), 8.1(c), 8.1(d),
8.1(e) or 8.1(g) or (iii) the Towne Shareholders do not approve the Merger,
then Towne and the Bank shall be obligated to pay Acquiror on demand (and in no
event more than three days after such demand) in immediately available funds
Two Hundred Fifty Thousands and No/100 Dollars ($250,000.00). It is further
understood and agreed that the fee payable under this Section shall be due and
owing even though the event or condition which caused the fee to be payable was
the result (in part or in whole) of the directors of Towne and the Bank
complying with their fiduciary duties.
(b) To compensate Towne for such costs and to induce it to
forego initiating discussions regarding other acquisitions, if (i) this Merger
Agreement terminates because Acquiror does not use its best efforts to
consummate the transactions contemplated by this Merger Agreement in accordance
with the terms of this Merger Agreement (unless a condition set forth in
Section 7.2 is not satisfied and such non-satisfaction has not been the result
of the failure of Acquiror to use its best efforts to consummate this Merger
Agreement in accordance to the terms of this Agreement); or (ii) Acquiror
terminates this Merger Agreement for any reason other than the grounds for
termination set out in Sections 8.1, then Acquiror shall be obligated to pay
Towne on demand (and in no event more than three days after such demand) in
immediately available funds Two Hundred Fifty Thousands and No/100 Dollars
($250,000.00).
8.4 Acquiror Fee. Towne and the Bank hereby agree to pay Acquiror
------------
on demand (and in no event more than three days after such demand) in
immediately available funds $1,350,000 (the "Acquiror Fee") if within 18 months
after the date hereof the Merger has not been completed and there occurs any of
the events set forth in subparagraphs (a), (b) or (c) below.
(a) Any person other than Acquiror or an affiliate of Acquiror
acquires beneficial ownership of 25% or more of the then-outstanding Towne
Common Stock;
(b) Towne or the Bank, without having received Acquiror's prior
written consent, enters into an agreement to engage in an Acquisition
Transaction (as defined below) with any person (the term "person" for
A-44
PAGE
<PAGE>
purposes of this section having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the 1934 Act and the rules and regulations thereunder)
other than Acquiror or any of its Subsidiaries, or Towne's Board of Directors
recommends that the Towne Shareholders approve or accept any Acquisition
Transaction with any person other than Acquiror or any of its Subsidiaries.
For purposes of this section, "Acquisition Transaction" shall mean (a) a merger
or consolidation, or any similar transaction, involving Towne or the Bank, (b)
a purchase, lease or other acquisition of all or substantially all of the
assets of Towne or the Bank, or (c) a purchase or other acquisition (including
by way of merger, consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of Towne or the Bank; or
(c) A bona fide proposal is made by a third party to Towne or the
Bank to engage in an Acquisition Transaction and after such proposal is made
any of the following events occurs: Towne or the Bank willfully breaches this
Merger Agreement and such breach entitles Acquiror to terminate this Merger
Agreement; the Towne Shareholders do not approve this Merger Agreement at the
Shareholders Meeting; the Shareholders Meeting is not held or is canceled prior
to termination of this Merger Agreement for reasons other than the fault of
Acquiror; or Towne's Board of Directors modifies in a manner adverse to
Acquiror its recommendation with respect to this Merger Agreement.
Notwithstanding the foregoing, Towne and the Bank shall not be obligated
to pay to Acquiror the Acquiror Fee if, prior to the occurrence of any of the
events specified in 8.4(a), (b), or (c), Towne validly terminates this Merger
Agreement pursuant to Section 8.1(a) or 8.1(g) (but only in the event that
Acquiror materially breaches a representation, warranty or covenant contained
herein and, as a result thereof, Towne exercises its right to terminate this
Merger Agreement under Section 8.1(g) at a time when Acquiror was not entitled
to terminate this Merger Agreement under Section 8.1(c), 8.1(g)) or Section
8.1(d). The parties further agree that this Section 8.4 is without prejudice
to any other rights that the parties hereto may have for any failure to perform
this Merger Agreement.
ARTICLE 9
GENERAL PROVISIONS
9.1 Notices. Any notice, request, demand and other communication
-------
which either Party hereto may desire or may be required hereunder to give shall
be in writing and shall be deemed to be duly given if delivered personally or
mailed by certified or registered mail (postage prepaid, return receipt
requested), air courier or facsimile transmission, addressed or transmitted to
such other Party as follows:
If to Towne and the Bank: Towne Bancorp, Inc.
Towne Bank of Woodinville
17530 132nd Avenue NE
Woodinville, Washington 98072
Fax: (206) 483-9745
Attn: S. Rick Meikle, President and
Chief Executive Officer
With a copy to: Gerrish & McCreary
700 Colonial Road, Suite 200
Memphis, Tennessee 38117
Fax: (901) 684-2339
Attn: Jeffrey C. Gerrish, Esq.
A-45
PAGE
<PAGE>
If to Acquiror: First Savings Bank of Washington Bancorp, Inc.
10 South First Avenue
Walla Walla, Washington
Fax: (509) 527-3633
Attn: Gary Sirmon, President and
Chief Executive Officer
With a copy to: Breyer & Aguggia
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
Fax: (202) 737-7979
Attn: John F. Breyer, Jr., Esq.
or to such other address as any Party hereto may hereafter designate to the
other Parties in writing. Notice shall be deemed to have been given on the
date reflected in the proof or evidence of delivery, or if none, on the date
actually received.
9.2 Assignability and Parties in Interest. This Merger Agreement
-------------------------------------
shall not be assignable by any of the Parties hereto; provided, however, that
-------- -------
Acquiror may assign, set over and transfer all, or any part of its rights and
obligations under this Merger Agreement to any one or more of its present or
future Affiliates. This Merger Agreement shall inure to the benefit of, and be
binding only upon the Parties hereto and their respective successors and
permitted assigns and no other Persons.
9.3 Governing Law. This Merger Agreement shall be governed by,
-------------
and construed and enforced in accordance with, the internal laws, and not the
laws pertaining to choice or conflicts of laws, of the State of Washington,
unless and to the extent that federal law controls. Any dispute arising
between the Parties in connection with the transactions which are the subject
of this Merger Agreement shall be heard in a court of competent jurisdiction
located in Walla Walla County, Washington.
9.4 Counterparts. This Merger Agreement may be executed
------------
simultaneously in one or more counterparts (any of which may be facsimile
copies), each of which shall be deemed an original, but all of which shall
constitute but one and the same instrument.
9.5 Best Efforts. Towne, the Bank and Acquiror each agrees to use
------------
its best efforts to complete the transactions contemplated by this Merger
Agreement; provided, however, that the use of best efforts by Acquiror shall
-------- -------
not obligate Acquiror to obtain or to provide Towne additional capital in an
amount, to divest any Subsidiary or branch, or to meet any other condition
which may be imposed by any Regulatory Authority as a condition to approval
which Acquiror shall deem, in good faith, to be unreasonable in the
circumstances.
9.6 Publicity. The Parties agree that press releases and other
---------
public announcements to be made by any of them with respect to the transactions
contemplated hereby shall be subject to mutual agreement.
9.7 Entire Agreement. This Merger Agreement, together with the
----------------
Plan of Merger which is Exhibit A hereto, the Schedules, Exhibits and
certificates required to be delivered hereunder and any amendments or addenda
hereafter executed and delivered in accordance with Section 9.9 hereof
constitute the entire agreement of the Parties hereto pertaining to the
transaction contemplated hereby and supersede all prior written and oral (and
all contemporaneous oral) agreements and understandings of the Parties hereto
concerning the subject matter hereof. The schedules, annexes, exhibits and
certificates attached hereto or furnished pursuant to this Merger Agreement are
hereby incorporated as integral parts of this Merger Agreement. Except as
provided herein, by specific language and
A-46
PAGE
<PAGE>
not by mere implication, this Merger Agreement is not intended to confer upon
any other person not a Party to this Merger Agreement any rights or remedies
hereunder.
9.8 Severability. If any portion or provision of this Merger
------------
Agreement should be determined by a court of competent jurisdiction to be
invalid, illegal or unenforceable in any jurisdiction, such portion or
provision shall be ineffective as to that jurisdiction to the extent of such
invalidity, illegality or unenforceability, without affecting in any way the
validity or enforceability of the remaining portions or provisions hereof in
such jurisdiction or rendering that or any other portions or provisions of this
Merger Agreement invalid, illegal or unenforceable in any other jurisdiction.
9.9 Modifications, Amendments and Waivers. At any time prior to
-------------------------------------
the Closing or termination of this Merger Agreement, the Parties may, solely by
written agreement executed by their duly authorized officers:
(a) extend the time for the performance of any of the
obligations or other acts of the other Party hereto;
(b) waive any inaccuracies in the representations and
warranties made by the other Party contained in this Merger Agreement or in the
Schedules or Exhibits hereto or any other document delivered pursuant to this
Merger Agreement;
(c) waive compliance with any of the covenants or agreements of
the other Party contained in this Merger Agreement; and
(d) amend or add to any provision of this Merger Agreement or
the Plan of Merger; provided, however, that no provision of this Merger
-------- -------
Agreement may be amended or added to except by an agreement in writing signed
by the Parties hereto or their respective successors in interest and expressly
stating that it is an amendment to this Merger Agreement.
9.10 Interpretation. The headings contained in this Merger
--------------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Merger Agreement.
9.11 Payment of Expenses. Except as set forth herein, Acquiror and
-------------------
Towne and the Bank shall each pay its own fees and expenses (including, without
limitation, legal fees and expenses) incurred by it in connection with the
transactions contemplated hereunder.
9.12 Equitable Remedies. The Parties hereto agree that, in the
------------------
event of a breach of this Merger Agreement by Towne and the Bank, Acquiror will
be without an adequate remedy at law by reason of the unique nature of Towne
and the Bank. In recognition thereof, in addition to (and not in lieu of) any
remedies at law which may be available to Acquiror, Acquiror shall be entitled,
at its sole discretion, either (i) to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of a breach of
this Merger Agreement by Towne or the Bank or (ii) if applicable, to receive
the payment described in Section 8.3 hereof. Towne and the Bank covenant that
they shall not contend in any such proceeding that Acquiror is not entitled to
a decree of specific performance by reason of having an adequate remedy at law.
Notwithstanding the foregoing, if Towne and the Bank accept an Acquisition
Proposal from a third party and Acquiror receives an opinion of counsel from
Towne and the Bank that the failure of the Boards of Directors of Towne and the
Bank to accept such Acquisition Proposal would constitute a breach of such
directors' fiduciary duty to the shareholders of Towne, Acquiror shall not be
entitled to the equitable remedy of specific performance. No attempt on the
part of Acquiror to obtain such equitable relief shall be deemed to constitute
an election of remedies by Acquiror which would preclude Acquiror from
obtaining any remedies at law to which it would otherwise be entitled.
A-47
PAGE
<PAGE>
9.13 Attorneys' Fees. If any Party hereto shall bring an action at
---------------
law or in equity to enforce its rights under this Merger Agreement (including
an action based upon a misrepresentation or the breach of any warranty,
covenant, agreement or obligation contained herein), the prevailing Party in
such action shall be entitled to recover from the other Party its reasonable
costs and expenses necessarily incurred in connection with such action
(including fees, disbursements and expenses of attorneys and costs of
investigation).
9.14 No Waiver. No failure, delay or omission of or by any Party in
---------
exercising any right, power or remedy upon any breach or default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or default, nor shall it be construed to be a waiver of any such right,
power or remedy, or an acquiescence in any similar breach or default; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Merger Agreement must be in writing and must be executed by
the Parties to this Merger Agreement and shall be effective only to the extent
specifically set forth in such writing.
9.15 Remedies Cumulative. All remedies provided in this Merger
-------------------
Agreement, by law, equity or otherwise, shall be cumulative and not
alternative.
9.16 Non-Survival of Representations and Warranties. No
----------------------------------------------
representations and warranties made by the Parties hereto or in any instrument
or document furnished in connection herewith shall survive the Closing. This
Section 9.16 shall not apply to covenants and agreements which by their terms
are intended to be performed after the Closing or the termination of this
Merger Agreement. Nothing in this Section 9.16 shall limit Towne's or
Acquiror's rights or remedies for misrepresentations, breaches of this Merger
Agreement or any other improper action or inaction by the other Party hereto
prior to its termination.
A-47
PAGE
<PAGE>
IN WITNESS WHEREOF, each of the Parties hereto has duly executed and
delivered this Merger Agreement or has caused this Merger Agreement to be
executed and delivered in its name and on its behalf by its representative
thereunto duly authorized, all as of the date first written above.
TOWNE BANCORP, INC.
By: /s/ S. Rick Meikle
--------------------
S. Rick Meikle
Its: President
ATTEST:
/s/ Pete Botting
- -----------------------
Chairman of the Board
TOWNE BANK OF WOODINVILLE
By: /s/ S. Rick Meikle
----------------------------
S. Rick Meikle
Its: President and Chief Executive Officer
ATTEST:
/s/ Pete Botting
- -----------------------
Chairman of the Board
FIRST SAVINGS BANK OF WASHINGTON
BANCORP, INC.
By: /s/ Gary Sirmon
-------------------------------------
Gary Sirmon
Its: President and Chief Executive Officer
ATTEST:
/s/ D. Allan Roth
- --------------------------
D. Allan Roth, Secretary
A-49
PAGE
<PAGE>
Appendix B
Chapter 13 of the Washington Business Corporation Act
23B.13.010 Definitions. As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020 Right to dissent. (1) A shareholder is entitled to dissent from,
and obtain payment of the fair value of the shareholder's shares in the event
of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is
a party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation and the shareholder
is entitled to vote on the merger, or (ii) if the corporation is a subsidiary
that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if
the shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale pursuant
to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
B-1
PAGE
<PAGE>
(e) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955 the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any
one of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside
the corporate action; or
(c) The shareholder's demand for payment is withdrawn with the
written consent of the corporation.
23B.13.030 Dissent by nominees and beneficial owners. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
dissenter dissents and the dissenter's other shares were registered in the
names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares
of which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 Notice of dissenters' rights. (1) If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020
is taken without a vote of shareholders, the corporation, within ten days
after the effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210 Notice of intent to demand payment. (1) If proposed corporate
action creating dissenters' rights under RCW 23B.13.020 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must (a) deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effected, and (b) not vote such shares in
favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection
(1) of this section is not entitled to payment for the shareholder's shares
under this chapter.
B-2
PAGE
<PAGE>
23B.13.220 Dissenters' notice. (1) If proposed corporate action creating
dissenters' rights under RCW 23B.13.020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the
effective date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(c) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not the person acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230 Duty to demand payment. (1) A shareholder sent a dissenters'
notice described in RCW 23B.13.220 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenters' notice pursuant to RCW
23B.13.220(2)(c), and deposit the shareholder's certificates in accordance
with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other
rights of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the
shareholder's share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for the shareholder's shares
under this chapter.
23B.13.240 Share restrictions. (1) The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effected or the restriction is
released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
23B.13.250 Payment. (1) Except as provided in RCW 23B.13.270, within thirty
days of the later of the effective date of the proposed corporate action, or
the date the payment demand is received, the corporation shall pay each
dissenter who complied with RCW 23B.13.230 the amount the corporation
estimates to be the fair value of the shareholder's shares, plus accrued
interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
B-3
PAGE
<PAGE>
(b) An explanation of how the corporation estimated the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
RCW 23B.13.280; and
(e) A copy of this chapter.
23B.13.260 Failure to take action. (1) If the corporation does not effect
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release any transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment
demand procedure.
23B.13.270 After-acquired shares. (1) A corporation may elect to withhold
payment required by RCW 23B.13.250 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation
of how the interest was calculated, and a statement of the dissenter's right
to demand payment under RCW 23B.13.280.
23B.13.280 Procedure if shareholder dissatisfied with payment or offer. (1)
A dissenter may notify the corporation in writing of the dissenter's own
estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under
RCW 23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and
demand payment of the dissenter's estimate of the fair value of the
dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW
23B.13.250 or offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250
within sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
23B.13.300 Court action. (1) If a demand for payment under RCW 23B.13.280
remains unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does
not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
B-4
PAGE
<PAGE>
(2) The corporation shall commence the proceeding in the superior court
of the county where a corporation's principal office, or, if none in this
state, its registered office, is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled, parties to the proceeding as in
an action against their shares and all parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
(4) The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of
the corporation, complied with the provisions of this chapter. If the court
determines that such shareholder has not complied with the provisions of this
chapter, the shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(6) Each dissenter made a party to the proceeding is entitled to
judgment (a) for the amount, if any, by which the court finds the fair value
of the dissenter's shares, plus interest, exceeds the amount paid by the
corporation, or (b) for the fair value, plus accrued interest, of the
dissenter's after-acquired shares for which the corporation elected to
withhold payment under RCW 23B.13.270.
23B.13.310 Court costs and counsel fees. (1) The court in a proceeding
commenced under RCW 23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except
that the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the corporation,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefitted.
B-5
PAGE
<PAGE>
Appendix C
November 21, 1997
Board of Directors
Towne Bancorp, Inc.
Woodinville, Washington
RE: Fairness Opinion Relative to Pending Agreement of Towne Bancorp, Inc.,
----------------------------------------------------------------------
Woodinville, Washington, to Merge with and into First Savings Bank of
---------------------------------------------------------------------
Washington Bancorp, Inc., Walla Walla, Washington.
-------------------------------------------------
Directors:
The Board of Directors of Towne Bancorp, Inc. ("TBI" or the "Company") retained
Southard Financial, in its capacity as a financial valuation and consulting
firm, to render its opinion of the fairness, from a financial viewpoint, of the
acquisition of TBI by First Savings Bank of Washington Bancorp, Inc. ("FWWB").
Southard Financial and its principals have no past, present, or future
contemplated financial, equity, or other interest in either TBI or FWWB. This
opinion is issued based upon financial data as of September 30, 1997. This
opinion is being issued prior to the execution of a "Definitive Agreement" for
the merger. The analysis presented in this opinion reflects Southard
Financial's understanding of the terms of the merger that will be in the
Definitive Agreement.
Approach to Assignment
The approach to this assignment was to consider the following factors:
- A review of the financial performance and position of TBI and the
value of its common stock;
- A review of the financial performance and position of FWWB and the
value of its common stock;
- A review of recent Bank merger transactions;
- A review of the current and historical market prices of bank holding
companies in Washington and surrounding states;
- A review of the investment characteristics of the common stock of
TBI and FWWB;
- A review of the terms of merger agreement between TBI and FWWB;
- An evaluation of the impact of the merger on the expected return to
the current shareholders of TBI; and,
- An evaluation of other factors as was considered necessary to render
this opinion.
It is Southard Financial's understanding that the merger and resulting exchange
of the stock of FWWB for the outstanding common stock of TBI constitutes a non-
taxable exchange for federal income tax purposes. The exchange of TBI stock
for cash may have tax consequences.
C-1
<PAGE> <PAGE>
Board of Directors
Towne Bancorp, Inc.
Page 2
DUE DILIGENCE REVIEW PROCESS
In performing this assignment, Southard Financial reviewed the documents
specifically outlined in Exhibit 1 pertaining to TBI and in Exhibit 2
pertaining to FWWB.
Review of Towne Bancorp, Inc.
Southard Financial visited with the management of TBI, the parent company of
Towne Bank of Woodinville, in Woodinville, Washington. Discussions included
questions regarding the current and historical financial position and
performance of TBI, its outlook for the future, and other pertinent factors.
Review of First Savings Bank of Washington Bancorp, Inc.
Southard Financial visited with the management of First Savings Bank of
Washington Bancorp, Inc. in Walla Walla, Washington. Discussions included
questions regarding the current and historical financial position and
performance of FWWB, its outlook for the future, and other pertinent factors.
Southard Financial also reviewed publicly available information relative to
FWWB and its stock.
Merger Documentation
Southard Financial reviewed the proposed merger terms with the management of
TBI and with legal counsel for TBI. As indicated above, the Definitive
Agreement had not been executed when this opinion was prepared. The analysis
in this opinion reflects the proposed merger terms as outlined below. All
references to the Agreement and Plan of Merger, or the Agreement, represent
Southard Financial's understanding of the terms and conditions that will be
contained in the Definitive Agreement when it is executed. (See Exhibit 3,
Terms of the Agreement and Plan of Merger.)
Southard Financial did not independently verify the information reviewed, but
relied on such information as complete and accurate in all material respects.
Southard Financial did not make any independent evaluation of the assets of
FWWB or TBI, but reviewed data supplied by the management of both institutions.
MAJOR CONSIDERATIONS
Numerous factors were considered in the overall review of the proposed merger.
The review process included considerations regarding TBI, FWWB, and the
proposed merger. The major considerations are as follows:
Towne Bancorp, Inc.
- Historical earnings;
- Historical dividend payments;
- Outlook for future performance, earnings, and dividends;
- Economic conditions and outlook in TBI's market;
- The competitive environment in TBI's market;
- Comparisons with peer banks;
- Potential risks in the loan and securities portfolios;
- Recent minority stock transactions in TBI's common stock; and,
- Other such factors as were deemed appropriate in rendering this
opinion.
C-2
PAGE
<PAGE>
Board of Directors
Towne Bancorp, Inc.
Page 3
First Savings Bank of Washington Bancorp, Inc.
- Historical earnings;
- Historical dividend payments;
- Outlook for future performance, earnings, and dividends;
- Economic conditions and outlook in FWWB's market;
- The competitive environment in FWWB's market;
- Comparisons with peer banks;
- Recent minority stock transactions in FWWB's common stock; and,
- Other such factors as were deemed appropriate in rendering this
opinion.
Common Factors
- Historical and current bank merger pricing; and,
- Current market prices for minority blocks of common stocks of regional
bank holding companies in Washington and surrounding states.
The Proposed Merger
- The terms of the Agreement and Plan of Merger;
- The specific pricing of the merger;
- Adequacy of the consideration to be paid to the shareholders of TBI;
- The assumption that the merger will be treated as a tax-free exchange;
- The impact on FWWB's capital and liquidity positions;
- The historical dividend payments of FWWB and the likely impact on the
dividend income of the current shareholders of TBI (equivalency of cash
dividends);
- Pro-forma combined income statements for FWWB post merger and the
expected returns to TBI shareholders (equivalency of earnings yield);
- The market for minority blocks of FWWB common stock; and,
- Other such factors as deemed appropriate.
OVERVIEW OF FAIRNESS ANALYSIS
In connection with rendering its opinion, Southard Financial performed a
variety of financial analyses, which are summarized below. Southard Financial
believes that its analyses must be considered as a whole and that considering
only selected factors could create an incomplete view of the analyses and the
process underlying the opinion. The preparation of a fairness opinion is a
complex process involving subjective judgment and is not susceptible to partial
analyses. In its analyses, Southard Financial made numerous assumptions, many
of which are beyond the control of TBI and FWWB. Any estimates contained in
the analyses prepared by Southard Financial are not necessarily indicative of
future results or values, which may vary significantly from such estimates.
Estimates of value of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may actually be sold.
None of the analyses performed by Southard Financial was assigned greater
significance than any other. (More details on the analyses prepared by
Southard Financial are contained in Exhibits 3-5.)
C-3
PAGE
<PAGE>
Board of Directors
Towne Bancorp, Inc.
Page 4
ADEQUACY OF TOTAL PRICE
The key consideration in this fairness opinion is the adequacy of the total
price paid by FWWB. The following factors were considered:
Analysis of Market Transactions
Based upon the merger terms and the recent market price of FWWB common stock,
TBI shareholders will receive 316% of estimated December 31, 1997 book value
(diluted), 17.0 times estimated 1997 earnings, and 20.6% of assets. Based upon
the review conducted by Southard Financial, and given the financial
characteristics of TBI, the pricing for TBI in the merger is within the range
of multiples seen in recent bank acquisitions (see Exhibit 5). Further, the
terms of the merger (cash option) make the price comparison a key factor in
assessing the financial fairness of the merger.
Liquidity
Unlike TBI stock, FWWB shares are traded in the NASDAQ market. Further, except
in the case of officers, directors, and certain large shareholders of TBI, FWWB
shares received will be freely tradeable with no restrictions. Thus, any
shareholder electing to receive FWWB stock will have a marketable security that
can easily be sold (adequate volume of FWWB trading).
Merger Premium
The proposed transaction represents a premium of approximately 125% over the
most recent minority trading price of TBI shares. The merger premium for TBI
compares favorably with normal ranges observed for similar transactions.
Analysis of Alternatives
In evaluating the fairness of the proposed merger to the shareholders of TBI,
Southard Financial reviewed with TBI management the negotiation process.
Negotiations took place with FWWB over about a three and one-half month period
before a definitive agreement was reached.
IMPACT OF AN EXCHANGE OF TBI STOCK FOR FWWB STOCK
In evaluating the impact of receiving FWWB common stock in the merger, the
following factors are relevant:
Dividend Yield Analysis
In evaluating the impact of the proposed merger on the shareholders of TBI,
Southard Financial reviewed the dividend paying histories of TBI and FWWB. TBI
does not pay dividends to its shareholders. Therefore, the impact on the
dividends received by TBI shareholders who elect to receive FWWB common stock
will be decidedly positive. This is predicated on the assumption that FWWB
will continue per share dividends at or above current levels (see Exhibit 4).
C-4
PAGE
<PAGE>
Board of Directors
Towne Bancorp, Inc.
Page 5
Earnings Yield Analysis
In evaluating the impact of the proposed merger on the shareholders of TBI,
Southard Financial determined that, based upon an exchange ratio of 3.85, the
shareholders of TBI would have seen a 0.9% decrease in earnings per share
(defined as post merger combined earnings per share times the assumed exchange
ratio), had the merger been consummated prior to January 1, 1997 (see Exhibit
4).
Book Value Analysis
In evaluating the impact of the proposed merger on the shareholders of TBI,
Southard Financial determined that the shareholders of TBI are expected to
experience a two-fold increase in the book value of their investment, based
upon estimated book values of TBI and FWWB at December 31, 1997 (see Exhibit
4).
Fundamental Analysis
Southard Financial reviewed the financial characteristics of TBI and FWWB with
respect to profitability, capital ratios, liquidity, asset quality, and other
factors. Southard Financial compared TBI and FWWB to a universe of publicly
traded banks and bank holding companies and to peer groups prepared by the
Federal Financial Institutions Examination Council (FFIEC). Southard Financial
found that the post-merger combined entity will have capital ratios and
profitability ratios near those of the public peer group.
Summary of Analyses
The summary set forth does not purport to be a complete description of the
analyses performed by Southard Financial. The analyses performed by Southard
Financial are not necessarily indicative of actual values, but are based upon
the best information available as of the date of this opinion. Southard
Financial did not appraise any individual assets or liabilities of TBI or FWWB.
Throughout the due diligence process, all information provided by TBI, FWWB,
and third party sources, was relied upon by Southard Financial without
independent verification.
Based upon the analyses discussed above, and other analyses performed by
Southard Financial, the impact of the merger on the shareholders of TBI is
expected to be favorable.
C-5
PAGE
<PAGE>
Board of Directors
Towne Bancorp, Inc.
Page 6
FAIRNESS OPINION
Based upon the analyses of the foregoing and such matters as were considered
relevant, it is the opinion of Southard Financial that the terms of the offer
for the acquisition of Towne Bancorp, Inc. by First Savings Bank of Washington
Bancorp, Inc. pursuant to the Agreement and Plan of Merger are fair, from a
financial viewpoint, to the shareholders of Towne Bancorp, Inc.
Thank you for this opportunity to be of service to the shareholders of Towne
Bancorp, Inc.
Sincerely yours,
SOUTHARD FINANCIAL
/s/ Douglas K. Southard
Douglas K. Southard, DBA, CFA, ASA
Attachments:
Exhibit 1: Towne Bancorp, Inc., Document Review List
Exhibit 2: First Savings Bank of Washington Bancorp, Inc., Document Review
List
Exhibit 3: Terms of the Agreement and Plan of Merger
Exhibit 4: Expected Impact of the Merger on the Shareholders of Towne
Bancorp, Inc.
Exhibit 5: Comparison of the Merger Pricing to Public Market Transactions
Exhibit 6: Qualifications of Southard Financial
C-6
PAGE
<PAGE>
EXHIBIT 1
TOWNE BANCORP, INC.
DOCUMENT REVIEW LIST
1. Consolidated Report of Condition and Income ("Call Report") of Towne
Bank of Woodinville for the period ended September 30, 1997.
2. Uniform Bank Performance Report ("UBPR") of Towne Bank of Woodinville
for the period ended June 30, 1997.
3. Audited Financial Statements of Towne Bank of Woodinville for the
periods ended December 31, 1993-96.
4. Parent only financial statements of Towne Bancorp, Inc. for the period
ended September 30, 1997.
5. Internal financial statements for Towne Bank of Woodinville for the
period ended September 30, 1997.
6. Additional pertinent information deemed necessary to render this
opinion.
C-7
PAGE
<PAGE>
EXHIBIT 2
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC.
DOCUMENT REVIEW LIST
1. Annual Reports of First Savings Bank of Washington Bancorp, Inc.,
including audited financial statements for the fiscal years ended March
31, 1995-97.
2. Securities and Exchange Commission Form 10-K of First Savings Bank of
Washington Bancorp, Inc. for the fiscal year ended March 31, 1997.
3. Securities and Exchange Commission Form 10-Q of First Savings Bank of
Washington Bancorp, Inc. for the quarters ended June 30, 1997 and
September 30, 1997.
4. Analyst's Reports on First Savings Bank of Washington Bancorp, Inc.
5. Additional pertinent information deemed necessary to render this
opinion.
C-8
PAGE
<PAGE>
EXHIBIT 3
TERMS OF THE
AGREEMENT AND PLAN OF MERGER
Based upon Southard Financial's understanding, the Definitive Agreement will
give each TBI shareholder four options in the merger. In exchange for TBI
shares owned, each TBI shareholder can:
(1) Elect to receive cash of $91.62 per share for all shares (Cash
Election);
(2) Elect to receive 3.85 shares of FWWB common stock for each TBI share
(Stock Election);
(3) Elect to receive a stated percentage of the consideration in cash
(Partial Cash Election) and the remainder in shares of FWWB common stock
(Partial Stock Election); or,
(4) Elect no preference for cash of FWWB common stock (Non-Election).
Notwithstanding these election options, the Agreement contains further
conditions regarding the aggregate elections in the merger:
(1) In the aggregate, the combination of Cash Elections and Partial Cash
Elections cannot exceed 49% of the total consideration paid to TBI
shareholders. Further, the aggregate combination of Stock Elections and
Partial Stock Elections cannot exceed 70% of the total consideration.
(2) If the aggregate of Cash Elections and Partial Cash Elections exceeds 49%
of the total consideration, then each Non-Election share shall receive
FWWB common stock and each Cash Election share shall be converted into a
combination of cash and shares of FWWB common stock according to a
formula as prescribed in the Agreement.
(3) If the aggregate of Stock Elections exceeds 70% of the total
consideration, then each Non-Election share shall receive cash and each
Stock Election share shall be converted into a combination of cash and
shares of FWWB common stock according to a formula as prescribed in the
Agreement.
(4) If neither of the limits noted above are exceeded, then the Non-Election
share shall be converted into a combination of cash and shares of FWWB
common stock according to a formula as prescribed in the Agreement.
(5) Any outstanding unexercised options to purchase TBI common stock shall be
converted into options to purchase FWWB common stock on the same terms
and conditions, with the number of shares and price per share adjusted by
the Exchange Ratio.
C-9
PAGE
<PAGE>
EXHIBIT 3
TERMS OF THE
AGREEMENT AND PLAN OF MERGER
(Continued)
The exchange ratio will be adjusted to reflect any reclassification,
recapitalization, split-up, combination or exchange of shares, or stock
dividend which might occur at FWWB subsequent to the date of the Agreement but
prior to the consummation of the merger.
No fractional shares will be issued by FWWB. TBI shareholders who would
otherwise have been entitled to fractional shares (after aggregating all shares
owned) will be paid in cash in an amount equal to $23.80 times such fractional
part of a share.
The parties intend for the merger to qualify as a "reorganization" under the
Internal Revenue Code. Thus, the exchange of TBI stock for FWWB stock is
expected to qualify as a tax-free exchange for Federal income tax purposes.
The exchange of cash for TBI shares or for fractional shares may have tax
consequences.
The Agreement may be terminated by either party:
- upon the mutual consent of each institution;
- upon a breach by either party of any representation, warranty,
obligation, or covenant;
- if the merger is not consummated by September 30, 1998; or,
- under the terms and conditions as set forth in the Agreement.
If the Agreement is terminated due to: (1) TBI's failure to use its best
efforts to consummate the merger; (2) TBI's decision to terminate the merger
for reasons other than as prescribed in the Agreement; or, (3) the failure of
TBI's shareholders to approve the merger, then TBI is obligated to pay to FWWB
a termination fee of $250,000.
Further, if the Agreement is terminated due to: (1) FWWB's failure to use its
best efforts to consummate the merger; or (2) FWWB's decision to terminate the
merger for reasons other than as prescribed in the Agreement, then FWWB is
obligated to pay to TBI a termination fee of $250,000.
Finally, if the merger has not been completed within 18 months of the date of
the Agreement, and either: (1) any person acquires beneficial ownership of 25%
or more of TBI's common stock; (2) TBI enters into an Acquisition Transaction
(as defined in the Agreement) with any party other than FWWB; or (3) TBI
breaches the Agreement to enter into an Acquisition Transaction, then TBI is
obligated to pay to FWWB a fee of $1,350,000.
C-10
PAGE
<PAGE>
EXHIBIT 4
EXPECTED IMPACT OF THE MERGER
ON THE SHAREHOLDERS OF
TOWNE BANCORP, INC.
The following is a summary of the various analyses undertaken in conjunction
with this fairness opinion. This summary is not intended to represent all
analyses performed by Southard Financial, but is presented here for the
convenience of TBI and its shareholders.
According to the Agreement, the Exchange Ratio is 3.85 equivalent shares of
FWWB common stock for each share of TBI common stock outstanding, with the
consideration being a combination of cash and FWWB common stock. The ultimate
mix of cash and FWWB common stock to be exchanged in the merger is not
currently known, nor can it be reasonably foreseen. Therefore, the following
analysis focuses on the total consideration to be paid in the merger,
regardless of the mix of cash and FWWB common stock. The analysis presented
below is provided to TBI shareholders to assist in their determination of which
exchange options to accept. However, Southard Financial is not providing
investment advice.
Earnings
TBI earned $4.11 per share in 1996 and FWWB earned $1.11 per share (adjusted
for non-recurring SAIF charges) in the fiscal year ended March 31, 1997.
Had the merger been consummated prior to January 1, 1996, each former TBI
share would have earned $4.27 in 1996 (FWWB earnings of $1.11 per share times
3.85 equivalent shares), or 3.9% more than TBI's earnings.
TBI is expected to earn $5.40 in 1997, while the consensus analysts earnings
projection for FWWB is $1.39 per share in the fiscal year ending March 31,
1998. Had the merger been consummated prior to January 1, 1997, each former
TBI share would have been expected to earn $5.35 (FWWB expected earnings of
$1.39 per share times 3.85 equivalent shares), or 0.9% less than TBI's
earnings.
Dividends
TBI does not pay dividends, while FWWB's dividend was $0.22 per share in the
fiscal year ended March 31, 1997. Had the merger been consummated prior to
January 1, 1996, each former share of TBI stock would have received
dividends of $0.85 in 1996 (FWWB dividends of $0.22 per share times 3.85
equivalent shares).
No dividend is expected to be paid to TBI shareholders in 1997, while FWWB's
expected 1997 dividend is $0.28 per share. Had the merger been consummated
prior to January 1, 1997, each former share of TBI stock would be expected to
receive dividends of $1.08 in 1997 (FWWB expected dividends of $0.28 per
share times 3.85 equivalent shares). The favorable dividend comparison is a
major factor in favor of the merger.
Book Value
Estimated book value of TBI common stock at December 31, 1997 is $29.00 per
share (fully diluted). Estimated book value of FWWB is $16.10 per share at
December 31, 1997. If the merger is consummated as of December 31, 1997,
each former TBI share would be expected to receive book value of $61.99 (FWWB
estimated book value of $16.10 per share times 3.85 equivalent shares), or
214% of TBI's estimated book value at December 31, 1997.
Liquidity
Unlike TBI stock, FWWB shares are traded in the NASDAQ market. With minor
exceptions, FWWB shares received by TBI shareholders will be freely tradeable
with no restrictions.
C-11
PAGE
<PAGE>
Merger Premium
Prior to the merger, TBI's shares had traded in the range of $40.00-$42.50
per share. Thus, the proposed price represents a premium in excess of 100%
over the most recent minority interest trading price of TBI common stock.
C-12
PAGE
<PAGE>
EXHIBIT 5
COMPARISON OF THE MERGER PRICING
TO PUBLIC MARKET TRANSACTIONS
Southard Financial compared the pricing terms of the Agreement to the pricing
of recent acquisitions of banks and bank holding companies across the United
States, and to the minority interest prices of publicly traded banks and bank
holding companies in the West.
Pricing data for recent acquisitions of banks and bank holding companies
(nationwide and in Washington and contiguous states) is summarized as follows:
Transactions Price/ Price/ Price/ Equity/
Announced in 1997(1) Earnings Book Val Assets ROAA Assets ROAE
- --------------------- -------- -------- ------ ------- ------ ----
Nationwide (76) 21.1x 211.7% 20.05% 1.13% 9.99% 12.12%
Washington (3) 22.3 220.4 17.32 0.83 8.09 10.35
WA, OR, ID (3) 22.3 220.4 17.32 0.83 8.09 10.35
Transactions
Announced in 1996(2)
- ---------------------
Nationwide (173) 19.0 191.4 19.52 1.14 9.96 11.98
Washington (2) 13.6 218.8 16.27 1.38 8.35 16.66
WA, OR, ID (3) 13.7 206.6 17.54 1.46 9.24 16.03
TBI3 17.0 315.9 20.59 1.35 6.52 19.00
- ----------------------
1 Through September 30; only includes transactions for Banks with assets
under $1 billion for which sufficient data was available
2 Through December 31; only includes transactions for Banks with assets
under $1 billion for which sufficient data was available
3 Based upon effective merger price of $91.62 per share (3.85 x $23.80),
estimated 1997 earnings of $5.40 per share, estimated book value of $29.00
per share at December 31, 1997, estimated assets of $445.00 per share at
December 31, 1997, estimated 1997 average assets of $112 million, and
estimated 1997 average equity of $8.0 million.
Based upon an Exchange Ratio of 3.85, the merger of TBI into FWWB will take
place at 17.0 times estimated 1997 earnings and 316% of estimated December 31,
1997 fully diluted book value. The price/earnings ratio is comparable to
market transactions, while the price/book value multiple is well above recent
market multiples. Finally, the price/assets multiple is above recent market
transactions.
C-13
PAGE
<PAGE>
EXHIBIT 5
COMPARISON OF THE MERGER PRICING
TO PUBLIC MARKET TRANSACTIONS
(continued)
In determining the attractiveness of owning FWWB stock, it is important to
examine FWWB's recent pricing in comparison with recent pricing multiples for
publicly traded banks and thrifts and bank/thrift holding companies. This
pricing data is presented below as of September 30, 1997.
Price/ Price/ Current Current
Publicly Traded Banks(1) Earnings Book Val ROAE Yield
- ------------------------ -------- -------- ------- -------
All Banks (183) 17.15x 212.8% 12.55% 1.93%
West Coast Banks (15) 16.06 214.0 15.09 0.92
Washington Banks (1) 17.57 243.8 11.29 0.00
Publicly Traded Thrifts(1)
- --------------------------
All Thrifts (72) 18.56 184.7 9.41 1.85
West Coast Thrifts (3) 15.90 165.8 10.41 1.26
Washington Thrifts (1) 15.15 153.3 10.11 2.12
FWWB
- ----
Based upon 09/30/97
Price (24.750)(2) 18.89 156.3 8.40 1.13
Based upon 11/21/97
Price (24.375)(3) 17.54 151.4 8.63 1.15
- ---------------------
1 Through September 30, 1997; subject to certain screens performed by Southard
Financial.
2 Based on trailing twelve month earnings of $1.31 per share, September 30
book value of $15.83 per share, and expected 1997 dividends of 0.28 per
share.
3 Based on estimated 1997 earnings of $1.39 per share, estimated year-end book
value of $16.10 per share, and expected 1997 dividends of 0.28 per share.
Based upon an analysis of the data provided above, FWWB's price/earnings
multiple is comparable to peer public banks and thrifts. FWWB's price/book
value multiple is below the average for public banks, but nearer to the average
for public thrifts. This is due, in part, to the below average return on
average equity versus the public banks and thrifts. FWWB's dividend yield is
below within the range of public banks and thrifts.
C-14
PAGE
<PAGE>
EXHIBIT 6
QUALIFICATIONS OF SOUTHARD FINANCIAL
BACKGROUND - Founded in 1987.
- Principals have combined business valuation
experience of over twenty-five years.
- Clients served throughout the United States, with
concentration in the Southeast.
- Broad industry experience.
- Services provided for public and closely-held
companies.
- Annual valuation services provided for over 100
ESOPs, making Southard Financial one of the largest
ESOP appraisers in the United States.
PROFESSIONAL
CREDENTIALS - Southard Financial's principals, Douglas K. Southard
and David A. Harris, are senior members of the
American Society of Appraisers (ASA).
- Both principals of Southard Financial are Chartered
Financial Analysts (CFA).
- Both principals are current or former officers of the
West Tennessee Chapter of the ASA.
EDUCATIONAL
CREDENTIALS - Douglas Southard holds Doctor of Business
Administration and Master of Business Administration
degrees from Indiana University, with concentrations
in finance, economics, and quantitative analysis.
- David Harris holds the Master of Business
Administration degree from Memphis State University,
with a concentration in finance and business
investments.
BUSINESS
ETHICS - Southard Financial and its principals adhere to the
ethical standards of the Institute of Chartered
Financial Analysts and the American Society of
Appraisers.
- All reports conform to the Uniform Standards of
Professional Appraisal Practice.
- Southard Financial is committed to providing unbiased
opinions to be used for decision making.
- Fees for valuation services are not contingent upon
the conclusion of value or the completion of a
transaction.
C-15
PAGE
<PAGE>
Appendix D
Management's Discussion and Analysis of the Financial
Condition and Results of Operations of Towne Bancorp, Inc.
The following discussion and analysis highlights the significant factors
affecting the financial statements of Towne Bancorp, Inc. ("Towne") and its
wholly-owned subsidiary, Towne Bank. For a more complete understanding of the
following discussion, reference should be made to Towne Bancorp's consolidated
financial statements and related notes thereto presented elsewhere in this
Proxy Statement.
In September 1996, Towne Bank's shareholders approved a plan of
reorganization whereby Towne Bancorp, Inc. was formed and, effective January 1,
1997, became the sole shareholder of Towne Bank. Concurrently, the
shareholders of Towne Bank became the shareholders of Towne Bancorp, Inc.
Balance Sheet Analysis
Financial Condition. The total assets of Towne increased by $32,668,179
or 60.95% between December 31, 1996 and 1995. The increase was due primarily
to growth in the loan portfolio. At September 30, 1997 assets were
$128,103,732 compared to the December 31, 1996 level of $86,267,651. Towne
receives a major portion of its income from earning assets which consist of
interest-bearing deposits with other banks, federal funds sold, investment
securities and loans. See Tables 1 and 2 for an analysis of the average
balances of interest-earning assets and interest-bearing liabilities for the
years ended December 31, 1996 and 1995.
Towne Bank's loan portfolio represents the largest component of the
earning asset base and has the largest impact on income from earning assets.
The markets in which Towne operates are dependent upon the small to medium size
commercial business and real estate loans. As the economy of this market has
improved over the past several years, there has been an increase in loan volume
and a decline in investment securities. This contributes to the increase in
loans and a decrease in investment securities at September 30, 1997 compared to
the December 31, 1996 levels.
Inherent in Towne Bank's loan portfolio is credit risk. Towne maintains
an allowance for loan losses which is evaluated for adequacy by
management. Management s methodology to determine the adequacy of the
allowance considers reviews of individual loans, recent loan loss experience,
current economic conditions and the risk characteristics of the various
categories of loans. See Table 5 through 9 for detailed information
concerning the loan portfolio and the allowance for loan losses.
Investment securities are the second largest component of the earning
asset base. The average volume of investment securities has remained
relatively stable during the nine months ended September 30, 1997, and the
years ended December 31, 1996 and 1995. See Table 3 and 4 for details
concerning the composition and maturity ranges of the investment portfolio.
Deposits, the primary source of funding earning assets, increased by
$28,684,966 or 58.29% between December 31, 1996 and December 31, 1995. The
majority of this increase was in certificates of deposit less than $100,000
reflecting the increase in market volume for such deposits. See Table 10 for a
maturity analysis of certificates of deposit less than $100,000 as of December
31, 1996.
During the period between December 31, 1996 and September 30, 1997, Towne
increased the level of borrowings from the Federal Home Loan Bank of Seattle in
order to provide funds for increased loan growth.
Liquidity and Interest Rate Sensitivity Management. Liquidity is the
ability of an institution to fund the needs of its borrowers, depositors and
creditors. Based on the maturity structure and anticipated loan and deposit
D-1
PAGE
<PAGE>
funding requirements, Towne anticipates its liquidity requirements will be met
in the foreseeable future. Towne's management is of the opinion that the
traditional funding sources of maturing loans and investment securities,
federal funds, the base of core deposits, the borrowing lines of credit with
the Federal Home Loan Bank of Seattle and various other Seattle-based banks
will be adequate to provide liquidity needs. See Tables 4, 6, and 10 for
additional information on certain investment, loan and time deposit maturities.
Capital. The Federal Reserve Board requires banks to maintain capital
based on "risk adjusted" assets so that categories of assets with potentially
higher risk will require more capital backing than assets with lower risk. In
addition, banks are required to maintain capital to support, on a
risk-adjusted basis, certain off-balance sheet activities such as loan
commitments.
At September 30, 1997 Towne Bancorp s Tier 1 capital and total capital as
a percentage of total risk-adjusted assets exceeded the required minimum
levels. See Table 12 for additional information concerning Towne's capital
ratios.
Earnings Analysis
Net income for the first nine months of 1997 was $1,271,517, an increase
of $508,490, or 68.90%, over the same period in 1996. The increase was due
primarily to a $1,829,734 or 57.67% increase in net interest income and a
$57,070, or 11.71%, increase in noninterest income. For the years ended
December 31, 1996, 1995, and 1994, net income was approximately $903,167,
$493,150 and $366,196, respectively. The annualized return on average assets
and return on average equity for the first nine months of 1997 was 1.67% and
21.27%, respectively, compared to 1.49% and 16.89% for the first nine months of
1996. For the years ended December 31, 1996, 1995, and 1994, the return on
average assets was 1.30%, 1.11%, and 1.17%, respectively, while the return on
average equity was 14.42%, 13.78%, and 11.88%, respectively.
The primary components of total income and expense which affect net
income are net interest income, provision for loan losses, noninterest income,
noninterest expense and the provision for income taxes. Significant factors
affecting these categories are presented below.
Net Interest Income. Net interest income for the first nine months of
1997 was $5,002,323, a 57.67% increase over the same period in 1996. The
primary reason for the increase was the large increase of $31,560,358 in net
loans during the period from December 31, 1996 to September 30, 1997 as
compared to a decrease in investment securities of $747,309 for the same
period. Interest on loans for the nine months ended September 30, 1997
increased by $2,781,979 or 57.46% compared to the corresponding period of 1996.
Interest expense for the nine months ended September 30, 1997 increased by
$901,958 or 44.24% compared to the corresponding period of 1996. As a
percentage of total assets at September 30, 1997, net loans totaled 77.75%
while investment securities were 5.09%.
For the years ended December 31, 1996, 1995, and 1994, net interest
income was $4,519,959, $2,852,531, and $2,017,005, respectively. The increase
during 1996 compared to 1995 was due primarily to the increase in volume of
interest-earning assets. See Tables 1 and 2 for more detailed information
regarding rate and volume factors which affected net interest income during
the three-year period ended December 31, 1996.
Provision for Loan Losses. For the first nine months of 1997, Towne
provided $485,000 for loan losses compared to $332,625 for the comparable
period in 1996. The provision for loan losses was $635,000, $325,000, and
$147,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Net charge-offs on loans were $310,391 in 1996, $107,641 in 1995 and
$27,127 in 1994. For the nine months ended September 30, 1997, net charge-offs
totaled $176,542. The allowance for loan losses was $1,150,989 or 1.14% of
loans at September 30, 1997, compared to $842,532 or 1.22% at December 31,
1996, and $517,923 or
D-2
PAGE
<PAGE>
1.25% at December 31, 1995. See Tables 7, 8, and 9 for more information
regarding loan quality and the allowance for loan losses.
Noninterest Income. Total noninterest income for the nine months ended
September 30, 1997, and 1996 was $544,627 and $487,557, respectively. The
increase was due primarily to an increase in 1997 of $89,507 in service charge
income. Total noninterest income for the year ended December 31, 1996 was
$618,285 as compared to $502,154 for 1995 and $436,217 in 1994.
Noninterest Expense. Total noninterest expense for the nine months ended
September 30, 1997, and 1996 was $3,155,433 and $2,224,494, respectively.
Increases in salaries and benefits, occupancy and other expenses all
contributed to the increase.
Total noninterest expense for the year ended December 31, 1996 was
$3,135,077 as compared to $2,285,535 for 1995 and $1,754,626 in 1994.
Provision for Income Taxes. Income tax expense for the nine months ended
September 30, 1997 and 1996 was $660,000 and $375,000, respectively, for
effective tax rates of approximately 34% and 34%, respectively. Income Tax
expense for the years ended December 31, 1996, 1995, and 1994, was $465,000,
$251,000, and $185,400, respectively. Effective tax rates were approximately
34%, 34%, and 34% for 1996, 1995, and 1994, respectively. Note 8 of Notes to
the Financial Statements provides further details of the applicable income tax
expense for 1996, 1995, and 1994.
Year 2000
Management is in the process of assessing Year 2000 technology issues.
Towne Bank's system-critical functions are out-sourced to third-party vendors
who are large corporations and leaders in their industries. Year 2000
technology issues are not expected to have a material adverse effect on the
financial condition or the results of operations of Towne or Towne Bank, nor
are they expected to have a material adverse effect on the operations of Towne
or Towne Bank.
Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statements of Financial Accounting Standards No. 128 ("SFAS No. 128"),
Earnings Per Share. SFAS No. 128 is designed to improve the earnings per share
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements and increasing
comparability of earnings per share data on an international basis. This
pronouncement is effective for periods beginning after December 15, 1997, and
is not expected to have a material impact on Towne's reported earnings per
share.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in
non-condensed general purpose financial statements. SFAS No. 130 requires
classification of other comprehensive income by their nature in a financial
statement, and the display of the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Towne believes this
pronouncement will not have a material effect on its financial statements.
In June 1997, the FASB also issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, which established standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports to shareholders. SFAS No. 131 also establishes standards for related
D-3
PAGE
<PAGE>
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for fiscal years beginning after December 15, 1997,
although earlier application is encouraged. Towne believes this pronouncement
will not have a material effect on its financial statements.
Competition
Towne competes generally in the King County, Washington and the southern
part of Snohomish County, Washington markets and the immediate surrounding
areas with other banks and financial institutions, many or all of which may
have greater financial resources than Towne. Towne faces substantial
competition from other commercial banks, savings banks, credit unions, mortgage
companies and other non-traditional financial entities. Regional interstate
banking laws and other recent federal and state laws have resulted in increased
competition from both conventional banking institutions and other businesses
offering financial services and products. Towne also competes for
interest-bearing funds with a number of other financial intermediaries and
investment alternatives, including brokerage firms, money market mutual funds,
government bonds, corporate bonds and other securities.
Litigation
There is no material pending litigation of which Towne Bancorp or Towne
Bank is a party.
Offices
Towne's executive offices are located at 17530 132nd Avenue, N.E.,
Woodinville, Washington 98072. This address also serves as the main office of
Towne Bank. Towne Bank has full service branch facilities at 16150 N.E. 85th
Street, Redmond, Washington 98052; 12443 Bel-Red Road, Bellevue, Washington
98005; and 54 Ranier Avenue South, Renton, Washington 98055. Towne and Towne
Bank do not own any of the land or facilities from which they operate any of
their offices. Rather, such offices are operated pursuant to long-term leases
with third parties at prevailing market rental rates.
Employees
As of September 30, 1997, Towne had 42 employees.
D-4
PAGE
<PAGE>
Table 1 - Comparative Average Balances - Yields and Rates
The table below shows the average balances of the assets and liabilities
of Towne, the interest income or expense associated with those assets and
liabilities, and the computed yield or rate based upon the interest income or
expense for each of the last two years.
Year Ended December 31,
---------------------------------------------------------------
1996 1995
------------------------------ ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
ASSETS
Interest
- -earning
assets:
Loans $55,777,805 $6,857,086 12.29% $33,538,642 $4,309,605 12.85%
Investment
securities:
Taxable 5,078,749 283,493 5.58% 5,152,821 314,330 6.10%
Tax-exempt 1,745,379 78,358 4.49% 1,108,960 36,268 3.27%
Federal
funds sold 2,065,927 110,628 5.35% 1,160,347 68,982 5.94%
----------- ---------- ---- ----------- ---------- ----
Total
interest-
earning
assets 64,667,860 7,329,565 11.33% 40,960,770 4,729,185 11.55%
Noninterest-
earning
assets:
Other
assets 5,738,406 3,796,000
Allowance
for
loan
losses (672,865) (382,984)
----------- -----------
Total $69,733,401 $44,373,786
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-
bearing
liabilities:
Demand
deposits $16,079,868 636,279 3.96% $ 7,539,112 345,109 4.58%
Savings
deposits 2,581,765 98,851 3.83% 2,083,816 91,558 4.39%
Time
deposits 32,868,294 2,017,744 6.14% 22,151,869 1,407,748 6.35%
Other 975,240 56,732 5.82% 538,243 32,239 5.99%
---------- ---------- ---- ----------- ---------- ----
Total
interest-
bearing
liabilities: 52,505,167 2,809,606 5.35% 32,313,040 1,876,654 5.81%
Noninterest
- -bearing
liabilities:
Demand
Deposits 10,182,609 8,018,094
Other 783,935 463,898
----------- -----------
10,966,544 8,481,992
Shareholders'
equity 6,261,690 3,578,754
----------- -----------
Total $69,733,401 $44,373,786
=========== ===========
Net
interest
earnings $4,519,959 $2,852,531
========== ==========
Net yield
on interest-
earning assets 6.99% 6.96%
Nonaccruing loans have been included in the average loan balances and
interest collected prior to these loans having been placed on nonaccrual has
been included in interest income. Loan fees included in interest income were
approximately $964,000 in 1996 and $641,000 in 1995. Tax-exempt investments
have not been reported on a tax-equivalent basis.
D-5
PAGE
<PAGE>
Table 2 - Volume and Yield/Rate Variance Analysis
The following table shows the change from year to year for each component
of the net interest margin separated into the amount generated by volume
changes and the amount generated by changes in the yield or rate.
1996 Compared to 1995 1995 Compared to 1994
Change Due To: Change Due To:
----------------------------------- -------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest
earned
on:
Loans $2,857,732 $(312,355) $2,545,377 $1,136,375 $516,495 $1,652,870
Investment
securities:
Taxable (4,518) (26,409) (30,927) 60,971 62,579 123,550
Tax-exempt 20,810 21,294 42,104 47,216 (5,656) 41,560
Federal
funds
sold 53,791 (12,190) 41,601 12,522 20,288 32,810
---------- --------- ---------- ---------- -------- ----------
Total
interest-
earning
assets $2,927,815 $(329,660) $2,598,155 $1,257,084 $593,706 $1,850,790
========== ========= ========== ========== ======== ==========
Interest
Paid
on:
Interest-
bearing
demand
deposits $ 391,167 ($99,695) $ 291,472 $ 74,081 $130,105 $204,186
Savings
deposits 21,860 (14,458) 7,402 2,513 27,548 30,061
Time
deposits 680,493 (69,023) 611,470 305,982 421,699 727,681
Other 26,176 (1,683) 24,518 16,270 4,617 20,887
---------- --------- ---------- ---------- -------- ----------
Total
interest-
bearing
liabil-
ities $1,119,696 $(184,834) $ 934,862 $398,846 $583,969 $982,815
========== ========= ========== ========== ======== ========
The change in interest due to both volume and yield/rate has been allocated
to change due to volume and change due to yield/rate in proportion to the
absolute value of the change of each. The balances of nonaccrual loans and
related income recognized have been included for purposes of these
computations.
Table 3 - Investment Portfolio
The table below indicates the book value of investment securities by type
at year-end for each of the last two years:
December 31,
-------------------------
1996 1995
---- ----
Held-to-Maturity
- ----------------
U.S. Treasury and U.S. Government Agencies $ 637,973 $1,483,508
Obligations of states and political subdivisions 1,819,044 1,838,883
---------- ----------
Total Held-to-Maturity Investment Securities $2,457,017 $3,322,391
========== ==========
Available-for-Sale
- ------------------
U.S. Treasury and U.S. Government Agencies $2,468,282 $3,037,677
Other Securities (corporate) 0 249,500
---------- ----------
Total debt Securities 2,468,282 3,287,177
---------- ----------
Equity Securities 827,700 517,500
---------- ----------
Total Available-for-sale Investment Securities $3,313,982 $3,804,677
========== ==========
D-6
PAGE
<PAGE>
<TABLE>
Table 4 - Maturity Distribution and Yields of Investment Portfolio
The following table details the maturities of investment securities at December 31, 1996 and the
weighted average yield for each range of maturities:
Maturing
----------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Yield Five Years Yield Ten Years Yield Ten Years Yield Total
-------- ----- ---------- ----- ---------- ----- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
- ----------------
U.S. Treasury and
U.S. Government
Agencies $ 0 $137,485 7.11% $ 0 $500,488 6.71% $ 637,973
Obligations
of states and
political
securities 75,000 4.34% 545,785 4.39% 1,100,110 4.96% 98,149 8.40% 1,819,044
--------- --------- ----------- ---------- ----------
Total debt
Securities 75,000 683,270 1,100,110 598,637 2,457,017
Equity Securities 0 0 0 0 0
Total Held-
to-Maturity ---------- -------- ----------- ---------- ----------
Investment
securities $ 75,000 $683,270 $1,100,110 $ 598,637 $2,457,017
========== ======== ========== ========== ==========
Available-for-Sale
- ------------------
U.S. Treasury and
U.S. Government
Agencies $ 998,144 5.55% $ 0 $1,488,138 6.70% $ 0 $2,486,282
---------- -------- ---------- --------- ----------
Total debt
Securities 998,144 0 1,488,138 0 2,486,282
Equity
Securities 827,700 7.87% 0 0 0 827,700
Total Available-
for-Sale ---------- -------- ----------- --------- ----------
Investment
securities $1,825,844 $ 0 $1,488,138 $ 0 $3,313,982
========== ======== ========== ========= ==========
At December 31, 1996 there were two securities in the portfolio coming from one issuer with a carrying
value exceeding ten percent of stockholders' equity.
Carrying Market
Value Value
-------- --------
FNMA Discount Note due 1/13/97 $998,144 $997,830
FHLB Stock 827,700 827,700
D-7
</TABLE>
PAGE
<PAGE>
Table 5 - Composition of the Loan Portfolio
12/31/96 12/31/95
----------- -----------
Commercial $47,600,608 $30,621,726
Real estate - Construction 4,921,057 4,709,721
Real estate - Residential 4,649,827 333,140
Real estate - commercial 6,401,281 1,884,657
Consumer loans 5,338,563 3,932,316
----------- -----------
Total Loans $68,911,336 $41,481,560
=========== ===========
Table 6 - Loan Maturities and Sensitivity to Changes in Interest Rates
The following table sets forth certain information at December 31, 1996
regarding the dollar amount of loans in Towne Bank's loan portfolio.
Maturing
-----------------------------------------------------
Maturing
One Year
Within One Through After
Year or Less Five Years Five Years Total
------------ ---------- ---------- -----
(1) Fixed Rate Loans $3,310,193 $11,384,144 $3,744,071 $18,438,408
Maturing
-----------------------------------------------
Within One Over
Year or Less One Year
------------ --------
(1)(2) Variable Rate Loans $50,120,186 $381,820 $50,502,006
-----------
$68,904,414
===========
Repricing for Variable Rate Loans
-------------------------------------------------
Maturing
One Year
Within One Through After
Year or Less Five Years Five Years Total
------------ ---------- ---------- -----
(3) Variable Rate Loans $50,149,264 $352,742 $ 0 $50,502,006
- ----------------------
(1) The maturity information by loan type was not available.
(2) The maturity on variable loans only available in 1 year or less and
over 1 year.
(3) Repricing versus maturity information provided on variable rate loans
D-8
PAGE
<PAGE>
Table 7 - Nonperforming Loans and Past Due Loans
At December 31, 1996 and 1995, Towne Bank had loans amounting to $928,000
and $583,000 that were specifically classified as impaired with an average
balance of $1,080,000 and $616,000 respectively. The allowance for credit
losses related to these loans was approximately $126,000 and $146,000,
respectively. For the remaining $802,000 and $437,000 of impaired loans, no
allocation of the allowance for possible credit losses was considered
necessary. Interest collected on these loans in cash and included in income
was approximately $150,000 and $24,000 in 1996 and 1995. If interest on these
loans had been accrued, such income would have approximated $174,400 and
$32,000 in 1996 and 1995. At December 31, 1996 and 1995, there were no
commitments to lend additional funds to borrowers whose loans were classified
as impaired.
Table 8 - Analysis of the Allowance for Loan Losses
The table below summarizes Towne's loan loss experience for each of the
last two years.
Year Ended
December 31,
----------------------
1996 1995
---- ----
Amount of loan loss reserve at beginning of period $517,923 $300,564
Loans charged off:
Commercial 449,432 166,113
-------- --------
Total charge-offs 449,432 166,113
Recoveries on loans previously charged off:
Commercial 139,041 58,472
-------- --------
Total recoveries 139,041 58,472
-------- --------
Net charge-offs 310,391 107,641
Additions to allowance charged to operating expense (1) 635,000 325,000
-------- --------
Amount of loan loss reserve at end of period $842,532 $517,923
======== ========
Percentage of net charge-offs during period to average
loans outstanding during the period 0.56% 0.32%
- ----------------------
(1) The amount charged to operations and the related balance in the allowance
for loan losses is based upon periodic evaluations of the loan portfolio
by management. These evaluations consider several factors including, but
not limited to, general economic conditions, loan portfolio composition,
prior loan loss experience, and management's reviews of individual loans.
D-9
PAGE
<PAGE>
Table 9 - Allocation of the Allowance for Loan Losses
The following table is a summary by allocation category of Towne's
allowance for loan losses:
December 31,
--------------------------------
% Loans % Loans
in each in each
1996 Category 1995 Category
---- -------- ---- --------
Commercial, financial
and agriculture $145,414 78.36% $162,291 78.36%
Real estate - Construction 0 7.14% 0 11.35%
Real estate - Mortgage 0 6.75% 0 0.80%
Consumer 0 7.77% 0 9.49%
Unallocated 697,118 355,632
-------- --------
$842,532 $517,923
======== ========
Table 10 - Time Deposits of $100,000 or More
The table below shows maturities on outstanding time deposits of $100,000
or more at December 31, 1996:
3 months or less $ 5,739,966
Over 6 months through 12 months 7,435,919
Over 12 months 1,052,906
-----------
$14,228,791
===========
Table 11 - Return on Equity and Assets
The following table shows operating and equity ratios of Towne for
each of the last two years:
Year Ended
December 31,
---------------------
1996 1995
----- ----
Return on average assets 1.30% 1.11%
Return on average equity 14.42% 13.78%
Equity to assets ratio 8.89% 7.41%
Table 12 - Comparison of Capital Ratios with Regulatory Requirements (1)
Regulatory
Requirements
For Capital
As of September 30, 1997 Towne Bank Adequacy Purposes
- ------------------------ ---------- -----------------
Total Capital / Risk Weighted Assets 8.47% 8.00%
Tier 1 Capital / Risk Weighted Asset 7.40% 4.00%
Tier 1 Capital / Average Assets 7.44% 4.00%
(1) Excludes unrealized gains and losses on securities available-for-sale.
D-10
PAGE
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Stockholders
Towne Bank
We have audited the accompanying balance sheet of Towne Bank as of December 31,
1996 and 1995, and the related statements of income, changes in stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Towne Bank as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Moss Adams, LLP
Everett, Washington
January 13, 1997
D-11
PAGE
<PAGE>
TOWNE BANK
BALANCE SHEET
ASSETS
------
DECEMBER 31,
---------------------------
1996 1995
------------ ------------
Cash and due from banks $ 5,586,479 $ 3,386,828
Federal funds sold 3,375,000 500,000
------------ ------------
Total cash and cash equivalents 8,961,479 3,886,828
------------ ------------
Investment securities
Available-for-sale, at market value 3,313,982 3,804,677
Held-to-maturity, at cost (Fair value 2,457,017 3,322,391
1996: $2,474,656; 1995: $3,357,069) ------------ ------------
Total investment securities 5,770,999 7,127,068
------------ ------------
Loans held for sale 636,121 254,121
------------ ------------
Loans 68,881,956 41,446,547
Less allowance for loan losses 842,532 517,923
------------ ------------
Loans, net 68,039,424 40,928,624
Bank premises and equipment, net 1,336,873 270,875
Accrued interest receivable 448,838 305,518
Goodwill 273,333 313,333
Other assets 800,584 513,105
------------ ------------
Total assets $ 86,267,651 $ 53,599,472
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits
Noninterest-bearing $ 15,316,567 $ 10,743,980
Interest bearing 62,576,842 38,464,463
------------ ------------
Total deposits 77,893,409 49,208,443
Accrued interest payable 207,818 153,171
Other liabilities 498,782 263,501
------------ ------------
Total liabilities 78,600,009 49,625,115
------------ ------------
Commitments (Note 10)
Common stock, $10 par value; 600,000
shares authorized; 297,125 and 156,781
issued and outstanding in 1996 and 1995 2,971,250 1,567,810
Capital surplus 3,514,332 2,104,104
Retained earnings 1,196,910 293,743
Net unrealized gain (loss) on securities,
net of tax effects (14,850) 8,700
------------ ------------
Total stockholders' equity 7,667,642 3,974,357
------------ ------------
Total liabilities and
stockholders' equity $ 86,267,651 $ 53,599,472
============ ============
The accompanying notes are an integral part of these financial statements.
D-12
PAGE
<PAGE>
TOWNE BANK
STATEMENT OF INCOME
YEAR ENDED
DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
INTEREST INCOME
Loans, including fees $ 6,857,086 $ 4,309,605 $ 2,669,664
Investments
Taxable 260,804 298,068 200,126
Tax exempt 78,358 36,268 4,875
Federal funds sold 110,628 68,982 36,172
Deposits in banks 22,689 16,262 --
----------- ----------- -----------
Total interest income 7,329,565 4,729,185 2,910,837
----------- ----------- -----------
INTEREST EXPENSE
Deposits 2,752,874 1,844,415 882,480
Other borrowings 56,732 32,239 11,352
----------- ----------- -----------
Total interest expense 2,809,606 1,876,654 893,832
----------- ----------- -----------
Net interest income 4,519,959 2,852,531 2,017,005
----------- ----------- -----------
PROVISION FOR LOAN LOSSES 635,000 325,000 147,000
Net interest income
after provision
for loan losses 3,884,959 2,527,531 1,870,005
----------- ----------- -----------
NONINTEREST INCOME
Service fees 223,445 210,775 148,020
Gain on sale of loans
held for sale 215,180 170,275 231,237
Other income 179,660 121,104 56,960
----------- ----------- -----------
Total noninterest income 618,285 502,154 436,217
NONINTEREST EXPENSE
Salaries and employee benefits 1,617,572 1,125,267 890,944
Occupancy and equipment 533,540 393,800 231,431
State business taxes 107,002 70,783 47,566
Other expenses 876,963 695,685 584,685
----------- ----------- -----------
Total noninterest expense 3,135,077 2,285,535 1,754,626
----------- ----------- -----------
INCOME BEFORE TAXES 1,368,167 744,150 551,596
PROVISION FOR INCOME TAXES 465,000 251,000 185,400
----------- ----------- -----------
NET INCOME $ 903,167 $ 493,150 $ 366,196
=========== =========== ===========
NET INCOME PER SHARE $ 2.95 $ 2.02 $ 1.72
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
D-13
PAGE
<PAGE>
<TABLE>
TOWNE BANK
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
Common Stock Securities Total
--------------------- Capital Retained Gains Stockholders'
Shares Amount Surplus Earnings (Losses) Equity
--------- ----------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993 145,926 $ 1,459,260 $ 1,429,260 $ 4,397 $ $ 2,892,917
Adoption of SFAS No. 115 $ 18,000 18,000
Sale of common stock 918 9,180 8,904 18,084
Transfer to surplus 250,000 (250,000)
Net income 366,196 366,196
Unrealized loss on
securities, net (78,000) (78,000)
--------- ----------- ----------- ---------- ------------ -----------
BALANCE, December 31, 1994 146,844 1,468,440 1,688,164 120,593 (60,000) 3,217,197
Sale of common stock 7,912 79,120 79,120 158,240
Stock options exercised 2,025 20,250 16,820 37,070
Transfer to surplus 320,000 (320,000)
Net income 493,150 493,150
Unrealized gains on
securities, net 68,700 68,700
--------- ----------- ----------- ---------- ------------ -----------
BALANCE, December 31, 1995 156,781 1,567,810 2,104,104 293,743 8,700 3,974,357
Sale of common stock 136,644 1,366,440 1,366,440 2,732,880
Stock options exercised 1,807 18,070 19,307 37,377
Employee stock plan 1,893 18,930 24,481 43,411
Net income 903,167 903,167
Unrealized gains on
securities, net (23,550) (23,550)
--------- ----------- ----------- ---------- ------------ -----------
BALANCE, December 31, 1996 297,125 $ 2,971,250 $ 3,514,332 $1,196,910 $ (14,850) $ 7,667,642
========= =========== =========== ========== ============ ===========
The accompanying notes are an integral part of these financial statements.
D-14
</TABLE>
PAGE
<PAGE>
TOWNE BANK
STATEMENT OF CASH FLOWS
Increase (Decrease) In Cash and Cash Equivalents
YEAR ENDED
DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 903,167 $ 493,150 $ 366,196
Adjustments to reconcile net income
to net cash provided by operating
activities
Provisions for loan losses 635,000 325,000 147,000
Gain on loans held for sale (215,180) (170,275) (231,237)
Gain on investments available for sale (9,777) (9,086) --
Depreciation of premises and equipment 238,966 163,764 106,458
Amortization and accretion of premiums
and discounts (56,122) 26,979 43,378
Amortization of goodwill 40,000 40,000 40,000
Increase in interest receivable (143,320) (66,209) --
Increase in other assets (287,479) (32,235) (136,741)
Increase in interest payable 54,647 51,816
Increase in other liabilities 235,280 8,776 194,859
Proceeds from sales of loans 2,588,659 1,985,532 4,081,345
Originations of loans held for sale (2,373,479) (1,921,372) (3,791,747)
----------- ----------- -----------
Net cash from operating activities 1,610,362 895,840 819,511
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of available-
for-sale securities 1,524,125 1,095,681 --
Proceeds from maturities of held-
to-maturity securities 3,475,300 1,750,000 1,415,000
Purchase of available-for-sale
securities (3,251,006) (2,610,287) (2,274,086)
Purchase of held-to-maturity
securities (350,000) (1,764,429) (1,823,523)
Net cash flows from loan activities (28,127,800) (15,217,508) (7,572,877)
Additions to premises and equipment (1,304,964) (55,865) (228,994)
----------- ----------- -----------
Net cash from investing activities (28,034,345) (16,802,408) (10,484,480)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in demand deposit, money
market and savings accounts 10,885,123 12,628,386 1,757,521
Increase in certificates of deposit 17,799,843 5,096,295 7,198,332
Federal home loan bank advance -- -- 1,155,400
Repayment of federal home loan bank
borrowings -- (1,155,400) --
Proceeds from issuance of common stock 2,813,668 195,310 18,084
----------- ----------- -----------
Net cash from financing activities 31,498,634 16,764,591 10,129,337
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,074,651 858,023 464,368
CASH AND CASH EQUIVALENTS, beginning
of year 3,886,828 3,028,805 2,564,437
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 8,961,479 $ 3,886,828 $ 3,028,805
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 2,754,959 $ 1,824,838 $ 834,047
=========== =========== ===========
Cash paid during the year for income
taxes $ 539,794 $ 214,862 $ 73,162
=========== =========== ===========
Personal property taken in settlement
of loan obligation $ -- $ 326,237 $ --
=========== =========== ===========
Other real estate owned taken in
settlement of loan obligation $ 43,702 $ -- $ --
=========== =========== ===========
The accompanying notes are an integral part of these financial
statements.
D-15
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The accounting and reporting policies of Towne Bank (the "Bank") conform to
generally accepted accounting principles and prevailing practice within the
banking industry. The Bank is primarily engaged in providing a full range of
banking services to individual and corporate customers through its branches in
Woodinville, Bellevue, Redmond and Renton, Washington. The Bank is subject
to regulation by certain federal and state agencies, and undergoes periodic
examinations by those regulatory authorities.
(a) Investment securities - Investment securities are categorized as held-
to-maturity when the Bank has the positive intent and ability to hold those
securities to maturity. Held-to-maturity securities are stated at cost,
adjusted for amortization of premiums and accretion of discounts. Securities
available-for-sale are stated at estimated fair value. Gains and losses on sale
of securities, recognized on a specific identification basis, are included in
non-interest income. Net unrealized gain or loss on securities available-for-
sale are included, net of tax effects, as a separate component of stockholders'
equity.
The Bank did not have any investment securities categorized as trading
securities at either December 31, 1996 or 1995.
(b) Federal Home Loan Bank Stock - The Bank's investment in Federal Home
Loan Bank (the "FHLB") stock is carried at par value ($100 per share), which
reasonably approximates its fair value. As a member of the FHLB system, the
Bank is required to maintain a minimum level of investment in FHLB stock based
on specified percentages of its outstanding FHLB advances. The Bank may
request redemption at par value of any stock in excess of the amount the Bank
is required to hold. Stock redemptions are at the discretion of the FHLB.
(c) Loans held-for-sale - Government guaranteed Small Business
Administration loans originated and designated as held for sale are carried at
the lower of cost or estimated market value, as determined by quoted market
prices, in aggregate. Net unrealized losses are recognized in a valuation
allowance by charges to income. Gains or losses on the sale of such loans are
based on the specific identification method.
D-16
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
(d) Loans - Loans that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
principal balance outstanding, adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans. Interest
income is accrued as earned.
Loan origination fees and certain direct origination costs are capitalized
and amortized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued interest
is reversed. Interest income is subsequently recognized only to the extent cash
payments are received. Accruals are resumed only when the loan is brought
current, or when, in the opinion of management, the borrower has demonstrated
the ability to resume payments of principal and interest. Interest income on
restructured loans is recognized pursuant to the terms of the new loan
agreement. Interest income on other impaired loans is monitored and based upon
the terms of the underlying agreement. However, the recorded net investment in
impaired loans, including accrued interest, is limited to the present value of
the expected cash flows of the impaired loan or the observable fair value of
the loan or fair value of the loan's collateral.
(e) Allowance for loan losses - Allowance for loan losses is maintained at
a level management believes is adequate to absorb any potential loan, loan and
credit card commitment and standby letter of credit losses. The allowance is
increased by provision charges to operating expense and by recoveries on loans
previously charged-off, and is reduced by charge-offs. The Bank makes regular
credit reviews of the loan portfolio and considers past loan loss experience,
current economic conditions, review of specific problem loans and other factors
in determining the adequacy of the allowance balance.
On January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan.
Under this pronouncement, a loan is impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
Concurrently, the Bank adopted SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures. This statement
amends SFAS No. 114 to require information about certain impaired loans and
their related income recognition. The adoption of these standards did not have
a material effect on the Bank's financial condition or results of
operations.
D-17
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
(f) Bank premises and equipment - Bank premises and equipment are stated at
cost and depreciated using the straight-line method. Depreciation expense is
computed over the following estimated useful lives:
Furniture and equipment 3 - 10 years
Leasehold improvements 3 - 10 years
(g) Goodwill - Goodwill is amortized using the straight-line method over
its estimated useful life of 10 years. Amortized expense on goodwill was
$40,000 for 1996, 1995, and 1994.
(h) Income taxes - The Bank records its provision for income taxes using
the liability method. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax asset or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
(i) Advertising costs - The Bank expenses advertising costs as they are
incurred and are not considered material.
(j) Financial instruments - In the ordinary course of business, the Bank
has entered into off-balance sheet financial instruments consisting of
commitments to extend credit, commitments under credit card arrangements,
commercial letters of credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are funded, or
related fees are incurred or received.
(k) Cash and cash equivalents - For purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from banks and federal
funds sold. Generally, federal funds are purchased and sold for one-day
periods. Investments in federal funds sold are made with major Seattle-area
banks as approved by the Board of Directors. Amounts due from banks represent
balances with the Federal Reserve Bank, the Federal Home Loan Bank and several
Seattle-area commercial banks.
(l) Net income per share - Net income per share of common stock has been
computed on the basis of the weighted-average number of shares of common stock
and common stock equivalents outstanding.
D-18
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
(m) Restricted assets - Federal Reserve Board Regulations require
maintenance of certain minimum reserve balances on deposit with the Federal
Reserve Bank. The amounts of such balances on deposit were approximately
$300,000 and $25,000 at December 31, 1996 and 1995, respectively.
(n) Use of estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates. A material estimate that is particularly susceptible to
significant change relates to the determination of the allowance for loan
losses. While management uses available information to recognize losses on
loans, changes in economic conditions may necessitate revision of the estimate
in future years. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additional losses based
on their judgment of information available to them at the time of their
examination.
(o) Stock option plan - The Bank recognizes the financial effects of stock
options in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). Stock options are issued at
a price that approximates the fair value of the Bank's stock as of the grant
date. Under APB 25, options issued in this manner do not result in the
recognition of employee compensation in the Bank's financial statements.
(p) Reclassifications - Certain amounts in prior year financial statements
have been reclassified to conform with the 1996 presentation.
NOTE 2 - INVESTMENT SECURITIES
The Bank has an investment policy that permits holding only securities
rated in the higher rating categories as established by a nationally recognized
statistical rating organization.
D-19
PAGE
<PAGE>
<TABLE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 2 - INVESTMENT SECURITIES (continued)
The amortized cost and estimated fair values of investment securities at December 31 are as follows:
1996
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale
U.S. Treasury and agency obligations $2,508,782 $ 346 $ (22,846) $2,486,282
Federal Home Loan Bank Stock 827,700 -- -- 827,700
---------- ---------- ---------- ----------
Total available-for-sale 3,336,482 346 (22,846) 3,313,982
---------- ---------- ---------- ----------
Held-to-maturity
U.S. Treasury and agency obligations 637,973 7,625 -- 645,598
Municipal debt obligations 1,819,044 14,542 (4,528) 1,829,058
---------- ---------- ---------- ----------
Total held-to-maturity 2,457,017 22,167 (4,528) 2,474,656
---------- ---------- ---------- ----------
Total investment securities $5,793,499 $ 22,513 $ (27,374) $5,788,638
========== ========== ========== ==========
1995
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
Available-for-sale
U.S. Treasury and agency obligations $3,023,470 $ 19,192 $ (4,985) $3,037,677
Corporate debt obligations 250,507 -- (1,007) 249,500
Federal Home Loan Bank Stock 517,500 -- -- 517,500
---------- ---------- ---------- ----------
Total available-for-sale 3,791,477 19,192 (5,992) 3,804,677
---------- ---------- ---------- ----------
Held-to-maturity
U.S. Treasury and agency obligations 1,483,508 9,884 (2,768) 1,490,624
Municipal debt obligations 1,838,883 29,192 (1,630) 1,866,445
---------- ---------- ---------- ----------
Total held-to-maturity 3,322,391 39,076 (4,398) 3,357,069
---------- ---------- ---------- ----------
Total investment securities $7,113,868 $ 58,268 $ (10,390) $7,161,746
========== ========== ========== ==========
D-20
</TABLE>
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 2 - INVESTMENT SECURITIES (continued)
The amortized cost and estimated fair value of investment securities at
December 31, 1996 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
---------- ----------
Available-for-sale
Due in one year or less $1,825,844 $1,825,530
Due after one year through five years -- --
Due after five years through ten years 1,510,638 1,488,452
Over ten years -- --
---------- ----------
Total available-for-sale $3,336,482 $3,313,982
---------- ----------
Held-to-maturity
Due in one year or less 75,000 75,216
Due after one year through five years 683,270 688,004
Due after five years through ten years 1,100,110 1,102,931
Over ten years 598,637 608,505
---------- ----------
Total held-to-maturity 2,457,017 2,474,656
---------- ----------
Total investment securities $5,793,499 $5,788,638
========== ==========
Proceeds from sales of available-for-sale investment securities were
$1,524,125, $1,095,681, and zero in 1996, 1995, and 1994, respectively.
Gross gains from the sales of available-for-sale investment securities were
$10,736, $9,086, and zero in 1996, 1995, and 1994, respectively. The Bank
incurred gross losses of $959 in 1996, zero in 1995, and zero in 1994.
D-21
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 2 - INVESTMENT SECURITIES (continued)
Investments in municipal debt obligations represent purchases of municipal
bonds located in Washington and Utah. Investments in corporate debt obligations
are made in companies located and doing business throughout the United States.
All of the investments in corporate debt obligations at December 31, 1995,
consisted of investments in companies doing business in the financial services
industry. The debt obligations were all within the credit ratings acceptable
under the Bank's investment policy.
Investment securities with a book value of $835,000 and $703,000 at 1996
and 1995, respectively, have been pledged to secure public deposits as required
by law. The estimated fair value of these pledged securities is $836,000 and
$705,000 at December 31, 1996 and 1995, respectively.
NOTE 3 - LOANS
The Bank originates commercial, real estate and consumer loans primarily in
Snohomish and King Counties, Washington. Although the Bank has a diversified
loan portfolio, local economic conditions affect borrowers' ability to meet the
stated repayment terms. Collateral may, depending on the loan, include accounts
receivable, inventory, equipment and real estate. Loans are originated at both
fixed and variable interest rates.
The major classifications of loans at December 31 are summarized as
follows:
1996 1995
----------- -----------
Commercial $47,600,608 $30,621,726
Real Estate, Commercial 6,401,281 1,884,657
Real Estate, Construction 4,921,057 4,709,721
Real Estate, Mortgage 4,649,827 333,140
Consumer 5,338,563 3,932,316
----------- -----------
68,911,336 41,481,560
Less: deferred loan fees, net 29,380 35,013
----------- -----------
$68,881,956 $41,446,547
=========== ===========
D-22
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 3 - LOANS (continued)
Contractual maturities of loans as of December 31, 1996 are as shown below.
Actual maturities may differ from contractual maturities because individual
borrowers may have the right to prepay loans with or without prepayment
penalties.
Within 1 Year 1 - 5 Years After 5 Years Total
------------- ----------- ------------- -----------
Commercial $38,279,469 $6,452,716 $2,839,043 $47,571,228
Real Estate, Commercial 4,316,268 1,596,794 488,219 6,401,281
Real Estate, Construction 4,921,057 -- -- 4,921,057
Real Estate, Mortgage 3,664,639 779,398 205,790 4,649,827
Consumer 2,219,566 2,907,978 211,019 5,338,563
----------- ----------- ---------- -----------
$53,400,999 $11,736,886 $3,744,071 $68,881,956
=========== =========== ========== ===========
1 - 5 After
Loans Maturing After One Year With: Years 5 Years
----------- ----------
Fixed Rates $11,384,144 $3,744,071
Variable Rates 352,742 --
----------- ----------
$11,736,886 $3,744,071
=========== ==========
At December 31, 1996 and 1995, the Bank had loans amounting to $928,000 and
$583,000 that were specifically classified as impaired with an average balance
of $1,080,000 and $616,000, respectively. The allowance for credit losses
related to these loans was approximately $126,000 and $146,000, respectively.
For the remaining $802,000 and $437,000 of impaired loans, no allocation of the
allowance for possible credit losses was considered necessary. Interest
collected on these loans in cash and included in income was approximately
$150,000 and $24,000 in 1996 and 1995, respectively. If interest on these loans
had been accrued, such income would have approximated $174,400 and $32,000 in
1996 and 1995, respectively. At December 31, 1996 and 1995, there were no
commitments to lend additional funds to borrowers whose loans were classified
as impaired. Interest income recognized on nonaccruing loans during 1994 and
the interest income that would have been accrued under the original terms was
not considered material to the Bank's financial position and results of
operations.
The effects of troubled debt restructurings are not considered material to
the Bank's financial position and results of operations.
D-23
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are summarized as follows:
1996 1995 1994
----------- ----------- -----------
Balance, beginning of year $ 517,923 $ 300,564 $ 180,691
Provision for loan losses 635,000 325,000 147,000
Additions from recoveries 139,041 58,472 132,626
Loans charged off (449,432) (166,113) (159,753)
---------- ---------- ----------
Balance, end of year $ 842,532 $ 517,923 $ 300,564
========== ========== ==========
NOTE 5 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31 consisted of the following:
1996 1995
----------- ------------
Furniture and equipment $ 1,180,290 $ 433,524
Leasehold improvements 778,672 235,330
----------- ------------
1,958,962 668,854
Less: accumulated depreciation 622,089 397,979
----------- ------------
$ 1,336,873 $ 270,875
=========== ============
Depreciation expense on premises and equipment totaled $238,966 in 1996,
$163,764 in 1995, and $106,458 in 1994.
D-24
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 6 - DEPOSITS
Interest bearing deposits at December 31 consisted of the following:
1996 1995
------------ ------------
Demand accounts $ 5,051,960 $ 5,846,940
Money market accounts 14,337,274 7,267,283
Savings accounts 1,832,555 1,795,031
Certificates of deposits over $100,000 14,228,791 5,354,962
Other certificates of deposits 27,126,262 18,200,247
------------ ------------
$ 62,576,842 $ 38,464,463
============ ============
At December 31, 1996, the scheduled maturities of certificates of deposit are
as follows:
1997 $ 34,120,712
1998 5,803,885
1999 41,000
2000 1,389,456
------------
$ 41,355,053
============
NOTE 7 - CREDIT ARRANGEMENTS
The Bank is a member of the Federal Home Loan Bank of Seattle. As a member,
the Bank has a committed line of credit up to 5 percent of total assets, which
matures December 1997. Borrowings generally provide for interest at the then
current published rates. There were no borrowings outstanding at December
31, 1996 and 1995.
D-25
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 7 - CREDIT ARRANGEMENTS (continued)
At December 31, 1996, committed line of credit agreements totaling
approximately $1,750,000 were available to the Bank from unaffiliated banks
with maturities that range from April to November 1997. Such lines generally
provide for interest at the then existing federal funds rate. There were no
borrowings outstanding under these credit arrangements at December 31, 1996.
NOTE 8 - INCOME TAXES
The components of the provision for federal income tax expense for the
years ended December 31, are as follows:
1996 1995 1994
------------ ------------ ------------
Current $ 527,534 $ 272,400 $ 219,400
Deferred (62,534) (21,400) (34,000)
------------ ------------ ------------
$ 465,000 $ 251,000 $ 185,400
============ ============ ============
Deferred taxes result from temporary differences in recognition of income
and expense which are reported in different periods for financial reporting
purposes and for income tax purposes. The sources of the differences and the
resulting deferred income tax provision are as follows at December 31:
1996 1995 1994
------------ ------------ -----------
Allowance for loan losses $ (69,000) $ (58,000) $ (36,000)
Other items, net 6,466 36,600 2,000
------------ ------------ -----------
$ (62,534) $ (21,400) $ (34,000)
============ ============ ===========
A reconciliation of the effective income tax rate with the federal
statutory rate is as follows:
1996 1995 1994
------------ ------------ -----------
Federal income tax at statutory rates $ 465,177 $ 253,011 $ 187,543
Effect of tax-exempt interest income (26,642) (12,978) (599)
Other 26,465 10,967 (1,544)
------------ ------------ -----------
$ 465,000 $ 251,000 $ 185,400
============ ============ ===========
D-26
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 8 - INCOME TAXES (continued)
The following are the significant components of deferred tax assets and
liabilities at December 31:
1996 1995
---------- ----------
Deferred tax assets
Allowance for loan losses $ 201,000 $ 132,000
Other 16,000 4,000
---------- ----------
217,000 136,000
---------- ----------
Deferred tax liabilities
Cash basis reporting 62,000 70,000
Other 17,000 3,000
---------- ----------
79,000 73,000
---------- ----------
Net deferred tax asset $ 138,000 $ 63,000
========== ==========
The Bank believes, based on available information, all deferred assets will
be realized in the normal course of business, therefore, these assets have not
been reduced by a valuation allowance.
NOTE 9 - STOCKHOLDERS' EQUITY & REGULATORY CAPITAL
At December 31, 1995, there were warrants outstanding to purchase 136,644,
shares of the Bank's common stock at $20 per share, which were issued in
connection with the Bank's initial offering. The warrants expired April
30, 1996. On or before April 30, 1996, all warrants were exercised.
D-27
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 9 - STOCKHOLDERS EQUITY & REGULATORY CAPITAL (continued)
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly, additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
During 1995, the Bank restored to the Capital Surplus account $320,000 as
required by an earlier agreement with regulators.
D-28
<PAGE> <PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 9 - STOCKHOLDERS EQUITY & REGULATORY CAPITAL (continued)
The Bank's actual capital amounts and ratios are also presented in the
table:
To Be Well
Capitalized Under
For Capital Prompt Corrective
As of Actual Adequacy Purposes Action Provisions
December 31, ------------------ -------------------- --------------------
1996: Amount Ratio Amount Ratio Amount Ratio
----------- ----- ----------- ----- ----------- -----
Total Capital
(to Risk
Weighted
Assets) $ 8,251,691 11.2% > $ 5,921,627 > 8.0% > $ 7,402,033 > 10.0%
- - - -
Tier I Capital
(to Risk
Weighted
Assets) $ 7,409,159 10.0% > $ 2,960,813 > 4.0% > $ 4,441,220 > 6.0%
- - - -
Tier I Capital
(to average
Assets) $ 7,409,159 10.6% > $ 2,960,813 > 4.0% > $ 3,508,619 > 5.0%
- - - -
As of
December 31,
1995:
Total Capital
(to Risk
Weighted
Assets) $ 4,170,247 9.4% > $ 3,562,653 > 8.0% > $ 4,453,317 > 10.0%
- - - -
Tier I Capital
(to Risk
Weighted
Assets) $ 3,652,324 8.2% > $ 1,781,327 > 4.0% > $ 2,671,990 > 6.0%
- - - -
Tier I Capital
(to average
Assets) $ 3,652,324 8.2% > $ 1,781,327 > 4.0% > $ 2,232,910 > 5.0%
- - - -
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
(a) Financial instruments - The Bank is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the balance sheets.
D-29
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)
The Bank s exposure to credit loss, in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. A summary
of commitments at December 31 as follows:
1996 1995
----------- -----------
Commitments to extend credit $15,491,000 $11,752,000
Credit card lines 1,505,000 1,048,000
Standby letters of credit -- 98,731
----------- -----------
$16,996,000 $12,898,731
=========== ===========
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank's experience has been
that approximately 75% of loan commitments are drawn upon by customers. While
approximately all of commercial letters of credit are utilized, a significant
portion of such utilization is on an immediate payment basis. The Bank
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if it is deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation of the
counterpart. Collateral held varies but may include accounts receivable,
inventory, property and equipment and income producing properties.
D-30
<PAGE>
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held
various as specified above, and is required in instances where the Bank deemed
necessary.
(b) Operating lease commitments - The Bank leases its operating facilities
under agreements which expire between 1997 and 2006. The agreements require the
Bank to pay certain operating expenses. The approximate annual commitment for
rental space under these operating leases is summarized as follows:
Year ending December 31,
---------------------------
1997 $ 308,000
1998 336,000
1999 357,000
2000 355,000
2001 329,000
Thereafter 1,320,000
------------
$ 3,005,000
============
Rental expense charged to operations was $226,933, $182,400, and $81,300
for the years ended December 31,1996, 1995, and 1994, respectively.
NOTE 11 - RELATED PARTY TRANSACTIONS
Certain directors, executive officers, principal stockholders and companies
in which they have a beneficial interest, are loan customers of the Bank. All
loans and loan commitments were made in compliance with applicable laws and
regulations on substantially the same terms (including interest rates and
collateral) as those prevailing at the time for comparable transactions with
other persons and do not involve more than the normal risk of collectability or
present any other unfavorable features.
D-31
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 11 - RELATED PARTY TRANSACTIONS (continued)
Such loans had aggregate balances and activity during 1996, 1995 and 1994
as follows:
1996 1995 1994
---------- ---------- ----------
Balance at beginning of year $ 199,000 $ 195,000 $ 200,000
New loans or advances 464,900 47,500 87,800
Repayments (5,900) (43,500) (92,800)
---------- ---------- ----------
Balance at end of year $ 658,000 $ 199,000 $ 195,000
========== ========== ==========
Deposits from related parties totaled approximately $155,000 and $159,000
at December 31, 1996 and 1995, respectively.
NOTE 12 - EMPLOYEE BENEFITS
Effective January 1992, the Bank adopted a Simplified Employee Pension Plan
(SEP) which covers eligible employees. Contributions by the Bank are
discretionary and funded during the period in which they are committed, upon
approval by the Board of Directors. No contributions were made by the Bank
during 1995 or 1994.
Effective October 1995, the Bank adopted a 401(k) plan (Plan) which covers
eligible employees. This Plan was established to replace the SEP. Under the
Plan, the Bank matches 50% of the first 3% of the employees contribution each
pay period. Matching contributions by the Bank to the 401(k) Plan were $22,082
and $3,142 for 1996 and 1995, respectively.
The Bank also adopted an Employee Stock Purchase Plan during 1995. Under
the Plan, eligible employees may purchase Bank stock up to 10% of their salary
at 90% of the fair value, as determined by the Board of Directors.
Approximately 1,900 shares were purchased by Bank employees during 1996.
D-32
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 13 - STOCK OPTION PLAN
Under the Bank's stock option plan, all employees and directors may be
granted options to purchase its common stock. Generally, options are issued at
a price equal to the fair value of the Bank's stock as of the grant date.
Options generally become immediately exercisable and expire within 5 to 10
years from the date of the grant.
The Bank applies Accounting Principles Board Opinion No.25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plan. Had compensation cost for the Bank's stock
option plan been determined, based upon the fair value at the grant date for
awards under the plan consistent with the methodology prescribed under SFAS No.
123, Accounting for Stock-Based Compensation, the Bank's net income would have
been approximately $794,000 and $387,000 for 1996 and 1995, respectively. The
fair value of the options granted during 1996 and 1995 is estimated as $109,000
and $106,000, respectively, on the date of grant using the BlackScholes
option-pricing model with the following assumptions: dividend none, price
volatility none, risk-free interest rate of 6.43%, assumed forfeiture rate of
1%, and an expected life of 8 years.
Stock option and long-term performance award transactions were:
Weighted
Shares of Common Stock Average of
------------------------ Exercise Price
Available For Under of Shares
Option/Award Plan Under Plan
------------- ------- --------------
Balance, January 1, 1995 94,870 19,870 $ 19.10
Authorized -- -- --
Granted (8,218) 8,218 24.00
Exercised -- (2,025) 18.43
Lapsed --
------------- -------
Balance, December 31, 1995 86,652 26,063 20.69
Authorized -- -- --
Granted (8,408) 8,408 26.00
Exercised -- (1,807) 20.68
Lapsed 106 (106) 24.00
------------- ------- --------------
Balance, December 31, 1996 78,350 32,558 $ 22.05
============= ======= ==============
D-33
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 13 - STOCK OPTION PLAN (continued)
The following table summarizes information concerning currently outstanding
and exercisable options:
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Prices Exercisable Price
- --------- ---------------- ----------- -------- ----------- --------
$15 - $20 16,690 8.00 $ 19.20 16,690 $ 19.20
$20 - $25 7,460 9.00 24.00 7,460 24.00
$25 - $30 8,408 10.00 26.00 8,408 26.00
------ ------
32,558 32,558
====== ======
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Bank using available market
information and appropriate valuation methodologies. However, considerable
judgement is necessary to interpret market data in the development of the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Bank could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The fair value of commitments to customers is not considered material since
they are for relatively short periods of time and subject to customary credit
terms. The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
(a) Cash and due from banks and federal funds sold - For these short-term
instruments, the carrying amount is a reasonable estimate of fair value.
D-34
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
(b) Investment securities and loans held for sale - For securities and
loans held for sale, fair values are based on quoted market prices or dealer
quotes, if available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
(c) Loans - The fair value of loans generally is estimated by discounting
the future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. For certain homogeneous categories of loans, such as Small Business
Administration guaranteed loans, fair value is estimated using the quoted
market prices for securities backed by similar loans, adjusted for differences
in loan characteristics.
(d) Deposits - The fair value of demand deposits, savings accounts, and
certain money market deposits, is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
December 31, 1996 December 31, 1995
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
Assets
Cash and due from banks $ 8,961,479 $ 8,961,479 $ 3,886,828 $ 3,886,828
Investments securities
Available for sale 2,486,282 2,486,282 3,287,177 3,287,177
Held-to-maturity 2,457,017 2,474,656 3,322,391 3,357,069
FHLB stock 827,700 827,700 517,500 517,500
Loans held for sale 636,121 669,767 254,121 266,827
Loans, net 68,039,424 68,039,424 40,928,624 40,928,624
Liabilities
Demand and savings deposits 36,538,356 36,538,356 25,653,234 25,653,234
Time deposits 41,355,053 39,134,562 23,555,209 22,363,091
(e) Limitations - The fair value estimates presented herein are based on
pertinent information available to management as of the applicable date.
D-35
PAGE
<PAGE>
TOWNE BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
While these estimates of fair value are based on management's judgement of
the most appropriate factors, there is no assurance that were the Bank to have
disposed of such items at December 31, 1996, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair value at December
31, 1996 should not necessarily be considered to apply at subsequent dates.
In addition, other assets and liabilities of the Bank that are not defined
as financial instruments are not included in the above disclosures, such as
property and equipment. Also, non-financial instruments typically not
recognized in the financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the trained work force,
customer goodwill, and similar items.
NOTE 15 - SUBSEQUENT EVENT
In September 1996, the Bank's shareholders approved a plan of
reorganization, effective, January 1997, whereby Towne Bancorp, Inc. was formed
and became the sole shareholder of Towne Bank. Concurrently the shareholders
became the owners of Towne Bancorp, Inc.
NOTE 16 - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities in June 1996. The standard becomes effective January 1, 1997,
except for certain requirements for which the required effective date has been
deferred until January 1, 1998. The standard establishes criteria for
distinguishing between sales and secured borrowings of financial assets.
Management believes that provisions of SFAS No. 125 will not have a material
effect on its financial condition and results of operations.
In December 1996, the FASB issued SFAS No. 127, Deferral of the Effective
Date of Certain Provisions of SFAS No. 125, which defers certain requirements
of SFAS No. 125 to 1998.
D-36
PAGE
<PAGE>
TOWNE BANK
CONDENSED CONSOLIDATED BALANCE SHEET
September 30,
1997
-------------
ASSETS (unaudited)
- ------
Cash and Cash Equivalents
- -------------------------
Cash and due from banks $ 5,622,609
Federal funds sold 13,595,000
------------
19,217,609
Investment Securities
- ---------------------
Securities held to maturity 4,643,048
Securities available for sale 1,875,260
------------
6,518,308
Loans 100,750,771
Less: Allowance for loan loss 1,150,989
------------
Net loans 99,599,782
Accrued interest receivable 569,472
Bank premises and equipment 1,202,981
Other assets 995,580
------------
Total assets $128,103,732
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities
- -----------
Deposits:
Demand $ 23,752,093
Savings and interest-bearing demand 26,426,916
Time 66,342,821
------------
Total deposits 116,521,830
Borrowed funds 2,000,000
Accrued interest payable 281,152
Other liabilities 1,070,938
------------
Total liabilities 119,873,920
Stockholders' equity
Common stock, par value
$10.00 per share
authorized 600,000
shares: issued and outstanding
280,681 2,806,810
Surplus 2,979,575
Retained earnings 2,443,427
Unrealized gain on securities
available for sale --
------------
Total stockholders' equity 8,229,812
------------
Total Liabilities and stockholders'
equity $128,103,732
============
D-37
PAGE
<PAGE>
TOWNE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
September 30,
1997 1996
---- ----
Interest Income (unaudited)
- ---------------
Interest and fees on loans $7,623,423 $4,841,444
Investment securities
U.S. Treasury -- 25,917
U.S. Government Agency 46,358 87,720
Obligations of state
and political subdivisions 75,905 66,619
Federal funds sold 130,838 92,769
Other 66,703 97,066
---------- ----------
Total interest income 7,943,227 5,211,535
---------- ----------
Interest Expense
- ----------------
Savings and interest-bearing
demand deposits 699,069 528,201
Time Deposits 2,192,548 1,455,397
Other borrowed money 49,287 55,348
---------- ----------
Total interest expense 2,940,904 2,038,946
---------- ----------
Net interest income 5,002,323 3,172,589
Provision for loan losses 485,000 322,625
---------- ----------
Net interest income after
provision for loan loss 4,517,323 2,849,964
---------- ----------
Other income
- ------------
Service charges 260,488 170,981
Other operating income 284,139 316,576
---------- ---------
Total other income 544,627 487,557
---------- ---------
Other expenses
- --------------
Salaries and employee benefits 1,621,759 1,183,659
Occupancy expense 554,036 357,606
Other operating expense 979,638 683,229
---------- ----------
Total other expense 3,155,433 2,224,494
---------- ----------
Income before income taxes 1,906,517 1,113,027
Income Taxes 660,000 375,000
---------- ----------
Net Income $1,246,517 $ 738,027
========== ==========
Earnings Per Share $4.24 $2.44
========== ==========
D-38
PAGE
<PAGE>
TOWNE BANK
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1997 1996
---- ----
Cash flows from operating activities (unaudited)
- ------------------------------------
Net Income $1,246,517 $ 738,027
Adjustments to reconcile net
income to net cash
provided by operating activities:
(Increase) decrease in accrued
interest receivable (120,634) (102,981)
(Decrease) in accrued interest
payable 73,334 8,783
(Increase) in other assets 78,337 (120,595)
Increase (decrease) in other
liabilities 597,155 555,541
---------- -----------
Total adjustments 603,193 340,748
---------- -----------
Net cash from by operating
activities 1,874,709 1,078,775
Cash flows from Investing activities
- ------------------------------------
Proceeds from maturities of
investment securities available
for sale 1,438,722 --
Purchase of available for sale
securities -- (1,491,853)
Purchase of held to maturity
securities (2,186,031) --
Proceeds from maturities of
investment securities
held to maturity -- 502,783
Proceeds from sale of loans
held for sale -- --
Purchase of bank premises
and equipment
(net of disposal) 133,892 (582,695)
Net (increase) in loans (30,924,237) (21,007,884)
------------ -----------
Net cash from investing
activities (31,537,654) (22,579,649)
Cash flows from financing activities
- ------------------------------------
Net increase (decrease) in demand
deposits 13,640,654 7,515,769
Net increase (decrease) in time
deposits 24,987,767 2,109,302
Net increase in advances from FHLB 2,000,000 0
Proceeds from the issuance of
common stock (709,346) 2,743,508
----------- -----------
Net cash from financing activities 39,919,075 22,368,579
Net (decrease) in cash and cash
equivalents 10,256,130 867,705
- -------------------------------
Cash and cash equivalents at
beginning of period 8,961,479 3,886,828
- ---------------------------- ------------ -----------
Cash and cash equivalents at
end of period $ 19,217,609 $ 4,754,533
- ---------------------------- ============ ===========
Interest paid $ 2,867,571 $ 2,030,163
============ ===========
Income taxes paid $ 690,000 $ 455,664
============ ===========
Other real estate owned taken in
settlement of loan obligation -- $ 43,702
============ ===========
D-39
PAGE
<PAGE>
TOWNE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
Total Unrealized G/L
Stockholders' Common Retained on Securities
Equity Stock Surplus Earnings available for Sale
------------- ----- ----------------- ------------------
Balance at
December
31, 1996 $7,667,642 $2,971,250 $3,514,332 $1,196,910 $(14,850)
- -----------
Dividends
paid 0
Net Income 1,246,517 1,246,517
Issuance of
2,891
common stock
shares 61,463 28,910 32,553
Repurchase of
19,335 common
stock shares (760,660) (193,350) (567,310)
Change in
unrealized
loss on
securities
available
for sale,
net of
deferred
income taxes
of none 14,850 14,850
---------- ---------- ---------- ---------- -------
Balance at
September
30, 1997 $8,229,812 $2,806,810 $2,979,575 $2,443,427 $ --
- ---------- ========== ========== ========== ========== =======
D-40
<PAGE> <PAGE>
TOWNE BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. Financial Statement Presentation
The balance sheets as of September 30, 1997, the statements of income and cash
flows for the nine months ended September 30, 1997 and 1996 and the statement
of stockholders equity for the nine months ended September 30, 1997, have
been prepared by Towne Bancorp, Inc., without audit. In the opinion of
management, all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position, results of operations and
cash flows at September 30, 1997 and for all periods presented have been made.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted in accordance with Article 10 of Regulation S-X.
These financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1996 included
elsewhere herein.
2. Net Income Per Share
Net income per share of common stock is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period (291,217 shares and 233,797 shares for the nine month periods ended
September 30, 1997 and 1996, respectively). No effect has been given to the
unexercised stock options which were 30,590 and 26,563 shares at September 30,
1997 and 1996, respectively.
3. The Merger
On November 24, 1997, First Savings of Washington Bancorp, Inc. (FWWB) and
Towne Bancorp, Inc. entered into an agreement pursuant to which FWWB proposes
to acquire all of the issued and outstanding stock of Towne Bancorp, Inc.
Under the Merger Agreement, no more than 70% of the total consideration to be
paid by First Savings can be made up of First Savings Common Stock and no more
than 49% of the total consideration to be paid by First Savings can be made up
of cash. The ultimate mix of cash and First Savings Common Stock to be
exchanged in the Merger is not currently known nor can it be reasonably
foreseen.
D-40
PAGE
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article XVII of FWWB's Certificate of Incorporation provides for
indemnification of the directors, officers, and employees of FWWB for expenses
(including attorney's fees) actually and reasonably incurred in connection with
the defense or settlement of any threatened, pending or completed action or
suit if such director is successful on the merits or otherwise, or acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interest of FWWB and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacities:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE.
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding if he
or she acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
or her conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection with the defense or settlement of such action or suit if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection therewith.
II - 1
PAGE
<PAGE>
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made (1) by the board of directors
by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the shareholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
or her official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
or her or incurred by him or her any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under this section with respect to the resulting or
surviving corporation as he or she would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee,
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
II - 2
PAGE
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description of Document
- ------- -----------------------
2 Agreement and Plan of Merger dated November 24, 1997 by and between
First Savings Bank of Washington Bancorp, Inc., Towne Bancorp, Inc.
and Towne Bank of Woodinville (incorporated by reference to Appendix
A to the Prospectus/Proxy Statement contained in this Registration
Statement).
5 Opinion of Breyer & Aguggia regarding legality of securities.
8 Form of opinion of Breyer & Aguggia regarding federal income tax
consequences.
23.1 Consent of Breyer & Aguggia (contained in its opinion filed as
Exhibit 5).
23.2 Consent of Breyer & Aguggia as to its tax opinion.
23.3 Consent of Deloitte & Touche LLP, First Savings Bank of Washington
Bancorp, Inc.'s independent auditors.
23.4 Consent of Moss Adams LLP, Towne Bancorp, Inc.'s independent
auditors.
23.5 Consent of Southard Financial.
24 Power of Attorney (contained in the signature page of the
Registration Statement).
99.1 Form of proxy to be mailed to shareholders of Towne Bancorp, Inc.
99.2 Election Form and Letter of Transmittal.
99.3 Rule 438 Consent of S. Rick Meikle.
(b) Financial Statement Schedules
Not applicable.
(c) Reports, Opinions or Appraisals
1. Opinion of Southard Financial (incorporated by reference to
Appendix C to the Prospectus/Proxy Statement).
II - 3
PAGE
<PAGE>
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referred to in Item 20 of
this registration statement, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
II - 4
PAGE
<PAGE>
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of, and
included in the registration statement when it became effective.
II - 5
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Walla
Walla, State of Washington on January 5, 1998.
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC.
By:/s/ Gary Sirmon
Gary Sirmon
President and Chief Executive Officer
and Director
(Principal Executive Officer)
POWER OF ATTORNEY
We, the undersigned directors and officers of First Savings Bank of
Washington Bancorp, Inc., do hereby severally constitute and appoint Gary
Sirmon and D. Allan Roth our true and lawful attorneys and agents, to do any
and all things and acts in our names in the capacities indicated below and to
execute all instruments for us and in our names in the capacities indicated
below which said Gary Sirmon and D. Allan Roth may deem necessary or advisable
to enable First Savings Bank of Washington Bancorp, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the Registration
Statement on Form S-4 relating to the issuance of First Savings Bank of
Washington Bancorp, Inc.'s Common Stock, including specifically but not limited
to, power and authority to sign for us or any of us in our names in the
capacities indicated below the Registration Statement and any and all
amendments (including post-effective amendments) thereto; and we hereby ratify
and confirm all that Gary Sirmon and D. Allan Roth shall do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/s/ D. Allan Roth Executive Vice President and January 5, 1998
D. Allan Roth Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Wilber Pribilsky Director January 5, 1998
Wilber Pribilisky
/s/ Robert D. Adams Director January 5, 1998
Robert D. Adams
PAGE
<PAGE>
/s/ David Casper Director January 5, 1998
David Casper
/s/ Morris Ganguet Director January 5, 1998
Morris Ganguet
/s. Dean W. Mitchell Director January 5, 1998
Dean W. Mitchell
/s/ R. R. Pete Reid Director January 5, 1998
R. R. "Pete" Reid
/s/ Marvin Sundquist Director January 5, 1998
Marvin Sundquist
/s/ Jesse G. Foster Director January 5, 1998
Jesse G. Foster
PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
2 Agreement and Plan of Merger dated November 24, 1997
by and between First Savings Bank of Washington
Bancorp, Inc., Towne Bancorp, Inc. and Towne Bank of
Woodinville (incorporated by reference to Appendix A
to the Prospectus/Proxy Statement contained in this
Registration Statement).
5 Opinion of Breyer & Aguggia regarding legality of
securities.
8 Form of opinion of Breyer & Aguggia regarding federal
income tax consequences.
23.1 Consent of Breyer & Aguggia (contained in its opinion
filed as Exhibit 5).
23.2 Consent of Breyer & Aguggia as to its tax opinion.
23.3 Consent of Deloitte & Touche LLP, First Savings Bank
of Washington Bancorp, Inc.'s independent auditors.
23.4 Consent of Moss Adams LLP, Towne Bancorp, Inc.'s
independent auditors.
23.5 Consent of Southard Financial.
24 Power of Attorney (contained in the signature page of
the Registration Statement).
99.1 Form of proxy to be mailed to shareholders of Towne
Bancorp, Inc.
99.2 Election Form and Letter of Transmittal.
99.3 Rule 438 Consent of S. Rick Meikle.
PAGE
<PAGE>
Exhibit 5
Opinion of Breyer & Aguggia Regarding Legality of Securities
PAGE
<PAGE>
January 5, 1998
Board of Directors
First Savings Bank of Washington
Bancorp, Inc.
10 South First Avenue
Walla Walla, Washington 99362
RE: First Savings Bank of Washington Bancorp,Inc.
Registration Statement on Form S-4
To the Board of Directors:
You have requested our opinion as special counsel for First Savings Bank
of Washington Bancorp, Inc. (the "Corporation"), a Delaware corporation, in
connection with the above- referenced registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended.
In rendering this opinion, we understand that the common stock of the
Corporation will be offered and sold in the manner described in the
Prospectus/Proxy Statement, which is part of the Registration Statement. We
have examined such records and documents and made such examination as we have
deemed relevant in connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common
stock of the Corporation will upon issuance be legally issued, fully paid and
nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the heading "Legal
Opinions."
Very truly yours,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
PAGE
<PAGE>
Exhibit 8
Form of Opinion of Breyer & Aguggia
Regarding Federal Income Tax Consequences
PAGE
<PAGE>
FORM OF FEDERAL TAX OPINION
___________, 1998
Board of Directors
First Savings Bank of Washington Bancorp, Inc.
10 S. First Avenue
Walla Walla, Washington 99362
Board of Directors
Towne Bancorp, Inc.
17530 132nd Avenue, N.E.
Woodinville, Washington 98072
Re: Proposed Merger of Towne Bancorp, Inc. with and into First Savings
Bank of Washington Bancorp, Inc.
Dear Board Members:
You have requested our opinion concerning certain federal income tax
matters in connection with the contemplated merger (the "Holding Company
Merger") of Towne Bancorp, Inc., a Washington corporation ("Towne"), with and
into First Savings Bank of Washington Bancorp, Inc., a Delaware corporation
("FWWB"). The proposed Holding Company Merger will be effected pursuant to the
Agreement and Plan of Merger, dated as of November 24, 1997 (the "Agreement"),
by and among FWWB, Towne, and Towne Bank of Woodinville ("Towne Bank").
Except as otherwise defined herein, all terms defined in the Agreement
shall have the same meaning when used in this opinion.
The essential elements of the transaction are as follows:
(i) Towne will merge with and into FWWB.
(ii) Each outstanding shares of Towne Common Stock will be
converted into the right to receive, at the election of the Towne
shareholder and in accordance with the Agreement, (a) FWWB Common Stock
with cash being paid in lieu of fractional share interests, (b) cash, or
(c) a combination of FWWB Common Stock and cash; provided that, in the
PAGE
<PAGE>
Boards of Directors
First Savings Bank of Washington Bancorp, Inc.
Towne Bancorp, Inc.
_________, 1998
Page 2
aggregate, in no event shall more than 70% nor less than 51% of the
outstanding shares of Towne Common Stock be exchanged for FWWB Common
Stock. In the event that the elections by Towne shareholders do not
result in the required proportions of cash and stock being payable, the
Agreement sets forth a method for the allocation of cash and stock among
Towne shareholders.
(iii) The shares of Towne Common Stock of Towne shareholders
electing and who are allocated FWWB Common Stock automatically will be
converted into shares of FWWB Common Stock. The shares of Towne Common
Stock of Towne shareholders electing cash and who are allocated cash will
be entitled to receive the cash so allocated in exchange for such shares.
Holders of Towne Common Stock who make no election as between cash and
FWWB Common Stock will receive that portion of cash and FWWB Common Stock
as determined by Towne in implementing allocation procedures set forth in
the Agreement. Cash will be paid in lieu of fractional shares.
(iv) Following the Holding Company Merger, Towne Bank will continue
as a subsidiary of FWWB.
* * * * *
In rendering our opinion, we have examined and relied upon but have not
independently verified the accuracy and completeness of, the facts,
information, covenants and representations contained in the Agreement, the Form
S-4 Registration Statement filed by FWWB with the Securities and Exchange
Commission of January __, 1998 (the "Registration Statement"), and such other
documents as we have deemed necessary or appropriate as a basis for our
opinion. In addition, we have relied upon certain representation letters
furnished to us by FWWB and Towne. Where such statements and representations
are made to the best knowledge and belief of the person making such statement
or representation, we have assumed the facts to be as so stated and
represented. We have also assumed that the Holding Company Merger will be
consummated in accordance with the Agreement and Registration Statement. Our
opinion is conditioned on the initial and continuing accuracy of such facts,
information, covenants, representations, statements and assumptions.
In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the Code ), Treasury
Regulations promulgated thereunder, pertinent judicial authorities, and
interpretive rulings as we have considered relevant. Statutes, regulations,
judicial decisions and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A material
PAGE
<PAGE>
Boards of Directors
First Savings Bank of Washington Bancorp, Inc.
Towne Bancorp, Inc.
_________, 1998
Page 3
change in the authorities upon which our opinion is based could affect our
conclusions.
* * * * *
Based solely upon the foregoing, we are of the opinion that under current
law for federal income tax purposes:
(i) The Holding Company Merger will qualify as a "reorganization"
under Section 368(a) of the Code. Towne and FWWB will each be a party to
a reorganization within the meaning of Section 368(b) of the Code.
(ii) No gain or loss will be recognized by a Towne shareholder upon
the exchange of Towne Common Stock solely for FWWB Common Stock.
(iii) Any gain realized by a Towne shareholder who receives FWWB
Common Stock and cash (excluding any cash received in lieu of a fractional
share of FWWB Common Stock) in exchange for Towne Common Stock pursuant to
the Holding Company Merger will be recognized in an amount not in excess
of the amount of the cash received (excluding any cash received in lieu of
a fractional share of FWWB Common Stock), such gain will be capital gain
unless the receipt of the cash has the effect on the distribution of a
dividend, and any loss on the exchange will not be recognized.
(iv) The basis of the FWWB Common Stock received by a Towne
shareholder pursuant to the Holding Company Merger will be the same as the
basis of the Towne Common Stock exchanged therefor, decreased by the
amount of cash received, if any (excluding any cash received in lieu of a
fractional share of FWWB Common Stock), and increased by the amount of
gain, if any, recognized on the exchange.
(v) The holding period of the FWWB Common Stock received by a Towne
shareholder pursuant to the Holding Company Merger will include the
holding period of the Towne Common Stock exchanged therefor; provided the
Towne Common Stock is held as capital asset by the shareholder at the
Effective Time of the Holding Company Merger.
(vi) A Towne shareholder who receives cash in lieu of a fractional
share of FWWB Common Stock will recognize gain or loss equal to the
difference between the cash received and the shareholder s basis in that
fractional share, and the gain or loss will be capital gain or loss if the
<PAGE> <PAGE>
Boards of Directors
First Savings Bank of Washington Bancorp, Inc.
Towne Bancorp, Inc.
_________, 1998
Page 4
fractional share would have been a capital asset in the hands of the
shareholder.
(vii) Cash received by a Towne shareholder who has elected pursuant
to a Cash Election to receive only cash and has received only cash will be
treated as a distribution in redemption of the Towne Common Stock held by
that shareholder, subject to the provisions and limitations of Section 302
of the Code.
* * * * *
Except as set forth above, we express no opinion as to the federal, state,
local or foreign consequences of the Holding Company Merger or of any
transactions related thereto.
This opinion is solely for your benefit and is not to be used, quoted,
circulated or otherwise referred to without our express written permission.
Very truly yours,
BREYER & AGUGGIA
PAGE
<PAGE>
Exhibit 23.2
Consent of Breyer & Aguggia
as to its Tax Opinion
PAGE
<PAGE>
January 5, 1998
Board of Directors
First Savings Bank of Washington
Bancorp, Inc.
10 South First Avenue
Walla Walla, Washington 99362
RE: First Savings Bank of Washington Bancorp,Inc.
Registration Statement on Form S-4
To the Board of Directors:
We hereby consent to the filing of the form of our federal
tax opinion as an exhibit to the Registration Statement and to
the reference to us in the Prospectus/Proxy Statement included
therein under the headings "THE MERGER -- Certain Federal Income
Tax Consequences" and "LEGAL OPINIONS."
Sincerely,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE> <PAGE>
Exhibit 23.3
Consent of Deloitte & Touche LLP
First Savings Bank of Washington Bancorp, Inc.'s Independent Auditors
PAGE
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
First Savings Bank of Washington Bancorp, Inc. on Form S-4 of our report dated
May 9, 1997 incorporated in the Annual Report on Form 10-K of First Savings
Bank of Washington Bancorp, Inc. for the year ended March 31, 1997 and to the
reference to us under the heading "Experts" in the Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
January 5, 1998
PAGE
<PAGE>
Exhibit 23.4
Consent of Moss Adams, LLP,
Towne Bancorp, Inc.'s Independent Auditors
PAGE
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 13, 1997 with respect to the financial
statements of Towne Bank, as of and for the year ended December 31, 1996 and
1995 and the three years in the period ended December 31, 1996, included in the
Registration Statement (Form S-4) of First Savings Bank of Washington Bancorp,
Inc.
/s/ Moss Adams LLP
Everett, Washington
January 5, 1998
PAGE
<PAGE>
Exhibit 23.5
Consent of Southard Financial
PAGE
<PAGE>
CONSENT OF SOUTHARD FINANCIAL
We hereby consent to the inclusion in this registration statement on Form S-4
of our opinion dated November 21, 1997, and to all references to our firm in
the registration statement.
SOUTHARD FINANCIAL
January 2, 1998 /s/ Douglas K. Southard
Douglas K. Southard
PAGE
<PAGE>
Exhibit 99.1
Form of Proxy to Be Mailed
to Shareholders of Towne Bancorp, Inc.
PAGE
<PAGE>
REVOCABLE PROXY
TOWNE BANCORP, INC.
- -----------------------------------------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
, 1998
- -----------------------------------------------------------------------------
The undersigned hereby appoints ___________________________________________
with full powers of substitution, as attorneys and proxies for the undersigned,
to vote all shares of common stock of Towne Bancorp, Inc. ("Towne") which the
undersigned is entitled to vote at the Special Meeting of Shareholders, to be
held at ________________, on _______, __________, 1998, at _:00 _.m., local
time, and at any and all adjournments thereof, as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1. A proposal to approve the Agreement and Plan [] [] []
of Merger, dated as of November 24, 1997, by and
among First Savings Bank of Washington Bancorp, Inc.
("FWWB"), Towne and Towne Bank of Woodinville,
pursuant to which Towne would merge into FWWB
and each outstanding share of Towne common stock
would be converted into the right to receive either
$91.62 in cash, 3.85 shares of FWWB common stock
or a combination of cash and stock, all on and subject
to the terms and conditions contained therein.
2. In their discretion, upon such other matters as may
properly come before the meeting.
The Board of Directors recommends a vote "FOR" the above proposal.
- ----------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- ----------------------------------------------------------------------------
PAGE
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof and after notification to the Secretary of Towne
at the Special Meeting of the shareholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed terminated and of
no further force and effect.
The undersigned acknowledges receipt from Towne prior to the execution of
this proxy of notice of the Meeting, the Prospectus/Proxy Statement dated
___________, 1998.
Dated:______________, 1998
- -------------------------- ------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- -------------------------- ------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder must sign.
- ----------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
- ----------------------------------------------------------------------------
<PAGE>
<PAGE>
Exhibit 99.2
Election Form and Letter of Transmittal
PAGE
<PAGE>
ELECTION FORM AND LETTER OF TRANSMITTAL
To accompany certificates of Common Stock, par value $10.00 per share, of Towne
Bancorp, Inc.
- -------------------------------------------------------------------------------
DESCRIPTION OF SHARES SURRENDERED (Please fill in. Attach separate
schedule if needed)
- -------------------------------------------------------------------------------
Name(s)and Address of Registered
Holder(s) If there is any error
in the name or address shown below,
please make the necessary corrections Certificate No(s) Number of Shares
- -------------------------------------------------------------------------------
TOTAL SHARES
- -------------------------------------------------------------------------------
Mail or deliver this Election Form and Letter of Transmittal, or a facsimile,
together with the certificate(s) representing your shares, to the Exchange
Agent: American Securities Transfer & Trust, Inc.
By Mail or Overnight Delivery: For Information Call: (303) 234-5300
American Securities Transfer & Trust, Inc.
938 Quail Street, Suite 101
Lakewood, Colorado 80215
Method of delivery of the certificate(s) is at the option and risk of the owner
thereof. See Instruction 3.
ELECTION DEADLINE IS 5:00 P.M., MOUNTAIN TIME, ON __________, 1998
If your Certificate(s) has been lost, stolen, misplaced or mutilated contact
the Exchange Agent at the number above. See Instruction 7.
Pursuant to the terms of the Agreement and Plan of Merger dated as of November
24, 1997 ("Agreement") by and between First Savings Bank of Washington
Bancorp, Inc. ("FWWB"), Towne Bancorp, Inc. ("Towne") and Towne Bank of
Woodinville, upon consummation of the merger of FWWB and Towne, each
share of Towne Common Stock will be converted into the right to receive either
$91.62 in cash, 3.85 shares of FWWB Common Stock, or a combination of
cash and shares of FWWB Common Stock. Towne shareholders are being given the
opportunity to elect the form of consideration to be received in the merger.
For a full discussion of the merger and effect of this election, see the Proxy
Statement/Prospectus dated ____________, 1998.
This election governs the consideration that you, as a shareholder of Towne,
will receive if the merger is approved and consummated. This election
may also affect the income tax treatment of the consideration that you receive.
Complete the box below to make an election (i) to have all of your shares of
Towne Common Stock converted into the right to receive 3.85 shares of FWWB
Common Stock, (a "Stock Election"), OR (ii) to have all of your shares of Towne
Common Stock converted into the right to receive $91.62 (a "Cash
Election"), OR (iii) to have the indicated percentage of your shares of Towne
Common Stock converted into the right to receive $91.62 and the remainder
of your shares converted into the right to receive 3.85 shares of FWWB Common
Stock ("Partial Cash and Stock Election") OR (iv) to indicate that you make
no election. If the "NON-ELECTION" box is checked, you will receive either
stock or cash or a combination of stock or cash pursuant to the proration and
allocation procedures set forth in the Merger Agreement after all Stock
Elections, Cash Elections and Partial Cash and Stock Elections have been given
effect.
- -------------------------------------------------------------------------------
ELECTION
I hereby elect to receive the following as consideration for my shares of
Towne Common Stock:
(check only one box)
[ ] STOCK ELECTION - Each shares of Towne Common Stock converted into
3.85 shares of FWWB Common Stock.
[ ] CASH ELECTION - Cash payment of $91.62 per share.
[ ] PARTIAL CASH AND STOCK ELECTION - _____% (insert number not exceeding
100) of shares of Towne Common Stock exchanged for $91.62 per share
and the remainder of shares of Towne Common Stock converted into 3.85
shares of FWWB Common Stock.
[ ] NON-ELECTION
You will be deemed to have made a NON-ELECTION if:
A. No choice is indicated above;
B. You fail to follow the instructions on this Election Form and Letter
of Transmittal (including submission of your Towne Common Stock
certificates) or otherwise fail properly to make an election; or
C. A completed Election Form and Letter of Transmittal (including
submission of your Towne Common Stock certificates) is not actually
received by the Election Deadline.
- -------------------------------------------------------------------------------
PAGE
<PAGE>
The number of shares of FWWB to be issued in the merger is fixed within a
range under the terms of the Agreement. Accordingly, no assurance can be given
that an election by any given stockholder can be accommodated. If the
aggregate elections are not within the ranges specified in the Agreement, the
election of each Towne stockholder will be subject to the allocation procedures
set forth in the Agreement.
To be effective, this Election Form and Letter of Transmittal must be
properly completed, signed and delivered to the Exchange Agent at the address
above prior to the Election Deadline.
The undersigned represents that I (we) have full authority to surrender without
restriction the certificate(s) for exchange. Please issue the new
certificate and/or check in the name shown above to the above address unless
instructions are given in the boxes below.
- ------------------------------------- --------------------------------------
SPECIAL ISSUANCE/PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
- ------------------------------------- --------------------------------------
Complete ONLY if the new certificate Complete ONLY if the new certificate
and/or check is to be issued in a and/or check is to be mailed to some
name which differs from the name on address other than the address
the surrendered certificate(s). reflected above. Mail to:
Issue to: Name: ___________________________
Name: ___________________________ Address: ________________________
Address: ________________________ _________________________________
_________________________________
(Please also complete Substitute
Form W-9 on page 4 AND
see instructions regarding signature
guarantee. See Instructions 5, 6 & 9)
- ------------------------------------- --------------------------------------
YOU MUST SIGN IN THE BOX BELOW. Also: Sign and provide your tax ID number
on page 4 of this form.
- ------------------------------------- --------------------------------------
SIGNATURE(S) REQUIRED SIGNATURE(S) GUARANTEED (IF REQUIRED)
Signature(s) of Registered Holder(s) See Instruction 5.
or Agent
- ------------------------------------- --------------------------------------
Must be signed by the registered Unless the shares are tendered by
holder(s) EXACTLY as name(s) the registered holder(s) of the
appear(s) on stock certificate(s). common stock, or for the account
If signature is by a trustee, of a member of a "Signature
executor, administrator, guardian, Guarantee Program" ("STAMP"),
attorney-in-fact, officer for a Stock Exchange Medallion Program
corporation acting in a fiduciary or ("SEMP") or New York Stock Exchange
representative capacity, or other Medallion Signature Program ("MSP")
person, please set forth full title. (an "Eligible Institution"), the
See Instructions 4, 5, or 6. above signature(s) must be
guaranteed by an Eligible
____________________________________ Institution. See Instruction 5.
Registered Holder
____________________________________
____________________________________ Authorized Signature
Registered Holder
____________________________________
____________________________________ Name of Firm
Title, if any
____________________________________
Date:________ Phone No.:__________ Address of Firm - Please Print
- ------------------------------------- --------------------------------------
PAGE
<PAGE>
INSTRUCTIONS
------------
(Please read carefully the instructions below)
1. Election Deadline. For any election contained herein to be considered,
this Election Form and Letter of Transmittal, or a facsimile thereof, properly
completed and signed, and the related Towne Common Stock certificates, must be
received by the Exchange Agent at the address on the front of this Election
Form and Letter of Transmittal no later than 5:00 P.M., MOUNTAIN TIME, ON
___________, 1998. The Exchange Agent, in its sole discretion, will determine
whether any Election Form and Letter of Transmittal is received on a timely
basis and whether an Election Form and Letter of Transmittal has been properly
completed.
2. Revocation or Change of Election Form. Any Election Form and Letter of
Transmittal may be revoked or changed by written notice from the person
submitting such Election Form and Letter of Transmittal to the Exchange Agent,
but to be effective such notice must be received by the Exchange Agent at or
prior to the Election Deadline. The Exchange Agent will have discretion to
determine whether any revocation or change is received on a timely basis and
whether any such revocation or change has been properly made.
3. Method of Delivery: Your old certificate(s) and the Election Form
and Letter of Transmittal must be sent or delivered to the Exchange Agent.
Do not send them to FWWB. The method of delivery of Certificates to be
- ------------------------
surrendered to the Exchange Agent is at the option and risk of the surrendering
shareholder. Delivery will be deemed effective only when received. If the
certificate(s) are sent by mail, registered mail with return receipt requested
and properly insured, is suggested. A return envelope is enclosed.
4. New Certificate issued in the Same Name: If the new certificate and/or
check is issued in the same name as surrendered certificate is registered, the
Election Form and Letter of Transmittal should be completed and signed exactly
as the surrendered certificate is registered. Do not sign the Certificate(s).
------------------------------
Signature guarantees are not required if the certificate(s) surrendered
- -------------------------------------
herewith are submitted by the registered owner of such shares who has not
completed the section entitled "Special Issuance Instructions" or are for the
account of an Eligible Institution. If any of the shares surrendered hereby
are owned by two or more joint owners, all such owners must sign this Election
Form and Letter of Transmittal exactly as written on the face of the
certificate(s). If any shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Election Forms as there are different registrations. Election Forms
executed by trustees, executors, administrators, guardians, officers of
corporations, or others acting in a fiduciary capacity who are not identified
as such in the registration must be accompanied by proper evidence of the
signer's authority to act.
5. New Certificate issued in Different Name: If the section entitled
"Special Issuance/Payment Instructions" is completed then signatures on this
Letter of Transmittal must be guaranteed by a firm that is a bank, broker,
dealer, credit union, savings association or other entity which is a member in
good standing of the Securities Transfer Agents' Medallion Program (each an
"Eligible Institution"). If the surrendered certificates are registered in the
name of a person other than the signer of this Election Form and Letter of
Transmittal, or if issuance is to be made to a person other than the signer of
this Election Form and Letter of Transmittal, or if the issuance is to be made
to a person other than the registered owner(s), then the surrendered
certificates must be endorsed or accompanied by duly executed stock powers, in
either case signed exactly as the name(s) of the registered owners appear on
such certificate(s) or stock power(s), with the signatures on the
Certificate(s) or stock power(s) guaranteed by an Eligible Institution as
provided herein.
6. Special Issuance and Delivery Instructions: Indicate the name and
address in which the new certificate and/or check is to be sent if different
from the name and/or address of the person(s) signing this Election Form and
Letter of Transmittal. The shareholder is required to give the social security
number or employer identification number of the record owner of the Shares. If
Special Issuance Instructions have been completed, the shareholder named
therein will be considered the record owner for this purpose.
PAGE
<PAGE>
7. Letter of Transmittal Required: Surrender of Certificate(s), Lost
Certificate(s): You will not receive your new certificate and/or check unless
and until you deliver this Election Form and Letter of Transmittal, properly
completed and duly executed, to the Exchange Agent, together with the
certificate(s) evidencing your shares and any required accompanying evidences
of authority. If your certificate(s) has been lost, stolen, misplaced or
destroyed, contact the Exchange Agent for instructions at (303) 234-5300 prior
to submitting your certificates for exchange.
8. Termination of Merger. In the event of termination of the Agreement,
the Exchange Agent will promptly return stock certificates representing shares
of Towne Common Stock. In such event, shares of Towne Common Stock held
through the Depository Trust Company are expected to be available for sale or
transfer promptly following FWWB's decision not to act so as to prevent the
termination of the Reorganization Agreement. Certificates representing shares
of Towne Common Stock held directly by Towne stockholders will be returned by
registered mail (with attendant delay). The Exchange Agent and FWWB have
agreed to use their commercially reasonable efforts to cooperate with Towne and
Towne stockholders to facilitate return of certificates representing shares of
Towne Common Stock in the event of such termination, but return other than by
registered mail will only be made at the expense, written direction and risk of
Towne stockholders, accompanied by a pre-paid, pre-addressed return courier
envelope sent to the Exchange Agent.
9. Substitute Form W-9: Under the Federal income tax law, a non-exempt
shareholder is required to provide the Exchange Agent with such shareholder's
correct Taxpayer Identification Number ("TIN") on the Substitute Form W-9
below. If the certificate(s) are in more than one name or are not in the name
of the actual owner, consult the enclosed Substitute Form W-9 guidelines for
additional guidance on which number to report. Failure to provide the
information on the form may subject the surrendering shareholder to 31% federal
income tax withholding on the payment of any cash. The surrendering
shareholder must check the box in Part III if a TIN has not been issued and the
shareholder has applied for a number or intends to apply for a number in the
near future. If a TIN has been applied for and the Exchange Agent is not
provided with a TIN before payment is made, the Exchange Agent will withhold
31% on all payments to such surrendering shareholders of any cash consideration
due for their former shares of Towne Common Stock. Please review the enclosed
Guidelines for Certification of Taxpayers Identification Number on Substitute
Form W-9 for additional details on what Taxpayer Identification Number to give
the Exchange Agent.
PAYER: AMERICAN SECURITIES TRANSFER & TRUST, INC.
- -------------------------------------------------------------------------------
SUBSTITUTE Form W-9 / Part I - PLEASE PROVIDE / Social Security No.
Department of the Treasury / YOUR TIN IN THE SPACE AT / or Employer
Internal Revenue Service / THE RIGHT AND CERTIFY BY / Identification No.
Payer's Request for / SIGNING AND DATING BELOW / _____________________
Taxpayer Identification ----------------------------------------------------
Number (TIN) / Part II - For Payees exempt from / Part III
/ from backup withholding, see the / Awaiting
/ enclosed Guidelines For / TIN: []
/ Certification of Taxpayers /
/ Identification Number on /
/ Substitute Form W-9 and /
complete as instructed therein.
- -------------------------------------------------------------------------------
Certification - Under penalties of perjury, I certify that: (1) The
Number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and (2) I am not
subject to backup withholding either because I have not been notified by
the Internal Revenue Service (IRS) that I am subject to backup withholding
as a result of a failure to report all interest or dividends, or the IRS
has notified me that I am no longer subject to backup withholding.
Certification Instructions - You must cross out item (2) above if you
have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you were subject to backup
withholding, you received another notification from the IRS that you were
no longer subject to backup withholding, do not cross out item (2).
Also see instructions in the enclosed Guidelines.
- -------------------------------------------------------------------------------
/
/ Signature
PLEASE SIGN HERE /
/
/ -----------------------------------
/
/ Date:___________________
- -------------------------------------------------------------------------------
PAGE
<PAGE>
Exhibit 99.3
Rule 438 Consent of S. Rick Meikle
PAGE
<PAGE>
CONSENT OF DIRECTOR DESIGNATED
TO SERVE ON THE BOARD OF DIRECTORS OF
FIRST SAVINGS BANK OF WASHINGTON BANCORP, INC.
The undersigned hereby consents, pursuant to Rule 438 under the
Securities Act of 1933, as amended, to the reference to him under the captions
"Summary -- Interest of Certain Persons in the Merger" and "The Merger --
Interest of Certain Persons in the Merger" in the Prospectus/Proxy Statement
constituting part of First Savings Bank of Washington Bancorp, Inc.'s
Registration Statement on Form S-4.
/s/ S. Rick Meikle
----------------------
S. Rick Meikle
Dated: January 5, 1998
<PAGE>
